But a combination of official inaction and some well-timed legal footwork allowed the alleged crime boss to avoid charges of tax fraud – and quash his formidable multimillion-rand tax bill.

The conflict with SARS started with Stanfield’s 2018 claims for refunds that somewhat suspiciously came to precisely his outstanding tax debt – R15.8-million.

In other words, a clean slate based on what a SARS investigator soon found to be rooted in fraudulent claims of employment income tax paid.

At the time, Stanfield was already facing charges related to a massive gun-licence racket (later withdrawn). With SARS on his case, both his alleged burgeoning criminal enterprise and business empire were at risk of taking a massive financial knock.

Perhaps more importantly, SARS’s evidence could potentially have led to an Al Capone-style takedown (given that in South Africa tax fraud has attracted jail sentences of as much as 15 years).

The infamous 1920s American crime boss was convicted on strategic tax evasion charges instead of the slew of violent crimes he was otherwise accused of.

This was not to be the case with Stanfield – a lost opportunity which, with hindsight, could potentially have prevented a laundry list of subsequent violent crimes within the Cape Town underworld Stanfield is accused of orchestrating from 2019 onwards. As things stand, he and his criminally co-accused wife, Nicole Johnson, are due to go on trial in the Western Cape High Court in October alongside 12 of their alleged associates. The group, which is in prison awaiting trial, has been charged under the Prevention of Organised Crime Act for, among other alleged crimes, murder and attempted murder.

They are accused of trying to kill Joel Booysen, the son of alleged Sexy Boys gang leader, Jerome “Donkie” Booysen; and of the murders of Hard Livings gang boss, Rashied Staggie, 27s gang leader William “Red” Stevens, off-duty police officer, Sergeant Faizel Adams, gangster Ismail Abrahams, and City of Cape Town housing official Wendy Kloppers.

These murders occurred well after the opportunity for possible tax charges against Stanfield arose.

This missed opportunity to try and “Al Capone” Stanfield flows from the case for criminal prosecution SARS already constructed in 2019, unaccountably languishing for two years until 2021 when the death of Stanfield’s accountant Jacques Francois de Villiers torpedoed any prospect of a successful conviction.

While speculative, sources with knowledge of current criminal investigations into Stanfield believe that, had SARS acted swiftly against him when they had the opportunity, there was a very real chance that Stanfield could have been imprisoned years ago, with the murder and mayhem that he allegedly unleashed across Cape Town potentially averted.

The affair seems to underline the possible consequences of the revenue service’s consistent preference for chasing tax debts over using its formidable investigative powers to criminally prosecute fraud.

As we will see, SARS did aggressively challenge Stanfield’s refund claims and launched an investigation, rapidly discovering the alleged tax evasion and fraud. It denied his refunds but then seemingly shelved the matter, happy to have saved some money. Meanwhile, Stanfield’s unpaid tax debt ballooned to R31.65-million due to the revenue service imposing a 100% penalty.

But this brings us to a second apparent failure on SARS’s part.

As it turns out, even after failing to secure his refunds, Stanfield had little reason to be concerned about his tax debt. A series of sequestration applications against him and two family trusts effectively extinguished this staggering enlarged debt not long afterwards.

There are red flags around these possibly “friendly” sequestration applications, not least that they were brought by his own accountant while the apparent sale of assets to friends and family muddied the waters, which we will get into. This circumstantial evidence suggests the sequestrations may have been orchestrated specifically to get around the tax debt.

And SARS seemingly missed the boat yet another time by not exercising its rights as a major creditor to pry open Stanfield’s financial affairs, as it was entitled to, by failing to demand an insolvency enquiry.

Stanfield and the trustees of his two trusts — Johnson, her mother Barbara Johnson, and Kevin Kiewitz — failed to respond to amaBhungane’s questions that were sent via email and WhatsApp.

The hapless accountant

Stanfield’s now-deceased accountant De Villiers is central to both parts of this story – the alleged fraud and the fortuitous sequestrations.

An affidavit deposed on 29 January 2019 by an investigator within the SARS Tax and Customs Enforcement Division shows that on 13 March 2018, De Villiers filed the first of two dodgy income tax refund claims.

A mere two weeks later, a SARS auditor, however, issued Stanfield with an audit notice demanding “proof of the payments made by him [Stanfield] to validate the PAYE credit of R5.27-million …”

Instead of proof, the accountant contacted SARS by phone and claimed that the suspicious tax return was “loaded in error”.

However, a week or so later De Villiers wrote to the revenue service to claim instead that the return was actually “not created, prepared or submitted” by his bookkeeping company, according to the SARS affidavit.

The SARS auditor nonetheless proceeded to interrogate the tax return and found that it was seemingly based entirely on a blatant lie.

The ‘return’ included a PAYE refund claim related to Stanfield’s supposed employment. The tax reference number for the supposed employer however, belonged to a closed corporation called Kufa Trading Engineering – a Limpopo company that had ceased trading in 2015 – a full three years before Stanfield had allegedly worked at the business.

“The auditor contacted Mr Hawman of Kufa Trading who indicated in writing that he does not know the taxpayer,” states the SARS affidavit.

“At this point the auditor informed the taxpayer that SARS was disallowing the … R5.27-million claimed.”

De Villiers was however sticking to his guns about it all being some kind of problem with the e-filing system.

According to the affidavit, De Villiers agreed with the auditor’s findings, but maintained that no penalties should be imposed as Stanfield had “no control over the SARS e-filing system … and that [a] mistake on the e-filing system allowed for the submission …”.

Two months later, on 24 July 2018, Stanfield (or rather, it seems, De Villiers) submitted yet another allegedly fraudulent income tax refund claim, this time for a R10.55-million refund for the 2019 tax year.

This submission was premature, and Stanfield did not actually qualify for early submission – perhaps indicating an urgent need for cash.

Nonetheless, the SARS affidavit shows that the same SARS auditor received Stanfield’s claim and once again demanded Stanfield provide proof to justify his refund request. As before, the PAYE being claimed was from a job Stanfield in fact never had.

Now De Villiers’s excuses expanded to include the possibility that his e-filing profile had been “hacked” because, as before, it supposedly wasn’t him who filed the tax return.

The SARS auditor met with both the accountant and Stanfield himself but, according to SARS’s affidavit, Stanfield refused to answer questions and instead pleaded poverty, saying  that “he had lost all his businesses and that SARS should lock him up”.

SARS alleged that its auditor had established that De Villiers, despite denials, had in fact uploaded both of Stanfield’s income refund claims.

“Considering the PAYE credits claimed for the 2018 and 2019 tax years had the effect that the entire tax debt of the taxpayer for the relevant tax years was eliminated tends to indicate that this was a deliberate act by the taxpayer and not a random systems error,” the SARS investigator wrote.

He concluded that Stanfield and De Villiers had breached the Tax Administration Act by committing tax evasion and fraud. Yet, despite these seemingly well-founded accusations, nothing more was seemingly done other than deny the refunds Stanfield requested via De Villiers.

 And parallel events seem to show that the mounting tax bill could in any case be evaded through other means.

Sequestrations

In between the dodgy tax refund claims, three sequestration applications were launched. One against Stanfield himself as well as another against the Ralph Israel Stanfield Family Trust and yet another against the similarly named Stanfield Family Trust.

Of these, the sequestration of Stanfield’s personal estate was by far the most consequential, although the way the trusts were dealt with also raises questions.

The sequestration of an individual or trust has the same effect as the liquidation of a company. Creditors’ claims get frozen, and a process ensues to sell off assets to try and recover whatever is possible to cover at least some part of outstanding debts – including tax debts.

There is always a risk that assets are hidden or dissipated so that creditors end up receiving “dividends” of only a portion of their actual claims on the estate.

And SARS’s claim could reach not only Stanfield himself but also his trusts, which can legally be treated as either an “extension” of a taxpayer or as a veil over assets that can be used to settle tax debts.

A proviso before we continue: We cannot prove conclusively that the sequestrations were orchestrated by Stanfield, who would have had to rally small friendly creditors and possibly even the court-appointed insolvency trustees tasked with ascertaining the value and distribution of assets.

That said, the stars did conspicuously align for him while related parties seem to have driven much of the process.

And ultimately it resulted in SARS managing to claw back far less than 1% of the massive punitive R31-million tax charge against Stanfield.

As with the ill-fated attempts to score tax refunds, the key Stanfield adjutant was De Villiers.

The accountant was involved in all three sequestration applications.

In each case it was his own invoices for accounting services that pushed the trusts and Stanfield over the line into insolvency or at least gave him standing to bring the applications.

De Villiers’s attorney, Ruben Healley, who acted in all three sequestration applications against Stanfield and the two trusts, denied that the sequestrations were a sham.

He also said there was nothing untoward in the fact that he later represented Stanfield in his successful rehabilitation application to exit sequestration.

“I received instructions from and consulted with De Villiers, who was the bookkeeper at the time, and who simply indicated to me that his client and trusts needed to be sequestrated due to apparent insolvency.

“Applications were thereafter drafted in accordance with the instructions and information received from De Villiers. Subsequent sequestration orders were granted and obtained as requested.”

Healley described his relationship with De Villiers on his Facebook page after the accountant’s untimely death during the Covid epidemic in 2021: “Jacques, my friend and mentor. I loved you like a brother.”

He told amaBhungane, “I was not aware, and was not made aware, of any of the allegations in regards to tax fraud prior, during or subsequent to the conclusion of my mandate by De Villiers, or anyone for that matter.”

“I was acting bona fides upon instructions and information received from Mr De Villiers to attend to the sequestration applications. What transpired after that, I not only have no knowledge of but also had no duty to investigate and/or instructions to query, as that falls within the responsibilities of the appointed Trustees.”

Take one

The first sequestration application in July 2018 targeted the Ralph Israel Stanfield Family Trust.

It was brought in the midst of Stanfield’s attempt to get refunds out of SARS and revolved around the relatively paltry sum of R20 000 the law firm Lucas Dysel Crouse Inc (LDC) was apparently owed for legal fees – ironically said to have been incurred for consultations on recovering bad debts.

In an affidavit filed in support of the application, Healley – the sole director of LDC – claimed that the trust had as its only asset precisely R20 000 in cash. The only other creditor mentioned was De Villiers’s accounting firm, Sapphire Consult, which was seemingly owed R50 000, rendering the trust insolvent.

In his affidavit on behalf of LDC (his own firm) Healley disclosed he had known and acted on behalf of the trust for about six months. His invoice, which provided none of the usual detailed time-sheets, came to a round R20 000 exactly.

Healley told the following sad story about his client: “The Respondent’s source of business and income was predominantly the lending of monies… Therefore the Respondent’s primary source of income was generated via the interest charged on the respective loans…

“The unfortunate reality of unstable economic circumstances then had the prejudicial result in the [borrowers] being unable to repay the respective loans…

“This resulted in legal action against the third parties that defaulted in payments… The aforementioned legal action did not produce any positive results…”

While there is no evidence that Healley was personally aware of the SARS claim, he does state in the application that “legal proceedings, which certain creditors are planning to institute against the estate… will be stayed in the interest of the General Body of Creditors”.

An email from Healley’s legal associate to the three representatives of the family trust (which included Nicole Johnson) made it clear that they were in the loop, noting, “I am aware that you are cognizant of the application however, I wish to notify you personally.”

Take two

The more important sequestration of Stanfield’s personal estate kicked off in November 2018, again in the midst of SARS’s interrogation of his affairs.

This time, a R160 000 bill from De Villiers himself was the basis for his application to sequestrate Stanfield.

This seemingly followed straight after SARS rejected Stanfield’s second refund request, and it is reasonable to infer De Villiers was doing his client’s bidding rather than trying to squeeze unpaid bills out of the alleged gang boss.

In any case, De Villiers was certainly aware that the outstanding tax debt of R31.65-million, which takes precedence over other debts, made the likelihood of recovering anything of his R160 000 practically zero, so he appeared to be acting against his own interest in seeking Stanfield’s sequestration.

But, conveniently, SARS could also expect to get a tiny fraction of its claim against Stanfield – and the debt would effectively then be extinguished.

The three trustees appointed to administer Stanfield’s estate found that he essentially only had a R230 000 property in Mitchells Plain as a fixed asset.

According to an affidavit Stanfield would later depose to in 2023 when he sought to be rehabilitated, the dire financial position resulted from “a drastic decrease in my income and the fact that I had signed surety for a lot of debt, which in return caused my financial stability to spiral out of control to a point where I was unable to meet my financial obligations and pay my debts when they became due and payable”.

When all was said and done, the final distribution to the taxman was a mere R102 000 (wiping out a debt of R31,65-million) while De Villiers got nothing.

And the property in Mitchells Plain? It turns out that it was sold to a Prosper Trust, one of whose trustees is Denver Booysen, one of Stanfield’s co-accused in his upcoming trial in October.

Take three

A third sequestration targeting the Stanfield Family Trust (not to be confused with the already-sequestrated Ralph Israel Stanfield Family Trust) arrived later on, in June 2019.

The applicant was once again De Villiers, who was ostensibly chasing a R100 000 debt, and it was not opposed by Nicole Johnson, Stanfield’s wife and a trustee of the trust.

The application was mostly verbatim to the one previously used to sequestrate the other trust.

This time it was De Villiers who reproduced the sad story about “unstable economic circumstances” which had negatively affected Stanfield’s loan business – with the same wording seemingly cut and pasted from Healley’s affidavit in the earlier application.  

All the trust had left was one property in Kenilworth worth R3-million. According to De Villiers this was more than offset by debts of R3,34-million.

Most of this debt was however owed to Stanfield’s wife (Nicole) and mother-in-law (Barbara Johnson) as well as ABSA in relation to a bond over the property.

In his affidavit, De Villiers claimed that “It would also appear that its trustees are unwilling or unable to donate any more funds to [the] respondent”.

But that wasn’t entirely true.

The property was sold to the company NJ Trump Investments, whose sole director is the aforementioned mother-in-law Barbara Johnson.

The Stanfield clan managed to find the money to keep the property in the family – and theoretically keep it beyond SARS’s reach.

De Villiers requested the matter be heard on an urgent basis, noting that provisional sequestration would stay “legal proceedings, which certain creditors are planning to institute against the estate.”

The final word should go to Healley, who bridled at amaBhungane’s questions about the propriety of the applications.

He told us, “As a respected officer of the High Court of South Africa for more than a decade, I take extreme exception against, and deny unequivocally your unfounded… assumption that I intentionally and knowingly acted mala fides… I will not allow my integrity to be questioned by you stating that orders granted by the said Honourable Court were so called shams.”

Another lost opportunity

Creditors and trustees in sequestrations have one extremely powerful tool at hand if they have any suspicions that money might have been ferreted away and may yet be recoverable through criminal charges or civil proceedings – calling for an enquiry where witnesses can be called and information subpoenaed.

A sequestration enquiry, which would have seen both Stanfield and Johnson compelled to testify and produce any financial records, including any loan books and surety records, presented another “Al Capone” opportunity.

This opportunity to comprehensively access Stanfield’s financial records however, passed by and police would eventually only in September 2024 – five years later – unearth anything comparable.

SARS could have called for enquiries into not only Stanfield’s estate but also the two trusts, but for some unknown reason opted not to.

We asked the tax authority why it did not do this, but this was one of many questions SARS did not answer in its boilerplate response to amaBhungane.

Its spokesperson told us, “SARS took a civil judgement against the taxpayer and subsequently the taxpayer was placed under sequestration … SARS has participated in the creditors meetings and at that time the value of the assets as confirmed by the liquidator was R230k … SARS was awarded final dividend from [the] Liquidation and Distribution account of R102k. Based on this… the [outstanding] tax becomes irrecoverable at law.”

Thin reports

The liquidators appointed to administer Stanfield’s personal estate were the Cape Town-based Gary Wallace and the Pretoria-based Michelle Schutter and Daniel Ndlovu.

In response to amaBhungane questions, the Pretoria team referred us to the more senior Wallace, who did not bother to respond.

In relation to Stanfield’s personal estate a barebones “Report of Trustees” was presented at a second creditors meeting held on 11 July 2019 at the Mitchells Plain magistrates court in Cape Town.

Crucially, in the report, Schutter states that there was a “danger of contribution”, which means that if a debtor does not have enough funds to cover the legal and administration costs of winding up their estate, which includes the costs of an enquiry, any proven creditor can be legally compelled to cover any shortfall.

Given that Stanfield supposedly had nothing to his name but a property that realised a paltry  R230 000, it seems this may have been just the thing to ward off SARS from pushing for an enquiry to test the legitimacy of his insolvency claims.

SARS records amaBhungane has obtained show that the Receiver ultimately wrote off Stanfield’s debt in August 2020 without calling for an enquiry into either of the three sequestrations.

Several more months passed until SARS, in March 2021, finally took its tax fraud case against Stanfield to the cops.

But, as we’ll see, it was too little too late – and SARS has again declined to explain its tardiness.

Dead accountant, dead case

De Villiers, the accountant who had been intimately involved in Stanfield’s tax affairs, died just two months before SARS finally laid criminal charges against the alleged gangster.

Court records show that De Villiers’s demise was the reason the National Prosecuting Authority (NPA) withdrew the charges of tax evasion and fraud by June that year.

Without De Villiers available to defend himself, Stanfield could simply blame everything on a rogue bookkeeper.

Court records show that the prosecutor stated that she was withdrawing the charges because there were “no prospects of a successful prosecution”.

The NPA’s Western Cape spokesperson Eric Ntabazlila said that Stanfield and De Villiers were charged with two counts of fraud after SARS discovered the employee tax certificates were fraudulent and the claims were rejected.

“The information that the accused owed SARS the exact amount he fraudulently claimed was indeed brought to the attention of the State, but that information could not assist the State in proving the charges against Stanfield in the absence of De Villiers.

“With the death of De Villiers, the State has no prima facie case against Stanfield alone …

The blameworthiness of De Villiers cannot be attributed to Stanfield whilst he is not before Court.”

He said that while De Villiers had submitted the income tax returns on behalf of Stanfield, and uploaded the fraudulent employee tax certificates, “there was no evidence in the docket that he acted on the instructions of Stanfield to make fraudulent declarations”.

Qualms

De Villiers was potentially a massive liability for Stanfield.

As we saw, his death was conversely very fortuitous for the alleged gangster.

As it turns out, the accountant was trying to extricate himself from Stanfield’s business right before he died and shortly before the ill-fated fraud charges were finally laid.

According to a confidant of De Villiers, who asked not to be named because of security concerns, the accountant died exactly one month after meeting Stanfield in Kleinmond in December 2020 and telling his infamous client he wanted out.

The confidant told amaBhungane that De Villiers was worried about what Stanfield was involved in … I don’t know, but [I know] he wanted nothing more to do with him,” said his confidant.

“What the exact reasons were [of Jacques] … [his] family [being] in danger or [the] unlawful activity … I don’t know, but he wanted out. Ralph said they would talk about it in the new year.”

That conversation, however, never happened as De Villiers died in January.

Officially, he died from natural causes, which amaBhungane understands to have been Covid.

The post Ralph Stanfield: How SARS fumbled its chance to take him down, ‘Al Capone’-style appeared first on AmaBhungane Centre for Investigative Journalism.

We believed that the records would demonstrate that Zuma had not declared all his income to the South African Revenue Service and we had a suspicion that SARS was treating Zuma with kid gloves.

This week, we have been vindicated. On Wednesday, Adv Pansy Tlakula, the Information Regulator, issued an enforcement notice, compelling SARS to disclose all the information we requested. 

The notice and its reasoning is a ringing endorsement of everything we have argued over the past nearly 7 years. It is also a stinging rebuke to the manner in which SARS handled Zuma’s continued failure to abide by his tax obligations.

After SARS refused those first PAIA applications, we took the fight all the way to the Constitutional Court. In May 2023, the Constitutional Court ruled that the tax legislation and PAIA were unconstitutional to the extent that they did not provide for disclosure of tax payer information if the public interest demanded it.

PAIA recognises categories of information which cannot be disclosed, including tax payer information. However, it also creates a “public interest override” and stipulates that a public body must nevertheless disclose information falling into these categories if it would reveal evidence of a substantial contravention of or failure to comply with the law and the public interest in the disclosure clearly outweighs the harm caused by disclosure. 

Following the court victory, we went back to SARS and filed two new requests for information – for Zuma’s tax returns and for various other documents related to his tax affairs. In December 2023, SARS again refused our requests, stating that the documents we requested did not disclose evidence of a contravention of or failure to comply with the law.

And so, we ended up at the Information Regulator, the new regulatory body established to ensure compliance with PAIA and the Protection of Personal Information Act (POPIA). 

Read more about our experience with the Information Regulator here and here

In this week’s findings, the Regulator reiterated that the purpose of the public interest override is to balance the rights to privacy and to access and that it “ensures that important information is disclosed to the public when transparency and accountability justify disclosure above the competing interests”. 

When determining whether the public interest override applies there are two questions to ask: would disclosure reveal evidence of a substantial contravention of or failure to comply with the law, and  whether the public interest in disclosure outweighs the potential harm of disclosure. 

A contravention of the law

The Regulator was unequivocal in answering the first question in the affirmative. It found that Zuma filed his tax returns late every year of his presidency (and then only after a final demand was issued), he under-declared his taxes in 2017 and 2018 (and received penalties for this), he was criminally charged with making false statements in his returns, and he failed to show gross income or material facts in his returns.

Importantly, the Regulator also identified that the information’s disclosure may not only reveal evidence of President Zuma’s contravention of the law; it “may well” also reveal evidence of SARS’s misconduct.

The documents may show how SARS’s “soft approach” to Zuma meant that it failed to perform its constitutional obligations “diligently and without delay” and had failed “to hold Mr. Zuma to the prompt and fulfilment of his tax obligations”. 

The Regulator concluded that SARS’s “apparent failure” to enforce tax legislation in respect of Zuma “constitutes a failure by SARS to comply with the law,” and said that “both legitimate and serious questions can be raised in relation to the manner in which SARS handled Mr. Zuma’s tax affairs and repeated transgressions.”

During the Information Regulator process, there had been debate about whether the documents would reveal there had been a “substantial” contravention of the law, as required by PAIA.

Again, the Regulator was unequivocal. It wrote that the contraventions “can only be substantial” because Zuma broke the law “on numerous occasions” each of which constituted an offence with a prison sentence and that “failure by the President of South Africa to comply with the law is substantial”

Here again, the Regulator had choice words for SARS’s conduct: “the seriousness of the violation of the law does not depend on the extent to which the guardians of the law choose to enforce it”.

A public interest in transparency

In determining whether the public interest in the disclosure of Zuma’s tax records outweighed the harm to Zuma himself or SARS and its ability to collect tax revenue, the Regulator highlighted the importance of transparency in our public bodies.

It confirmed that the public has an interest in knowing whether SARS is exercising its powers fairly and consistently and whether the President is complying with his own tax obligations. It stressed that this is “crucial for maintaining trust in public institutions and the rule of law”.

Beyond the public interest in these specific documents, the Regulator stressed that “there is a genuine public interest in promoting transparency, accountability, public understanding and involvement in the democratic process”.

In addition,  transparency into whether the President complied with tax laws and whether SARS acted appropriately “can act as a deterrent for other public officials or individuals who might consider evading tax or failing to meet their financial obligations.” 

The Regulator accepted that disclosure of records can infringe a person’s privacy but found that the information we sought was solely “commercial information” and so and so any incursion into Zuma’s privacy by disclosure was only a narrow one. 

This is a strong endorsement of transparency from the body also tasked with ensuring compliance with POPIA. 

A need for accountability

The Regulator’s findings demonstrates the importance of strong and rigorous accountability mechanisms in South Africa. 

In addition to enforcing compliance with PAIA, the Regulator has refused to allow SARS to evade responsibility and to weasel out of the obligations imposed on it by the Constitution and the law. 

It has emphasised that the president of the country is not above the law and that the public has a particular interest in knowing whether he or she is complying with the law. 

As our state institutions continue to weaken and impunity rises, the ability of the Information Regulator to hold our public bodies to account must be protected. 

The post A rare glimpse of accountability: the Information Regulator orders SARS to release Zuma’s tax records appeared first on AmaBhungane Centre for Investigative Journalism.

The evidence, while circumstantial, relates to links between Simon Rudland, his controversial Gold Leaf Tobacco Corporation (GLTC) and Howard Jon Baker, who is on paper the major shareholder of Rappa.

Raees Saint, the lawyer simultaneously representing Rudland, Baker and GLTC, told amaBhungane, “Simon Rudland has no interest in the Company [Rappa] and your allegations concerning the “holding company” that “controls the refinery” are entirely incorrect. Any publication of false and/or malicious information in this regard will be strongly challenged.”

He said his clients “will not tolerate any insinuation of any illegal conduct and your reference to same will be dealt with in the appropriate Court of law”.

Although Saint did not explicitly confirm he also represents Rappa, the company’s chief executive Gary Bickerton also referred our questions to him.

See Saint’s full response here.

This circumstantial link between the Rudlands and Rappa might cast new light on the ability of the largely unknown Magister Investments, registered in Mauritius and controlled by Simon’s brother and long-time business partner Hamish Rudland, to put down R2-billion to buy control of Tongaat.

A lawyer representing Magister told amaBhungane, “Neither Hamish Rudland nor Magister are under any obligation to disclose private company information to you, nor do we nor Hamish Rudland consent to publication by you of any private or confidential information.”

See Magister’s full response here.

Who is behind Rappa?

When a company called Rappa Management was given the green light by the Competition Tribunal to take over the Rappa gold refinery in July 2019, the identity of the beneficial owners of Rappa Management was blacked out.

However the Tribunal did note that of relevance to the competition assessment of the proposed transaction were the activities of a Dubai based company, Aulion Global Trading DMCC.

This was because, the Tribunal said, in South Africa, Aulion procures semi refined gold bars from (only) Rappa Resources and that Aulion “forms part of the Rappa Management group of companies” that was bidding to take over the South African firm.

In other words, the Dubai company buying gold bars from the refinery and the new company bidding to take over the refinery in South Africa had the same owner.

AmaBhungane has since established that at the time of the takeover the declared owner of both Aulion and Rappa Management – and hence the gold refinery under investigation by SARS — was Howard “Howie” Baker.

Who is Howard Baker?

Baker is well known in polocrosse circles having previously played for both Zimbabwe and South Africa. He is also not a new arrival in the second-hand gold industry.

He has little online presence, but was a director between 2013 and 2015 of a company called “the Gold Kid Trading”.

Company records seen by amaBhungane show that Baker obtained a 42.5% share in the close corporation in 2013/14 when the company did nearly a billion rands in turnover.

Of interest is that Gold Kid was a significant supplier of gold to Rappa in previous years and one of its founding members, Andries Greyvenstein, was last year convicted for “illegal dealing and illegal possession of unwrought precious metals”, according to a media statement by the Hawks.

Baker, via Aulion and Rappa, is now entangled in allegations concerning the machinery of the colossal gold-based VAT scam currently being battled by SARS behind closed doors, as detailed in an amaBhungane exposé last week.

That alleged scheme revolves around Rappa Resources, a large gold refinery that allegedly buys up tons of illicit gold laundered into the legitimate supply chain — and then exports it to claim enormous VAT refunds.

Rappa has vehemently denied the allegations, maintains SARS is on a witch-hunt and has taken on the tax authority in a series of court applications since SARS stopped paying out its VAT claims.

We’re a non-profit newsroom that exposes wrongdoing, empowering people to hold power to account. But we cannot do it without your support.

*Family interests behind prospective new owners of Tongaat Hulett appear linked to a web of companies suspected of shifting money offshore and seemingly entangled in a SARS gold scam investigation.

*This raises new questions about how a R2-billion bid for the sugar giant is being funded.

Baker and Rudland 

Three sources who asked not to be named, identified Baker as a friend of Simon Rudland and named Rudland as being a behind the scenes player in the Rappa gold business, though they did not provide any evidence of this and as noted, his lawyer has denied any such involvement.

There are circumstantial links, however.

Firstly, Rappa Management, the company (allegedly owned by Baker) that took over the refinery in 2019, has only one director: lawyer Raees Saint, a man inseparable from Simon Rudland’s tobacco business. It was Saint who responded to our questions on behalf of both Baker and Rudland.

Saint is also GLTC’s attorney and spokesperson. He represented the tobacco company when it was still a member of the Freetrade Independent Tobacco Association (FITA), an industry group for smaller cigarette producers.

In 2019 Rudland was shot outside the association’s offices in an apparent assassination attempt.

After Rudland and FITA parted ways in acrimonious fashion, Saint emerged as the chair of a new organisation, the South African Tobacco Organisation (SATO).

Saint’s co-directors in SATO — a Zimbabwean and a Malawian — are both associated with companies that have close business ties with GLTC, suggesting that SATO is GLTC’s proxy. Saint vehemently denies this.

The Baker-Rudland link is further supported by another Baker company in the United Arab Emirates called Paloma Precious. Since 2018 this company employs one Craig Preston who is simultaneously an employee of Pioneer Development Company in Zimbabwe, according to his LinkedIn profile. Pioneer appears to be associated with both Simon and Hamish Rudland, and the latter previously declared his directorship of Pioneer.

What’s more, Preston then became a director of Rappa Holdings in February 2020.

This suggests a Rudland employee is also a Baker employee and a director of the gold refinery.

Which brings us back to Aulion in Dubai, the company owned by Baker.

Where there is smoke…

On 15 September 2017 Amanda Gie, the head of forex operations at Sasfin Bank emailed three top executives at the niche corporate financial services provider.

The subject: “GOLD LEAF TOBACCO CORPORATION PTY LTD”.  GLTC is the controversial producer of “cheapie” cigarettes that is controlled Simon Rudland and his business partner Ebrahim Adamjee.

“Business is of the opinion that it would be in the best interest of Sasfin Bank to exit the relationship with the client with immediate effect as the bank faces image, financial and serious regulatory repercussions,” Gie wrote to her Sasfin bosses.

The deals threatening Sasfin with “repercussions” involved a network of companies in secrecy jurisdictions like Dubai and Mauritius that billed GLTC in South Africa millions of rands for tobacco, cigarette-making machinery and related materials.

Gie’s concern was that some suppliers looked to Gie like “invoice factories” which generate paperwork showing apparently legitimate transactions to throw banks and regulators off the scent when large amounts of money leave the country.

If true, the purpose of such a scheme would be for GLTC to get money out of South Africa under false pretences.

Among the suppliers Gie flagged one name however stood out: Aulion Global Trading, Baker’s Dubai gold trader, which appears to have issued two invoices to GLTC worth nearly R400-million.

In other words, Baker was suspected by Sasfin of helping Rudland’s company externalise funds.

Meanwhile in Windhoek…

In 2017 Namibia experienced a bank collapse similar to what happened to VBS Mutual Bank in South Africa. The destruction of the Small and Medium Enterprises Bank (SME) even involved characters from the VBS saga as we reported here.

Shareholders and executives stole at least R380-million from the tiny lender before the central bank seized control and SME eventually went into liquidation.

Subsequent investigations uncovered what looked like a money laundering network based in Johannesburg through which most of the money was routed.

An alleged R79.8-million of this stolen money flowed into the accounts of Asset Movement and Financial Services (AMFS) in Johannesburg, a company that handled enormous amounts of money daily for a client base including several gold traders accused by SARS of participating in the VAT fraud scheme.

Documents the SME liquidators have filed in the Windhoek high court show that Howard Baker on several occasions in 2016 sent AMFS emails directing them to pay millions of rands into various accounts,

One of these belonged to a Omulunga Capital Investments, a registered a mere two weeks before the payments started.

On 27 January it was R7.07-million, on 29 January it was R3.03-million, on 5 February it was R6.06-million and on 20 May another R10-million.

The instruction by Baker gives the details of the recipient as Omulunga Capial Investments. All these payments were duly made by AMFS.

Right before starting these payments to Omulunga, Aulion entered the picture.

On January 21, 2016 Aulion had provided Omulunga with an invoice for R64 493 439 for payment to its Dubai bank account.

The invoice was for mining equipment which suggests Aulion was now ostensibly trading in gold, tobacco and heavy machinery.

Omulunga duly paid Aulion at least R29 820 000 using this invoice repeatedly for several different transactions. The payments matched the payments received from AMFS on Baker’s instruction. They totalled R29,8-million. This suggests this channel could still have been used to move a further R35-million using the single Aulion invoice.

Saint failed to answer specific questions about these trades or what the relationships were between Rudland, GLTC, Baker and Aulion.

He said: “Gold Leaf Tobacco Corporation, a private company, has nothing to do with THL[Tongaat Hulett Limited] or Magister for that matter. Your line of questioning concerning alleged historical business dealings of Gold Leaf Tobacco are unmerited and unrelated to anything you purport to infer concerning the THL transaction.

“Our clients will not participate nor entertain your fishing expedition as all of the information you request related to private matters pertaining to different private individuals and private companies.

We caution you against selective and agenda driven reporting, our clients will not tolerate any sensationalism written about them through unethical abuse of journalism.”

Chinese wall? Not at all

Ever since the deal that would see Hamish Rudland — via Magister — take control of Tongaat was announced the two companies have been at pains to distance themselves from Simon Rudland and in particular GLTC.

In a response to questions earlier this year Hamish Rudland said:

“Magister has no involvement or interest in Gold Leaf Tobacco Corporation, nor does Gold Leaf Tobacco Corporation have anything to do with the transaction between Magister and Tongaat.”

There are however any number of reasons to doubt that there is really a Chinese wall separating Magister and Hamish Rudland from his brother Simon and the controversial tobacco business.

While Tongaat and Hamish have presented Magister as an accomplished investment vehicle easily able to marshal the R2-billion for the deal a closer examination of the company and Hamish’s other interests show how “Rudland Inc” is very much a family business.

Long before the deal was announced in December last year the Rudlands had already become the second largest single shareholder in Tongaat when a Dubai based company Braemar ostensibly controlled by the brothers’ mother bought 9.981% of the company worth R120-million at the time.

Leading up to the announcement in December individuals tied specifically to GLTC and the Rudlands were also buying significant numbers of shares.

Simon Rudland’s partner in GLTC, Ebrahim Adamjee, bought 1.5% of Tongaat’s shares for roughly R10-million in December last year.

A company founded by his son Aadil, Betelguex Investments, bought another 2%. This was right before Tongaat shareholders were going to vote on the Magister takeover.

Aadil also served for a number of years on the board of Zimre Holdings, in which both brothers still appear to have an interest.

Saint, on behalf of Adamjee, denied “any insinuation of any illegal conduct”.

Magister by itself does not appear to a substantial investor. Its only visible investment is in a small company called Agriterra which has a total turnover (not cash or profit) of $12-million or roughly R185-million.

A presentation given to major Tongaat shareholders (reported on in an earlier amaBhungane report) in order to gain their support for the Magister deal presented Magister’s “key investments” as including Agriterra but also a number of Zimbabwean companies.

As far as amaBhungane was able to establish, these have historically been owned by other Rudland family entities, rather than Magister.

The most substantial of these companies are listed and have publicly available financial information.

Using official exchange rates these companies — Zimre Holdings, CFI Holdings, Unifreight and TSL — have a combined balance sheet of only about R3,1-billion.

Neither Magister nor the Rudlands own all the shares in these companies and they would likely have to give their entire visible Zimbabwean business empire as security to afford the offer being made for Tongaat.

Unless the money comes from elsewhere.

The post Gold export scheme: the Rudland connection appeared first on AmaBhungane Centre for Investigative Journalism.

The scheme is immense in scale with just two companies claiming R24.4-billion between 2012 and March 2020 in allegedly fraudulent VAT refunds, according to an affidavit filed by SARS in the Johannesburg high court.

The two companies appear to have scored illegitimate VAT refunds of over R8-billion in 2019 alone — roughly half a percent of SARS’ entire tax collection for the year.

In that year the scheme allegedly involved amounts of gold equal to an astonishing 70% of all gold legally mined in South Africa in 2019 – again only counting the activities of these two players.

The scheme laid out by SARS is simple in principle. Gold exports are zero-rated for VAT. Buying gold scrap locally however carries the standard 15% VAT.

If you can find a way to buy large amounts of gold for export, without paying the obligatory VAT, you can claim 15% of the value of the gold as a refund from SARS on tax you never actually paid.

Key to the scheme is introducing un-taxed gold into the supply chain and faking VAT payments for this gold.

SARS fingers Rappa

One of the two companies cited is Rappa Resources, a Germiston-based gold trader currently locked in a court battle with the tax man.

Rappa went to court after SARS withheld VAT refunds totalling R1.8-billion purportedly owed to the company for February to June 2020.

The case has forced SARS to reveal details about its closely guarded investigation.

The revenue service has subsequently raised a gargantuan assessment of R7-billion against Rappa for its allegedly illegitimate VAT claims between January 2019 and March 2020, another illustration of the scale of its seemingly tainted gold export business.

Rappa has in turn launched a second case against the revenue service challenging this assessment.

In interim skirmishes SARS has suffered some setbacks, including a stern rebuke for its apparent tactic of indefinitely withholding billions in refunds while it is still completing an investigation into Rappa.

Judge Seena Yacoob slammed the revenue service and noted that it would make the Tax Administration Act “inherently unfair towards the taxpayer” if SARS didn’t change tack.

SARS also challenged Rappa’s decision to bypass the specialised tax court and go directly to the Johannesburg high court.  The court ruled against SARS but allowed an appeal to the Supreme Court which will have to be decided before the main case goes ahead.

Nevertheless the court papers for the two high court cases, which exceed 3000 pages, provide an eye-watering lens into an alleged criminal underworld operating in the shadow of South Africa’s formal gold industry.

SARS actions against Rappa follow an extensive inquiry into gold trading launched by the revenue service in March 2019 when Rappa was summoned as a witness, the court papers show.

The first suspect was a competitor, Aesha Refineries, and a coterie of big second-hand gold dealers suspected of dealing in “illicit” metal. These dealers are suppliers to Rappa.

At least two of these dealers were targeted in search and seizure operations in 2019, according to the court papers.

Dozens of tiny suppliers of allegedly illicit gold to these dealers are also under the microscope.

AmaBhungane has also learned that some of them are subject to a criminal investigation by the Directorate for Priority Crime Investigation (DPCI). This includes Rappa and 64 other companies, according to an affidavit by Lt. colonel Mark de Bruin of the DPCI dated 30 June 2020, which supported subpoenas for information from banks.

The alleged scheme

The SARS investigation centres on the modus operandi of companies in the second-hand gold sector.

The tax authority accuses major players of introducing smuggled or illegally mined gold and illegally smelted Krugerrands (which attract no VAT) into the ‘legal’ gold supply chain.

They do this, SARS claims, by fraudulently presenting the gold as second hand (such as from purchased jewellery) and thereby enabling fraudulent VAT refunds to be claimed.

According to an affidavit by Gerald Motadi, a senior manager at SARS, there is a general pattern: “In the majority of cases, [they are] generating fictitious tax invoices that falsely represent that the taxpayer purchased second-hand gold jewellery from a VAT vendor, thereby claiming input tax based on purported standard-rated goods.”

To do this, according to Motadi, the fraudsters would often use “invoice factories”— companies set up to generate fake invoices for the gold dealers.

Alternatively, the gold traders generate the fake invoices themselves. In instances uncovered by SARS, the gold was ostensibly bought from “businesses” registered in random people’s houses. It is unclear whether these individuals always knew what was going on.

From there the gold is sold “up” a supply chain and ultimately exported, at which point the fraudulent VAT refund is claimed.  According to SARS, the proceeds of the fraud are shared along the supply chain.

SARS alleges Rappa is one of the exporters that knowingly sits at the apex of these illicit gold supply chains and profits from them, although the company vehemently denies this.

Rappa buys gold ostensibly derived from “scrap” and old jewellery and exports it to clients “based in Europe or Dubai”, according to its court papers.

Rappa’s version of its business model is simply that it collects a minor margin of around 3% on the buying and export of gold and that its position is VAT neutral in that it claims to pay out the same amount of VAT it then claims from SARS.

“There is no factual basis to suggest that Rappa is involved in any criminal conspiracy to fraudulently claim VAT refunds. SARS has deliberately attempted to derail and delay court hearings by instituting dilatory procedural obstacles and SARS is guilty of unlawful and improper conduct,” Rappa said in letter in response to questions from amaBhungane.

Aesha, the original subject of the SARS inquiry, is another exporter and the two allegedly share many gold suppliers. It has subsequently ceased operations.

According to Motadi:

“The exporter will typically acquire gold-bearing bars, which it exports at a zero-rate, from its suppliers (“level 1 suppliers”). The suppliers to the level 1 suppliers are level 2 suppliers. The suppliers to the level 2 suppliers are level 3 suppliers, and so forth.”

“The purpose of these levels is to disguise the source of the gold and to create distance between the source and the end supplier/exporter…. The end supplier in the supply chain is the exporter of the gold.”

The supply chains are seemingly impossible to pin down.

“SARS observed that as soon as suppliers were assessed, they would disappear and new suppliers would enter the market. This later morphed further in that new suppliers would fit in vertically below direct suppliers to Rappa Resources, i.e. a multi-layered supply chain.”

While the so-called level 2 and 3 suppliers are ephemeral there are several major level 1 suppliers from whom Rappa and Aesha have sourced material for years. These companies were also targets in SARS’s inquiry.

A significant finding in SARS’s investigation is that these companies handle amounts of gold that cannot be explained away as scrap jewellery.

The real Kruger millions

The scheme requires gold, lots of it. Between 2012 and mid-2020, Rappa and another unnamed company (possibly Aesha) exported 286 tons of gold.

According to SARS, the sources include gold illegally mined by “zama-zamas” and gold smuggled from Zimbabwe, Dubai and elsewhere.

A major source has been Krugerrands, SARS asserts. The iconic gold coins are easy to procure and are classified as currency, so they carry no VAT. It is however a crime to smelt them down.

Statistics provided by SARS in its court documents demonstrate how the coins almost certainly sit at the core of the multi-billion rand scam.

In 2019, Rappa and the unnamed exporting refinery’s export sales reached a peak of 83 tons. That is the equivalent of 70% of the total gold production of all South African gold mines that year. These exports were worth about R53.7-billion.

Most importantly, the VAT that was allegedly fraudulently claimed amounted to a whopping R8.16-billion.

These exports grew at a heady pace from 2014 onwards. The growth almost perfectly correlated with total national sales of Krugerrands by Rand Refinery, which is the sole supplier of bullion Krugerrands to primary distributors both locally and internationally.

To be more specific, between 2014 and 2019 the annual exports of Rappa and the one other exporter grew by 89% while the annual supply of Krugerrands grew by 93%.

SARS argues that the “scrap” being exported is to a very large extent illegally smelted Krugerrands.

This begs the question why Rand Refinery never flagged the sudden massive increase in demand for its signature product — a product produced on behalf of the reserve bank – and whether it conducts proper due diligence on buyers.

The private refinery is jointly owned by major gold mining companies but the Krugerrands are produced by a joint venture with the SA Mint (a subsidiary of the reserve bank) called Prestige Bullion.

Rand Refinery told amaBhungane that it is “always concerned about any illicit activities but are cognisant that there are many reasons for high demand and that the demand cannot be isolated to illicit activities alone. We, however, continue to act with due care and diligence on behalf of our stakeholders and the industry as a whole and remain highly vigilant about sudden changes in market demand…we are not aware that any of the dealers who purchase directly from Rand Refinery…participated in illicit activities”.

Tricks of the trade

The bulk of the SARS investigation deals with the nebulous network of gold suppliers who allegedly supply Rappa and other gold exporters.

A 250-page letter of findings that SARS sent to Rappa on 11 December 2020 provides an overview of this network. According to the letter, Rappa bought gold worth R52-billion from 27 different direct suppliers in the period SARS was auditing, January 2019 to June 2020.

SARS identified the top ten “level 1” direct suppliers and enumerated the astonishing methods virtually all of them allegedly used to introduce smelted Krugerrands and other illicit gold into the supply chain.

These methods include the creation of whole clusters of fake “level 2” companies that then “sell” supposed scrap to the level 1 supplier, which then sells to Rappa.

The SARS investigation found that one of these level 1 suppliers allegedly got its gold from 8 smaller suppliers but, according to the revenue service, there is a veritable mountain of red flags around the legitimacy of these companies:

“Certain of the directors of the 8 (eight) level 2 suppliers denied any knowledge of the business, the business operations and their involvement therein,” SARS found.

The same directors “indicated to SARS that the company(s) were dormant, never traded and was to be deregistered”, said SARS.

These suppliers however used the same bank accounts and provided SARS with the same address when they registered as VAT vendors, the revenue service claimed. Their addresses “were either residential address[es], could not be located by means of verification by SARS and/or were not valid addresses and/or premises which are utilized for business purposes”.

They were also paid for their “scrap” gold “by means of a third-party bank account and/or were renumerated in cash for their alleged taxable supplies” and gave SARS “fictitious bank statements and invalid bank account particulars in order to register as a VAT vendor”.

A number of the companies accused by SARS of generating fake invoices and knowingly buying illicit gold nonetheless operate behind the cover of the London-based Responsible Jewellery Council.

It is a global certification organisation which, according to its online vision statement, wants to create “a responsible world-wide supply chain that promotes trust in the global jewellery and watch industry”.

The statement of the Responsible Jewellery Council can be found here.

Coining it

SARS’s R7-billion claim against Rappa stems from its findings involving three major suppliers: Northern Spark Refinery, JR Technical Services and Geba Precious Metals. These findings were set out in a “finalisation of audit letter” dated 29 March 2021.

The case of Northern Spark is particularly revealing of how the alleged illegal channelling of Krugerrands into the VAT fraud was massified.

According to SARS, Northern Spark was by far Rappa’s top supplier in the assessment period and sold Rappa R18-billion worth of gold. Underneath this “level 1” supplier there were supposedly a total of 48 “level 2” suppliers.

In April 2019, Northern Spark was raided by SARS and has subsequently had its books extensively scrutinised, its suppliers investigated, and has been subjected to Section 47 tax enquiries, among other things.

The findings by Johan Klingenberg, an auditor at SARS’s Illicit Economy Unit (IEU), were included in the court papers.

The first finding is that the company sold gold almost exclusively to Rappa.

Second, its supposed payments to its 48 level 2 suppliers were largely fictious and where suppliers were paid, they were not scrap suppliers but companies whose “only trading activity is dealing in Krugerrand Gold Coins”.

“Documentary evidence was also obtained from a reputable third party that billions of rands of gold coins were physically delivered to Northern Spark’s business premises,” said Klingenberg.

“Certain of the ‘suppliers’ of Northern Spark whom was interviewed during the Section 47 interviews indicated that they were not even aware of Northern Spark and that Northern Spark used the names of their entities. They also did not recognised (sic) the tax invoices issued in their entities names.”

Northern Spark allegedly instructed dealers in Krugerrands to open special bank accounts to receive payment and at other times paid them through intermediary companies, the coin dealers testified.

“I was unable to obtain any evidence of second-hand gold jewellery purchased by Northern Spark during my investigation thus far,” said Klingenberg.

“The only commodity that therefore could have been sold to Rappa is in fact Krugerrand gold coins or gold bearing bars consisting of smelted Krugerrands.”

The upshot is that SARS is disallowing the R2.4-billion input tax claimed by Rappa in relation to gold bought from Northern Spark.

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Conviction

Northern Spark is of interest to authorities for another reason.

One of its founding directors, Andries Greyvenstein, was last year convicted for “illegal dealing and illegal possession of unwrought precious metals”, according to a media statement by the Hawks.

He and three other men “were arrested in Primrose during a clandestine operation after they were linked to several incidents of illegal procurement of unwrought gold”, read the media statement.

Greyvenstein is also a director of Gold Kid Trading, another significant supplier of gold to Rappa in previous years not covered by the SARS assessment.

Northern Spark’s attorneys told amaBhungane that it will not respond to questions because it has not seen SARS’s allegations independently.

The company’s lawyers told amaBhungane, “Kindly be advised that our clients are not in a position to respond to the various enquiries being made by yourself in the email under reply due to the fact that they are not in receipt of any of the documentation (Court papers) that relate to SARS and Rappa. Further there are allegations that are being made that are incorrect. We therefore need to ascertain if these incorrect allegations are contained in the said Court Papers.”

JR Technical

JR Technical, the second major supplier to Rappa targeted by SARS, allegedly faked supplies from individuals. According to the finalization of audit letter from March last year:

“Members of the public, who according to the records of the level 2 supplier had supplied second-hand gold jewellery, denied having sold second-hand gold jewellery.”

JR Technical appears to have created a massively convoluted supply chain to throw off authorities.

According to SARS, some of the level 2 suppliers were fictitious and their “business addresses either could not be verified or were found to be the residential address of third parties”.

“Certain of these level 2 and 3 suppliers interchangeably supplied to each other in order to create confusion and to disguise the illicit nature of the transactions between the various levels of supply.”

“Certain of the level 2 suppliers fraudulently made use of the VAT registration numbers of other suppliers in the supply chain.”

JR Technical did not respond to amaBhungane’s request for comment.

Geba

The third level 1 supplier SARS scrutinized for its assessment, Geba, is also accused of buying Krugerrands and smelting them.

SARS’s affidavits also reveal details of its investigation into Geba’s supply to Aesha, Rappa’s competitor.

SARS’s Illicit Economy Unit raided Geba’s offices in 2019.

“The SARS IEU auditors evaluated the data seized. They established that since April 2018 Unlock Capital (Pty) Ltd, seemingly sold vast quantities of Krugerrands to Geba.”

“The data seized from Geba proved that Geba issued recipient-generated tax invoices for Unlock Capital. These recipient-generated tax invoices reflected a taxable supply from Unlock Capital to Geba at a standard rate. The purpose of these fraudulent recipient-generated tax invoices is to disguise the fact that Krugerrands are introduced into the supply chain and to convert a zero-rated supply into a standard rated one,” according to SARS’s affidavit.

“In as far as your request for a response to questions and observations is concerned our clients respectfully cannot adhere to the request, as the information relate to subject matter which is currently a dispute between Geba and SARS and as such remains sub

judice and our clients have no comment in respect thereof at this stage. Geba and its directors deny any complicity in or knowledge of any illegal activity in the industry,” the company told us in response to questions.

 SARS does not imply Unlock Capital is in on the scam.

The court documents show that SARS has made similar findings about Aesha as those made with regards to Rappa. There has however not been a court process to make more details public.

SARS is fastidious about taxpayer secrecy and the revenue service appears to have been even more concerned with witness protection in this investigation. According to its court papers:

“Witnesses in the tax inquiry testified that the secondary gold industry is a dangerous industry. Certain of the witnesses were scared and sought specific assurances that their evidence would not be disclosed.”

Rappa responds

Rappa has mounted a vociferous defence in court, arguing that SARS is targeting it in a scheme to make up for missing tax revenue targets and making serious allegations based on a flawed investigation that has not produced direct evidence.

“SARS is guilty of a material misdirection of law at the very least. More likely however, this demonstrates the ulterior purpose, bad faith and irrationality in the raising of the Assessments. SARS has gone against Rappa because it perceives it to have deep pockets and because it has fabricated a basis to try and withhold refunds lawfully due to Rappa,” the company’s chief executive Gary Bickerton said in an affidavit.

According to Rappa “most of the allegations and so-called findings…are based in their entirety on nothing more than unfounded conjecture, innuendo and suspicion and, in any event, are unclear and vague”.

The company has countered SARS’s assertion that the volume of gold it was buying was far too large to be ascribed to legitimate sources by passing the buck to its suppliers.

“I specifically stated that I understood that the gold supplied to Rappa by its suppliers was a combination of second-hand jewellery and small-scale mining gold. This would then account

for the massive numbers,” said Bickerton.

According to him, SARS has concocted an “after-the-fact and otherwise indefensible theory of justification that it is somehow constitutionally obliged to withhold VAT refunds where it believes a taxpayer such as Rappa “may possibly” be implicated in what “might possibly” amount to a scheme between myriad suppliers wholly unconnected with the taxpayer at issue”.

Rappa itself paid the so-called level 1 suppliers VAT and then legitimately claimed it back, he argued.

Treasury fights back

In October last year National Treasury proposed new regulations to the VAT Act to try and quash was appears to be a vast gold VAT scam industry. The changes were to be implemented on 1 January.

The new mechanism being introduced is called a domestic reverse charge and is “aimed at removing the opportunity for fraudulent vendors to re-characterise gold and goods containing gold, make minimal VAT payments to SARS and extracting (sic) large amounts of VAT refunds from the fiscus”, according to the memorandum announcing the proposal.

The idea is to make the buyer of the gold liable for the VAT declarations of the seller rather than the other way around. SARS hopes that this should stamp out the invoice “factories”.

SARS did not respond to questions from amaBhungane.

The post Gold ‘scam’ robs SA of billions, says SARS appeared first on AmaBhungane Centre for Investigative Journalism.

Hamish Rudland, the face of the deal, supplied a lengthy response to questions (published here in full) specifically asserting that “there is absolutely no substance” to this link to the family’s cigarette business.

The deal takes the form of a rights issue that, if successful, will hand control of Tongaat to a Rudland entity in Mauritius called Magister Investments – at a steep discount to the current share price (see sidebar: A shocking deal).

The proposed deal is being put to a vote today in an extraordinary general meeting amid concern about the Rudlands’ probity and the alleged prejudice towards existing minority shareholders. On face value, existing shareholders could face a massive dilution of their equity.

AmaBhungane has established that a significant alliance of minority shareholders has coalesced in an attempt to vote down today’s deal.

The swing votes however belong to only two major asset managers.

They are the state-owned Public Investment Corporation (PIC), which owns nearly 14% of Tongaat on behalf of the Government Employee Pension Fund (GEPF) and smaller public sector entities and the Stellenbosch-based PSG Asset Management, which controls 15%.

Both the PIC and PSG have given Tongaat “non-binding letters of support”.

PSG’s support is seemingly a done deal. The company told amaBhungane: “After detailed assessment, we agree with the THL [Tongaat Hulett Limited] board’s recommendation, and this informed our decision to extend a letter of support to the board…While we will vote in favour of the resolutions necessary to progress the capital raise, we have given no undertaking to participate in the rights issue.”

This means that PSG supports the investment by Magister but is not committed to providing funding itself to maintain its shareholding, which would be a very expensive exercise considering the extent to which Tongaat plans to dilute its existing shares by issuing new ones.

At the PIC things are not as clear cut. In response to questions, it said:

“It would be imprudent for the PIC to express any view publicly on a transaction which is still inconclusive. The PIC will act responsibly and lawfully in its investment decisions in this regard.”

AmaBhungane understands from a source close to the GEPF, on whose behalf the PIC is acting, that the PIC is under pressure to reconsider their support. An alternative underwriting agreement with the PIC putting up the money instead of Magister might even be on the cards.

The source, who cannot be named as they are not authorised to speak to the media, said:

“The GEPF is concerned. They know who these guys are.”

Apart from the reputational fears, the deal is also highly prejudicial for existing investors.

“If it was Warren Buffett proposing it, I would still oppose it on the investment merits,” one activist shareholder told amaBhungane.

But it is not Warren Buffett proposing it.

The Rudlands

The Rudlands are one of Zimbabwe’s major business dynasties with known investments relating to transport, agriculture and financial services.

The family, in particular Hamish’s brother Simon, is however best known in South Africa for their tobacco business Gold Leaf Tobacco Corporation which (alongside a number of other manufacturers) has been accused of flooding the South African market with cigarettes that are priced in a way that suggests they somehow avoid paying the steep excise “sin” tax normally imposed by the South African Revenue Service (Sars).

Gold Leaf and the Rudlands have consistently denied any wrongdoing, but in the mid-2000s, Simon was arrested in South Africa for cigarette smuggling – though the case went nowhere – and in 2019 he survived a hit on his life in Johannesburg as he was arriving for a meeting of the Free Trade Independent Tobacco Association (Fita), which represents the smaller manufacturers.

The market share of these “cheapie” cigarettes rocketed during Covid with Gold Leaf being the biggest beneficiary, according to one University of Cape Town study.

According to the UCT survey, Gold Leaf sold 30% of all cigarettes during the initial lockdown in 2020, during which cigarette sales were technically illegal, up from 12% pre-Covid – and maintained much of this market gain after the ban was lifted.

Hamish Rudland told amaBhungane: “Magister has no involvement or interest in Gold Leaf Tobacco Corporation, nor does Gold Leaf Tobacco Corporation have anything to do with the transaction between Magister and Tongaat.”

But concerned minority shareholder activists have questioned the source of the R2-billion the Rudlands have committed to underwrite the share issue.

There seems to be a disjuncture between the little-known Magister and the R2-billion it has committed to this deal.

One well-known activist, Dave Woollam, has challenged the deal in a letter to shareholders, mostly based on its allegedly extremely prejudicial effect on the minor shareholders.

“I’m not making any allegations, but I still want to know where they got the money,” he told amaBhungane.

Hamish Rudland told amaBhungane, “Magister’s funding arrangements are proprietary and confidential, suffice to state that Magister has provided Tongaat with a bank guarantee issued by The Standard Bank of South Africa to support its underwriting commitments and, as such, this has gone through and passed all banking regulatory processes such as Know Your Client and Anti Money Laundering requirements. Whilst it may be salacious to allege that the transaction is funded by proceeds of illegal cigarette sales, there is absolutely no substance to this.”

Further questions about how insulated Magister is from the wider Rudland empire are raised by the terms of the proposed transaction, which make provision for Magister to potentially act together with a much wider “Magister Group”, which is widely defined as any company or person with links to Magister.

Both Tongaat and Hamish Rudland emphasised that the company had entered into a transaction “with Magister, not the Magister Group”.

Rudland said, “Magister’s underwriting obligations have nothing to do with any other entity.”

But the deal takes place in the context of a number of parties seemingly related to Rudland increasing their influence at Tongaat, long before the current deal was thrust on shareholders.

A shocking deal

Leaving aside any qualms about the Rudlands’ alleged unsavoury businesses, the Tongaat deal has been lambasted as shockingly prejudicial to existing shareholders in the sugar group.

Rudland acknowledges this in his response to us, downplaying the separate concerns about the source of Magister’s cash:

“Most of the concern rather, has been around the size of the rights offer, control and the potential dilutive effect on existing shareholders who may not wish or are unable to follow their rights. This is understandable, but perhaps unavoidable given Tongaat’s financial situation.”

The deal involves a rights issue, a mechanism for companies to raise money from existing shareholders by giving them an opportunity to buy new shares in addition to the ones they already own. The shareholders who do not exercise their rights will see their percentage shareholding fall when other shareholders who do follow their rights buy new shares.

The Rudlands will participate through Magister which is “controlled by Mauritian International Trust Company Limited as Trustee of the Casa Trust, a trust operating for the benefit of Hamish Rudland, his wife, and their children”.

The remarkable feature of the Tongaat rights offer is the extreme level of dilution and the high cost of following your rights.

Depending on the price at which the shares get issued it could cost an existing shareholder with shares worth R10 anything between R40 and R80 just to maintain their shareholding at the previous level.

The most likely outcome is that most small shareholders just have their holdings diluted into insignificance.

Magister has underwritten the rights issue with R2-billion, half of the maximum R4-billion Tongaat would raise if all existing shareholders followed their rights to maintain their exact shareholding.

Magister (alongside Braemar) will however very likely control between 50% and 60% of Tongaat after the rights issue.

This is why activist shareholders are calling it a de facto takeover masquerading as a rights offer.

The Deal

In November last year large shareholders in Tongaat were separately summoned to confidential presentations by the company’s executives.

They were made to sign nondisclosure agreements and then given a presentation about “Project Knight”, likely an allusion to the ‘white knight’ the Rudlands would supposedly be for Tongaat, which has struggled in the wake of crippling debt and alleged accounting fraud under its previous management.

These meetings were repeated several times to try and get irrevocable support for the rights issue. As late as last week the Tongaat executives were allegedly trying to twist recalcitrant shareholders’ arms.

Meanwhile, the Rudlands and associates have been buying up Tongaat shares in the background long before the Magister deal – something the Tongaat bosses failed to mention when selling the deal in these secret meetings.

The Project Knight presentation only reflects that Magister already owned an immaterial 0,15% of Tongaat before the deal.

However, between March and April last year Braemar, a United Arab Emirates entity controlled by Simon and Hamish’s mother Adrienne, bought 9,981% of the company from Nedbank.

Another associate of the Rudlands has also been quietly buying up shares.

Ebrahim Adamjee,  Simon Rudland’s partner in Gold Leaf, made a small investment in Tongaat the same month Braemar bought its first shares. He then steadily increased his shareholding to 1.5% in November last year, the last month we have data for.

Yet another seeming associate, a company called Betelgeux Investments, recently bought 2% of Tongaat. Betelgeux shares the address of a host of Adamjee companies.

Hunky-dory

Tongaat has fended off criticism of its planned entanglement with the Rudlands with an ostensibly thorough due diligence exercise by audit firm PricewaterhouseCoopers (PwC).

“As part of Tongaat’s assessment and due diligence process on Magister, PwC, at Tongaat’s request, conducted an independent specified scope compliance due diligence exercise,” the company told us in response to questions.

It is not clear how much of a deep dive this due diligence was. PwC itself told us that it “conducted a specified scope, integrity due diligence based on information available in the public domain for Tongaat Hulett Ltd”.

Tongaat continued: “The sub-committee and the Board considered PwC’s findings and being satisfied therewith, agreed to pursue the rights offer with the underwriting support from Magister. Magister and Hamish Rudland have extensive and relevant expertise and experience and are invested in several publicly listed businesses and Tongaat believes that Magister is a suitable investor.”

Both PwC and Tongaat declined to provide any details of the results of the due diligence.

Standard Bank, which has provided the R2-billion guarantee, told amaBhungane it “does not discuss the business of our clients with third parties”.

The bank said it took its anti-money laundering checks seriously but added, “Any decision to proceed with the rights offer and any related transactions will be the sole and independent responsibility of the Tongaat Hulett board and its shareholders.”

*Disclosure: AmaBhungane receives funding from the Jannie Mouton Foundation. Mouton is the co-founder and major shareholder of PSG, which is mentioned in this article.

The post Zim tobacco barons’ planned capture of Tongaat Hulett appeared first on AmaBhungane Centre for Investigative Journalism.

Tax records are understood to be private. As well they should be. But not in all circumstances, without exception, ever – especially where there is a compelling public interest in disclosure.

Say, for instance, where a former president is alleged to have flouted the country’s tax laws during his term of office.

That was the argument raised by the Financial Mail and amaBhungane in the High Court in June this year, the same argument that has – in a great victory for access to information in the public interest – been accepted by the court.

On Tuesday, Judge Norman Davis handed down a long-awaited judgment in our court challenge against blanket tax secrecy. Rather than a sea change to the privacy of tax information submitted to the South African Revenue Service (Sars) by taxpayers, the judgment tweaks the existing legal regime in a small, but impactful way.

In doing so, it ensures that the right of access to information in the public interest is balanced appropriately against the right to privacy, as the Constitution requires.

Here are six main takeaways from the judgment:

1. The law doesn’t do enough to recognise transparency

The legal regime set out in the Tax Administration Act (TAA) and the Promotion of Access to Information Act (Paia) provides that information submitted to Sars is generally not disclosable, subject to a few limited exceptions, usually only as part of tax recovery proceedings. 

Crucially, under current provisions, Paia’s “public interest override” does NOT apply to the TAA’s non-disclosure rules. (The Paia override is a safety valve whereby, under certain circumstances, the information officer must disclose information that he or she would normally be entitled to withhold.)

The effect of these provisions taken together has been blanket official secrecy on tax matters. Anyone seeking access to such information faces an impenetrable legal wall.

This was precisely the situation that the Financial Mail and their journalist Warren Thompson, found when they requested access to former President Jacob Zuma’s tax records for the years 2010 to 2018.

They had sought access based on several allegations about Zuma’s tax affairs contained in Jacques Pauw’s book The President’s Keepers, including that he owed millions of rand in tax for the fringe benefits he received as a result of “security upgrades” to his Nkandla residence, and that he had received “donations” from illicit sources, including the Gupta family.

Clearly, the public has an interest in knowing if this was the case, and if so, the extent of the wrongdoing.

The circumstances gave rise to a clash of rights: a taxpayer’s right to privacy against the right of access to information; the media’s right to freedom of expression as well as the right to receive and impart information.

The court had to consider whether the blanket secrecy provisions in the TAA and Paia limit the right of access to information in a constitutionally justifiable matter.

In short: they don’t.

The court endorsed the view that “free access to official (state-held) information is a prerequisite for public accountability and an essential feature for participatory democracy” and so there may be circumstances where the public may have a legitimate interest in a person’s tax affairs sufficient to justify an impingement on privacy.

The flipside was that the application of a public interest override to limit confidentiality of taxpayer’s information is a justifiable limitation of rights.

2. No, your tax records won’t be made public

Since the judgment was issued, alarmists have been trumpeting that taxpayer confidentiality is well and truly dead. They are wrong.

Davis’s judgment recognises the “general consensus that the general limitation of access to taxpayer information held by Sars, imposed by a law of general application (the TAA), is justified in an open and free democratic society”.

We did not argue against this general position. Rather, we argued that the door shielding the confidentiality of these records be opened only by the smallest crack, through allowing the public interest override in section 46 of Paia to apply.

Section 46 sets up legal hurdles that must be cleared before records which fall within the categories of information protected from disclosure under Paia can be disclosed.

They are not easy hurdles to clear.

This is shown by the various qualifying words used. 

The records must only be disclosed if they would reveal a substantial contravention of, or failure to comply with the law; or an imminent and serious public safety or environmental risk.

In addition to either to the above requirements being satisfied, there is a mandatory balancing of interests: the public interest in the disclosure of the records must clearly outweigh the harm contemplated flowing from the disclosure.

The public interest does not necessarily refer to what the public finds interesting. Rather, as the Constitutional Court has pointed out, the public interest is “attached to a legitimate and genuine interest, one founded on fact and one that contributes towards the public’s constitutional right to be informed”.

The effect of this is that the average law-abiding taxpayer would have no reason to expect their tax information to be made public. Nor would the average non-law-abiding taxpayer for that matter. The legal test would simply not be satisfied.

So no, your tax records will not be splashed around the media as a result of this ruling. Unless, of course, you are a person in a position of power involved in rather serious malfeasance, and — crucially — the public interest in knowing about your tax affairs is so great that it justifies limiting your privacy.

Under such a scheme, SARS would usually be the entity making the decision.

In this case, perhaps because Zuma did not oppose the application, Judge Davis opted to make this decision rather than refer the matter back to SARS.

3. Tax information isn’t sacrosanct

One of Sars’ main arguments in its attempt to preserve the blanket confidentiality of taxpayer information was that there is a “compact” between taxpayers and Sars — that in exchange for taxpayers providing truthful, complete disclosure, Sars keeps their secrets.

In its evidence, Sars made much of this point, going so far as to say that the compact is the very “foundation of the tax system, without which the tax system cannot properly function”.

Davis rejected this assertion with the observation that it is not due to the secrecy provisions that taxpayers disclose their affairs to Sars — rather, it is the “coercion of the penalties and sanctions which follow upon non-disclosure”.

While this conclusion seems obvious, the court reached it after consideration of all the evidence put forward by Sars, including examples from other countries and academic literature. Even so, the court could not find any direct or factual evidence to back up Sars’ claims.

It bears considering whether tax information should be treated differently to any other sensitive information. Is it somehow more deserving of confidentiality than, say, the content of hearings by asylum-seekers, which the Constitutional Court held could not be held in secret without exception?

What about information that comes to light during divorce proceedings? Such information is extremely personal to the parties, potentially revealing intimate details of their lives. Yet even there, the Constitutional Court held that an absolute bar to access to such information cannot be countenanced in terms of the law.

In certain cases, the public interest should prevail.

The application of the public interest override to requests for taxpayer information is therefore in line with the jurisprudence of our courts, which generally abhors absolute prohibitions in matters of access to information and media freedom.

4. There are material differences between our case and the public protector’s

Why was the public protector refused access to Zuma’s records but our application succeeded?

Many will recall the rather scathing judgment handed down by Judge Peter Mabuse of the North Gauteng High Court last year, which declared that the public protector’s subpoena powers do not extend to taxpayer information. It also declared that Sars is permitted and required to withhold taxpayer information from the public protector, due to the operation of the “just cause” provision contained in the Public Protector Act (PPA).

The essential difference between the public protector’s claim and ours is that her claim was premised on her powers under the Constitution and the PPA, whereas ours was grounded on fundamental rights sourced in the Bill of Rights.

The PPA grants the public protector certain subpoena powers to compel persons to provide information under pain of criminal sanction — unless they have just cause to refuse.

The confidentiality provision of the TAA, as a provision of national legislation, is one such just cause. The public protector cannot compel Sars to provide information that the law expressly prohibits them from providing. Her powers do not extend that far.

The public’s (and the media’s) right to request information is set out in the Bill of Rights and Paia. 

It is founded on human rights, which is fundamentally different to the public protector’s subpoena powers. This is why our case came down to the balancing of rights under the Constitution’s limitations clause, rather than an assessment of empowering provisions.

5. There are material differences between this case and that seeking bank records of the CR17 campaign

The Economic Freedom Fighters (EFF) applied last year to the High Court to overturn a court order sealing a Financial Intelligence Centre (FIC) report referred to in the public protector’s report into Cyril Ramaphosa’s campaign for election as ANC President. This report formed part of the rule 53 record when her report was taken under review.

The EFF argued that the records should be unsealed in the public interest, asserting that “the constitutional right to privacy is not absolute…it is necessarily limited by the legitimate interest of others and the public interest.”

In July this year, the High Court refused to grant the unsealing order, due to several defects in the EFF’s case. These include the EFF “fail[ing] to adequately state on the papers how its rights had been affected, if at all”. Further, the EFF had not responded to Judge Aubrey Ledwaba’s call for any party that wished to challenge the sealing directive to do so — and once sealed, the record no longer formed part of the court record.

Importantly, the court distinguished this application — brought by a rival political party — from other freedom of expression cases brought by the media, noting that in the circumstances, it was worth considering whether this was a matter squarely within the public interest, or merely interesting to the public.

Another differentiating aspect was how the record came to be sealed in the first place: the public protector had ignored safeguards imposed by the director of the FIC when it provided its report to her when she filed it as part of her rule 53 record.

The court was, as a result, unable to identify any right of the EFF or interests of justice that warranted the disclosure.

The CR17 matter was therefore not squarely about the balancing of rights, as was our tax records litigation. 

AmaBhungane was cited as a respondent in the matter. We elected to abide by the court’s decision and intentionally did not wade into the merits of the EFF’s claim. Rather, we made submissions on the principle of open justice, emphasising that certain legal principles apply to the sealing (or unsealing) of records.

These included that the default position is openness, not secrecy, and that:

“Whenever a court is confronted with a choice between putting up a veil of secrecy or opening up records to public scrutiny, openness should always prevail save for extremely rare cases where the most compelling need for secrecy is established and where this outweighs the strong reasons for openness that always apply.”

The EFF has indicated its intention to appeal the High Court’s decision. If so, we will continue to advocate before the courts that in all matters concerning secrecy, established constitutional principles concerning transparency should be given due regard.

6. The next steps

Zuma will now have to live with the choice he made not to oppose the application. The audi principle in our law requires that the other side be given an opportunity to be heard. However, if they choose not to exercise that opportunity, they must bear the consequences.

The chances of the Constitutional Court entertaining an appeal by Zuma himself are slim.

It is no surprise that the Jacob Zuma Foundation has now called on Sars to appeal the decision. 

As Sars’s interests in maintaining confidentiality of all taxpayers’ information aligns with Zuma’s interests in these particular circumstances, it is through Sars that Zuma’s last chance to shield his tax affairs from public lies.

Davis’s order had two main prongs: first, it declared the blanket prohibition on disclosure of tax records to be unconstitutional and invalid. His order suspended the declaration of invalidity for two years, to give Parliament time to remedy the defect. In the interim, he read words in to the legislation.

As required by the Constitution, the declaration of invalidity has been referred to the Constitutional Court for confirmation.

He also ordered Sars to provide access to the court records of former President Jacob Zuma for the years 2010 to 2018 in ten business days.

It is expected that Sars will appeal the decision, meaning that it’s likely that a further fight is brewing — though from our perspective, there’s no fight at all. It’s clear that there are more than enough reasons for the Constitutional Court to confirm the declaration of invalidity and give due recognition to transparency in the public interest.

The post Zuma tax case: Five reasons why the panic over confidentiality is wrong appeared first on AmaBhungane Centre for Investigative Journalism.

An additional R1.5-billion will also remain frozen pending a bank guarantee, meaning a staggering R2.76-billion will remain preserved while Sars finalises a tax claim against CRRC.

The taxman had rushed to court to prevent the release of the funds that the South African Reserve Bank froze three years ago “based on irregular outflows and inflows from an Exchange Control perspective”.

Underlying the Reserve Bank’s action at the time was evidence first revealed by amaBhungane and our #GuptaLeaks partners that CRRC companies were paying a fifth of their revenue from Transnet locomotive contracts to Gupta offshore fronts as kickbacks.

The Reserve Bank later blocked additional amounts which currently stand at a total of R4.2-billion, but the initial tranche of R1.26-billion was due to be released this coming Saturday, 12 December under a rule that funds must be unfrozen after 36 months.

Sars — which has been preparing a multi-billion-rand tax bill against local CRRC subsidiary CRRC E-Loco Supply based largely on evidence that the company had deducted the kickbacks from its taxable income — argued that “that the moment the funds are released it will be externalised”.

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Yesterday’s court order, the result of an agreement between Sars and the Chinese company’s local subsidiary, CRRC E-Loco Supply, also ruled that an additional R1.5-billion be preserved in Sars’ favour.

AmaBhungane understands that Sars asked for this amount to be ringfenced based on preliminary assessment of the company’s tax bill. Although the 36-month period for freezing the remainder of the R4.2-billion frozen by the Reserve Bank is not due to expire anytime soon, the Bank could decide to unfreeze the money before that time.

The legal challenge is a victory for Sars, though the combined amount of money preserved under the order, R2.76-billion, is less than the R3-billion-plus that Sars said in its founding papers that it believed “on reasonable grounds” to be due including penalties and interest.

Sars had also in its papers asked the court to appoint a curator to take over CRRC E-Loco. However, no curator is to be appointed in terms of the final order.

The Reserve Bank’s reason for the initial freezing of the CRRC billions was that the company had broken exchange control rules by claiming to be exporting money only for the import of locomotives, while in fact it was using 21% of the funds to pay Gupta kickbacks offshore.

Sars, in its attempt to ensure the money stays in the country, argued that it was left short-changed by CRRC when the company included kickbacks in its tax-deductible cost of sales.

Sars’ own investigation drew on amaBhungane’s comprehensive exposé in June this year on the Guptas’ loco heist.

Also read

At a minute to midnight, Sars attempts to secure R4bn state capture loot

Locorruption reloaded: We reveal Gupta kickback contracts worth R9bn

How the Guptas’ R9-billion loco heist went down

The post Update: Sars freezes R2.8-billion from Chinese rail company that paid Gupta kickbacks appeared first on AmaBhungane Centre for Investigative Journalism.

It was June 2017, and the Bank cut a lonely institution holding out against state capture. It must have taken some resolve for its officials to target an industrial group controlled by a friendly state and alleged to be in a corrupt relationship with friends of the South African head of state.

In later correspondence with CRRC, the Bank referred to a 7 June 2017 meeting with its representatives, called “to, inter alia, discuss the allegation that ‘kickbacks’ were paid to Tequesta”. The Bank complained that its officials were “not furnished with any plausible explanation of the rationale for the transaction”.

In our first #GuptaLeaks story seven days before, we had revealed that CRRC predecessor China South Rail, which won contracts to supply Transnet with hundreds of locomotives, agreed to divert billions to Gupta offshore fronts, including Tequesta Group in Hong Kong.

We had posted online a copy of a kickback agreement in which China South Rail promised to pay Tequesta 21 cents in each rand it received from Transnet for an order of 359 electric locomotives.

CRRC then, as it seems to have maintained since, “stated that it was not aware of any [kickback] agreements” – though the Bank went to the effort, according to its correspondence, of commissioning a forensic handwriting analysis. This appeared to verify the signatures of Gupta lieutenant Salim Essa and China South Rail official Guo Bingquang on the Tequesta agreement.

CRRC, the Guptas and Essa have consistently failed to respond to amaBhungane’s requests for comment.

The big freeze

Before the year was out, on 12 December 2017, the Bank froze R1.26-billion it found in the accounts of CRRC E-Loco Supply, the local CRRC subsidiary that was contracted to supply Transnet.

The Bank did so under exchange control regulations permitting freezing orders and eventual forfeiture using a simple logic: If CRRC offshore was paying 21% of the proceeds of the 359 locomotive contract to Tequesta, CRRC E-Loco had not told the Bank the full truth when it applied to send forex to CRRC offshore for the importation of locomotives and parts.

The forex transfers, the Bank held, must have been inflated by 21% to pay kickbacks – a purpose the Bank had not approved.

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The amount the Bank froze constituted 21% of the almost R6-billion that CRRC E-Loco had sent abroad by then. According to the Bank’s correspondence, “CRRC E-Loco … applied for and caused foreign currency in the amount of R1 255 058 117.48 (21 per cent of R 5 976 467 226.08) to be transferred … out of the Republic, which foreign currency was to be used for, or applied to a purpose other than stated in the relevant application.”

In its annual report a year later, CRRC Corporation, the group parent company listed in Hong Kong and Shanghai, declared a contingent liability related, so it said, to the establishment of the Zondo commission into state capture and South African media reports referring to “violation of laws related to multiple procurements for the supply of locomotives by South African train operator, Transnet”.

It declared that “bank balances totalling approximately RMB600-million [about R1.26-billion then] held in two bank accounts of the Group in South Africa are the subject of freezing orders issued by the South African Reserve Bank”.

In subsequent regulatory filings, the frozen amount CRRC declared grew: RMB1.27-billion (about R2.6-billion) in June 2019, RMB2.2-billion (about R4.4-billion) in December 2019, and RMB1.88-billion (about R4.6-billion) in June this year.

Which is to say that as Transnet paid CRRC E-Loco for more locomotives, the Bank kept freezing more. The Bank ignored amaBhungane queries earlier this year despite CRRC putting the freezing orders in the public domain.

A steaming deadline

But the clock was ticking. The Currency and Exchanges Act and exchange control regulations provide that money frozen on suspicion of a forex contravention must be released after 36 months, unless the Bank confirms its suspicion and makes an order forfeiting the money to the national fiscus.

Here, the Bank had the opportunity to recover the largest pot yet of state capture loot for the public.

But with Saturday 12 December, the deadline to release the first R1.26-billion, bearing down on it, the Bank appears to have blinked. The Government Gazette, where forfeiture orders must be published to take effect, has remained silent week after week.

A forfeiture order is reviewable in court. Whether the Bank was concerned about the strength of its case, was happy for another organ of state to take the lead or has a last-minute trick up its sleeve is not known.

Whatever the Bank’s plans, the South African Revenue Service (Sars) has stepped in with a last-minute attempt to preserve the pot.

Sars last month filed an application which it wants the Pretoria high court to hear on an urgent basis on Tuesday 8 December, four days before the deadline.

The application is for an interim order preserving all of CRRC E-Loco’s assets and appointing a curator to take control of them. The curator will be specifically authorised to transfer any funds unfrozen by the Bank to his trust account.

Sars’ application motivates the intervention on the basis that it is preparing a R3-billion-plus claim in taxes, penalties and interest against CRRC E-Loco and that “a preservation order is required … to secure CRRC E-Loco'[s] realisable assets to be available for the collection of the said tax that may be due”.

If the court grants the interim order, CRRC E-Loco will be entitled to argue against it being made final at a full hearing in February.

Not tax-deductible

Sars’ claim is largely founded, like the Bank’s before, on the cover-up that accompanied the kickbacks.

Whereas the Bank effectively said CRRC E-Loco broke forex rules by failing to disclose that part of the money it took out of the country was meant for kickbacks, Sars is saying that the company broke tax rules by including kickbacks in its cost of sales. Put differently: Corrupt payments are not tax-deductible.

And like the Bank, Sars relies heavily on information amaBhungane put in the public domain.

In his affidavit motivating the application, Deon Boshoff, an investigator with Sars’ illicit economy unit, says Sars was investigating Essa, the Gupta lieutenant, but that the focus started shifting to CRRC E-Loco after Sars obtained a report on the Bank’s freezing orders in May this year.

Sars governance structures approved an investigation by the unit into CRRC E-Loco in August.

Boshoff states that he studied information in Sars’ possession and in the public domain. “I specifically considered an article appearing on the amaBhungane website on 1 June 2020 titled ‘How the Guptas’ R9-billion loco heist went down‘… The amaBhungane article contains several electronic links to documents that are relevant to the discussion below.”

Our article revealed that CRRC group companies had entered contracts to pay Gupta offshore fronts a staggering R9-billion in kickbacks on Transnet locomotive deals worth about R42-billion.

Based on our analysis of evidence including eight kickback contracts and flows into offshore accounts, all of which we posted online, we concluded that by October 2016 the CRRC companies had already paid R3.7-billion to the Gupta fronts. After that the offshore data went dark but the payments likely continued.

Sars’ view

Boshoff’s 96-page affidavit examines each of the three contracts for electric locomotives – 95, 100 and 359 – that CRRC E-Loco won from Transnet, returning repeatedly to amaBhungane’s information.

Commenting on the kickback contracts, he says: “Sars is of the view that these agreements were concluded to extract funds from Transnet, the largest procurement vendor in South Africa together with Eskom, to line the pockets of Mr Essa, the Guptas and other high profile individuals, to the detriment of the South African taxpayer and the South African economy in general.”

In the end, he identifies R2.65-billion in kickbacks that CRRC E-Loco irregularly deducted in its 2014, 2015 and 2016 tax returns. It is less than the R3.7-billion identified by amaBhungane, among other reasons as the Sars dragnet did not include a CRRC E-Loco sister company which won a separate contract for 232 diesel locomotives from Transnet and where kickbacks were also paid.

It is not known if Sars is separately investigating the sister company, CRRC SA Rolling Stock.

Boshoff proceeds to recalculate CRRC E-Loco’s tax returns, disallowing the kickback deductions and some other items. With penalties and interest, the “total probable tax debt” comes to R3.17-billion. But the tax audit, he says, is not complete and the figure may change.

Others circling

Boshoff says that the funds frozen by the Bank last month amounted to R4.19-billion – it had come down from the about R4.6-billion frozen at its height after the Bank acceded to a CRRC E-Loco request to release some of the funds “to pay its debts, as it is entitled to”.

Boshoff draws the court’s attention to the fact that the currently envisaged SARS claim is about R1-billion less than what the Bank has frozen.

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He adds, “However, SARS is not fully informed regarding exactly what the position is regarding all of these funds or whether there may be other persons or entities who have a claim against these funds. Under the circumstances, SARS asks for the entire amount, together with the other assets of CRRC E- Loco to be preserved.”

Indeed, amaBhungane understands that Transnet, the Asset Forfeiture Unit and possibly other state organs are preparing applications of their own. The recovery race is on.

The post At a minute to midnight, Sars attempts to secure R4bn state capture loot appeared first on AmaBhungane Centre for Investigative Journalism.

The SARS letters were to inform Linkway that its assessments for income tax and VAT had been massively adjusted for the tax years 2013 to 2016.

SARS alleged that Linkway had effectively underdeclared taxable income by R197.5-million and had reclaimed R24.5-million in VAT it was not eligible for.

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That translates into a tax liability likely in the region of R80-million, excluding interest and penalties.

Linkway’s main claim to fame is being the conduit through which R30-million came into the country from Dubai to pay for the infamous and absurdly lavish Sun City wedding of 2013.

The extravaganza was claimed as a business expense using some creative accounting and the connivance of KMPG audit partner Jacques Wessels, as previously reported by amaBhungane and our #GuptaLeaks partners.

The money was diverted from the Estina dairy project in the Free State before being routed through a Dubai company called Accurate Investments back to Linkway in South Africa.

SARS has now finally taken action against this brazen abuse. The Independent Regulatory Board for Auditors deregistered Wessels last year for his role in the scandal.

Part of SARS’s threatened adjustment to Linkway’s taxable income is that the entirety of the wedding expense will be disallowed as a “business expense” and become taxable.

“It appears that Linkway Trading was merely a conduit or directly and indirectly acting as an agent of Islandsite and the four directors,” SARS notes in one of its letters.

Linkway is a subsidiary of Islandsite Investments 180, the company that also owns the Gupta family’s luxury properties, jet and other assets in South Africa.

The four directors of Islandsite that SARS referred to are two of the Gupta brothers, Rajesh “Tony” and Atul, and their wives, Arti and Chetali.

Beyond Sun City

The infamous wedding is seemingly far from the only use Linkway was put to, the SARS audits reveal.

The company was mostly active in the 2013 and 2014 tax years (1 March 2012 to 28 February 2014). The total amount of cash that moved through its account dwarfed the amount spent on the nuptials.

In the 2013 tax year the company received deposits of R113.2-million and made payments of R112.6-million, SARS found.

In the 2014 tax year it received R106.1-million, which includes the money from Dubai for the wedding.

The striking thing about the 2013 year is that almost the entire amount of money that moved through Linkway’s account, R105-million, arrived in a brief 12 day period between 29 June and 10 July 2012.

There is convincing evidence that Linkway lied about what this money was for.

It supposedly consisted of payments made by yet another Gupta company, Confident Concept, for unidentified “goods or services” it was buying from Linkway.

However Linkway was buying the selfsame “goods and services” from Islandsite with a negligible profit margin of 0.33%.

Confident Concept is owned by the four Guptas who own Islandsite.

A set of invoices were produced on the exact same day for both sides of the supposed transactions: i.e. Linkway issued an invoice to Confident Concepts and simultaneously received an invoice from Islandsite. But this was only done some seven months later only, in February 2013.

The actual payments in the previous June and July, and the justification for the payments, do not line up at all.

For the taxman this means that the supposed business expense of buying things from Islandsite was “overstated” insofar as it did not exist at all. This R105-million then becomes taxable.

There were also other problems SARS flagged on the taxation front like the absence of invoices for supposed purchases from Gupta TV channel ANN7.

Given that the same company, Linkway, was the recipient of laundered money mere months later, the R105-million raises an obvious question: why was it moving through a known Gupta money-laundering vehicle in the early days of the family’s state capture adventures?

The dates for the payments into Linkway do not correspond to any of their well-known projects or scandals.

Who pays?

Linkway was given 21 business days to challenge the SARS audit findings, failing which it will be liable for the adjusted tax. That grace period ran out on the 15th of this month and it is unclear whether the company took up the offer.

The process started on 19 November last year when SARS first asked for information in order to conduct an audit. Linkway cooperated until a further request for information on 17 July. Linkway went quiet which led to SARS dispatching the letters of findings last month.

It is unclear why the company initially cooperated and then broke off communications. The SARS letters were sent to Linkway attorney Michelle Du Preez.

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Du Preez confirmed to amaBhungane that she acted for the company, but said she could not answer questions due to taxpayer confidentiality.

If the tax adjustment is confirmed, it remains to be seen how the money might be recovered and not simply add to the billions of rands’ in damage the Guptas wrought on the South African economy.

Linkway is in the process of being deregistered, which means SARS may pursue its directors for the taxes it says are owed.

Even though Rajesh Gupta and other recurrent Gupta executives had previously been directors of Linkway, the only directors during the period covered by the audits were Gupta loyalist Ronica Ragavan and one Kevin Thysse.

*This story was amended after publication to correct an interpretation of what SARS had found in relation to the R105-million.

For more #GuptLeaks exposés click here.

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The papers are the culmination of a process that began in February when FM applied to Sars under the Promotion of Access to Information Act (PAIA) for Zuma’s returns in the years 2010 to 2018, when he was head of state.

The request and a subsequent appeal were denied by Sars on grounds including secrecy provisions in PAIA and the Tax Administration Act (TAA). PAIA specifically excludes tax information from its public interest considerations, while the TAA prohibits Sars and its employees from disclosing any taxpayer information to any member of the public.

The TAA further prevents any party, including the media, who come into possession of such information from reporting on it.

“We believe the existing legislation to be unconstitutional, as it prevents us from obtaining information on the tax status of senior members of the executive – like former president Jacob Zuma – accused of serious crimes, including being tax delinquent. It restricts our ability to disseminate this vital information to the public,” says FM editor Rob Rose.

The former president’s tax affairs have been the subject of intense scrutiny. Serious allegations of non-compliance were revealed in investigative journalist Jacques Pauw’s bestselling book, The President’s Keepers, including that Zuma had not filed tax returns for several years while president.

Former public protector Thuli Madonsela also weighed in on the subject in her 2014 report Secure in Comfort, which stated that Zuma was liable for the fringe benefits accruing to him as a result of the dubious “security upgrades” made to his Nkandla homestead.

“The tax status of presidents and other holders of high office is of manifest public interest. The public may rightly ask, if the president does not pay his taxes or fails to disclose all income, why should they? The political capture and governance failures at Sars were to a large degree facilitated by the lack of public transparency at this important institution,” says Karabo Rajuili, advocacy coordinator at amaBhungane.

“A vital part of rebuilding the integrity of Sars and improving tax morality is ensuring that investigative journalists and whistle-blowers have the right to access information and report on it, including how the tax authority handles the affairs of senior government officials,” she says.

The applicants are not seeking blanket access to the tax records of the general public. “That is a critical distinction to make,” says Dario Milo, a partner at Webber Wentzel attorneys who is representing the media.

“The modification we are seeking to the law will allow an information officer in certain, specific cases, and under the prescripts of PAIA, to grant permission to the public, including the media, to access the tax records of senior government officials accused of wrongdoing, and in turn, will give journalists the freedom to report on it,” Milo said.

The application names as respondents Sars, Zuma, the ministers of finance and justice, and the information regulator.

The founding affidavit with annexures can be downloaded here.

For additional comment, please contact:

amaBhungane
Karabo Rajuili, 082 365 6553

Financial Mail
Rob Rose, 082 856 3046
Warren Thompson, 083 661 2236

The post Advocacy release: amaB and FM launch application to access Zuma’s tax records appeared first on AmaBhungane Centre for Investigative Journalism.

This is in response to one of the commission’s terms of reference: “Whether any legal proceedings or complaints instituted by Sars against … the media or any other person for reasons that do not relate to their tax affairs were instituted for reasons that are rational and in the best interest of Sars,”

In 2016, Sars, its commissioner, Tom Moyane, and acting chief operations officer, Jonas Makwakwa, brought defamation proceedings against two amaBhungane reporters and the Mail & Guardian.

AmaBhungane argues this was neither rational nor in the best interests of the public or Sars.

• Read the Nugent Commission Terms of Reference and amaBhungane’s full submission

The Sars suit related to an amaBhungane exposé, “Sars wars: Moyane’s empire strikes back”, which the Mail & Guardian published in 2016. Its authors, Sam Sole and Craig McKune, were cited as defendants alongside the paper.

The story reported on allegations made by senior Sars insiders against Moyane, Makwakwa and Sars.

In their suit, Moyane and Makwakwa sought R1-million in damages each while Sars claimed it had suffered damages worth R2-million.

They further claimed that the reporters and the newspaper committed a criminal offence, breaching section 67(3) of the Tax Administration Act (TAA), by disclosing Sars and taxpayer confidential information.

In May this year, more than two years after they launched their suit and shortly after Moyane was suspended as commissioner, Moyane and Sars withdrew their claims.Makwakwa has not.

In the course of the Sars suit, then-finance minister Pravin Gordhan filed papers effectively contradicting Sars.

He stated: “Section 67(3) of the TAA, read with the definition of ‘Sars confidential information’, protects the legitimate governmental purpose of effective revenue collection… The section, properly construed, does not purport to immunise Sars from disclosures or publications of allegations of abuse of power or unlawful conduct by it or its senior officials or similar allegations in circumstances where such disclosure or publication is in the public interest.”

AmaBhungane’s Nugent submission states: “In its attempt to, we submit, improperly invoke the TAA as a means to suppress the media’s reportage of allegations in the public interest against them, the plaintiffs acted against the public interest and sought to stifle reportage which the public clearly had a right to know.

“The effect of an allegation that amaBhungane breached section 67(3) of the TAA is that it committed a criminal offence. The potential for such a finding to be visited upon a member of the media would chill reportage relating to Sars (such as the reportage in the article) which clearly would undermine media freedom and the public’s right to be informed.

The submission further notes that Sars similarly sought to rely on section 67(3) to declare unlawful parts of veteran journalist Jacques Pauw’s book The President’s Keepers.

The submission invites the commission to “express a view in its report on whether the reportage of allegations of unlawful conduct within Sars, which is in the public interest, is a contravention of section 67(3) of the TAA”.

* AmaBhungane is represented by Webber Wentzel.

The post Advocacy: AmaB approaches Nugent on Sars using tax law against journalists appeared first on AmaBhungane Centre for Investigative Journalism.

This emerges in court papers filed in the Western Cape High Court, in which the SA Revenue Service (Sars) claims that ENS created an aggressive tax structure to help Tullow shift assets worth R3.9bn out of SA, dodging taxes in the process.

Sars is now pursuing Wiese, a former ENS executive, and two other people personally for R217m, as part of a R3.7bn tax claim based on Tullow’s “restructuring ”. When contacted about this story, ENS tax head Peter Dachs denied that Sars alleges any tax evasion “in respect of the merits” of the long-running dispute.

ENS, which is due to move into a glitzy 17-storey office tower in Sandton next month, bills itself as Africa’s largest law firm, with 600 lawyers focused on doing “what’s best for the client”.

In this case, Sars claims ENS restructured Tullow, leaving it in charge of a holding company in SA that was little but a tax shell — which the law firm then sold to Wiese.

When Sars came knocking, Wiese allegedly moved assets out of the company and sold it to a former ENS executive who told Sars there was no cash or assets left to claim. The case is due to be heard in court next month.

This is more bad news for Wiese who, until last year, was SA’s wealthiest citizen by a country mile. However, the collapse of furniture retailer Steinhoff, which he chaired until December, caused Wiese’s wealth to tumble by R59bn. Wiese tells amaBhungane he got no tax benefit from the scheme.

However, it seems he tried to — but Sars stopped him. Tullow, which was started in Ireland in 1985 to exploit Africa’s forgotten oil fields, is valued at £3.2bn on the London Stock Exchange.

It boasts that it is “Africa’s leading independent oil company”, based on its operation in 10 African countries. However, it has regularly found itself wrapped up in tax controversies.

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In 2013, a nongovernmental organisation called Platform London claimed Tullow had created artificial structures to minimise its profit in the UK to avoid paying tax.

“From 2011 to 2012, Tullow increased its pretax profits from $1.07bn to $1.1bn, but in the same period the rate of corporate tax that it claimed was due dropped from $37.4m to $10.1m,” it said.

Tullow has not responded to amaBhungane’s questions.

Normally, this isn’t the sort of dispute one reads about, as raw details of tax disputes are usually protected by tax secrecy laws. But because Wiese’s matter surfaced in an open court, the public is afforded a rare view of the role that supposedly reputable lawyers and tax advisers play in helping large companies and the wealthy avoid paying tax.

This is a privilege not enjoyed by ordinary citizens and smaller companies that cannot afford the services of firms like ENS.

Tullow goes Dutch

The fight goes back to January 2007. At the time, Tullow wanted to move a number of its international oil exploration assets into the hands of its Dutch subsidiary to “streamline the holding structure and erase inefficiencies and impracticalities”. Most likely, it also wanted to get the tax benefits from the Netherlands.

However, among Tullow’s assets were a number of African exploration ventures, which it owned through an SA company called Energy Africa Lt d .

The cheapest and most transparent way to get those assets to the Netherlands, Sars later argued, would have been for Tullow’s Dutch arm to simply buy them directly from Energy Africa.

Instead, ENS proposed a more convoluted solution, which Sars later argued was a “sham” that made no commercial sense. Sars said this structure was nothing more than “an elaborate scheme intentionally designed to facilitate the evasion of [capital gains tax] and [secondary tax on companies, a tax on dividends]”.

ENS rejected this. It argued that Tullow’s commercial rationale was legitimate and that it was allowed to arrange its affairs in the most tax-efficient manner.

The players

While a number of companies were involved, the three pivotal controlling hands were Tullow, ENS and, later, Wiese’s investment group, Titan.

Unusually, ENS itself had skin in the game through a vehicle called the Enact Trust. According to Sars court documents, Enact ’s trustees and beneficiaries were certain ENS partners, directors and employees.

Quite who they were ENS isn’t saying. Dachs refused to identify them, nor would he explain the exact nature of the trust and its relationship with ENS.

And, even though trust deeds are public documents, the master of the high court in Cape Town refused to allow us to inspect the Enact Trust deed. This disturbing lack of transparency hasn’t helped ENS’s argument.

The restructure

The transaction is complicated, but it can be boiled down to three main steps. This is outlined in a web of “interdependent ” contracts between companies controlled by Tullow and ENS’s trust, all signed in one week in January 2007.

In step one, Tullow sold Energy Africa to the ENS-controlled SA company Elandspad Investments for $543.76m (about R3.9bn then). However, no money changed hands.

Instead the two groups set up a loan account a R3.9bn IOU from Elandspad to Tullow.

Step two: Tullow transferred that loan account to its Dutch subsidiary, which immediately transferred it to Energy Africa (by then in Elandspad’s hands) along with an extra $1.2m cash (about R8.6m then). In return, Energy Africa handed the oil exploration assets back to Tullow, now using its Dutch subsidiary.

Actually, the R8.6m cash was frozen — Energy Africa could not touch it for three years, the contracts stipulated. Consider this transaction from Elandspad’s vantage point. It was now the owner of Energy Africa, to which it owed R3.9bn, but the assets that underpinned that obligation had been given to Tullow in the Netherlands.

All that was left was a cash shell, the Energy Africa holding company, and an account with frozen cash. It was a suspiciously bum deal.

As Sars put it: “It lacks commercial sense for parties to enter into a share sale agreement where the price is the same as the market value of an asset of the target company [Energy Africa] and the purchaser [Elandspad] will never enjoy any of the predominant commercial benefits of such asset. Yet this is precisely what happened” Sars concluded that: “Elandspad never intended to incur a bona fide liability in the amount of [R3.9bn] to a third party.”

Despite this, ENS was so confident of its structure that its company, Elandspad, even offered to indemnify Tullow against any future tax claims or liabilities in connection with the restructure. ENS, effectively, carried the risk.

‘Tax evasion’

So why the convoluted structure? In a series of letters, Sars claimed the agreements were simply part of an “elaborate daisy chain” designed to achieve some ulterior purpose.

“The unstated purpose of Tullow UK was to remove the underlying assets of the taxpayer from SA without paying [capital gains tax] or [secondary tax on companies],” it says.

ENS wrote back to Sars, denying this.

Rather, it said: “The [Tullow] restructure was the only reason the transactions were concluded at all.”

Sars believed the entire scheme was devised to “misuse or abuse” a local tax break called a “participation exclusion”. This allows a South African to sell shares in a foreign asset to a foreign buyer and bring that money home without paying capital gains tax.

However, this tax break is not allowed if the buyer and seller are connected parties and if the buyer does not pay the full price, among other conditions.

So, practically, if a Tullow company in SA sold a R3.9bn asset to a Tullow company in the Netherlands for only R8.6m, Tullow would have to pay capital gains tax.

But with ENS’s trust playing the middleman, Energy Africa and Tullow’s Dutch company were unrelated (on paper, at any rate) when the oil exploration assets were transferred from SA to the Netherlands.

And because Tullow’s Netherlands company had transferred a R3.9bn IOU to Energy Africa in return for the assets, a fee was paid — in theory.

Sars argued this was all “an illusion”. “The true substance of the transaction”, it said, was that Energy Africa and Tullow’s Dutch subsidiary were connected parties, while the R3.9bn price tag was also a simulation.

“The consideration, if the suite of agreements is looked at holistically, is the [R8.6m] paid by [Tullow’s Netherlands company] when the Tullow group ‘bought back’ it s own assets. That was the true consideration.

There was never any intention that the [shares in the assets] would be disposed of by [Energy Africa] for an amount equal to the [R3.9bn] valuation.”

In other words, the Sars official concluded, “I am of the view the ostensible consideration [R3.9bn] was a sham.” As a result, capital gains tax had to be paid, according to Sars.

And because assets worth about R3.9bn had changed hands between connected parties for just R8.6m cash, Sars considered the difference to be a dividend that Energy Africa had distributed to its “parent” Tullow.

Sars argued that the company paying this “dividend ” should also be taxed under an old provision known as a secondary tax on companies.

In its letters to Energy Africa, Sars said:

“With respect to the application of the doctrine of substance over form, it is the view of the commissioner that the taxpayer deliberately concealed the true substance of the transactions undertaken, and in doing so knowingly created a sham … with the intention of evading tax.”

Sars later calculated that the two taxes came to R940m. This, in addition to penalties of 150% plus interest, puts Sars’ claim now at R3.7bn.

Wiese’s little tax haven

It gets worse, however. The law firm’s new trust was now the proud owner of Energy Africa, but while their acquisition had given away its assets, it did still contain a trump card: an asset known as an “assessed loss”.

This is because, in previous years, Energy Africa had lost R198m, so it could theoretically write off future profits against this without paying tax. It meant the mysterious people behind the ENS trust could profit from this situation — which they did in step three.

In April 2007, three months after the Tullow restructure, an ENS man named Gert Viljoen approached Wiese with a proposition. Viljoen, then ENS’s “executive head: special projects”, had played a part in advising Tullow on its Dutch restructure.

A more recent ENS letter in the court file said Viljoen had “a longstanding relationship with [Wiese’s Titan group], spanning more than 15 years”.

So on that day in April 2007, Viljoen acted “as representative of the Enact Trust” when he suggested that Wiese’s company, Titan Premier Investments, should buy Elandspad. Titan duly did so, paying R12m to Enact.

For Viljoen and ENS, this was an opportunity to release the value (and then some) tied up in Energy Africa’s frozen R8.6m. That money passed on to Wiese for use later, while he also became the proud owner of Energy Africa’s assessed loss, which he could then use for future tax write-offs.

Sars, however, says this was just another link in the “daisy chain” in which, it said, Tullow and Titan “bartered” tax benefits.

On Sars’ “bartering ” interpretation, Titan had helped Tullow to dodge taxes when it moved assets offshore, and in return, Titan got Energy Africa’s tax loss plus R8.6m cash.

In the process, Sars said: “The Titan group indemnified the Tullow group against any potential SA tax liability.”

But here, it seems Sars made an error. It had ignored the ENS trust’s role as a middleman, and it was Elandspad (effectively the ENS trust) that indemnified Tullow, not Titan.

ENS and Wiese jumped on this point, arguing strenuously against Sars’ interpretation. In an e-mail to amaBhungane, Wiese made two points: “First, the Titan Group had no involvement in the restructure by the Tullow group of its operations and there was no ‘trading of tax benefits’ between the Tullow and Titan groups.”

Sars disagrees.

In an earlier letter to Energy Africa, Sars said: “At the time of the assessment, the involvement of the Enact Trust was not known to the commissioner of [Sars]. [He] does not know the terms of the agreement whereby the transfer from the Enact Trust to Titan was effected … In any event, the assessment raised by the commissioner is neither founded on nor rendered invalid by the involvement of the Enact Trust.”

In any event, if Sars was to decide that Tullow dodged tax, Wiese wanted nothing to do with it. According to letters from ENS in the court file, Titan had bought Elandspad on condition that the ENS trust indemnified Titan from “any historic obligations or liabilities that may arise” from the Tullow restructure.

So the people behind the ENS trust appeared to remain exposed to any potential tax bills. In point number two of Wiese’s e-mail to us, he said: “Secondly, the Titan Group derived no tax benefit in respect of its subsequent acquisition of Energy Africa from Elandspad.”

Sort of.

In the court papers, Sars says that immediately after buying Energy Africa, Titan shifted R657m cash into Energy Africa, with which it traded in single stock futures. It also got an “inter group management fee” and other fees.

And every year that Energy Africa turned a profit, it wrote this off against Tullow’s old assessed loss and did not pay tax.

In a letter, Sars said: “The taxable income [Energy Africa] earned in the 2007 to 2012 years [after Titan bought it] amounts to approximately R200m, which dovetails with the assessed loss of approximately R198m. “The main objective of the Titan group [in buying Elandspad and Energy Africa] was to access the assessed loss. Once it had done so and exhausted the tax benefit of the assessed loss, it withdrew the activities it had introduced.

“The taxpayer is now dormant.”

Much later, Sars slapped Energy Africa with a R100m tax bill (including penalties and interest) “on the basis that the sole or main purpose for the Titan Group acquiring the shares in [Energy Africa] was to utilise the assessed loss”.

Titan ultimately paid Sars an undisclosed settlement for this. So, yes, Wiese might say that Titan “derived no tax benefit”.

Gunning for Wiese

To step back into our chronology, a few years after Tullow’s restructure in 2007, Sars went for Wiese’s throat. It appears this was sparked by an unfortunate incident Wiese had in London.

On April 27 2009, Wiese tried to board a flight from London City Airport to Luxembourg, carrying £120,000 cash in his carryon luggage. He had also stuffed another half a million pounds (about R9m then) into his suitcases.

Customs officials stopped him and took the money.

Wiese reportedly told them these were profits from his diamond deals back in the 1980s, and that he was off to invest the money in Luxembourg.

Wiese fought in a British court and eventually got the money back. But according to later news reports, the scuffle sparked interest from Sars, leading to a big audit.

A year and a half after the London bust, the first tax bill landed at Energy Africa’s door. This was for its use of the assessed loss, discussed previously.

Nearly a year later, in August 2012, City Press and the Sunday Times announced in tandem that Sars had slapped Wiese with a R2bn tax bill. It is unclear if this was related to the Energy Africa affair.

The next month, Sars sent Energy Africa another R20m bill, and in November the big one landed: a 32-page letter from Sars’ Large Business Centre in which officials explained their audit of the Tullow restructure, and they notified Energy Africa that they intended to claim R940m in unpaid tax, plus penalties and taxes (now R3.7bn).

The Large Business Centre at Sars was a highly specialised unit that dealt with SA’s biggest, most complicated taxpayers: large corporates like Tullow and “high net worth individuals” like Wiese. It collected about a third of Sars’ revenue.

Recently, the former head of the centre, Sunita Manik, publicly accused former commissioner Tom Moyane of undermining and dismantling it. Moyane has denied this.

In an e-mail to amaBhungane, ENS’s Dachs tried to explain that Sars did not base its technical case on a charge of “tax evasion”.

Tax evasion is a criminal offence as opposed to “av o id a nce”, which is sometimes allowed and sometimes not. However, it is easier for a revenue collector to sustain an allegation of avoidance.

One person sympathetic to ENS who knows this case well told us that Sars will often accuse a taxpayer of evasion when it is arguing for a big penalty, even if the underlying claim is of avoidance. He said this was what Sars did in Energy Africa’s case.

Said Dachs: “In respect of the merits,” — he underlined this part in the e-mail to us — “Sars has never alleged or argued that the restructure transactions constituted a ‘tax evasion scheme’.”

Instead, he said Sars argued that the “substance over form” doctrine applied to thetransactions and, alternatively, that the general antitax-avoidance rules applied to the transactions.

Wiese tries to wash his hands

Meanwhile, Gert Viljoen left ENS in 2011 to start his own boutique financial advisory firm, nestled on the first floor above a famously trendy bakery and coffee shop in Bree Street, Cape Town.

It was Viljoen who sold Wiese the scheme in 2007 on the condition that, should Sars come knocking concerning Tullow’s tax affairs, it would not be Titan’s problem.

Then Sars had come knocking — and Wiese sent someone from Titan to tell

Viljoen. Wiese’s man “requested” that Viljoen take over Elandspad and Energy Africa “to deal with such an inquiry”, according to letters in the court file.

Viljoen was ready to oblige.

Writing to Sars on his behalf much later, ENS said: “It was relevant for Mr Viljoen” that Titan had major interests in Shoprite, Steinhoff International Holdings and Pepkor Group.

“Mr Viljoen thus considered it in the interest of his business to acquire the shares in [Energy Africa] as requested by [Titan].”

In other words, Viljoen’s fledgling outfit relied on Wiese’s business.

As ENS put it: “Mr Viljoen considered himself, together with ENSafrica, to be best placed to deal with Sars’ inquiries.” So Viljoen and ENS prepared themselves for a R3.7bn fight.

In April 2013, five months after the Sars Large Business Centre’s letter, ENS’s Dachs replied, setting out why his client, Energy Africa, believed the tax claim was baseless.

Three days later, Wiese resigned from the Elandspad and Energy Africa boards. There was another twist: at the time, one of Titan’s group companies still owed Energy Africa R217m for some unfinished business, even though Wiese ultimately owned both.

But before handing the Energy Africa lemon back to Viljoen, Wiese wanted to ensure he kept this R217m loan asset.

As ENS explained to Sars: “As Dr Wiese did not wish for a third party to hold a claim against [Titan], it was decided that [Energy Africa] would distribute the loan claim to Elandspad, and thereafter, Elandspad would distribute [it to Titan Premier Investments], whereafter the shares were sold.”

So in a nutshell, Energy Africa declared the money as a dividend to its erstwhile parent, Titan. This ensured the R217m loan asset remained with Wiese’s group, rather than going with Energy Africa to Viljoen. After that was done, Wiese signed the papers to transfer Elandspad, Energy Africa (and hopefully the tax woes) to Viljoen.

Still, Sars was unmoved by Dachs’s arguments and issued a “finalisation of audit” letter in August 2013.

Dachs ’s colleague wrote back to say Energy Africa still disputed the claim. Anyway, it “does not have cash or assets and … is therefore not able to make payment of the disputed tax”.

In June 2014, Sars issued a “final demand” that Energy Africa should pay its tax debt within 10 days. But Viljoen wrote back to say Energy Africa was dormant.

The shutters were drawn. The money was gone.

The illusion

To put this in context, it was in November 2012 that Sars first told Energy Africa it believed the R3.9bn price tag for the Tullow assets that went to the Netherlands was a “sham”, a “simulation” and an “illusion”.

While ENS disputed this, Energy Africa’s 2013 and 2014 audited financial statements underscore the apparent absurdity of ENS’s structure.

The financials, both published in April 2015, show that, up to 2013, Elandspad owed Energy Africa R3.9bn; but the next year, Energy Africa simply wrote it down to R1.

This meant that for seven years from 2007, a R3.9bn “debt ” based on assets that had long since gone to Tullow’s Dutch company remained on Elandspad and Energy Africa’s books, before vanishing in a puff of accounting smoke.

Personal liability

In February 2016, Sars liquidated Energy Africa through the Western Cape High Court.

In October that year, Sars sent notices to Wiese, Viljoen and two of their colleagues, seeking to hold them personally liable for the R217m asset they had allegedly “knowingly dissipated … in order to obstruct the collection of the [R3.7bn] tax debt”.

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ENS ’s Dachs fought this, on behalf of all the parties. Dachs wrote that when Energy Africa’s assets were spirited up to Titan, Wiese “entertained the good faith belief” that Sars was wrong and no tax was owed.

“Dr Wiese placed reliance on the representations and warranties obtained from the Enact Trust at the time,” the lawyer said.

This included the warranty that when Tullow restructured, “advice was sought from tax advisers, and opinions were obtained from senior counsel who confirmed that no [capital gains tax] and [secondary tax on companies] implications should arise”.

In any case, ENS argued, Wiese had resigned from Energy Africa the day before the alleged “dissipation”. Sars rejected this, calling it a “contrived argument”.

“To put it plainly, you sought to drive a wedge between the Titan group and that of the problematic taxpayer [Energy Africa] and to prevent Sars from laying its hands on the only remaining asset of the taxpayer,” it said.

In fact, Sars argued, the “clear purpose” of Wiese, Viljoen and the others was to “delink the taxpayer (and hence its tax liability) from [Titan].”

In August 2017, Sars wrote to Wiese, Viljoen and the two others, demanding payment of the R217m within 10 days. Three weeks later, a high court sheriff served them with summonses.

Wiese and the others filed an “exception” which is a technical objection — with the court. They claimed Sars had failed “to allege any facts in support of the allegation made” that they’d had knowledge of obstructing the collection of tax.

Sars’ claim was so vague, they argued, that they could not defend themselves against it without being prejudiced. This argument will be heard in the high court in Cape Town on August 22.

ENS

When amaBhungane asked Sars if it was pursuing ENS or those who controlled the Enact Trust or the Tullow Group for their role in this alleged tax-evasion scheme, Sars said it did not comment on taxpayer information in the public domain.

“Sars is bound by the confidentiality clause, that is, section 69, not to divulge specific information and details on the affairs of taxpayers,” it said.

However, Dachs told us that Sars “has all the relevant facts in relation to the role of each of the advisers in relation to these transactions. Sars has not sought to impugn the role of any of the advisers arising from these transactions.”

And we asked Wiese: “It strikes us that ENS/the Enact Trust sold you a very sour lemon (R3.5bn sour). Do you wish to comment on: (a) if you have received advice on whether you have a claim against the firm or its agents? and (b) whether ENS is representing you for its own account (gratis to you)?”

He responded: “Dear Sam. The answer to both of your questions is no. Regards, Christo Wiese.”

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