Thursday, June 7, 2018

SA’s most spectacular case of corporate capture

SA’s most spectacular case of corporate capture
Chairman Connie Myburgh and CEO Dominique Haese take full voting control of the Nova Property Group.
Ryk van Niekerk 2018
Connie Myburgh and Dominique Haese. Picture: Moneyweb

In what must be one of the most spectacular corporate captures in South African history, Connie Myburgh and Dominique Haese, respectively the chairman and CEO of the Nova Property Group, have taken full control of the rescue vehicle of the erstwhile R4.5 billion Sharemax investment scheme.

Moneyweb can confirm the two directors, who are romantically linked according to several sources, acquired 100% of the voting rights of the company after stripping the other voting shareholders of their voting rights.

Subsequent to obtaining full voting control, Myburgh approved maximum increases of 10% for the directors for the next three years at a recent AGM, something shareholder activist Theo Botha “has never seen before”.

He added that Nova is an ideal case for a class-action suit.

100% of the vote

The Nova shareholding structure is complicated, with only the seven founding shareholders, who received their shares for free, holding any voting rights. According to this structure, each of the four directors held around 23% of the vote. The balance was held by three other individuals.

The 2 000 Sharemax investors who elected to receive Nova shares in lieu of debentures, have no voting rights.

In what may seem to be a case study in corporate capture, Myburgh and Haese annulled the voting rights of the other shareholders. This was triggered by an attempt led by Dirk Koekemoer (property director) and Rudi Badenhorst (financial director) to remove Myburgh and Haese from the board.

Myburgh and Haese foiled this attempt and instead engineered the resignations of Badenhorst and Koekemoer as directors.

From left to right: Rudi Badenhorst, Dominique Haese, Connie Myburgh and Graeme Polson. This photo was taken last year at the debenture holders’ meeting where Badenhorst claimed the listing proposal of the Nova Property Group was “daylight robbery”. It was the first public sign of significant infighting among Nova board members.

Badenhorst and Koekemoer signed a shareholders’ agreement that reduced their shareholding in the company and stripped their remaining shares of all voting rights. It is not certain why they signed this agreement.

Moneyweb has also learnt that the voting rights of the remaining minority shareholders were also rescinded.

This sequence of events left Myburgh and Haese with 100% of the voting rights in the company. According to Moneyweb calculations, their collective shareholding in Nova increased from around 46% to 60% in Nova.

Moneyweb sent questions to all the shareholders but did not receive a response.

Shareholders’ meeting

During a recent, poorly attended AGM in Pretoria, an abrasive and abrupt Myburgh acknowledged changes to the shareholding structure but refused to divulge any details, citing a confidential shareholders’ agreement.

“It is confidential information between the shareholders of the companies and I am not going to discuss that [at the AGM]. The matter has no bearing on other shareholders, nor on the affairs of the company,” he said.

Myburgh refused to answer a question on whether he and Haese obtained complete voting control of the company: “I am not going to discuss that. That is part of a confidential shareholders’ agreement.”

He later added: “I will not be cross-examined by you [the author] any further. I regard this matter as closed… The shareholding has been adequately and correctly disclosed. The company is owned by its shareholders and that is the end of the matter.”

Myburgh questioned the facts Moneyweb put to him but did not offer to provide an alternative version. He also did not respond to questions relating to the shareholding structure that were emailed to him after the AGM.

This refusal to disclose changes to the shareholding and voting rights follow the lengthy court battle between Moneyweb and Nova after Myburgh fiercely tried to keep the original shareholding secret. The Supreme Court of Appeals eventually found in Moneyweb’s favour and it was only then revealed that the founding shareholders had received 96% of the company without paying a cent.

Moneyweb will be lodging a new application to access the latest shareholder registers in terms of Section 26 of the Companies Act in due course.

Corporate capture

These events show how Myburgh completed his and Haese’s corporate capture of a company.

Myburgh’s involvement started when he penned the original Section 311 Scheme of Arrangement that was designed to “rescue” the R4.5 billion that about 18 000 mostly elderly pensioners invested in Sharemax.

Here are the key developments in this process:

In 2011, Myburgh penned the original Section 311 Scheme of Arrangement after the collapse of Sharemax. This saw the transfer of all former Sharemax properties from investors to Nova.
During this process, Myburgh became chairman of the Nova board.
Myburgh, Haese and the remaining five founding shareholders collectively received 96% of the shares in Nova, as well as 100% of the voting rights, without paying a cent.
Myburgh had a stranglehold on the company from the outset and, together with Haese, controlled 46% of the vote.
In 2017, Badenhorst and Koekemoer, supported by some of the minority voting shareholders, tried to have Myburgh and Haese removed from the board. Myburgh and Haese managed to foil this attempt and later engineered Badenhorst and Koekemoer’s resignations. Their shareholding was reduced and they lost the voting rights attached to their remaining share.

This effectively means Myburgh and Haese have full voting control and own 60% of the 20 remaining Sharemax properties, which according to the latest financial statements are valued at nearly R2.5 billion. Total assets amount to R2.87 billion, while total liabilities stand at R2.62 billion.

Theo Botha response

In response to these developments, shareholder activist Botha said Nova represents an ideal case for a class action. “Where is our judicial system in all of this? Where are our A-grade attorneys who would take this on risk and take on the directors? This is a prime class-action case because people have lost their rights. There is significant value in the properties of the company and this should be returned to investors.”

10% salary increase for three years

The AGM also saw Myburgh, who was appointed as proxy for all shareholders with voting rights, approve all normal and special resolutions. The most controversial was the approval of salary increases of 10% per annum for three years.

The remuneration structure of the non-executive directors that was approved at the Nova AGM.

This is on top of the exorbitant salaries the directors already receive, and the approval of financial statements that were significantly restated due to the previously massive overvaluation of two properties, and the filing of two reportable irregularities (RI) at the Independent Regulatory Board for Auditors (Irba).

In response to Moneyweb questions, Botha said he had never seen anything like this. “Investors should ask why the board would want increases in advance. We don’t know where inflation is going. It doesn’t make any economic sense for shareholders to approve this. An increase of 10% is well above inflation and a 30% increase over three years makes no sense for shareholders to approve.”

Write-down of R1.3 billion valuation of Villa and Zambezi

In response to a question, Myburgh said no disciplinary action was taken against any of the directors related to the restatement of overvalued properties and the unlawful composition of Nova’s audit committee.

Moneyweb earlier raised these transgressions with auditor BDO. In reaction BDO launched an extensive investigation into the allegations, which resulted in the restatement of the financial statements.

This restatement includes a write-down of more than R1.3 billion of an overvaluation of the Villa and Zambezi properties in a process where an independent valuer’s valuation was seemingly ignored.

Unlawful composition of Nova’s audit committee

BDO also reported another reportable irregularity with Irba in relation to the unlawful composition of Nova’s audit committee. This was rectified by the appointment of five new directors to the board, after which the IR was withdrawn.

Myburgh said in response to a question related to the audit committee: “All the years that position was expressly explained and dealt with every single year and at every single AGM as to why the situation existed. The reasons for this were accepted. This situation was rectified mid last year (2017).”

He denied that this was only done after it was found to be in contravention of the Companies Act. “Your facts are incorrect… I am not going to elaborate. I don’t want to elaborate. You can speculate if you so wish. The position was rectified in consultation with the auditors.”

BDO resigned as Nova’s auditor after signing the 2017 statements citing inadequate capacity to continue as auditor.

Justice for All? Oosthuyzen Sharemax Case

Justice for All? Oosthuyzen Sharemax Case

Company Listing: Moonstone Compliance (Pty) Ltd »

Was justice fully served in the Oosthuyzen case before the High Court in Bloemfontein last month?

From the perspective of the plaintiff, possibly yes, albeit it 7 years later. Delayed, but at least not denied. See here for more on the case.

What about the advisor? Was he lulled into a false sense of security, being a representative of the Unlisted Securities South Africa FSP Network (Pty) Ltd (t/a USSA) in order to render financial services regarding unlisted securities under an exemption granted by the FSB? He regarded speaking to his Sharemax consultant as sufficient confirmation that all was in order. What else he did he expect to hear?

The USSA network was specifically formed to sidestep legal obligations. Why did no authority question a nation-wide network with thousands of representatives, and only one key individual and one compliance officer?

The judge ruled that the decision by his PI cover provider to reject the claim was wrong. The insurer, though, intends appealing the finding.

What about the promotors? Apart from the failed attempt by the FAIS Ombud to pierce the corporate veil, they have gone along their merry way, sailing the high seas without a care in the world.

The recent admission that some properties, and particularly the Villa, were grossly overvalued, is nothing new. This was the essence of the late Deon Basson’ criticism as early as May 2004, and is perhaps an indication of the increasing impunity that marked later syndications, and not only contributed to their downfall, but also to even bigger losses for investors. It is reminiscent to what we see in the current state capture debacle, where audacity grows as a result of the lack of regulatory intervention.

Can the regulators wash their hands in innocence, claiming that the structure of syndications schemes did not reside under their jurisdiction? Did the fact that all those representatives of USSA were also registered with the FSB not imply at least a wary eye on their conduct with regard to selling unlisted shares which, after all, does fall under the auspices of the FSB?

In the preamble to this judgment is a quote from the ground-breaking Durr case, where the Appeal Judge said: “Hindsight is not vouchsafed the common man as he picks his course through life. This must be kept constantly in mind in a case like this one, where all is so obvious now.”

Agreed, but why does it take so long for hindsight to lead to action?

Source: Paul Kruger: Moonstone Compliance (Pty) Ltd

Public protector takes on FSB Boss - FSCA

Sipho Masondo
City Press

The Office of the Public Protector is investigating allegations of corruption, extortion, fraud, bullying, intimidation and mismanagement by the head of the country’s financial services regulator.

Public Protector Busisiwe Mkhwebane’s spokesperson, Cleopatra Mosana, confirmed this week that the office is investigating a complaint against Financial Services Board (FSB) boss Dube Tshidi, laid by Economic Freedom Fighters (EFF) president Julius Malema.

Malema laid the complaint in April last year and accused Tshidi of “gross misconduct, abuse of power and perjury”.

“We have seen substantial documented evidence indicating that for years he has been responsible for gross misconduct, material abuse of the powers of the FSB, perjury, withholding information and ongoing efforts to cover up wrongdoing, intimidation of members and corporate institutions, and breaches of his fiduciary duties,” Malema said in his complaint.

The FSB is responsible for licensing and regulating the entire financial services sector, excluding the banks.

Malema accused some senior FSB staff, including deputy chief executive officer (CEO) Jurgens Boyd and chairperson Abel Sithole, of being “unfit” for office.

FSB spokesperson Tembisa Marele said Tshidi offered Mkhwebane a comprehensive response to the EFF’s allegations.

He said the Public Protector gave the chair of the FSB board the task of answering questions, which he did in writing, and appeared for examination by the Public Protector and Tshidi.

The complaint

The basis of the EFF complaint stems from the alleged relationship between lawyer Anthony Mostert and Tshidi regarding 10 pension funds, which the FSB placed under curatorship between 2005 and 2011. The High Court in Pretoria appointed Mostert as curator of all 10 funds at the recommendation of Tshidi.

The FSB’s placement of the funds under curatorship followed a 2001 decision to introduce new pension fund surplus legislation, which it backdated to 1980. The effect of the legislation was that certain transactions concluded by pension funds and their administrators became irregular. As a result, the FSB placed the 10 funds under curatorship and appointed Mostert to look after them.

After his appointment Mostert appointed his law firm AL Mostert to advise him on matters relating to his curatorship.

“It is a clear conflict of interest when a curator of a company briefs his own law firm to act in any manner and this has been confirmed by a high court judgment,” said Malema in his complaint. In 2013 Judge Caroline Heaton-Nicholls harshly criticised Mostert for using his own law firm to brief him in matters relating to the 10 pension funds.

Malema stated in his complaint that, between his appointment and 2011, Mostert was paid R188m in curator fees and a further R48m in legal fees.

Mostert sent a four-page threatening lawyer’s letter saying the EFF’s complaint was a “perpetuation of a defamatory and vexatious smear campaign”. While acknowledging that Mostert had given answers to the Public Protector, the lawyers claimed that the matter was still sub judice as no findings have been issued.

“We point out that any publication ... not founded on factual matter and in proper context may be aiding and abetting unlawful conduct, and our client’s rights in this regard are and remain reserved,” the letter reads.

Marele said Mostert was “also summoned by the Public Protector to respond to similar types of accusations and appeared in Cape Town in a separate hearing”.

Court papers obtained by City Press show that when Tshidi appointed Mostert in around 2005, it was agreed he would be paid standard hourly rates for lawyers. But two years later Tshidi and Mostert signed another agreement, backdated by two years, authorising Mostert to charge the pension funds his apparently inflated curatorship contingency fees.

In April last year the High Court in Pretoria declared the contingency fee agreement and the money Mostert earned as illegal and invalid and set them aside. Mostert and the FSB are appealing the judgment.

In his submission Malema said he didn’t understand why the FSB was defending Mostert when the regulator’s duty was to protect pension funds.

Eight years in court

The court action to set aside the contingency fee agreement was launched in 2013 by Simon Nash, Cadac International’s executive chairperson. Cadac is one of the 10 funds the FSB placed under administration.

Mostert and Nash have been fighting each other in court for eight years. In 2010 Mostert laid a complaint of fraud, theft and money laundering against Nash, regarding pension fund surplus transactions which he concluded between the Sable Industries and Powerpack pension funds in the 1990s. These two funds are among the 10 the FSB placed under Mostert’s curatorship. Nash is a former trustee of the Sable Industries and the Powerpack pension funds.

The settlements

Alongside Nash and about 30 others, Mostert also laid complaints of fraud, theft and money laundering against Sanlam, Alexander Forbes and Old Mutual, which administered some of the 10 pension funds. Allegedly under pressure from Mostert and the FSB, and without admitting any guilt, the three companies paid a collective R670m settlement in 2008.

Of these settlements, Malema said: “Tshidi, to the benefit of Mostert, has used his office to threaten and intimidate large institutions with the possible withdrawal of their licences unless these institutions withdraw from litigating against Mostert and the FSB and paid settlement payments to Mostert.

“Legal representatives of both Sanlam and Alexander Forbes complained to Tshidi that the letter he had sent to their client was a threat to use the FSB’s statutory powers against the companies should they act contrary to that as required by the FSB.”

Malema said he interpreted Tshidi’s actions as state extortion to the benefit of Mostert.

‘Misleading Parliament’

Malema also accused Tshidi of “purposefully misleading” Parliament.

In 2009 Tshidi told Parliament he had provided authorisation for Mostert to be paid through contingency fees on one fund.

“The answers provided by Mr Tshidi were untrue and purposefully designed to mislead Parliament and the public,” Malema stated.

Malema further alleged that Tshidi allowed a “fraudulent inspection report” to be drafted, which Nash stated in court papers was done to place the Cadac Pension Fund under curatorship.

“It is our contention that Mr Mostert has captured the FSB through its CEO and thus he is empowered to act with impunity,” stated Malema, adding that an “unholy alliance” existed between Tshidi, the FSB board and Mostert.

“This alliance pointed to the statutory mandate of the FSB being ignored and places the financial services sector at risk.”


Do you think the FSB boss is doing enough to protect our financial sector?

Thursday, May 31, 2018

More Sharemax skeletons escape the closet

Jonathan Faurie

The Sharemax saga was one of the biggest controversies to rock the financial services industry in the past ten years. What was presented as a safe investment turned out to be nothing more than a pyramid scheme that left many investors destitute.

In many ways, the Sharemax saga was a forerunner of the wave of regulatory reform that we are seeing now. While not the sole reason for the reform, it surely showed that there are bad apples in the industry and that tighter controls are needed to bring them to book in the most appropriate manner.

Months after the issue seemingly came to an end, we are seeing more skeletons stumbling out of the Sharemax closet in the form of controversies surrounding the Nova Property Group (Nova), which is the Sharemax rescue vehicle.

Fighting from the trenches

MoneyWeb published a number of articles over the past few weeks highlighting the new issues which are rising to the surface.

The first article, written by MoneyWeb journalist Ryk van Niekerk, suggests that Nova appear to have pulled off one of South Africa’s greatest-ever corporate captures.

Van Niekerk pointed out that four Nova directors managed to seize absolute control of the company, which according to the 2016 financial statements has a net asset value of R1.2 billion, for R40.

According to Van Niekerk, the directors have managed to keep this from public view since 2011, possibly even in contravention of the shareholding disclosure provision in the Companies Act.

This may be why the directors aggressively fought Moneyweb’s legal efforts to access the group’s shareholder registers for more than three years, after former Moneyweb journalist Julius Cobbett applied for access in terms of Section 26 of the Companies Act.

The directors claimed in their defences that Moneyweb was waging a vendetta against the group and they had a constitutional right to privacy. These defences were rejected when the Supreme Court of Appeal found that the directors have no choice but to open their registers, and the Constitutional Court denied them leave to appeal against this judgment – wrote Van Niekerk.

The MoneyWeb article went on to add that only 4.3% of the shares belong to around 2 000 former Sharemax investors who, at the inception of the scheme, elected to receive Nova shares in lieu of their debentures. This means they paid somewhat more than the founding shareholders. They paid R94.9 million for their collective 4.3% interest as debentures to the value of this amount were cancelled.

The balance of 8.6% is owned by the three other founding shareholders who are former and current Nova managers.

In discussion

After the release of two articles relating to the subject, Van Niekerk conducted a telephonic interview with Nova CEO Dominique Haese.

Van Niekerk asked if it is not a conflict of interest for the four Nova directors - the only directors on the board - to own 87.1% of the shares and 91% of the voting rights. Haese responded by saying that it is definitely not a conflict, it is in accordance with the scheme of arrangement, it was disclosed like that in the scheme of arrangement.

“The scheme gave the three directors at the time, who were Dirk Koekemoer, Rudi Badenhorst and myself, the right to nominate the seven people who would ultimately hold the balance of the shares, not so elected by the converting debenture holders, whatever that balance might have been, if there was to be a balance. Nobody would have anticipated who would have converted and how many or how little would have converted. In our instance the conversion process was even extended by four months to give people additional time to consider such a conversion because ultimately it would be better for the Nova Group to eliminate the liability that comes with the debenture holder,” Haese told Van Niekerk.

For the full MoneyWeb articles please follow the links below:

‘Corporate capture’ of Sharemax rescue vehicle
Shareholder structure hides how directors’ acquired 87.1% of Nova shares
'I don’t think it’s really fair to be requested to adhere to King III' - Nova CEO

The sharks won’t go

It must be pointed out at this stage that the bad apples within the financial services industry are not a reflection of advisers in the industry who work tirelessly to provide their clients with the best advice possible; these honest advisers are the very heart of the industry.

However, if the Sharemax saga teaches us anything, it is that there is very little knowledge of some of the products that the financial services industry offers.

But will regulation rid the industry of these bad apples? This question was asked at the recent SRP Africa Structured Products & Alternative Investments Conference and Mats Halvorsen, CEO of SIP Nordic Fondkommission, said that the sharks/bad apples will just move elsewhere where there is lighter regulation.

Editor’s Thoughts:
This does not mean that regulatory reform is bad. It is necessary to professionalise the industry and to encourage participation. It just means that the bad apples may become very creative in the future. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts

Friday, March 16, 2018

Scorpio: The Moyane Dossier, Part 1 – How SARS boss disregarded the law to pay Guptas’ VAT refund



Tax boss Tom Moyane aided possible acts of money laundering and fraud while contravening the VAT and Tax Acts when he allegedly pressured SARS officials to illegally effect three VAT payments to the Guptas into the account of a third party. By PAULI VAN WYK for SCORPIO.
While locally based corporate entities to this day struggle with cash flow problems due to “inordinate” delays in SARS paying out VAT refunds, the Guptas in the past seem to have had no such headaches.
To the contrary, within two weeks from Oakbay Investments (Pty) Ltd director Ronica Ragavan’s first “urgent” request dated 22 May 2017, SARS paid the first of three VAT payments amounting to R70-million. Two smaller VAT payments were pushed through in July and August 2017.
The legal battles in SARS were waged about the interpretation of the discretion of the commissioner (section 72) of the VAT Act and how it is interpreted with amended section 44(3)(d).
SARS’ brightest legal minds all agreed: A VAT payment into the account of Terbium for the benefit of Oakbay and affiliated companies is illegal. Especially given the family’s reputation, it opens the door for possible money laundering and fraud.
Moyane and Mokoena disagreed.
The request for payments caused strenuous conflict in SARS, to the point where Moyane allegedly pressured unwilling officials to effect the payments. Moyane was personally involved with the payments, sources with knowledge of the matter said.
The VAT payments effected on Moyane’s instruction were illegal: SARS paid the VAT refund into the account of Terbium Financial Services (Pty) Ltd, which is a third party, and not to the registered VAT vendor (Oakbay or the relevant company in the Oakbay group). This is in contravention of provisions in the VAT act that specifically attempt to curb fraud and money laundering.
SARS’ three VAT payments at the behest of the Guptas are now subject to litigation and forensic investigation based on strong indications that it formed part of money laundering, fraud, corruption, racketeering as well as contraventions of banking legislation, stock exchange legislation and the Financial Intelligence Centre Act.
When these investigations are concluded, it will form the basis for several criminal complaints based on tax legislation, section 34 of the Prevention and Combating of Corrupt Activities Act (PRECCA) and provisions of the Prevention of Organised Crime Act (POCA), Terbium Financial Services’ management said. Relevant information will also be provided to the State Capture commission of inquiry chaired by Judge Raymond Zondo and the tax administration and governance of SARS’ commission of inquiry.
The Guptas’ VAT payments have further caused a huge fallout between the management of Terbium Financial Services, who blame each other for wrongdoing.
Moyane’s very fate will be determined in the trenches of this war. He has strenuously and comprehensively denied all the allegations levelled against him. Pushed to take responsibility, he shifted the blame to members of his executive committee while projecting himself as an innocent and uninvolved bystander.
Said SARS spokesman Sandile Memela:
As the correspondence [referred to by Scorpio] shows… the Commissioner (Tom Moyane) neither participated in the discourse (over the Guptas’ VAT refunds) nor offered his opinion on the matter. He relied on the final decision of the Chief Officer (Legal Counsel, Refiloe Mokoena) who, based on her consideration of all relevant opinions, instructed Business and Individual Tax division to make the payment.”
(Read Memela’s full response to Daily Maverick here.)
Scorpio’s investigation is based on letters and emails between SARS management, SARS’ top tax lawyers and Oakbay’s Ronica Ragavan as well as interviews with whistle-blowers, Terbium Financial Services director Timothy Marshall and VAT expert Victor Terblanche.
But let's start from the beginning...
The Guptas’ ‘urgent’ VAT problem
In June 2017 the Gupta family may have had journalists and South African citizens on their back, but SARS was more than willing to assist Oakbay in their predicament. A massive data leak nicknamed the #GuptaLeaks started to lay bare the width and breadth of the State Capture project and one company after the other declined to conduct business with the Guptas.
But long before this data leak the Guptas became unbankable. The four main banks in South Africa closed related company and private accounts and few other banks dared touch anything related to the family.
This caused two problems: A cash flow crisis and difficult access to any money lying around. In response, and in order to pay salaries and other services, Oakbay Energy and Resources (Pty) Ltd appointed Terbium Financial Services as a payment agent.
Oakbay was legitimately, according to SARS, owed some VAT refunds. To get access to the VAT refunds was however a challenge.
So the Guptas devised a plan.
On 22 May 2017 Oakbay director Ronica Ragavan wrote directly to SARS Commissioner Tom Moyane informing the service that their banking details would change while enquiring about their VAT refund. Moyane did not write back, but passed the matter on to SARS’ Relationship Management division. According to SARS, many a taxpayer attempts to approach the commissioner directly with their problems.
Said Ragavan in a follow-up letter:
We are currently using the services of a paying agent who has appointed an attorney, De Jager Van Wyk Inc., to provide their trust account services for the purpose of receiving payment from and making payment to SARS.”
This is an extraordinary request, one that “requires SARS to consider a deviation from its general practice”, SARS officials said before the request was almost immediately shot down.
Despite these concerns from their colleagues, SARS’ communications department sees no wrong:
The above request to the commissioner did not force SARS to deviate from its general practice and such matters are as a matter of course referred to the Legal Counsel division,” Memela said.
(Read Memela’s full response to Daily Maverick here.)
To prevent money laundering and corruption, tax compliance must be monitored with international and domestic law in mind. SARS is therefore limited to paying VAT refunds into the bank account linked to the relevant VAT number. There is no legal basis for paying VAT refunds into the trust account of an attorney – such an act would be illegal. The relationship between an attorney and a client is strictly governed by the Attorneys Act. The trust account cannot be audited by SARS and such a payment would “expose SARS to risk”, SARS officials warned after a flurry of letters between SARS and Oakbay.
Ragavan is however tenacious and her cash flow problem was “a matter of urgency”.
On 30 May 2017 Ragavan penned another letter, this time skipping SARS mid-level management, targeting Chief Officer: Legal Counsel Refiloe Mokoena.
Scorpio does not have evidence of what happened prior to the penning of this letter, but Ragavan was so sure of success that she enclosed the banking details of Terbium Financial Services in the letter to Mokoena.
Said Ragavan:
We note the observations by SARS and in order to resolve the current situation that the Oakbay Group is facing, we furnish you with our duly appointed agent’s bank account details.”
She urged SARS to refund the company’s VAT, saying “due to our current circumstances, we trust that SARS will consider the above request favourably, in order to enable us to continue with normal business operations. We look forward to receiving your feedback as a matter of urgency”.
Around the same time, Ragavan sends another letter to Dan Zulu, Acting Chief Officer: Business and Individual Tax. Zulu acted in the place of Jonas Makwakwa (who resigned this week) who was still on suspension at the time for allegations of tax evasion and money laundering levelled against him by the FIC.
Ragavan’s letter stated that Oakbay Investments and related companies “indemnifies and holds SARS harmless against payment of VAT refunds” into the account of Terbium Financial Services.
Ragavan ended her letter to Zulu by saying “we trust that you find the above in order and look forward to receiving the refunds urgently”.
Zulu was however not in on the scam, and refused.
A letter from SARS’ corporate legal services division relates a discussion about the VAT act, describing Zulu’s discomfort. This letter was also penned on 30 May 2017, an indication of the private panic SARS officials felt about the matter while they crafted polite and carefully worded emails to their superiors, sources said.
Dan (Zulu) is of the view that due to unprecedented nature of the matter that he would have more comfort if we were to arrange a meeting with the commissioner and also consider having an external senior tax attorney briefed for the meeting,” the letter addressed to Chief Officer Legal Services Refiloe Mokoena states.
Mokoena was more direct about who was in on the scam, the urgency of the matter and what she expected of officials:
The commissioner has been copied on all the communications herein and has not opposed my views. I am comfortable that Dan (Zulu) proceed to discuss same with the commissioner preferably today as I have requested that this matter be dealt with by close of business today. I place on record that I have applied my mind on this issue and unless the commissioner doubts the correctness of my views on the matter, I don’t think it will be necessary to obtain outside opinion herein.”
Hushed deliberations followed between mid-level SARS officials who stood like deer in the headlights of an oncoming train. By morning, now 31 May 2017, another carefully worded letter from SARS’ legal department, filled with legalese and international provisions about tax and the VAT act, was sent to Mokoena.
Quoting a memorandum on the objects of the VAT act, in bold and underlined script, Mokoena was again warned:
Due to concerns involving fraud, no other third-party bank accounts of this nature will be permitted.”
The letter continued, stating that the purpose behind the amended section 44(3)(d) of the VAT act “is to limit fraud… for instance to stop refunds being intercepted and paid into another person’s account, which we know is a major problem”.
But Mokoena and Moyane were unteachable.
Dan Zulu, acting in a position where he was ultimately subjected to his superiors, was instructed by Mokoena, with the backing of Moyane, to make three illegal VAT payments for the benefit of the Guptas. SARS declined to confirm further details around the “confidential” VAT payments based on provisions of the tax administration act.
SARS denied that Mokoena “overruled any decision”, but did agree that she “instructed” the payment of the Guptas’ VAT refund.
SARS would like to assert that Ms Mokoena did not overrule any decision. It is misleading and incorrect to create the impression that she or SARS does not encourage debate with by legal experts and specialists. SARS wishes to state that after effective consultation and engagement, the Chief Officer will make the final decision that will be presented to the commissioner.”
SARS’ communication team also seems to deny any fallout or conflict between SARS officials over the VAT refund. But an investigation completely removed from Scorpio’s revelations seems to have found the same.
News24’s Angelique Serrao broke the news about a R70-mllion VAT refund to the Guptasin June 2017, saying the matter “caused a huge fallout in SARS that necessitated the intervention of tax boss Tom Moyane”.
When quizzed, Moyane through his communications team makes two interesting arguments in his answers to Scorpio.
Moyane’s main argument is this:
If he is to be believed, he saw all the communication and deliberation about the Guptas’ VAT refund flow rapidly through his email inbox, but stood aside, never intervened and never made any decision. Moyane further gave no instruction nor forced any SARS official to illegally pay the Guptas’ VAT refund to a third party, Memela said. Moyane asserts that he only “relied on the final decision that would have come from Chief Officer [Refiloe Mokoena]”.
SARS sources Scorpio interviewed contradict Moyane’s version.
Said spokesperson Memela:
As the correspondence shows… the commissioner neither participated in the discourse nor offered his opinion on the matter. He relied on the final decision of the Chief Officer who, based on her consideration of all relevant opinions, instructed Business and Individual Tax division to make the payment. Neither the Chief Officer nor BAIT needed the commissioner’s approval on this matter. SARS wishes to reiterate that the commissioner neither interfered nor intervened in this process, much as he was privy to email exchanges.”
But commenting on a statement that Moyane forced SARS officials to illegally pay a R70-million VAT refund against their will to the Gupta family, Moyane suddenly did have something, or a lot, to do with the VAT payment.
Said Moyane through Memela:
As commissioner, I exercised my discretion in terms of section 72 of the VAT Act due to the anomalous situation created by the closure of the Oakbay bank accounts, particularly in view of the fact that the refunds were due and payable in law to Oakbay. The allegation of illegality therefore has no basis.”
These two statements are contradictory as to whether Moyane did or did not exercise any discretion over the VAT payment. Sources maintain that Moyane was directly involved in the VAT payments.
(Read Memela’s full response to Daily Maverick here.)
The third party: Terbium Financial Services
The Guptas’ tax payment did not only cause a huge fallout in SARS, but triggered a fight between Terbium Financial Services non-executive director Timothy Marshall and the company CEO AndrĂ© van der Zee.
Marshall is linked to the abortive 2016 appointment of Lekgotla Trifecta Consortium as SARS’ debt collector. SARS terminated the contract with a court order in October 2017 when amaBhungane’s Susan Comrie revealed that Moyane’s nephew Nhlamulo Ndhlela, was a director of Lekgotla Outsourcing. SARS has this week again been in the news because of another botched debt collector appointment linked to SARS’ former second in command Jonas Makwakwa. The news triggered his exit from SARS.
But, back to the Guptas, their VAT problem and Terbium Financial Services.
Based on a number of discussions with whistle-blowers, Scorpio quizzed Marshall on his involvement in the Gupta VAT payments.
(Read Terbium Financial Services' full response to Daily Maverick here.)
Answering through an adviser on WhatsApp, Marshall claimed to have been “victimised” and became “aware” of the strange company Terbium Financial Services keeps earlier this year.
Van der Zee left the company and initiated legal proceedings against Marshall, who appointed investigators, auditors, accountants and lawyers to “get to the bottom of a number of issues”.
Marshall conceded that Terbium Financial Services had a contract with Oakbay for July 2016 to August 2017.
His team of forensic investigators and lawyers will probe this contract, as well as the above-mentioned debt collection tender at SARS awarded to the Lekgotla Trifecta Consortium. Marshall said:
Any form of wrongdoing in this regard will be made available by me to relevant law enforcement agencies.”
The possible irregularities I have identified thus far include possible contraventions of banking legislation, stock exchange legislation, the Financial Intelligence Centre Act (FICA), fraud, money laundering, corruption and racketeering.
The evidence thus far suggests that Terbium and I were victims of these alleged crimes, in that other parties seemingly abused our systems, misled and defrauded us and engaged in corrupt practices. In some instances, officials of the state have also been implicated. We will not identify those implicated at this stage for legal reasons.”
(Read Terbium Financial Services' full response to Daily Maverick here.)
How to get your VAT refund when you are not a Gupta
To get SARS to pay your VAT refund when you don’t have Moyane and Mokoena’s ear seems to be tricky.
A whistle-blower related the story of the R195-million VAT bill of a gas, technologies and services company with a footprint in 80 countries and which employs more than 60,000 people. The company is represented by Victor Terblanche from VAT IT South Africa, Scorpio is told.
Terblanche did not confirm acting for the company, but confirmed in general that “big payments are being held back for an inordinate amount of time without proper reasons”.
It is clear to me that SARS are providing false reasons for not refunding VAT, even when one follows the correct processes.
There are way more things happening than what you know of and which I cannot disclose,” Terblanche said.
It seems the company has been bogged down in legal wrangling with SARS from around January 2017. Due to the refund not being paid, their business suffered and they were forced to apply for bridging finance. SARS has been resisting the payout.
It is becoming increasingly clear that [SARS] is trying to push the refund being paid to the new financial year,” the whistle-blower said.
This will boost revenue for the 2017/2018 financial year, but SARS will be in a deficit position starting the new financial year.
In the meantime, the interest on the unrefunded VAT is also accumulating.
When SARS does get around to paying the gas, technologies and services company, the taxpayer will probably fit an estimated bill of R230-million, instead of the original R195-million claim. DM
Photo: SARS Commissioner Tom Moyane (StatsSA via Flickr)
Comments by Sonny Cox

All captured heads of anc official must roll.....