SARS Commissioner on Makwakwa; Symington & SARS intelligence unit

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Finance Standing Committee

05 December 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Committee met with the South African Revenue Service (SARS) for follow-up discussions on Mr Jonas Makwakwa matter; Mr Vlok Symington matter; and further responses to the SARS Commissioner’s letter on KPMG report on SARS intelligence unit.

On the Makwakwa matter, the Committee was first briefed by Hogan Lovells, the law firm that was tasked to probe the matter by SARS. Hogan Lovells stated that it received instructions from its client, SARS, arising from a report of the Financial Intelligence Centre (FIC) to SARS which had identified various transactions involving Mr Jonas Makwakwa and Ms Kelly- Anne Elskie, which FIC deemed to be suspicious and unusual. Given that the Hawks were already investigating the matter in relation to the Prevention and Combating of Corrupt Activities Act (PRECCA) and Prevention of Organised Crime Act (POCA), the matter fell squarely within SARS’ mandate such that SARS then engaged PricewaterhouseCoopers (PwC). Hogan Lovells was roped in to only investigate whether the aforesaid individuals had contravened any internal policies and/or the Public Finance Management Act (PFMA) when effecting certain payments and whether certain ad hoc payments to Makwakwa by SARS were irregular. The Hogan Lovells investigation was constrained in that it could not ‘subpoena witnesses or bank records’. Consequently, the firm had advised SARS that should the probes by the Hawks and PwC find Makwakwa and Elskie guilty of any offence constituting misconduct, the law firm would pursue against them at the appropriate stage.

Hogan Lovells emphasised that any suggestion that it decided not to investigate any aspects contained in the FIC report was fallacious. To the contrary, Hogan Lovells recommended that investigations be conducted by the bodies that enjoy statutory powers and the expertise to do so. PwC was instructed to probe the source of funds for each of the transactions and, in a report provided to Hogan Lovells, PwC concluded that it was unable to confirm that the source and nature of the funds for the majority of the transactions were improper. Allegations under this heading were put to Makwakwa during the law firm’s investigation. However, Makwakwa challenged Hogan Lovells’ jurisdiction to question him further seeing that PwC had not provided a definitive report. On the basis of that report and the information that was available to the law firm at the time, it advised that a prima facie case of misconduct could not be made out in relation to the transactions.

Members pointed out that their questions were either not answered or not satisfactorily answered during the previous meeting. They outlined the background of the Makwakwa matter and the suspicions around his reinstatement following his suspension in September 2016. There were payments on numerous occasions which could have been proceeds of financial crimes and corrupt activities. As per the FIC report, the source of the funds and the nature of the transactions were suspicious and unusual given his financial profile. They asked about the exact terms of reference of the Hogan Lovells investigations. The terms of reference, as articulated by the law firm, were unclear. The Democratic Alliance asked the Commissioner whether reinstating an executive who was under investigation would build confidence in the tax authority. The Committee had now established that SARS had re-instated an employee that is under investigation for tax evasion or tax offences under the Tax Administration Act by SARS itself. It asked the SARS Commissioner if that was correct.

The Chairperson asked if the Commissioner had made any attempts to make contact with the Hawks inquiring on progress on the Makwakwa matter. Had Hogan Lovells conducted itself well in its own evaluation mindful of concerns about its reputation? Does any of the firm’s officials have personal relationships with the SARS Commissioner? Even if SARS had acted within the prescripts of the law, it was reasonable for the Committee to be suspicious. He pointed out that the Committee was not up to discussing tax matters of any individual. However, the Committee must not detract from its oversight mandate. The country is facing horrendous levels of corruption and this was not about an individual but about SARS’ management and handling of the matter. He asked the parliamentary legal advisor to apply his mind as to whether Members’ questions were tenable and the advice would guide the next engagement with SARS. Instead of going around in circles, the Committee could actually go to court to define the parameters if SARS was failing to respond to questions from Members.

On the Vlock Symingtom matter, SARS indicated that the altercation between Mr Vlok Symington and another SARS employee was duly investigated and SARS was acting upon the recommendations made by its legal counsel. The two employees were charged, and before the disciplinary proceedings were instituted, Mr Symington went to court in order to interdict a SARS hearing on the matter. He however lost the application with costs. Notably, the application was in two parts; one interdicting SARS from holding the disciplinary hearing- which the court ruled in favour of SARS. On the second part, the courts ruled that Mr Symington had made certain disclosures to the Independent Police Investigative Directorate, and therefore must not be disciplined because of those disclosures. That application had been set down for May 2018. However, when the disciplinary hearings were about to be conducted, Symington lodged another application to have the proceedings postponed up to the date of finalisation of the second part of his initial court application. Therefore, pending the finalisation of the matter, the disciplinary hearings were held in abeyance and Mr Symington was still at work and there was no threat of a suspension or dismissal. It was business as usual at SARS.

Lastly, on further responses to the Commissioner’s letter on KPMG Report on SARS “intelligence unit”, the Committee would call both KPMG and SARS around the second week of Committee business next year to finalise the matter.

The discussions were not finalised. The Committee will continue with the matters early in 2018.
 

Meeting report

Follow up on Mr Jonas Makwakwa Matter
The Chairperson stated that this was a follow-up meeting and most of the issues were dealt with at length during the previous meeting. Since the issues on the agenda were in the public domain, they had to be dealt with frankly. The Committee would receive input from the law firm that was tasked to probe the Makwakwa matter by the South Africa Revenue Services (SARS) - Hogan Lovells. Members would then engage SARS thereafter.

Hogan Lovells input
Adv. Lavery Modise, Chairman: Hogan Lovells, thanked the Committee for the invitation. He said the law firm might be constrained in its responses to questions from Members as it was bound by client- attorney privilege such that some of the information could not be shared. The law firm was bound by high levels of ethics and integrity.

The firm’s instruction from its client, SARS, arose from a report of the Financial Intelligence Centre (FIC) to SARS which had identified various transactions involving Mr Jonas Makwakwa and Ms Kelly- Anne Elskie, which the FIC deemed to be suspicious and unusual. Given that the Hawks were already investigating the matter in relation to the Prevention and Combating of Corrupt Activities Act (PRECCA) and Prevention of Organised Crime Act (POCA), the matter fell squarely within SARS’ mandate such that SARS then engaged PricewaterhouseCoopers (PwC). Hogan Lovells was roped in to only investigate whether the aforesaid individuals had contravened any internal policies and/or the Public Finance Management Act (PFMA) when effecting certain payments and whether certain ad hoc payments to Makwakwa by SARS were irregular. The Hogan Lovells investigation was constrained in that it could not ‘subpoena witnesses or bank records’. Consequently, the firm had advised SARS that should the probes by the Hawks and PwC find Makwakwa and Elskie guilty of any offence constituting misconduct, the firm would pursue against them at the appropriate stage.

Therefore, any suggestion that Hogan Lovells decided not to investigate any aspect contained in the FIC report was fallacious. To the contrary, Hogan Lovells recommended that investigations be conducted by the bodies that enjoy statutory powers and had the expertise to do so. PwC was instructed to probe the source of funds for each of the transactions and, in a report provided to Hogan Lovells, PwC concluded that it was unable to confirm that the source and nature of the funds for the majority of the transactions were improper. Allegations under this heading were put to Makwakwa during the law firm’s investigation. However, Makwakwa challenged Hogan Lovells’ jurisdiction to question him further seeing that PwC had not provided a definitive report. On the basis of that report and the information that was available to the law firm at the time, it advised that a prima facie case of misconduct could not be made out in relation to the transactions.

Adv. Modise emphasised that the law firm gave SARS the best advice at that stage. At the time, Mr Makwakwa was already serving his suspension. Hogan Lovells was tasked to investigate misconduct, but the criminal aspects were outside the scope and the predetermined terms of reference. The law firm could only advise on whether any further disciplinary action was to be taken by SARS in relation to any criminal offences or other findings by the Hawks against the aforementioned individuals. Those investigations were being carried out by PwC and the firm was not privy to the details. Pertaining to the investigations which were in its purview, Hogan Lovells had produced a report. In as far as it was concerned, the firm had given SARS the best advise under the circumstances and any suggestion that it colluded with SARS to shield the two employees from any investigation was misplaced and ignorant of the proper processes as dictated by law. It must be appreciated that if Hogan Lovells proceeded with investigations beyond its terms of reference, it would have constituted a parallel investigation that would have been most undesirable.

Discussion
Mr D Hanekom (ANC) said questions from Members were either not answered or not satisfactorily answered during the previous meeting. He outlined the background of the Makwakwa matter and the suspicions around his re-instatement following his suspension in September 2016. There were payments on numerous occasions which could have been proceeds of financial crimes and corrupt activities. As per the FIC report, the source of the funds and the nature of the transactions were suspicious and unusual given his financial profile. SARS then acquired the services of Hogan Lovells to investigate any cases of misconduct and the limitations and scope thereof were determined by the two parties.

He made reference to the PwC report mentioned by Hogan Lovells. It would assist the Committee if Members are furnished with the report- “why hide anything when there was nothing to hide.” He pointed out that there were many instances where individuals were suspended pending the conclusion of a probe. He asked why Makwakwa had been reinstated despite the fact that investigations against him had not yet been concluded. He asked the Commissioner why information necessary for the investigations was furnished to PwC but not the lawyers, Hogan Lovells. Since Mr Makwakwa by all accounts, received money; that was then supposed to be part of the investigations. Did he disclose the money as a benefit? If not, why was he not charged for dishonesty? Was Ms Elskie also charged and was she still suspended? Did the PwC investigation clear Mr Makwakwa of any contravention of the Tax Administration Act? Could Adv. Terry Motau's report be provided to the Committee? He asked for the exact reasons that were given for Makwakwa’s suspension in 2016. Why did the Commissioner find it fit to reinstate Mr Makwakwa when serious charges against him have not been concluded? Also, SARS was facing a R50 billion deficit in revenue collection. The Committee was thus deeply concerned as the Makwakwa matter had serious implications on tax collection and the integrity and trustworthiness of the tax collector.

Mr A Lees (DA) asked about the exact terms of reference of the Hogan Lovells investigations. The terms of reference, as articulated by the law firm, were unclear. He asked if Mr Makwakwa cooperated with the law firm during the course of the investigations. Given Mr Makwakwa was back at work, the assumption was that the PwC investigations did not identify any misconduct. If that was the case, could SARS make the suspicious transactions available and explain them, given they were found to be in order. The transactions in question were in the public domain and there was no reason why they were not being explained to the Committee. He suggested that the Committee go to the High Court if the Commissioner deems it not permissible to provide the information.

Mr D Maynier (DA) asked Hogan Lovells to confirm that its final report emanating from its investigations was produced and handed to SARS. When did this happen? Were they any other recommendations made by the firm in relation to the Makwakwa matter? Why was the report being withheld from the Committee knowing that it does not cover the tax affairs of Mr Makwakwa? Also, what were the PwC recommendations and did SARS act on them?

Ms T Tobias (ANC) asked about the scope of the PwC investigations. From the onset, Members had to understand the PwC mandate in relation to the matter. She asked if Hogan Lovells has internal capacity to carry out forensic investigations effectively.

Ms P Kekana (ANC) asked if the Hawks investigations were still ongoing and if SARS was aware of any progress on them. She asked if it was possible for the Hogan Lovells report to be made available to the Committee and in the same token respecting client- attorney confidentiality considerations.

The Chairperson asked if the Commissioner had made any attempts to make contact with the Hawks inquiring on progress on the Makwakwa matter. Had Hogan Lovells conducted itself well in its own evaluation mindful of concerns about its reputation? What was its relationship with SARS? Does any of the firm’s officials have personal relationships with the Commissioner? Even if SARS had acted within the prescripts of the law, it was reasonable for the Committee to be suspicious.

Adv. Modise explained that there was a difference between ad hoc payments and suspected tax evasions transactions. The investigations on the ad hoc payments were conducted by PwC in collaboration with the law firm. The PwC report flagged payments which appeared not to be part of Mr Makwakwa’s salary. Supporting documents were presented to assist in the investigations and Mr Makwakwa was cleared. However, the law firm was not involved in the tax evasion allegations; that was solely under PwC’s purview. Also, Hogan Lovells started doing work for SARS way before the tenure of the current Commissioner. He only met Commissioner Moyane for the first time in September 2016.

The Chairperson felt in the event that Mr Makwakwa was in the right, given all the allegations in the media, it would not be outside the prescripts of the law for him to release his tax information to clear the air.

Mr Tom Moyane, SARS Commissioner, said Mr Makwakwa was exonerated of any misconduct as per the outcomes of the Adv. Terry Motau led internal inquiry. SARS had responded to most of the questions from Members during the previous meeting and still stood by the responses. He had called the Hawks inquiring about the progress on the investigations and the Hawks indicated they will get back to SARS. However, it was not the duty of the Commissioner to determine the pace of the investigations. The Hawks process is independent and SARS has no control over it. Also, he had no personal relationship with any Hogan Lovells officials and inference and allegations to that effect were spurious. SARS had responded to the Hogan Lovells report in an appropriate manner. There was no disciplinary process instituted against Ms Elskie. Directing his response to Mr Hanekom, he said the R50 billion revenue shortfall had to be demystified. The forecasted R50 billion shortfall was not of SARS’ making but a forecast in consideration of the prevailing economic conditions and the current economic growth trajectory.
Ms Refiloe Mokoena, Chief Officer: Legal Counsel, SARS, said according to the legal advice they had received there was no legal basis to keep Mr Makwakwa on suspension until PwC and Hawks investigations into his affairs were completed. Keeping him on suspension would violate his rights.

Mr Hanekom asked about the reasons given for Mr Makwakwa’s initial suspension. Was there any legal basis for the suspension initially? Was SARS satisfied about the legal basis of the suspension?

Mr Luther Lebelo, Group Executive: SARS, replied that whether the said ad hoc transactions constituted any form of misconduct was the basis of Mr Makwakwa’s suspension. The ad hoc transactions were not part of the PwC report, but the Hogan Lovells report. However, releasing the PwC report on possible tax violation on the part of Mr Makwakwa would be in contravention of the Tax Administration Act. Ms Elskie was not charged; she was exonerated from any wrongdoing because no act of misconduct was found on her part.

The Chairperson pointed out that the Committee was not up to discussing tax matters of any individual. However, the Committee must not detract from its oversight mandate. The country is facing horrendous levels of corruption and this was not about an individual but about SARS’ management and handling of the matter. The Committee could not delve into the merits and demerits of the case against Mr Makwakwa.
Mr Lees made reference to the PwC investigations. If the investigations were presumably underway, then there surely was no final report. It then begged the question why Mr Makwakwa had been reinstated. He noted that there seemed to be no great deal of work done by Hogan Lovells. How much did the law firm charge SARS for the work it did?

Ms Tobias stated that the Committee needed to be procedural. The Committee had to be within prescribed parameters lest it be found wanting. She felt investigations should be handled by the relevant entities rather than having the Committee bringing evidence based on hearsay.

Mr Maynier noted that as per Hogan Lovells’ recommendations, SARS had the onus to determine if any tax offences were committed by the said individuals and the basis of the ad hoc payments. Had SARS, in its capacity as a revenue collector, investigated whether tax offences were committed by Makwakwa? If so, what was the outcome of the findings?

Adv. Modise said Hogan Lovells acted within the parameters of agreed terms of references with its client, namely SARS. He reiterated that the firm was not involved in the investigations pertaining to alleged tax evasion by Makwakwa. Mr Makwakwa was charged because he violated the conditions of his suspension and due to failure to disclose. His legal representatives went on to rightfully challenge the duration of the suspension. It was important to understand that Hogan Lovells are labour lawyers; not tax or criminal lawyers and could thus only advise on labour related matters. The law firm has forensic skills but does not have the power to subpoena witnesses and bank records. He maintained that the report could not be released due to client privilege considerations.

Mr Lebelo said throughout the process, SARS followed due process. SARS was not opposed to releasing the Makwakwa report. However, there was need to determine precisely whether this would not constitute a violation of any law. SARS would not want to be found wanting if Mr Makwakwa decided to institute any legal proceedings- which would be well within his rights to do so.

Mr Maynier asked the Commissioner whether reinstating an executive who was under investigation would build confidence in the tax authority. The Committee had now established that SARS had re-instated an employee that was under investigation for tax evasion or tax offences under the Tax Administration Act. He asked Mr Moyane if that was correct?

Mr Moyane said it was not correct because every taxpayer has the right to be investigated on any other matter. It does not become a criminal issue. That Mr Makwakwa had committed tax offences was a mere inference- it had not been established as investigations were still ongoing.

The Chairperson said the matter was not about Makwakwa and his tax affairs, but about SARS’s handling of the allegations. Mr Makwakwa was not merely an ordinary taxpayer and therefore had to be seen to be above reproach.

Mr Moyane said he could not shed any light as that would be in contravention with the Tax Administration Act. SARS has no idea if there has been any tax offence. Until the investigations are complete, SARS could not speak to Members’ sentiments.

The Chairperson said the Parliamentary Legal advisor would need to apply his mind as to whether Members’ questions were tenable and the advice would guide the next engagement with SARS. Instead of going around in circles, the Committee would ask the parliamentary legal advisor, Adv. Frank Jenkins, to deal with this matter and check it out and put it in writing and if Mr Moyane does not answer questions, the Committee would discuss with the Speaker’s Office what could be done. The Committee could actually go to court to define the parameters.

Follow up on Mr Vlok Symington matter

The Chairperson asked how SARS was managing the Symington matter. The contention was about how SARS managed the process. How was the process being managed beyond the labour law aspects of it?

Ms Mokoena gave a brief overview of the Vlok Symington matter. It was in relation to an altercation between Mr Vlok Symington and another SARS employee. The altercation was duly investigated and SARS was acting upon the recommendations made by its legal counsel. The two employees were charged, and before the disciplinary proceedings were instituted, Mr Symington went to court in order to interdict a SARS hearing on the matter. He however lost the application with costs. However, the application was in two parts; one interdicting SARS from holding the disciplinary hearing- the court ruled in favour of SARS. On the second part, the courts ruled that Mr Symington had made certain disclosures to the Independent Police Investigative Directorate, and therefore must not be disciplined because of those disclosures. That application had been set down for May 2018. However, when the disciplinary hearings were about to be conducted, Symington lodged another application to have the proceedings postponed up to the date of finalisation of the second part of his initial court application. Therefore, pending the finalisation of the matter, the disciplinary hearings were held in abeyance and Mr Symington was still at work and there was no threat of a suspension or dismissal. It was business as usual at SARS.

Mr Lees said the indication was that the altercation was between two SARS employees but apparently police were also involved. Was the other employee the Commissioner’s bodyguard?

Mr Lebelo said after the altercation took place, the logical action SARS needed to take was to institute investigations to determine the veracity of the allegations and the conduct of the two employees. On that basis, SARS duly investigated and the recommendations that were made were being acted upon.

Mr Moyane indicated that Mr Symington was in possession of certain documents and the involvement of the police had been an attempt to recover that which belonged to them. Police were indeed involved.

Ms Tobias said matters of this nature should not be found in the public domain. The matter could have been dealt with differently and a statement released to ensure SARS’ name was not put into disrepute.

Mr Lebelo said indeed SARS had issued a statement

Discussion on Commissioner’s letter on KPMG Report on SARS “intelligence unit”

The Chairperson said there were some political issues which needed to be dealt with. The Standing Committee on Public Accounts had indicated that it would not be dealing with the matter any further. Around the second week of Committee business next year, the Committee would call both KPMG and SARS. As for the conduct of KPMG, the Independent Regulatory Board of Auditors would deal with those aspects of the matter.

The Committee will continue with the matters early in 2018.

The meeting was adjourned. 

 

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