SARS follow-up: Makwakwa matter; SARS & KPMG report on SARS Intelligence Unit

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Finance Standing Committee

13 March 2018
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Standing Committee on Finance met with the South African Revenue Service (SARS) for a briefing on the Makwakwa matter as well as the SARS and KPMG report on allegations against the SARS Intelligence Unit. KPMG and the Independent Regulatory Board for Auditors (IRBA) were also in attendance.

SARS last appeared before the Committee on 5 December 2017, upon which it was decided to get senior counsel's legal opinion on which parts of the Financial Intelligence Centre (FIC) and Hogan Lovells' reports could be released to the Committee. However, SARS had not furnished these reports to senior counsel up to now.  Senior counsel needed the reports from SARS before he could give his opinion. The investigations would only be concluded after the reports were made available. Further, FIC was of the view its reports are all confidential and thus should not be released as this would transgress the FIC Act.

Members were critical of SARS for not releasing the reports to the Committee. Since the last engagement, the Chairperson had written at least twice to the SARS Commissioner, asking for the reports to no avail. There could be no progress with the SARS matter unless the Committee got copies of the reports. Some Members suggested the Committee invoke Section 56 of the Constitution and summons the Commissioner to disclose the reports within 48 hours. That three months had passed with the Committee still haggling over whether counsel can get sight of these reports (when supposed to advise on whether Committee can see part or all of them) - was a bridge too far. The Commissioner would need to reply in Court if necessary.

The Chairperson directed the reports must be provided to the Committee ahead of its next meeting with SARS next Tuesday. He insisted that he did not want the reports to become subject to leaks and distorted media reports. The Commissioner and SARS team will either face the Committee via video conference or in person next Tuesday to answer questions on the reports. The Speaker’s Office had also been kept abreast about SARS matters and shared the same frustrations with the Committee.

SARS finally agreed to comply with the Committee decision to make the two reports – one by law firm Hogan Lovells and another clearing Makwakwa of wrongdoing – available to the Committee by 16 March 2018 prior to a follow-up meeting on Tuesday next week. SARS would certainly submit the reports but might have to possibly remove any references to the confidential FIC report.

The second discussion dealt with SARS and KPMG report on allegations against the SARS Intelligence Unit. The so-called SARS ‘rogue unit’ matter had been with the Committee since 2015. The Committee then took a decision as a majority that the intelligence aspects of the matter must be dealt with by the Joint Standing Committee on Intelligence (JSCI). The Committee intended to look at SARS’ complaints, bearing in mind IRBA was investigating the matter anyway, and the Ntsebeza Inquiry was also doing its investigations. The outcomes of the investigations should not be pre-empted.

IRBA stated that it was in possession of the KPMG reports and was busy with the investigations. IRBA was investigating the registered auditor involved in terms of code of ethics and professional standards, and was not looking at the substance of the report. IRBA would come back to the Committee and give an indication as to when the investigation would complete.

KPMG fully understood the confusion around the matter. It stated that it withdrew conclusions and recommendations in its report on the SARS intelligence unit because they were repeated verbatim from a memo sent by SARS' attorneys and KPMG could not stand by them. KPMG did an extensive document review and factual finding-based report on the basis of those documents.

Some Members felt the KPMG’s explanation about the turn of events took absurdity to another level. A DA Member sought to read a KPMG report which is in the public domain when some Members strongly objected.

They interjected and protested that the DA Member was about to speak to a KPMG report which was not in possession of the Committee. The leaked document’s legal standing and authenticity could not be verified, and thus should not be discussed. Members ought to follow formal processes of Parliament and abide by the rules.

The Chairperson said the law would guide the processes. He directed Members who wanted answers from KPMG to stick to the mandate and defer their questions for next Tuesday or until legal opinion is obtained on status of KPMG report. The Committee was not repressing anyone but, in the interim, had to look at what was appropriate given there were intelligence aspects, which belonged to the Joint Standing Committee on Intelligence. He made it clear that the Committee will neither take over the responsibility of the JSCI nor IRBA. The Committee would have to determine how far it could go without pre-empting IRBA outcomes.

Meeting report

Progress on Makwakwa matter

The Chairperson welcomed everyone and acknowledged that this was not a good time to call the South African Revenue Service (SARS) to Parliament as it was towards the end of the tax year. In future, the Committee would seek to avoid calling SARS in March. SARS last appeared before the Committee on 5 December 2017, upon which it was decided to get senior counsel's legal opinion on which parts of the Financial Intelligence Centre (FIC) and Hogan Lovells' reports could be released to the Committee. He asked the Parliamentary Legal Advisor about progress in this regard. 

Adv Frank Jenkins, Parliamentary Legal Advisor, said SARS had not furnished these reports to senior counsel.  Senior counsel needed the reports from SARS before he could give his opinion. The investigations would be concluded after the reports were made available. Further, FIC was of the view its reports are all confidential and thus should not be released as this would transgress the FIC Act.

Ms T Tobias (ANC) wanted to know why SARS had not sent the reports to senior counsel, Adv Vincent Maleka. If it was a confidentiality issue, the documents could be examined behind closed doors. If that was not done, the Committee would not be able to get to the bottom of the issues. There is a suspicion - not based on facts - that the ANC protected corruption. Such a perception had to be cleared.

The Chairperson asked why SARS could not release the reports to the Committee. He had written emails at least twice to the Commissioner, since the last engagement, asking for the reports. He asked the Commissioner to answer precisely why SARS could not release these reports.

Mr Tom Moyane, SARS Commissioner, read a statement indicating SARS had come to present a factual and accurate chronology of events surrounding the Makwakwa matter, and was worried about SARS’ public image and profile especially towards the end of the tax year. Since the reinstatement of Mr Makwakwa, there had been a cloud hanging over SARS due to the various allegations. SARS wished to put the record straight. “SARS was willing to bare its soul…,”

Ms Tobias interjected and expressed concern that Mr Moyane was not responding to the question directly.

The Chairperson said the Commissioner should first concisely respond to the precise questions put to him before dealing with generalities.

Mr Moyane said he would have wanted to deal with context issues first. However, for comprehensive responses to the questions, he handed over to a group executive.

Mr Luther Lebelo, Group Executive, SARS, in response to why SARS had not released the reports, said SARS had only received an email from Adv. Jenkins the day before the meeting, and thus it might not be correct to say there had been delays.

The Chairperson interjected and said endless emails were sent to SARS since last year asking for the reports.

Mr Lebelo uttered “let me finish”, which drew an angry response from the Chairperson.

The Chairperson angrily directed Mr Lebelo to stop his attitude. No Committee would allow this. He should stop messing the Committee around. He directed Mr Lebelo to answer the questions precisely. What about the emails sent since May last year? Did Adv. Jenkins only send an email on the previous day?

Adv Jenkins denied this and indicated SARS was copied all along on emails, from last year.

Mr Lebelo explained that the report by law firm Hogan Lovells contained information from a report by the FIC, which despite being in the public domain, was deemed confidential and could not be released publicly. The link between the report and transactions is where the problem was. He clarified that the email received on the previous day was actually from state law advisor, not Adv. Jenkins.

Ms Tobias said she was under the impression that the legalities around the release of the reports were going to be dealt with between SARS and state law advisors, before SARS even came to Parliament.

Mr A Lees (DA) stated that there could be no progress with the SARS matter unless the Committee got copies of the reports. The Committee should invoke Section 56 of the Constitution and summon the Commissioner to disclose the reports within 48 hours to the Committee. That three months had passed with the Committee still haggling over whether counsel can get sight of these reports (when supposed to advise on whether Committee can see part or all of them) - was a bridge too far. The Commissioner would need to reply in Court if necessary.

Ms D Mahlangu (ANC) added that the SARS matter had been on the agenda for too long. The Committee had to be firm as all the answers being demanded by Members were in the reports. The Committee was going round the same circles it traversed at its last meeting with Mr Moyane on 5 December 2017. Members had the right to that information, and could not let SARS account only on the basis of what media was saying.

Mr D Maynier (DA) said SARS’ response was absurd because the basis on which these reports were being kept away was that they contain information relating to an FIC report which is in the public domain. He directed the Commissioner to give Members the report. 

The Chairperson said the situation was surreal. SARS officials had brought all of this on itself. The Committee was told first that the report looked at FIC allegations and then was told that it investigated external interests. The reports were in the public domain and Adv. Terry Motau had confirmed that the Daily Maverick reports were authentic; the onus was now on SARS to prove their authenticity. It was entirely possible that Makwakwa and his partner were innocent but there was need for accountability to clear his name. For Parliament to subpoena a SARS commissioner would be unprecedented but if there is no convincing responses and decisive action is not seen, the Committee would take that route.

Adv Jenkins confirmed that the FIC report, the Hogan Lovells report and the Makwakwa disciplinary committee report by Adv. Terry Motau, are in the public domain but must be obtained officially from SARS.  He believed there was no reason why SARS should not make the Hogan Lovells and disciplinary committee's report available to the Committee.

Ms Tobias said the Committee would not want to set a precedence of dealing with leaked documents in the public domain. The reports should be furnished to the Committee by SARS officially. The same convention by the Joint Standing Committee on Intelligence (JSCI) must apply on how confidential issues are dealt with.

Mr Moyane told the Committee his pretext earlier in the meeting, which caused frustration among Members in the first place, was always meant to conclude with the words: "In so far as the submission of the reports are concerned, we are in agreement that these reports will be released to yourselves." To put the matters to rest the reports would be released. Further, he received a letter from Mr Makwakwa on 11 March where he conceded and agreed that the Commissioner could divulge his tax audit report to the Minister of Finance and the Committee Chairperson as long as it was not shared with anyone else. Members would get to read it in the presence of the Chairperson only. Mr Makwakwa had indicated he was giving this information for purposes of transparency although there was no legal basis compelling him to do so.

Mr Lees said the reports in question belonged to SARS and not to Mr Makwakwa. The conditions he set for their release were not acceptable; the information must be made public. It was not up to Makwakwa to decide whether to release or not release the reports. There could be no compromise.

Ms P Mabe (ANC) commented that the controversies and allegations had brought the organisation into disrepute. It was unfortunate that Mr Makwakwa was attaching conditions for the release of the reports. The Committee could not afford having individuals not being accountable, and Mr Makwakwa was no exception. This was a public interest matter and Members could not be denied access to information. The media already had copies, as they can intercept communication. The media has eyes and ears everywhere.

The Chairperson believed Mr Makwakwa was entitled to not release his personal tax details. Also, he did not want the responsibility of receiving a report that does not come directly to the Committee. He suggested a closed meeting to review Mr Makwakwa’s taxes because often things get leaked to the media. He suggested that an independent tax expert be given the personal tax information and this should be via a closed meeting. He asked for Adv Jenkins’ opinion.

Adv Jenkins said, in terms of the Tax Administration Act, the Commissioner may decide that an individual's tax details be disclosed if it serves to rebut or counter claims of impropriety against that taxpayer. It was not up to the taxpayer, and the Act said nothing about conditional disclosure of information.

The Chairperson said the reports must be provided to the Committee, ahead of its next meeting with SARS next Tuesday. He insisted that he did not want the reports to become subject to leaks and distorted media reports. The Commissioner and SARS team will either face the Committee via video conference or in person next Tuesday to answer questions on the reports. The Speaker’s Office had also been kept abreast about SARS matters and shared the same frustrations with the Committee. The Committee was not asking for Mr Makwakwa’s tax affairs at this stage.

Mr Moyane agreed to comply with the Committee’s decision to make the two reports – one by law firm Hogan Lovells and another clearing Makwakwa of wrongdoing – available to the Committee by Friday morning prior to a follow-up meeting on Tuesday next week. SARS would certainly submit the reports but might have to possibly remove any references to the FIC report.

Mr Lees asked SARS to confirm whether New Integrated Credit Solutions (NICS) had been contracted as a debt collector, and if there was any purported link to Mr Makwakwa, through a Mr Patrick Monyeki, which should have disqualified the company. In addition, he asked if Mr Makwakwa sat in the SARS adjudication board which made the decision to rope in Mr Monyeki’s NICS.

Ms Tobias wanted the Commissioner to confirm if the allegations that Mr Patrick Monyeki, apparently linked to NICS, is his close friend were true. How did SARS outsource debt collection services to NICS and what was Mr Makwakwa’s relationship with the company?

Mr Moyane admitted he knew Mr Patrick Monyeki as a friend and nothing more, but was not aware of his directorship or board membership at NICS. NICS had been doing debt collection work with SARS since 2004. The procurement processes at SARS were clear and he, as Commissioner, did not sit in the bid adjudication committee. He did not get involved in the procurement processes. As to whether Mr Makwakwa has shares at NICS, he did not know and if Mr Makwakwa does have share in the said company, he had to come clean. Further, Mr Makwakwa declared that he had no relationship with one Ms Onica Makwakwa, mentioned as director at NICS. This was on record. The Makwakwa saga had taught SARS a valuable lesson and that it could have handled the matter differently and better.

Mr Moyane said he found it invasive and close to casting aspersion at his person that dotted lines were being drawn on a number of people he knew, which in most cases would put SARS into disrepute. However, if there was any evidence of wrongdoing, action would be taken swiftly. The buck stopped with him to take charge of the leadership of the organisation.

Mr Lees noted the response and appreciated the commitment to taking action. However, it was concerning that it took a newspaper report to flag these grey areas which should have been identified during the procurement processes. Also, it was necessary for Members to seek clarity about allegation in the newspapers.

The Chairperson said it was wrong to cast aspersions but institutions such as SARS had to be squeaky clean. The Committee had no evidence of any wrongdoing on the part of Mr Makwakwa or his partner Ms Kelly-Ann Elskie. However, if there was a case to answer, it must proceed through the criminal justice system. Also, the Committee viewed it creditworthy that Mr Makwakwa was willing to share his tax affairs with the Committee. However, the issue was largely about how SARS managed the matter, the glaring contradictions. The handling was abysmal. He thanked the media for alerting the Committee about the various allegations at SARS. If it was not for their work, Members might not have picked up the issues. Further, the Committee would continue its engagements with SARS on the matter, to consider whether there is a need to amend legislation or regulations to reduce the prospects of a similar controversy emerging in the future.

SARS and KPMG report on allegations against the SARS Intelligence Unit

The Chairperson pointed out that the so-called SARS ‘rogue unit’ matter had been with the Committee since 2015. The Committee then took a decision as a majority that the intelligence aspects of the matter must be dealt with by the Joint Standing Committee on Intelligence (JSCI). He had contacted the Independent Regulatory Board for Auditors (IRBA) on what it was doing in relation to the matter. IRBA had indicated it was not investigating the KPMG report, but the behaviour of the auditor in terms of the ethics and professional conduct of the auditing profession. The Committee intended to look at SARS’ complaints, bearing in mind IRBA was investigating the matter anyway, and the Ntsebeza Inquiry was also in doing its investigations. The outcomes of the investigations should not be pre-empted. It was complicated.

Mr Maynier said any hearing in relation to the so-called ‘rogue unit’ should come down to the Committee having access to the documents. He had requested all accompanying reports and the service level agreement between KPMG and SARS. These documents had not been received thus the hearing could not be productive. He asked when Members would be granted access to all the documents.

The Chairperson indicated that the issues being raised by Mr Maynier had been addressed before. Some of the reports were actually in the public domain.

Mr Maynier said he was in possession of the draft KPMG report, which was in the public domain, and would be happy to share it with the Committee. However, nobody had seen the final report. Members would want to see all the reports, all drafts and the final.

The Chairperson said the Committee would abide by the rules. He asked how far IRBA had gone on the matter.

Mr Bernard Agulhas, CEO, IRBA, said IRBA was in possession of the KPMG reports and was busy with the investigations. IRBA was investigating the registered auditor involved in terms of code of ethics and professional standards. IRBA was not looking at the substance of the report. He would come back to the Committee and give an indication as to when the investigation would complete.

Mr Moyane stated that the Ntsebeza Inquiry was also handling the matter, and hence was not in a position to pre-empt its outcomes. SARS would update the Committee after the Inquiry is completed. He assured the Committee that SARS was participating fully in the processes. Also, the relationship between SARS and KPMG was based on clearly agreed upon terms of reference.

Ms Tobias felt the Committee should not rely on outcomes of separate processes but must do its own work.

Ms Refiloe Mokoena, Chief Officer: Legal Counsel, SARS, indicated that the legal cobweb around the KPMG and SARS matter meant that the reports had to be withheld as the matters were now before the courts. She noted that SARS lodged its complaint to the South African Institute of Chartered Accountants (SAICA), IRBA as well as the Committee upon being aggrieved by KPMG conduct. Subsequently, the Ntsebenza Inquiry commenced work on same, and its terms of reference were clear. SARS would also welcome a Committee inquiry if Members felt the identified processes had not traversed all the issues.

The Chairperson asked KPMG to comment before the Committee decides on process. What did KPMG do? Did it withdraw aspects of the recommendations or the recommendations as a whole in its report, and why?

Mr Roy Waligora, Director: Forensic, KPMG, said the firm withdrew conclusions and recommendations in its report on the SARS intelligence unit because they were repeated verbatim from a memo sent by SARS' attorneys and KPMG could not stand by them. KPMG fully understood the confusion around the matter. KPMG did an extensive document review and factual finding-based report on the basis of those documents. A version of executive summary was prepared for SARS and accepted, and was in public domain. Subsequently, the full report (without exhibits) became available in public.

Mr Maynier said the explanations took absurdity to another level. He was about to read a KPMG report which is in the public domain when some Members objected.

Ms Tobias interjected and protested that Mr Maynier was about to speak to KPMG recommendations in a report which was not in possession of the Committee. The document’s legal standing and authenticity could not be verified, and thus should not be discussed. She would excuse herself if the Committee started discussing leaked documents. Members ought to follow formal processes of Parliament and abide by the rules.

The Chairperson explained that the KPMG report, unlike the Hogan Lovells report, did not fall under the Committee’s purview. It belonged to the JSCI. Although the KPMG report was now in the public domain- legitimate or not, the same rules applied. He urged Members to focus on the responses by SARS and KPMG.

Mr Lees said Members had every right to ask questions. In an event that he had a copy of a leaked document, he could as well use it to ask questions; although not demand a copy of such a document. Mr Maynier wanted to simply ask a question; not access to the KPMG report. If the officials to whom the questions were directed to felt they were not in a position to answer on the basis that the responses might traverse sensitive information, they could decline to answer.

Mr Maynier said he simply wanted to probe the logic of KPMG's decision to withdraw some conclusions and recommendations from its report. He wanted to quote from a report in questioning Mr Waligora, but some Members again objected strongly.

Ms Tobias emphasised that Mr Waligora had not presented any conclusions to the Committee. Members knew nothing about conclusions Mr Maynier was referring to. The Committee had agreed it would only deal with what was before it.

The Chairperson said the law would guide the processes. He directed Mr Maynier to stick to the mandate and defer his questions for next Tuesday or until legal opinion is obtained on status of KPMG report. The Committee was not repressing anyone but, in the interim, had to look at what was appropriate given there were intelligence aspects, which belonged to the JSCI. He made it clear that the Committee will neither take over the responsibility of the JSCI nor IRBA. The Committee would have to determine how far it could go, during the discussions slated for next Tuesday, without pre-empting IRBA outcomes.

The meeting was adjourned.

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