While it might be important to start at the very beginning of this tale, it is simply impossible to tell it all in one go. So, dear reader, we will have to over-simplify, with all of the difficulties that that can entail.
But, once upon a time, back when apartheid was still in force and before the ANC took over in what some now call a bloodless non-revolution, a banking group called Bankcorp went bust. The Reserve Bank bailed it out, starting in 1985 all the way through until 1992. It was the kind of thing that bankers revel in, especially when they may have found a way to ensure that no one actually has to pay in the longer run, as some seem to have believed here.
Over time, Bankcorp became part of Absa. Then, after the ANC took over, a British company run by a former spook offered the now-ANC government a proposition. It would investigate the apartheid-era looting of the state, and then try to get some of that money back. It did this at the cost of around £600,000. CIEX then found, it believed, evidence of this looting in the Bankcorp bailout, and suggested that these “loans” should be repaid. It also offered to try to recover the money, and investigate other incidents, and, wonderfully, would do this on a commission basis. Which, for a country emerging from apartheid, would be a hugely attractive proposition. But for various reasons the Mbeki government decided not continue with the process. It seems that some people felt CIEX were in it for themselves, or that others felt it was not worth the time and trouble – and skeletons.
In the end, years later, in 2011, Advocate Paul Hoffman, the head of Accountability Now, lodged a complaint with the Public Protector. At first, then Public Protector, Advocate Thuli Madonsela, refused to hear the complaint, pointing to a part of the Public Protector’s Act which stipulates that a complaint must be lodged at that office within two years of the alleged incident. Eventually she was convinced to use her discretion, which also appears to be mentioned in the Act, and she agreed to probe the matter.
To miss out several steps, Madonsela’s term ended, Mkhwebane took over, and then her provisional report into the case was leaked. That report found that Absa should repay this money, and eventually, on Monday, her final report was published.
Her finding starts in an interesting way, with a long quote from the Constitutional Court ruling on Nkandla, warning that office-bearers must comply with the Constitution. She then goes through the facts of the matter, her investigation, and her findings.
In some parts of the complaint, this is relatively straightforward, government spent R10-million on the CIEX report and did not implement it or make a formal decision not to implement it, and thus it was a waste of money.
Other parts are slightly more complicated, about the nature of the Bankcorp bailout, and whether it was a loan or something else. Her finding here is that both the Reserve Bank and the government, through the Finance Ministry, failed in their obligations towards good governance. Which of course means that the public, South African citizens, were prejudiced.
In the past, the decision to use the financial structure that was used by the Reserve Bank has been defended by several people. Dr Chris Stals himself, the person who was its governor at the time, has said that nothing untoward happened, that everything was strictly legal. The person who led another investigation into this bailout, then Special Investigating Unit head former Judge Willem Heath, found in 1999 that the bailout was unlawful, but recommended against pursuing the money, saying it would have repercussions on the financial sector. In 2000, Judge Dennis Davis also investigated and also found that the bailout broke the law. But to complicate an already complicated story well past the point of complication-saturation, he suggested that the people who should carry the can were the former shareholders of Bankcorp, which is Sanlam. At the time, Sanlam was a mutual society; it has since demutualised, which means it has changed its structure more than significantly, which could have implications for who the claim would actually be against.
All of this means that Mbkhwebane’s interpretation and findings of the financial instruments used are open to challenge. When two judges (Heath and Davis) find that Absa is not liable, you can imagine the legal arguments that will be brought against her when she finds that it is.
Absa will already have a very strong case against her. First, they will probably tackle her decision to actually investigate despite the fact the complaint was laid well after the two-year limit, and that the events occurred before her office was even created. New laws cannot apply retrospectively, which means a new office cannot investigate something that happened before it was created. Which would almost certainly be the case here. Although perhaps Hoffman would argue that the real deed that he complained about, the decision not to implement the CIEX report, occurred in 1997 by which time the Office of the Public Protector had been created, and that the two-year limit was overcome by the use of her discretion.
Then there is the problem of prescription. Debt, under our law, generally prescribes after 15 years. It cannot be claimed after that date unless agreements are entered into and other procedures followed. This money was well before 2002. Which means that to get around that, someone will have to prove that there was lying or deceit about the debt, and that it was only once the debt came to light that the period of prescription started to run.
The other point Absa will make, and no doubt make strongly, is that they were not given a chance to properly respond to the case against them. The bank says it was not given access to the documents Mkhwebane used to make her findings. This could break some of the legal rules that should have been followed here (in the same way that a person accused of a crime has the right to see witnesses testify against them).
All in all, Absa will almost certainly win in court. All of them.
And then we come to the strangest part of all this. The section where Mkhwebane, while investigating a matter involving the regulation of banks and money that she says was given to a certain bank illegally, then decides to simply change the monetary policy mandate of the Reserve Bank.
The Constitution currently states this about the bank:
Primary Object – The primary object of the South African Reserve Bank is to protect the value of the currency in the interest of balance and sustainable economic growth in the Republic.
She has said, in her finding, that the Constitution must be changed, and must now read in this way:
“The primary object of the South African Reserve Bank is to promote balanced and sustainable economic growth in the Republic, whilst ensuring that the socio-economic well-being of the citizens is protected”.
This would be a fundamental change in the mandate of the bank. Currently, the bank uses interest rates to target inflation; the higher the interest rates, the less money we all have to spend (because we’re spending on bonds and car payments etc), the less money there is in the economy, the lower the rate at which the price of a loaf of bread increases. If you change that policy, if you lower interest rates, you allow more money into the economy, and the price of bread will rise.
If you are in any doubt, ask a Zimbabwean.
It is this clause in her finding that led to the rand losing value on Monday afternoon. After President Jacob Zuma’s reshuffle and the removal of Pravin Gordhan from the Finance Ministry, the Reserve Bank was seen as the last independent body standing. If there is now an attack against it, there is nothing left.
What is absolutely bizarre about Mkhwebane’s finding on this is how she gets there. She has been asked to probe a failure in the supervisory role of the Reserve Bank. There is no mention of its policy mandate. Hoffman, the man who laid the original complaint, did not ask her to investigate this, and doesn’t, himself, believe her finding is correct.
To make it even more worrying, she gets there, in her official finding, in just six separate sentences. She starts by saying:
“Leading authors advocating and promoting the ideology of state banks and nationalisation of monetary currency believe that the notion of last resort’s status that is inherent to central banks internationally would cease to exist if governments take sole power in creating money through the establishment of state banks”.
Really? Leading authors? Which ones? And what about the “leading authors” who do not advocate this?
“It is in this believe that once the state takes control of creating money and credit, numerous benefits aimed at alleviating economic ails of ordinary economically disadvantaged people may be achieved, unlike our current purely commercial transaction system which only seeks to improve a particular financial sector”
How does this not look like a new front in the battle between the Guptas, their friends in government, and the banks who have refused to provide them with certain services?
Consider what Mkhwebane has done here. Ignoring her reasoning for a moment, she has placed herself above Parliament, and, it would seem, above the Constitution. On what basis? And how do you make such a sweeping statement after just a few sentences of thought, when debates about inflation targeting are incredibly complicated, with much evidence on both sides.
And where, oh where, is the economics of the argument? To simply say the poor would be better off with a state bank is to simply live in a never-never land. There’s vanishingly little evidence of it. If this evidence existed, why did she not present it?
So then, dear reader, if you are still with me, where are we?
To go through all of this is to ponder both the personality of Mkhwebane and the context.
One wonders how this report would have been received if it had been written by Madonsela, the media darling. She had a reputation for honesty and truthfulness. Mkhwebane is a former spy with that rarest of rare things, a closed Twitter account. And in our climate, the cynics, and realists, would surely have to say, once a spook, always a spook.
And that leads us to other possibilities. Her report simply will never be implemented, the courts will take care of that. So why do it?
Last week the Mineral Resources Minister and well-known Gupta beneficiary, Mosebenzi Zwane, published the new Mining Charter that is also, surely, legally fatally flawed. He did not consult with the Chamber of Mines and introduced several new concepts in the document (and a clause allowing “naturalised citizens” to benefit from BEE… any thoughts on who would be scoring there?).
One wonders if the aim here is to get “White Monopoly Capital” in the form of Absa and the Chamber of Mines into court. For them to use the judiciary to protect their rights. Which would allow someone, we’re not saying who, to claim, in a populist fashion, that “the people” are being overruled by the courts.
Or maybe the aim is not that specific, maybe it is actually just about causing more and more stress on the system, on the establishment, in the hopes of pushing it past the point of overload. Some people even wonder, aloud on occasion, if the aim is actually to somehow damage the rand and South African stocks. For the moment we just don’t know.
But so much of what is happening around us does not make sense, is not legally correct and simply cannot be morally right, as more and more independent organisations, private bodies and commercial entities get caught up in the spiralling web of corrupt awfulness, from which it is very difficult to escape, the Public Protector not being an exception. DM
Photo: Public Protector, Advocate Busisiwe Mkhwebane (GCIS)
Russia's economy is smaller than Texas, New York or California. They do have better vodka though.