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

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 Guptas in 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 André 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)


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