Over the past four years journalists wrote piecemeal about delinquent taxpayers, the illicit economy and how tax evaders are escaping the SARS net. These accounts were offered as proof of how SARS’ investigative capacity imploded under Tom Moyane’s reign.

Jacques Pauw’s The President’s Keepers, published in 2017, was the first attempt at connecting all these different cases in order to highlight the deep fault lines in SARS’ investigative capability. Moyane has consistently met these reports with disdain and denial. In Pauw’s case, Moyane retaliated with legal proceedings.

Day 6 of public hearings at the Commission of Inquiry into SARS drew a line in the sand that Moyane will not be able to ignore, manipulate, intimidate or explain away. Testimony from three key witnesses again focused the spotlight on consulting firm Bain and Co.’s role in the decimation of SARS’ investigative capacity during Moyane’s reign. These key witnesses linked to the once vibrant and revered enforcement division of SARS submitted extensive testimony about how they were hounded, threatened and bullied because of the high-profile cases they worked on. This is what happened on Wednesday.

How consulting firm Bain and Co. helped Commissioner Tom Moyane and his henchman Jonas Makwakwa break SARS to their will is the focus of this week’s public hearings before the Commission of Inquiry into SARS.

The essence of Wednesday’s testimony highlighted why the tax cases of State Capture dons the Gupta family, Western Cape gangster Mark Lifman and KwaZulu-Natal clearing agent Robert Huang have not been concluded.

An inefficient new operating model designed by Bain and Co. coupled with deliberate attempts from senior SARS managers to frustrate progress has been fingered as the reason why these high-profile cases moved at a snail’s pace. It left SARS officials tasked with investigating the illicit economy all but blind. This new operating model was supposed to be Moyane’s flagship project of restructuring SARS. It turned out to be disastrous.

Senior managers in SARS’ enforcement division Pieter Engelbrecht, Dion Nannoolal and Keith Hendrickse each filed extensive submissions to the commission detailing why the cases they and other investigators were working on have not come to fruition. Bound by the Tax Act, these witnesses could not reveal the names of taxpayers and therefore could not publicly testify about the detail of their cases. Evidence leader to the commission Adv. Carol Steinberg also warned witnesses not to name taxpayers while Chair of the Commission retired judge Robert Nugent instructed journalists not to use any name that might be mentioned in error.

Steinberg said the witnesses will open a “10% window” of what they submit to the commission in an effort to inform the public of how the enforcement units used to function, how it was eventually restructured by Bain and Co. and what the impact was on SARS’ ability to deal with tax fraud and organised crime.

The witnesses cannot “mention any taxpayer’s name, and cannot mention an official in SARS that any witness might suspect that has colluded with a taxpayer”, Steinberg said.

(Scorpio and other journalists have however extensively investigated the tax affairs of several high-profile taxpayers. Scorpio and Daily Maverick are firmly committed to the public’s right to information. We will publish some detail contained in our personal records along with the information the witnesses were allowed to disclose.)

The details Scorpio can reveal about Engelbrecht, Nannoolal and Hendrickse are only a snapshot of the intimidation and harassment meted out to them. They are not alone. Many SARS officials too scared to take the stand and tell their story have been treated in the same way. The departure of many talented and highly skilled SARS officials is directly linked to SARS management’s bullying ways.

Steinberg had exceptional confidence in these three witnesses.

“Everything we hear today is corroborated by five to six other people,” Steinberg said, stating that she is comfortable that the witnesses do not hold a “personal grudge” colouring their testimony.

“There is still space to test the evidence, but we may have to do it in camera,” she continued.

Pieter Engelbrecht and the Huang case

Pieter Engelbrecht joined SARS in 1998 and eventually became the head of centralized projects, a division in SARS’ enforcement department. Engelbrecht’s teams worked on high-profile cases that included the Dave King and the extensive Mpisani matter involving KwaZulu-Natal clearing agent Robert Huang. A crucial point to understand about enforcement, Engelbrecht testified before the commission, is that its strength and value to SARS lies in showing the taxpayer society that SARS had long and sharp teeth the service was willing to use. Enforcement as a department did not necessarily collect billions in revenue, but was the stick that ensured billions in revenue was collected.

Engelbrecht was instrumental in the case against Huang and the deponent in several affidavits against the taxpayer in a litany of court proceedings. Huang stands accused of owing SARS an estimated R3-billion and bribing several government officials. Before the Guptas’ tax matters came under scrutiny, the case of Huang, code named Project Nightfury, was regarded as SARS’ biggest tax evasion investigation ever. Huang was a very important person to the ANC with close business links to former President Jacob Zuma’s nephew Khulubuse Zuma.

SARS had Huang in a bind, thanks to the sterling work of Engelbrecht’s team. It also put a target on Engelbrecht’s back. In late 2014 everything changed when Moyane was appointed and soon thereafter initiated the implementation of a new operating model designed by Bain and Co.

Using the operating model, Moyane and Makwakwa disbanded Engelbrecht’s unit in 2016. His team was dispersed and SARS’ capability to investigate specialised cases was given a headshot.

Engelbrecht testified that “it was made known to me I was not welcome at SARS, the aim was to get rid of me”. He was given the title of “senior specialist” – a term that came to be associated with those officials Moyane and Makwakwa tried to get rid of. Taxpayers opened four cases against Engelbrecht which he labelled “spurious”. At least one proved to be based on fabricated documents.

Evidence leader Adv. Steinberg told the commission she had affidavits of two other SARS officials “with similar experiences”.

There are records of disciplinary proceedings where “SARS has been rapped over the knuckles for pursuing cases against their employees in an unethical way,” Steinberg continued.

The result of the harassment would however be devastating – SARS officials like Engelbrecht would be removed from the sensitive taxpayer cases they were working on, causing the same cases to grind to a halt or falter.

Asked assistant to the Commission prof. Michael Katz: “Was it a strategy to eliminate Engelbrecht?”

Steinberg answered, saying “that is one inference we can draw”.

Engelbrecht declined to draw an inference.

Scorpio is aware that the Huang case has only been reopened and looked at right after investigative journalist Jacques Pauw published The President’s Keepers in which he accused SARS of shielding Huang.

Dedicated SARS officials are now trying to revive the case.

Scorpio is aware that Engelbrecht’s unit would also have overseen two Gupta linked projects that were in its infancy when Moyane took over the reins at SARS in September 2014. These projects apparently never got on its knees.

Keith Hendrickse and the Mark Lifman case

Keith Hendrickse set up a national projects office in the Western Cape in 2009. Hendrickse’s teams specifically focused on organised crime, including abalone smuggling, rhino and elephant poaching, drug lords and gang bosses. SARS Project All Out was registered to inspect the life and business interests of Western Cape gangster Mark Lifman. Lifman owed SARS close to R400-million and Hendrickse’s team was a vice grip. Without naming Lifman, he described the gangster as “one of the biggest (crime bosses) in the country”.

Again, around came Moyane, Makwakwa and Bain and Co.’s new operating model. Hendrickse’s unit was scrapped from the SARS organogram in 2016. He was not consulted nor informed of the fact. Hendrickse for the first time realised he’s out of a job when Moyane and Makwakwa presented the new operating model in Pretoria. Hendrickse was ordered to hand over all the projects his team worked on.

Enter another henchman of Moyane – senior investigator Yegan Mundie, the head of a team supposedly investigating “criminal syndicates in SARS”, Moyane explained at the time.

In real terms, Mundie ran a unit that targeted Moyane and Makwakwa’s enemies. To this day SARS officials fear Mundie, even though he is no longer at SARS.

Without naming Mundie, Hendrickse testified on Wednesday how “a SARS official” requested him to hand over the Lifman case. The official was Mundie.

“I bumped into someone (Mundie) at the elevator,” Hendrickse said. “He told me he came to retrieve taxpayer X’s (Lifman’s) files.”

Hendrickse asked Mundie who gave him the authority, upon which Mundie answered that Moyane gave the order.

“I said you can’t have it,” Hendrickse testified, “the papers are a whole room full. I can’t just give it to you.”

The shenanigans continued to the detriment of SARS.

Said Hendrickse:

“That prevented SARS from collecting one cent [from Lifman] for two years… That was to my mind a deliberate attempt to derail the process. We were stopped in our tracks.”

Dion Nannoolal and the Mpisanes

Dion Nannoolal is the senior manager responsible for high-value audit debt collection. This includes high-profile matters that are sensitive and may result in reputational risk for SARS. He delivered important testimony blaming SARS’ woes on “poor leadership”, fragmented reporting units and “inefficiencies created by the Bain and Co. operating model”.

Curiously, Nannoolal did however not testify as to how Chief Officer Jonas Makwakwa asked him to intervene in the tax fraud case against Shauwn and S’bu Mpisane. It is uncertain whether his confidential testimony to the commission contains these details. Scorpio will highlight it anyway, because it may speak to the level of intimidation and culture of fear at SARS.

Makwakwa phoned Nannoolal on 13 January 2017 at 15:31, while he was on suspension for an unrelated matter, and allegedly asked Nannoolal to intervene in the tax fraud case on their behalf. (Other SARS officials had in July testified under oath that Makwakwa regularly attempted to ferret information about taxpayers from them he had no right to.)

Makwakwa was disciplined for the matter based on the principle that he was not allowed to contact any SARS official while on suspension. Makwakwa was found not guilty by SARS on all counts related to the incident.

Available information suggests that these findings are suspect. It was contained in the same botched disciplinary hearing that was supposed to investigate the source of Makwakwa’s mysterious millions.

According to all accounts Nannoolal was pressured into testifying that Makwakwa did nothing wrong.

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Engelbrecht, Nannoolal and Hendrickse independently testified that the key problem haunting SARS’ investigative capacity can be divided into two themes:

The first is that SARS populated the gaps left by Bain and Co.’s already defunct operation model with people unequipped or ill-suited for their positions.

The second is that Bain and Co.’s operating model adopted severe design flaws that fractured multidisciplinary teams, broke reporting lines and decimated the end-to-end process of investigation. Before Moyane arrived, teams were made up of investigators, auditors, project managers, lawyers and key specialists. After Bain and Co.’s final operating model was accepted, these multidisciplinary teams were dispersed over up to five different units.

The effect was devastating, Engelbrecht testified. He argued that the pre-Moyane SARS was agile and quick off the mark. His units had the ability to initiate legal battles like sequestration or preservation proceedings within hours after a decision was made. Post-Moyane SARS became clumsy, slow and ineffective. To get the necessary approval can now take over a year. Said Nannoolal:

“We’ve lost possibly hundreds of millions of rand in the past few years because of these inefficiencies.”

The fragmentation of specialist teams importantly also led to a breakdown in investigative capability. The case selection and management process did not divert all red-flagged cases relating to a certain taxpayer or group to a designated team any more. The result was a dispersion of a complicated and vast case across multiple investigators and auditors who were unaware of each other.

So it happened that these difficult cases which required specialist teams to investigate sometimes landed up in the lap of auditors concerned with run-of-the-mill cases. It means that an underworld gangster’s matter was treated similarly to Joe Soap’s normal tax audit. Hendrickse testified that when the audit division finalised a case of a taxpayer involved in abalone smuggling, the division raised an “inadequate” assessment based on the taxpayer’s own declaration. The tax paid to SARS was “nowhere near” the amount projected by Hendrickse’s team.

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Moyane has time and again threatened legal action while holding fast to his innocence. Neither he nor Makwakwa has so far indicated whether they will make use of the invitation to testify before the commission. DM