Business Maverick


After the Bell: Sasfin and the law of Al Capone

After the Bell: Sasfin and the law of Al Capone
Illustrative image sources: SA banknotes.(Photo: rawpixel ) | Sasfin Building. (Photo: Gallo Images)

Ever since Al Capone’s conviction, the great truism of gangsterism is that you can escape the police, the press and the public, but what gets you in the end is the taxman. I have always wondered whether this is true, and if so why? It’s worth recalling a couple of things about the Al Capone case which have been lost in the mists of time.

Al Capone was a brute; he was involved in a very high-stakes war, underpinned by enormous riches available from bootlegging because of Prohibition in the US. He became a mob boss after his boss was badly wounded in an assassination attempt, dodging attacks himself on many occasions. Although the machine gun was the weapon of choice at the time, Capone’s modus operandi was to use dynamite to blow up the clandestine bars that wouldn’t stock his alcohol.

What really hurt Capone wasn’t the city government or even the police, both of whom he had bought off, or even initially the tax authorities. What hurt was public perception. Capone was widely believed to have ordered the Saint Valentine’s Day Massacre, which was designed to kill his rival George “Bugs” Moran.  Seven members of Moran’s bootlegging gang were lined up against a wall and shot dead with Thompson submachine guns and shotguns.

The pictures of the killing were so brutal and so grotesque that the US national government was called in. The tax case eventually brought against Capone was extremely weak and was largely based on Capone’s admissions after he tried to get his tax affairs in order.

But the public was sick of such a gangster and the case went against him really, I think, because of the sheer visual gruesomeness of the massacre. However, what ultimately destroyed Capone was not his tax bill but a mixture of the end of Prohibition and syphilis, which got worse during his 11-year jail term (he served only six of those years).

There is some logic behind the notion that bad elements in society, even those much less awful than Capone, eventually get done in by the tax office rather than the attorney general’s office. Part of the reason is that the tax office has a set of legal superpowers which crime prosecutors don’t have. You are also touching the government on its station. From the government’s point of view, crime is a societal evil — but tax evasion is personal.

SARS steps in

And that’s how it’s turning out in SA following the State Capture period and various well-known private-sector cases. Several criminal cases against all manner of wrongdoing are taking years to evolve, some so long that the courts themselves are tossing them out. But even as the criminal cases are failing, SARS is stepping in to generate loose justice.

The biggest and most ambitious project so far at SARS came to light recently when the revenue service quietly lodged two damages claims in December in the Gauteng Division of the High Court in Pretoria against Sasfin Bank, one for R1.97-billion, involving 18 named companies, and another for R2.9-billion, involving Gold Leaf Tobacco Corporation, which is controlled by the Zimbabwean tobacco baron Simon Rudland.

This is an enormous claim, and legally speaking, it is potentially very significant. Despite SARS’ superpowers, it is being brought as a civil case. We don’t yet know all the details, but one can assume that this is because Sasfin is not itself the allegedly errant taxpayer.

Instead, SARS’ case rests on the notion that Sasfin is in one way or another responsible for other parties not paying their tax. This is a bold and unusual approach, but it is open to contestation.

Legal opinions

In its Sens statement in response to the summons, the bank said it had obtained legal opinions from some of the biggest names in tax and delict law in the country, including from “ENS, authored by Professor Dale Hutchinson, Professor Michael Katz and Aslam Moosajee and endorsed by Adv. Wim Trengove”. The opinion was “unequivocal that the claim falls outside of the recognised parameters of applicable law and has a very remote likelihood of success.”

Technically speaking, this is correct: proving what is known as a “delict case” is extremely difficult, a lawyer friend tells me. A delict case is essentially a claim for compensation as a result of harm caused. But to triumph you need — in SA law and most other places in the world — to prove wrongful conduct, fault, causation and damage or harm.

On the surface, that doesn’t seem all that difficult, but just think about causation, for example. There has to be a direct link between the wrongful conduct of the defendant and the damage caused and the defendant must have reasonably foreseen the harm caused and that the conduct was wrongful. The US jurist Oliver Wendell Holmes said, “Sound policy lets losses lie where they fall, except where a special reason can be shown for interference.” The courts, in essence, don’t want society to be overwhelmed by dubious claims of damage, so the bar has been set high.

But things are changing. I suspect the SA public is sick of dodgy businesspeople getting away with it. For example, there was a time when “structured finance” proposals were common in business. “Structured finance” is essentially a sophisticated term for finding ways to cheat the taxman. However, structured finance is very rare these days and I suspect it’s at least partly because society in general decided they’d had enough of it. The taxman certainly has and makes no bones about it. 

I can’t see why a banker can bank a client who has repeatedly made headlines for questionable practices without an enhanced duty of care. And if they decided to go with the dodgy client, then SARS is completely within its rights to say, “Let’s put this in front of a judge and see if you are responsible or not.” I’m surprised that lawyers as eminent as those who have put their names to Sasfin’s legal opinion have done so. I hope they were paid well.

Anyway, we can see clearly how investors feel about this all. Contrary to Sasfin’s legal opinion that the case “has little chance of success”, the share price is down 40% year to date. It is quite possible that Sasfin will not be called on to pay the full amount and that it will take years to resolve, but investors aren’t waiting to find out. DM


Comments - Please in order to comment.

  • Geoff Coles says:

    Even so, I can’t see how Sasfin can be liable in what is essentially fraud and corruption

    • Dave Crawford says:

      Perhaps an independent investigation might clear the whole thing up. All our news is second hand and based on public pronouncements from both sides.

  • Rae Earl says:

    South Africa’s arch white collar crook is Markus Jooste. Why is he still arrogantly strutting around and displaying his considerable wealth in Hermanus instead of appearing in court. The money of thousands of pensioners was looted from his empire. He is a master of fraud and corruption.

    • Fanie Rajesh Ngabiso says:

      I agree he should be held accountable but I am also of the opinion there are other contenders for the “arch” mantle.

      • Dave Crawford says:

        That is an understatement. The irony of Marcus Jooste is that the entire Steinhoff story was a rerun of a rash of these from the 60s with companies like Leasco and of later with Enron. I think Santayana said that those who ignore history are doomed to repeat it.

  • MT Wessels says:

    I enjoy Cohen’s writing but this article appears to celebrate mediocrity, at best. Contrary to the Capone parable and the general gist of the article, there is no success story of vanquishing the crime bosses here. They got their ill-gotten gains out of the country: billions of rands, clean out, now living the high life overseas free from persecution because our investigative authorities are stomping around with their foot in a bucket. Meanwhile, our hero-protagonist, SARS, woken from it’s slumber because, you know, white collar crime, is now casting around for a easy mark, a scapegoat. Their case is hopeless, but even should they succeed in convincing a judge to award (some) funds return from Sasfin (instead of the 8 proven conspiring staff members), the bank will fail and many more innocent employees will lose their livelihoods (and investors lose their money) – all while “Al Capone” enjoys anther cocktail in a far-off land. No success here, only shame and the false equivalence of a loser’s lot.

  • Iam Fedup says:

    I’m have no vested interest in Sasfin, no connection to them in any way as a customer, supplier, employee, or friend. But I don’t think it’s a coincidence that SARS, and probably the ANC, have gone for them. They are on of the few banks in SA that is run by white Jewish leaders, who are outspoken about the shenanigans of the ANC even while the cowardly CEOs of the big four have remained pointedly silent.

    I also want to take issue with your statement, “I can’t see why a banker can bank a client who has repeatedly made headlines for questionable practices without an enhanced duty of care.” The hypocrisy of the banks is gigantic. Who do the ANC, and all the SOEs like Eskom bank with? And who, from the individuals of the ANC who have been deemed to be crooked, use as bankers? It’s all just one big corrupt game, and, like most South Africans, I’m sick of it.

  • Johan Buys says:

    This is very different from the hundreds of millions banks were fined for collusion and tariff setting among their traders. But not entirely different.

    as the stories have it, Sasfin was involved toward the end of the laundromat, the externalization.

    Somebody should go look at how the money got to Sasfin. It is fair to assume that a lot of the money in the illegal tobacco and gold game is cold hard cash. How did that cash (we are talking pallet loads) get into the bank accounts from which the money got laundered through Sasfin?

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