Has the Financial Services Board been captured?
- Dale T. McKinley
- 23 Aug 2017 12:02 (South Africa)
The figures are astounding, the socio-economic impacts devastating and the political-ideological ironies almost unfathomable.
Twenty-three years after the end of apartheid there are at least 4.5-million people, almost all poor and black, in South Africa and neighbouring states who have not been paid pension and provident fund benefits earned by their labour or the labour of their deceased loved ones within the private sector alone. The aggregate value of these unpaid benefits now reportedly stands at R41.7-billion.
Even though various struggles to access those benefits have been going on for many years, their success has been limited, they have been mostly smaller-scale and they have largely been ignored by the media and society as a whole. Politically, the ANC as a party and in government, alongside many trade unions, are collectively guilty of rank hypocrisy and indeed outright betrayal of a sizeable portion of those they so loudly and regularly claim to care for and represent.
More pointedly, the Financial Services Board (FSB), which is the public institution set up to regulate the (non-banking) financial services industry that controls and administers the funds holding these benefits, appears as though it has been captured by that self-same industry.
Here are the basics.
Back in 2007, FSB executive officer and registrar of pension funds Dube Tshidi decided that thousands of registered pension and provident funds that did not have boards of trustees were regulatory dead wood. Tshidi proceeded, without legal authority, to appoint employees of fund administrators – which had financial interests in what happened to the assets of the dormant funds – to act in place of the funds’ boards of trustees. As if that wasn’t bad enough, he also authorised, again without legal authority, the new appointees to dispose of the fund’s assets and invited them to then certify that the funds had no assets or liabilities so that, on the basis of those certificates, he could cancel their registrations. Not surprisingly, they did exactly that.
Over the next several years (2008-2013), Tshidi then oversaw the cancellation of the registrations of some 4,600 funds. Of these, approximately 80% had been administered by Liberty while other large financial services providers like Alexander Forbes, NBC, Sanlam, Old Mutual and Momentum took up most of the remaining 20%.
The cancellations proceeded without FSB officials even bothering to check whether the interests of fund members and beneficiaries had been protected – i.e. whether the funds may have had liabilities for unpaid benefits and the assets to provide for them. And the end result? An outrageous situation in which it has now become impossible for people to claim their benefits from these unregistered funds or to complain about it to the pension funds adjudicator (who has no jurisdiction to hear complaints against unregistered funds).
Enter Rosemary Hunter, who was appointed as deputy registrar of pension funds in August 2013 by then Minister of Finance Pravin Gordhan. Hunter’s appointment was not the result of political deployment or patronage; she happens to be one of the most respected and experienced employee benefits and pension fund lawyers in the country. It did not take long for her to smell a rat when it came to the fund cancellations.
Within two months, the cancellations were placed on hold in the light of concerns expressed by Hunter. She then proceeded to get a legal opinion on the cancellations and the registrar’s duties in relation to them, from Advocate Breitenbach SC. In his opinion of March 2014 Breitenbach advised that many of the measures used in the cancellations project had indeed been unlawful and that it was accordingly incumbent on the registrar to conduct an investigation into whether anyone had been prejudiced as a result.
By July 2014 Hunter felt it was time to blow the whistle to the board of the FSB. She submitted her first “Notice of Non-Compliance and Statement of Grievance” in which she revealed that after she had made attempts to surface and practically deal with what she had discovered, Tshidi tried to get rid of her by offering her a R6-million golden handshake; and that when she refused to shut up and walk away with all that money, Tshidi had set forensic investigators on to her to dig up dirt to be used to get her fired (costing the taxpayer hundreds of thousands of rand in the process). She asked the board to investigate the merits of her allegations and indicated she could provide evidence in support.
Shockingly, it did not investigate Tshidi’s conduct or that of his FSB colleagues who assisted him. Instead the FSB board tried to persuade Hunter to leave the FSB and then, when she refused, it sought and obtained permission from the Minister of Finance to initiate disciplinary proceedings against Hunter. The proceedings, set down for five days before a retired judge, had to be abandoned after less than two days because there was no viable case against Hunter.
Although it had decided to try to get Hunter to leave, the FSB Board at its meeting on 22 August 2014 also decided that a firm of forensic investigators be appointed to investigate the circumstances in which the registrations of a sample of dormant funds had been cancelled to determine whether anyone derived benefit from those cancellations; and, if so, whether such benefits were derived by members of the FSB’s staff.
However, instead of implementing its decision the Board asked retired (Constitutional Court) Justice Kate O’Regan to provide legal advice to it on aspects of the cancellations project. She did so in November 2014, recommending that: auditors conduct an investigation into the circumstances in which the registrations of funds had been cancelled; whether any of those funds or persons with interests in those funds had suffered prejudice as a result; and, whether anyone had unlawfully benefited from the conduct of the cancellations project. Incredibly, the Board refused to provide Hunter with a copy of the O’Regan “report”.
KPMG was subsequently appointed by the board, but only to conduct a part of the investigation recommended by O’Regan. This took several months. And surprise, surprise, it concluded that the registrations of all but a handful of the approximately 500 funds in the sample investigated had been cancelled without any prior proper accounting to the registrar for the disposals of the funds’ assets which had previously been reported to have an aggregate value of approximately R2.5-billion. Even more incredibly, the FSB Board proceeded to reject KPMG’s findings and once again refused to provide a copy to Hunter.
The actions of Tshidi and the FSB Board must be set against the reality that the (extrapolated) unaccounted for asset value of the 4,600 fund cancellations funds was most likely well over R20-billion. Given this, it is not surprising why Tshidi would engage in such duplicity and also why there are billions of unpaid benefits and so many people complaining that they have not been able to claim them. What is surprising and disturbing is that the Board of the FSB should have protected Tshidi and itself, engaged in cover-up activities.
Things got worse though. After requesting, in May 2015, then Minister of Finance Nhlanhla Nene to institute the very investigation that the FSB Board was refusing to conduct, Hunter submitted a second “notice of non-compliance and statement of grievance” to the FSB board. She then also approached the Hawks with her suspicion that the cancellations project had entailed corruption. If she had not done so, she would have been guilty of a criminal offence for non-compliance with section 34 of the Prevention and Combating of Corrupt Activities Act which requires all persons in positions of authority to report actual or suspected corruption, among other common law offences.
Last, Hunter also approached the Auditor-General (AG) to investigate what she said was the abuse of public resources, including irregular expenditure on the investigators appointed to dig up dirt on her and the unjustified disciplinary proceedings against her.
All of these efforts came to nought. Both former Minister Nene and the AG declined to get involved, saying that they had been told that the FSB was investigating these matters, when it was clearly doing no such thing. Indeed, Nene should have known this as he had appointed two senior National Treasury officials to the FSB Board.
Having exhausted these internal and associated governmental avenues, attorneys employed by Hunter wrote to the FSB board in October 2015, warning that she was considering applying to the High Court for orders compelling it to comply with its legal duties. Another letter was sent to Minister Nhlanhla Nene in November 2015 again asking him to institute an investigation under the Public Finance Management Act (PFMA). Both the FSB Board and the minister failed to provide any answer to the letters.
It was in this context that Hunter was forced to launch an application in the High Court in January 2016, for orders compelling the FSB Board to disclose the O’Regan and KPMG reports to her (noting that the Board had told Hunter she could have the O’Regan report as long as she signed a confidentiality agreement that would have effectively made it impossible to use it for the purposes for which she needed it). It did not make a similar offer in relation to the KPMG report.
Understandably, Hunter’s argument was that she needed to see and openly make use of the reports in order to decide what steps to take to address and fix problems in the cancellations project. Hunter also asked the court to order the FSB to investigate Tshidi’s conduct and to order the FSB, or alternatively the Minister of Finance, to initiate an investigation into the conduct of the Board in relation to Hunter’s whistle-blowing reports to it. Her absolutely correct position was that it was the FSB’s duty to initiate and conduct such investigations, for which it had more than adequate resources (unlike, for example, the Public Protector who was completely overwhelmed and under-resourced, at the time).
The FSB, Tshidi, its chairperson Abel Sithole and Hunter’s predecessor, Jurgen Boyd, all opposed Hunter’s application. They did so largely on the basis of arguments that, while elements of the cancellations project had been unlawful, it had been conducted in good faith and Hunter had not proved that specific individuals had suffered material financial prejudice as a result of the way in which it was conducted.
Even more disturbingly, the FSB’s answering affidavit revealed that it had accepted Tshidi’s refusal to answer Hunter’s allegations against him on the basis that it was “beneath the dignity of his office” to do so. Tshidi also claimed in his answering affidavit that Hunter was an “angry (and) vengeful” woman who had lodged her whistle-blower report and grievance simply “as an outlet for her emotions”.
After Hunter launched her application, Tshidi (at the request of the FSB board) appointed pensions attorney, Jonathan Mort, to conduct the further investigation that KPMG had recommended but had not been allowed to conduct; i.e. an investigation into the records of the fund administrators to determine the whereabouts of the unaccounted for assets of the funds in KPMG’s sample. While Mort is a respected lawyer, he does not have any official/recognised forensic investigation skills and the technological capacity that would normally be required to conduct such an investigation.
Mort’s first “Assessment Report” was little more than a whitewash critique of the KPMG report. His second effort, the “First Inspection Report”, revealed that he had found the assets of some of the cancelled funds. Yet, while the registrations of some of them would need to be reinstated, he said, so that their assets could be used for their proper purposes (like the payment of benefits), Mort averred that there was no evidence that anyone had been prejudiced by the cancellations of their registrations in the first place.
Mort also said that he had been instructed to investigate “the issue of the suspense account(s) at Liberty” which Hunter had earlier brought to his attention. He stated that Liberty had confirmed assets belonging to cancelled funds but in Liberty’s custody had been credited to such accounts in its own books. However, to date no report by Mort on the results of that investigation has been made public.
In the meantime, Hunter’s three-year contract with the FSB expired in July 2016 and just before her court application was heard in the North Gauteng High Court in November 2016, the FSB produced Mort’s Second Inspection Report. What is clear from that report is that Mort was finding it increasingly difficult to clear those responsible for the way in which the cancellations project was conducted; he reported that he had found more cases of funds the registrations of which had been cancelled when they still had assets – some running into many millions of rands.
Mort indicated that his findings in regard to the treatment of unpaid benefits for which those funds were liable – the most important issue in relation to the cancellations project – had been dealt with in his Third Inspection Report. However, to date, that report has not been made public. This raises further questions as to what exactly the FSB has to hide [note that a PAIA application to the FSB for the report has recently been submitted by the Right2Know Campaign].
While Hunter did finally get access to the O’Regan and KPMG reports (the FSB provided them as part of their court papers), she unfortunately lost her application before the High Court. Acting Judge Jacobs ruled, among other things, that she had no legal standing to bring the application; that there were too many disputes of fact for the case to be decided on the papers; that while the FSB had no legal duty to investigate the conduct of the cancellations project it was investigating it and that Hunter was “out of place” in suggesting that such an investigation was a white-wash.
Besides ignoring the reality of injustice for the millions of those who were negatively affected by the cancellations, alongside the accompanying use and manipulation of these benefits by fund administrators for purposes other than servicing beneficiaries, Justice Jacobs was deafeningly silent about the FSB’s failure to investigate the merits of Hunter’s allegations against Tshidi and its failure to explain why it did not.
Worse, the Acting Justice later dismissed Hunter’s application for leave to appeal with costs and then, on 1 June 2017, the Supreme Court of Appeals (SCA) did the same. In what can best be described as a cryptic judgment, the SCA only said that Hunter’s case had no prospects for success on appeal and there were no other good reasons why it should hear the case.
Here is a clear-cut case of the courts (so far) getting it horribly wrong. Even for a lay person it should be clear that this ongoing unpaid benefits saga is a case of absolutely negligent, if not downright illegal, conduct of both the FSB and private fund administrators.
In more political and governance terms, what this story reveals is that the FSB and the financial services industry over which it is supposed to watch and closely regulate on behalf of the public, are sleeping in the same bed. We all know what kind of “capture” ensues from this sort of relationship.
Further, the way in which a whistle-blower (in this case Hunter) has been treated makes an absolute mockery of associated rights under the Protected Disclosures Act (PDA). It also wholly undermines the stated commitment by government and the private sector to uphold the values and principles, as framed in the Bill of Rights, of transparency, accountability and actions which expose maladministration, fraud, corruption and bad governance.
Not only is a gross injustice being perpetuated against Hunter, whose brave and principled stand has come at tremendous personal and financial cost, but crucially against the millions of people who may have been (and possibly continue to be) deprived of their rightful benefits.
The struggle however is far from over. As I write, Hunter is appealing directly to the Constitutional Court to overturn the High Court’s findings and orders as well as the refusal by the Supreme Court of Appeal of her application for leave to appeal.
Outside of the legal realm an incipient collection of organisations, advice offices and groups (inclusive of many claimants) are coming together in the “Unpaid Benefits Campaign” (UBC). The UBC has already begun to directly assist claimants to access unpaid benefits, to undertake educational efforts and to engage in public mobilisation/action to raise awareness and force the FSB and the fund administrators (especially Liberty) to uphold the law and do their jobs.
Those who continue, in practice, to consciously and cynically take advantage of and misuse the hard-earned benefits of the workers and the poor, while loudly proclaiming their fealty to the law, social justice and economic equality, had better beware. DM
Dr Dale T McKinley is an independent writer, researcher, lecturer and long-time political/social activist. He is a leader in the Right2Know Campaign which is part of the Unpaid Benefits Campaign. His latest book is South Africa’s corporatised liberation: a critical analysis of the ANC in power (Jacana Media, 2017)
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