Is there a better tax system than the monstrosity currently in place?

Written by Ciaran Ryan. Posted in Journalism

Is there a better tax system than the monstrosity currently in place?

Our-Land-our-rent-our-jobs-book-cover-1-500x361Stephen Meintjes, analyst at Momentum SP Reid Securities, and the late Michael Jacques, authors of Our Land, Our Rent, Our Jobs certainly seem to think so. What if we could replace income tax, VAT, customs duties, excise, sin taxes, fuel levies, the Unemployment Insurance Fund (UIF), skills development levies and every other ‘tax it if it moves’ impost with a simple-to-collect tax based on land value?

There is so much invested in the current tax system that it is hard to imagine an alternative. The cost of administering SA revenue systems is about R10 billion a year, and there are an estimated 2 000 registered tax professionals lumping another R1 billion on top of that as fees. A far greater cost is the combined hours and expense incurred by companies, executives, lawyers and the courts dealing with tax matters. That’s a stubborn oak to cut down. But cut it down we must if we want to unleash the true potential of the economy, say the authors.

Then there is the complexity of the tax system. A report by PwC among the top 50 companies in SA found they were subjected to 21 taxes divided between profit, property, employment, indirect, environmental and other taxes.

Governments are loath to abandon the Marxist mantra of ‘progressive tax’ (from each according to his ability, to each according to his needs) as a means of wealth redistribution.

There are multiple alternative ideas to the current tax system, but most have the effect of stifling economic growth and job creation. The authors argue that the existing system punishes enterprise and ingenuity. Hence, tax on profits discourages profits. Value-added tax (VAT) discourages adding value and expenditure. One frequently-proposed alternative is to remove all other forms of tax in favour of increased VAT. This would encourage savings since to pay less tax, people would spend less. SA’s national savings rate is notoriously low precisely because there are insufficient incentives to save.

The solution proposed by the authors seems implausibly simple: establish a national land database and impose a ‘resource rental’ on the land itself. This is how most municipalities used to value land for rates and taxes prior to the introduction of the Local Government Municipal Rates Act of 2004. The authors argue that this resource rental could be phased in over a few years and gradually replace all other forms of tax. The fact that municipal site valuations were so widely employed prior to 2004 means the proposal has a better chance of succeeding in SA than in almost any other country.

How would that help the economy? For one thing, all land would be subject to resource rentals, so communally-owned farms and redistributed land would have to be productively used in order to afford the rental. For that to happen there would have to be security of tenure – such as leasehold and freehold title – as a precondition for gaining access to credit markets and to free up billions of rands in ‘dead capital’ currently tied up in under-utilised land.

Under this scheme, the government would essentially become a rent collector. Airports, toll roads, marine resources, oil concessions and the electromagnetic spectrum would all be treated as rent-earning assets. The income from this would, over time, not only replace all current forms of taxation but, by unlocking productive capacity, generate much higher receipts for the government, both locally and nationally. Local governments in particular would no longer be dependent on hand-outs from central government, and so deliver better quality services to residents.

You would pay rent on your land only, not on the improvements you make to the land – which would be deemed the fruits of your own ingenuity, and therefore for your pocket.

This sounds Pollyannish, but is there any precedent for this elsewhere in the world? In fact, there are quite a few stunning examples, including right here in SA. The land tax as it was commonly known played a crucial role in the industrialisation of Japan and Taiwan, before it became abused by various vested interests. Hong Kong and Singapore are interesting case studies in that the governments own virtually all land and derive considerable revenue from the land for the benefit of all. This in large measure accounts for their low tax rates and consistently high economic growth rates.

It may be that a homeowner in Bryanston, Johannesburg, living in a prime residential area will pay R50 000 or more a month as a resource rental on that land. This sounds like a preposterous amount, but it should be remembered that someone in this income bracket is already probably paying more than this in income tax, VAT, fuel levies, property rates, and so on.

The preamble to the Constitution says South Africa belongs to all who live in it, and that includes all natural resources such as land, air and water. But most land has been sold off as private property, so locational advantage and the resource rental which accrues from this is for the benefit of private property owners.

The argument here is not against private property, and the corresponding right to earn private rentals on property. What is being argued is that “such conflation of private property and a perceived corresponding right to any unearned benefits (arising from such property) has no foundation in natural law and is totally unnecessary”.

The current system punishes the poor in several ways. A subsistence farmer with no legal title to land has to pay VAT on goods whose prices have been inflated by duties and taxes.

Adam Smith in Wealth of Nations spelt out the basis for a just tax system: it should be equitable (taxes being levied according to abilities), certain, convenient and efficient.

He was against a tax on the necessities of life, just as he was against a tax on labour, because these are inflationary and therefore likely to increase poverty.

Though Smith is considered the father of the modern tax system, the authors believe he would be shocked at the “odiousness and intrusion of most taxes”, particularly taxation of company profits and on labour.

For a country in search of inspiration, here’s an idea that deserves a decent airing.

* This article first appeared in Moneyweb.

White expat South Africans returning in record numbers

Written by Ciaran Ryan. Posted in Journalism

passport photoMore than 400,000 white expat South Africans have returned to the land of their birth since the apex of the financial crisis in 2009, according to research by Free Market Foundation economist Loane Sharp. This is based on extensive analysis of job candidates on the database of the country’s largest recruitment firm, Adcorp.

Sharp says SA’s white population of working age (15 to 64 years) peaked at 5.9 million in 1973, but declined steadily to 3.9 million in 2009. Since then, the white population has risen to 4.3 million, a net gain of 400 000 over six years. That’s a substantial brain gain for the country, since most of these returnees bring vast international experience in finance, engineering, medicine and other professions.

Some employment agencies are specifically targeting expatriate South Africans to fill highly skilled positions in sectors such as engineering, mining and construction, and that is accounting for some of the migration back to SA.

Free Market Foundation economist Loane Sharp says returning whites have little trouble finding work because of the high level of skills they bring with them. “The truth of the matter is that SA has virtually zero unemployment in highly skilled professions, so those returning whites of working age – most of whom would be classified as skilled – are easily absorbed into the economy. Those without skills, or without sufficient skills, are those that cannot find work. This is why the overall unemployment rate for the country is officially above 26%.”

A variety of reasons account for the two million drop in the country’s white population between 1973 and 2009. Sharp says many of them left in the 1970s and 1980s out of a disdain for apartheid and fears over what the future held for their children. Those who left in the post-1994 era were pushed out by Black Economic Empowerment, crime and a deteriorating political environment. Thousands of young white graduates with little prospect of employment due to BEE quotas ventured overseas in pursuit of careers, usually in English-speaking countries such as the UK, US, Canada, Australia and New Zealand. Many of these are now returning armed with skills that are still in high demand in SA.

“South Africans working abroad got a rude awakening after the financial crisis in 2008 when they realised their overseas jobs were not as secure as they had once thought,” says Sharp. “Many of them realised there is no such thing as permanent, as in guaranteed, employment, and this is when they started to look for opportunities back in SA. This has been a huge net gain for the country, since we are acquiring skills that might otherwise have been lost forever to SA. In addition to this, they bring experience of working in highly developed economies.”

The Institute of Race Relations estimated that 841 000 white South Africans had left the country between 1995 and 2005, and by some estimates two million South Africans live abroad. Based on more recent figures, SA may be experiencing the biggest in-gathering of its Diaspora since the end of apartheid 25 years ago.

Philip Park, MD of recruitment agency Professional Career Services, says there is a notable influx of returning South Africans looking for work on his firm’s books. Ten years ago, they would have slotted into the larger corporations, but today it is medium-sized firms that are doing most of the hiring. A growing proportion of South African firms are hiring for projects in Africa and elsewhere, particularly in the construction and engineering sectors, says Park.

While the job prospects are good for those with skills of any race, the same is not true for those without education or skills. Sharp reckons the unemployment rate at 26% is skewed by Stats SA’s loose measure of employment – defined as one hour in the survey reference week. He believes SA’s unemployment rate will rise to 40% within seven years, and over 50% if a narrower definition of employment is used.

Employment by numbers (Second quarter 2015)

Looking for work 20.9m

Employed 15.7m

Unemployed 5.2m

Discouraged 2.4m

* This article first appeared on Moneyweb.

The story of SA in two depressing charts

Written by Ciaran Ryan. Posted in Journalism

Two charts tell the story of South Africa Inc. One shows that SA companies cannot invest outside the country fast enough, and the other shows that the JSE All Share index, measured in US dollars, is unchanged since 2007.

Old Mutual economist Rian le Roux put together the following chart which shows SA companies invested abroad to the tune of R80bn in 2014, and more than R60bn on a rolling, cumulative basis up to the second quarter of 2015. Back in 2012 the figure was zero.

Capital flight from SA

Old Mutual chief investment strategist David Mohr says the rate at which SA companies are investing abroad suggests they are nervous about the current operating environment in SA, and see better returns elsewhere.

“Power outages, an unfriendly business environment, rigid labour laws, all the usual suspects account for this migration of capital outside the country,” he says. “If there are any positives to be highlighted as far as SA is concerned, we still have a relatively disciplined fiscal regime and low foreign debt, which should shield us from some of the harsher consequences of delinquent behaviour being experienced by other emerging market countries such as Brazil and Turkey.”

The second graph suggests that virtually all gains on the JSE since 2009 have come by way of rand weakness. If there is a positive to this it is that as the rand weakens it protects investors against a possible bear market. The reverse, of course, would apply: any strength in the currency from here would hurt equities.

The exodus of capital from SA is in large part a vote against the government, which shows no appetite for essential reforms in the areas that investors consider most pressing, such as labour and energy. SA companies have realised that international diversification is a vital hedge against further maladministration. That SAB Miller is now the subject of an attempted buy-out by Anheuser-Busch is a logical outcome of a process which has been two decades in the making.

Larger companies, starting with the mining houses, started the process of international diversification around 1994. Sanctions had kept them out of the race for the juiciest mining assets outside our borders, so when the international embargo was lifted in the early 1990s, there was a sense of urgency in their move abroad. Other companies were quick to follow. The wisdom of this exodus is now plain to see.

The current weak state of the rand will not halt the capital drift. Companies plan for five, 10 or even 20 years into the future.

The common factor in both charts is the rand, which has already breached R14 to the US dollar in recent weeks. There is some consensus that the rand will likely end this year around current levels of R13.50 – R14, but what if there is a blow-out to R16 or even R18 in the next two years, as some have suggested? This is not beyond the bounds of possibility, as the rand has already skidded from R7 to R14 to the US dollar since 2011. The emerging market rout is by no means over, which means further pressure on the rand. That, in turn, is going to make it harder to reduce the current account deficit. Inflationary pressures – mercifully subdued for the moment – could resurface if the rand takes further strain.

If it’s more bad news you want, the South African Chamber of Commerce and Industry (Sacci) has just delivered a corker. This week it announced that its business confidence index sank to a 22-year low, requiring policymakers to do something extraordinary to right the tilting ship. We have to go back to before the 1994 elections to match anything like the current mood of despondency.

Most of the large cap companies on the JSE now earn more than half of their revenues offshore, a prescription which smaller cap companies, such as Truworths, are determined to emulate. It doesn’t always go according to plan, as Tiger Brands discovered when it purchased Nigeria’s Dangote Flour Mills for R1.59 billion in 2012 only to see the value of this investment slip to zero and even negative territory.

Sappi is a good example of how international diversification has cushioned its mattress. Roughly half its assets are in southern Africa and half in Europe, though two-thirds of its sales come from Europe. It’s a similar story at Steinhoff, which derives about two-thirds of its sales from Europe where it houses 59% of its assets. Africa now accounts for just 31% of SAB Miller’s revenue, and 27% of MTN’s, and a quarter of Aspen Pharmaceuticals. Wine and spirits group Distell is making inroads internationally, where it now derives roughly a third of sales. In each case, this is the result of investment decision taken a decade or more ago.

Now, of course, is not a good time to be shifting money abroad. Those who made this decision five or 10 years ago are smiling, but if you believe the rand will hit R18 to the US dollar over the next few years, then a case could be made for getting out now. But as Warren Ingram of Galileo Capital cautions, if you invest abroad now and the rand strengthens from here, you are locking in a certain loss. Recall what happened in 2002, the last time the rand hit R14 to the dollar. By 2005 it had dropped to below R6, and there are many sour memories of the rush to expatriate funds when the rand was weak. Many investors have yet to recover from this shock.

This is the new corporate South Africa: moving the furniture abroad as fast as possible.

* This article first appeared in Moneyweb.

Lessons for SA from South America

Written by Ciaran Ryan. Posted in Journalism

Two South American countries – Colombia and Venezuela – offer lessons in governance that we would do well to heed. Colombia is now one of the fastest growing economies in South America. Venezuela, ravaged by a drop in oil prices and poor leadership, is moving in the opposite direction.

I highly recommend the Netflix series Narcos for some background on what Colombia has been through during the reign of drug kingpin Pablo Escobar. Also worth watching is the Spanish-language (with sub-titles) Palbo Escobar – El Patron del Mal (Pablo Escobar – The Lord of Evil). This provides some excellent context to the recent resurgence of Colombia as South America’s third largest economy.

This article first appeared in Moneyweb.

South AmericaColombia, once the drug den of the world and now one of its fastest growing economies, has a few lessons to teach SA. This is true also of its neighbour Venezuela, now the basket case of South America. In Venezuela’s case, the lessons are tragic.

Like most neighbours, Colombia and Venezuela haven’t always seen eye-to-eye. The two countries nearly came to war in 2009 when Colombia arrested four Venezuelan soldiers who crossed the border, and has repeatedly accused its neighbour of harbouring Marxist FARC guerrillas.

Relations have improved since then, but in most other respects the two countries are headed in entirely different directions.

Colombia, once the regional hub for drug traffickers and kidnappers, has undergone a remarkable transformation in recent years. Its economy is the fastest growing in the region after Bolivia, clocking an average 4.3% growth between 2001 and 2014. It also ranks second in the 2015 Economic Freedom Index, behind Chile, the result of vast improvements in labour, trade and investment freedoms.

The same index lists Venezuela as the second worst country in the region in terms of economic freedom, just a shade above Cuba.

The Colombian government simplified and shredded laws that stood in the way of growth, reduced tax on business and signed free trade agreements with scores of countries. It offers assistance for start-up businesses, and a housing boom – powered by government subsidies and soft bank interest rates – has helped the construction sector achieve 10% annual growth in recent years. The government is also spending huge sums on infrastructure, which is expected to boost economic growth by 0.7% a year.

Colombian President Juan Manuel Santos, re-elected for a second term in 2014, has tried to distance himself from the policies of his predecessor, Álvaro Uribe, who resolved to smash FARC guerrillas and reduce crime. Santos has put economic vitality at the forefront of his government. He has done far more than his predecessor in reaching an accommodation with the guerrillas and reducing crime, which by the latest count is down 30% over the last decade.

A peace deal thrashed out in Havana, Cuba, between FARC guerrillas and the government last year promises to bring an end to all illegal drug activity and redistribute land to the rural poor. This is a war that has been waged with varying levels of intensity since 1948. The writing was on the wall for FARC once the US offered Cuba and Iran an olive branch, and by some reports, just a few thousand guerrillas remain in remote parts of the country. The rest have opted for reintegration and a chance to launch a new career in South America’s hottest economy.

Astonishingly, Colombia has now surpassed Argentina as the region’s third largest economy, after Brazil and Mexico.

The story in Venezuela could not be more different. Its growth rate averaged 2.5% between 1998 and 2014, but is expected to shrink by 7% this year. The economy has been savaged by the drop in the price of oil, on which it depends for 95% of its foreign earnings. Inflation is likely to top 150% this year, the highest in the world, and there is a fear the country will default on its foreign debt in 2016.

The country operates a three-tier official exchange rate, alongside the black market rate which has halved against the US dollar this year alone. South Africans who lived through the two-tier financial rand under apartheid will understand the propensity for fraud in such a system, where those with access to the cheaper financial rand could profit 20% or more by converting these to so-called commercial rands. Venezuela’s weak currency makes it a bargain for tourists with hard currency, but the country’s reputation for crime and shortages is keeping all but the hard-core backpackers away. Some hotels, while offering great deals, are asking tourists to bring their own toilet paper and soap. Shortages of food, medicine and other basic necessities, most of which are imported, are blamed on the declining revenues from oil sales.

Under the late President Hugo Chávez, Venezuela was venerated by post-Soviet coffin bearers as a socialist Valhalla that would redeem Karl Marx’s fading vision of a workers’ paradise. That vision lies in tatters under his successor, Nicolás Maduro, who seems cursed with bad luck, bad governance and a gaffe-prone tongue. Not to mention out-of-control corruption: an estimated US$20 billion of the US$59 billion allocated for imports in 2012 disappeared through fraud, according to the former head of the country’s central bank, Edmée Betancourt.

Venezuelans have responded in the only way they can: emigration. Research by Simón Bolívar University’s economics department says 1.2 million Venezuelans now live abroad, a 2000% increase since the mid-1990s. Nearly one in ten of those remaining are considering moving abroad.

Brazil, the largest economy in the region, squats uncomfortably between these two. Though it has a sizeable industrial base, it reliance on commodity exports has pushed it into recession. Like SA, its growing welfare bill has crippled its budgetary flexibility, though with an unemployment rate of just 6%, Brazilians are better able to ride out the storm.

All countries in the region look with envy at Chile and Colombia, the two fastest growing countries in South America. SA would do well to study them too.

How SAA shot down its rivals with taxpayer money

Written by Ciaran Ryan. Posted in Journalism

Competition never sat easy with SAA, which used R30 billion in taxpayer-funded bailouts over the last decade to shut down a string of competitors, from Sun Air to Trek and tiny Flitestar. No competitor was too small to overlook. Now its demons have come to haunt it in the form of two court challenges that could cost the airline over R6 billion in damages.

Noseweek Oct 2015 coverNational carrier SAA, amidst ongoing senior managerial disorganisation, is currently facing two massive claims, amounting to around R6 billion after tax, one for R1 billion by Comair and the other for R2.2 billion from businessman Robert Watson, owner of Rethabile, BEE minority shareholder of now-defunct Sun Air. Add interest to that lot and the claim could well exceed R6 billion. As we previously explained, the claim relates to charges that SAA conspired with Safair to take Sun Air out of operation, then gobble up its share of the market.

The alleged conspiratorial agreement between SAA and Safair only came to light years later, and forms a crucial component of Watson’s claim. What seems to have happened is that SAA purported to take majority control of Sun Air, baulked when it came to paying for its shares, and promptly shut it down. This, says Watson’s court documents, is one of several frauds committed by SAA.

Then CEO of Safair, Ralph Boettger (who last year resigned as CEO of Sappi due to ill-health), shortly after the demise of Sun Air in 1998, provided the liquidators with a summary of events leading up the demise of the airline. He records a discussion with two Comair executives who believed Sun Air could have survived had SAA not intervened. It was estimated that 60% of Sun Air’s capacity was picked up by SAA, 30% by Comair and 10% by Nationwide. As a result of this, the Comair executives believed SAA benefited by as much as R200 million a year.

This agreement between SAA and Safair only came to light years later, and forms a crucial component of a court case now being brought against the national carrier by businessman Robert Watson, who has acquired the rights and claims of Sun Air’s former BEE shareholder, Rethabile. What seems to have happened is that SAA purported to take majority control of Sun Air, balked when it came to paying for its shares, and then promptly shut it down. This, says Watson’s court documents, is one of several frauds committed by SAA.

In a recordal of events by Safair, the following rather incriminating statement shows what SAA was planning: “Mr (Andre Viljoen of SAA) did allude to the fact that they engineered Sun Air’s closure and that Sun Air’s closure is highly profitable to them. Mr Boettger mentioned R200 million per annum for a once-off payment of R50 million to Safair. Mr Viljoen said the R200 million was towards turnover, not profit.

“Mr Boettger mentioned the additional turnover would go straight to the bottom line and Mr Viljoen smiled and agreed, ie. the conclusion is SAA carefully planned (as we knew) Sun Air’s demise and was prepared, right from the outset, to pay a price of R50 million plus in fact the R20 million Rethabile debt for ongoing profits of more than R200 million per annum irrespective of whether they acquired Sun Air or not.”

Rethabile should have long disappeared into the undergrowth, but the wheels of justice move inexorably forward, even if it takes a generation or so to get there. Rethabile’s shareholders argue that Sun Air was not insolvent, but this is in any event irrelevant to its claim.

Most, if not all, of the key players have since moved on to new gigs, barring perhaps Michael Katz, who was part of SAA’s advisory team and who remains firmly ensconced at Edward Nathan Sonnenberg (and whose name has once again surfaced as having been a member of Safa board at the time the bribe was paid by the South African soccer authorities to secure the 2010 Fifa World Cup).

Coleman Andrews pocketed R220 million for his 20 month stay at SAA before heading back to the US to head up a money management firm for high net worth individuals. His web biography says he once led SAA in a “strategic, tactical and financial turnaround.” That’s a rather generous interpretation of what happened. Andrews was a former colleague of US presidential hopeful Mitt Romney at Bain Capital, and the R350 million profit reported by SAA under his tenure was pure puff having largely been derived from the sale of the airline’s assets. His contract was terminated 14 months early with his legacy in tatters.

It was Coleman who opted to switch the SAA fleet to Boeing. Two years later, with Coleman out of the hot seat, SAA’s then managers switched back to Airbus. These planes are now being delivered to SAA at 25% above market price, according to Comair’s CEO Erik Venter.

Other airlines are punished for such folly. SAA has no such worries. The government is always on hand to help it out in its moments of need.

Competition is a sin

SAA was never comfortable with competition, even before Coleman Andrews arrived in 1998, and used every weapon at its disposal to club start-up airlines to death. Tiny Flitestar, with its fleet of six aircraft, was the first to fold. Flitestar knew what the flying public wanted and focused initially on the business traveller, offering excellent service and high levels of customer care – two areas where SAA was perceived to be weak. The arrival of a competitor to the moribund SAA stung the national carrier. Back in the early 1990s Flitestar captured 25% of the domestic market and boasted a rather healthy carrying load of 63%. SAA embarked on a campaign of dirty tricks, using its influence with the Safari ticketing system to make it appear that Flitestar flights were fully booked so that agents booked travellers on SAA instead. It got flight traffic control to give SAA preference so that Flitestar take-offs were delayed. SAA increased its commissions to travel agents and expanded its frequent flyer programme to the domestic market, knowing that its financial recklessness would be underwritten by government. Flitestar, with no taxpayer money to bail it out, succumbed to the bullying on 11 April 1994 when it ceased operating.

One down, just a few more to go. SAA then took out Trek Airways by paying out its shareholders, Safren, Rentmeester Beleggings and the de Moelenaar family to cease any competitive airline service for five years.

That left just Sun Air, Nationwide and Comair, which was a 25% shareholder in Sun Air. In July 1999, Sun Air’s fate was already sealed, as was made clear by Coleman Andrews at the SAA board meeting on the 23rd of that month.

There was no way the market could sustain four, or even three, competitors, according to Andrews. He argued that Sun Air was in trouble. Its costs had multiplied, while load factors had dropped about 20% in the third quarter of 1999. He pointed out that the Comair directors who sat on the board of Sun Air resigned in July 1999 because they believed the company was trading while insolvent, and wanted to avoid personal liability.

It was clear, he said, Sun Air was going down, the only question was would it be an orderly or chaotic shutdown. SAA had plans to take on 260 Sun Air staff and acquire Sun Air’s 62% BEE shareholding at a discount.

Predatory pricing

In late 1998 Sun Air, Nationwide and Comair complained to the Competition Board over what they termed predatory pricing by SAA, and the dumping of capacity in the market. Sun Air subsequently withdrew its complaint because, records Andrews at the board meeting, “they wanted to engage us in discussions about some sort of commercial relationship and we indicated we weren’t prepared to hold these discussions while they were clubbing us over the head on what we think is a specious complaint.”

Andrews then discussed a meeting that was held with Comair to limit adding capacity on domestic routes. “The effect of that is going to be to make sure there are sort of rational additions to seat capacity as they are needed over time, which would tend to keep prices from further declines,” said Andrews, adding that the board was delighted with the approach and Comair had “in principle agreed.”

This acquisition by SAA of a controlling interest in Sun Air would allow it to manage the liquidation. Said Andrews: “If it goes into a disorderly liquidation then we have a major threat, because if the whole thing gets handled by a judge and its disposition gets handled by a judge, he may well conclude to sell the entire operation to Virgin or KLM, who are keenly interested in entering this market.”

Stopping Virgin or KLM entering the domestic market became a key priority, not least because of the additional competition this would pose on SAA’s international routes. So SAA locked Sun Air into an agreement not to talk to other potential white knights, and calculated it could pick up 75% or more of Sun Air’s traffic. This, Andrews calculated, would boost earnings by about R125 million a year. SAA was prepared to pay R28 million for Rethabile’s 35,75% in Sun Air, Co-ordinated Network International’s 19,25% and any other debt or equity interests.

In August 1999, Comair and Nationwide signed on to a plan to support SAA’s acquisition of Sun Air shares in return for a capacity sharing arrangement on domestic airline routes. The plan was sanctioned by the Competition Board, which concluded that the South African airline market was too small to sustain four carriers. In a press release issued at the time, the Competition Board invoked “public interest” – the fact that Sun Air’s demise was inevitable, leaving passengers, creditors and staff in a dire predicament – as the motive for condoning SAA’s acquisition of a majority share in the apparently troubled airline. “The shareholders (SAA) then intend to immediately liquidate Sun Air,” said the Competition Board, making no reference to the potential for an anti-competitive bloodbath that was, according to former Rethabile shareholders, taking place in full public glare.

SAA would then proceed with an orderly shut-down of Sun Air, and settle R28 million owed by Rethabile and CNI to their respective banks. But government was also a creditor, to the tune of R20 million. For the plan to work, SAA had to get government to write off the R20 million. In August 1999 Andrews wrote to then transport minister Jeff Radebe informing him of the “rescue proposal” for Sun Air, which was a euphemism for killing it off. SAA and Comair would honour tickets bought by Sun Air passengers and absorb some of their staff.

Andrews painted a grisly picture of a company facing wipe-out within days. Sun Air had creditors claims of more than R70 million and cash and debtors of just R25 million, with “cash evaporating at a rapid rate.”

“SAA will continue to monetise the remaining assets and negotiate settlement with the other creditors in a thorough, professional manner,” wrote Andrews to the minister.

The collapse of Sun Air, now days away, would leave thousands of passengers stranded, employees unpaid and shareholders wiped out.

Discussions had taken place with Sun Air shareholders to sound them out on the possibility of SAA acquiring their shares, with the sanction of the Competition Board, with a view to effecting a rescue of the airline. Once the shareholders relinquished control of Sun Air to SAA, it should have been obvious that it would be snuffed out with stunning efficiency. Which is exactly what happened.

This article first appeared in Noseweek.

How the banks are targeting black home owners in Cosmo City

Written by Ciaran Ryan. Posted in Journalism

The financial crisis has percolated down to first time home buyers in Cosmo City near Johannesburg, many of whom claim they have been evicted irregularly after having their homes repossessed. Scores of Cosmo City residents have been tossed out of their houses after falling into arrears on their bonds. Maxwell Dube of Cosmo City Chronicle decided to investigate and found 23 of these – all of them bonded with Absa – ended up in the hands of just one investor. The more he dug, the fishier the whole thing smelt.

Victor Zuma and Beverly Msibi of Cosmo City lost their house over R6,000 arrears

Victor Zuma and Beverly Msibi of Cosmo City lost their house over R6,000 arrears

Outrage is building in Cosmo City north of Johannesburg over dozens of repossessed homes that have ended up in the hands of just a few wealthy investors.

One of the investors scooped up 23 houses – all of them bonded to Absa – at auction prices which were well below market value, and then promptly sold some of them at a handsome profit. Another investor is reckoned to have bought another 40 houses at auction, also at knock-down prices. Some of the houses are being put on auction for arrears amounts as low as R6,000. Yet the banks insist they only take legal action “as a last resort” – something the residents of Cosmo City find hard to believe.

Some Cosmo City residents who lost their houses say they were never issued with summonses by the banks, and that the sheriff’s office is abusing the court process to the benefit of a few investors. “People here have never had any dealings with the courts so they have no idea that they have to be served with summons before they can be evicted,” says Maxwell Dube, a resident of Cosmo City and publisher of the Cosmo City Chronicle which first broke of the story.

“What we are seeing here looks like a complete abuse of the court process, but the results are tragic. People are being thrown out onto the street for reasons they cannot understand,” he says. “One of the so-called investors bought 23 houses over a period of years, all of them bonded with Absa. How is this possible that none of the houses he bought were with other banks, unless there was inside information?”

Dube and several other Cosmo City residents want to lay an official complaint with the Hawks over the irregular manner in which their houses were put on auction to the benefit of a handful of investors.

Cosmo City was former President Thabo Mbeki’s dream project. It was conceived in the early 2000s as the country’s first mixed residential township, where low cost housing sits alongside middle and upper income suburbs.

What is happening in Cosmo City suggests the financial stresses of recent years have percolated down to first-time home buyers in some of the lower to middle-income areas of the country. As Dube points out, most of affected people are unschooled in the court process, making it a relatively simple matter to kick them out of their houses without granting them the constitutional right to put up a defence against the banks.

Houses auctioned over arrears as low as R6,000

Some of the Cosmo City homes were auctioned by the banks over arrears as little as R6,000. One former homeowner, Victor Zuma, was evicted from his house in 2013. “Someone arrived at the door and told me I didn’t own the house and had to get out within 21 days,” he says. Zuma bought the house for R187,000 in 2011 and took out a mortgage bond with FNB. His repayments were about R1,800 as month which he dutifully paid until he lost his job as a welder about a year later. Yet he still continued paying as much as he could, about R1,000 a month. In the end he lost the house over an arrears amount reckoned to be no more than R6,000.

He is now seriously ill and unable to work – the result, he says, of the stress from losing his house. He now lives with his wife, Beverly Msibi, in an RDP house where they pay rent of R3,000 a month.
Finweek was shown his file of court papers, which includes a sheriff’s return of service, suggesting he was properly served with a summons. Zuma vehemently denies this. “What they do is the sheriff arrives and if no-one is around hands the summons to a neighbour,” says Dube. “Most of the people I have spoken to who have been affected by this did not see their summons before they were evicted.”

Several of the dispossessed Cosmo City homeowners say they were not notified by the banks or their attorneys that legal action was being taken against them.

Acting Krugersdorp sheriff since 2012, Martha van der Merwe, says she reviewed the files of her predecessor, Mr Venter, and could find nothing wrong with the legal execution process. The previous sheriff passed away some years ago and she is unable to conduct any further investigation as his old case files are closed. She points out that there is no restriction on how many properties a buyer can purchase at auction: “As long as they comply with the conditions (of the auction) they can buy as many as they want.”
Another point Dube wants investigated is how poor people from Cosmo City are having their homes repossessed when they are supposedly covered by government housing subsidies. The Department of Housing, in reply to questions posed by Corruption Watch, replied that the houses in question were not RDP houses and therefore they were not entitled to government subsidies. This is hotly disputed by several Cosmo City residents affected by the repossession blitz. The housing subsidy is aimed at first time home buyers with gross household income of no more than R3,500.

Several dispossessed homeowners admit they fell into arrears but tried to make repayment arrangements with their banks. Some banks accepted the softer repayment arrangements but proceeded with legal action anyway.

A case in point is Moses Mesa, who fell into arrears on his FNB mortgage bond and made arrangements to pay off his arrears over six months. He says he stuck to the revised payment schedule but the bank still took judgment against him. The account manager at FNB, Meshack Modisane, says Mesa was given ample warning of the consequences of falling behind on his bond payments, and insists the legal process must take its course. The arrears amount is around just R12,000. Mesa was at least served with a summons by the bank. Many other Cosmo City residents say there were not so lucky.

Refaat Gierdien, head of Legal at FNB Housing Finance, says the bank has investigated the two instances mentioned in the article. “We can confirm that the correct legal processes were followed during the debt recovery process against the customers. We can also confirm that both customers were kept informed throughout the legal process in line with the legal requirements and our strategy to ensure that customers are given every opportunity to rehabilitate their accounts.

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Ostrich farmer from Eastern Cape shows court his mortgage loan is now in Taiwan

Written by Ciaran Ryan. Posted in Journalism

SONY DSCAn ostrich farmer from Grahamstown has thrown the local court into a spin by apparently proving that his mortgage loan with Standard Bank has been on-sold to an investor in Taiwan. This is the first time a securitisation audit has been presented in a SA court. On the basis of the evidence presented, the farmer says Standard Bank has no right to be in court.

Ash Davenport, a 63 year-old ostrich farmer from outside Grahamstown in the Eastern Cape, may be about to make history in his effort to stave off attempts by Standard Bank to take possession of his 3,260ha farm over a R3 million loan he took out seven years ago.

Last week he threw the Grahamstown High Court into a spin when his attorney, Bev Carruthers of Port Elizabeth, plonked a securitisation audit in front of the judge. The securitisation audit suggests that his bank loan has been on-sold to a Taiwanese bank and is no longer owned by Standard Bank. That being the case, Standard Bank has no right to be in court. More than that, the audit suggests the bank has securitised (or on-sold) his bond for R5 million, not the R3 million he supposedly signed for.

The court reserved judgment as to whether to allow the audit to be presented as new evidence in a case that has been dragging on for close to seven years.

“I intend to fight this all the way,” says Davenport. “These banks have been getting away with this nonsense for too long. I had to pay R17,000 for the audit but it was worth it, since it provides proof that the bank has in fact been securitising mortgage loans and then coming after property owners when they have no right to.”

Securitisation audits are a new development in South Africa, but are common in the US. They effectively carry the same weight as a financial opinion by a company’s auditor, though the banks are trying to dismiss them as hearsay.

Standard Bank attempted to discredit the audit by Michael Carrigan, a certified mortgage securitisation auditor in the US, who managed to track the chain of title for Davenport’s mortgage bond all the way to Taiwan. The bank referred to Carrigan’s evidence as “speculative at best” and claimed he did not have a grasp of South African law. It then reiterated that his loan had not been securitised.

Carrigan also provided a second audit for another Grahamstown resident, Jay Brown (not his real name), apparently proving that his Standard Bank mortgage loan had ended up with a bank in Thailand. Brown is also defending his property against repossession by the bank.

Bear in mind that the bank in both cases has denied – as all the major banks have done in thousands of other similar cases – that it had securitised these mortgage bonds. Brown went one step further, by settling his debt to the bank by way of a promissory note of his own – similar to a cheque or bank note – which he claimed is legally permissible in terms of the Bills of Exchange Act.

This is a rather interesting defence first developed in SA by the late Johan Joubert, who insisted that individuals should issue their own promissory notes in settlement of debts, just as the banks concoct money out of thin air on their computer terminals. Standard Bank has refused to accept Brown’s promissory note.

Davenport has taken a more traditional route, arguing his case based on whatever evidence he can get his hands on. He asked Standard Bank to produce a “wet ink” copy of his mortgage bond and what was produced looked a little strange. The lines, the type face and the signatures did not line up with another copy he had. To all intents and purposes, it looked as if the documents were manufactured after the event, according to Davenport. Like someone had literally cut and pasted sections from one document, pasted them onto another, and then made a photocopy. This made him even more suspicious, even more certain that his mortgage bond had been securitised and the bank was hiding something.

So how did Davenport end up in this position?

The first thing to understand is that he is an eastern Cape farmer with a sharp tongue who doesn’t take kindly to bankers in suits coming to take away a farm that he and his family have been working since 1956. At one time he was the Eastern Cape’s most prominent ostrich farmer. He was exporting his ostrich meat to Europe and making a decent living. In 2004, the Avian flu scare hit SA. A government vet (Davenport calls him a “prick”) was sent down from Pretoria to inspect his birds, and with a wave of his pencil decided they should all be slaughtered.

“What these pricks don’t understand is that the ostriches develop antibodies to the Avian flu virus. Once they have had Avian flu and survived, they are immune against the disease. They will never get it again. So what the vet was picking up was the antibodies, and on this basis he decided my entire flock should be slaughtered.”

Davenport’s trouble all started when a government vet ordered his entire flock of ostriches to be slaughtered, even though the birds were healthy and had no signs of Avian flu. His business destroyed, he was forced to approach the bank for a loan

Overnight, Davenport’s business was destroyed. He was forced to approach Standard Bank and ask for a R3 million overdraft facility. The bank agreed, provided he put up the farm as security. But this R3 million was getting him nowhere. He swallowed his pride and approached the bank a second time asking for additional credit facilities that would allow him to rebuild his business.

This is when the bank started to get alarmed. When Davenport drew down his facility to R2,6 million to pay his monthly wages and running costs, the bank suddenly froze all his accounts.

Then came the summons for repayment of the loan. Davenport knew nothing about the law, so he sent the summons on to a lawyer friend who did nothing with it. Then the bank got a default judgment against him.

Trouble arrives in the form of a summons

Now he was in trouble. The bank was about to put his farm up on auction for R4 million, when Davenport reckons it is worth R60 million. His mechanic put him in touch with a DIY lawyer who somehow managed to stop the sale at auction.

The bank came back with a second summons. This time he decided he should probably get a proper lawyer, which was when he met Bev Carruthers in Port Elizabeth, who had two days to prepare for his case in the Grahamstown High Court. Carruthers stood before the judge saying she had only just been briefed, and asked for a postponement – which she got.

At the time she knew nothing about securitisation, but Davenport had been reading the material on the New Economic Rights Alliance website and was convinced that his mortgage bond – which the bank alleges had been pledged as security against his R3 million overdraft – had been securitised. The problem with this defence is that the banks, supported by the courts, demand that the borrower provide proof of this. Of course this is impossible. This is analogous to a thief who has made off with your wallet. You catch him after he has disposed of the wallet and he then demands that you provide proof of the whereabouts of the wallet to prove his guilt. Insane, sure, but the courts are buying this.

Then Davenport and Carruthers were introduced to Virtual Velocity, a company that had just started offering securitisation audits in SA. This involves interrogating multiple databases in SA and overseas to track the movement of mortgage loans and the associated mortgage “notes”.

The US-based auditor, Carrigan, is considered a world expert in securitisation, and has testified in close to 3,000 cases in US courts. In both the Davenport and Brown audits, he presented screen shots from the Bloomberg database showing where the “notes” got divorced from the “loans” and where they both ended up.

In his affidavit for Davenport, he testified that the loan ended up with a Special Purpose Vehicle known as Standard Bank of South Africa/ Taipei CBO, Series 2006-1. This is an entirely different legal entity to Standard Bank itself.

The audit shows that Davenport’s mortgage loan has probably ended up in Taiwan

The audit report shows how the securities certificates were divorced from the mortgage loan and ended up in the hands of the investors. The mortgage documents remained with Standard Bank, the securities certificates ended up with the investors and the “borrower funds” ended up with the Land Bank of Taiwan. Carrigan claims in his affidavit, once the Mortgage loan and “note” are divorced from each other, the purported creditor loses all legal right to approach the borrower, and is in fact committing fraud.

The audit – as is the case with any audit, financial or otherwise – is not definitive, but it casts sufficient doubt on Standard Bank’s assertions that the mortgage has not been securitised.

Should Davenport win this round, his matter will go to trial and then the bank will be asked to explain why his loan appears on the Bloomberg database as being owned by a bank in Taiwan. And why Brown’s mortgage loan appears in Thailand.

This, alongside the recent discovery by Adv Douglas Shaw that banks are able to hide their securitisation activities by not reflecting the new owner’s name at the Deeds office, makes for a very interesting battle looming for the banks.

It only takes one case to win, like Davenport’s, and the whole house of cards comes tumbling down. Then come the class action suits.

What Carrigan’s affidavit says

This is a bit technical, but worth repeating here for those following the securitisation argument. Notice how the courts in the US do not recognise any creditor who cannot produce the note alongside the mortgage. And how banks doing this are actually “double dipping” – taking payment twice – which is a fraud. Judges in SA need to start paying attention to this and haul bank executives into court to get to the bottom of this securitisation hall of mirrors.

Carrigan’s affidavit for Ash Davenport says: “The written agreement that created the Standard Bank of South Africa/ Taipei CBO, Series 2006-1 is a ‘Pooling and Servicing Agreement’ (PSA), and is a matter of public record, available on the website of the Securities Exchange Commission (SEC). The Trust is also described in a ‘Prospectus Supplement,’ also available on the SEC website. The Trust by its terms set a “closing date” of on or about TBD (To Be Decided). The promissory note in this case became trust property in compliance with the requirement set forth in the PSA. The Trust agreement is filed under oath with the Securities and Exchange Commission. The acquisition of the assets of the subject Trust and the PSA are governed under the law.

“In view of the foregoing, any Assignment of Mortgage executed after the Trust’s Closing Date would be a void act for the reason that it violated the express terms of the Trust instrument.

“In Carpenter v. Longan 16 Wall. 271,83 U.S. 271, 274, 21 L.Ed. 313 (1872), the U.S. Supreme Court stated ‘The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while assignment of the latter alone is a nullity.’”

“By statute, assignment of the mortgage carries with it the assignment of the debt. Indeed, in the event that a mortgage loan somehow separates interests of the note and the Mortgage, with the Mortgage lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the Mortgage from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the Mortgage is the agent of the holder of the note. Without the agency relationship, the person holding only the trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the Mortgage.”

“Generally, if the Mortgage and the Note are not together with the same entity, there can be no legal enforcement of the Note. The Mortgage enforces the Note and provides the capability for the lender to foreclose on the property. Thus, if the Mortgage and the Note are separated, foreclosure legally cannot occur. The Note cannot be enforced by the Mortgage if each contains a different mortgagee/beneficiary; and, if the Mortgage is not itself a legally enforceable instrument, there can be no valid foreclosure on the homeowners’ property.”

“No Entity can be a creditor if they do not hold/own the asset in question (i.e. the NOTE and/or the property); a Mortgage Pass Through Trust (i.e. R.E.M.I.C., as defined in Title 26, Subtitle A, Chapter 1, Subchapter M, Part II §§ 850-862) cannot hold assets, for if they do, their tax exempt status is violated and the Trust itself is void ab initio. This is an indication that either the Trust has either voided its intended Tax Free Status, or the asset is not in fact owned by it.

“In the event that the loan was sold, pooled and turned into a security, such event would indicate that the alleged holder can no longer claim that it is a real party of interest, as the original lender has been paid in full.

“Further said, once the Note was converted into a stock, or stock equivalent, that event would indicate that the Note is no longer a Note. If both the Note and the stock, or stock equivalent, exist at the same time, that is known as double dipping. Double dipping is a form of securities fraud.

“Once a loan has been securitized, which the aforementioned loan may have been done many times, that event would indicate that the loan forever loses its security component (i.e., the Mortgage), and the right to foreclose through the Mortgage is forever lost.”

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Meet the man who tried to arrest the board of Standard Bank

Written by Ciaran Ryan. Posted in Journalism

Jonathan BuckleyJonathan Buckley of Centurion in Pretoria may be the first South African in history to win six judgments against Standard Bank in one day. When the bank failed to comply with the court orders compelling it to release documents related to loans he had taken out, he sued the directors for contempt of court and tried to have them arrested. Here’s how it happened.

Jonathan Buckley of Centurion in Gauteng may be one of the few people in South Africa to win six judgments in one day against Standard Bank. And he did this arguing his cases alone, without legal representation.

The judgments, obtained in 2013 in the South Gauteng High Court, compelled Standard Bank to provide all documentation relating to a series of loans he had taken out with the bank in the preceding years. When the bank failed to comply, Buckley sued for contempt of court and asked that the court authorise the arrest of the entire board of Standard Bank.

Chutzpah, you might say, but Buckley insists he was applying the same standard as the banks do to customers. “Why is the law different for banks? If an ordinary South African citizen fails to comply with a court order, you can bet that the courts would issue an arrest warrant,” he argues.

So why isn’t the board of Standard Bank sharing a cell with reputed gangster Radovan Krejcir? Well, that’s a story in its own right, which we’ll get to in a minute.

Let’s backtrack a little bit. Like millions of people around the world, Buckley read Rich Dad Poor Dad by Robert Kiyosaki and came to the blinding realisation that assets are only valuable if they generate income. So Buckley started investing in properties and renting them out. The Kiyosaki business model was simple: if the rental income exceeded the bond repayments, you were a winner. Once the bond was paid off, you had income in perpetuity. Kiyosaki, who sold 26 million copies of the book (not counting the follow-ups), has been criticised for peddling bad financial advice and encouraging a stampede into questionable property transactions.

Buckley appears to have embraced the Rich Dad Poor Dad philosophy a little too enthusiastically. He ended up with eight properties by 2008 which, as we all know, was when the party came to an end and the financial hangover set in.

But 10 years ago the economy was pumping and property prices were rising at Olympian speeds. Any warnings of an impending speed wobble were drowned out by the chorus of salesmen flogging their wares. Banks were showering customers with easy credit, knowing full well the National Credit Act was about to put the brakes on all the fun. The Act came into force in 2007, but before then credit checks by the banks were sparse to non-existent. Banks were showering customers with easy credit, knowing full well the National Credit Act was about to put the brakes on all the fun.

Until 2008, the Kiyosaki business model was working perfectly for Buckley. His rental income, supplemented with a bit of money from his business, was sufficient to cover the bond repayments. For Standard Bank, he was a great customer. In 2006 the bank approached him with what seemed like a tantalising offer: throw all properties into a single pot with just one repayment a month, instead of eight. The bank was marketing the product under the Liberator brand.

This was an offer Buckley could not refuse. He did as the bank suggested. Then came the good news: the bank revalued the entire property portfolio and informed him that there was surplus equity of about R1,5 million which was his to use as he saw fit. In other words, the then market value of the properties exceeded the amount owing to the bank by R1,5 million. Buckley took the additional credit on offer and bought a ninth property.

In late 2008 the world economy had gone into meltdown. Buckley then ran an insurance brokerage for Liberty Life and lost most of his sales team in one fell swoop. His business was taking strain, so in 2008 he approached Standard Bank to warn them of trouble ahead. He might have difficulty meeting his monthly bond repayments, he told them. The bankers must not have heard what he was saying because after the meeting was over, they offered him yet more credit to purchase a vehicle, which Buckley graciously accepted.

Trouble ahead

His business continued to flounder and a few months later he placed himself under debt review.

Standard Bank accepted the revised schedule of repayments, but it still had to be sanctioned by the Magistrates Court in Pretoria. The court date was set down, but Standard Bank didn’t show up. The matter was postponed twice and, meantime, Buckley’s debt counsellor disappeared. “The whole debt review was up in the air. Were we under debt review or not?” says Buckley. But Standard Bank was behaving as if it had accepted the debt review, according to Buckley.

Then in 2010, Standard Bank approached Buckley with what it called a debt rehabilitation proposal which would reduce his monthly repayments. Buckley accepted the offer, but still the rental income from the properties was insufficient to cover the loan repayment. The point here is that Buckley says he was in constant discussions with the bank to manage his loan repayments and stay afloat. He has never denied that he borrowed money and fell into arrears. His main beef is with how the bank went about trying to recover its money.

Then the bombshell arrived. Without warning, the bank was awarded two judgments against Buckley for default on company overdrafts. Buckley managed to rescind one of the judgments on the grounds that the company in question no longer existed. The second judgment still stands. A third judgment was taken against him for the vehicle he purchased after the earlier meeting when he says he tried to warn the bank that he was in financial trouble. To date, he has not had sight of the judgment, nor the summons for the vehicle.
Then the bombshell arrived. Without warning, the bank was awarded two judgments against Buckley for default on company overdrafts

By this time Buckley was doing a crash course in consumer and banking law. He read up on the National Credit Act, the Consumer Protection Act and the Banks Act. It became apparent to him that he could not mount a defence against the bank without the documents that he purportedly signed at the time he took out the loans. So where were the documents, he asked his bankers?

Months went by without an answer. Buckley was getting anxious. He went a step further, serving letters of demand on the bank, delivered by the Johannesburg Sheriff’s office. Again, no response was received from the bank, so now he served it with a Notice of Motion, signalling his intention to have the South Gauteng High Court force the bank to supply the documentation for six different loan accounts.

Still the bank remained silent. It gave no indication it intended to defend the matter, so Buckley set the matter down on the unopposed roll for hearing in November 2013. Buckley had also served Absa with a letter of demand to supply documents relating to a credit card he had with the bank. This time he did receive a reply to the effect that the documents were destroyed in the famous Absa fires (see here and here for more on this).

Going it alone

But his main focus was on Standard Bank, since this is where his greatest indebtedness lay. Buckley appeared in court in November 2013, alone and unassisted by any legal professionals, and miraculously won seven judgments in two different courts, six against Standard Bank and one against Absa. The judgments compelled the banks to supply the missing documentation.

Still the bank failed to comply. It was time to strap on the knuckle duster. “I then informed the bank that I was applying for a contempt of court application. I asked the court to authorise the arrest of entire board of directors of Standard Bank for non-compliance with the court orders. You cannot arrest a company, you have to arrest the board.”

Standard Bank, now clearly scrambling to avert a potentially embarrassing scene, appointed attorneys Findlay Niemeyer of Pretoria to attend to the matter. Buckley was informed that the missing documents could be viewed at Findlay Niemeyer’s offices in Hatfield, Pretoria, but he was not allowed to take them away as they still had to be collated. Buckley had asked for the original wet ink documents, but what he saw appeared to be copies, and he informed the bank in writing that he was not satisfied that the papers he was allowed to view, but not carry away, were the originals.

All of a sudden, Norton Rose Fulbright appeared on the scene. It was time for a heavyweight law firm to spring the bank from its predicament. The bank applied for a rescission of the judgments previously won by Buckley. So now there were two cases running in parallel – Buckley’s urgent application for contempt of court against the bank, and the bank’s application to have the judgments rescinded. Norton Rose Fulbright wanted to have both sets of cases heard together, since they related to the same matters.

In February 2014, Buckley again appeared alone in the South Gauteng High Court before Judge Tshabalala. Arrayed against him were a senior counsel and six attorneys, no doubt an intimidating prospect for any judge. This also shows just how seriously Standard Bank was taking the matter. The judge deemed Buckley’s matter was not urgent and postponed it to a later date.

The bank’s decision to call in the heavyweights from Norton Rose appears to have been a good one. It eventually succeeded in its rescission application on 3 November 2014 on a technicality of the court process, in that Buckley had not properly notified it of the application to seek judgment against it. Buckley’s contempt case then fell away.

This must have been a relief for the directors of Standard Bank, who could sleep more soundly at night knowing they did not have to share a cell with Radovan Krejcir.

New attorneys appear on the scene

But the story was not over yet. Suddenly, out of nowhere, a new firm of attorneys (Newtons of Pretoria) appeared on the scene. The bank no doubt decided it was time to kill the beast once and for all and take judgment for its outstanding loan. Buckley says the new attorneys served three sets of papers to addresses where he would not receive them. Only later did he find out that the summons demanded repayment of an amount of R6,9 million, being the total sum owed on the Liberator facility with the bank. This time, the case was to be heard in the North Gauteng High Court, in Pretoria.

Why the sudden change to Pretoria, when all his previous cases were heard in Johannesburg? It could be argued that as he lives in Centurion, the Pretoria court has jurisdiction, but Buckley suspects foul play. If so, this is not the first time a banking client has been wrong-footed in this way (see Jonn Basson’s story here).

Newtons argued in its papers that these addresses were the ones they had on record. Buckley had pre-arranged with Norton Rose Fulbright to receive papers by email or at the address of a legal advisor he was then using. Obviously, this news was not shared with the new attorneys, who managed to serve three sets of papers, all of which miraculously missed their intended target. They then stood in court unopposed (because Buckley says he did not receive the summons), and obtained judgment for R6,9 million.

The first Buckley knew about this was when he got an unsolicited call from a liquidator offering help in light of the recent unfortunate judgment against him.

“What?” said Buckley. “What judgment?”

He thought there must be some mistake as he knew nothing about this particular court case. He raced over to the offices of the bank’s attorneys, who charged him R2,900 for a copy of the judgment. Nothing is for free these days.

Buckley says he still does not have the documents he needs to mount a proper defence and is considering a Constitutional Court challenge on the grounds that a fair trial requires full access to all documentation related to a banking transaction. While he does not dispute the loans, he wants to see what terms he apparently agreed to. For example, did the loan agreements include an acceleration clause? Many bank agreements pre-2009 did not include these clauses, which means the bank can only claim the arrears, not the full amount of the loan. But banks have been getting away with this and executing on customers’ houses when all they are entitled to claim are the arrears.

The fight goes on

In any event, Buckley is now preparing to apply for rescission of the judgment based on the technical issue of “no service” (ie. he was not properly served the summons). He is also challenging the bank’s locus standi, arguing that his loan has been securitised, or on-sold to investors, and the bank has no right to be in court. Standard Bank denies it has securitised Buckley’s mortgage bond and accuses him of embarking on a “fishing expedition”.*

Buckley recently dug up 96 random bonds on Windeed, the online deed search facility. Only one of these (an Absa bond) had been ceded to the new owner, which is evidence of securitisation. Based on the banks’ own figures for securitisation, it was expected that at least 20% of these would have been ceded to new owners (ie. securitised). The point being that when a loan is securitised, the bank loses all legal title to it.

So what appears to be happening is that the banks are securitising loans but not reporting them as having been ceded to new owners as required by law. When challenged on securitisation by customers, the banks can stand in court and hold up the title deed, pointing to the lack of “endorsement” or cession on the title deed as supposed proof that they remain the lawful title holders. New research coordinated by Advocate Douglas Shaw suggests something more sinister is afoot. A team of researchers dug up several hundred mortgage bonds and so far, only one of about 600 has been ceded to a new owner. As we previously reported, an expert statistician has deemed this to be a statistical impossibility. Shaw says this points to widespread and systematic fraud by the banks, and the Commercial Crimes Unit has called for more information.

Buckley’s fight is far from over. He wants to apply for rescission of judgment against the bank in the Pretoria court, and plans to appeal the rescission application won by Standard Bank because of its failure to supply all the documents underpinning his loans.

“I still do not have the documents I need to mount a proper defence,” he says. “How can there be justice against the banks when customers have to battle as I have done to get the right documents? I had to go to court at huge expense to myself just to get the bank to obey the very laws under which they are expected to operate.”

He adds that the documents belatedly supplied by the bank are incomplete. Buckley is a game opponent who seems to enjoy tweaking the noses of the brass at Standard Bank. “I don’t dispute the debt. What I want to establish is what are the rights of banking customers in these situations? What has happened to all these securitised mortgage bonds? How is it that the courts have yet to hold the banks to account for this deception where they have sold the loans yet still pretend they are the owners?

“Now we have evidence that the banks are hiding from the courts the fact that they no longer own these loans. It’s about time someone put a stop to all this bullshit.”

* The article has been updated to reflect the fact that Standard Bank, in its papers before the court in this matter, denies it has securitised Buckley’s mortgage bond. In support of this claim, it refers to a Windeed search which apparently shows the bank is still the registered owner of the mortgage bond. Adv Shaw argues that this proves nothing of the sort in light of the research referred to above. The only way to resolve this issue is to force the banks to disclose their securitisation registers, which in any event is required in terms of Section 69 of the National Credit Act.

This article first appeared at Acts Online.

Absa gets snot-klapped in the Pretoria High Court by women’s army

Written by Ciaran Ryan. Posted in Journalism

Liebenberg sistersAbsa’s troubles in its mortgage division just got a whole lot worse. Barely two months after losing two similar cases in the South Gauteng High Court, Absa folded before throwing a punch in the Pretoria High Court against two sisters who made startling allegations of fraud and misconduct against the bank.

Absa’s troubles with its mortgage division have just got a whole lot worse. On Friday two Johannesburg sisters, Emmarentia and Monica Liebenberg, travelled to the North Gauteng High Court with several angry Absa clients in support to defend an attempt by the bank to obtain summary judgment against them for allegedly defaulting on a mortgage loan taken out in 2007.

This should have been a cut and dried case for Absa, just another run-of-the-mill summary judgment like the thousands of others it gets awarded by the courts each year.

Then the bank ran into the Liebenberg sisters, represented by Advocate Christian Harms. The case was similar in many aspects to the case we reported on in August, when Absa attempted to obtain summary judgment against James Grobbelaar and Kevin Jenzen on the grounds that they had allegedly defaulted on their mortgage loans. When asked to provide evidence of the loan agreements, Absa produced blank loan agreements – not the ones signed by the defendants – claiming the originals were destroyed in a fire. Like Grobbelaar and Jenzen, the Liebenbergs argue that these were definitely not the agreements they had signed. (Judge Roland Sutherland dismissed Absa’s case in the South Gauteng High Court two months ago and referred the matter to trial, basing his decision on the disputes of fact and disputed terms contained in the so-called agreements. He further stated that the evidence has to be tested at trial and refused the bank’s attempts to pursue summary judgment).

Absa folds before throwing a punch

This time, facing the two Liebenberg sisters, Absa folded before throwing a punch. “Do you really want to fight this?” Adv Harms asked of the bank’s counsel, who promptly packed up his papers and abandoned the fight.

The case was over before it started. Just a few days previously, Absa’s attorneys dismissed the sisters’ heads of argument and 130-page affidavit as “gibberish.” The bank will rue its arrogance, because now the matter must go to trial (if the bank doesn’t settle before then) and the sisters will get to question Absa staff on how they managed to swear under oath on three different occasions – presenting multiple different and unsigned mortgage loan agreements before the court – that each was the correct one. They will also get to question the bank on the legality of the alleged bond agreement which, they argue in their affidavit before the court, is fraught with numerous frauds and violations of the law.

The courts have tended to rubber-stamp these summary judgment applications from the banks, leading some legal experts to question whether South African courts are not just extensions of the banks

One wonders how the banks have been able to get away with this sort of nonsense for so long. The courts have tended to rubber-stamp these summary judgment applications from the banks, leading some legal experts to question whether South African courts are not just extensions of the banks. A summary judgment is one where there is supposedly no dispute of fact, and for this very reason is considered an extreme measure, not one to be lightly entertained by the courts. The very concept of fair justice demands that defendants be allowed to argue the charges brought against them. Yet hundreds, if not thousands, of such judgments are made by the courts each month, usually on behalf of the banks. Bank customers seldom question the bank’s accounting or the legality of their documents. That seems to be changing.

As one observer commented afterwards: “After this case, the gates of hell have just opened for Absa and the banks. The courts have been letting them get away with fraud and deception for so long, because they do not bother to look at the contracts that customers are being forced to sign.”

“Absa had tried to bully us into submission, by threatening legal costs and expenses and by pursuing a wrongful summary judgment application knowing full well the massive disputes involved. They wanted us to back off this case no matter what and even tried to strong-arm us but we refused and I believe they got the message now. We will see them at trial,” say the sisters.

After this case, the gates of hell have just opened for Absa and the banks. The courts have been letting them get away with fraud and deception for so long, because they do not bother to look at the contracts that customers are being forced to sign

In cases such as these, Absa typically relies on a so-called standard agreement, not the one signed by the customer, because it claims the originals were destroyed in a fire. Several Absa customers have attempted to investigate this fire, only to be brushed off with a press release (which the courts have unquestioningly accepted as evidence). Even if the hard copy originals were destroyed in a fire, the law requires banks to keep electronic copies. But even these are not available when requested because, some believe, the mortgage loans have been securitised (in other words, sold on to new owners). Well, there’s nothing wrong with that, just that you have to get the consent of the borrower. Hence the secrecy.

Here’s another aspect of the Liebenberg case that does not bode well for Absa: the sisters admit that they fell into arrears on their bond repayments, but when originally summonsed by the bank they offered to settle the R180,000 arrears claimed by the bank in full provided Absa withdrew the summons. No chance. Absa wanted the full amount outstanding of R661,000. What actually happened is that the sisters were paying what they thought was the required monthly repayment, but because the bank stopped sending monthly statements, they inadvertently fell into arrears, not realising that the monthly repayment amount had increased.

This looks like an innocent enough mistake, but Absa did what the banking manual says to do – call in the legal department. Then came the summons.

Bring in the legal team

What on earth was the bank thinking? The Liebenberg sisters decided at this point they better start putting up a more robust defense against the bank, which by now they reckoned to be beyond reason or compromise. Then they started to investigate the outstanding amount claimed by the bank. What they found shocked them: according to their affidavit, the bank not only inflated the interest rate, it also loaded additional charges and fees to which they had never agreed (and which are disallowed by law). In most of these cases, the bank gets some clerk to pull up a computer record as evidence of the amount outstanding and then attest by way of a sworn certificate of balance that this is the amount outstanding. South Africans are beginning to wake up to this by doing their own calculations, and the discrepancies can run into hundreds of thousands of rands. In some cases, the discrepancies are so large, customers are claiming the banks owe them (as in Damon Greville’s case against Sasfin).

There is another little legal technicality you may not know about, known as the “acceleration” clause. This allows the bank to claim the full amount outstanding in the event of a default. Just about every bond agreement has this clause. The problem is that this clause should be legally unenforceable because it relies on another document, the original loan agreement, which usually does not have this clause (again, that violates Section 90 of the National Credit Act). The sisters argued that Absa was only entitled to claim the arrears, and not the full amount of the loan. “We wonder how many thousands of people have lost their houses not knowing these legal technicalities,” says one obersver.

Still to be tested in the courts is how these acceleration clauses stand up to Constitutional scrutiny, specifically Section 25 and 26 which protect property rights, bearing in mind that it is an actuarial certainty that borrowers will run into some financial difficulty at some point during the 20 year life of a mortgage bond. Should people be stripped of their primary asset – their home – after a single default? The Constitutional Court will likely get to decide this in the very near future.

Another point to bear in mind: nearly one in two South Africans have a bad credit rating. At 10% or 15% bad credit rating, one could argue that is the fault of the borrowers. At close to 50%, it is without doubt the fault of the banks (just look at African Bank, now under curatorship, extending new loans to pay old loans). The law has a term for this: reckless lending.

Nearly one in two South Africans have a bad credit rating. At 10% or 15% bad credit rating, one could argue that is the fault of the borrowers. At close to 50%, it is without doubt the fault of the banks

Here’s another strange aspect to the Liebenberg case. The sisters live in Johannesburg, so it seemed logical to set the matter down for hearing in the South Gauteng High Court (in Johannesburg). The matter was then mysteriously withdrawn by the bank and then – even more mysteriously – moved to the Pretoria court. This is in violation of the National Credit Act which stipulates that cases must be heard in the court with geographical jurisdiction – in this case, Johannesburg.

The sisters accused the bank of “forum shopping” by re-filing their case in Pretoria after withdrawing the original case from the Johannesburg court, “being aware of the additional cost implications to all parties and especially the respondents (the sisters), as well as additional inconvenience caused …due to distance.”

If the bank’s objective was to find a “soft” jurisdiction, it just got handed its head on a plate.

Months of waiting

“It took months of waiting. Absa’s attorney tried to get us to settle but we stuck it out like we warned them we would so that our voices could be heard. We could have easily settled this matter to save us the stress, but we discovered during our own fight that we are just one of thousands of people to whom this happens each year. These poor people don’t even know that they have been victims and most of them already lost their homes, not knowing that the bank is often bringing these applications to the courts illegally. We have evidence that this was done to many families with children, elderly people, single mothers and people who would never be able to afford legal assistance or knowledge to have found this if they had to fight this on their own. Many did not even try to fight back because they were told no-one wins against the banks. The result is that they lost everything they worked so hard for. These people lost their homes to a bank without a conscience,” said the sisters after the case.

Some years ago Absa boasted that it financed one in three homes in South Africa. Considering that more than 10,000 homes are repossessed in South Africa each year, it’s safe to assume that Absa is responsible for the biggest share of this. Bear in mind also that these homes are sold at auction, usually for a fraction of their value. The bank then comes after the defaulting borrower for the shortfall. The legality of this is about to be tested in court.

The bank, under CEO Maria Ramos, has been trying to rebuild the bank’s image after losing more than one million retail and several thousand business clients in 2013. Barclays, which is the majority shareholder in Absa, has been embroiled in several international scandals and hit with multi-million dollar fines for their questionable dealings around the globe. In a memo sent to their staff worldwide, Barclays PLC’s chief executive Anthony Jenkins stated: “I will not tolerate any circumstances in which our clients are lied to or misled and any instances I discover will be dealt with severely. The success of our business depends crucially on our clients being able to rely absolutely on our honesty and integrity.”

No doubt Jenkins will now be looking to put heads on pikes in Absa Bank’s mortgage and legal departments, as he promised he would.

The Liebenberg sisters and a group of friends assisted by researchers, attorneys, advocates and others have now set up a support group to help others fight their cases with the banks: “People who end up in this situation usually are desperate. They don’t know what to do. They don’t know court rules or legislation, and more importantly they usually trust their bank not thinking there might be foul play. Most people don’t have money to fight these court cases. It is true when they say the law only protects either the very rich or the very poor. We were forced to fight the majority of this case on our own and we truly struggled to get attorneys to even keep their doors from closing in our faces, much less listen to us when we told them we were fighting the bank. As we demonstrated today however, the bank customer does have rights and they need to know what these rights are and they should not be scared to fight back. Those that need help can now contact the support group,” says Emmarentia Liebenberg.

The famous Absa fires

“Absa claims that just about every home loan agreement signed prior to 2009 has been destroyed in the fire at the Docu-file storage facility. I think every Absa home loan customer should phone their bank immediately and ask for a copy of their mortgage contract. See what the bank says. They will probably be told these documents were destroyed in a fire. That is not an excuse. The bank must then produce the electronic copy. Don’t just re-sign any old agreement they ask you to sign either. Make sure first that it was definitely the same agreement with the same terms therein which you had originally agreed on. People need to start demanding that banks deliver these contracts and keep their copies safe because false agreements are currently being used to bring bogus legal claims which steal the assets of ordinary South Africans daily. This is enough! The injustice stops here,” says one of the members of the support group that has been set up after this case.

Their new website will launch soon at aimed at informing South Africans of their rights when under legal threat from the banks.

Originally published at Acts Online.

How one man’s life was ruined when he took on the bank

Written by Ciaran Ryan. Posted in Journalism

nav chanDurban-based Nav Chan started questioning FNB’s eBucks rewards calculations. They just didn’t make sense. Weeks later his accounts were cancelled and he found himself listed on a secretive banking database operated by SA Fraud Prevention Services. Suddenly, his access to credit dried up, his business tanked and his financial reputation was in ruins. This is what happens when you get on the wrong side of the banks.

South Africans familiar with the Edward Snowden revelations of mass snooping by the US National Security Agency might think that secretive collection of data is something that happens “over there.”

Think again. As Durban-based Nav Chan discovered in 2013, the SA Fraud Prevention Services (SAFPS) operates an anti-fraud database called Shamwari (Shona for “friend”) and his name was on it.

How his name ended up here remains a mystery. All it apparently took to be listed on the Shamwari database was an unsubstantiated “suspicion” that he was involved in fraudulent activities. No charge, no conviction, just a suspicion.

These are pretty serious accusations to make against anyone. Chan had a perfectly clean credit record – so much so that his bank, FNB, along with its partners Kulula and Discovery, showered him with monthly credit facilities of R250,000. So it naturally came as a shock when he found out that he was a suspected fraudster.

He obviously wanted to know how he got onto the database. When he demanded to know from SAFPS what fraud he was suspected of, he got….silence. He asked whether these suspicions had been reported to the police and if so, what was the case number? Again, silence. In fact, he urged the bank to report the matter to the police. He checked whether legally-registered credit bureaus such as TransUnion and Experian had similarly listed him as a suspected fraudster. No, they had not.fnb logo

So what is this secretive SAFPS database? Its contents are available to members only (the banks and retailers for the most part), unlike other credit bureaus such as TransUnion and Experian, which operate under the National Credit Act. If you believe you have been falsely listed as a bad credit risk at TransUnion or Experian, you have the right to challenge this information and have it removed. This happens frequently – judgments are mislabelled, wrong names and ID numbers are recorded, late payments are incorrectly reflected, and so on. But once you are on the Shamwari database, you remain there for 10 years and you may never know about it. Unless, that is, you start applying for credit. Even then, you may never know the source of your secretive blacklisting.

All it apparently took to be listed on the Shamwari database was an unsubstantiated “suspicion” that he was involved in fraudulent activities. No charge, no conviction, just a suspicion.

The NCR instructed the SAFPS to cease operating what amounted to an illegal database, and the SAFPS decided to take it on appeal at the National Consumer Tribunal. Astonishingly, the Tribunal declared that the SAFPS did not have to register as a credit bureau, at which point the NCR took the matter to the North Gauteng High Court in June 2011. The NCR won the case in the High Court, which found the SAFPS had contravened section 43 of the NCA relating to the registration of credit bureaus. SAFPS was given 21 days to comply with the law and register as a credit bureau, which it has now done.

The good news is that the National Credit Regulator has now instructed FNB and Absa to remove Chan from the SAFPS database, a process that took nearly two years. Many people have been ruined in far less time.

How he got onto this database is the most mysterious part of the story. It all seems to have started when he had the temerity to question how FNB was calculating its eBucks rewards. When Chan looked at his eBucks statement each month, it just didn’t add up.

He suspected something fishy was going on. Was there someone at FNB who had a personal grudge against him and decided to maliciously list him on the database?

Suddenly and inexplicably, in the second week of November 2012, his FNB Platinum card started acting up. Transactions would fail and he was unable to complete online orders. “There was also an issue with my eBucks and apparently my accounts were flagged. I suspected an internal error and the Platinum banker in charge indicated she would refer it to the Core Banking Solutions team and get back to me,” he says.

Then on 16 November 2012 FNB sent him a letter cancelling all his accounts on the grounds that he was a suspected fraudster.


Suddenly, the penny dropped. “FNB wanted to get rid of me as a client because I was asking inconvenient questions,” he says. “Then they invented this suspicion of fraud.”

Though born in SA, Chan spent much of his life in the US and has a Masters degree from Chicago University. He is accustomed to US standards of consumer rights and was understandably shocked that he could be shafted so thoroughly by an unaccountable banking cabal, notwithstanding the supposed consumer rights enshrined in the National Credit Act.

His questioning of how FNB was calculating his eBucks, he believes, got him a big, fat black mark with the bank and a listing on the SAFPS database. Once listed on this secretive database, you are effectively banished from the credit universe. This amounts to financial defamation, says Chan, with horrific consequences for those listed on the basis of spurious or false information. Chan reckons this listing cost him millions of rands in lost business, reputation and time, and certainly opens the bank to a possible claim of damages.

On its website SA Fraud Prevention Services (SAFPS) boasts of being a proudly South African company “combating fraud across the financial services industry by providing a shared database to member organisations and offering the South African public a means of protecting themselves against impersonation and identity theft. SAFPS has successfully prevented more than R7 billion in attempted frauds since inception,” though these figures – to the best of our knowledge – have not been subject to an independent audit and should be treated with suspicion.

FNB wanted to get rid of me as a client because I was asking inconvenient questions,” he says. “Then they invented this suspicion of fraud.”

SAFPS was an initiative of Business Against Crime South Africa, but at its core is the Shamwari database listing suspected fraudsters. Access to this database is a members-only affair. It operated, in effect, as a “secret Credit Bureau which for years operated outside the legal framework as stipulated by the National Credit Act,” according to a rather excellent investigative piece by

The members of SAFPS include all the major banks and retailers. Its directors include representatives of the four major banks, plus African Bank, now under curatorship and being investigated for possible fraud. One wonders if any African Bank executives found to have committed fraud in the bank will end up on the Shamwari dastabase. Our guess is that they will not. In fact, we have prima facie evidence of several bankers committing fraud that we would suggest be listed on this database. Again, we doubt this will ever happen, but perhaps readers should ask whether African Bank executives now under investigation for possible fraud will be listed on this database. Address your questions to SAFPS’s Carol McLoughlin (

More than 3,000 people are listed on the database

There are more than 3,000 people currently listed on Shamwari. Chan only found out about the listing when his bar-coded green ID book was stolen in 2013 and he tried to notify SAFPS to prevent anyone using his ID. He was then informed that SAFPS could not register his stolen ID as he was listed as a suspected fraudster by both FNB and Absa. Absa as well? FNB seems to have passed on its alarming and unsubstantiated suspicions to at least one other bank. And that is perhaps the most alarming part of this story.

Another bizarre twist to the tale: on 16 November 2012 Chan was notified by way of an emailed letter that his FNB account had been cancelled, but the bank addressed the letter to an unknown location in Kew, Gauteng – an address that Chan knew nothing about. He had never lived in Kew. He was a client of FNB’s Florida Road branch in Durban, and was well known to the staff there. What does this say about FNB’s Financial Intelligence Centre Act (FICA) practices when they cannot get his address right? In fact, what does this say about anything the bank says in this matter, particularly the accusations of fraud?

Chan fired off a letter to the bank asking how a Durban-based banker could be overseeing a client in Gauteng. The bank replied that this was the address given on his profile. Then on 23 November 2012 he received an official “Termination of Banking Relationship” letter from FNB, with his address now correctly reflected as Durban.

Roughly a week later he received credit card termination letters from FNB, Kulula and Discovery. The FNB letter was signed by Johan Maree, the CEO, alleging that Chan had applied for an increase on his FNB Platinum card on the basis of “inconsistent information contained in the bank statements and salary advises (sic) provided and allege that the documents supplied were fraudulent. In light of this you misrepresented to the bank your affordability and the issue of your credit card and any subsequent limit increase was issued incorrectly, based solely on fraudulent documentation supplied to the bank.”

The bank also reserved its right to press criminal charges of fraud against Chan.

Says Chan: “This was completely false. They said the payslips I submitted were false, which is untrue. My employment was valid and so were the figures (on the payslip).”

Chan was shocked to receive almost identically worded termination letters from Kulula and Discovery. Uspiked did a little bit of detective work and found out that the metadata on all three emailed cancellation of facilities letters were the same. This means all three letters came from the same workstation. Probably from the same individual.

The fact that the NCR has instructed Absa and FNB to remove Chan’s name from the Shamwari database suggests it could find no wrongdoing on his part. In theory, Chan should be reinstated as a private banking client of FNB along with his previous credit facilities, though Chan says he wants nothing more to do with a bank that financially defamed him and caused him millions of rands in lost business.

The SAFPS was recently registered as a credit bureau. But as Uspiked points out, section 43 of the NCA specifically prohibits banks from having a controlling interest in credit bureaus. Perhaps it’s time for South Africans to start demanding information from SAFPS, and the NCR, and start checking what information is actually on this database. It is well known, says Chan, that several banking customers have been denied credit as a result of secretive information listed on Shamwari. “It’s not just denial of credit,” says Chan. “Being listed on this database can ruin one’s reputation and prevent you doing business with major corporations.”

In Chan’s case, his blacklisting cost him plenty. Business associates started to look at him askance, his access to credit evaporated, he was unable to fund export consignments and his business took a dive. Chan was born in SA but left to study in the US and, at the behest of his parents, returned to the country of his birth some years ago. He started up an import-export business and was successful enough to be listed as a private banking client.

“I’m in the wholesale fuel business and cash flow is important to engage with deliveries to customers. In the old days we had credit with the oil companies but now we must tender cash for every purchase so with the shutdown of my account at FNB, everything literally dried up overnight. How I’ve survived so far is a complete miracle of tenacity.”

The lesson here is pretty clear: if you piss off your bank, never mind that you have a perfectly clean credit record, you may end up on its secret blacklist and your life is ruined.

Originally published at Acts Online.