Dysfunctional metros and municipalities could start falling like dominoes. From Moneyweb.

When the Makhanda (formerly Grahamstown) High Court last month ordered the dissolution of the municipality of Makana for failing in its constitutional duty to provide services to the community, the great fear among the political class was that this would unleash an orgy of similar court challenges to unseat dysfunctional municipalities around the country. 

Read: Landmark court ruling highlights crisis in SA’s cities and towns

Barely a month later, it looks like that day is at hand. 

PAC president Narius Moloto this week put the Tshwane city manager and the three major political parties – the ANC, DA and EFF – on notice that they either quit their squabbling and return to governing the city or he will approach the Pretoria High Court to have the council dissolved and placed under administration.

That would open the door to fresh elections, which could be disastrous for the ANC, says Moloto. “Let the people decide whether any of the politicians who engineered this crisis are worthy of holding office again.” 

Tshwane has been in chaos for several months, with the ANC and EFF attempting to unseat DA Mayor Stevens Mokgalapa after several votes of no confidence. That’s being appealed and is still unresolved.

The EFF hopes to emerge from this as the kingmaker and appoint one of its own as mayor. Its gripe is that the DA-controlled council under Mokgalapa is dysfunctional, resulting in a water and power crisis in and around the city.

The ANC threw its weight behind the vote of no confidence over what it called a corrupt property tender in the city. This looked like a return slap for the DA, which repeatedly hammered the ANC for corruption when it ran the city. 

Moloto says city residents are left to pay the price for the power play between the three major parties. If he gets his way, Tshwane is about to get the Makana treatment.

“The despicable display of politicking among the three major parties has descended into farce, each side more concerned about guarding the public trough from which they feed than in governing the city,” he says.

The implications of this are potentially huge for the country. Imagine, says Moloto, if residents in failed municipalities across the country used the Makana decision to toss the cadres out of office.

Read: Confirmation that municipalities are a huge burden on taxpayers

Of the 257 municipalities and 21 municipal entities assessed by the Auditor-General in 2018, only half received unqualified opinions on their financial statements, and only 19% were free of any material misstatements. 

“This is a shocking betrayal of our political liberation,” adds Moloto in a recent statement. “Those responsible must be held to account, investigated and removed from office. Those found guilty of criminal conduct must be jailed.”

Read: Auditors of SA municipalities say they are intimidated and threatened

Cilliers Brink, DA shadow deputy minister for Cooperative Development and Traditional Affairs, and formerly part of the DA’s ruling alliance in Tshwane, says it is Tshwane’s ruling council that is dysfunctional rather than the municipality itself, though this has a knock-on effect on governance in the city.

Hence, it may be harder to convince a court that the metro council should be dissolved. “But there is no doubt that many smaller municipalities around the country are failing to provide even the most basic level of services,” says Brink. “Part of that is mismanagement, part of it is corruption, and about 12 years of economic decline, which has hit the income of these municipalities. It’s hard to deny that Tshwane has become dysfunctional, and a political power play is the cause.

“The EFF has revealed itself as a faction of the ANC, and this is something the DA has had to learn the hard way.”

The DA formed coalitions with the EFF that allowed the former to govern in Tshwane, Johannesburg and Nelson Mandela Bay in the Eastern Cape. All of these coalitions have fallen apart. Brink points out that under the DA, financial governance improved to the point where Moody’s awarded it a two-notch credit upgrade. 

Michelle Rademeyer, a Freedom Front Plus (FF+) representative in the farming town of Bethal in Mpumalanga, came within a whisker of unseating the ANC candidate in the town during last year’s elections by campaigning against corruption and mismanagement.

Parts of the town have had virtually no water for most of the last year, and rely on farmers trucking water into the town.

Power cuts are a daily affair. “In addition to the Eskom outages, we also have daily power cuts implemented by the municipality,” she says.

Refuse collection in Bethal has ceased to exist for most, so private refuse collectors have stepped into the breach, charging R4 a bag for removal. The Govan Mbeki Municipality, responsible for an area covering 2.5 million square kilometres from Bethal to Secunda and Leandra, has 12 refuse trucks but only two are working.

The sewage system functions erratically and potholes have gone unrepaired for decades. Local residents try to patch the potholes to keep the roads driveable, but they are not allowed by law to make any permanent repairs. 

“I have abundant evidence of corruption in the municipality which is fed to me by local residents, so we could definitely argue that this municipality has virtually ceased to function, but the cost of bringing a Makana-style case to court means we would have to fundraise for this,” says Rademeyer.

“If we are going to get rid of dysfunctional municipalities, we would need legal assistance.”

The story of broken dreams is repeated up and down the country, from Mokopane (formerly Potgietersrus) in Limpopo to Mamusa (Schweizer-Reneke) in North West province. Many parts of Mokopane have water for two to three hours a day and roads are being destroyed by coal trucks. Power supply is erratic and people complain noisily but feel there is little they can do to change things.

It has started to dawn on smaller political parties like the FF+ and PAC that change can come from below.

As Argentine revolutionary Che Guevara observed, revolution never falls fully ripened from the tree. It has to be plucked.

Deidre Carter, former MP for Cope, recently left politics after 10 years in parliament armed with a conviction that change will only come about with grassroots movements driven by civil society and alliances with like-minded groups.

There is now a very real possibility that corrupt and mismanaged municipalities can be unseated.

Carter now works for Agri Limpopo, which has given her a deeper understanding of the privation of living in small-town and rural SA.

“This is the result of decades of mismanagement and corruption. We have to take back control of our local governance structures and restore accountability. I think the Makana judgment is a great step in the right direction.”

The Makana municipality was dragged into court by the Unemployed Peoples Movement (UPM) on the grounds that it had failed in its constitutional duty to provide basic services such as a healthy environment, health care, food, water and social security. Governance had all but collapsed. Livestock roamed the streets, refuse piled up in residential areas, the water taps ran dry for days at a time and raw sewage poured out into the community. 

Judge Stretch found that the local municipality could not provide even the most basic of services such as clean water, refuse collection and sewage, and for this reason should be dissolved. The decision put other dysfunctional metros and municipalities on notice: either perform your constitutional duties or face getting the boot.

This may turn out to be one of the most liberating court decisions in recent history, says Moloto, even though the losers in the case say they plan to appeal. “What a breath of fresh air it would be if corrupt and incompetent municipalities across the country were to be tossed out of office to face the wrath of the electorate. This court decision can and must be replicated across the country.

“While the Guptas were busy looting state-owned enterprises, the ANC not only turned a blind eye, many of its senior officials were eager participants. We now know from Open Secrets’ The Enablers report that state capture cost the country R5 trillion and five million lost job opportunities.

“Think about that for a minute, and imagine where South Africa would be today had the state capture project been strangled at birth. Not a single participant in state capture has yet been jailed, while the ruling party circles the wagons and defends those in its ranks who gaily joined in the looting.”

From March 1 they will have to pay SA tax on income over R1m earned abroad. From Moneyweb.

From next month South African expatriates will be required to pay tax in SA on income above R1 million earned from employment beyond the country’s borders.

It’s crunch time for hundreds of thousands of people who will have to decide whether to pay the tax and retain their South African residence status, or to financially emigrate to avoid it. Another option is to rely on double tax treaties signed between SA and other countries, to argue that taxes have already been paid in the countries where they work.

Read: To financially emigrate or not?

Financial emigration is a drastic measure, but an option nonetheless.

It is reckoned that there are more than 100 000 South Africans in Dubai alone, many thousands of whom will be earning in excess of R1 million a year. There will be hundreds of thousands more scattered across the globe, a good percentage of whom will have to make a choice whether to emigrate or not.

Financial emigration does not necessarily mean relinquishing SA residence or citizenship. It is an approval granted by the SA Reserve Bank to be recognised as non-resident for exchange control purposes.

Under the new tax rules, the first R1 million is exempted from SA tax if the expat spends 183 days a year working abroad. Only amounts above R1 million will be taxable.

Tim Mertens, chairman of Sovereign Trust SA, which has 25 offices worldwide, says those earning substantially more than the equivalent of R1 million a year are likely to financially emigrate. The R1 million threshold includes fringe benefits such as pension payments and housing and travel allowances. For South Africans working in Saudi Arabia, housing and subsistence allowances are typically part of the total remuneration package, pushing many of them over the R1 million threshold.

Read: Troubling new interpretation of tax credits and deductions on foreign income

“We have had a surge in inquiries from South African expats in our various offices around the world, and our sense is that many of the higher earners are planning to financially emigrate. Lower-earning expats, such as nurses and artisans, are probably not earning sufficient income abroad to be affected by the new expat tax, so it is unlikely they will opt to financially emigrate.”

Mertens says there is likely to be a period of confusion as the new rules are bedded down and expats decide which routes to pursue.

“A lot of professional South Africans have gone abroad in search of work over the last decade, and I suspect many of them may not return. They are concerned at the lack of reforms in the country, and the poor economic prospects. Sadly, we may have lost a good percentage of our most skilled professionals to the wave of emigration, but they still have assets and family in this country, so they have emotional and financial ties to SA.”

The tax amendments have attracted criticism from some quarters as potentially counterproductive, in that they could force many high-earning expats to surrender their SA residences.

It remains to be seen whether Sars succeeds in raising additional tax revenue as a result of the new expat tax. Some doubt it will make much difference to tax collections, yet Sars is confident it will rope in considerable new tax revenue.

Read: Looming ‘expat tax’ is ultimately fair

Sharon MacHutchon, tax consultant at Mazars, advises that the amendment to the legislation that comes into effect on March 1 only affects income received as a result of employment.

The amendment does not apply:

• If you are an independent contractor working abroad,
• In cases where you earn foreign investment income, or
• If you are no longer a resident of South Africa for tax purposes.

South African expats working abroad may already be regarded as non-residents for tax purposes, even though a formal declaration was never made to Sars.

Anyone planning to break tax residency risks having to pay an exit capital gains tax.

Dispossessed homeowners demand billions in damages from major banks for selling their properties at a fraction of their worth. From Moneyweb.

Hundreds of dispossessed homeowners filed a class action suit in the South Gauteng High Court on Tuesday (February 10), claiming damages from the major banks for foreclosing and then selling their properties for a fraction of their market value.

The applicants attempted to have the case heard directly in the Constitutional Court in 2017, but the judges ruled it should be heard in the normal way in the High Court.

The dispossessed homeowners are asking to be recognised as a class of applicants with substantially the same complaints. Many are clients of the Lungelo Lethu Human Rights Foundation, which is an applicant in the case.

The court application asks the court to recognise several different classes:

• Those whose properties were sold for more than 10% below market value since the Constitution came into effect in 1994;
• Those whose properties were sold by the banks in a manner that was not a “last resort” as required by law;
• Those who remain in debt to the bank after their properties were sold at prices below market value; and
• Those who were overcharged on their bond fees in the course of legal action.

All the major banks are cited as respondents, as well as the National Credit Regulator, the SA Human Rights Commission and the Minister of Constitutional Development.

It is estimated that up to 100 000 South Africans have lost their properties through foreclosure since the Constitution came into effect.

Opt-out case

This is an opt-out class action, meaning that anyone who fits within one of the class categories is automatically assumed to be part of the action unless they specifically opt out.

It has been estimated that dispossessed homeowners have suffered a 35% loss of home equity through the foreclosure process, which means the banks could be facing claims of R60 billion or more.

Advocate Douglas Shaw, legal representative of the applicants, says the mortgage banks have routinely claimed they use foreclosure as a last resort, but the evidence suggests otherwise.

“Foreclosure, as it was practised by the banks in SA before the current reforms, was cruel and inhumane.”

“It has resulted in tens of thousands of families being rendered homeless at a time of financial distress, and most never recover from this. We are saying that the banks have violated the Constitution by arbitrarily depriving South Africans of their properties when alternative means of recovering their loans were available to them, and by stripping them of dignity.

“The result was a massive transfer of wealth to property speculators and the banks. This case is intended to right this wrong.”

Read: Sim Tshabalala put to the test over ‘vindictive’ home foreclosure

King Sibiya, president of the Lungelo Lethu Human Rights Foundation, says the case is vital to restoring human rights and dignity for those stripped of their homes.

“Most of those affected are from poor communities. SA has a shocking history of property deprivation and eviction.

“In the 1980s it was the apartheid government that was doing the evicting, but this was child’s play compared to what the banks have managed to accomplish over the last 25 years. It is beyond argument that the banks have abused the court processes to have people thrown out of their homes, often for trivial arrears. The evidence is incontrovertible.

“Most of our applicants were not even informed that there was a judgment against them. They only found out when the new owner turned up with an eviction order. The banks are violating the human rights of their customers and they are abusing our court system. This must stop.”

Until December 2017, foreclosed properties were sold at sheriffs’ auctions without a reserve price, which resulted in some properties being sold for as little as R100 (and even R10), leaving the defaulting homeowner with a substantial debt to the bank.

Read:
Banks slapped down over home repossessions in Joburg court caseStandard Bank accused of ‘double dipping’ in home repo case

The high courts in 2018 changed court rules to allow reserve prices to be imposed by judges. The widespread sale in execution of homes at below market price violates Constitutional rights against arbitrary deprivation of property, argue the applicants.

Many properties have been sold for “50% or even 90% less than they were worth,” according to the court papers.

Syndicates

It has long been claimed that criminal syndicates comprising bank representatives and property buyers operated unimpeded from the sheriffs’ offices, with bid rigging and unlawful sales in execution being rammed through even when the homeowners were in the process of appealing court judgments against them, or making arrangements to catch up on arrears.

Some of the applicants had their properties sold at auction for a fraction of their market worth even when they had better offers from private buyers.

Others had judgments issued against them even though they were up to date on their monthly mortgage instalments. Some attempted to have their arrears spread over the remaining term of the mortgage loans, a routine practice in the UK, but SA banks are seldom willing to do this, says Shaw.

Some of the applicants lost their houses even though they had rescission applications or appeals pending before the court – which should freeze any attempt to sell the property.

Many of those whose properties were sold in the foreclosure process lost most or all of the equity in the home – their life savings in most cases.

Focus

The applicants are asking that the court trial focus “on the questions of whether the witness’s property was sold for substantially less than value and whether the sale was a last resort and thus whether the bank is liable to that class and to avoid issues extraneous to those issues”.

Victory for the applicants would result in financial compensation for their losses, the rescinding of any judgments against them and the expunging of adverse listings with credit bureaus.

One of the deponents in the case, Innocent Gwisai, says banks have a common law duty of care to take reasonable measures to only sell as a last resort and to minimise the damage to the client when it does sell in execution (SIE). They also have an obligation to respect the right to housing and other constitutional rights such as property, dignity, just administrative action, and life.

The banks have shown a pervasive disregard for these rights over a prolonged period, even though they may have been in possession of a court order, says Gwisai.

At a Wits University presentation last year, on the problems surrounding sales in execution, Wits School of Law associate professor Jackie Dugard said courts were still pursuing SIEs on an ad hoc basis and there was no guidance regarding what reserve price to set in which circumstances.

“As a result, people are still losing their homes to sales in execution that are not the last resort and where there is an arbitrary/no reserve price set.”

Stephan van der Merwe, senior attorney at Stellenbosch University’s Law Clinic, says although SA has some excellent statutes and case law in defence of consumers, including the National Credit Act and the Consumer Protection Act, enforcement of these laws in the courts remains a problem.

“There is huge inequity between consumers and creditors when it comes to courts. Banks are able to outlast consumers when it comes to litigation because of their vast financial resources. Consumers rightfully complain that they are denied justice in a system so heavily weighted in favour of the banks.”

International trends

The class action suit comes at a time when judiciaries around the world are coming out in favour of distressed consumers.

Last year the European Union issued the Unfair Contract Terms Directive to tilt the scales of equity more in favour of consumers. This came after an avalanche of complaints that borrowers and consumers were being required to sign agreements heavily weighted in favour of creditors.

“Contract terms are unfair and, therefore, not binding on consumers if, contrary to the requirements of good faith, they cause significant imbalance in the parties’ rights and obligations to the detriment of the consumer,” says the EU directive.

Read:
Congratulations, your mortgage arrears have been extinguished
Forgive them their debts

Legal bias

Many South African consumers have complained of a legal bias towards creditors with regards to both unfair contract terms and the ability of deep-pocketed banks to out-litigate their customers in court.

Thousands of Europeans have lost their houses in recent years due to mortgage loans priced in Swiss francs. Some Polish homeowners ended up owing twice the original amount borrowed due to the doubling in value of the Swiss franc since 2008. The European Court of Justice last year ruled that local courts could substitute the terms of contract and allow payment in local currency.

In Romania, the Datio in Solutum (DIP) law allowed overindebted consumers to hand back their homes to the bank and walk away free of debt under certain circumstances, one of which was financial hardship. This point was routinely challenged by the banks in court.

Like many other European countries, many Romanians had taken out mortgage loans in Swiss francs. The Romanian Constitutional Court last year made it easier to plead financial hardship, and therefore satisfy the requirements of the DIP law, which means customers will have the choice of returning their homes to the bank free of debt, or adjusting the mortgage repayments on terms that are affordable to them.

Its price plunged with the Coronavirus outbreak. From Moneyweb.

You may have missed it, but history was made this month when the copper price dropped 13 days in a row. The last time that happened was in the early 1970s.

The copper price is seen as a proxy for global manufacturing – or, more precisely, Chinese manufacturing.

China is the largest consumer of copper and the outbreak of the Coronavirus last month interrupted what was a fairly respectable recovery from the lows of September 2019. There is considerable confusion over the severity of the virus and whether it has peaked and is on its way out, or whether Chinese authorities are muzzling a truly frightening outbreak.Read: Copper sees worst losing streak since 2018

The copper price tells its own story. Chinese economic growth will likely slip to 5% or lower in the first quarter of 2020.

Source: ShareMagic

International Man resource expert Marin Katusa is long-term bullish on copper, but believes prices will drop lower before they rebound. Copper prices in US dollars are down 12% in the last few weeks to $2.55 a pound, and there may be further downward pressure coming from two of the largest producing countries, Chile and Indonesia. 

Read: A copper mining lesson from Zambia

Labour strikes in Chile resulted in production shutdowns in 2019, and that unrest is by no means over. Anglo American reported a 5% drop in its fourth quarter production in 2019 relative to the same quarter in 2018, although this was due to a range of factors, including a change towards a tolling arrangement with outside suppliers.

Read: What to watch for in commodities in 2020

Another major copper producer is Freeport-McMoRan Inc, which owns Indonesia’s Grasberg, the world’s largest gold mine and second largest copper mine. Freeport has been embroiled in disputes with the Indonesian government, which forced the mining group to relinquish majority control in 2018 in return for retaining the right to mine until 2041. Last week Barrick Gold CEO Mark Bristow told the Mining Indaba in Cape Town that he is interested in buying Grasberg as it is a high-quality, long-life asset.

All this uncertainty sent the price of copper shooting up by 11% at the start of this year, until the Coronavirus sent it crashing down again.

It may go lower still, but US-based RJO Futures’ outlook report reckons copper is one to watch in 2020 as it is most likely to experience a sustained bull market, in part because of a long-overdue weakening in the US dollar.

Source: International Man

The International Copper Study Group forecasts world copper mine product to grow 2% this year after a 0.5% decline in 2019. Analysts are expecting a robust 4% growth in refined copper production in 2020, after a series of smelter disruptions and shutdowns in 2019, mostly for maintenance and technical upgrades.

The market deficit for 2019 of 320 000 metric tonnes is likely to swing to a surplus of 280 000 tonnes in 2020. That will keep spot prices under pressure over the coming months.

What might change this outlook is a quick containment of the Coronavirus and a bounce-back in Chinese manufacturing later in the year.

This is what has the copper bulls excited.

The following chart shows the steady decline of manufacturing as a percentage of GDP among the world’s leading economies. What it really illustrates is the crowding out of manufacturing by the financial sector.

Source: UN and World Bank via Statista

Staff morale also needs a boost. From Moneyweb.

David Nicholls, newly-appointed chair at the Nuclear Energy Company of SA (Necsa), says restoring financial stability to the company is his top priority.

The former chief nuclear officer at Eskom, responsible for the Koeberg nuclear power station, and before that head of the Pebble Bed Modular Reactor project, says Necsa has a crucial role to play in developing a sustainable energy future for the country.

Read: Former Eskom chief nuclear officer appointed chair of Necsa

But before that he wants to restore staff morale and make sure there is enough money to meet monthly expenses. Last year the company asked Parliament for R500 million to cover its monthly operating expenses. The company has been in turmoil since 2018 when the board was dismissed by then-energy minister Jeff Radebe. It has lost an estimated R1 billion due to repeated shutdowns of its medical isotopes production plant.

“Given the present financial crisis at Necsa, there’s very little money in the kitty,” Nicholls told Moneyweb.

“We’re in discussion with the Department of Mineral Resources and Energy and through them other government departments, and also with the banks about getting support. We paid wages last month and all other bills, and that’s going to be a challenge for the next few months.”

Read: Necsa thumbs its nose at reporting obligations

Repeated changes in directors and management, coupled with the financial crisis, has taken a toll on staff morale.

Restoring morale and reviving commercial operations are key priorities for the new board.

WATCH: David Nicholls talks to Moneyweb

The NTP medical isotopes division is the main money-spinner at Necsa, but has been shut down for the best part of a year for both technical and regulatory reasons.

It is now up and running, but the supply interruptions caused by the shutdowns have damaged customer relations, which could take a year to restore, says Nicholls. It exports life-saving medicines used in the treatment of cancer to more than 60 countries. The nuclear regulator ordered the shutdown of the NTP medical production plant for several months, due to inadequate paperwork related to safety compliance – a move that was slammed as regulatory overkill by many in the industry. 

Another key division is the Pelchem fluorochemical production facility. The plant is in serious need of investment and upgrade, says Nicholls.

The Safari-1 reactor is more than 50 years old and will either have to be shuttered or replaced in 2030. “We have to look very carefully at the long-term viability of that industry to make sure we’re not building something to meet a need that’s going to go away.

“If we’re going to go on being in the business and exporting radionuclides, we need to address that and look at replacing the reactor,” adds Nicholls. “It clearly will not be cheap, so there must be a business case to go along with it. The discussion with government is what is the acceptable cost of the reactor replacement.”

Manufacture of antiretrovirals

Pelchem has a strong customer base and a number of short-term projects that should increase its profitability. It has established, along with Mintek, a business case for the local manufacture of antiretrovirals (ARVs), and these could be brought to market in the near future. Pelchem is the largest manufacturer of fluorochemicals in the southern hemisphere.

Necsa has been dogged by accusations of political interference under Radebe, who fired the board led by then-chairman Kelvin Kemm and CEO Phumzile Tshelane in 2018. Kemm’s suspension, as well as that of another board member, Pamela Bosman, was overturned by the Pretoria High Court in 2019. This is being appealed by Necsa. Tshelane’s dismissal is the subject of ongoing disciplinary proceedings.

Read: Axed Necsa board blames resistance of ‘privatisation by stealth’ for dismissal

The organisation has had no fewer than six CEOs and four chairs in little over a year. In 2018 it had ten board members, but the last four remaining members – including the previous chairperson Phulane Kingston – resigned in January, blaming Minister of Mineral and Energy Resources Gwede Mantashe for his lack of support.

Read: Remaining Necsa board members resign

Mantashe took to Twitter to express his dissatisfaction with the outgoing board, saying: “We can’t allow dysfunctional governance. We must appreciate that correcting governance is painful.”

Though barely three weeks into his new appointment, Nicholls says the court cases and disciplinary proceedings involving former staff will have to be resolved. “I’m taking the view that they must look forward and not backwards. It may be challenging to go through a CEO selection process while we have still got a CCMA [Commission for Conciliation, Mediation and Arbitration] case with former CEO Phumzile [Tshelane].”

Nicholls says he has experienced no political interference, nor does he expect any. “I’ve not to date had any pressures or instructions from anybody. I don’t intend to have any.”

The immediate goals for the new board are to stabilise Necsa, restore staff morale and ensure that Necsa is performing within its mandate from the state.

It should also be returned to profitability and reduce its dependence on state support. “Part of Necsa’s responsibility is its nuclear accountability to the state, such as safety requirements, which may require ongoing state financial support,” says Nicholls.

Necsa has the capability of building nuclear grade components that can supplied to any new nuclear power plants envisaged under the Integrated Resource Plan (IRP), the government’s energy plan for the country. The latest IRP, issued in 2019, envisages 2 500 megawatts of energy supplied from new nuclear power after 2030.

Report by Open Secrets and Shadow World Investigations connects the dirty dots. From Moneyweb.

Listening to the testimony of bankers before the Zondo Commission of Inquiry into allegations of state capture, you might believe they were unwitting victims of the Guptas and acted quickly and virtuously to throttle their corrupt ways by closing their bank accounts in 2016.

It turns out they may have been part of the capture project.

A report by Open Secrets and London-based Shadow World Investigations released on Thursday (February 6) puts bankers, lawyers, accountants and consultants squarely in the frame of the state capture project.

Entitled ‘The Enablers: The bankers, accountants and lawyers that cashed in on state capture‘, it pulls together the intricate threads of a campaign of corruption that is staggering in its reach and audacity.

Dirty tricks

The report outlines the tools of money laundering: smurfing and layering being two of the most common. 

Smurfing is where you break up large sums into smaller amounts to defeat anti-money laundering reporting requirements. The money is scattered around in a blizzard of transactions designed to hide the source and eventual destination. 

Layering conceals the source of the money through a series of transactions and bookkeeping tricks.

To help cover their tracks even further, the Guptas stoked racial tensions in SA by promoting the meme ‘white monopoly capital’ to divert attention away from their looting.

This reprehensible chapter in SA’s recent history is outlined in gory detail in The Enablers.

Here are the key figures in the report:

• R5 trillion loss to the economy over five years through state capture;
• Five million job opportunities lost;
• R100 billion in lost tax revenue following the attack on Sars facilitated by consulting firm Bain & Co;
• R288 million or 82% of the public funds spent on the Estina Free State dairy project was channelled to Gupta-controlled companies in Dubai and SA;
• R1 billion a year spent by Eskom on the contract with consulting firm McKinsey, with Gupta-linked Trillian to receive 30% of this despite no signed contract being in place;
• R16 billion escalation in Transnet’s 1 064 locomotive deal to facilitate kickbacks;
• R600 million irregular prepayment by Eskom to Gupta-owned Tegeta to enable the purchase of Optimum Coal; and
• R20 billion irregular expenditure at Eskom between 2012 and 2018.

Lais, lies and more lies

The Guptas and their enablers reportedly made use of money laundering hubs such as Dubai, Hong Kong and the British Virgin Islands. The report lists as an enabler one Stephen Lai, a Hong Kong chartered accountant who helped spirit away the gains of corrupt deals at Transnet.

Lai made little attempt to disguise his fabulous menu of services.

It included hiding one’s identity from the public, shifting funds offshore to reduce tax liabilities to zero and the possibility of never having to submit a report to regulators.

Lai would set up companies for the Guptas and make them look legitimate by, for example, creating a fake history.

Lai pops up as a key Gupta enabler even though he was the recipient of just $11 600 in fees. He set up Regiments Asia and Tequesta Group Limited, both on the same day –June 20, 2014 – and had Gupta front-runner Salim Essa listed as director. Regiments Asia and Tequesta made hundreds of payments to 181 accountants.

The role of SA banks in state capture

SA’s major commercial banks, when approached for comment on their roles as Gupta enablers, offered the kind of self-exculpatory bosh one might expect.

This new report won’t do their reputations much good.

When the four major commercial banks shut down the Gupta bank accounts in 2016, it was left to India’s Bank of Baroda to clear transactions on their behalf via Nedbank.

“Nedbank’s conduct with regard to their relationship with Baroda is curious for many reasons,” say the authors.

Nedbank closed its own Gupta-linked accounts in 2016, citing corruption and money laundering concerns, notwithstanding pressure to keep the accounts open from senior ANC officials. “Despite these overtly suspect circumstances, Nedbank only terminated this relationship in 2018, long after widespread reporting had indicated that Baroda’s SA business was dominated by Gupta companies.”

Transnet locomotive deal

HSBC was arguably the most important enabler of looting at Transnet, having handled most of the transactions for front companies CGT, JJT, Tequesta and Regiments Asia. HSBC only flagged suspicious transactions between CGT, JJT and other shell companies three years after the transactions.

Nedbank’s name pops up again in respect of Transnet’s 1 064 locomotive deal. Gupta-linked Regiments facilitated and arranged a R12 billion syndicated loan from several banks. Two days after this facility was arranged, Regiments organised an “interest rate swap” which was agreed by Nedbank.

This dramatically increased the rates payable by Transnet, generating significant profits for Regiments and Nedbank.

Nedbank defended its participation in the swaps– from which it made about R75 million – saying there was “nothing untoward” about the deal. The report raises doubts about this: a whistleblower reports Nedbank was the only bank willing to undertake the swap, while other banks found it inexplicable that an unknown external consultant, rather than Treasury, would be brought in to handle the swap.

Those familiar with the swap market regarded the fees as “unimaginable” and a “rip off”, not to mention the conflict of interest that arose with Nedbank being both lender and orchestrating the interest rate swap.

Nedbank didn’t ride this gravy train alone. All SA banks, including several international ones, were on board.

In another Transnet deal, the Guptas used shelf company Bex to facilitate the China North Rail deal with Transnet to supply locomotives. Transnet reported in December last year that it would approach the courts to recover money for locomotives paid for but not delivered. Of 232 locomotives ordered, only 22 had been delivered. Standard Bank set up the Bex bank accounts, and held accounts for other Gupta front companies, including Homix, which has been implicated in laundering kickbacks related to several corrupt contracts.

In his evidence before the Zondo commission in June 2019, South African Reserve Bank official Shiwa Mazibuko said the Homix transactions raised almost every single red flag for money laundering, and that it was inexplicable that Standard Bank did not pick up on these, or, if it did, failed to act on them.

The red flags included a bank account lying dormant for a long period, then seeing a massive spike in deposits which were immediately transferred to other accounts.

The Estina dairy project – the Guptas’ cash cow

In 2013, Ace Magashule, then Free State premier, announced the launch of the Vrede dairy farm as a state-of-the-art facility producing 100 kilolitres of milk a day. Estina was the company contracted to build the farm.

Analysis of banking records and other documents by Shadow World Investigations shows the vast majority of the R280.2 million paid to Estina by the Free State government was transferred into accounts controlled by the Guptas.

There were red flags aplenty from the get-go: Estina had no prior experience in agriculture; was headed by a former IT salesman, Kamal Vasram, who continued working at Toshiba while supposedly setting up a giant dairy farm; there was no competitive bidding process for the project; and 51% of the shares in the project was earmarked for local beneficiaries.

National Treasury investigated the project in 2014 and concluded that no further payments should be made to the project until various risk factors had been identified, such as lack of clarity about the actual deliverables. The Public Protector concurred, but none of their recommendations were acted on.

A decision was then made to transfer the project to the Free State Development Corporation, which should have ended Estina’s role.

Estina relied on an agreement that required further payment of R136 million for services supposedly delivered. The claim was ludicrous.

Estina had spent almost none of its own money on the project, nor had it delivered substantial services of any kind. By May 2016, Estina’s claim for R136 million was settled in full.

Read: Dairy farm blows open SA’s expanding corruption probe

The report shows that 64% of all the money paid by the Free State government to Estina was transferred to the Guptas’ Dubai vehicle, 18% to their local vehicle and 11% to Sars for Vat costs. A paltry 7% was spent on other expenses.

Gupta auditors KPMG found nothing wrong with so many glaringly suspicious transactions.

Jail time for offenders

At the launch of the report last week, Andrew Feinstein of Shadow Watch Investigations, said the arms deal was the first example of state capture.

Hennie van Vuuren of Open Secrets says the Zondo commission must secure the evidence in its possession. “We want to see criminal liability for CEOs involved in state capture, and we want a reparations fund to be established to recover stolen money to assist social movements and civil society.”

Reforms needed

A key deficiency in SA law relates to public disclosure of beneficial ownership. Shell companies were set up for the Guptas and others both in SA and abroad. The institutions implicated in state capture are conflicted in performing their duties and torn between their obligations under law and the need to protect their clients.

The Companies Act needs to be amended to provide a publicly accessible registry of beneficial ownership, states the report.

“The failure of SA’s financial institutions and professional bodies to prevent grand corruption has meant that investigative journalists and activists have been solely responsible for pursuing transparency and accountability.”

They have been dogged by allegations of corruption for years. From Moneyweb.

On Monday Justice and Correctional Services Minister Ronald Lamola announced that all 15 Masters’ Offices within the country’s high courts were to be shut down for a day while the Specialised Investigating Unit (SIU) conducted search and seizure operations.

The offices were due to reopen on Wednesday. In a statement, Lamola apologised for any inconvenience, adding: “This investigation was necessitated by several allegations of maladministration and corruption and the Mpumalanga case wherein it is alleged that an official in the master’s amassed R1.7 million through fraudulent activities which further highlighted the need for an investigation of this nature.

“As a result, we will be shutting down all Masters’ Offices across the country to enable the SIU to gather, collate and retrieve information relevant to the investigation without any hindrance.”

One of the primary tasks of the Master’s Office is administration of deceased and insolvent estates.

It also administers the Guardian’s Fund, which manages money on behalf of those deemed legally incapable, as well as minors, unborn heirs, and missing or untraceable people.

Read: Could you be one of 7 000 people owed money by the Guardian’s Fund? 

King Sibiya, head of Lungelo Lethu Human Rights Foundation, which defends the poor against abusive creditor practices, says he has been complaining for years about corruption in and around the Masters’ Offices, which he says are breeding grounds for predators looking to pick at the cadavers of deceased estates.

“We are inundated with cases of widows whose husbands have passed on and who in terms of the law are the rightful executors of the deceased estate. But it is a common practice among banks to have themselves appointed as executors instead, particularly where there is an outstanding mortgage loan owed by the deceased.

“This leads to huge conflicts of interest where banks are deciding how to share the spoils in their favour, with no proper oversight whatsoever from the Master.

“The banks then rush to court to foreclose on a mortgaged property without following the law,” he adds.

“I am obviously extremely pleased that the SIU is now looking into this and that we might finally get some justice for the thousands of people who have been financially ripped off by this kind of predatory behaviour.”

Read: Banks slapped down over home repossessions in Joburg court case

Tony Kay, a KwaZulu-Natal property developer, has campaigned for years for police to investigate the nexus between liquidators and the Masters’ Offices after a Shelly Beach property deal he was involved in went pear-shaped. It was then that the liquidators stepped in.

The property developers in this case, like many others, complained that the auction process was irregular.

The Pretoria Master’s Office last year launched an inquiry into a botched property deal in which Pietermaritzburg liquidator Pierre Berrangé was involved. In recent years, the complaints against liquidators and Masters’ Offices have multiplied – along with the sums involved.

“We want a Master’s Office that will conduct its affairs with integrity in line with Batho Pele [‘People first’] principles and not squander resources meant for the poor and vulnerable in society,” said Lamola on Monday.

Read: Winding up an estate

“We are fully aware that the Master’s Office plays a critical role in our communities, it is an office that works for the most vulnerable in our communities, it works for orphans, minor children, and the widowed. We do however request members of the public to postpone their intention to visit the Master’s Office just for a day.”

The accusations against the Master’s Office, some of them aired in the Zondo commission of inquiry into state capture, range from the opportunistic to the criminal.

The surprise search and seizure raid will have caught corrupt officials in the Masters’ Offices off guard, leaving little time to lose files or shred incriminating evidence.

The SIU investigation will also look into the affairs of the Guardian’s Fund, as well as the supervision of the administration of companies and close corporations in liquidation.

Big money

The 2018 annual report for the Guardian’s Fund showed assets of R13.6 billion, almost 24% more than the R11 billion it had in 2016. In 2018 it received more than R1 billion in investment income.

One of the reasons the fund keeps growing is that so much of this money remains unclaimed, according to Sean Rossouw, founder of Benefits Exchange.

Benefits Exchange offers a free search engine for those trying to track down pension and other benefits that may be owed to them (the first search is free, while a processing fee of R25 applies to subsequent searches).

The Guardian’s Fund is managed by the Public Investment Commissioner.

In terms of the Administration of Estates Act, the Master of the High Court is responsible for paying out from the Guardian’s Fund.

The SIU investigation will also look into “the supervision of the administration of companies and close corporations in liquidation; the safeguarding of all documentary material in respect of estates, insolvencies and liquidations; the processing of enquiries by executors, attorneys, beneficiaries and other interested parties; and the appointment of executors, trustees, curators and liquidators”.

Last year Business Day reported that 45 000 trust files went missing from the Pretoria offices of the Master of the High Court after a storm apparently blew off the roof at a storage facility.

The SIU will have a lot of paperwork to get through over the coming weeks and months.

Read: Trusts: do I have funds due to me as a beneficiary?

It lies in the cryptosphere – and what’s coming should terrify national governments. From Moneyweb.

Every generation or so money goes through an evolutionary shift, and 10 years from now the fiat currencies currently in use will be regarded as relics of a bygone age, much like the fax machine.

Cryptocurrencies backed by artificial intelligence (AI) are about to swarm the world of money, bringing with them a level of stability that central banks promised and never delivered. About to come is a whole new architecture for the world financial system, including investment.

In the world of investing, the days of the brilliant stock picker may be numbered. AI and predictive technology will swallow them whole. 

New cryptocurrencies promise everything a unit of money should offer in a technological age: a globally accepted unit of value, instant transfer, anonymity, and security.

All currencies suffer one critical deficiency: their values are unstable. That’s largely a function of central bank control over the issue of new money and the resulting inflation which eats at currency values. This complicates the world of commerce since all trade rests upon a floating barge of variable currency value.

South Africans understand what this means. The rand is the world’s most traded emerging market currency.

Back in the 1970s a US dollar cost 70 cents in the rand. Today one US dollar costs R14.60, which is nearly 21 times more expensive than 50 years ago.

This might be an extreme case, but all currencies in a free-floating system suffer the same problem.

Bitcoin attempted to change all this by removing money issue from the control of any central banks. There will never be more than 21 million bitcoins in issue. Since its launch in 2009, Bitcoin has gone from nothing to more than $12 000, making it the world’s best performing currency in the last decade.

Read:Bitcoin plummets to a six-month low on China crackdown (November 2019)

Bitcoin climbs higher after surging through $8 000 level (January 2020)

The cryptouniverse has been defined by bitcoin and a few lesser coins powered by speculative interest and wild swings in value.

None so fast as a credit card

But as a payments system, none have been able to replicate the speed and convenience of a Visa card system with payment executed in seconds. That will change as technology and transaction speeds improve.

Lars Holst, founder of London-based crypto exchange GCEX, has studied the future of money for years and believes Africa is ripe for a crypto monetary revolution.

“I don’t think we are far away from replicating Visa and Mastercard payments systems in terms of speed. The whole settlement system in forex is inefficient,” says Holst, who previously worked in forex at Danish-based Saxo Bank.

“Why should it take two days to settle forex payments? And the fees you are charged for this are excessive.

“The fiat money system has been corrupted by central banks printing excessive amounts of money and debasing the currencies.

“Many of the new cryptocurrencies coming to the world take this power out of the hands of central banks. It’s clear that the future is in crypto rather than fiat currencies.”

Bitcoin founder Satoshi Nakamoto and others have applied themselves to the question of a future money system using blockchain technology to verify and validate payments between two people transacting anywhere in the world.

In 2009, Satoshi explained the problem with the current fiat money system that inspired bitcoin: “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”

Identity will be central to the future of money

The current monetary system Satoshi complains about is a relatively modern confection. As David Birch points out in his book Identity is the New Money, we entered the world of fiat currency when Richard Nixon ended the convertibility of the US dollar into gold in 1971. As such, fiat is relatively new. The next evolution is now about to sweep it aside.

“Just as the machine-made, uniform, mechanised coinage introduced by Isaac Newton in 1696 better matched the commerce of the industrial revolution, so we can expect some form of digital money will better match the commerce of the information age,” writes Birch.

Holst argues that fiat currencies, if they exist in 10 years, will have a small portion of the market. “We’re in the era of not just data, but information. We upload information to blockchain in encrypted form so it is not seen by other people. By 2030, we’ll see more private use of what people decide to do with their value. They will have simple keys to keep this information private in a global public network where it is logged but cannot be changed.”

What is about to be let loose on the world should terrify national governments and central banks.

Who in Zimbabwe or Venezuela would not ditch their corrupted currencies for something that is stable, internationally recognised, and beyond the reach of their governments?

The impact of cryptocurrencies on developing countries will likely be huge.

Vodacom and Safaricom launched the M-Pesa mobile money service in Kenya and Tanzania in 2007, allowing users to deposit money into an account stored on their cellphones and transfer funds using PIN-secured SMSs to other users – and redeem cash instantly.

Millions of previously unbanked people now have a payment system that bypasses the banks and is being studied around the world. It’s a relatively small step from this to the cryptosphere and monetary independence.

Read: Regulators walk the ‘mobile money’ line

There is plenty of talk about money moving into the digital age, but we’re already there: cash accounts for only about 4% of the total money in the system. The poor – those without bank accounts – rely heavily on cash, but this comes at a cost.

Going fully digital removes the cash register, the ATM and the cash transit vans.

Cash is acceptable to vendors because its value is certain and, while counterfeit notes are known to exist, they are insufficiently plentiful to disrupt commerce.

Enter the stable coin …

Gregor Kozelj is the developer of the X8 stable coin, one of several stable coins offering currency stability by spreading assets over the eight top currencies in the world as well as gold.

Kozelj is a former portfolio manager who spent several years developing a technique for portfolio risk management that did not rely on predicting whether asset prices would go up or down, but on measuring and limiting downside risk. He then translated his system to investments and banking, where treasury systems could be stress-tested in milliseconds rather than the months it previously required.

It was out of this experience that he developed the X8 stable coin. Backed by AI, it is designed to fight inflation through artificially intelligent reweighting of the eight underlying currencies and gold.

As its name implies, the X8 stable coin is not intended to shoot for the stars, as many investing in bitcoin are hoping for. It is designed to hold its value, neither rising nor falling no matter what turbulence befalls the underlying currencies.

Many companies attempt to replicate this by spreading their cash over multiple currencies, but this is both expensive and unwieldy. There are simply too many moving balls to do this efficiently. Each time someone invests in X8, new X8 coins are ‘minted’ and cash is transferred into the eight underlying currencies and held at custodian banks. Once you are part of the stable coin universe, you are able to make payments on the blockchain without using bank transfers.

Global money decentralisation

“Many people say we are entering the age of AI, but we are already there,” says Kozelj.

“I don’t see much future for fiat money 10 years from now. Fiat will probably still be in use, but I see the global monetary system being decentralised and taken out of the hands of central banks, which was the original vision of bitcoin and blockchain. In a decentralised world, anyone will be able to mint their own currencies. Whether they will be accepted by others or not is another question. But there will be many different cryptocurrencies that will achieve broad acceptance.”

There are more than 5 000 cryptocurrencies, and a handful of these are stable coins.

Tether was first to be launched and is a crypto coin that aims to be linked 1:1 with the US dollar. Then came True USD, USD Coin, both linked to the US dollar, and Stasis Euro, backed by the euro.

Investing in this new world

Just as money is going through an evolutionary shift, so too is the world of investment. Advances in AI and quantum computing will connect us based on an intimate profile of each individual’s investment risk tolerances and appetite, and furnish opportunities not presently available, says Kozelj.

“AI will be able to track movements of capital and changes in competitiveness of economies around the world and adjust your stable coin weightings at any given moment to provide money where it is needed, where it is most productive, so it is working for you. It will likewise revolutionise the world of investment by measuring in real time opportunities to maximise returns and growth on a global basis.

“Where Bitcoin has got it wrong, it accused central banks of printing money,” says Kozelj. “But central banks have a mandate to support their economies with whatever it takes.”

He adds: “History shows us that if you are not adapting to the changing economic environment, you need new money to purchase new productivity growth, which includes innovations. If the same amount of currency is in circulation, people cannot buy the new things even if such innovations would change lives and businesses for the better. It blocks progress.

“Every time we went back to the gold standard, which happened a lot in history, it was abandoned. Is gold that bad? No, it only failed because you cannot adjust the volume of gold in synchronicity with the rate of innovative, real productivity growth to keep the economy and prices stable.

“Naturally, runaway money printing isn’t good, yet fixed money supply is just as dangerous and both invariably lead to instability. Bitcoin has and will continue to have the same issue – it will have a fixed supply in the future. AI-driven stable coins are one way to overcome this problem.”

Rescue practitioners for other Gupta companies say it’s unable to repay R402m loan. From Moneyweb.

Business rescue practitioners for the eight Gupta companies under rescue have applied to the Johannesburg High Court for the winding up of Oakbay Investments, one Gupta company that avoided being placed under rescue.

The application is being brought by Tegeta Exploration and Resources and Islandsite Investments, both of which were placed under business rescue nearly two years ago.

Read: Swarm of court cases engulfs former Gupta mines 

This is the third time the practitioners have applied for the winding up of Oakbay. The first application in September 2018, claiming R2 million in rental and services owed by Oakbay to Tegeta, was withdrawn when the claim was settled. In February 2019 a second winding up application claimed Oakbay owed R3.8 million, but it too was withdrawn when the bill was paid at the last minute.

Read: Rescue practitioners take another stab at liquidating Oakbay (May 2019)

When Oakbay was initially unable to settle Tegeta’s above-mentioned R2 million claim, its acting CEO Ronica Ragavan admitted that the company was unable to pay, according to an affidavit by Kurt Knoop, one of the business rescue practitioners. Despite Oakbay later settling the claim, acknowledging being unable to pay constituted an act of insolvency.

This act of default triggered a claim for repayment of a loan of R402.3 million, a figure that was determined after an external forensic analysis.

The attorneys for the business rescue practitioners demanded repayment of the loan in September 2018, to which Oakbay replied that it was not liable. “The denial of liability was laconic in the extreme, without any elaboration,” says Knoop’s affidavit.

Read: Guptas inflated Oakbay price through trading by Singapore firm 

Oakbay formed part of the Gupta empire, and ran into trouble after SA’s commercial banks closed its accounts, citing reputational risk and the potential breach of banking regulations. The Gupta companies then relied on banking facilities provided by Bank of Baroda, which conducted a correspondent relationship with Nedbank. Bank of Baroda notified Oakbay of its intention to terminate its transactional banking facilities in 2017, and would thereafter close its SA branch. This left Oakbay and the Guptas without any banking facilities, forcing them into business rescue.

Oakbay was the holding company for the Gupta empire, and was reliant on its underlying businesses for survival.

Its main asset is Tegeta, which holds shares in four companies: Optimum Coal Mine, Koornfontein Mines, Optimum Coal Terminal and Shiva Uranium, all of which are under business rescue. Cumulatively, these companies owe R4 billion to creditors and are currently under care and maintenance.

Oakbay’s other assets include: Oakbay Resources and Energy, which had a share in Shiva Uranium; Westdawn Investments (whose sole source of income was from mining contracts it had with Optimum Coal Mine); and two labour broking companies.

The entire business foundation of Oakbay has failed and is unlikely to ever recover as a business, says Knoop.

Business rescue practitioners have been unable to access company records and financial statements for Oakbay.

As Moneyweb previously reported, the remnants of the Gupta empire are facing multiple court battles, one of them from Westdawn for the liquidation of Optimum Coal, and another from black-owned mining group Lurco, which is asking the court to interdict the sale of Koornfontein to Black Mining Royalties for a much lower price than Lurco is offering.

Read: Miners survive on charity while battle for Koornfontein mine drags on