This article first appeared in Moneyweb.
Pension fund whistleblower Rosemary Hunter’s campaign to force the Financial Services Sector Authority (FSCA), formerly known as the Financial Services Board (FSB), to investigate irregularities surrounding the cancellation of 4 600 pension funds was rejected in the Constitutional Court on Thursday (September 20).
Hunter achieved a few minor victories, including gaining access to the previously withheld reports by Judge Kate O’Regan and KPMG. She was also granted leave to appeal (though lost the actual appeal) and was found to have sufficient standing in court to represent the public interest. The court further softened the blow by refusing to grant a costs award against her.
But the big fight – to force an investigation into the so-called cancellations project and any prejudice suffered by beneficiaries – was lost on the grounds that the FSCA had already launched investigations by engaging O’Regan, KPMG and pension funds attorney Jonathan Mort. In a minority judgment, three judges said it was “common ground that the cancellations project was infested with unlawfulness” and that “the FSCA had a lax approach to lawfulness in the cancellations project.”
Hunter, a former political activist, was appointed deputy registrar of pension funds at the FSB in 2013. Within a month of starting her three-year contract, she started raising red flags over the wholesale cancellation of pension funds which have been found to still have unclaimed benefits and other assets. Many fund administrators have established special purpose unclaimed benefits funds to receive transfer of these funds, though others have been accused of making little or no effort to find the beneficiaries.
Hunter became a thorn in the side of FSB management and was offered R6 million to leave. She declined, choosing to see out her full three years. She was subjected to disciplinary proceedings that were abandoned by the FSB after a day and a half. Several investigations were launched to pronounce on the legality of the cancellations project, and whether there were any unclaimed benefits in these cancelled funds. KPMG and Mort found there were indeed unclaimed benefits and other assets in some of these cancelled funds, based on a limited sample reviewed by them.
Hunter, who had been denied access to some of these critical reports, notably one by O’Regan and another by KPMG, then took her case to the Pretoria High Court. In court papers, she was characterised by her former boss Dube Tshidi as vengeful, angry and seeking an outlet for her emotions. Hunter lost her High Court case seeking an investigation into Tshidi’s conduct in cancelling the funds and trying to get rid of her and close down investigations. She was also denied access to the O’Regan and KPMG reports, though has since had sight of these as part of the court process. The case was lost on appeal and then escalated to the ConCourt.
The proliferation of so-called ‘orphan funds’ was a result of a shift from stand-alone to umbrella funds. Some of the stand-alone funds did not have properly constituted boards, and some had no assets or liabilities.
Right2Know was admitted as a friend of the court and argued that irregularities in the cancellation project cannot be overlooked, even if no material financial prejudice occurred. It further argued that the FSCA had breached its constitutional obligations to investigate irregularities in a manner that is competent, independent and transparent.
“The danger with the approach adopted by Ms Hunter is that it is very likely to yield a never-ending investigation,” wrote Justice Sisi Khampepe for the majority ruling. “Investigations would be difficult to bring to finality as long as, in her view, something might just be uncovered. This observation must be understood in the context of the several credible investigations already conducted by people whose capacity to address actual or perceived irregularities is beyond doubt.”
The court majority found there were other judicial remedies available to her, such as the review process as outlined in the Promotion of Access to Justice Act. A minority disagreed with this, adding that if cancellations were not investigated, mistakes may remain undetected and the resulting prejudice would not be addressed.
Having exhausted all legal avenues, Hunter says she is disappointed with the outcome as it does not bring sufficient relief to the many thousands of beneficiaries whose funds remained unclaimed.
“Naturally I am deeply disappointed by the outcome of this litigation,” she said in a statement after the court ruling. “It is, quite simply, deeply disturbing that the cancellations of the registrations of the vast majority of the approximately 4600 pension and provident funds will not be subjected to any investigation to identify and remedy any prejudice that their members and beneficiaries have suffered as a result of irregularities in the conduct of the cancellations project. This is not only because the Constitutional Court has decided not to grant an order requiring such an investigation but also because senior officials and office-bearers of the FSCA, almost all of whom were senior officials and office-bearers of the FSB before it, apparently don’t care to know whether any more of the funds were erroneously deregistered, let alone whether anyone has been prejudiced as a result.
Open door for opportunists
“So there is now a real risk that the FSCA will go back to cancelling the registrations of pension funds in the old way, now that the light shone on its conduct by my litigation has been switched off. So I call on parliament, civil society organisations and formations and all others who care about the treatment of the retirement savings of millions of people to demand transparency and accountability in relation to these matters from both the FSCA and from the financial institutions and financial services providers responsible for the debacle that was, and still is, the pension funds cancellations project.”
Douglas Selwane of the Unclaimed Benefits Campaign was equally disappointed with the outcome. “We were hoping the court would come out with a judgment that was fair and just, but this ruling allows the FSCA to continue cancelling funds, even though there are beneficiaries all over the country that may not be aware that funds are owed to them.”
Selwane says he is disappointed that the labour unions did not join the fight, as most of the R22 billion in unclaimed benefits belongs to their former members. “Some fund administrators have done their best to trace beneficiaries, but others have not. So now we see the door being opened to opportunists who make a business of claiming benefits on their behalf.”