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

JSE ALSI in USD
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.

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.

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.

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.

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.

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 www.iknowmyrights.co.za 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.

WTF?

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 Uspiked.com.

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 (CarolM@safps.org.za).

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.

Fraud accusations fly over Nedbank liquidation of guest lodge

Written by Ciaran Ryan. Posted in Journalism

A Johannesburg guest lodge was liquidated by Nedbank this week despite accusations of fraud and perjury. Why would the bank shut down a lodge over a R62,000 debt when its lawyer’s fees would be more than this? We decided to take a look.

World_Cup_2010_Argentina_South_KoreaWhen the World Cup came to South Africa in 2010, guest houses sprouted like mushrooms across the host cities.

One such guest house was Highlands View Executive Guest Lodge in Kensington, Johannesburg, a short 10 minutes taxi ride away from the Ellis Park stadium. This was no ordinary guest house. It comprised 10 luxury suites, meticulously decked out for the World Cup, and was awarded five stars by the Guest House Accommodation of South Africa.

In the months before the start of the World Cup, bookings poured in from soccer fans around the world, most of them from the United States.

Highlands View was in the enviable position of being fully booked in the weeks before and during the soccer tournament. In 2009, the guest lodge signed up as a credit card merchant with Nedbank, enabling it to transact via credit cards. As every merchant knows, this requires delivery of an electronic card processing machine, stationery, and – crucially – a “zip-zap” machine which is the old manual card machine that is swiped left and right to make a physical imprint of the card being processed. Hotel merchants are required to retain the manual vouchers produced from the “zip-zap” machines for three years as evidence that the customer actually visited the premises. This is an extra security precaution, particularly in these days of online fraud.

Despite being fully booked for the World Cup, the tournament turned out to be a nightmare for Highlands View Executive Guest Lodge. On 8 July 2010, just three days before the Spain-Netherlands final, Nedbank arrived to retrieve its credit card machine, claiming that the business had violated its merchant agreement by not honouring “charge backs” claimed by guests who had since departed the lodge. What appears to have happened is a bunch of US soccer fans who had run up bills in excess of R716,000 at the lodge returned home when their team was beaten by Ghana in late June of 2010, and then simply denied that they had run up these expenses.

Who would have thought it is this easy to do? Highlands View manager Kenneth Butler says Nedbank never delivered the all-important “zip-zap” machine which would allow it to authenticate these transactions. The bank says it had to foot the bill for these charge-backs because the lodge had not made physical imprints of the customers’ cards as required by the merchant agreement.

In 2011 Butler launched a case in the South Gauteng High Court to claim back some of these charge-backs on the grounds that they were the result of the bank’s own negligence. Nedbank denied this, and produced a document proving that the “zip-zap” machine had been delivered. Highlands View claimed otherwise. The court found in favour of Nedbank and costs of R62,000 were awarded against the lodge. A sheriff came around to see what he could attach in terms of the costs order and made off with assets of about R10,000.

Some time later Butler stumbled on his own version of the document used by Nedbank to claim it had delivered the “zip-zap” machine and then realised they were different. One of them had clearly been forged. On Nedbank’s version, there was an “X” next to a box indicating the machine had been delivered in 2009. On Butler’s version there is no “X”.

“X” truly marks the spot in this case. This is critical to the entire case. If Butler’s version is correct, the bank committed fraud and perjury in its 2011 case, in so doing apparently shifted responsibility for the charge-backs to the lodge. With this evidence in hand, Butler lodged a supplementary affidavit with the court.

Because the lodge was unable to pay its legal costs bill in terms of the 2011 case, Nedbank decided it was time to liquidate the company (a close corporation). Application for provisional liquidation was made in February this year, and final liquidation was granted by Acting Judge Collis this week in the South Gauteng High Court. The judge based her decision largely on the fact that the lodge could not pay the bank’s legal costs of R62,000 from the previous case.

“Here’s a case where we have been liquidated by a bank and we never borrowed a cent from them, and don’t owe them anything,” says Butler, who plans to appeal the decision. “I feel the judge did not consider the evidence of fraud and perjury we placed before the court and this evidence is critical to our case.”

Complicating matters is the fact that a trial date had been set down for the middle of September to argue the merits of the alleged fraud and the charge-backs. Now that the liquidation order has been granted, this trial will not go ahead.

Butler represented himself in court as a lay litigant. As one insolvency expert points out, banks often get the courts to overlook fraud by proving that the defendant is in any event insolvent, even where the insolvency results from fraud.

Butler says he has no intention of letting the matter rest. If necessary, he will take the case to the Supreme Court of Appeal and then the Constitutional Court.

What is odd about this case is the fact that the bank has evidently gone to great trouble and expense to prepare voluminous affidavits and spreadsheets to buttress its case. All over a debt of R62,000? The lawyers’ fees alone would have exceeded this.

Butler argues that the bank is desperate to avoid having its alleged fraud and perjury ventilated before the court, and this is the real motivation for the liquidation.

Stay tuned….

To understand your future, study Zimbabwe

Written by Ciaran Ryan. Posted in Journalism

A new book out by two economists of the Austrian persuasion is a wake-up call for those who believe Zimbabwe’s well-documented plunge into the abyss cannot possibly happen to the rest of us.

When money destroys nations book coverWhen Money Destroys Nations by Philip Haslam and Russell Lamberti is perhaps one of the most alarming books on the current state of the world to have come out in recent years. To set the scene, the authors describe in chilling detail how Zimbabwe went from 20% inflation in 1997 to 89,700,000,000,000,000,000,000% in 2008. I might have left out a few zeros there, but you get the point. The cause was entirely political – and, hence, avoidable. “The Zimbabwean government lived beyond its means for years, spending more than it could really afford on government programmes, including war and social security.”

It attempted to solve this problem with rampant money printing. “Money printing gathered momentum and fuelled an inflation frenzy, which poured down economic ruin upon millions of ordinary people. It ultimately led to the Zimbabwe dollar being abandoned as a currency beginning at the end of 2008.”

But Zimbabwe’s experience is not unique. In fact, money printing has become a global phenomenon that always, always leads to inflation and impoverishment. Anyone who believes that “it couldn’t happen here” had better read this book. In Zimbabwe, the money printing started slow and then, over the course of the next 11 years, spiralled out of control. The scale of the carnage wrought by this idiocy is well documented: one-third of Zimbabweans were forced into exile, repatriating funds each month to family members left behind; the government responded to food inflation by setting price controls which were promptly ignored; a black market in alternative currencies flourished as people sought to feed themselves anyway they could (hint: a bottle of whiskey holds its value surprisingly well in a hyper-inflationary environment); barter returned as a means of exchange; stores closed down; mass hunger ensued, resulting in social unrest which was promptly extinguished by the military.

On a visit to Zimbabwe at the height of the inflationary blitzkrieg, it was obvious that certain segments of the population were flourishing. The ruling party elites managed to corner the black markets in currency, fuel, flour, sugar and any number of commodities. Taxis would seldom carried more than a gallon of fuel at a time. When they ran dry, some enterprising young men would emerge spontaneously with a gas refill, dispensed from an old Coke bottle. There were daily queues for bread. Shops were barren, carrying a few bars of soap and maize flour, and for this you had to carry boot-loads of Zimbabwean dollars.

“Exact inflation became meaningless. Hyper-inflation is more a sense of being than specific rates. In Zimbabwe, no-one thought in percentage inflation. You just got a feel for it,” says Zimbabwean economist Jonathan Waters.

The real point of the book is that the same fate awaits other countries merrily printing their way out of trouble. Nor is there any easy escape for the governments of the US, Britain, Europe and Japan – whose printing machines have been fired into hyper-drive since the financial collapse of 2008. US government debt has grown by a teeth-clattering $6,5 trillion since 2008. That’s a 70% expansion of the money supply in five years, all of it legitimised by the so-called “Quantitative Easing” programmes initiated by the US administration during this time. Other major economies are likewise racing to expand their money supplies in an effort to keep the financial system afloat. “These countries are steadily adopting the dangerous policies that ultimately proved disastrous in Zimbabwe,” say the authors.

As if this were not bad enough, governments everywhere are making it increasingly difficult for ordinary citizens to conduct business and acquire and use private property without heavy oversight, regulation and taxation. And as governments struggle with their own enormous debts, the temptation to increase taxes is ever-present. In March 2013, bank customers in Cyprus with deposits larger than €100,000 had their money confiscated to bail out the Cypriot banks. The EU has already tabled a directive that would allow it to follow the Cyprus model to rescue European banks should they fail, while the US, Britain and Canada have adopted similar proposals. These countries also have their eye on private pension funds which they intend to plunder as public pension funds start to run dry. This is exactly what happened in Zimbabwe.

While a Zimbabwe-style land grab is unlikely in the developed world, a covert land grab is already underway. This is happening as a part of the Quantitative Easing programmes, where central banks print money to purchase mortgage-backed securities. As home owners are foreclosed, these properties end up in the hands of the central banks – a form of land nationalisation.

A global financial collapse is in the air. How long will it take? There’s no easy answer to that question. It took Zimbabwe 11 years to collapse after the start of its aggressive money printing programme. In pre-World War 2 Germany, it took nine years.

If this seems terribly bleak – and it is – there are boundless opportunities that arise in a Zimbabwe-style hyper-inflationary environment. This book ends with a survival plan for those who want to avoid the coming crash. For those Zimbabweans who crossed the Limpopo to South Africa, their lives improved immediately. The lessons of Zimbabwe ring true for people all over the world: cash in your pension funds and invest in something that is worthwhile; do not keep too much cash in the banks, and invest in hard assets that will appreciate as inflation accelerates; have a second passport; grow food and barter.

“Money printing and the collapse of confidence in your nation’s currency may be the greatest risk – and the greatest opportunity – you could face in your life. You can learn from those who have gone before. Make sure you are prepared,” warn the authors.

The book is written by two Johannesburg-based writers, Philip Haslam and Russell Lamberti, who is co-founder of the Ludwig von Mises Institute of South Africa. Both are clearly from the “Austrian school of economics” of which von Mises was the founder. In brief, Austrian economists argue in favour of unbridled free markets, and that involves removing central banks for the economic life of any country. Given the events unfolding before our eyes – in Zimbabwe and closer to home – the argument for removing central banks has never been more urgent.

The only thing we learn from history is that we learn nothing from history – Friedrich Hegel