Death and Taxes: How SARS made hitmen, drug dealers and tax dodgers pay their dues

DEATH

AND

TAXES

How SARS made hitmen, drug dealers and tax dodgers pay their dues

JOHANN VAN LOGGERENBERG

Jonathan Ball Publishers

Johannesburg & Cape Town

Table of Contents

Title Page

Dedication

Author’s note

Foreword

PART 1: EARLY DAYS

1. Tax activist

2. Full circle

3. Dominoes

4. Pay now, argue later

5. The Iron Duke

6. Wheels of Africa

PART 2: THE RISE

7. Many hands, light work

8. Stashed cash

9. King

10. The scams

PART 3: FISSURES

11. Dirty tricks

12. Death and taxes

13. 419s

14. Charlie and the rhinos

15. How the ‘rogues’ helped to save the Springbok

16. Oh Tannenbaum, oh Tannenbaum

17. The tax ‘fixer’ – Glenn Agliotti

18. Document ‘02’

19. The Young Man

PART 4: RAPID DESCENT

20. Walking quietly and carrying a big stick

21. Tigon

22. It’s a system, you see?

23. Fall from grace

24. Ivan’s rugby ball

Epilogue

Addendum 1

Addendum 2

Addendum 3

Acknowledgements

Endnotes

About the Book

Imprint Page

Dedication

I dedicate this book to my wife, Nicole. As always, thank you for the many hours of support and patience, advice and guidance, for listening, and, above all, for your unconditional love.

I also dedicate this book to all officials who continue to work at SARS: our country needs you now more than ever. You make us proud, and I wish for your continued success. Never give up and always stay true to the higher purpose.

Author’s note

I was a taxman for just over 16 years before I left the South African Revenue Service (SARS) in early 2015. In this book I share some of my experiences as a tax sleuth.

I always worked within the enforcement component of SARS in one or other capacity, and therefore my stories are limited to this sphere of SARS’s business. Some of the cases we investigated received much public attention and my main focus will be on these. Some of these cases we won, others not.

SARS is a vital institution and pillar within our democracy because it’s the primary mechanism by which the Government collects taxes to fund its programmes and services to the citizenry. The tax authority employs around 14 500 people at any given time. Of these, most work in the operational sections: they deal with the public in registering for tax, filing returns and being subjected to audits, for example; and with customs-and-excise staff at border posts, harbours and airports. Then there are the legal and policy division, human-resources management, the finance and information-technology components, and the administrative division that holds everything together. There was also the centralised Large Business Centre, dedicated solely to servicing large corporates and multinationals because they contribute such a large portion of tax to the fiscus.

So, within this broad framework, the enforcement component of SARS was really quite small (although, as you will come to learn, it punched well above its weight). This enforcement capacity came into play only when people failed in their legal obligations to SARS and where we believed we could assist the State in combating organised crime.

My stories take place against SARS’s growth from a relatively unknown state department into one of the country’s most efficient and trusted public institutions. However, sadly, where previous to 2015 we regularly read about successes achieved by SARS, since 2015 SARS has been in the news more often for false reports about a so-called ‘rogue unit’, and allegations of ‘state capture’ and corruption by some of its leaders. This book therefore also discusses developments in recent years and their impact on the institution, including the departure of over 55 executives within a matter of months, and the ultimate reported loss of over 500 staff in the 2016/17 fiscal year.

For several years I managed a small investigative unit that was falsely dubbed the ‘rogue unit’ by the Sunday Times newspaper. This unit consisted of 26 people at first, but by 2010 had dwindled to seven, and then finally to six people.

After the untrue accusations surfaced in the media in late 2014, reports continually seemed to imply that this was all I ever did at SARS – manage this small ‘rogue unit’. I’ve said it before and I want to repeat it here: from when I took over the management of this fairly nondescript unit in early 2008, it accounted for less than 5% of my daily duties; it was a mere support unit to other larger units and external law-enforcement agencies.

When I left SARS, I intended to put my time there behind me and start a new life. I’m still trying to do that, even though some people continue to try and drag me and others into all kinds of dramas that I firmly believe are not in the interests of SARS and our country.

When Jonathan Ball Publishers asked me to consider writing a book about my experiences at SARS before my resignation, I reflected on certain key cases and decided to go ahead in the hope that, by sharing these stories and lessons learned, I could possibly assist my former colleagues and perhaps even aspirant SARS officials who’re planning to dip their toes into big cases for the first time. I also hope that these stories may assist the public in general and the new management at SARS to reflect on how far SARS had come, and inspire them to pull things together and get the institution back to operating at the levels it used to.

A fear in writing this book is that I could be seen by some to be holding a grudge, but I can assure you that this is not the case. While saddened by the many negative stories about SARS that have dominated the media over recent years, I really bear no grudges. In fact, when I left SARS on 4 February 2015, the last man I shook hands with was the then newly appointed SARS commissioner, Tom Moyane and I meant it when I wished him well for his future endeavours.

In a strange twist of fate, while I was busy with the final edits of this book, President Cyril Ramaphosa suspended Moyane pending a disciplinary enquiry into various allegations against him. This followed within days after Ivan Pillay, myself and another individual received a summons from the South African Police Service (SAPS) to attend court on 9 April 2018 on a charge by the National Prosecuting Authority (NPA) of my supposedly having allowed a corrupt practice some time ‘between August and September 2008’. Following our first court appearance, the matter was remanded to June 2018, and it’s likely it will be referred to a higher court to a later date. It is, of course, a bogus charge, and one that I will defend vehemently – but these events demonstrate the continually shifting sands of our young and imperfect democracy in the wake of the state-capture revelations of recent years.

What started off as a relatively simple concept to tell multiple short stories, one after another, changed in time to a sequential string of critical events at SARS. In writing these stories, I’ve been somewhat limited by law in providing certain specifics about taxpayers and SARS operations that aren’t in the public domain. I’ve had to dig around in old newspaper reports, court files and public records, and speak to a few old friends. Everything I share in this book is publicly available and verifiable, except where I state otherwise; it has also all been checked by lawyers. I make use of extensive endnotes for those bookworms who may wish to read more about the stories in this book and for legal reasons.

All the cases I worked on were dependent on team work, so while my name may have been made public in my association with these cases, please remember that the outcome was the result of a collective effort.

Johann van Loggerenberg

Foreword

Since 1999, the management of SARS has seen the role of the institution as part of the national effort to make South Africa succeed.

Given South Africa’s location far from the main developed markets of the world, and with its colonial and apartheid history, it was always going to be difficult for us to be successful. Nothing short of a superhuman effort would be required to turn the promise of the negotiated solution of the early 1990s into reality.

Over time, we assembled at SARS a team from diverse backgrounds. We were Africans, Indians, coloureds and whites, with a sprinkling of non-South Africans. We made it explicit that there was a place and role for each one of us in SARS, provided there was commitment to the future of South Africa and to the future of SARS.

Although Johann (known as ‘JvL’ by friend and foe) was never in the national executive of SARS, he was a key participant in the new SARS team. A young former police official, aghast at the iniquities of apartheid, he committed himself to the new South Africa. Among all our staff, he made the most impact on the theory, policy and practice of enforcement. He gathered around him bright and energetic young people who were just as enthusiastic as he.

The SARS management team of which JvL was a part strove for the unity of all staff. We drew into action those who, because of their experi­ence and interests, would not be negatively disposed to the new dispensation.

We quickly withdrew voluntary retirement packages – a poorly designed tool that in fact weakened the public service as it accelerated the departure of the most capable white members of staff. Those who weren’t skilled and knowledgeable enough hesitated to test the market and stayed behind. Thereafter we retained much of the legacy staff, infusing it with new skills, perspectives and knowledge.

Over the next ten years, we succeeded in changing the demographics of SARS without forcing anybody out because of their skin colour, while thoroughly transforming the business of tax and customs.

We were advised early on not to make big technological changes; instead, we focused on changing our processes and bedding them down, stream­lining our organisational structure, and improving our manage­ment capability. It was only from 2008 that we made significant techno­logical changes to our systems.

SARS was reorganised into front offices, back offices and enforcement centres, enabling the standardisation and reengineering of our processes. Jobs were redesigned and levels of work reduced. We created an exciting and formidable institution. We had dyed-in-the-wool public servants for whom SARS was their first and only job. We had other ‘firsts’ – for those who came directly from the liberation struggle, SARS was their first formal employment. Still others were highly successful professionals and managers from the private sector, attracted by the vision of the senior team and its recent track record. Indeed, during that period, it was said that a stay at SARS considerably boosted one’s CV.

At SARS we prided ourselves on our ability to implement and manage. We cared, and we were driven to succeed – we got things done:

As the main channel of revenue to the fiscus, in good faith we did what was ethical for a well-meaning government to be funded. In their book Rogue: The Inside Story of SARS’s Elite Crime-busting Unit, JvL and Adrian Lackay refer to this as SARS’s ‘higher purpose’.

Our lodestar was the compliance philosophy: the basic tenet that, under conducive conditions, most people would do the right thing.

There are three levers that influence compliance behaviour: awareness, making it easy to do the right things and difficult to do the wrong things, and a credible enforcement capability.

Creating awareness was about informing and explaining to people the what, why and how of taxation; the second lever informed the design and management of systems to make compliance hassle-free; and the third lever was well organised and tightly managed so that we were fair to all, efficient and effective. We called this approach ‘breadth, depth and leverage’: we wanted to convey that SARS could reach each and every taxpayer.

When the criminal-justice system began to fail us, we complained, wrote memos and cajoled our counterparts. But we didn’t stop there. We looked for other solutions and we found some of them right under our noses.

We began to place greater dependency on the remedies afforded by civil litigation. To this end, we amended legislation to increase the penalty provisions that we could levy. We sourced people in the required field and we learned. Some of our staff became specialists in insolvency and forfeiture of assets, among other things.

Our experience and our study of the illicit economy suggested that we try to understand it as a business with a value chain of suppliers, transporters, storage and warehousing, sellers, customers, market prices, payment systems, investments, substitutes and competition. Then we identified the crucial points and took actions to disrupt them. As JvL shows in Rogue, by the end of 2013, smugglers and producers of illicit tobacco products were on the ropes.

As I’ve noted, we saw our contribution as our national duty to South Africa. Over and above our normal duties at SARS, we tried to spread a ‘good virus’ from below. We assisted other state entities that pulled us in, including providing the software to Home Affairs for processing entries to and exits from South Africa for the 2010 World Cup, designing the new ID cards, supporting the Department of Health in the Eastern Cape, providing engineers and analysts to the Government Employee Pension Fund, initiating and coordinating the foundational work in researching procurement in state institutions, proposing and designing the Chief Procurement Office, and convening many workshops for public servants over the years that were centred on the SARS experience.

We worked incredibly hard and we were voracious learners. We made mistakes, but we corrected ourselves and steamed ahead. We mixed activism with good implementation skills. Our project-management expertise was tempered with systemic thinking. Above all, we had little tolerance for the dishonest and self-seeking politicking that seemed to permeate other state institutions.

SARS was named a ‘preferred employer’ in South Africa over many consecutive years, and in benchmarking exercises carried out by inter­national institutions, SARS appeared among the top performers in the world in many of the key indicators.i

The facts show that SARS and some of its key officials came under attack from about 2001. From that time onwards, relentlessly, outlandish allegations against the SARS leadership were circulated. These so-called ‘intelligence dossiers’ were usually provided to the media, political parties and ministers of the Government, and very few politicians (of all parties) and senior public servants dealt with the information in a principled manner.

Nonetheless, our quick and thorough responses, including engage­ment with the criminal-justice system, kept the attackers at bay: as long as there was a stable, experienced political leadership of integrity, we at SARS could hold our own.

Over the years, we built up the most capable and feared enforcement capability in the State. Relatively few attempts at penetrating SARS and undermining its integrity succeeded. Indeed, we remained, until 2014, impervious to bribes, threats, political influence and the machinations of intelligence structures that had been infiltrated by criminals.

These disaffected elements, made up of former and existing SARS employees, tax evaders, criminals and political middlemen, naturally began to find each other. Since all attempts to weaken SARS failed, the only remaining solution was for the president to move against the Finance Ministry and place a willing body at the head of the institution. In a matter of just a few months, the new heads managed to rid SARS of its most senior management, replacing them with predominantly non-tax executives of dubious integrity and capability.

The performance of SARS, despite all the propaganda from the new management from September 2014 to the time of writing (November 2017), has not inspired hope or confidence.

When the campaign to target and isolate JvL found some traction prior to the appointment of Tom Moyane, my response was simple: more than once, I said to the seemingly concerned members of staff, ‘When you’re as committed to the South Africa that’s described in our Constitution, and you work as smart and hard as Johann, I’ll take you seriously.’

This book covers some of the key cases in which JvL and his teams were involved, which tested our resolve and our ingenuity, and which in turn enabled us to improve our standards continually. I believe that there are important lessons to be taken from these cases that can inform the rebuilding of SARS and the criminal-justice system of South Africa.

Ivan Pillay

Former deputy SARS commissioner¹

Part 1

Early days

‘Tax evasion, illicit financial flows and transfer pricing are contributors to the tax gap in any country, and the extent to which they’re uncontrolled undermines the fiscal capacity of the various countries.’

– Pravin Gordhan, addressing the Conference on Illicit Financial Flows: Inter-Agency Cooperation and Good Tax Governance in Africa, University of Pretoria, July 2016

1

Tax activists

On 25 August 2016 – the so-called ‘day of the warning statements’ – I found myself sitting on a dodgy chair in a stuffy, gloomy room in Pretoria.

Old tables and chairs, and a dilapidated couch with stuffing sticking out of it, lined the walls of this social room-cum-kitchenette. Yellowing posters with anti-corruption slogans and internal notices were stuck to the walls, some curling up at the edges. An old fridge purred along, and a hot-water urn made a clicking sound as it switched on and off. The windows looked out onto the building next door.

From time to time, people would enter and make themselves a cup of tea or coffee, then walk out again. Some of them I knew well from my time at the South African Revenue Service (SARS) but my attempts at small talk failed repeatedly.

Far away I could hear people singing. One song I recognised clearly was the struggle song ‘Senzeni na?’ (What have we done?).

A few hours before, I, together with former SARS deputy commis­sioner Ivan Pillay and our lawyers, had entered the offices of the Hawks – the Directorate for Priority Crime Investigation, established in 2008 as an independent directorate within the South African Police Service (SAPS) – in Visagie Street. We had a date with what’s known as the Crimes Against the State (CATS) unit of the Hawks, mandated to investigate terrorism, weapons of mass destruction, treason and subversion of our country’s sovereignty.

Pillay was accused of pension fraud and of creating a ‘rogue intelli­gence unit’ at SARS, while I’d supposedly been unlawfully running the so-called rogue unit since 2010 and had involved myself with corrupt payments through a fundraiser for charitable causes. (As revealed in my 2016 book Rogue: The Inside Story of SARS’s Elite Crime-busting Unit, which I co-wrote with Adrian Lackey, all were baseless allegations.)

As we approached the building a crowd awaited us, among whom I immediately recognised human-rights lawyer George Bizos and former constitutional judge and Freedom Under Law civil-rights activist Johann Kriegler. More familiar faces jumped out – those of human-rights activist Francis Antonie of the Helen Suzman Foundation, and Mark Heywood, the founder of Section27, a public-interest law centre promoting human rights. I also recognised Ben Theron and Wayne Duvenage from the Organisation Undoing Tax Abuse (OUTA), some members of Corruption Watch, including David Lewis, and people from other civil-rights groups.

Print, radio and television journalists were all over the place, with flashing cameras and camera crews.

My wife, Nicole, came towards me from the crowd. She took my hand and gave it a tight squeeze. We manoeuvred our way to the front doors, where we were met by an official who took us up to the designated floor where the CATS unit would question not only Pillay and me, but also Finance Minister Pravin Gordhan.

The three of us had been summoned to the Visagie Street headquarters in letters drafted on a Sunday and hand-delivered to our lawyers the following morning. We’d been instructed to appear before CATS on 25 August, for them to take down ‘warning statements’ with regard to their investigation into allegations of a ‘rogue unit’ at SARS, and in Gordhan’s case into his approval of Pillay’s early-retirement package and reappointment at SARS in 2010.

Gordhan, acting on legal advice, had declined to attend. Pillay and I, despite receiving the same legal advice, had decided to go – our situation was different to Gordhan’s, as by then we had left Government.

We were welcomed by a smiling Brigadier Nyameka Xaba, the CATS head. He took us down a corridor to an office, and introduced us to two of his colleagues. They decided to interview Pillay first, and I was shown to the drab coffee room and told to stay put.

I sat there for two hours, waiting to be questioned by people I’d once regarded as fellow civil servants who I thought were also fighting the good fight. And as I sat, I reflected on my 16-year career at SARS and the events that had brought me to this moment in time.

I recalled my very first day at SARS, 17 years before. Back then, SARS had just started its journey from being a mainly administrative institution to a more modern and agile organisation that could serve our new democracy with fresh energy.

Many stories jumped to mind, some of which could provide excellent plotlines for crime thrillers. Most of them made me extremely proud for what we’d been able to achieve with fairly limited resources and an abundance of dedication – even right at the beginning, there were already quite a few big fishes to fry.

Many of the stories I thought of made me smile, although some made me angry and slightly melancholic, especially where our efforts had been thwarted by a lack of cooperation between different state departments or political meddling.

I thought of my former colleagues, some of whom had left SARS, others who’d remained; some had parted ways in less-than-ideal circum­stances, and some had passed away.

Over the years I’d met some truly amazing people at SARS, all part of the vast number of success stories that reflected so well on our country, our Government and our revenue agency.

I resolved that day that no matter what happened, no matter what lay ahead for us, some of the stories would be told, one way or another …

I first joined SARS in late 1998, and a few months later Ivan Pillay, who would go on to become deputy commissioner, was appointed general manager: Special Investigations. We had many planning ses­sions and meetings about different aspects of the institution that then Finance Minister Trevor Manuel, his deputy, Jabu Moleketi, and SARS commissioner Pravin Gordhan and his executive believed were achievable. (Pravin Gordhan joined SARS as deputy commissioner in 1998, and became commissioner in 1999.)

It was customary for Pillay to convene working sessions and meetings on weekends, when we were free from our daily work responsibilities. In some cases, these meetings were formal and related to our work; in others, they were simply broad discussions around strategy and planning. One of these meetings happened to take place at a nursery near Pillay’s home on a Saturday morning. It was here that I first heard the term ‘economic transformation’, when Pillay explained how SARS was playing a pivotal part in the newly formed democratic government.

In his usual soft-spoken manner, pausing often to find the right words, he told us that while political freedom might have been achieved in South Africa in 1994, the struggle was nowhere near over. There was still much to be done, he said, and it would take many years, probably well beyond the lifetime of some of us at that meeting, to achieve genuine economic freedom.

Pillay said the political changes may have brought constitutional order, equality, human rights and political freedom, but that the lives of the black majority hadn’t changed overnight. We should remember that those people who’d lived in South Africa during apartheid, both victims and beneficiaries of the regime, hadn’t just disappeared on the night after the first democratic elections. South African society would feel the structural, psychological and economic effects of apartheid for many years to come.

SARS could help to ensure that South Africa became economically free from having to rely on outside donors and borrowing, Pillay told us, and at the same time become self-sufficient and able to fund the respective programmes Government wanted to implement to develop society. Tax was part of achieving this goal.

The idea that SARS employees were activists in striving for a better South Africa was being established. If SARS achieved its targets, the Government could fund its own initiatives, more grants could be paid to the destitute, more homes, schools, clinics, hospitals and police stations could be built, more state officials could be trained and deployed, municipal services could be expanded, electricity and water could be provided to people who’d never had access to these services, and, as a result, job opportunities and economic growth could be created.

While this is a slight oversimplification of the system and how eco­nomics works, it basically meant that if SARS could collect enough money per year, as required by Government, not only would citizens benefit from it, but our economy would grow and bring us closer to fiscal sovereignty. I think we all understood the importance of this.

While the governmental system had to be modernised and adapted to the times and the needs of all South Africans, neither Pillay nor Gordhan wanted to throw the proverbial baby out with the bathwater when it came to SARS employees. They recognised that many of the ‘old order’ employees had years of technical expertise and experience, and they didn’t want to lose that capacity. In time, they began to identify those who’d embraced the political changes and wanted to contribute to our new democracy. There were instances where heads bumped, and a few dug in their heels and used every trick to frustrate and hamper change at SARS, but the vast majority moved forward to help make SARS a better institution.

In those early years we were inspired not only by the philosophy of individuals like Pillay but also by the leadership of Manuel, Moleketi and Gordhan.

Manuel had instituted what became informally known as ‘Monday mornings’, at which the SARS executive briefed him on matters of importance. The ‘Monday mornings’ practice would continue for many years, through the period when Gordhan was finance minister and Nhlanhla Nene deputy minister, and when the latter ultimately became minister. He was a hard taskmaster, but fair. He always wanted us to do better.

I started attending some of these meetings, usually just to sit in and be ready with details of particular matters if required. I distinctly recall my first such meeting. Manuel had expressed concern about the unscrupulous practice of using industrial alcohol to manufacture very cheap brands of consumer-alcohol products and selling these off to unsuspecting buyers – industrial alcohol is poisonous and can cause tremendous damage to the liver and other vital organs. Manuel knew everything there was to know about these ‘poisoned alcohol’ cases, from the brand names and selling prices to where they were being distributed. The practice was on the rise, and Manuel wanted us to do everything we could to track down those behind it and bring them to book.

I was tasked to brief him on our progress in these cases. We’d managed to identify and investigate the primary role-players in this racket – but Manuel wanted more, and he wanted it soon. That’s how he was – in touch with what was happening in our country, aware that SARS could play a role in many areas that were troubling our land, and impatient when we took too long to catch the crooks.

The other thing that struck me that day was the man’s focus. It was incredible. He’d had a long meeting the evening before; he was always in early and he’d probably had very little sleep. At times, as I continued with my briefing, he would close his eyes – I could see he was dead tired. Wondering if he’d fallen asleep, I hesitated for a second or two – and he instantly opened his eyes, looked straight at me and began firing off questions.

Gordhan was the same in many respects. Both men didn’t suffer fools, didn’t waste time and abhorred any form of corruption, no matter how small. Both had the rare capacity to deal with the big picture, the long-term aspects, issues that span lifetimes, strategies and tactics; and then, in