Sarb concludes Phala Phala investigation: Now what?

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FIFI PETERS: The score can be tallied as 4‑0 in favour of President Cyril Ramaphosa right now when it comes to the Phala Phala matter and whether he breached any laws related to the US$580 000 in cash that was stolen from his farm. In December last year, you’ll remember the ANC prevented an impeachment probe from happening. Sars then declared President Ramaphosa tax compliant. The acting public protector said her office also found no evidence of wrongdoing on the part of the president, and today the South African Reserve Bank said it could not conclude that the president had broken any foreign exchange laws after it wrapped up its year-long investigation into the matter.

Read: Sarb says it can’t conclude Ramaphosa broke forex rules

We’ve got Carryn Alexander, a partner at Webber Wentzel, for more on this. Carryn, thanks so much for your time. The South African Reserve Bank today issued a two-page letter on the matter, saying it couldn’t disclose the full report but rather went to disclose its findings. Just your take on what the statement had to say?

CARRYN ALEXANDER: Yes. Good evening, Fifi, and good evening to your listeners. I’m actually quite shocked. I’m left a bit speechless. As many of your listeners have read, the report is a summary of their findings. They said that they cannot give the full report due to legislative confidentiality constraints – [and] I’m assuming that they are relying on the Promotion of Access to Public Information Act to rely on only giving the summary of their findings.

But then what their findings are, are that they said they actually cannot find any violation of the exchange control regulations that were committed, owing to the fact that the transaction was not perfected. In other words, there was no legal entitlement to the foreign currency that was found in the furniture on the farm. I find that interesting for a couple of reasons.

One reason is that I’m interested to see the full report because the regulations actually do contemplate contingency entitlement.

Now, the reason why they say that the transaction wasn’t perfected is because they said that there were certain conditions precedent that weren’t met for the transaction to be successfully concluded. In other words, the sale did not go through.

But the regulations do actually contemplate contingency entitlements, and they say that the person who receives the foreign currency – or is contingently entitled or actually entitled to receive foreign currency – is not allowed to do anything to prevent the contingency from actually eventuating unless it receives approval from Treasury to do so.

So I’m interested to see the full report or hear what the full report says on this because I find the investigation conclusion a bit wanting [in] its conclusion.

The second thing is from a tax perspective – which you know is my speciality – I drafted an article that a colleague of mine and I co-authored, and we issued it based on the fact that we had this constitutional ruling which allowed the probing into Jacob Zuma’s tax records. And the basis of my article was to say it may have more consequences for our current president than our previous president.

Read: Absolute confidentiality of tax records lifted, somewhat

Why I say we need to consider this from a tax perspective is because everyone has been looking – and when I say everyone, I say Sars, the Sarb and the public protector – to [President] Cyril Ramaphosa or the Ntaba Nyoni Estate as the company, but has not actually looked at the real legal owner of the farm, which is the trust.

Although the commissioner confirmed that there’s no issue with the tax records of our president and the Ntaba Nyoni Estate company, they did not confirm that the trust – which is a separate legal person for tax purposes – whether its records are compliant.

But to that end, even if there was no legal entitlement for the foreign currency that was found on the farm, the question is how the money ended up there. Why did it get there?

But also from a tax perspective, how you get taxes on an amount that is received or accrued, the earlier of a receipt or accrual of an amount is taxed in South Africa. So even if there was no legal entitlement to the amount that was received, this foreign currency that the Sarb is now saying or alleging, then of course there would not be an accrual.

But for a receipt, a tax receipt, all that needs to be present is the intention of receiving the amount for your own benefit. So if we can say that there was both an understanding of whoever gave this money for the transaction and [President] Cyril Ramaphosa or the trust accepting the money for the intention of benefiting from such money, then it should have been declared either by the trust or by [President] Cyril Ramaphosa himself.

So it’s very interesting, I must say. I hope to see that people will actually dispute this allegation that they cannot produce the full report because it has left a lot of questions – more questions than before.

FIFI PETERS: Yes. I think you’ve left a whole lot of us with quite a lot more questions, based on your analysis of the matter. But what you’ve also just implanted in our minds – my mind at least – is the fact that this story is far from over. You did touch on the possible dispute that could come, particularly [as to] the South African Reserve Bank’s decision to not disclose the full report.

Read: Phala Phala: Public Protector clears Ramaphosa

Whom do you reckon it will likely come from, and how do you reckon that fight will go down in terms of the Reserve Bank’s possible chances of keeping it [undisclosed], as is its desire right now?

CARRYN ALEXANDER: Look, if it doesn’t come from the media, it will definitely come from the political parties and maybe the DA, being the number one party, to try and get more details on this report. And I think that there is merit to request the full report. If you looked at the recent constitutional ruling on the public interest override, I think that it applies in this case.

The judge in that matter pointed out that serious criminality undermines the values of the Constitution – just as serious and imminent as an environmental or health risk poses a higher level of threat to the populace.

So I definitely think that there is a legal basis to effect the public interest override if it is that the Sarb is relying on the Promotion of Access to Information Act. And my guess is either on the media or one of the big opposing political parties.

FIFI PETERS: What do you make of the research process, though – the South African Reserve Bank telling us it took about a year, they looked at around 15 affidavits, there were dozens of documents running into the hundreds of pages that they had to go through, and they interviewed a significant amount of individuals in the matter. Just your take on the investigative methodology, as it were, and whether you reckon it was sufficient.

CARRYN ALEXANDER: If it is the truth – and I’m not implying that the Sarb is by any means trying to allege what sort of process they undertook in getting to this conclusion – I just find it weird and odd that you would go through such an extensive investigative process if there was a written legal agreement underlying this transaction, and it was clear that some of these conditions precedent were not met. Why did it take so long for this conclusion to come out?

Read:
Sars finds no record of Phala Phala buyer’s $600k
Many compliance questions remain in Phala Phala dollar saga
Ramaphosa says R9.8m was innocently hidden in game farm sofa

So yes, to just reiterate, I’m not saying that the investigative process they say they undertook didn’t happen. I just find the conclusion very odd. For me, I would’ve expected more reasons and not just the conditions precedent not being fulfilled.

FIFI PETERS: Carryn, thanks so much for that. I think you have given us a great perspective on this matter. And, as I said, it just left a lot of us with the impression that the story is far from over.

But we’ll have to leave it there, ma’am. Carryn Alexander is a partner at Webber Wentzel.