Evidence emerges of PP's meetings with SSA and Presidency - SARB

Supplementary affidavit says documents show Busisiwe Mkhwebane's remedial action had an ulterior purpose


CASE NO 52883/2017

In the matter between :



PUBLIC PROTECTOR – First Respondent



ABSA BANK LIMITED – Fourth Respondent

MINISTER OF FINANCE – Fifth Respondent

NATIONAL TREASURY – Sixth Respondent


I, the undersigned,


do hereby make the following statements under oath:

1 I am an admitted advocate of the High Court of South Africa. I hold the position of General Counsel in the Legal Services Department of the South African Reserve Bank, the applicant in this application.

2 I am duly authorised to represent the Reserve Bank in this application and to depose to this affidavit on its behalf. I deposed to the founding affidavit in this matter.

3 The facts to which I depose are within my personal knowledge except where it is apparent from the context that they are not.

4 The submissions of law I make in this affidavit are made on the advice of the Reserve Bank's lawyers.


5 This affidavit is filed pursuant to the provisions of Uniform Rule 53(4) and the Deputy­ Judge President's directive issued on 1 August 2017. The directive requires that this supplementary founding affidavit be filed on 11 September 2017. The Reserve Bank will meet that deadline and file this affidavit on 11 September 2017 despite the fact that the record of proceedings provided by the Public Protector is woefully incomplete, confused and indecipherable in parts. I set out below, the challenges that the Reserve Bank has faced in obtaining a proper and complete record from the Public Protector.

6 The Public Protector produced the record of proceedings on 16 August 2017, in respect of the non-confidential record and 22 August 2017, in respect of the confidential record. The record was not accompanied by a detailed index. Since the filing of the record, there has been extensive correspondence between the Reserve Bank's lawyers and the Public Protector's lawyers about the deficiencies in the record. I attach copies of that correspondence in chronological order as "SFA 1".

7 The nub of the correspondence is that there are numerous omissions from the record filed by the Public Protector. These omissions relate to documents that I had already identified, in the founding affidavit to this application, are relevant and ought to have been included in the record. This includes transcripts of the interviews held with Mr Goodson and the State Security Agency after comments were received from affected parties on the preliminary report. By the time of finalising this affidavit, the repeated requests to the Public Protector to supplement the deficient record with these, and other documents, had still not been answered.

8 The correspondence also reveals that the Reserve Bank took issue with the claims of confidentiality over some of the documents in the record. This was finally resolved with the Public Protector, on 5 September 2017, when she waived any confidentiality over these documents.

9 The record also lacks a detailed index. It is not possible for parties seeking to review the decisions of organs of state intelligibly to understand a record of proceedings without an index to it. The Reserve Bank therefore made requests for an index to be provided. Although there were promises from the Public Protector's lawyers that this would be forthcoming, no index had yet been provided by the time this affidavit had to be finalised.

10 The Reserve Bank has therefore been severely prejudiced in its ability to supplement its case on review after consider tion of the record. The record is incomplete and unclear in many respects. This supplementary founding affidavit has therefore been prepared on a provisional basis and with a full reservation of rights to further supplement the founding affidavit in the event that the missing documents are provided in due course and a proper index is provided so that the nature and origins of certain documents become clear.

11 Despite these glaring deficiencies, the record of proceedings does disclose two additional grounds of review and provide further support for the review grounds already advanced in the Reserve Bank's founding affidavit. I shall deal with each of these in turn below.

New grounds of review

Bias, ulterior purpose and procedural unfairness

12 The Public Protector's record includes notes of a meeting held on 7 June 2017 with the Presidency's legal advisers. These notes were originally included in the confidential section of the record, but given that the Public Protector has now waived any claim of confidentiality for this document, I am attaching it as ""SFA 2".

13 The record also shows that by this date, the Public Protector had vastly expanded the reach of her investigation. She had interviewed Mr Goodson and met with the State Security Agency. Although, as I highlighted above, the record does not include transcripts of these interviews, the record does include correspondence both before and after the meetings were held, as well as handwritten notes of the meetings.

14 By 7 June 2017, the Public Protector was clearly considering remedial action aimed at expanding the reach of an SIU investigation into the CIEX report. It was also clear that by this stage, she was considering remedial action aimed at amending the Constitution to deprive the Reserve Bank of its constitutionally entrenched power to protect the value of the currency.

15 7 June 2017 was twelve days before the Public Protector issued the Report.

16 The record therefore reveals that twelve days before the Public Protector issued her final report she had a meeting with the President's legal advisors. The notes of this meeting appear to comprise eight pages. They are annexure "SFA 2".

17 The notes appear to have been written by the Public Protector herself.

18 The first page of the notes deals with the CIEX report and the Public Protector's remedial action to direct an SIU investigation against various institutions mentioned in the CIEX report and recovery of R1.125 billion from ABSA. It also deals briefly with the state of capture litigation.

19 The next three pages appear to be a summary of Dr Stals's evidence before the Tollgate enquiry and his interview with the former Public Protector on 8 September 2016.

20 The last four pages of the notes appear to record the interview with Mr Goodson. I make this assumption because of the references in the notes to "SG" and "PP", which appear to be references to Mr Stephen Goodson and the Public Protector. The notes refer to remedial action to change the Constitution and the consequences of a state bank.

21 It is unclear whether all 8 pages are notes from the meeting with the Presidency's legal advisors or whether the note of that meeting is confined to the first page. This would have been clarified, had a proper index been provided with the record. Unfortunately, none has been forthcoming.

22 I shall therefore have to deal with these eight pages in two different ways. The first will assume that the subject matter of the meeting with the Presidency covered all the issues referred to in the full eight pages. The second will assume that only the first page reflects the subject matter of the meeting with the Presidency.

23 Before I address each of these alternatives, it is important to place this meeting in context.

24 The meeting with the Presidency on 7 June 2017 took place after the Reserve Bank had responded to the Public Protector's preliminary report. It occurred after the Public Protector, without notice to the Reserve Bank, decided substantially to change the focus and remedial action of her investigation. By this stage, the Public Protector's aim was to amend the Constitution to deprive the Reserve Bank of its independent power to protect the value of the currency and to direct the SIU to investigate all the CIEX claims, as well as to recover over a billion Rand from ABSA.

25 The meeting took place without any similar meetings being held with the other parties affected by the remedial action.

26 The meeting was convened between the Presidency and an institution, the Public Protector, which is constitutionally required to be independent and to conduct its investigations impartially and without fear, favour or prejudice.

27 If the subject-matter of the meeting covered all eight pages of annexure "SFA 2", then it was highly irregular. The meeting traversed the Public Protector's proposed remedial action to amend the Constitution to deprive the Reserve Bank of its role in protecting the value of the currency. This is an aspect of the remedial action that had nothing to do with the Presidency. There is no legitimate basis on which this ought to have been discussed with the Presidency. The Public Protector is required under section 181 of the Constitution to conduct her investigations independently and impartially. Discussing these aspects of the report with the Presidency destroys that independence.

28 If the subject-matter of the meeting covered only the matters reflected on the first page of annexure "SFA 2", then the meeting was procedurally unfair and evidence of bias on the part of the Public Protector. After the Public Protector had decided substantially to change the remedial action of her preliminary report, she was required to give affected parties an opportunity to comment on the new remedial action. The Public Protector did not provide this opportunity to anyone other than the Presidency. To give an opportunity for comment to one party but not to others is inconsistent with the Public Protector's obligation to conduct her investigations impartially. It is also evidence that the Public Protector considered it necessary to consult the Presidency, to the exclusion of others. Such conduct compromises the independence of the Public Protector.

29 The Public Protector was also not frank about disclosing the fact of this meeting in the Report. At paragraph 4.4.3 of the Report, the Public Protector lists the interviews conducted and the meetings held during her investigation. The list includes the meeting with the Department of State Security and Mr Goodson. Both of these meetings took place after comments had been submitted to the Public Protector on the preliminary report. The list does not include the meeting with the Presidency on 7 June 2017. This is a glaring omission. A meeting with the Presidency to discuss the new remedial action in her final report was a material event in the investigation.

30 There is a further document in the record which seriously calls into question the Public Protector's impartiality in this investigation. This is a file note of a meeting with "SSA" on 3 May 2017. I take this to be a reference to the "State Security Agency". This note was also originally included in the confidential section of the record but I attach it here as "SFA 3" because the claim of confidentiality has been waived.

31 In this note, there is a section dealing with the Reserve Bank in which the following question is posed "how are they vulnerable?". As I have set out above, the Public Protector has not included a transcript of the meeting with the State Security Agency in the record. This is a material omission. Nonetheless, the note appears to indicate that one of the matters discussed at the meeting was the vulnerability of the Reserve Bank.

32 It is unclear on what possible basis the vulnerability (and vulnerability to whom) of the Reserve Bank was relevant to the Public Protector's investigation into the CIEX report.

33 The fact that this topic was even discussed with the State Security Agency indicates that the Public Protector's investigation was aimed at undermining the Reserve Bank. It also indicates that by May 2017, the investigation had turned from the question whether the government had implemented the CIEX report to an attack on the Reserve Bank.

34 This attack is evidence of bias or at least a reasonable apprehension of bias on the part of the Public Protector. It also shows that her remedial action had an ulterior purpose.

35 These are serious accusations to make against the Public Protector. I do not make them lightly. I have been hampered in my ability to understand the documents in the record because they have yet to be properly identified by the Public Protector. I have therefore proceeded cautiously in this section of the affidavit to explain what the documents appear to show. Given the seriousness of these allegations, I respectfully call on the Public Protector to deal with each any every averment set out above when she files her answering affidavit in this matter.

36 It is also incumbent upon the Public Protector to provide a copy of the full transcript of the meeting with the Presidency on 7 June 2017. This is another conspicuous omission from the record. I invite her to cure this deficiency when she files her answering affidavit.

37 In the event that no transcript exists of the meeting then I call on the Public Protector to explain why no recording was made of the meeting. It is standard practice for the Public Protector to record the meetings she conducts with interviewees during an investigation. Accordingly, if no recording was made of this meeting the Public Protector must explain why the meeting with the Presidency was different.

38 In the event that "SFA 2" and "SFA 3" show what I have set out above, the Public Protector's remedial action ought to be reviewed and set aside on the basis that:

 38.1 It was taken for an ulterior motive or purpose.

38.2 The Public Protector was biased or reasonably suspected of bias.

38.3 It was procedurally unfair.

39 These grounds of review are covered by sections 6(2)(e)(ii), 6(2)(a)(iii), 6(2)(c) of PAJA and the principle of legality.

Separation of powers

40 The record also discloses a further ground of review.

41 In its interactions with the Public Protector through-out this investigation, the Reserve Bank was at pains to explain the role that central banks play as the lender of last resort. The Constitution gives the Reserve Bank the power to act as a lender of last resort. Section 225 gives it all the powers and functions customarily exercised and performed by central banks. One of these functions is to act as the lender of last resort to prevent financial instability in the banking sector. The power is a discretionary one. It must be exercised with skill and care by people with expertise in financial matters. It is also a wide power, to step in as lender of last resort when, in the expert opinion of the Bank, the situation demands it.

42 The discretionary nature of the power given to the Reserve Bank means that other organs of state, such as the Public Protector, ought not lightly to interfere with its exercise. The Public Protector's mandate is not to second-guess the expert determinations of the Reserve Bank. Her mandate is to pursue maladministration in the functioning of organs of state.

43 When she exercises this power, she must do so with a respect for the proper province and expertise of the organs of state that she investigates. In the case of the Reserve Bank, this involves giving due deference to the expertise within the Bank that were exercised when its stepped in to provide financial assistance to Bankorp.

44 The Public Protector's remedial action requires the SIU to now pursue recovery of over a billion Rand of interest that was allegedly earned by Bankorp and, later ABSA, on the financial assistance package and which was used to discharge the liabilities of Bankorp. The money was lent to Bankorp and then to ABSA as an exercise of the Reserve Bank's power to act as lender of last resort. There is nothing unusual or sinister in a central bank acting in this manner to ensure financial stability. It is a power commonly exercised by central banks around the world. The Public Protector established no basis that the exercise of this power by the Reserve Bank was unlawful.

45 The Public Protector's report shows no appreciation of this fact. On the contrary, her remedial action is premised on the fact that she has herself determined that the financial assistance was irregular. The Public Protector's record also fails to contain any credible basis on which the Public Protector could second-guess the Reserve Bank's decision to step in during 1985 to prevent the failure of Bankorp. It is not within the powers of the Public Protector to second-guess this highly polycentric decision of the Reserve Bank more than three decades ago. Her remedial action ought, accordingly, to be set aside under sections 6(2)(a)(i) and 6(2)(f)(i) of PAJA and section 1(c) of the Constitution.

Support for the existing grounds of review

Irrational investigation of the Cf EX report

46 In paragraphs 94 to 96 of the founding affidavit, the Reserve Bank deals with the irrationality of paragraph of the Report which requires the SIU to approach the President to amend the Heath Proclamation to investigate misappropriated funds from various institutions mentioned in the CIEX report. The founding affidavit shows that the claims in the CIEX report are vague and unsubstantiated and that using public funds to investigate them now would be irrational.

47 The record shows that the Public Protector was told at various stages of her investigation about the unreliability of the Ciex Report.

48 In her meeting with Trevor Manual on 31 May 2016, Mr Manuel states the following with regard to the Ciex Report:

"... So I want to refer to it as a document, not a report and I want to explain why? Because I think Madam PP, a report must have ... must adhere to certain requirements in normalcy of reports".

"And then this person whose information is ... whose skill set is that of a spy, says:

It is incontrovertible that payment over period of time would pose no risk to either the bank or the system."

49 Copies of these excerpts of the interview are attached as "SFA 4".

50 On 22 March 2017, Former President Mbeki had this to say about the Ciex Report:

"At some point a decision was taken that this man was playing games with us, he was not bringing in any money and there was no likelihood that he was going to bring any money, and we were paying him, at least SASS was paying him, and therefore let us terminate this thing because it is not going to go anywhere".1 [File 4, page 5 of the interview with Thabo Mbeki.]

51 A copy of this excerpt from the interview with Former President Mbeki is attached as "SFAS".

52 These interviewees made it plain to the Public Protector that the CIEX report ought not to be pursued. Against those clear warnings, her decision to order the SIU to investigate the CIEX matters is even more inexplicable. It lacks any rational foundation and was clearly taken without considering relevant considerations. It therefore ought to be reviewed and set aside under section 1(c) of the Constitution and sections 6(2)(f)(ii)(cc) and 6(2)(e)(iii) of PAJA.

Procedural unfairness

53 In the founding affidavit, the Reserve Bank challenges the Public Protector's remedial action on the basis that it was procedurally unfair. The allegations of unfairness included the following:

53.1 The preliminary report did not contain the remedial action that appeared in the Report issued on 19 June 2017. The effect of this is that none of the parties were given the opportunity to comment on it.

53.2 The Public Protector indicated in her interview with Dr Stals on 8 September 2016 that she was not investigating the issue of interest yet that is precisely what the Report makes a finding on.

53.3 After parties submitted their comments on the preliminary report, the Public Protector conducted two further interviews with the Department of State Security and Mr Stephen Goodson. The Reserve Bank was not given an opportunity to comment on the input from either of these interviewees.

54 The record indicates that there was a further procedural unfairness in the process leading up to the final report. I have touched on this in the first new review ground above. To the extent that the Public Protector gave the Presidency an opportunity to comment on the newly revised remedial action in a meeting on 7 June 2017, she failed to afford this opportunity to the other affected parties. Her final report was therefore the product of a procedurally unfair process and ought to be set aside under section 6(2)(c) of PAJA or section 1(c) of the Constitution as being procedurally irrational.

WHEREFORE, the Reserve Bank persists in seeking an order in terms of the notice of motion on the additional grounds set out above.

Signed 12 September 2017

Issued by the SARB, 12 September 2017. The original document, including annexures, can be found here