STATEMENT BY MINISTER OF FINANCE
24 AUGUST 2016
I confirm that on 22 August 2016, my attorneys received a letter from the Directorate for Priority Crime Investigations (“the HAWKS”) requesting that I present myself at their offices on 25 August 2016, at 14h00 in order that a warning statement may be obtained from me.
The letter from the HAWKS is attached. I have since taken legal counsel and my response through my attorneys to the letter by the HAWKS together with my statement are attached.
I am advised that I am under no legal obligation to present myself to the HAWKS as directed in their letter. I have decided not to do so for the following considerations:
1. I was advised in no uncertain terms by the Head of the HAWKS, General Ntlemeza, in his letter of 20 May 2016, in response to my attorney’s enquiry, that I am not a suspect in the HAWKS’ investigation.
2. I have provided a comprehensive account of matters which the HAWKS had raised in their 27 questions on 18 May 2016.
3. I am advised by my legal team that the assertions of law made by the HAWKS in their letter of 21 August 2016 are wholly unfounded on any version of the facts.
There are two matters raised by the HAWKS and these are contravention of the National Strategic Intelligence Act, 39 of 1994 (“the Intelligence Act”) as well as Sections 34 and 81 (2) of the Public Finance Management Act, 1 of 1999 (“PFMA”).
These alleged contraventions are dealt with in detail in my attorneys’ attached letter. Suffice it to say they advise that the alleged charges are wholly unfounded.
I therefore, do not intend to present myself for a warning statement for many considerations, both legal and given my other commitments. I remain committed to assist the HAWKS in any bonafide investigation as stated in my statement.
I have a job to do in a difficult economic environment and serve South Africa as best I can. Let me do my job.
Issued on behalf of the Ministry of Finance, 24 August 2016
Text of letter from Hawks to Pravin Gordhan, 21 August 2016
Reference: Brooklyn CAS 427/05/2015
Enquiries: Maj Genl MS Ledwaba
THE HEAD: ORGANISED CRIME
DIRECTORATE FOR PRIORITY CRIME INVESTIGATION HEAD OFFICE
Gildenhuys Malatji Attorneys
Harlequins Office Park
164 Totius street
[Stamped received 2016-08-22]
CONTRAVENTION OF PUBLIC FINANCE MANAGEMENT ACT, 1999, PREVENTION OF THE CORRUPT ACTIVITIES ACT, 2004 AND CONTRAVENTION OF NATIONAL STRATEGIC INTELLIGENCE ACT, 1994,ET AL:BROOKLYN CAS 427/5/2015
1. Kindly be advised that the above investigation is complete and your client Mr Pravin Gordan is hereby requested to give his version onthe allegations as outlined here under in the form of warning statement.
2. The information at our disposal at the moment is that he in his capacity as then Commissioner of SARS and Minister of Finance,
- approved that then Deputy Commissioner of SARS, Ivan Pillay could take early retirement at the age of 56 with full retirement benefits from the GEPF with effect from 1August 2010 and that his employer, SARS should pay his early retirement penalty to the amount of R1 258 359 99 despite the early retirement being for personal considerations of the employee, when ordinarily the employee must pay the early retirement penalty in terms of the law.
- approved that then Deputy Commissioner of SARS, Ivan Pillay be reappointed or retained in the same capacity as Deputy Commissioner and the same cost to SARS as his current package on contract basis for a period of three (3) years on the same day, 1 August 2010, that he goes on early retirement.
- he facilitated the creation of a structure within SARS under the leadership of Janse van Rensburg which gathered , collected, evaluated, correlated intelligence contrary to section 3 of the National Strategic Intelligence Act 39 of 1994
CONTRAVENTION OF PUBLIC FINANCE MANAGEMENT ACT, 1999, PREVENTION OF THE CORRUPT ACTIVITIES ACT, 2004 AND CONTRAVENTION OF NATIONAL STRATEGIC INTELLIGENCE ACT, 1994, ET AL: BROOKLYN CAS 427/5/2015
3. It must be brought to his attention that the abovementioned actions amount to unauthorised expenditure in terms of sections 1 and 34 of the Public Finance Management Act 1 of 1999 and/or fruitless and wasteful expenditure in terms of sections 1 and 81(2) of the Public Finance Management Act 1 of 1999 and to corruption in terms of sections 3, 4 and/or 10 of the Prevention of Corrupt Activities Act, Act 12 of 2004 and section 3 of the National Strategic Intelligence Act 39 of 1994.
4. Kindly secure your client Mr Pravin Gordan to meet Brigadier Xaba for a warning statement without fail on the 25th August 2016, at 14:00,office number 240, second floor, General Piet Joubert Building, 218 Visagie street, Pretoria,.
DIRECTORATE FOR PRIORITY CRIME INVESTIGATION
HEAD: ORGANISED CRIME
Date 21 August 2016
Text of Gordhan’s written statement to the Hawks, 23 August 2016
DRAFT STATEMENT OF MINISTER PRAVIN GORDHAN
1. I make this statement in response to the request for a "warning statement" made by Major General Ledwaba of the Directorate for Priority Crime Investigation in her letter of 21 August 2016. As Iunderstand the letter, Iam required to deal with two issues. The first is my role as the Commissioner of SARS in the establishment of an investigation unit in 2007. The second is my approval, as Minister of Finance, of Mr Ivan Pillay's early retirement and re-appointment to SARS in early 2010.
2. Ishall deal with both these matters. I am advised that my conduct was at all times entirely lawful. Iwill however not address matters of law because Ihave requested my attorneys to do so.
THE SARS INVESTIGATION UNIT
3. I was the Commissioner of SARS from November 1999 until May 2009 . I was Minister of Finance from May 2009 to May 2014, Minister of Co-operative Governance and Traditional Affairs from May 2014 to December 2015 and again Minister of Finance from December 2015.
4. Your questions relate to an investigation unit in SARS. This unit was part of the broader enforcement division of SARS - similar to the enforcement capabilities required in any tax and customs administration in the world. In the South African societal and economic context, SARS had developed a compliance approach which consisted of good service to the compliant taxpayers, increased education about the importance of paying tax to those entering the economy, and different types of enforcement being utilised on the non-compliant taxpayers depending on the level of non-compliance. Non-compliance could include non-submission of a tax return, incorrect information on a tax return, different types of debt collection, aggressive tax avoidance, abuse of trusts, tax evasion, smuggling across borders, cigarette and other forms of illicit trade, trafficking of drugs, round-tripping to avoid excise duties and VAT etc.
5. A few thousand staff could be engaged in these forms of enforcement activity.
Enforcement actions are more effective when they are guided by go.ad risk assessments and information from various stakeholders. Relatively few staff are engaged with risk assessments - some twenty-odd in the instance of the unit in question.
6. The unit did not initially have a name but was later successively known as the Special Projects Unit, the National Research Group and the High-Risk Investigations Unit. I participated in the decision to establish the Unit in February 2007. The manager of the Unit reported to Mr Ivan Pillay in his capacity as General Manager: Enforcement and
Risk. Mr Pillay in turn reported to me for as long as I was Commissioner of SARS until May 2009.
7. I believed that the Unit was lawfully established to perform very important functions for and on behalf of SARS. As far as I was aware, the Unit lawfully performed its functions. If it or any of its members engaged in unlawful activities then they did so without my knowledge or consent.
8. SARS was established by the South African Revenue Service Act 34 of 1997.
Section 3 provides that its objectives are "the efficient and effective (a) collection of revenue; and (b) control over the import, expert, manufacture, movement, storage or use of certain goods" including those subject to customs and excise duty.
9. Section 4(1)(a) of the SARS Act provides that SARS must "secure the efficient and effective, and widest possible, enforcement" of the tax laws listed in Schedule 1. Those tax laws have always vested SARS with wide powers for the investigation of tax matters including the investigation of crimes with tax implications. The wide scope of these powers is apparent from:
- sections 4 and 4A to 40 of the Customs and Excise Act 91 of 1964;
- sections 74 and 74A to 740 of the Income Tax Act 58 of 1962 (before its amendment by the Tax Administration Act);
- sections 57 and 57A to 570 of the Value-Added Tax Act 89 of 1991 (before its amendment by the Tax Administration Act); and
- sections 40 to 66 of the Tax Administration Act 89 of 1991..
10. SARS has thus always had its own investigation and enforcement units engaged in a wide range of investigations including criminal investigations with tax implications.
11. The Unit was established against the background of government's commitment to crack down on crime generally and organised crime in particular. President Mbeki mentioned this commitment in his state of the nation address on 9 February 2007 when he said that government would, amongst other things,
"• start the process of further modernising the systems of the South African Revenue Services, especially in respect of border control, and improve the work of the inter-departmental co-ordinating structures in this regard;
• intensify intelligence work with regard to organised crime, building on the successes that have been achieved in the last few months in dealing with cash-in-transit heists, drug trafficking and poaching of game and abalone".
12. It became apparent to SARS that it had to enhance its capacity to gather intelligence of and investigate organised crime. It decided in about February 2007 to set up the Unit to penetrate and intercept the activities of tax and customs related crime syndicates. Its initial intention was to employ and train the members of the Unit and then to transfer them to the NIA where they would continue to function as a unit dedicated to SARS. The NIA, however, lost appetite for the project as a result of which SARS decided to retain the Unit within its Enforcement Division.
13. Iwas, in my capacity as Commissioner, the chief executive officer of SARS. Its staff complement at the time was about 15 000. The Unit with a staff complement of only 26 odd, was a miniscule part of SARS. My knowledge of its establishment, functions and operations was consequently very limited. Your questions moreover enquire about events of many years ago. My recollection of the detail of those events is inevitably patchy.
14. Ifirmly believed at all times that the establishment of the Unit was an entirely lawful extension of SARS's long-standing capacity to investigate tax-related crime. Istill hold that belief and am advised that those who contend otherwise are mistaken.
MR PILLAY'S EARLY RETIREMENT AND RE-APPOINTMENT
15. Mr Pillay took early retirement and was re-appointed when I was Minister of Finance. Iseem to recall that it happened in early 2010.
16. The then Commissioner of SARS, Mr Oupa Magashula, addressed a memorandum to me on 12 August 2010, seeking my approval for Mr Pillay's early retirement and re- employment on a fixed term contract. I was told that Mr Pillay sought in this way to gain access to his pension fund to finance the education of his children. I understood that Mr Magashula had established from enquiries made with the Department of Public Service and Administration that the terms of Mr Pillay's early retirement and re- employment were lawful and not unusual. I approved Mr Magashula's proposal because I believed it to be entirely above board and because I thought it appropriate to recognise the invaluable work Mr Pillay had done in the transformation of SARS since 1995.
17 Ihave nothing further to say in relation to these matters. If the Hawks however require any further assistance in good faith, I would be happy to assist.
Minister of Finance 23 August 2016
Letter from Gildenhuys Malatji attorneys to Major General MS Ledwaba, The Head: Organised Crime, Directorate for Priority Crime, 24 August 2016
Dear General Ledwaba,
IN RE: MINISTER PRAVIN GORDHAN
1. We act for Minister Pravin Gordhan. He has asked us to respond to your letter dated 21 August 2016 which was erroneously addressed to Messrs Allan Levin & Associates Attorneys but delivered to our offices.
2. Your request out of the blue, that the Minister give a warning statement on the matters listed in your letter, comes as a surprise for various reasons. First, the head of the Hawks, Lieutenant General Ntlemeza, assured us in his letter of 20 May 2016 that “the Minister is not a suspect in this investigation”. Second, the Minister has already given his account of the matters listed in your letter. He did so on 18 May 2016 in his response to General Ntlemeza’s questions. Third, the assertions of law in your letter under reply are wholly unfounded on any version of the facts.
3. Minister Gordhan has, however, instructed us to be as helpful as possible and to address your questions fully. We accordingly enclose a statement by the Minister giving his account of the facts relevant to the matters raised in your letter. He has asked us to address the assertions of law made in your letter. We do so below.
4. Minister Gordhan is unable to meet with Brigadier Xaba at 14h00 on Thursday 25 August 2016. He in any event has no more to say about the matters raised in your letter under reply. If you require further information, however, you are welcome to approach us again because the Minister has instructed us to assist wherever we can.
THE SARS INVESTIGATION UNIT
5. You say in paragraph 2 of your letter that the Minister facilitated the creation of the SARS investigation unit “which gathered, collected, evaluated, correlated intelligence contrary to section 3 of the National Strategic Intelligence Act 39 of 1994”. You are, however, mistaken in your assertion that the section prohibited all intelligence gathering.
6. The relevant part of s 3(1) of the Intelligence Act read as follows at the time when the SARS unit was established (before its amendment in 2013):
“If any law expressly or by implication requires any department of State, other than (the NIA) or (SASS), to perform any function with regard to the security of the Republic or the combatting of any threat to the security of the Republic, such law shall be deemed to empower such department to gather departmental intelligence, and to evaluate, correlate and interpret such intelligence for the purpose of discharging such function; provided that such department of State –
shall not gather departmental intelligence within the Republic in a covert manner …”.
7. The establishment of the SARS investigation unit did not contravene this provision for the following reasons:
7.1 Section 3(1) does not impose a general prohibition. It applies only to those departments of state that are required by law to perform functions “with regard to the security of the Republic or the combatting of any threat to the security of the Republic”. SARS is not such a department. It was never engaged in national security matters. It was accordingly not subject to the prohibition in s 3(1).
7.2 Section 3(1) in any event does not prohibit all covert intelligence gathering. It only prohibits the gathering of “departmental intelligence” in a covert manner. The Act defined “departmental intelligence” as “intelligence about any threat or potential threat to the national security and stability of the Republic”. The SARS unit was never engaged in the gathering of intelligence of this kind. Its activities thus fell well beyond the scope of the prohibition because it was not in the business of gathering intelligence about any threat or potential threat to the national security and stability of the Republic.
7.3 Your interpretation suggests that it is unlawful for anybody to engage in the covert gathering of crime intelligence. But such an interpretation is clearly absurd. Very many public bodies engage in the covert gathering of crime intelligence such as most metropolitan local authorities, SAA, Eskom and Prasa to name but a few.
8. The Minister in any event believed in good faith that the unit was perfectly lawful. So did his successors and all the other state agencies with whom the unit interacted for many years. The Minister was accordingly in any event entirely innocent of any mens rea.
MR PILLAY’S EARLY RETIREMENT AND RE-APPOINTMENT
9. We assume that paragraph 3 of your letter refers to Mr Pillay’s early retirement and re-appointment. Please let us know if we are mistaken.
10. You seem to suggest that Mr Pillay’s early retirement and re-appointment caused “unauthorised expenditure” or “fruitless and wasteful expenditure” within the meaning of s 1 of the Public Finance Management Act 1 of 1999 and thus contravened s 34 and s 81(2). You are, however, mistaken for the following reasons:
10.1. The PFMA applies to national and provincial departments of state, the public entities listed in Schedules 2 and 3 and constitutional institutions. SARS is not a department of state. It is a public entity listed in Schedule 3A.
10.2. Section 34 is part of chapter 4 of the PFMA that deals with “national and provincial budgets”. It is not applicable to public entities at all. You are accordingly mistaken in your assertion that s 34 applies to SARS.
10.3. Section 81(2) applies to officials of departments of state and constitutional institutions. SARS was never a department of state and the Minister was not an official of SARS when Mr Pillay took early retirement and was re-appointed. The section is accordingly not applicable at all.
10.4. Neither s 34 nor s 81(2) in any event creates a criminal offence. Even if they were applicable, they would accordingly be none of your concern.
10.5. Your assertion that the Minister’s conduct contravened the criminal prohibitions of the PFMA is accordingly wholly unfounded.
11. You also assert without explanation that the Minister’s approval of Mr Pillay’s early retirement and re-appointment contravened ss 3, 4 and 10 of the Prevention and Combatting of Corrupt Activities Act 12 of 2004. Your assertion is again unfounded for the following reasons:
11.1. The offence of corruption under ss 3, 4 and 10 of the Corruption Act in the first place requires that the perpetrator “gives or agrees or offers to give to any other person any gratification”. The Minister did not give or agree to give gratification to anybody. He merely gave official approval to the proposal of the Commissioner that SARS allow Mr Pillay to take early retirement and be re- appointed.
11.2. The giving of gratification in any event does not amount to corruption in itself. It is corrupt only if the gratification is given to the recipient “in order to act, personally or by influencing another person so to act”, in an unlawful manner. There has never been any suggestion that the Minister approved the Commissioner’s proposal that Mr Pillay be allowed to take early retirement and be re-appointed to persuade him to act unlawfully in any way.
11.3. The Minister believed in good faith that the transaction was entirely lawful. It means that he in any event lacked any mens rea.
12. We trust that you find the above in order.
GILDENHUYS MALATJI INC
Per: Tebogo Malatji
Issued by Treasury, 24 August 2016