A successful SA Revenue Service’ (Sars) R4.8bn lawsuit claim against Sasfin Bank would expose SA banks to a flood of liability for clients’ transgressions, the niche lender’s lawyer, Wim Trengove, argued in court on Thursday
Sars took the bank to court in 2023 in a novel case that tests whether banks can be held liable for their customers’ tax misconduct, accusing it of aiding 19 companies, described as “delinquent taxpayers”, to unlawfully transfer more than R8bn out of the country without paying taxes.
“Recognising Sars’ claim would expose banks to indeterminate and potentially limitless liability, with potentially drastic knock-on effects for the financial system and national economy,” Trengove told the Pretoria High Court.
Trengove argued that none of the laws or regulations for banks protect customers’ creditors generally or Sars from loss. He argued that Sars was a creditor to the clients and had a legal obligation to the clients.
“If Sars’ claim were to be recognised, the same protection would invariably extend to all the creditors of a bank’s customer. This would expose banks to indeterminate liability.”
It stands to reason that imposing indeterminate liability on banks may cause banks to collapse, with all detrimental knock-on effects to the country’s financial sector and economy that it may entail.”
— Wim Trengove
Trengove said Sars’ claim would collapse banks. “It stands to reason that imposing indeterminate liability on banks may cause banks to collapse, with all detrimental knock-on effects to the country’s financial sector and economy that it may entail.”
The case traces its roots to a 2023 exposé by television channel Al Jazeera, which found that Sasfin and two other banks had been on the payroll of Mohamed Khan, an alleged accomplice of cigarette magnate Simon Rudland, who is alleged to be the kingpin behind multiple Zimbabwean gold smuggling gangs.
These are said to smuggle gold into SA, the proceeds of which are allegedly laundered through Khan’s company, Salt Asset Management, before being transferred to offshore bank accounts.
Nic Maritz, acting for Sars, argued that because the money was no longer in SA, the tax collector could not recover losses — suggesting that going after Sasfin for enabling the unlawful outflows was the only viable route for the tax collection agency to recover the money.
He told the court that Sars was holding the bank liable because when it processed the payments, it failed to conduct checks to ensure the transactions did not breach any laws.
Legal duty
“They [Sasfin] ought to have been aware that the conduct of the taxpayers exporting the funds was wrong.
“It directly and indirectly assisted taxpayers in transferring funds by processing the payment transactions without any valid or necessary supporting documents, and it knew it was unlawful to do so,” Maritz contended.
Several employees of the bank “wilfully” deleted transactions on bank records to conceal unlawful conduct and processed transactions based on falsified supporting documents, Maritz argued, adding because of that the bank was liable for the losses.
He maintained that the bank had a legal duty not to cause Sars to suffer financial losses.
This was the central controversy of the litigation in that the bank argued it had no binding legal responsibility to Sars that allows the tax collector to launch the damages claim.
Maritz described the case as a novel case where Sars wants the recognition of a common law duty or the development of the common law to recognise such a legal duty.
Regulated
Maritz argued the bank operates within a strict industry regulated by the Banks Act, Financial Intelligence Centre Act and provisions of the currency and exchanges manual for authorised dealers that required the bank to handle transactions in a lawful manner; if it cannot do that, it must “get out of the kitchen”.
“Sars will not be able to recover the tax component of the unlawfully transferred funds from the taxpayers in question. It seeks to recover its loss from Sasfin.”
Trengove argued Sars had the legal powers to recover the tax debts from companies, under the Tax Administration Act, by enforcing compulsory repatriation of taxpayers’ foreign assets.
The case is a high-profile test of SA’s financial integrity and regulatory enforcement as it works to exit the Financial Action Task Force’s greylist. The Reserve Bank has already fined Sasfin about R200m for lax anti-money-laundering controls.
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