The SA Revenue Service’s (Sars) R4.9bn claim against Sasfin pushes the envelope in more ways than one. The suit is a constitutional and economic stress test rolled into one. Will the court, embodied by judge Etienne Labuschagne, choose accountability that recovers lost revenue and deters illicit flows, or will it retreat into legalisms that preserve loopholes and systemic risk at the expense of the fiscus?
This is not a trivial question. It goes to the heart of the Sars case. The tax collection agency’s case is simple. Money left the country, tax could not be recovered from the original taxpayers and its remaining route is to hold the bank that processed those transactions accountable. Central to the Sars claim is the assertion that not only was the bank negligent in its obligations to curb money-laundering, but it actively assisted 19 client companies in bypassing tax and exchange control laws to channel funds offshore.
That claim sits awkwardly at the intersection of anti-money-laundering failures and SA’s high-stakes effort to exit the Financial Action Task Force grey list. It forces the public and policymakers alike to confront trade-offs between economic stability and the financial health of the state and the risk of tipping the balance towards regulatory arbitrage by an emboldened financial sector.
If successful, it would force banks to shoulder financial responsibility for customers’ illegality; if rejected, it could leave the state exposed and create a moral hazard patchwork in which wrongdoers face no meaningful recovery risk.
Opponents — represented in court by Sasfin lawyers — raise a counterargument that merits attention. Imposing an open-ended civil duty on banks risks “indeterminate liability”, the kind of legal exposure that could cascade through the financial system. That alarm sounds like hyperbole. Except it’s not. Banks operate on confidence, not unlimited balance sheets, and SA cannot blithely trade systemic stability for vague, open-ended duties that spawn industrial-scale litigation.
The administrative penalty of the Reserve Bank’s Prudential Authority against Sasfin for noncompliance in its foreign exchange business underlines that the errors were not isolated.
Still, the risk of systemic calculation is not the only calculation the court must make. This case arrives on the back of regulatory enforcement that has already signalled failures in controls. The administrative penalty of the Reserve Bank’s Prudential Authority against Sasfin for noncompliance in its foreign exchange business underlines that the errors were not isolated. They were operational. That regulatory action matters because the law often distinguishes between isolated rogue employees and systemic companywide failure. The latter is at the heart of the Sars case.
Sars names the victim as an abstract Treasury balance sheet. But the victims are, in fact, schools, clinics and the social wage that holds ordinary lives together. When funds are spirited abroad and tax is avoided, the costs are redistributed down to hospitals without equipment, to potholed township roads, to children whose bursaries never materialise.
But naming the victims is not a call for legal adventures. It means the law should be clear and fair. The danger of recognising an open-ended civil duty on banks will set a precedent that will turn every bank into a litigation magnet, liable for an unknown amount of money, over an unknown period, to an unknown class of people.
That’s not to say it’s acceptable that banks and other regulated firms can repeatedly ignore controls. The right balance is neither a free pass for the banking sector nor a dogmatic imposition of rules that unleash an endless stream of lawsuits. That balance demands a precedent that is sharp enough to bite the guilty and sober enough to preserve systemic stability.
• Motsoeneng is Business Day’s acting editor.
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