The pursuit of a R5.3bn claim by the SA Revenue Service (Sars) against Sasfin will now proceed to trial in a case that will test the tax agency’s legal arsenal to dismantle networks eroding the fiscus.
Sars’ main accusation is that Sasfin enabled illicit financial flows through its systems, mainly by controversial tobacco producer Gold Leaf, which owns brands such as RG cigarettes.
The North Gauteng High Court last week ruled that the matter can proceed to the trial stage.
However, Sasfin scored a few strategic victories in the ruling. The court said the imposition of a duty on a bank to protect the tax agency against loss caused by assisting taxpayers unlawfully will have a “chilling effect” on the banking sector in general.
Judge Etienne Labuschagne ruled last week the move by the tax agency would create a risk of liability where none existed before, as he upheld some of Sasfin’s legal exceptions to Sars’ particulars of claim.
“The risk in question is one that the bank has limited control over as it pertains to the conduct of its customers,” reads the judgment.
“While the case pleaded includes complicity on the part of certain officials on behalf of the bank, the duty pleaded includes negligent conduct. The consequences of the imposition of a risk of liability in such circumstances can destabilise the banking industry and impose the risk of an increased cost burden arising from increased reinsurance cover,” it said.
“Such costs are ultimately passed on to the customer, making banking more expensive. This is an instance where moral indignation in respect of unlawful and even heinous conduct by a bank would be insufficient to establish a common law legal duty to Sars.”
ENSafrica, which represented Safin in the matter, said banks can breathe a sigh of relief following the ruling.
“On a holistic reading, the court concluded it would be unreasonable to impose the pleaded common-law duty on an authorised dealer bank to protect Sars from loss arising from the tax affairs of the bank’s customers,” said Aslam Moosajee, an executive at the law firm.
“The legislative design points away from private delictual liability and towards regulatory enforcement and specific statutory remedies.”
Sars kept the door ajar to appeal the judgment.
The agency said the judgment affirmed “a clear statutory remedy to pursue losses arising from breaches of financial sector laws by banks and other institutions” and strengthened the mechanisms available to hold financial institutions accountable for facilitating illicit financial flows.
“I have consistently reminded financial institutions to go beyond a narrow compliance response when reporting questionable transactions to the Financial Intelligence Centre,” said Sars commissioner Edward Kieswetter, “and to manage the substantive risks posed by transactions that may be considered suspicious.”
Despite welcoming the judgment, it said it might still appeal it after the court upheld key legal exceptions raised by Sasfin, which might weaken its case at the trial stage.
“Sars will consider its options, including amending its pleadings as permitted by the court or applying for leave to appeal the judgment to the Supreme Court of Appeal. The judgment underscores the seriousness with which Sars approaches its responsibility to protect the SA fiscus and the broader public interest.”
One of Sars’ arguments is that the legislative framework warrants the inference of a legal duty by a bank to Sars not to cause it harm by assisting its customers to expatriate undeclared taxable income.
Sasfin is alleged to have directly or indirectly assisted Gold Leaf to unlawfully export the undeclared funds.
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