FirstRand’s nose out of joint

FirstRand Bank must be bitterly regretting its decision to attempt to interdict noseweek from publishing the names of clients who made use of offshore tax avoidance schemes offered by the bank.

FirstRand applied to the Cape High Court this week for an order to prevent the identification of clients who had made use of elaborate offshore structures offered by the bank’s former subsidiary, Ansbacher.

On Thursday Judge Jeanette Traverso dismissed the application with costs. She will give reasons later.

noseweek had published a series of articles on what it dubbed FirstRand’s ‘pirates of the Caribbean”.

The stories slammed the bank for setting up a dummy company (called Duisberg) in the British Virgin Islands in 1999 and using it as ‘a criminal scheme” to evade tax. The scheme was taken up by about 100 mega-rich South African clients.

The magazine had already named several directors of the Discovery Group (controlled by FirstRand) as having taken part in the scheme and had promised to reveal more names in a forthcoming edition.

But until the court application, the mainstream media had largely avoided the story, perhaps shying away from what FirstRand called ‘the crude and defamatory fashion” in which noseweek had portrayed the bank and its directors.

This included illustrating the story with pictures of FirstRand luminaries decked out with eye patches and pirate hats — and suggesting FirstRand’s keenness to turn (tax) tricks for clients was more appropriate to a brothel than a bank.

This was ‘the hallmark of nose-week’s level of journalism”, sniffed FirstRand executive Sean Farrell in his affidavit in support of the interdict.

But noseweek carries a factual bite to go with its sometimes cruelly satirical bark, and editor Martin Welz is regarded not simply as a maverick but as a doyen of investigative journalism in South Africa.

So the attempt to shut him up has attracted widespread media attention, including front-page stories in the business press and national coverage on the SABC.

Welz’s allegedly defamatory claims that FirstRand had constructed an illegal tax evasion scheme for rich fat-cats has now been given extensive publicity — with the protection of court privilege.

FirstRand argued it had a right to protect the privacy of its clients and to protect them from defamation.

Welz stated: ‘I submit that the only client that might be distressed by being publicly identified would be one who has participated in [FirstRand’s] illegal schemes and structures and was relying on the bank keeping such participation secret from the authorities. In such a case publication would be in the public interest.”

FirstRand has repeatedly stated that the scheme has not been found by any court to be illegal, but Welz pointed out that this did not make it legal, nor did FirstRand go as far as claiming that it was.

The dismissal of the application opens the way for noseweek to reveal the identities of some of those who made use of the offshore scheme — with other media now more likely to follow the story.

The bank also had to endure the publication of comments by Traverso to the effect that there was little doubt the scheme was ‘suspect”. Her judgement, when it comes, is likely to confirm this judicial view in more embarrassing detail.

FirstRand had to cope with the indignity of having Welz repeat his allegations in person, rather than through the more restrained mouthpiece of legal counsel.

Welz’s lawyer realised at the last minute that his firm had a conveyancing contract with FirstRand and had to withdraw. Welz represented himself in court and took full advantage of the loose rein Traverso was inclined to give him as a layman.

The judge reportedly had to quieten him down when he ‘muttered loudly” or jumped up to object to something said by FirstRand’s senior counsel, Nic Maritz.

Welz told the court the bank’s attitude had been not how it should comply with tax law, but rather how to avoid compliance in a way that was too clever to be detected.

FirstRand might have seen the public relations disaster looming, but was caught in something of a double bind. Farrell stated that individuals had contacted the bank raising concerns about being identified and FirstRand was left with little option but to be seen to be trying to protect its clients.

When the Irish authorities investigated similar schemes run by Ansbacher — since sold by FirstRand — the bank opted to shop its wealthy Irish clients, leading to a massive loss in private banking business.

FirstRand must account for having cynically created a ‘sham” that it believed tax and foreign exchange officials would not be able to penetrate, Welz said.

FirstRand executive Laurie Dippenaar, who has been handling the noseweek fallout, insisted the bank operated in good faith, though it made mistakes. ‘We didn’t implement Duisberg well — at the end of the day, if a client suffers damages as a result, we would have to make good,” he told the M&G, adding that SA Revenue Service had not raised queries about Duisberg.

But, he conceded, that did not mean they would not.