Appeal court's timely warning to white-collar criminals

J Arthur Brown will serve 15 years for abusing the trust of vulnerable people. (Trevor Samson, Gallo)

J Arthur Brown will serve 15 years for abusing the trust of vulnerable people. (Trevor Samson, Gallo)

This month produced a startlingly correct and vitally important judgment from the Supreme Court of Appeal. When J Arthur Brown, following a plea of guilty in respect of two counts of fraud, was convicted and then sentenced to a fine of R150 000 in the Cape Town high court last year, the decision was greeted with an equal measure of shock and despair. A man who had been responsible for a multimillion-rand scam, which had caused great financial hardship to a vast constituency of vulnerable people, was basically told, judicially: “Write out a relatively tiny cheque and get on with your life.”

The appeal court, however, was not willing to allow Brown to walk almost unscathed into freedom.
In imposing a jail term of 15 years, it restored the reputation of the administration of justice and issued a clear warning that class apartheid no longer has any place in the sentencing process. The reasoning employed by Judge Mohamed Navsa deserves a careful reading.

Brown had been indicted under a welter of charges. At one point during his trial, he changed his tune and pleaded guilty to two charges. He admitted that the Transport Education Training Authority had invested more than R200-million with his company, Fidentia, and that Fidentia had, in turn, invested this money in far more risky ventures than had been agreed, which caused potential prejudice to investors.

Brown knew the ­relevant financial accounts had misrepresented Fidentia’s financial position. He also admitted that Fidentia had bought the shares in Mercantile Asset Trust Company (Matco), falsely indicated that it had the money to pay the full purchase price, then promptly employed funds from Matco itself to repay the shareholders.

The trial court only looked at the bare bones of the plea to determine the nature of the crimes, instead of examining the context of the crimes to which Brown had pleaded guilty. Take, for example, the Matco transaction. Once Fidentia had secured the shareholding through its admitted fraud, it gained access to R1.3-billion, the money that had previously been prudently invested with Old Mutual on behalf of widows, orphans and vulnerable people.

As the appeal court correctly noted, this context was vital to the proper assessment of an appropriate sentence. By contrast, the trial court’s Judge Anton Veldhuizen had, in the view of the appeal court, taken a very different approach. According to Navsa, the trial court’s interactions throughout the proceedings reflected an “ongoing consistent attitude that Brown’s conduct was not reprehensible”.

This resulted in a sentence that, in the words of the judgment, “tends towards bringing the administration of justice into disrepute”. Navsa observed that less privileged people who are convicted of theft of items of minimal value have custodial sentences imposed on them, yet the Western Cape high court allowed Brown to pay for his freedom in circumstances where, based only on the two fraud charges to which he pleaded guilty, it was clearly foreseeable that significant financial prejudice would occur. Brown, however, acted recklessly as to that possibility.

This judgment could not have been delivered at a more appropriate time for the judiciary and its legitimacy in the eyes of the public. To judge by the reaction to the outcome of the Oscar Pistorius and Shrien Dewani cases, there is great public disquiet about whether the system of justice has two streams – one for the poor and one for the affluent.

In his judgment, Navsa was at pains to warn against this perception, which is presumably why he did the unusual thing of finding that the trial judge’s conduct during the trial was deserving of censure.

What made the high court’s sentence even more disappointing was that Brown had at least been charged and convicted, whereas so many who are alleged to have committed similar crimes have not been charged, either because they escaped to foreign jurisdictions, or because of ineptitude in the ranks of the National Prosecuting Authority and/or the relevant financial regulators.

The appeal court has sounded a clear legal warning about the nature of the fiduciary responsibilities of those who invest funds on behalf of the public, a breach of which will result in a long term of imprisonment. Given the stern reprimand given by the appeal court to Veldhuizen, it is unlikely that white-collar criminals will receive similarly lenient treatment from the courts in future. Whether the courts are put to the test, though, will depend on the vigilance and skill of the financial regulators and the prosecuting authority.

Of arguably similar interest to court watchers will be the careful treatment given by Navsa to the meaning and scope of dolus eventualis (indirect intention). It may still play a role in another high-profile case that has not yet run its course.

Serjeant at the Bar