Sars, Krejcir and the destruction of state capacity
Researcher Simone Haysom delves behind the spin to trace the crucial role played by the South African Revenue Services investigative unit in just one case: bringing down Czech gangster Radovan Krejcir – and warns that the loss of such specialised skills leaves us dangerously exposed.
As he sat in the dock of Palm Ridge Magistrates Court in a crisp black jacket in December 2013, Czech gangster Radovan Krejcir probably didn’t realise just how much trouble he was in. He had expensive lawyers and all the other cases against him had melted away.
Now he faced charges of kidnapping, torturing and almost murdering Bheki Lukhele, the brother of a man who had allegedly stolen drugs from him. In response, Krejcir’s lawyers pressed hard for bail, citing evidence of police abuses around his arrest.
Prosecutor Louis Mashiane drew on a Sars affidavit - recently received - to prove Krejcir had previously fled in the face of criminal charges, had the means to do so again in the form of assets valued at R130-million, and had a history of being dishonest with the State.
As a result, Krejcir’s bail application was denied.
The affidavit was from a then-relatively-unknown Sars executive, Johan Van Loggerenberg, and it built on an investigation into Krejcir’s tax and customs affairs. Sars also progressively cut off Krejcir’s money supply, dealing lethal blows to the Czech’s criminal ambitions.
Yet only a year after Palm Ridge Van Loggerenburg would be publicly disgraced, the investigative capacity he led would be disbanded and, in the process, the last pillar of state capacity able to investigate and prosecute sophisticated commercial crime would be knocked out.
Sars gets teeth
The Revenue Service has not always had the resources to go after sophisticated tax dodgers.
In fact, its ability to “show that nobody is above tax law”, as one source put it, developed slowly out of the restructuring of the revenue service that began in 1998 and today stands as one of the great successes of post-Apartheid institution building.
The enforcement capacity grew from a few individuals in 1998 to encompass several units by 2012, growth which was ad-hoc, and reactive to the needs of individual cases.
Important early targets included Irvin Khoza and Billy Rautenbach, but the most formative was that of Dave King, a Glasgow-born South African businessperson who eventually agreed to a settlement for R3.5-billion in unpaid taxes. It took almost 13 years, but Sars recouped more than R1-billion when additional fines are included.
At the start of the investigation Pieter Engelbrecht, a senior Sars manager, realised King would put up a fierce legal battle, and success for the revenue service would demand sustained attention over several years. Engelbrecht dedicated several staff members to the so-called “Dave King team” and began to formalise structures around investigations.
That commitment to institutional continuity would come to be a defining feature of Sars enforcement operational practice, and according to sources, key to its success. Their targets had the resources to fight long legal battles and could drag out criminal cases in the knowledge that the state prosecutor might be shifted to a different trial weakening the state’s ability to fight.
In Sars, staff were assigned to a few large, complex cases that required complex technical abilities where they could “stay the course”.
“At its height, it was able to do ‘magic’,” one source said. “The cases on their books had an inevitability to them. They only pursued a target if there was a strong case and, if so, they locked their targets in, and the matter had to be followed to its logical conclusion.”
Their other key attribute was having huge continuity in their “top cover” – strong finance ministers who insulated Sars from political interference.
The Dave King case was a learning curve for the organisation. Subsequent cases moved faster, in part because there was less effort to coordinate with other law enforcement agencies, which was considered time-consuming and unproductive. Sars relied increasingly on tax law for its powers and legal framework: The Customs Act, The Income Tax Act, The Tax Administration Act, as well as legislation that arose in the course of the 2000s, including the Financial Intelligence Centre Act and the Prevention of Organised Crime Act.
In 2005, the evolving enforcement capacity was also given impetus by the Illicit Economy Strategy (IES). Introduced by Pravin Gordhan, this sought to bring Sars into a government-wide push to tackle crime. The IES determined Sars would select targets whose criminal activities had a clear relationship to customs and tax violations. Early case studies included the tobacco industry and abalone poaching.
Over time, teams dedicated to specific cases were pulled into units, eventually falling under the umbrella of the National Research Group (NRG).
The NRG was only one element of Sars enforcement capability, but the most involved with organised crime and corruption cases. It encompassed Central Projects, a unit derived from Dave King Team, and National Projects, which had a similar methodology and skill set.
These units were supported by the Tactical Intervention Unit (TIU), which conducted seizures and raids, the High-Risk Investigations Unit (HRIU), and Evidence Management and Technical Support, which included a forensic laboratory and evidence storage.
After incidents where investigators had been followed, shot at or caught in compromising situations by their own targets, Sars established the HRIU. This handled cases where investigators took on hard-edged organised criminals not averse to dirty tactics.
The Krejcir investigation was a spin-off from “Project Lollypop”, which focussed on Lolly Jackson.
As Sars had started to close in around Jackson he had been urgently shifting the undeclared profits of his strip-club empire to off-shore accounts. It was on this basis that he and Krejcir cemented their relationship: the Czech was Jackson’s primary conduit for these transactions, and the profits he made in the process were his most lucrative business. Until, that is, Jackson was shot – most probably by or on the instruction of Krejcir.
Krecjir and the cops
Krejcir was brash and imprudently violent, qualities that should have put an end to his career long before 2013. Yet, right from his arrival in South Africa in 2007, he appeared to act with impunity.
Despite being linked to about 10 murders in South Africa over a period of four years, and despite the prodigious number of affidavits produced by forensic consultant Paul O’Sullivan, who likewise hounded the police to take action.
As such, Krejcir provides a crude but highly visible example of how the broader criminal justice cluster has been weakened by corruption and captured by criminal interests.
A former employee of Krejcir, Milosh Potiska, described in an affidavit a set of meetings between his boss and Gauteng head of crime intelligence Joey Mabasa.
He alleged that when being taken to meet Krejcir, “Mabasa would lie down in the car and the car would be driven up the driveway ... into the garage, with the lights off, before Mabasa would climb out unseen. Mabasa and Krejcir would have their meeting inside the house, on the balcony in the dark and in secret…”
Potiska claimed Mabasa would receive money from Krejcir, some of which was then distributed to lower level policemen. In return Mabasa allegedly helped Krejcir recruit more police officers to his network, arranging for SAPS policemen to act as debt collectors and intimidate his enemies. Their corrupt relationship was publicised for over a year before Mabasa was forced out of the police, with a golden handshake of over R1-million.
Attempts to reach Mabasa for comment were unsuccessful.
The Hawks were also targets for Krejcir. The Germiston head of organised crime and a member of the Hawks, Colonel Francois Steyn, took an R400 000 loan from him. Two of Steyn’s juniors, warrant officers Samuel Modise “Saddam” Maropeng and George Jeff Nthoroane were charged with Krejcir in his kidnap and torture case.
Krejcir’s local Bedfordview station was also a specific concern. There Potiska alleges he paid several policemen, including a colonel: “He just wanted [to be notified] if anything was going to happen that involved Krejcir in the area”.
Potiska also mentions routine meetings in a private section of a Chinese Restaurant at Bruma Market where he met “cops that were supposed to be investigating Krejcir”.
The police did investigate Krejcir’s involvement in cases like the murder of Uwe Gemballa, the German car dealer who was kidnapped and suffocated in 2010, and he was charged for defrauding his health insurance and the armed robbery of Pakistani store-owners in Pretoria.
Yet these cases fell apart in court, twice because the key state witnesses turned hostile on the stand or withdrew out of fear.
Remarkably, his 2013 arrest stuck and he had to see the whole trial out.
Crucially, many observers point to the role of the NRG as the key ingredient in turning the tide in the state’s favour.
The Sars investigation
Initial intelligence gathering was done through various means. For instance, Sars investigators attended many of Krejcir’s first court cases. In court they noted who Krejcir spoke to, the cars they got into, ran check on the licenses plates, and gradually built up a map of his associates.
They travelled to the Czech Republic to learn about Krejcir’s past activities and current networks in Eastern Europe. Even Krejcir’s Facebook profile – in the name of “Russell Knight” – yielded information.
Insights into Krejcir’s involvement in illegal gold and diamond trading came from Juan Meyer, a West Rand gold smuggler and illegal refinery owner. He was a business associate of Krejcir, and also under investigation in his own right, with Sars threatening to seize his refinery.
Meyer may have been only too happy to oblige as things between them had gone sour after a gold-refining scam fell apart. In an affidavit taken by O’ Sullivan in November 2010 Meyer claimed that Krejcir got Mabasa to orchestrate Meyer’s arrest on spurious charges. Associates of Krejcir also called him at odd hours to deliver death threats.
This was not the only point where Krejcir’s vengeful personality made the job easier for Sars. The next breakthrough came when Sars received information from contacts in the police that they had a man in custody who claimed to have been framed by Krejcir.
Two NRG investigators went to Boksburg prison to meet with him.
Having once been employed by Krejcir they had since fallen out. He had fled to Swaziland to start a new life only to be abducted, beaten up and brought back to South Africa, where Krejcir used his influence to have him arrested on false charges.
He turned over information about how Money Point, Krejcir’s pawn shop, conducted its gold and stolen goods laundering, and the location of their business records, which Sars later seized in a raid.
As knowledge about Krejcir’s business practices developed, his customs issues were given to National Projects to investigate, his tax issues went to Central Projects, but it was the Tactical Intervention Unit that showed Sars’ hand first.
Krejcir was known to have a passion for porches and other luxury vehicles. Sars identified a customs scam that saw Krejcir’s G2B company underpaying import duties on the cars. The TIU seized them.
National Projects conducted forensic audits on Krejcir’s businesses, revealing these entities existed merely to obscure the origin of funds, provide ‘loans’ to his family, and avoid tax.
With this information Sars launched a preservation order on Krejcir’s estate, placing it under the hold of a curator who had to approve every disbursement. His wife and son found themselves in the Seychelles with cancelled credits cards and no access to funds. The curator had to buy flights back to the country and pay their hotel bill.
About a month later the NPA contacted Sars: Krejcir was putting up a spirited request for bail.
Sars handed over Van Loggerenberg’s affidavit, which had secured the preservation order.
Given Krejcir’s resources for a robust legal defence, the strength of the state’s argument – resting on Sars evidence – was crucial in ensuring that the bail decision was upheld in two further appeals.
Failure would have seen Krejcir skip the country – the trial was punctuated by repeated bids at jailbreak.
In 2013, Krejcir’s woes with the NPA had deepened. Charges were brought for the murder of Phumlani Ncube, a debt collector, and Bassam Issa, an alleged drug trafficker from Lebanon, and the attempted murder of Nkosana Ximba, a Hawks officer, and O’ Sullivan. Krejcir’s wife and son were also fighting a protracted appeal against being barred from re-entering the country.
Nadezda Krejcir, Radovan’s mother, tried to transfer money from the Czech Republic but Sars discovered the account and placed it under preservation. Likewise, a trust set up by Krejcir’s lawyers befell the same fate, as did a non-resident bank account. Krejcir was mired in successive court battles and running up huge legal bills with a diminishing ability to pay them.
Sars’s last intervention concerned Krejcir’s attempt to borrow money through an arrangement with the Bezuidenhout group, small-scale gold smelters and gold VAT scamsters.
The HRIU was tipped off about this arrangement and the approximate location of their smelter. Noticing that the suspected Bezuidenhout house was on the market, HRIU investigators posed as potential buyers and took a tour of the property. An unwitting real estate agent led them to the garage where they took cellphone pictures of innocuous looking equipment. After an expert confirmed it was a smelter, Sars raided and seized the machinery.
Such interventions on the part of the revenue service did not completely prevent him from continuing to bribe state officials but they at least hobbled his ability to do so.
A devastating aftermath
On 22 February this year, Krejcir – now representing himself – stood before Judge Collin Lamont for sentencing.
Cuffed and in a plain white T-Shirt, Krejcir argued that the judge should recuse himself due to bias – a bias introduced by the death threats Lamont had received. The trial had been conducted under heavy police presence. Lamont squinted, grimaced and frowned in weary disbelief. The next day he gave Krejcir 35 years.
Lamont had convicted Krejcir despite – not because of – the Hawks investigation, whose policemen he lambasted for torturing their suspects and for lying under oath.
Yet those policemen continue to have careers in the SAPS, while Sars’s NRG has been all but eviscerated.
Since December 2014, when the Sunday Times broke allegations of the existence of a ‘Rogue Unit’ – more or less identified as the HRIU – supposedly using illegal methods for illegal ends, Sars has been purged of senior staff associated with the NRG.
Sars Commissioner Tom Moyane, seen as a Zuma loyalist acting on factional interests, is presiding over restructuring of the revenue service.
While the “Rogue Unit” allegations remain disputed and recently reappointed Finance Minister Pravin Gordhan has ordered Moyane to “cauterise” his restructuring plans, the damage may have been done.
Allegedly most of the staff who reported to Van Loggerenburg have been made redundant – about 100 people across the country.
According to one source about 190 people in crucial positions have been asked to reapply for their jobs, “all of them managers, mid-level and senior.”
Of the investigators in the HRUI, only three out of six remain in SARS, redeployed to other teams.
Sars cases that were on the books when the scandal broke are feared to be mothballed, or worse, settled for negligible amounts. They include audits or investigations of the Guptas, Julius Malema, alleged underworld figure Mark Lifman and various tobacco barons, together with Zuma-linked matters such as those involving family friend Thoshan Panday, ANC donor Robert Huang, and Nkandla.
The NPA is severely compromised, and crime intelligence and the Hawks are consumed with factional battles – battles that are directly linked to criminal interests. With Sars’s capacity decimated, there now exists no part of the State with the independence or skill to pursue serious organised and commercial crime cases.
The bill for that damage can only grow.
* This work draws on research conducted at the Centre of Criminology, University of Cape Town, on South Africa’s underworld.
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