Judges: Public protector misinterpreted us on Absa apartheid-era bailout
The two judges who independently investigated the apartheid-era bailout to Bankorp, now part of Absa, have flatly disputed crucial allegations made by the public protector during the investigation into the bailout and in the preliminary report on the matter.
Last week the Mail & Guardian reported that damning findings were made by the current public protector, Busisiwe Mkhwebane, in a preliminary report. Her report found that Absa should be held liable for up to R2.25‑billion, which she said ultimately flowed to Absa (which bought Bankorp in 1992) by way of an unlawful bailout by the apartheid government.
Between 1985 and 1992, the Reserve Bank gave Bankorp a series of bailouts to offset bad loans. One of them was a payment of R225‑million a year for five years.
The response from Absa and the Reserve Bank to the preliminary report was swift.
Both rejected the provisional report as factually and legally flawed and both promised to make submissions to the public protector on her preliminary findings.
Now judges Willem Heath and Dennis Davis – who independently investigated the “lifeboats” in 1999 and 2002 respectively and found there should be no attempt to recover money from Absa – have contradicted statements made in the report and during the investigation: that they might have found differently had they been privy to the contents of the earlier intelligence report by covert asset-recovery company Ciex.
The Ciex investigation – by former United Kingdom intelligence officer Michael Oatley – is at the heart of the public protector’s interim report. Oatley approached the government in 1997, offering to investigate and recover billions of rands that had been looted from the fiscus in the dying days of apartheid. Ciex said that R3.2‑billion could be recovered from Absa and that, if it were paid in tranches, there would be no threat to South Africa’s banking system.
Heath and Davis also found that the Bankorp lifeboat transactions had been unlawful. But, for different reasons, they advised against recovering the monies. Heath said that recovery would lead to a run on the banks and would destabilise the banking system to everyone’s detriment. Davis said recovery would be costly and difficult.
Davis also found that if the billions were to be repaid, they would have to be recovered from Sanlam – Bankorp’s majority shareholder before Absa bought it. Even then, he pointed out, because Sanlam had been a mutual organisation at the time, the benefits had flowed to a large number of Sanlam pension and policy holders, further complicating recovery legally and ethically.
In her interim report, the public protector does not directly say why she believes Heath and Davis were wrong. But she points to the fact that the two had not seen the Ciex report.
“It should further be noted that the Heath commission conducted its investigation without knowing that Ciex had investigated the same matter on behalf of government and ruled that the loan or lifeboat is recoverable,” said the report. The same conclusion is made about Davis’s investigation.
This view was also held by then public protector Thuli Madonsela in her interview with former president Thabo Mbeki, which the M&G has heard. (See Prickly Mbeki defends his failure to act)
“I have interviewed Judge Davis and Judge Davis says he wasn’t told of the existence of the Ciex report. He was asked to investigate de novo [anew]. Had he had access to this he would have had a different view,” said Madonsela.
Yet, Heath told the M&G he did see the Ciex report before concluding his own work but it had not influenced his finding.
“I was of the view that it was not good enough to rely on,” he said. He also rejected the public protectors’ assertion that he now believed he had been wrong not to recommend recovery of the money.
Talking to Mbeki, Madonsela said: “We interviewed Judge Heath and he had said that payback was not due because of the fear of the run on the rand and systemic impact. He has changed his view also … [It] was supposed to be recovered. But that’s a different issue,” said Madonsela.
Heath said that, in his interview with Madonsela, he explained his original findings: that the Bankorp transactions had been illegal but that it had not been safe at the time to recover the money.
Even in light of what he had read about the public protector’s provisional report, he could not see how he could have acted other than the way he had in the late 1990s, he said.
When asked whether it would now be safe to recover the money, Heath declined to comment, saying it would require investigation to reach a view on that.
Heath does agree with the public protector’s provisional report in one important respect: he believes that any recovery should come from Absa, which he still considers to have been an active recipient of the proceeds of the government gift.
He rejected Absa’s assertion that it paid for any benefit it derived in the price it paid for Bankorp on acquiring it. “That is a commercial transaction. They made no payment to the Reserve Bank, where the money came from,” said Heath.
A number of attempts to reach Madonsela were unsuccessful.
Davis said he could not remember whether he had seen the Ciex report, though he may have had sight of at least parts of it. “It was 17 years ago. I honestly, for the life of me, cannot recall,” he told the M&G.
But he said even if he had, it would not have made any difference to the findings of his panel.
“If she asked if I had read the [Ciex] report, I would have said no. If she asked if it would have made a difference, I would have said no,” he said of his own discussions with Madonsela while she was investigating the matter.
“It was never suggested by me that the Ciex report would have been a clincher. What I said was along the lines of: ‘We are only able to judge things on the evidence available to us, and if compelling evidence to the contrary was provided we may have found otherwise.’
“The only way it [the Ciex report] could have made a difference would have been if it could have shown compellingly that it was Absa, rather than Sanlam, that had been enriched. But we now know that Ciex never dealt with that issue,” said Davis.
Earlier in the week, Chris Stals, who as Reserve Bank governor at the time oversaw the Bankorp bailout, also said his evidence had been misinterpreted by the public protector to reach an incorrect finding.
According to the provisional report, Stals provided the crucial evidence necessary to hold Absa liable, apparently showing that Absa had agreed to repay, to the state, interest on the lifeboat loan. That interest should now be claimed, plus interest, said the report. Thus Absa owes up to R2.25‑billion.
This, Stals said this week, is “absurd”. “I did my best to explain to the public protector that Absa and its shareholders, in my opinion, received no benefit from the lifeboat,” he told the M&G.
Stals told Business Day the lifeboat was above-board and the best solution at the time.
But Davis said: “The loan to Bankorp was clearly illegal. We were told that a lot of the bad debt was due to farmers – farmers who would lose money if something wasn’t done. Those farmers were in marginal constituencies where the Nats were trying to fend off the conservatives.”