President Cyril Ramaphosa. (GCIS)
Public Protector Kholeka Gcaleka has argued in court papers that neither the provisions of the law nor legal precedent allowed her leeway to challenge the South African Revenue Service’s refusal to give her insight into President Cyril Ramaphosa’s tax records.
Gcaleka’s office was seeking to counter an argument by the African Transformation Movement in its legal review of her report on the Phala Phala controversy that her failure to probe the president for tax evasion was proof that her findings were irrational.
The ATM contends that she conducted a perfunctory investigation with a predetermined outcome.
It said this was clear from her failure, inter alia, to press the point with SARS through the constitutional court ruling in Arena Holdings (Pty) Limited t/a Financial Mail and Others v South African Revenue Service and Others in May 2023, which opened the door for her to do so.
In his founding affidavit, ATM president Vuyo Zungula noted that the apex ruling came a month before Gcaleka made her report public. She therefore had an opportunity to challenge SARS’ refusal to give her access to Ramaphosa’s records on the basis of confidentiality provisions in the Tax Administration Act.
“When the constitutional court set aside the confidentiality regime and imposed an interim reading — a remedy that would allow the acting PP to obtain the information, she inexplicably elected no longer to do so,” Zungula said.
This was a dereliction of duty, he argued.
“SARS does not investigate whether there is a breach of the Executive Code of Ethics. That is the duty of the acting PP.”
Zungula and DA leader John Steenhuisen filed complaints with the public protector in June 2022, shortly after Arthur Fraser, the former head of the State Security Agency, told the police that a small fortune in foreign currency was stolen from Phala Phala in February 2020.
A central thrust of these was that Ramaphosa breached the Executive Members Ethics Act by undertaking paid work outside the scope of his official duties and exposed himself to a risk of conflict between his constitutional obligations and his private interests.
Gcaleka inherited the investigation days after it began when Busisiwe Mkhwebane was suspended by the president, pending the outcome of a section 194 inquiry into her fitness to hold office.
Her first step was to reinforce the team investigating the matter, according to the affidavit, which went on to say that “no stone was left unturned to ensure a thorough investigation was conducted”.
This meant repeatedly engaging with other organs of state from parliament to the police to the registrar of deeds in Limpopo to SARS and SARB.
Vusumuzi Dlamini, the lead investigator on the Phala Phala complaints, said a letter was sent to the SARS commissioner on 31 August, asking whether the revenue service was investigating the matter, in which case the public protector wanted a copy of the investigation report.
“On 5 September 2022, the SARS commissioner reverted to PPSA by way of a letter to which he attached legal opinion which provided that the public protector was not entitled to that information,” the affidavit, deposed to by Dlamini, noted.
“The SARS commissioner therefore denied the PPSA’s request for tax information.”
Dlamini said on the same day the letter landed, he interviewed four SARS officials who confirmed that “they could not disclose tax information to the PPSA”.
The Arena Holdings ruling had no bearing on the Phala Phala investigation because the case concerned a request by the media, not the public protector, for access to taxpayer information.
The facts were that the Financial Mail and amaBhungane went to court to obtain access to former president Jacob Zuma’s tax records amid allegations that he received money from illicit sources, including the Guptas, and evaded tax.
They argued that when the tax compliance of a head of state is in question, they should be able to invoke access to information rights and if there were a statutory hindrance to this, be allowed to challenge its constitutionality.
SARS relied on sections 34(1) and 35(1) to refuse applications filed in terms of the Promotion of Access to Information Act to access Zuma records.
The first of the two sections stated that access may be refused should it lead to unreasonable disclosure. The second stated that SARS must refuse any request by a third party to release information it obtained to ensure tax compliance.
Critically, the so-called public interest override, enshrined in section 46 of PAIA, did not apply to cases in which access to tax records is requested.
The high court held that sections 35 and 46 of PAIA were unconstitutional where they precluded access to tax records, even where the normal requirements for public interest disclosure have been met.
Sections 67 and 69 of the TAA were unconstitutional, the court said, to the extent that they too precluded disclosure even when these requirements were met. The constitutional court confirmed this declaration of invalidity.
Dlamini said none of the exceptions provided for in the TAA, including in its amended form, applied to the public protector. These enabled access to organs of state dealing with cases of suspected tax evasion which was not within her mandate. Nor was she an applicant in terms of PAIA.
“The public protector is not among those listed in section 70 of the TAA. She has no powers to investigate tax cases and thus no entitlement to access taxpayer information in terms thereof. But she also has no power to access that information in terms of section 69(2) as amended by the constitutional court.”
But whatever the legal position, he added, Gcaleka took the view that it was best to let SARS decide whether it would investigate allegations regarding Ramaphosa’s taxes. Multiple investigations would be a waste of public money and pose the risk of forum shopping.
“Even having regard to the Arena Holdings decision, the public protector took a prima facie view that as a principal institution directly charged with a responsibility to regulate and enforce tax-related breaches or infringements, it is appropriate to afford SARS an opportunity to make a determination in respect of this allegation within its mandate and to avoid duplication and parallel processes.”
Dlamini noted that Gcaleka was similarly frustrated after sending a letter to the commissioner to inform him of a report received from home affairs on the movements of Mustafa Hazim, the purported livestock buyer Ramaphosa named as the source of the stolen US dollars.
The public protector asked whether Hazim had declared foreign currency on arrival in South Africa.
In reply, Dlamini said: “The SARS commissioner addressed a letter to the PPSA on 4 October 2022 advising that the matter had been referred to the Financial Intelligence Centre and could not be disclosed to the Public Protector.”
The public protector’s investigating team had met with SARB officials a day earlier, he said, and was advised that if it wished to know whether the bank was probing potential exchange control violations, it needed to send a subpoena requesting confirmation of such.
The subpoena was sent, but the bank replied that the issues on which Gcaleka sought clarity “were in the exclusive domain of FInSurv and SARB and did not relate to the powers of the PPSA”.
The SARB late last year found that because the sum paid by Hazim was a deposit and the sale was never completed, there was no obligation on Ramaphosa or his Ntaba Nyoni Estate, which owns Phala Phala, to declare the money.
The ATM argued that here too Gcaleka’s decision to desist was an abdication of responsibility as the Public Protector Act did not give her the discretion not to pursue a complaint because it was being probed by another organ of the state.
It said this, along with a gullible acceptance of Ramaphosa’s account of what transpired and her failure to interview key witnesses, meant the investigation fell short of the standard for administrative action and rendered the findings irrational and unlawful.
Zungula faulted Gcaleka for not obtaining oral evidence from the lodge manager at the farm, Sylvester Ndlovu, who discovered that money was stolen, and for not subpoenaing the housekeeper, Froliana Joseph.
Dlamini countered that though Ndlovu was not available for an in-person interview after giving an initial affidavit, he responded to nine follow-up questions in writing.
As for Joseph, Dlamini said: “The reality is that Froliana did not want to engage with anyone. She made that abundantly clear.”
Nor would it have been useful to compel her to talk, Dlamini said, because as a temporary worker, she could not reasonably be expected to answer the central questions of whether the president did paid work at Phala Phala and abused state resources by deploying the presidential protection services at the farm.
On this last point, there was no evidence that Ramaphosa had directed the head of that unit, major-general Wally Rhoode on how to handle the investigation that ensued.
Ramaphosa and Rhoode’s evidence was coherent and the public protector hence had a version of events that “rose to the threshold of truth and fit together” which she could not ignore because the ATM was not convinced.
Ramaphosa in heads of argument filed last month described the ATM’s application as a “nit-picking” exercise not founded in fact or law but embarked upon because Gcaleka did not come to the conclusion it would have liked.
He said the ATM had no evidence to contradict her conclusion that Phala Phala was not a source of income for Ramaphosa, but sought to fashion it out of statements he had made about the source of stolen money.
This included the president telling an ANC conference “I buy and sell animals” and “I am a farmer”.
On this, the public protector’s papers cite the farm manager, Hendrik von Wielligh, saying that Ramaphosa used it as a weekend retreat where he rested, admired the livestock and walked in the garden. The staff briefed him about breeding livestock and sometimes sought his guidance.
Von Wielligh also said the farm was battling to break even.
Gcaleka interrogated what paid work, as prohibited by the constitution and the executive ethics code, meant as neither expressly defines the concept.
Her reading was that the prohibition was meant to prevent members of the executive from earning income from active work that risked distracting them from their official duties. This was supported by the fact that the law allowed members to hold financial interests that provided passive income
“If the president only goes to Phala Phala to rest, he cannot reasonably be said to be distracted from his official duties,” the affidavit noted.
“These facts, contrary to the ATM’s beliefs, are clear indications within the grammatical meaning of paid or remunerative work, that the president is not doing ‘other paid work’ on the farm.”