Why the Hawks don’t have a case against Gordhan
An explanation of the law
The back and forth between Finance Minister Pravin Gordhan and the Hawks has finally come to a head with Major General Ledwaba instructing Gordhan to provide a warning statement this afternoon and Gordhan effectively saying, no.
Given the protracted nature of this particular issue as well as the shifting focus, it is difficult to follow exactly what Gordhan is being accused of, or if he is even being accused of anything. A good place to start, in attempting to understand what is unfolding, is to look at what is being requested by the Hawks.
What is a warning statement?
Warning statements get their name from the statement of rights read to a suspect prior to arrest. The statement – derived from the Miranda rights of the USA – informs a suspect that he or she has the right to remain silent and the right to counsel. Individuals only need to be informed of these rights when they are suspects being questioned or detained by the police. Usually, a suspect has the option to remain silent, consult counsel or make a statement.
If the Hawks are instructing Gordhan to provide a statement, it is more likely than not that Gordhan has gone from being a person of interest to a suspect.
If Gordhan is a suspect then, legally speaking, he is not obliged to appear or to provide any statement since he is protected under section 35 of the Constitution. The only way that Gordhan can be compelled to appear before the Hawks is if he is arrested. There are a number of reasons, however, why an arrest may not be happening in the near future. One reason may be that there are not sufficient grounds for a warrant to be issued. Another may be that the Hawks do not want the case brought before a court just yet.
In any event, legally speaking, Gordhan can elect not to respond, not to appear or even just respond to the extent he wishes, for as long as he is not under arrest. However, despite his cooperation, Gordhan seems to have become a suspect in the Hawks’ investigation.
What is he suspected of doing?
The first accusation is that he approved the early retirement and then rehiring of a Deputy Commissioner and the second is that he facilitated the creation of a unit that was involved in the gathering of intelligence.
These actions don’t appear to be criminal.
The ‘Rogue’ Unit
This primary Hawks’ allegation against him appears to be that the so-called ‘Rogue Unit’ was engaged in collecting covert intelligence and this was illegal.
Gordhan admits that he oversaw the creation of a unit to investigate organised crime relating to tax and customs legislation. In 2007, the Unit was set up to penetrate and intercept the activities of tax and customs crime syndicates. As Gordhan describes it, the work of the unit was to investigate non-compliance with tax legislation. In his words:
“Non-compliance could include non-submission of a tax return, incorrect information on a tax return, different types of debt collection, aggressive tax avoidance, abuse of trusts, tax evasion, smuggling across borders, cigarette and other forms of illicit trade, trafficking of drugs, round-tripping to avoid excise duties and VAT etc.”
It does look as if some of the intelligence gathered by this unit was gathered ‘covertly’. Is that illegal?
The Sikhakhane Panel thought that the actions of this unit were a contravention of Section 3 of the National Strategic Intelligence Act which reads as follows:
“3. (1) If any law expressly or by implication requires any department of State, other than the Agency or the Service, to perform any function with regard to the security of the Republic or the combating of any threat to the security of the Republic, such law shall be deemed to empower such department to gather departmental intelligence, and to evaluate, correlate and interpret such intelligence for the purpose of discharging such function: Provided that such department of State-
other than the National Defence Force when employed for service referred to in section 227(1)(a), (b) or (e) of the Constitution or when discharging the counter-intelligence responsibilities entrusted to its Intelligence Division; and
other than a police service established under any Act of Parliament, when a member of such service is investigating any offence relating to the security of the Republic or is performing any other function relating to the security of the Republic, shall not gather departmental intelligence within the Republic in a covert manner:”
It is not a simply worded section but if you read it carefully, it essentially states that a department may investigate and gather intelligence relating to the security of the Republic as outlined in subsection 3(1) except when it comes to gathering intelligence within the Republic in a covert manner. In terms of subsection 3(1)(b), only the police service has the power to gather intelligence in a covert manner but only if the intelligence relates to the security of the Republic.
So, does the intelligence gathered by the Unit relate to the security of the Republic?
While abalone poaching and smuggling syndicates are big problems, particularly for SARS, they do not specifically relate to the security of South Africa. In particular, it is clear that the Unit gathered intelligence relating specifically to contraventions of tax and customs legislation which clearly falls outside of area of security of the Republic.
Even if we were to accept, however, that the investigations of the Unit did contravene the National Security Act, that contravention falls on the Department, not just the Minister. More importantly, it is not a criminal offence.
The letter by Gordhan’s attorneys to the Hawks states:
“Your interpretation suggests that it is unlawful for anybody to engage in
the covert gathering of crime intelligence. But such an interpretation is
clearly absurd. Very many public bodies engage in the covert gathering
of crime intelligence such as most metropolitan local authorities, SAA,
Eskom and Prasa to name but a few.”
It’s not clear what the Hawks are attempting to rely on in attaching criminal liability to Gordhan’s involvement in the Unit but the links are tenuous, if not non-existent.
Then there’s the other thing…
Rehiring the Deputy Commissioner, Ivan Pillay
In Gordhan’s 23 August 2016 statement to the Hawks, he admits that he received a memo requesting his approval for Pillay to take early retirement and be re-employed as a fixed-term employee. As a consequence, Pillay would obtain access to his pension fund but also retain his job.
Gordan approved the proposal and alleges that this approval was based on his belief that the arrangement was above board.
In certain respects, this action seems a little strange, but that would not be enough for an arrest. The Hawks have to charge Gordhan with specific contraventions and criminal acts.
One of the key issues the Hawks rely on is that SARS paid an early-retirement penalty for Pillay. It is stated further, in Ledwaba’s letter of 22 August 2016, that ordinarily this penalty is payable by the employee. As a consequence, the payment of this penalty amounts to an unauthorised expenditure under the Public Finance Management Act (the PFMA) and so Gordhan is guilty of an offence.
The starting point of the problems here is that the PFMA doesn’t apply to SARS. If the act is not applicable, it would be impossible for Gordhan to contravene it. However, even if the PFMA was applicable, contravening it is not a criminal offence, so this allegation fails on the law alone.
It is further contended by Ledwaba that the approval contravened the Prevention and Combating of Corrupt Activities Act which, to put it politely, seems to be a last-ditch attempt to nail Gordhan on something. The offence of corruption is a pretty broad one (it is called the ‘General Offence of Corruption’ after all) so it makes sense for the Hawks to try to tack that accusation on as a kind of catch-all. But at the end of the day, catch-all charges also need to be proven.
Broadly speaking, it will need to be shown that (a) there was an acceptance or giving of some kind of gratification and (b) that this influenced someone to act in an improper way. While one may be able to stretch SARS paying the early retirement penalty for Pillay into ‘gratification’, it’s difficult to see how that would imply Gordhan influencing Pillay – or anyone else – to act in some improper manner. At the end of the day, Pillay returned to SARS on the same salary he had before he took early retirement and continued performing the same duties, so we are in the dark about what influence resulted.
What happens now?
It’s clear that the Hawks don’t have much of a legal basis to successfully prosecute Gordhan on any of the allegations outlined in their letter of 22 August 2016, but these allegations are not set in stone. The danger is that the Hawks may reformulate the charges, and next time around, the legal arguments may not be as shaky.
Small improvements and spelling corrections were made to this article after publication.
I have read the above article with interest and quite frankly I agree with most of what is said by the author.
What I found puzzling though was the conclusion that the PFMA is not applicable to SARS! I have consulted the PFMA to verify this startling conclusion and could not find any authority for it in the Act itself. This does not rule out the possibility that this exclusion lies in some other piece of legislation, which would be odd. I would like the author to clarify the basis of her conclusion in this regard even if its for my own education. Please do pardon my ignorance.
Siviwe is correct in stating that the PFMA would apply to SARS generally, and is correct in questioning the statements in the article. The statement that the PFMA is not applicable was a simplification that resulted in a slight inaccuracy.
To clarify, the sections of the PFMA which Gordhan has allegedly contravened are not applicable to SARS or Gordhan.
In Ledwaba’s letter, it is stated that the approval Gordhan gave for Pillay to take early retirement is an action that constitutes unauthorised expenditure in terms of sections 1 and 34 of the PFMA and / or fruitless expenditure in terms of sections 1 and 81(2) of the PFMA.
Ledwaba is not explicit about which action is associated with these contrventions but by process of elimination we can see that of all the actions, the approval is the only one which is alleged to have resulted in expenditure. The expenditure that the Hawks must be referring to is the approval for SARS to pay the early retirement penalty on behalf of Pillay. Note that Gordhan has not admitted this, so this remains an allegation.
Section 1 of the PFMA is the definitions section which includes the following definitions:
“fruitless and wasteful expenditure” means expenditure which was made in vain and would have been avoided had reasonable care been exercised;
“unauthorised expenditure” means— (a) overspending of a vote or a main division within a vote; (b) expenditure not in accordance with the purpose of a vote or, in the case of a main division, not in accordance with the purpose of the main division;
“vote” means one of the main segments into which an appropriation Act is divided and which— (a) specifies the total amount which is usually appropriated per department in an appropriation Act; and
(b) is separately approved by Parliament or a provincial legislature, as may be appropriate, before it approves the relevant draft appropriation Act as such.
“main division within a vote” means one of the main segments into which a vote is divided and which— (a) specifies the total amount which is appropriated for the items under that segment; and (b) is approved by Parliament or a provincial legislature, as may be appropriate, as part of the vote;
From these two definitions, we see that the Hawks will either need to prove that the expenditure was in vain and could have been avoided if Gordhan had exercised reasonable care (fruitless and wasteful expenditure) or that the expenditure was greater than the amount appropriated or not in accordance with the purpose of the appropriation. However, what is also important is that Gordhan’s actions constitute a contravention of sections 34 and or sections 81(2).
Section 34 reads as follows:
(1) Unauthorised expenditure does not become a charge against a Revenue Fund except when—
(a) the expenditure is an overspending of a vote and Parliament or a provincial legislature, as may be appropriate, approves, as a direct charge against the relevant Revenue Fund, an additional amount for that vote which covers the overspending; or
(b) the expenditure is unauthorised for another reason and Parliament or a provincial legislature, as may be appropriate, authorises the expenditure as a direct charge against the relevant Revenue Fund.
(2) If Parliament or a provincial legislature does not approve in terms of subsection (1) (a) an additional amount for the amount of any overspending, that amount becomes a charge against the funds allocated for the next or future financial years under the relevant vote.
Section 34 is part of a chapter of the PFMA that relates to National and Provincial Budgets. The section outlines what happens if an entity, body or department speads more than the amount appropriated for them. If there is expenditure in excess of the budget, then the excess is either approved and appropriated or can be charged in future years.
It’s hard to see how the above could be applicable to the payment of an early retirement penalty.
Section 81 reads as follows:
(1) An accounting officer for a department or a constitutional institution commits an act of financial misconduct if that accounting officer wilfully or negligently—
(a) fails to comply with a requirement of section 38, 39, 40, 41 or 42; or
(b) makes or permits an unauthorised expenditure, an irregular expenditure or a fruitless and wasteful expenditure.
(2) An official of a department, a trading entity or a constitutional institution to whom a power or duty is assigned in terms of section 44 commits an act of financial misconduct if that official wilfully or negligently fails to exercise that power or perform that duty.
From the wording of sub-section 81(2) above, it is clear that it applies to an official of a department, a trading entity or constitutional entity. The allegations against Gordhan at the moment are in his capacity as head of SARS which is categorised as a public entity and does not fall into one of the categories above.
To be really specific, the PFMA would apply if Ledwaba had relied on section 83(1)(b) for example since SARS is actually a public entity under schedule 3 but that’s not what they have done.
I would stress that the Hawks still have time to reformulate their charges under the correct sections of the relevant acts but it is concerning that Ledwaba did not rely on applicable sections in his letter. The lack of clarity and the uncertainty around the nature of the charges makes it difficult for Gordhan to respond to the case against him since it’s a moving target.
1. Contravention of Public Finance Management Act
In the Public Sector, any contravention of any policy or legislation, is dealt with in terms of the Public Service Act, which provides for a process to deal with any allegations of misconduct. We have seen a lot of Government Officials being dismissed from work as a result of this very process, so why in this case are the provisions of the PSA ignored?
This surely tells us that there is a political vendetta against Gordhan.
2. Contravention of National Strategic Intelligence Act
Let all Government Departments which are doing intelligence work to further their mandates please be called by the Hawks for their warning statements. If the Hawks cannot do that, then they must back off.
In a nutshell, the Hawks has been instructed from Number 1 to deal with Gordhan so that he can give way to state capture and corruption.
My appeal to all South Africans is let us not allow our Country to be tarnished by people with ulterior motives
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