Sars pushes envelope with Sasfin

• Damages claim of R4.9bn arises from former clients’ dealings • Bank says it will not affect its capital position

Sasfin Bank, a niche lender that caters for small and mediumsized businesses, has been slapped with a civil summons from the SA Revenue Service (Sars) for a staggering R4.9bn plus interest and costs, in a novel lawsuit that tests the tax collection agency’s boundaries.

The claim, rejected as baseless by Sasfin, stems from Sars’ alleged inability to collect taxes and penalties from former foreign exchange clients of the bank who were involved in a criminal syndicate that colluded with some of the bank’s employees to expatriate money illegally.

The claim is the latest headache for Sasfin CEO Michael Sassoon, whose primary goal is to turn the bank into a diversified wealth and investment manager. The claim comes months after the company’s employees were ensnared in illicit tobacco and helped facilitate money-laundering and circumvent exchange controls. The employees have been fired.

The lawsuit could be seen as an attempt by Sars to test its powers under the legal theory of vicarious liability and the law of delict, under which Sasfin would be held responsible for the actions of its clients in their obligations to pay taxes.

But Sasfin Bank, a unit of Sasfin Holdings, said it had obtained a legal opinion from ENS, authored by legal heavyweights Dale Hutchinson, Michael Katz and Aslam Moosajee and endorsed by leading advocate Wim Trengove, that the claim had no merit and a very remote likelihood of success.

The company said it had filed a notice of intention to defend the matter. “We are confident that the Sars claim has no merit,” Sassoon said in a statement. “It is unjust for banks to be held liable to Sars for taxes that their clients have failed to pay.”

His comment was echoed by Moosajee, who said “we will be very surprised” if any SA courts recognised Sars’ claim.

Under SA’s law of delict — or civil wrong that causes harm to another person or entity — there are two types of claims: one for bodily injury or damage to property, and one for pure economic claim.

For pure economic loss claims, courts were generally reluctant to impose liability unless there was a recognised category that the court had already established, Moosajee said, adding that Sars’ claim did not fall under any recognised category of liability.

“Our courts are generally loath to extend those categories of liability, particularly if there is a danger of indeterminate liability,” he said, referring to a legal term that could make Sasfin liable for an unknown amount of money, for an unknown period, to an unknown class of people. “We think there is a danger in indeterminate liability if Sars succeeds with this claim.”

Al Jazeera reported in 2023 that staff of Sasfin and two other banks had been on the payroll of Mohamed Khan, an alleged accomplice of cigarette magnate Simon Rudland, who is alleged to be the kingpin behind multiple Zimbabwean gold smuggling gangs. These are said to smuggle gold into SA, the proceeds of which are allegedly laundered through Khan’s company, Salt Asset Management, before being transferred to offshore bank accounts.

The Reserve Bank launched its own investigation into Sas

fin’s involvement in breaching exchange control regulations, “which did result in allegations of noncompliance, which could result in potential sanctions”, Sasfin said in its latest annual report.

Sassoon said the bank acted swiftly when it became aware of the collusion in 2014 by terminating the relationships with the implicated clients and employees and lodging criminal cases against them. He said the bank had since tightened its controls and processes to prevent such incidents from recurring and had invested heavily in its compliance and risk functions.

The scandal has tainted the reputation of Sasfin, which was transformed from a textile trading business in the 1950s to one of the most trusted household names in financial services.

Its share plummeted after the news, closing more than 7% weaker at R19.98, valuing Sasfin at just more than R645m.

The Sars claim is more than seven times that and 43 times its annual headline earnings in the 2023 fiscal year.

Sassoon said the claim was not a tax claim but a damages claim, and it had no effect on the bank’s capital position or its ability to service clients. It “has nothing to do with Sasfin’s own tax affairs. The claim, which we emphatically reject, will involve a protracted trial action, and the matter is only likely to conclude in several years.”

The bank said the claim would not result in the recognition of any liability.

Tax Justice SA, a lobby group against tax evasion and illicit trade, praised Sars for its action but launched a blistering criticism about the lack of arrests and prosecutions for the criminal kingpins and the rogue Sasfin officials who were allegedly colluding with them. It also questioned why Gold Leaf Tobacco Corporation was still operating in SA, even though it was implicated in illicit trade and money-laundering.

“It’s almost a year since Al Jazeera lifted the lid on how Gold Leaf’s operatives allegedly corrupted bank officials to set up a massive transnational laundry to wash the billions it makes from illicit cigarette sales,” Yusuf Abramjee, founder of Tax Justice SA, said in a statement.

“Yet despite Sars issuing a civil claim linked to their operations, the company is still conducting business like normal in our country and no criminal action has been taken against those allegedly involved in the mass-scale looting,” he said.

“Why have we not seen arrests of the Sasfin officials who were allegedly involved?”