Krok heir faces R228m tax bill

Australian authorities target skin-lightening fortune in precedent-setting probe

MARK Krok, billionaire heir to an apartheidera skin-lightening company, will be about R228-million poorer if the SA Revenue Service (SARS) and the Australian Tax Office (ATO) have their way.

Sunday Times is in possession of legal documents in which SARS, on behalf of the ATO, is seeking an order to ring-fence Krok’s local assets — including a R37.5-million mansion in Clifton, Cape Town, each square metre of which cost R53 571 — as well as vast chunks of pharmaceutical company Aspen and casino company Tsogo Sun.

Although it has been technically possible since 1999 for the Australian and South African revenue offices to help each other snaffle tax dodgers, it was only last October that assets could be “preserved” to stop them being sold off while the inevitable litigation processes played out.

This order will help nail down some of the more creative escape routes that have enabled a rogues’ gallery of tax offenders to skip across the Indian Ocean with impunity as compliant Australians and South Africans looked on aghast. John Stratton, Barry Tannenbaum and even Mark Krok’s estranged half-brother Maxim have thumbed their collective noses at the taxman.

Mark Krok is not talking. As the matter was going to come before the court, he did not believe it was appropriate to comment at this stage, he told the Sunday Times.

He has got to be nervous, though. Australia kicked off Operation Wickenby in 2006 targeting high-profile tax evaders — and their lawyers and accountants — who have set up shell companies and trusts in tax havens to evade the Australian tax office.

The operation, carried out with military precision, has resulted in several Australian exports to Jersey and the US getting jail terms as authorities of different countries work together to trap them.

Maxim Krok was caught in the spotlight of Operation Wickenby in 2010. Sunday Times reported at the time that the ATO had unleashed investigators to scrutinise Maxim’s tax records. ATO officials had been auditing the multimillionaire’s records for the past nine years, and “seeking information from offshore” on his affairs.

Controversy and derision have followed the family’s steady accumulation of untold wealth for more than five decades.

Abe and Solly Krok, father and uncle to Mark and Maxim, started by making their first fortune out of skin-lightening concoctions aimed mostly at black women during the height of apartheid. Demand dropped off dramatically in the early 1990s as the changing political environment imbued the products with racial connotations.

More alarming was increasing evidence of the creams’ side effects. As well as being mildly carcinogenic, the active ingredient hydroquinone caused permanent blue-black pigmentation — exogenous ochronosis — on the faces of about 30% of users.

Unfazed by the end of an empire, Abe and Solly set off to make their second fortune, this time in a company called Gold Reef, specialising in luxury resorts and casinos.

In a spectacular irony, the older Krok brothers in 2001 set up the deeply reverent Apartheid Museum directly next door to Gold Reef City.

Gold Reef was in 2011 merged with SABMiller’s Tsogo Sun in a $2.23-billion all-share deal, creating one of the largest casino groups in Africa. The merger was fraught with dubious cash transaction and tooth-rotting share options for Gold Reef executives — including the Krok sons — which infuriated Gold Reef shareholders and raised eyebrows throughout corporate South Africa.

But things had been getting increasingly acrimonious within the family just before the deal. At the time of Maxim’s first brush with the ATO, headlines on the family’s tug of war over who should mete out Abe and Solly’s wads of cash splashed round the world. Abe eventually died in Johannesburg early this year, sparing him the battle his younger son is about to wage with South Africa’s and Australia’s formidable tax authorities.

Mark’s tax debt of A$25 361 875— as well as “considerable” interest — dates back to his emigration to Australia in 2002.

Between leaving South Africa and arriving in Australia, Mark stopped in Lichtenstein and established a series of trusts and companies registered in the British Virgin Islands. He structured his South African assets so that while he remained the legal owner the benefits and income from them were to be ceded to a BVI company — carefully out of reach of the Aussie Tax Office.

Mark no longer owed the local taxman anything, but he nevertheless had to file tax returns. His assets were eye popping — his 2004 tax return estimated conservatively his

Controversy has followed the family’s steady accumulation of untold wealth

local properties to be worth about R68-million, his Aspen and Gold Reef shares about R98-million, his shareholdings in unlisted entities about R6.5-million and his cash resources about R12-million.

Mark was never going to live on bread alone. In 2004 he got Investec to take control of his South African assets and arranged with the South African Reserve Bank that the income from these assets — dividends and interest and so on — be sent to his bank accounts Down Under. He neglected to mention anything about the BVI company that should have got the income.

Meanwhile, he carried on his daily routine of buying and selling shares and properties much as he did in South Africa. He also got funds released whenever he needed cash — in 2008 for example, he bought a property in Plettenberg Bay for R15.6-million.

The ATO last year managed to get some cash out of Mark — they got a garnishee order for the A$2.9-million he held in credit at the St George Bank in New South Wales. It didn’t help Mark’s case that in 2005, when he set about borrowing $4.5-million from the bank, he told them he would be able to service the loan because he owned shares in Aspen and Gold Reef worth about R176million, among other things. His South African accountants Theron & Associates backed him up, saying his income was split into transferable and blocked income.

Mark’s lawyers Cliffe Dekker Hofmeyr do not deny that Mark owes money to the ATO. But they do object to the way the amounts have been tallied, how they have been presented and the way SARS went about getting the preservation order for Mark’s local assets. This objection was disallowed in full in February last year and a provisional preservation order was granted.