The South African Revenue Service (SARS) illegally paid at least R420m in tax refunds claimed by Gupta companies into an attorney’s trust account, to a shelf company and to a shady businessman who was once involved in business with Tom Moyane’s nephew.

This came at a time when Bank of Baroda was reducing its Gupta exposure because they could no longer hide, nor stomach, the Guptas’ money laundering activities. The scheme contravened the very laws SARS must administer.

It is a crime of VAT fraud and money laundering directed by Oakbay CEO Ronica Ragavan, effected by dodgy business people and sanctioned by SARS. This is how SARS kept the Guptas in the money laundering business after the banks they abused slammed the door.

Much like the #GuptaLeaks is a snapshot of how the Gupta empire hijacked and repurposed the state machinery, the evidence collected by Scorpio and News24 now offers a snapshot of how the Gupta empire was kept in the game when they ostensibly struggled to be banked.

Previously, three dodgy VAT refund payments to a Gupta pay agent from June 2017, totaling R70m, made national headlines earlier in 2018, ensuring SARS was added to a long list of state entities compromised by the architects of State Capture.

VAT refunds

Commissioner Tom Moyane was suspended in March 2018, three days after Scorpio revealed how SARS’ head of legal Refiloe Mokoena invoked his name to strong-arm SARS officials into releasing VAT refunds claimed by the Gupta companies.

Scorpio and News24 can now reveal that these three payments were merely the tip of a VAT fraud and money laundering iceberg. Our investigation is based on bank statements, an audit report on Bank of Baroda, SARS emails, court documents in three ostensibly unrelated matters as well as interviews with eight insiders and two VAT specialists collected over a period of more than six months.

We found that SARS paid over R420m in VAT and personal income tax refunds claimed by the Gupta companies and individuals in the 17 months between December 2016 and April 2018.

Seven months before News24 revealed the VAT refund payments in June 2017, SARS’ internal policies were already compromised at the behest of the Gupta empire. The first batch of R35.8m in VAT refunds was paid into Estelle de Jager’s attorneys trust account. The second batch of an alleged R200m was paid into the account of a pay agent, Terbium, who once received a dodgy debt collecting contract from SARS because it was in business with Commissioner Tom Moyane’s nephew. 

The last batch of R183.3m was paid into a shelf company created on instruction of Oakbay CEO Ronica Ragavan, named In House Wages.

Our investigation shows SARS’ systems were compromised at least three times by SARS officials colluding at behest of the Guptas.

Commenting on detailed questions, acting Commissioner Mark Kingon took on a very different stance to his predecessor Moyane. Said a SARS spokesperson when presented with detailed questions over the Guptas’ VAT fraud:

“Earlier this year the acting commissioner of SARS requested his office to conduct an end-to-end review of the matter based on what was available in the public domain at the time. The review included internal governance processes and procedures. The acting commissioner received an interim report, but at this stage information relating to the number of third parties and the value of refunds is limited to what is available in the public domain.”

(Read SARS’ full comment here.)

Neither Moyane nor Ragavan reacted to repeated requests for comment.

What Scorpio and News24 reveal here for the first time will form part of Kingon’s internal investigation.

Genesis:

On 13 December 2016 SARS effected three VAT payments totalling R5.5m into the attorney’s trust account of Estelle de Jager, bank statements show.

De Jager is the company secretary and head of compliance of Terbium Financial Services – a pay agent the Oakbay Group came to utilise in mid-2016.

The illegal payment of 13 December 2016 appears to have its roots in a mysterious meeting earlier the same month with mid-level SARS managers at their offices in Megawatt Park, Johannesburg. De Jager and Oakbay CEO Ronica Ragavan attended the meeting. The identities of SARS officials who attended, the details of what was discussed and under whose instruction they acted, are uncertain.

(Based on our investigation, the meeting is now also the subject of an internal SARS investigation. SARS’ current management was unaware of it having taken place.)

The unexplained meeting and diversion of VAT refund payments to alternative accounts came at a time when Reserve Bank deputy governor and Registrar of Banks Kuben Naidoo initiated an investigation into Bank of Baroda, undertaken by audit firm Deloitte. Naidoo was concerned over revelations in former Public Protector Thuli Madonsela’s State of Capture report, certain Optimum Coal Mine transactions, movement in Optimum’s rehabilitation trust fund and Bank of Baroda’s compliance with local and international banking regulations.

This is detailed in a letter from Naidoo to then Bank of Baroda CEO Sanjay Agarwal on 21 November 2016. By then the big four banks wouldn’t touch anything Gupta-related with a barge pole and Bank of Baroda was the only institution left willing to bank the family empire. Based on a Deloitte audit report on Bank of Baroda, the bank was ordered to reduce its Gupta exposure.

The audit report found Bank of Baroda was a conduit for billions of rand in suspicious transactions, including a total of R2.1-billion in payments from five shadowy Gupta-related companies into Bank of Baroda between March and April 2016. The money ultimately made its way to Werksmans attorneys, earmarked for the purchase of Optimum Coal Holding’s shares, Deloitte’s audit report found.

These transactions were never reported to the Financial Intelligence Centre (FIC). An investigation by the African journalism outfit Organised Crime and Corruption Reporting Project (OCCRP) headlined Exposed! Bank of Baroda SA only existed because of Gupta money laundering found that Bank of Baroda was firmly in the Guptas’ court. Managers often stepped in and voided the suspicious activity reports dutifully filed by their junior colleagues, marking the transactions as “genuine”. As a result, the FIC never got to know about the suspicious money flows through the Gupta accounts until years later.

Former finance and current Public Enterprises Minister Pravin Gordhan has also aired a secret FIC report compiled on the Gupta empire that red-flagged R6.8bn in suspicious transactions between December 2012 and June 2016. In another revelation Bank of Baroda themselves challenged a legal case brought against them by the Oakbay Group, by arguing that the bank had to report R4.25bn worth of suspicious reports between September 2016 and June 2017.

It means that R13.15bn in suspicious transactions linked to the Gupta empire were flagged with the FIC over the course of roughly five years.

Creating conduits

By mid-2016 Ragavan was between a rock and a hard place. Thanks to the Reserve Bank, Bank of Baroda could no longer hide nor stomach the Guptas’ money laundering activities. It was forced to call up its more than a billion-rand worth in loans to Gupta companies, was fined for not reporting Oakbay’s suspicious transactions to regulators and ultimately forced to start reporting the Guptas’ money laundering ways to the FIC.

The series of unfortunate events culminated in a total of R35.8m in VAT refunds claimed by several Gupta companies ending up in De Jager’s attorneys trust account, between December 2016 and June 2017, bank statements show. The money was used to pay the Oakbay Group’s “creditors”, Ragavan claimed in emails to SARS, arguing that there was no other way.

De Jager’s bank statements show her attorneys trust account was also used as a pay agent. Funds particularly paid by Shiva Uranium were channelled towards “plane tickets”, “accommodation”, “municipality” and service fees to herself and her Terbium business partner, André van der Zee.

Abusing an attorney’s trust account in this way is a serious crime.

It is further no small feat changing a VAT vendor’s banking details on the SARS system. If the system worked as it was designed to, various SARS officials each had to consider one part of each company’s application. The fact that bank account details were changed at least three times in order for the Guptas to receive their claimed VAT refunds means that SARS officials either broke the system or colluded to push the requests through.

SARS’ and De Jager’s contraventions include money laundering rules under the Prevention and Combatting of Corrupt Activities Act, the Prevention of Organised Crime Act, Reserve Bank rules as well as the VAT Act, SARS Act and FIC Act.

When one person does the right thing

Ragavan’s trouble started when not all SARS officials proved to be compromised. Based on Ragavan’s emails to SARS, interviews with insiders and De Jager’s bank statements it is clear that SARS, over time, paid a growing number of Gupta companies’ VAT refund claims into the attorney’s trust account. It seems this attracted some attention inside SARS, causing a refund bottleneck.

Ragavan had to muscle her way in again. She fired off a series of emails to SARS management between April and May 2017, including to then commissioner Tom Moyane. The matter was referred to then group executive for relationship management Mark Kingon (now acting Commissioner). Seemingly unaware of the fact that De Jager’s attorneys trust account has been receiving VAT refunds from SARS since December 2016, Kingon told Ragavan off in a letter dated 26 May 2017.

“SARS does not possess the power or a discretion to pay the VAT refunds to an attorney’s trust account as it is not ‘the enterprise’s banking account or account with a similar institution’,” Kingon wrote to Ragavan. Attorneys’ trust accounts are easily converted into money laundering conduits.

Kingon continued, saying there is “no legal basis which would allow for an attorney’s firm to be paid the VAT refunds of a vendor. Payment of income tax refunds into an attorney’s trust account would expose SARS to risk…”.

Stumped. Ragavan needed a new conduit.

So, she changed tack and wrote to SARS head of legal, Refiloe Mokoena, offering the business account number of pay agent Terbium Financial Services as a designated receiver of the Oakbay Group’s VAT refunds (Terbium served as Oakbay’s pay agent since mid-2016). Again, SARS’ VAT experts objected. In an attempt to curb VAT fraud and money laundering, the VAT Act does not allow for the Guptas’ VAT refunds to be paid into a third-party account not linked to the VAT vendor, Mokoena was advised in several emails.

In the midst of these deliberations, the #GuptaLeaks broke late May 2017, providing the first proof from inside the Gupta camp of a well-established money laundering ring funded by taxpayers’ money.

Mokoena and Moyane, however, were wearing blinkers. Said Mokoena on 30 May 2017:

“The Commissioner [Tom Moyane] has been copied on all the communications [about the Guptas’ VAT refunds] herein and has not opposed my views. I am comfortable that Dan [Zulu, then acting head of business and individual tax] proceed to discuss same with the Commissioner preferably today as I have requested that this matter be dealt with by close of business today. I place on record that I have applied my mind on this issue and unless the Commissioner doubts the correctness of my views on the matter, I don’t think it will be necessary to obtain outside opinion herein.”

Two independent SARS insiders confirmed Mokoena based her opinion on a dated 2009 version of the VAT Act. The Act has since been amended specifically to curb VAT fraud and money laundering.

SARS officials who highlighted the illegality of her decisions came under strenuous pressure, landed in hospital or were booked off sick from work. These stories cannot be fully told and the public servants who took the brunt of Mokoena and Moyane’s pressure in order to do the right thing cannot be named – our sources fear retribution. The ones who held firm were simply overruled. Mokoena, still in her position as head of legal at SARS, could not offer an explanation for her decision.

A SARS spokesperson quoted Mokoena directly, saying she “denies that she invoked Commissioner Moyane’s name and denies she based her advice on the pre-amended 2009 version of the [VAT Act]. Ms Mokoena further denies that she put undue pressure on any SARS official.”

Contrary to Moyane’s and Mokoena’s views, Kingon’s SARS however conceded the illegality of the payments:

“VAT refund payments into an attorney’s trust account would be a direct contravention of the provisions of section 44(3)(d) of the VAT Act.”

A SARS spokesperson said that “by all accounts the SARS processes insofar refunds are concerned have been followed, however, all these are being reviewed to ensure the robustness of the SARS systems and processes.

“The possibility that governance processes, which include standard operating procedures, have failed and the reasons for the failure is part of our overall review referenced earlier.” 

Whether Moyane or Mokoena were aware of previous illicit refunds paid to the Gupta companies is uncertain. However, they should have known, a SARS spokesperson implied:

“In the ordinary course of doing business SARS would be aware of all refunds to all vendors and this can be extracted at any point in time. It is not known whether Mr Moyane was aware of any other refunds.”

Third shot at goal

Moyane and Mokoena couldn’t see a problem with VAT refunds paid into Terbium’s accounts, but FNB did.

FNB was also concerned with Terbium acting as a pay agent for the Oakbay Group.

In April 2017 senior bank managers met with Terbium CEO André van der Zee querying the sudden and suspicious rise in transaction volumes, large deposits and the company’s clients. Van der Zee, also involved in several side businesses with Ragavan and the Gupta empire, was defensive and evasive in the meeting with FNB and declined to provide proper reasons for the suspicious activity in Terbium’s accounts.

By September 2017 FNB closed all Terbium’s accounts.

Ragavan was, for the third time, in need of a conduit. Enter the shelf company In House Wages. It was set up in late 2017 for the sole purpose of receiving Optimum Coal Mine’s VAT refunds and, quintessentially, Ragavan directed the money flow to the Oakbay Group’s “creditors” and “staff”.

This investigation unearthed how, in the months prior to Terbium going belly-up, Ragavan lined up In House Wages to take over from Terbium before its inevitable demise. By late 2017, the Gupta/SARS VAT machine was operating with uncanny efficiency and the taxman didn’t so much as blink before accepting the proffered “new” avenue.

On 18 October 2017, SARS paid two VAT refunds of R19m and R14m respectively into In House Wages’ account, less than a month after the closure of Terbium’s accounts. By 14 April 2018, the end of our records, SARS had paid R183.3m in VAT refunds claimed by Optimum into the In House Wages account.

It marks the third time that SARS officials illegally changed the banking details of a VAT vendor on its internal system. So callous and careless was the change that SARS officials didn’t note that a verifiable address in the Thlabane suburb of Rustenburg in North West for In House Wages did not exist.

This also marks the third time law-abiding citizens became the fly in the Gupta ointment. Optimum Coal Mine’s business rescue practitioners were unimpressed with the diversion of desperately needed funds away from the cash-strapped mine. In late 2017 the mine stood on the brink of collapse due to critical supply and machine shortages directly linked to the cash-stripping business style perfected by the Gupta cabal.

These details were revealed in a liquidation application brought in June 2018 by the business rescue practitioners (BRPs) in an effort to claw back the millions owed to Optimum.

In an ex parte application the BRPs said they are “unable to ascertain the lawfulness of the ‘pay agent services’ provided by [In House Wages] to [Optimum] and the legitimacy of the payments into and out of [In House Wages’] account”.

They continued:

“All aspects of the VAT refunds into, and the payments out of [In House Wages’] bank account were processed in accordance with the direct and specific instructions of Ms Ragavan. The frequency and regulation in which they were made is unusual and suspicious…. In House Wages’ separate corporate personality has been abused and its real controllers remain hidden behind the corporate veil.”

Now what?

Asked why the Guptas received preferential treatment when tax ombud Judge Bernard Ngoepe found evidence that SARS intentionally withheld VAT refunds to the rest of South Africa, a SARS spokesperson said:

“Without going into the details of a specific case, it is possible for a particular case to require extraordinary attention to address, for example, a complaint that was not resolved on a lower level. This is part of the SARS complaints escalation process. What needs to be determined, however, is whether the special attention was exercised within the parameters of both good governance and the law and this is part of the [internal SARS] review.”

Our investigation highlights what is probably only a small part of the Gupta empire’s financial picture. Evidence suggests only Ragavan sees it in full.

Our data so far only offers information up until April 2018. Whether there were other third-party pay agents assisting the Oakbay Group concurrently with De Jager, Terbium and In House Wages is unknown. How the Guptas conduct their business at the moment is a mystery.

In the coming weeks, Daily Maverick and News24 will continue to publish details on our extensive investigation.

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