The Equality Court has ordered the Financial Intelligence Centre (FIC) to hand over the suspicious and unusual transaction reports it received from accountable institutions in respect of EOH Holdings, KPMG, Steinhoff, and Tongaat Hulett Developments, as well as Sekunjalo Investment Holdings (SIH) and the entities associated with the Sekunjalo Group.
The FIC must also provide the applicants with all the suspicious and unusual transaction reports it received about them from accountable institutions, as well as the Risk Management and Compliance Programmes of Absa Bank, FirstRand Bank, Investec Bank, Nedbank, and Standard Bank.
The order, contained in a judgment handed down on Tuesday, was made in favour of six natural and juristic persons whose bank accounts were closed by Absa and First National Bank (FNB).
Their application was an interlocutory application in the main matter between SIH chairperson Dr Iqbal Survé and 56 other complainants and the country’s major banks.
The application was brought in terms of section 21(5) of the Promotion of Equality and Prevention of Unfair Discrimination Act and sections 40(1)(e) and 41(d) and (e) of the Financial Intelligence Centre Act (FICA).
The FIC opposed the application. It said the applicable legislation did not permit it to grant access to sensitive information relating to state security and containing the personal details of individuals and entities to applicants in civil proceedings to enable them to attempt to find evidence that supported their complaints.
The application was heard by the High Court in Cape Town sitting as the Equality Court.
Sekunjalo and its associated entities have litigated all the way to the Constitutional Court to prevent the country’s banks from closing their accounts.
The banks say that an association with the Sekunjalo-linked businesses poses reputational, business, and legal risks. They have cited “the red flags” raised about Sekunjalo in the inquiry headed by Judge Lex Mpati into allegations of corruption at the Public Investment Corporation (PIC).
The inquiry found the PIC had disregarded its policies and procedures in making investments into some Sekunjalo subsidiaries, including AYO Technology Solutions.
But Sekunjalo, a black-owned and managed company, says the banks’ actions are motivated by racial discrimination or a political agenda.
Like Sekunjalo, the applicants accused the banks of double standards because Absa, FirstRand, Investec, Nedbank, and Standard Bank have not terminated their relationships with other companies implicated in fraud or corruption.
According to the judgment, the applicants’ case was that EOH, KPMG, Steinhoff, and Tongaat Hulett allegedly admitted to crimes of fraud and corruption “on a massive scale” and have multiple criminal and civil cases pending against them. Some of them have been identified or implicated in state capture, which the Financial Action Task Force flagged as a risk in its Mutual Evaluation Report of October 2021. Some of these entities were fined by the FSCA for serious accounting irregularities and were censured and fined by the JSE.
Applicants’ case: FICA compliance a smokescreen
The six applicants in the interlocutory application were:
- Siphokazi Ndudane, the director of TCQ Fisheries Management Group, the second applicant. Investec and FNB terminated their relationship with the applicants citing reputational and business risks.
- Dennis George, a former trade unionist who served on the board of AYO from 2018 until his death last year. Absa terminated its relationship with George, alleging his profile did not fit its internal policy and commitment to complying with anti-bribery laws and regulations.
- Amavel Mota Moreira, a sales manager of Silver Moon Trading. According to Moreira, FNB declined to provide services to Mota Motor Company, the fifth applicant, because Silver Moon instituted proceedings against the bank. FNB ended its relationship with Moreira and Mota Motor Company. The termination letter referred to reputational and business risks.
- Democracy in Action, a non-profit company, which had an account with FNB to receive donations. FNB informed the organisation that had elected to exercise its contractual right to terminate their banking relationship.
Apart from “reputational and business risk” or “risk appetite”, the banks did not provide the applicants with reasons for refusing to provide banking services and facilities to the applicants. They said the banks did not answer requests to be provided with reasons.
The applicants’ submissions included the following:
- The information they sought to obtain would show that although the banks purportedly closed the applicants’ bank accounts to comply with FICA, the respondent banks had treated the applicants in a discriminatory and unequal manner compared with other individuals and organisations that have received negative publicity.
- The unilateral termination of bank accounts violated their constitutional rights. Without access to financial services such as bank accounts, numerous socio-economic rights in the Bill of Rights were curtailed and could not be meaningfully enjoyed or exercised.
- The anti-money laundering laws and regulations do not require banks unilaterally to terminate the accounts of customers who fulfilled the customer due diligence requirements. The banks are required only to monitor and report suspicious or unusual transactions and cash transactions above the regulated threshold. The banks were thus overreaching by assuming the role of a law enforcement agency and a court of law entitling them to investigate, judge, and punish their customers through un-banking them based on innuendo and suspicion of involvement in criminal activity.
- The information they sought would be used to assist the Equality Court to determine the applicants’ allegations of unequal treatment, unfair discrimination, and persecution by the major banks compared with other companies and individuals who were in the news for regulatory and criminal violations.
FIC’s case: the applicants do not have a right to the information
In response, the FIC said it was not privy as to why the banks terminated their relationship with the applicants, and the banks should speak for themselves.
The Centre also submitted that:
- The FIC did not issue directions to banks to close accounts, and it had not taken any steps against the applicants. The applicants sought to obtain documents that they apparently needed to prove their case in the main application by making a third party (the FIC), against which no allegation of unlawful conduct was made, a respondent and seeking against it a form of discovery not known in South African law.
- The applicants’ assertion as to what the information would show was a conclusion not supported by evidence.
- The information sought included confidential and personal information derived from and concerning persons and entities other than the respondent banks. These persons and entities had direct and substantial interests that may be prejudiced by the orders sought. They were not parties to the proceedings or the main application and were not joined.
- The information sought was for the purpose of litigation after that litigation had commenced, and therefore the Uniform Rules of Court governed access to the information.
- To the extent that the applicants relied on the constitutional right of access to information, the principle of subsidiary prevented them from that without complying with the provisions of the Promotion of Access to Information Act (PAIA). The applicants failed to do so.
Court: disclosure may dispel the ‘foul smell of racism’
Judge Daniel Thulare rejected the FIC’s arguments based on PAIA and the Uniform Rules of Court.
He also rejected the Centre’s characterisation of the applicants’ request for the information as a fishing expedition.
Judge Thulare said, in his view, the constitutionally entrenched right to equality will be “emaciated and hollow” if constitutional institutions, upon request, may not supply information on any measures relating to the achievement of equality, including compliance with legislation, codes of practice and programmes within their jurisdiction, where such access did not threaten state security or destabilise the nation’s financial system.
“In this case, the disclosure will help enhance the legitimacy and maintain the integrity of the financial system of our country, as it may demonstrate that voluntary compliance and self-regulation is not a cover at the expense of the black majority in that it was exploited to maintain protection based on race and superiority based on political ideology and allegiance. Non-disclosure, on the other hand, will allow the foul smell of racism and white superiority to linger around [the] major banks in the Republic,” he said.
“The FIC disclosure would be in line with their duty and responsibility to promote equality. This is so particularly for complainants who are disadvantaged by the lack of access to relevant information on how risk is attended to for both black and white business. The constitutional institutions have a responsibility to assist disadvantaged complainants, and if racism exists in our financial sector, it needs the FIC to disclose, and not hide, what it obtained and held.”
Judge Thulare said fairness and equity and the constitutional values of openness and transparency favour that the applicants be granted access to the reports that the respondent banks provided to the FIC as regards reputational and business risk, as well as the anti-bribery legal and regulatory framework.
“This is part of the portfolio of evidence that is material to determine whether the applicants were unfairly discriminated against, as they allege. The disclosure of this confidential information held by the FIC will help in the proper determination of the issues in the main application.”
He ordered the FIC to provide the applicants with the requested information within 20 days of the date of his order. The FIC was also ordered to pay the costs of the application.
In a statement yesterday, the FIC said its legal team was considering the judgment, and “no further comments will be made at this stage”.
Survé said on Tuesday: “This is a significant victory for us, as we have maintained from the beginning that there has been no basis for any of our accounts to be closed, as there is no wrongdoing by any of our companies. The decision to close our accounts has been motivated by political interference and is tantamount to economic sabotage in an effort to destroy the country’s biggest black-owned media house, along with other Sekunjalo-owned entities.”
Constitutional Court and SCA decisions
The Equality Court’s decision comes days after the Constitutional Court dismissed, with costs, the Sekunjalo Group’s efforts to appeal a ruling that allows three banks to close its accounts.
On 12 February, the apex court dismissed Sekunjalo’s attempt to challenge a Competition Appeal Court (CAC) ruling that it had failed to make a prima facie case that Standard Bank, Access Bank, and Mercantile Bank committed a “prohibited practice” under the Competition Act by closing accounts belonging to its companies.
The CAC found that the Competition Tribunal was wrong to order various banks to keep the group’s accounts open or reinstate them pending the finalisation of a Competition Commission hearing into the banks’ dealings with Sekunjalo. It granted Standard Bank, Access Bank, and Mercantile Bank’s application for that ruling to be overturned.
In December last year, the Supreme Court of Appeal (SCA) set aside an interdict granted by the Equality Court in 2022 blocking Nedbank from closing bank accounts held by companies in the Sekunjalo stable.
In that matter, the Sekunjalo entities asserted they were treated differently because they were black-owned: the banks accounts of entities such as EOH, Steinhoff, and Tongaat Hulett were not closed because they were “white-dominated”.
The SCA said Sekunjalo applied the designation of “white” or “white-dominated” to EOH, Steinhoff, and Tongaat Hulett without any underlying factual basis to support that designation.
“In their submissions, the respondents contended that the race profile of a company must be determined by considering factors such as the racial composition of its senior management, its board of directors, and its beneficial shareholders. However, the affidavits filed in support of the application were devoid of any reference to these factors, let alone an evaluation, based on them, of the alleged ‘white companies’ identified,” said Acting Judge Raylene Keightley.
Sekunjalo’s assumption of racial designation was insufficient to establish even a prima facie case that Nedbank had treated the respondents, as black customers, differently from white customers. The Equality Court compounded the problem by assuming, without deciding, that EOH, Steinhoff, and Tongaat Hulett were white companies, Keightley AJ said.
She said Nedbank had explained why it did not terminate its relationships with Steinhoff, EOH, and Tongaat Hulett.
“These companies did not pose the same reputational risk as the respondents. This was because, unlike the respondents, they had all been restructured following the adverse findings against them; they had acknowledged their past wrongdoing; those implicated had been dismissed or resigned; new management was in place and other remedial actions had been undertaken. In contrast, its interaction with the respondents demonstrated that they had sought to downplay the seriousness of the [Mpati] Commission’s adverse findings and comments directed at the Sekunjalo Group and Dr Survé. Further, a number of Nedbank’s queries regarding account transactions had not been adequately explained,” the judge said.
The outcome of other court cases instituted against the banks by Sekunjalo is still pending.
Click here to download the Equality Court’s decision in the interlocutory matter
