Opposition MPs criticise Sarb for ‘narrow’ Phala Phala investigation

Opposition MPs have criticised the South African Reserve Bank (Sarb) for its “narrow” investigation into whether President Cyril Ramaphosa violated the Exchange Control Regulations in relation to the foreign currency at his Phala Phala farm.

Sarb Governor Lesetja Kganyago defended the central bank’s investigation when he appeared before the National Assembly’s Standing Committee on Finance on Wednesday, a week after the central bank shared some of the investigation’s findings.

He said the investigation by the Sarb’s Financial Surveillance Department (FinSurv) dealt only with the alleged contravention of the Exchange Control Regulations.

Statements and affidavits were obtained from the people involved, including Ramaphosa, Kganyago said.

The investigation focused on whether regulation 6(1) had been violated. This provision requires every person resident in the Republic who becomes entitled to sell or to procure the sale of any foreign currency, within 30 days after becoming so entitled, to make or cause to be made a declaration in writing of such foreign currency to the Treasury or to an authorised dealer.

The FinSurv’s investigation found that Sudanese businessman Hazim Mustafa handed $580 000 in cash to farm manager Sylvester Ndlovu on December 25, 2019, as a “security deposit” for the 20 buffaloes he intended to buy. Ndlovu gave Mustafa a hand-written note to acknowledge receipt of the money.

Ndlovo informed Ramaphosa on 26 December what had transpired the previous day. The president advised Ndlovo that the matter could only be dealt with when he returned to Phala Phala.

Ndlovu initially placed the money in a safe. But he was concerned that the money could be stolen because other employees had access to the safe. On 30 December, Ndlovu moved the money to a bedroom and hid it under sofa cushions, the investigation found.

The money was stolen during a break-in on 9 February 2020.

The investigation found that the purchase of the buffaloes was subject to conditions precedent, including the confirmation of the final purchase price, tests by the state veterinarian, and transportation and export permits.

Kganyago said the question facing the investigation was whether a right to foreign currency had accrued to Ntaba Nyoni Estates CC, which owns Phala Phala, within the meaning of Regulation 6(1).

“The foreign currency was stolen before the conditions precedent to the sale transaction could be fulfilled,” he said.

The transaction was not a perfected transaction that gave rise to a legal entitlement by Ntaba Nyoni to the foreign currency. The obligation under Regulation 6(1) was not triggered by Ntaba Nyoni when it received the money from Mustafa.

There was no legal obligation on Ramaphosa or Ntaba Nyoni to have declared the foreign currency under the Exchange Control Regulations, the investigation found.

Not part of Sarb’s mandate

Kganyago said the introduction of foreign currency into the Republic is regulated by the customs and excise legislation and supervised by the South African Revenue Service (Sars). The Department of Home Affairs and Sars were responsible for administering the country’s ports of entry.

The Exchange Control Regulations do not regulate the “mere possession” of foreign currency.

It was the responsibility of the Financial Intelligence Centre (FIC) and the Hawks to investigate allegations of money laundering. The Sarb’s responsibility was limited to the institutions it supervised, which supervision was limited to ensuring that institutions have systems in place to combat money laundering, Kganyago said.

He said the scope of the investigation had been narrow because it focused on the laws administered by the Sarb.

DA MP Dion George asked whether the Sarb had considered the impact of its findings on money laundering – whether they could result in people avoiding declaring foreign currency by creating conditions in a contract.

Kganyago said parties to a contract had to prove that all the conditions were legitimate. If asked, they would have to show they tried to fulfil the conditions.

“Let me be clear here that we do not believe that what we have done has got implications for money laundering,” Kganyago said. “It might have, but we dealt with the interpretation of the law with respect to the exchange controls.”

He said that “maybe one of these days” the FIC “may be able to pronounce on this”. But it would be a “very unfortunate interpretation of what we have said” if it was perceived as meaning “it’s okay to launder money”.

Kganyago said the Sarb could not expand the scope of the investigation. “Institutions that have stepped outside their mandate have been treated harshly by the courts,” he said.

‘The president doesn’t have the report’

Kganyago cited section 33 of the Sarb Act as precluding the bank from releasing the full contents of the investigation report. “If you are asking me to avail the report, you are asking to commit an offence,” he said.

He said the Sarb has not shared the report with the president, the president’s lawyers, or the minister of finance, because section 33 applied to them too.

Responding to another question from George, Kganyago said the investigation had considered whether an offence under Regulation 6(5) had been committed. This regulation prohibits anyone who is entitled to receive a payment in a foreign currency from engaging in conduct aimed at frustrating or delaying the receipt of such currency.

The investigation found no evidence of such activities, and it had received internal and external legal advice that the regulation did not apply to the matter.

George said the report left many questions unanswered, and it was likely the DA would approach the courts.

‘A systemic event’

EFF MP Mzwanele Manyi criticised the Sarb for choosing to take the “narrowest route” in its investigation.

He cited section 15(1) of the Financial Sector Regulation Act as compelling the Sarb to take all reasonable steps to prevent “systemic events” from occurring, and if a systemic event has occurred, to mitigate the adverse effects of the event on financial stability.

He argued that Phala Phala fell within the Act’s definition of a systemic event: “an event or circumstance, including one that occurs or arises outside the Republic, that may reasonably be expected to have a substantial adverse effect on the financial system or on economic activity in the Republic, including an event or circumstance that leads to a loss of confidence that operators of, or participants in, payment systems, settlement systems or financial markets, or financial institutions, are able to continue to provide financial products or financial services, or services provided by a market infrastructure.”

Manyi said the Sarb should be concerned it had evidence that foreign currency was in the country but not within the financial system. He said the Sarb was trying to avoid the issue on the grounds that the money did not flow through the banking system and therefore lay outside its mandate.

He also accused the Sarb of avoiding addressing the issue of why the president had held the money for longer than 30 days without declaring it.

‘Unadulterated claptrap’

EFF MP Floyd Shivambu said the Sarb acted “maliciously” in narrowing its investigation to whether the Exchange Control Regulations had been violated.

He accused the bank of engaging in a “systemic cover-up” and asked fellow MPs to investigate removing Kganyago as governor, as well as those responsible for the investigation, claiming they were trying to subvert the laws of the country.

UDM MP Nqabayomzi Kwankwa called the report “unadulterated claptrap” and said the Sarb abdicated its responsibility to enquire into how the money came into the country.

“It’s insulting our intelligence [to say that] because no formal processes were done, it’s okay for money to be stuffed in sofas […] When money is stuffed in sofas, it’s money laundering.”

Kwankwa queried why Mustafa handed Ndlovu $580 000 in cash instead of providing a bank guarantee for a sale that had yet to be perfected.

He said if legal declarations of foreign currency were contingent on the perfection of a transaction, it could create an open-ended period for the parties to decide when the currency had to be declared.