SARS vs. Daily Maverick


Mon, Mar 19, 2018

Ruling by the Press Ombud and a Panel of Adjudicators

19 March 2018

PARTICULARS

 

Complainant

 

 

SARS

 

Lodged by

 

 

Mr Sandile Memela, SARS Executive: Media & PR; and later correspondence from Mr Sicelo Mkosi, Acting Executive: Media & PR

 

 

Date of articles

 

 

21 and 23 November 2017

 

Headlines

 

 

Scorpio: The Makwakwa Dossier, Part One – Moyane, Hogan Lovells and the investigation that never really was

and

Scorpio: The Makwakwa Dossier, Part Two – SARS No. 2 was paid a bonus worth nearly R1 million … while on suspension

 

 

Author of articles

 

 

Pauli van Wyk

 

Respondent

 

 

Jillian Green, managing editor


 

HEARING

 

Date and place

 

 

6 March 2018; Johannesburg

 

Complainant represented by

 

 

Memela and Mkosi

 

Publication represented by

 

 

Branko Brkic, editor; Pauli van Wyk

 

Members of panel

 

 

Public representative: Carol Mohlala

Media representative: Joe Thloloe

 

Bottom of Form

Complaint                                            

SARS complains that the following statements were incorrect, misleading, and/or unfair:

·         “SARS No. 2 [Mr Jonas Makwakwa] was paid a bonus worth nearly R1-million … while on suspension” (headline of the second article);

·         “Moyane unlawfully signed off on a R3-million bonus to his executive, of which Makwakwa’s was a sizeable portion” (second article);

·         “Tom Moyane tried his utmost to keep the facts and prolonged process secret and in the end attempted to mislead the public…”; and, “Moyane tried to ignore the FIC’s (Financial Intelligence Centre’s) request by keeping it secret” (both in the first article);

·         “Recently, Moyane is said to have chosen Makwakwa as his successor when he retires…” (first article); and

·         “Under Moyane’s reign, SARS now sits with a revenue deficit of at least R50-billion…” (second article).

The revenue service also complains that the articles unfairly created the false and misleading impression that Moyane had been involved in improper and unlawful conduct by, inter alia, colluding with the international law firm Hogan Lovells to tailor the terms of reference of an investigation into alleged misconduct against Makwakwa, and/or that Mr Moyane influenced the outcome of that disciplinary process.

The texts

The introductory paragraphs of the two articles adequately summarise what the texts say.

They read:

·         “Jonas Makwakwa’s disciplinary process seems so tailored that it borders on the realm of being cooked. Tom Moyane tried his utmost to keep the facts and the prolonged process secret and in the end attempted to mislead the public into thinking his second-in-command has been cleared of fraud and money laundering allegations. Scorpio can now reveal that the opposite is true, show how the tailoring was done and explain how Moyane was aided and abetted by the international law firm Hogan Lovells”; and

·         “Jonas Makwakwa received a bonus of R930,000 in the 2016/2017 financial year, SARS’ annual financial statements have revealed. He worked for six months only before getting suspended on allegations of corruption and money laundering. Not only did tax boss Tom Moyane sign off on Makwakwa’s bonus, he also did so unilaterally in an act pitting SARS against the Auditor-General [AG]. The Auditor-General did not take kindly to this move, labelling it unlawful and indicative of a ‘serious internal control deficiency’ at SARS. Stuffing ATMs with cash... Nice job if you can get it.”

The arguments

Background

Daily Maverick’s managing editor, Jillian Green says Makwakwa is the second most powerful man at SARS - as Chief Officer: Business and Individual Tax, he effectively oversees all tax matters.

She asserts: “Therefore, and especially in the current economic times, Makwakwa must not only be, but must also be seen as beyond reproach. However, he is not.”

Green says the respected Financial Intelligence Centre (FIC) accused Makwakwa of serious transgressions, including money laundering, corruption and fraud, and said he had developed a “dependence” on strange cash deposits to fund his lifestyle. Green says after a year in suspension, though, Makwakwa was catapulted back to his job to resume his work with mega taxpayers.

“The scrutiny on Makwakwa and … Moyane is therefore not unfair,” the editor argues.

Green says the issue of bonuses in SARS has a history dating back to around April 2016. She says Moyane was adamant to sign off on half a billion rand in bonuses to staff – which Mr Pravin Gordhan, Minister of Finance at the time, refused to approve. She says Moyane went ahead anyway and signed off on the bonuses, without Gordhan’s approval.

Gordhan then warned Moyane in a letter that it was “unethical, immoral and illegal for top management to determine its own salary increases and bonus payments without any external/executive scrutiny and approval”.

Green says bonuses became an issue when SARS published its AFS on 22 November 2017, as Makwakwa was awarded a bonus of R930 000. She says he was the best remunerated SARS official in the financial year 2016/2017, yet he was suspended on 15 September 2016 and allowed back into SARS on 1 November 2017.

The editor also says the bonus debacle has caused a rift between SARS and the AG. She says in the AFS, under the heading Internal control deficiencies, the AG writes as follows (p 95):

In line with section 18(3) of the SARS amendment Act of 2002, management have in the prior years obtained the approval for the bonus payment from the Minister of Finance. Performance bonuses relating to the 2015/16 financial year were paid in the 2016/17 financial year and SARS could not provide evidence that an approval was obtained, as specified in the bonus approval framework, from the Minister prior to payment being effected to employees who fall within the management structure.

Green says it is important to note that the AG is a Chapter 9 institution, explaining that the Constitutional Court has pronounced itself on several occasions that the recommendations of such institutions can be reviewed and changed by a competent court only.

Mkosi replies DM’s statement that Makwakwa was not beyond reproach shows that it, and not a court of law, has found Makwakwa guilty. While this verdict was apparently based on an accusation by the FIC, he argues it is only a court of law that can make a finding of guilt or innocence.

“Neither the FIC nor DM can make such a finding. Therefore, the statement that Mr Makwakwa is not beyond reproach, when he has not even been charged with an alleged offence, is extremely unfair,” he argues.

He admits that DM has every right to scrutinise public officials, but adds that such scrutiny should be fair – which, he submits, is not the case in this particular matter.

Specific complaints

‘SARS No. 2 [Makwakwa] was paid a bonus worth nearly R1-million … while on suspension’

Memela says the bonus in question was paid to Makwakwa for 2015/16 and not for the period while he was under suspension. This reportage, he complains, wrongly created the impression that SARS and Moyane had acted improperly in that Makwakwa had received money that he was not entitled to. In later correspondence, Mkosi describes this reporting as “character assassination”.

Green submits it is not in dispute that Makwakwa received his bonus while he was suspended, adding that it was not DM that created the impression that SARS and Moyane had acted improperly – she says it was Moyane himself who did.

Written response

At the hearing, the panel asked van Wyk to clarify, in writing, why it had been necessary to state that Makwakwa had been paid a bonus “while on suspension”, and why it was wrong for the money to have been paid.

The Ombud sent out her response to all concerned, including SARS, inviting them to comment. As the latter did not do so, the panel hereby merely records van Wyk’s unchallenged arguments.

van Wyk

The journalist says the reasonable reader would have understood that the bonus had been paid out during the financial year 2016/2017, while Makwakwa was suspended, but that he had earned that money during the previous financial year (as bonuses are not paid for work yet to be done).

“The inference SARS wishes to inject at this point is therefore deliberately wrong: the story can in no way relate to the six months running up to the lifting of Makwakwa’s suspension, as stated by Memela,” she argues.

“We reject SARS’ attempt to steer the debate to when Makwakwa earned the bonus, as opposed to when it was paid. The bonus was paid to Makwakwa while he was on suspension from September 2016 to October 2017,” she submits.

She says that:

·         it would have been misleading not to have reported this fact, as that would have represented only half the truth, and half the news; and

·         the payment was in contravention of SARS’ own policy – the then SARS chief officer: human resources, Tebhogo Mokoena, told MPs in September 2017: “In terms of the standard of policy and procedure that we uphold, all employees who remain on suspension are not entitled to bonus payment. And that is what was communicated accordingly.

The reporter adds Mokoena revealed to Parliament that SARS was not about to pay Makwakwa’s bonus, even though he had requested it.

“Somewhere between Mokoena’s parliamentary appearance and the physical transmission of the money something went wrong and the money was paid,” van Wyk submitted.

The decision to pay the bonus was contrary to SARS’ policy and therefore irregular – “Irregular payments contravene the relevant law. To contravene a law is illegal,” she states.

Van Wyk explains that the policy document does not seem to be freely available, so she cannot quote from it. However, the policy was voiced in Parliament on 13 September 2017 when MPs asked questions about Makwakwa’s bonus payment.

“There is also an argument to make about the authority and power Makwakwa wields if he could successfully request that a bonus be paid to him when SARS first declined to do so,” she adds.


                                                                    The panel

At the hearing Brkic asked: “Is it true that Makwakwa received a bonus while on suspension?” The answer was “yes”.

However, the complaint is that the article created the (false) impression that he had earned this money while on suspension. DM denies this, and adds that it was in any case wrong for him to have received the money during that time, even if he had earned it the previous year.

The question before the panel, therefore, is, What would a reasonable interpretation of the text be?

These are our considerations:

·         It is not in dispute that Makwakwa received the bonus during the time that he was suspended;

·         The article did not say that he had earned the money during his suspension, only that he had received it; and

·         It was not reasonable to think that he had received the bonus in advance, which means that a reasonable reader would have understood that the money was for the previous financial year.

‘Moyane unlawfully signed off on a R3-million bonus to his executive, of which Makwakwa’s was a sizeable portion’

SARS denies that it, or its Commissioner, has acted unlawfully. It also complains the journalist failed to report that Moyane had sought the legal opinion from three senior counsels regarding an interpretation of Section 18(3) of the SARS Act, and was subsequently advised that he did not require the Minister’s approval to effect payment of bonuses to his executives. DM was aware of this situation, Memela says, and yet it unfairly and incorrectly portrayed the Commissioner as having deliberately flouted the law.

Green submits that the AG, as a Chapter 9 institution (and not SARS’ legal counsel) is the authority on the matter of SARS’ financials, including the payment of bonuses. She says, “The matter of Moyane unilaterally signing off on bonuses for SARS’ top management was so serious that the Auditor-General described it as ‘material non-compliance’ and ‘significant control deficiency’. Moyane’s political head at the time, Pravin Gordhan, also described the act as ‘unethical, immoral and illegal’.” Even Parliament, she adds, described Moyane’s conduct as not in the best interest, or to the credit, of the country, or SARS, or the governing party.

She concludes that, until this is challenged, the law is clear – and the mere opinion of people does not change this.

Mkosi replies Gordhan’s assertion that the action was “illegal” does not make it illegal, in the same way that any spectator at a football match shouts “offside”. In this case it must be the court of law that is the final arbiter on whether an action is illegal or not, he asserts. “Hence the convention … not to assassinate the character of someone who should be presumed innocent until proven guilty,” he argues.

van Wyk

Van Wyk says what made Moyane’s act illegal was the AG’s statement that the payment of bonuses, including that of Makwakwa, amounted to “material non-compliance”, that it represented a governance breach, and that it could be classified as “irregular expenditure” (as it was paid out without the approval of the Minister of Finance).

The reporter argues, “The SARS AFS has not been legally challenged. The AG’s finding therefore remains and cannot be challenged by this complaint… SARS argues that the alleged existence of the three legal opinions somehow legalise Moyane’s irregular and illegal act. This cannot be.”

She adds:

·         The mentioning of Moyane’s three legal opinions would have created more questions (such as who provided the legal opinions, what were their credentials, and what did the legal opinions actually say) than it would have provided answers. “Daily Maverick is not about to report on some wishy-washy statement designed to divert attention from the focus, which is that Moyane acted irregularly. The reasoning cannot be, like Muthambi attempted, that because there is some sort of legal opinion that it should trump that of the Chapter 9 Institution. This can only be achieved in a court”; and

·         The recommendations and findings of a Chapter 9 institution can only be reviewed and changed in a relevant court of law (and not by any alleged legal opinion).


The panel

The panel had to decide if DM was justified in reporting that Moyane’s signing off on the bonuses was unlawful.

In SARS’ Annual Report for 2016 – 2017 the AG states:

“18. Performance bonuses relating to employees in the management structure were paid without the Minister’s approval, contrary to section 18(3) of the SARS Amendment Act of 2002.

“22. … The matter reported below is limited to the significant control deficiency that resulted in material non-compliance.

“23. In line with section 18(3) of the SARS amendment Act of 2002, management have in the prior years obtained the approval for the bonus payment from the Minister of Finance. Performance bonuses relating to the 2015/16 financial year were paid in the 2016/17 financial year and SARS could not provide evidence that an approval was obtained, as specified in the bonus approval framework, from the Minister prior to payment being effected to employees who fall within the management structure.”

It is noteworthy that the AFS also lists the bonuses as “Irregular Expenditure” even though it justifies them by saying SARS was acting on “legal opinions” it obtained then and adding that it is in the process of seeking a declaratory order from the courts on the powers of the Commissioner.

Van Wyk stated correctly that the recommendations and findings of the AG (as a Chapter 9 institution) can only be changed by a court of law. To the best of our knowledge the statements cited above have not been challenged or changed in a court of law, which means that they represent the official pronouncement on the matter – which cannot be changed by the opinion of any legal counsel.

That being the case, we also firmly believe that the matter was in the public interest and that DM was merely fulfilling its task as watchdog in holding SARS to account on this matter.

‘Tom Moyane tried his utmost to keep the facts and prolonged process secret and in the end attempted to mislead the public…”; and, “Moyane tried to ignore the FIC’s request by keeping it secret’

Memela denies these allegations, and maintains that SARS has acted at all times in compliance with the FIC Act. He submits that Moyane was constrained in terms of the provisions of this act, which prohibited disclosure of information to third parties without the FIC’s consent. He adds that, to this end, SARS publicly announced the steps it had taken from the date of receipt of the FIC report. Memela refers to SARS’ submissions to Parliament’s Standing Committee on Finance, as well as various other media statements.

Green presents the following 2016 timeline, based on “confidential documents, letters between Moyane, Gordhan, the FIC and Makwakwa”:

·   May 17:  Moyane receives the FIC report on Makwakwa; he reads it three days later;

·   May 20: In contravention of the FIC Act, Moyane provides the information to Makwakwa and asks him to explain by May 23. Makwakwa repeatedly asks for extensions and for more information, which prompts the Commissioner to write to the FIC Director on Makwakwa’s behalf. The Director describes Moyane’s actions as “tipping-off” of Makwakwa and warns Moyane that Makwakwa’s lawyers are not entitled to any information in the FIC report;

·   September 11: Sunday Times reveals the FIC report, stating that the Commissioner has kept the report under wraps since May;

·   September 12: Gordhan meets with Moyane and records his “serious concern and dissatisfaction”; Makwakwa receives a letter of intention to suspend, after which he again asks for an extension; and

·   September 15: Makwakwa is suspended.

Green says the process of serving Makwakwa with a notice of intention to suspend was clearly prolonged – nothing happened in the four months after Moyane received the FIC report, but it took him a mere four days to act after the matter was revealed in the media.

The editor says the matter was also cause for serious concern in Parliament, where the chairperson of the Standing Committee on Finance, Mr Yunus Carrim, lambasted Moyane.

She adds that notes published by the Parliamentary Monitoring Group about meetings conducted on November 28 and December 4 stated that:

·   “all committee members were very concerned about the manner in which the Commissioner had handled such a serious issue [the investigation into Makwakwa’s mysterious cash and the disciplinary hearing] and some very harsh words were directed at the Commissioner for his inappropriate management of the matter”.

·   “[Carrim] asked why it took the commissioner so long to act on the matter. The actions of the commissioner were not credible and not befitting a person in such a senior government post…

Green says there were strong perceptions that Mr Makwakwa was being protected and that current SARS actions were fuelling these views.

Mkosi replies that the reportage failed to take into account and/or to acknowledge SARS’ explanation of the sequence of events, including a detailed letter (dated 27 October 2016) sent by SARS to Corruption Watch.

He submits the accusation by DM that Moyane was trying to bury the matter is “either frivolous or character assassination of the highest order”. He adds that FICA does not allow the SARS Commissioner to make the FIC report public without following due processes. “DM’s reporting seeks to create confusion in the minds of readers.”

van Wyk

Van Wyk stresses that, based on the timeline presented above, Moyane never told Gordhan, the public, Parliament and his own SARS colleagues about the report, and allowed Makwakwa to continue working on sensitive cases for four months. She says Moyane jumped into action only after the report by the Sunday Times.

The journalist argues: “It is inconceivable that Moyane found a reason to suspend Makwakwa in the four days after 11 September that he could not find in the preceding four months. He also suddenly appoints a law firm to conduct an investigation while failing to even start such a process in the previous four months. Nothing else happened to jolt Moyane into action except the media storm about Makwakwa on 11 September… There is no other conclusion to [come to]: for four months Moyane not only kept the matter a secret, he ignored the FIC’s request for an investigation.”


The panel

It is not in dispute that Moyane received the FIC report on May 17 and that Makwakwa received notice of suspension only on September 12, four days after the media had reported on the FIC report.

In light of this, the panel believes that DM was justified in its reportage on this matter: its explanation seems reasonable.

‘Recently, Moyane is said to have chosen Makwakwa as his successor when he retires…’

Memela says this statement has no legal basis as the power to appoint a Commissioner vests in the President of the country.

Green submits that it is still a legitimate concern among several sources in SARS and Treasury that Makwakwa may be touted as the next Commissioner of SARS. She says the remark was in any case attributed to sources. Moreover, SARS did not react to a formal, written question about this worry among DM’s sources.

van Wyk

Van Wyk said DM was aware of the fact that the President appointed the SARS commissioner.

She pointed out, however,the story did not say that Moyane had “appointed” Makwakwa, only that he had “chosen” him.

She argued: “ ‘Chosen’ in this context would refer to being handpicked, or to be chosen for a certain job. ‘Appoint’ has a totally different meaning that in this context also has a legal definition added to it.”

She said Moyane had always been known to, and has admitted to, being loyal and close to former president Jacob Zuma. She submits, “It is then to be expected that Moyane has the ear of Zuma, which means that any suggestion Moyane makes will fall on fertile ground. Up untill Zuma’s resignation as president in February 2018, the possibility of Moyane suggesting Makwakwa as his successor was a widespread fear in SARS. Daily Maverick stands by this statement because it is based on firm and well placed sources. We will not retract it.”


The panel

At the hearing, Memela and Mkosi denied that there was any “fear” at SARS regarding this matter and called it a “rumour”, “skewed”, and “divisive”, and DM maintained that its sources were credible and independent of each other, and that they were indeed concerned.

The panel has no reason to doubt that DM’s sources were indeed concerned, and that DM was justified in reporting this allegation as an allegations.

We also take into account that van Wyk did not use the word “appointed”, but rather “chosen” – which merely indicated Moyane’s preference with regards to his successor.

‘Under Moyane’s reign, SARS now sits with a revenue deficit of at least R50-billion…’

Memela says this statement insinuates that SARS, under Moyane’s leadership, was incompetent; the impression created was that he was the cause of the huge revenue shortfall – notwithstanding that the Minister of Finance, during his 2017 Medium Term Budget Policy Statement Speech (on October 25), had announced the actual cause of the shortfall.

Green submits it is SARS that injects the word/perception of “incompetence” into the statement. She asserts it is a widely publicised fact that SARS had a projected R50-billion revenue deficit – which happened during Moyane’s tenure as Commissioner.

She adds that the then Minister of Finance, Mr Malusi Gigaba, has acknowledged the downturn in the economy as a reason for the deficit – but he also did not shy away from laying the problem squarely at SARS’ door, blaming bad management and a lack of crucial skills for the situation.

Green says even the week before, Gigaba admitted there were tax administration challenges at SARS and a lack of skills in crucial places. “So strongly did Gigaba feel about problems in SARS, that he announced he was lobbying the president to appoint a commission of inquiry into problems at SARS,” she concludes.

Mkosi replies that the reporting of the R50-billion shortfall was false and misleading, as it failed to put it into context (by omitting to mention that the shortfall could be attributed to the “under-performing economy”). Mkosi adds that while the Minister of Finance has spoken about tax administrative challenges, he has also taken note that the real constraints facing SARS can be probed only through an enquiry chaired by a judge.

van Wyk

Van Wak says it is factually correct that SARS had a projected revenue gap of more than R50-billion, and that the gap accumulated during Moyane’s tenure. “These are not facts that can be debated or changed,” she asserts.

She denies that the story either said or implied that Moyane was incompetent.

She concludes: “It is however also public knowledge that Moyane’s decisions and management style, the experience of his exco, the disastrous review of the SARS operating model and the disbandment and rearrangement of SARS’ investigative teams are highly problematic and were met with severe criticism. Under Moyane’s reign SARS was also heavily criticised by the Tax Ombud over the way SARS paid out VAT claims. Why SARS takes umbrage with this sentence when other news outlets have actually in no uncertain terms laid the revenue problem at Moyane’s feet, is simply astonishing. We reject SARS’ attempt to pin everything they have against the media on Daily Maverick.”


The panel

It is fact that under Moyane’s reign, SARS now sits with a revenue deficit of at least R50-billion. The panel does not expect DM to explain to its readers what other factors might have been at play and might have contributed to the deficit, as that was not the focus of the article.

Involved in unlawful conduct

The last leg of the complaint is that the articles unfairly created the false and misleading impression that Moyane had been involved in improper and unlawful conduct by, inter alia, creating colluding with Hogan Lovells to tailor the terms of reference of the investigation against Makwakwa, and/or influencing the outcome of that disciplinary process.

Green maintains that Moyane was in fact involved in improper and unlawful conduct (as argued above). However, she denies DM implied that Moyane colluded with Hogan Lovells – in fact, she says, the firm itself provided the first clue to the public that all was not well in the Makwakwa investigation in a media release, dated 3 November 2017.

She says the attorney of record, Mr Lavery Modise, said Hogan Lovells “did not seek to directly investigate the financial transactions identified by the FIC”. The editor argues that this seemed to have directly contradicted SARS’ media release, dated 30 October 2017, saying that Makwakwa was cleared of all charges.

DM’s investigation emanated directly from these two contradictory statements, she concludes.

van Wyk

Van Wyk challenges SARS to point out where DM had accused Moyane of “collusion”, or even inferred “collusion”, with Hogan Lovells. She said this term, in this context, would indicate that Moyane and Hogan Lovells actively and probably secretly discussed and planned how they could get Makwakwa off the hook.

“There is no evidence to say there was active ‘collusion’. If we had such evidence, we would most definitely publish it,” the reporter submits.

She adds that it was only SARS who made this false inference – Hogan Lovells did not complain about a single story DM wrote, neither to the Press Ombud, nor to any competent court.


The panel

The panel could not find any suggestion of collusion beween Moyane and Hogan Lovells in the article.

Finding

The complaint is dismissed.

Appeal

The Complaints Procedures lay down that within seven working days of receipt of this decision, either party may apply for leave to appeal to the Chairperson of the SA Press Appeals Panel, Judge Bernard Ngoepe, fully setting out the grounds of appeal. He can be contacted at Khanyim@ombudsman.org.za.

Carol Mohlala

Joe Thloloe

Johan Retief