SARS’s so-called rogue unit was not unlawful. That was the finding of retired judge Robert Nugent’s commission of inquiry last year. ‘While the National Strategic Intelligence Act prohibits the covert gathering of certain intelligence, that applies to intelligence concerning threats to the safety of the state, which hardly applies to intelligence relevant to collecting tax,’ reads Judge Nugent’s final report. The judge concludes: ‘I see no reason why SARS was and is not entitled to establish and operate a unit to gather intelligence on the illicit trades, even covertly, within limits.’
But did Judge Nugent get it wrong? Weren’t the establishment and operations of the rogue unit specifically designed to counter the threat to the safety of the state from organised crime that was running riot and sapping countless billions of rands annually from the fiscus? And what were/are those ‘limits’ to what SARS may covertly do?
We examine the conundrum.
How did they bring down Scarface? In the 1920s, “The Roaring Twenties”, Mafia boss Al Capone ruled over a reign of terror and lawlessness in Chicago that included gambling, prostitution, bootlegging, bribery, narcotics trafficking, robbery, protection rackets and murder. The police and FBI – their officers often corrupt and on the take – couldn’t touch him, even when he was prime suspect in the ordered murder of seven rival Mafia bosses in the St Valentine’s Day Massacre.
On 24 October 1931 the crime empire of America’s Public Enemy Number One collapsed when Capone was dispatched for 11 years to Alcatraz, finally nailed by federal Treasury agents for failing to pay his income tax.
So why not use the same tool of tax to combat the global illicit trade, today estimated by the Organisation for Economic Co-operation and Development (OECD) to be running at almost $500 billion annually in counterfeit and pirated goods alone? Forty billion illicit cigarettes are smoked in the Americas and governments in the region are losing an estimated $4.6bn in tax revenue every year due to the illegal tobacco trade.
In South Africa, market research firm Ipsos reported last year that the illegal cigarette trade currently accounts for lost tax revenue running at more than R8bn annually.
From the time Pravin Gordhan was deployed to the SA Revenue Service as assistant commissioner in 1998, the former Umkhonto weSizwe and Operation Vula intelligence boss was determined to plug the loss of these billions to the fiscus. He started with beefing up the SARS intelligence capacity, bringing in as head of Compliance, Risk and Enforcement his old Vula comrade Ivan Pillay. Pillay in turn recruited agent RS536, the long-time police spy Johann van Loggerenberg, then attached to the Secret Service.
By 2007 illegal exploitation of South Africa’s natural resources was flourishing. Weak border controls and corruption had allowed large and highly efficient crime syndicates to flourish. Trade routes between SA and China hummed – and still hum – with illicit cigarettes, rhino horn, abalone, clothes, electronics, drugs, guns, human beings and diamonds.
This was the backdrop against which the SARS rogue units were born. On 8 February 2007 Ivan Pillay, then general manager: Enforcement and Risk, dispatched an internal memorandum to Oupa Magashule, then chief officer of Corporate Services, seeking approval for the appointment of 26 personnel “with specialised capabilities” for a “special capability” at SARS. Twelve would be transferred from the Enforcement and Risk divisions; 14 recruited from outside.
“Combating smuggling of prohibited goods and substance is part of SARS’s mandate and as you may know a need exists for a special capability to enable SARS to make inroads in understanding the illicit economy,” wrote Pillay. This illicit economy, ran the memo, included the importation, exportation and manufacturing of drugs; illegal harvesting of abalone and its supply; illegal importation of second-hand vehicles; importation of counterfeit goods; and smuggling of cigarettes.
“Fundamental to combating the illicit economy is the capacity to penetrate and intercept the activities of crime syndicates,” said Pillay, adding that the 26 posts would be transferred to his cost centre “to protect the identities and personal information of the appointees”.
Magashule approved the appointments on 13 February 2007.
A memo to then Minister of Finance Trevor Manuel, signed by Commissioner Pravin Gordhan and Ivan Pillay, had arrived in Manuel’s office the previous day. It sought approval for funding of R48.9 million over the next three years for “a special capability within NIA [the National Intelligence Agency] to supply SARS and law enforcement with the necessary information to address the illicit economy.”
Its authors told Manuel: “Collecting tactical intelligence invariably means penetrating and intercepting organised criminal syndicates. This is an activity for which SARS does not presently have the capacity (including the legislative mandate) to manage clandestine activity.”
The NIA, of course, did have the necessary legal authority to perform these highly specialist functions. Approving the application, deputy finance minister Jabu Moleketi noted: “Supported, however this is a strange way of executing what I consider to be an economic mandate of NIA. It seems as though it’s an add-on rather than part of NIA’s mandate.”
Whether Pravin Gordhan’s move to attain legality for his crime-busting initiative by operating within the ambit of the NIA was a serious proposition or an already privately agreed manoeuvre to get round the legal quandary and obtain the funding, who knows. Certainly, inter-agency bickering and mutual suspicion ensured there would never be any link-up between SARS and the NIA. Undeterred, Gordhan and Pillay went ahead and set up the covert National Research Group and its successor, the High Risk Investigating Unit, within SARS, anyway.
Gordhan has subsequently stated that at the time he believed the unit had been lawfully established to perform “very important” functions for and on behalf of SARS.
This contradicts what he said in the memorandum that he and Pillay sent to Manuel in February 2007, admitting that SARS “had no legislative mandate to manage clandestine activity.”
What happened was that a month before the memo was dispatched Sogieba Hartley-Latiff, former legal adviser in SARS’s Enforcement, tried unsuccessfully to convince Pillay that the unit would be lawful. “If one had regard to Section 3 of the National Strategic Intelligence Act, as well as to the definitions of departmental intelligence, it is assured that, given SARS’s functions, the power to conduct intelligence work is implied,” she reported.
Pillay rejected this view: “I think there is a leap in the logic without a proper foundation,” he scrawled on the memo.
The recruitment of specialists went ahead. The new arrivals came primarily from the intelligence structures, observed advocate Muzi Sikhakhane SC in his panel’s 2014 investigation into the conduct of High Risk Investigating Unit (HRIU) leader Johann van Loggerenberg. In Sikhakhane’s view, their arrival “exposed minority activity of idiosyncratic and egocentric personalities, deception, intrigue and plain falsity. It was a product of an ill-conceived idea to deal with a real challenge of organised crime,” reads his report.
Although Sikhakhane did not use the words “threat to the security of the Republic”, he was clearly well aware of the serious ongoing loss to the fiscus from the illicit industry. “We fully understand that SARS sought to confront head-on the effects of organised crime on its revenue and customs duties,” he wrote in his 2014 report. “For some time now SARS has been faced with the growth of organised crime in the tax and customs arenas. Since the late 1990s SARS also sought to increase its efforts in dealing with corruption within its ranks. This resolve and commitment is recorded in various budget speeches of finance ministers.
“The real question however, is whether SARS in its current form has the statutory powers to investigate organised crime.”
Not so said Judge Nugent and his commission of inquiry. Although he wrote glowingly of the “higher purpose” phrase coined by Pravin Gordhan and instilled in employees when Gordhan was Commissioner (“they were in the service of a higher purpose, the building of a democratic South Africa”) the retired judge seemed oblivious to the massive revenue losses to the fiscus from organised crime and the illicit trades.
On the contrary, Nugent said that under a model formulated by Pravin Gordhan and his team SARS had “effective measures in place to counter the illicit trades”.
However, in May 2018 the National Treasury told Parliament’s finance standing committee that the increase in illicit trade in tobacco not only affected the fiscus (excise tax revenue forgone), but also hampered the government’s regulatory mandate as well as national public health policies.
The illicit trade caused substantial losses in government revenues, and at the same time contributed to the funding of transnational criminal activities, went Treasury’s presentation. There should be better cooperation between SARS, the South African Police Service and the National Prosecuting Authority. The Treasury was happy to put a legislative framework in place but other institutions must be relied on for enforcement.
After the disbanding of the National Research Group following the alleged 2007 bugging of the offices of the National Prosecuting Authority, half a dozen of its key members were selected for its succeeding High Risk Investigating Unit. All had special skills that hardly fit in with Judge Nugent’s image of them as tax collectors. The much-disputed Project Snowman dossier, supposedly composed by former rogue unit member Michael Peega, contains some intriguing profiles:
Anton van ’t Wout: Cyber forensic expert used for investigating and pulling of confidential information of concerned parties for investigative and infiltration purposes;
Sipho Nkomo: Former Metro Police commander used for utilising Metro resources for the unit’s benefit, from overriding traffic fines to using Metro personnel for road blocks and raids to legitimise the operations;
Gilbert Gunn: Former DSO operative who was the technical operator in the JZ surveillance, tracking of vehicles and master locksmith.
After Sikhakhane concluded that the HRIC was unlawful, Pravin Gordhan countered with an opinion by advocate Wim Trengrove SC, who advised that SARS could keep people under surveillance, follow persons or vehicles, watch a person or property but only in the public domain, and so on. But SARS, said Trengrove, could not place electronic tracking devices on a vehicle to follow the movements of its driver “because it impinges on his or her privacy”.
Neither could they listen to or record private conversations unless a SARS official was a party to the conversation, or electronically record third-party conversations by using listening devices.
Which makes the WhatsApp exchange between Johann van Loggerenberg and his lover Belinda Walter on 12 February 2014 fascinating reading:
JvL, 1.47 pm: “Going okay. Received the downloads for you. He [Anton van’t Wout] is still busy with decryption on cloud and deleted data. But he seems to have salvaged enough for you to work with so long. Will give to you tonight. I need to show you how the software works. A little complicated. But you can search easily. He says he got quite a bit of smsimages/emails/chats, etc.”
BW: “Yikes. Thanks very much.”
JvL, 1.48pm: “He says decrypton for Blackberry takes long. He has to run millions of codes first.”
For more in the same vein, see “Rogue unit WhatsApps that clinch it” (nose235).
Sogieba Hartley-Latiff’s January 2007 memo to Pillay on Section 3 of the National Strategic Intelligence Act and her (rejected) view of the SARS unit’s legality, has been echoed by Pierre de Vos, who teaches Constitutional Law at the University of Cape Town Law Faculty.
On 28 September last year De Vos bragged on Twitter: “Took me 10 minutes of research in 2016 to discover the establishment of SARS investigative unit was not unlawful. Both Sikhakhane and Judge Kroon made opposite ‘findings’. Kroon admitted today this was wrong. Why make a false finding at all?” De Vos was referring to his Opinionista piece in Daily Maverick on 1 March 2016, when he wrote that his perusal of the National Strategic Intelligence Act’s Section 3 allowed any state department to gather departmental intelligence, but not in a covert manner.
“Departmental intelligence is defined by the act as ‘intelligence about any threat or potential threat to the national security and stability of the Republic, which falls within the functions of a departmemnt of state and which inclides intelligence needed by such department in order to neutralise such a threat,” he wrote in Daily Maverick. “This means the National Strategic Intelligence Act does not prohibit a government entity such as SARS from gathering intelligence, even covertly. It does confirm that the covert gathering of ‘departmental intelligence’ (intelligence relating to a potential threat to the national security and stability of South Africa) by SARS would be in breach of the act.”
|Ivan Pillay, 'Skollie' Janse van Rensburg and Johann van Loggerenberg|
His Opinionista piece goes on: “It is unclear whether even the most outlandish allegations levelled at the ‘rogue spy unit’ contains any suggestion that it investigated potential threats to national security in contravention of the provisions of the act. In the absence of credible allegations, the claims that the unit acted in contravention of the National Strategic Intelligence Act would be a legal nonsense…
“Given that the act does allow departments to gather certain types of intelligence, the establishment of the unit could not possibly have been unlawful. However, some of the actions taken by members of the unit could unlawfully have contravened section 3 of the act.”
The evidence quoted above suggests more than that, with the unit leader referring with bravado to such (illegal) intercepts and electronic surveillance by his unit.
(Breaches of privacy and the unauthorised interception of private commu ications are serious criminal offences, inter alia in terms of the Regulation of Interception of Communications and Provision of Communication-Related Information Act 70 of 2002.)
Clearly, De Vos does not consider an annual loss of more than R8bn to the fiscus through the illegal cigarette trade, plus the additional loss of revenue billions from the rest of rampant illicit trade, a threat to the stability of South Africa.
The NIA clearly did not share his view: they, too, were investigating the illegal cigarette industry – as a threat to national security.
See next story for Johann van Loggerenberg’s response.
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