THE CAPTURE AND RESTRUCTURING OF THE SOUTH AFRICAN REVENUE SERVICE (SARS) - PPLAAF

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THE CAPTURE AND RESTRUCTURING OF THE SOUTH AFRICAN REVENUE SERVICE (SARS) - PPLAAF
THE CAPTURE AND
             RESTRUCTURING OF THE
SOUTH AFRICAN REVENUE SERVICE (SARS)

  A report by The Platform to Protect Whistleblowers in Africa (PPLAAF)
                    www.pplaaf.org | info@pplaaf.org
                              24 March 2021
Page 2

Introduction
                                                               In 2017, the Public Affairs Research Institute
The concept of State Capture was first                         (“PARI”) released the Betrayal of the Promise
identified in 2000 and defined as “the efforts                 report4, which described State Capture as
of firms to shape the underlying rules of the                  “systemic and well-organised by people with
game (i.e., legislation, laws, rules and                       established relations. It involves repeated
decrees) through private payments to public                    transactions, often on an increasing scale.
             1
officials” . In South Africa, allegations of state             The focus is not on small-scale looting, but on
capture have been at the forefront of public                   accessing and redirecting rents away from
sector investigations, media reporting and                     their intended targets into private hands. To
                                             2
political discourse for decades . Initially,                   succeed,        this     needs       high-level        political
these allegations came from speculation and                    protection, including from law enforcement
hearsay in the media about the relationship                    agencies, intense loyalty and a climate of
between public officials and the Gupta family                  fear; and competitors need to be eliminated”.
but gained momentum with increased public
actions, such as the unlawful landing of                       A large part of being successful in these
private wedding guests of the Gupta family at                  aspects is the process of ‘repurposing’ state
a military base in 2013 and the removal of                     institutions. The concept of repurposing has
various executives and staff of key state                      been described by the PARI as “the
institutions and state-owned enterprises.                      organised process of reconfiguring the way in
                                                               which a given state institution is structured,
With the release of the then Public Protector,                 governed, managed and funded so that it
Adv Thuli Madonsela’s State of Capture                         serves a purpose different to its formal
                                    3
report in October 2016 , many of the                           mandate”5. This definition will guide this
allegations of state capture were confirmed.                   report in the discussion on how SARS was
These allegations were further confirmed with                  captured and repurposed to benefit a specific
the release of the Gupta leaks in May 2017, a                  group of individuals linked to, in particular,
tranche of emails between Gupta family                         former Commissioner Tom Moyane and
members,         their    associates        and     public     former President Jacob Zuma during his time
officials.                                                     as head of state between 2009 and 2018.

1
  Hellman, J. S. *Jones. (2000). Measuring governance,         Public Sector including Organs of State. Available at:
corruption, and State capture—How firms and bureaucrats        https://resourcegovernance.org/sites/default/files/documents/
shape the business environment in transition economies (No.    state-capture-in-transition.pdf
                                                               3
WPS2312; p. 1). The World Bank.                                  Madonsela, T. ‘State of Capture’, Report by the Public
http://documents.worldbank.org/curated/en/24191146876561       Protector. Available at:
7541/Measuring-governance-corruption-and-State-capture-        http://www.saflii.org/images/329756472-State-of-Capture.pdf
                                                               4
how-firms-and-bureaucrats-shape-the-business-environment-        Bhorat, H., et al. ‘Betrayal of the Promise: How South Africa
in-transition-economies                                        is being stolen’, Public Affairs Research Institute. Available at:
2
  Further reference to understanding state capture: Hellman,   https://pari.org.za/betrayal-promise-report/
                                                               5
J. and Kaufmann, D. ‘State Capture in Transition’,               Bhorat, H., et al. ‘Betrayal of the Promise: How South Africa
Submission to the Judicial Commission of Inquiry into          is being stolen’, Public Affairs Research Institute. Available at:
Allegations of State Capture, Corruption and Fraud in the      https://pari.org.za/betrayal-promise-report/
Page 3

Background to SARS                                               SARS became a case study for many
                                                                 academic papers and research worldwide,
The South African Revenue Service (“SARS”)                       and many developed states came to South
was formed in 1997 when the Customs and                          Africa to understand the gains made by SARS
Excise      Department          merged        with     the       and imported these to their administrations.
Department of Inland Revenue. Although its                       One such study done for Princeton University
development started low key, within a decade                     by David Hausman7 outlined how between
of its formation, SARS grew into a highly                        1998      and      2009,      SARS        improved        tax
respected state institution, known for its                       compliance to such an extent, that they
efficiency and excellence in service delivery.                   increased the number of taxpayers from 2.6
SARS instilled either fear or awe in South                       million people to 4.1 million people. SARS
Africans depending on their compliance, and                      soon became the benchmark for similar
the trusted state of the organisation was                        international organisations and institutions.
largely due to the leadership6. The structure
and governance of SARS were designed to
be an instrument towards democracy and
economic freedom of South Africa, collecting
revenue for the government to deliver on the
promises to South Africans.

                                                                       “…within a decade of its
                                                                   formation, SARS grew into a
                                                              highly respected state institution,
                                                                    known for its efficiency and
                                                                excellence in service delivery.”

6
  Van Loggerenberg, J. and Lackay, A. Rogue, Jonathan Ball       https://successfulsocieties.princeton.edu/sites/successfulsoci
Publishers, Jeppestown. 2016, Page 10 - 17                       eties/files/Policy_Note_ID125.pdf
7
  Hausman, D. ‘Reworking the Revenue Service: Tax
Collection in South Africa, 1999-2009’, 2010. Available at:
Page 4

Repurposing and restructuring                                  resigned in 1999 and remained in that
                                                               position until 2009. During his tenure, SARS

As previously outlined, repurposing of an                      was “one of the best run and most respected

organisation requires an organisation to be                    agencies of the South African government,

restructured and reconfigured to change the                    with a reputation for integrity and efficiency,

way it is governed, managed and funded to                      and tax receipts improved impressively during

serve a different purpose. To accomplish this                  Gordhan’s tenure”8.

reconfiguration, individuals involved in the
process need to be placed in strategic                         When former President Jacob Zuma was

positions. The appointments and dismissals                     elected in 2009, he appointed Gordhan as

of people in strategic leadership positions in                 Minister of Finance, where Gordhan quickly

SARS are therefore crucial.                                    gained      a    reputation       as    great      as     his
                                                               predecessor, Trevor Manuel.

Appointments and dismissals
                                                               He was removed as Finance Minister
                                                               following       the    2014     elections       by      then-
Since its establishment in 1997, SARS has
                                                               President Jacob Zuma and replaced with
had the following Commissioners heading up
                                                               Nhlanhla Nene (“Nene”).
the organisation:

                                                               George (“Oupa”) Magashula
Trevor van Heerden
                                                               George “Oupa” Magashula (“Magashula”)
In the establishment of the SARS in 1997,
                                                               was appointed SARS Commissioner from
Trevor van Heerden (“van Heerden”) was
                                                               May 2009 until July 2013, when he resigned.
appointed as the first Commissioner of SARS.
                                                               A small part of an illegal telephone recording
He retired in this position in 1998 and stayed
                                                               of Magashula on a cell phone passed to him
on as a specialist consultant at SARS, a role
                                                               by Timmy Marimuthu9, a convicted drug
which he fulfils to this day.
                                                               dealer and secret Crime Intelligence officer,
                                                               suggested        Magashula          was      having       an
Pravin Gordhan
                                                               inappropriate conversation with a potential
Pravin Gordhan (“Gordhan”) was appointed in
                                                               female employee10. This recording was
1998 as deputy SARS Commissioner to van
                                                               leaked to the media11. The allegations in the
Heerden. Gordhan was then appointed
                                                               press      and        Magashula’s        conduct         was
Commissioner shortly after van Heerden

8                                                              10
  Renwick, R. How to steal a country: State Capture and           Yacoob, Z. & Sikhakhane, M. Fact Finding Inquiry into the
Hopes for the future in South Africa, Jacana Media, Auckland   alleged improper conduct of the Commissioner of the South
Park, 2018, Page 39.                                           African Revenue Services (SARS) Mr Oupa Magashula:
9
  Harper, P. ‘Magashula wants answers’, News24, Available      requested by the Minister of Finance. Available at: Report on
at:                                                            inquiry into Oupa Magashula - DOCUMENTS | Politicsweb.
                                                               11
https://www.news24.com/news24/southafrica/news/magashul          Harber, A. So, for the Record: Behind the Headlines in an
a-wants-answers-20161008.                                      Era of State Capture, Jonathan Ball Publishers, Jeppestown,
                                                               2020, page 98.
Page 5

ultimately investigated by Justice Zak Yacoob                      Zuma, and certain current and former SARS
and Adv Musi Sikhakhane during an enquiry                          officials, had already been meeting, planning
into      allegations         against         the      SARS        and discussing the restructuring of SARS not
Commissioner,            commissioned             by      then     long after Magashula’s departure in 201316.
Minister of Finance, Gordhan.                                      One such key SARS official, who was to
                                                                   become Moyane’s right-hand man after his
Ivan Pillay                                                        appointment, was Jonas Makwakwa. At the
Ivan Pillay (“Pillay”) was appointed acting                        time he was the               SARS Audit           Group
SARS Commissioner in July 2013, after                              Executive. Moyane was dismissed from
Magashula            unexpectedly          resigned.        He     SARS by President Cyril Ramaphosa in
resigned from SARS in May 2015 due to the                          201817.
unfolding events related to the capture and
repurposing of SARS.                                               Mark Kingon
                                                                   Mark Kingon (“Kingon”) acted as SARS
Tom Moyane                                                         Commissioner following the suspension and
Tom Moyane (“Moyane”) is a close friend of                         dismissal of Moyane for a short while. In late
former President Jacob Zuma and his family12                       2018 he publicly apologised to current and
and is best known in his position as the                           former SARS staff for the failure in leadership
Commissioner            of     Correctional         Services       at SARS, during the Commission of Inquiry
where he served until he was allegedly forced                      into Tax Administration and Governance in
to retire13     14
                  . He served as head of the                       201818.
Government Printing Works and was key to
the panel that was tasked to investigate the                       Edward Kieswetter
unlawful landing of the infamous Gupta-                            In 2019, following the advertising of the
guests landing at the Waterkloof Military                          position and setting up of an interview panel
Airbase15.                                                         by former Finance Minister Nhlanhla Nene, a
                                                                   former deputy SARS Commissioner who had
Former President Jacob Zuma appointed                              left SARS earlier for the private sector,
Moyane as SARS Commissioner on 25                                  Edward Kieswetter (“Kieswetter”), returned
September 2014.               Moyane, together with                and was appointed as SARS Commissioner.

12
   Moyane, T. ‘Zuma’s late wife Kate was my ‘family sister’ –      report/economy/moyane-takes-over-the-hot-seat-at-sars-
Tom Moyane’, Politicsweb, Available at:                            1755608
                                                                   16
https://www.politicsweb.co.za/news-and-analysis/zumas-late-           Nugent, R. ‘Commission of Inquiry into Tax Administration
wife-kate-was-my-family-sister--tom-moy                            and Governance by SARS: Final Report’. December 2018.
13
    Magome, M. ‘Axed prisons boss to walk away quietly’, IOL,      Page 35
                                                                   17
Available at: https://www.iol.co.za/news/politics/axed-prisons-       Fin24. ‘Ramaphosa: Why I fired Moyane from SARS’. 2018.
boss-to-walk-away-quietly-1601333                                  https://www.news24.com/fin24/Economy/moyane-fired-over-
14
    Mkhwanazi, S. ‘New SARS boss won’t sue minister over           deeply-concerning-state-of-sars-ramaphosa-20181101
                                                                   18
firing’, IOL, Available at:                                           IOL. #SARSInquiry: Kingon holds back tears as he says
https://www.iol.co.za/dailynews/news/new-sars-boss-wont-           sorry to SA. 2018. https://www.iol.co.za/business-
sue-minister-over-firing-1755354                                   report/economy/sarsinquiry-kingon-holds-back-tears-as-he-
15
    Staff Writer. ‘Moyane takes over the hot seat at Sars’, IOL,   says-sorry-to-sa-17553366
Available at: https://www.iol.co.za/business-
Page 6

Apart from the commissioners employed at                       driving force behind creating the SARS
SARS, there were a few key role-players in                     structure in place today21.
the restructuring of SARS between 2014 and
2018.                                                          According to Cowan, there were also
                                                               allegations that he interfered with tax matters
Jonas Makwakwa                                                 of high-profile individuals, requesting that
Shortly after Moyane arrived at SARS,                          SARS officials write off penalties and interest
following a host of resignations by senior                     of individuals he was in contact with22.
executives, Jonas Makwakwa (“Makwakwa”)
was appointed as acting Chief Operating                        He resigned in 2018 when the media exposed
Officer (“COO”). This appointment effectively                  how he had been depositing cash into ATM’s
made him second in command to Moyane at                        on many occasions, earning unexplained
SARS and he would frequently step in as                        income and living well above his salary,
acting SARS Commissioner during Moyane’s                       unduly advancing the career of someone he
absence. Former SARS Group Executive for                       was having an affair with at SARS, amongst
Corporate         Legal       Services,        Makungu         other claims23.
Mthebule, described Makwakwa as very
powerful and that Moyane relied on him for                     Evidence        also        demonstrated         how       he
many things19.                                                 unlawfully and illegally shared data and
                                                               records of SARS, its inner-workings and staff
Makwakwa was appointed as COO of SARS                          details with Moyane and Bain & Company
in December 201420 and appeared to be                          before       Moyane           was       appointed          as
instrumental        in    Moyane’s         actions       to    commissioner24. This evidence is to be given
restructure SARS, driving the expensive                        by Mr Atholl Williams (“Williams”), who was
renewal programme in SARS that Moyane                          contracted for 16 months to oversee Bain’s
embarked upon. He worked closely with Bain                     investigation into their contracts and work
& Company, who was appointed to develop a                      with the SARS and their reporting to the
new operating model and was part of the                        Commission             of      Inquiry        into       Tax
                                                               Administration and Governance by the South

19
   Nugent, R. ‘Commission of Inquiry into Tax Administration   at: https://www.news24.com/fin24/economy/sars-inquiry-
and Governance by SARS: Final Report’. December 2018           hears-how-jonas-makwakwa-tried-to-meddle-in-vip-taxpayer-
20
   SARS. Resignation of SARS COO. 2014. Available at:          affairs-20180628
                                                               23
https://www.sars.gov.za/Media/MediaReleases/Pages/PRET            Van Wyk, P. ‘Scorpio: the Makwakwa Dossier, Part 2 –
ORIA%202%20December%202014%20%E2%80%94%20Th                    SARS No 2 was paid a bonus worth nearly R1million…while
e%20South%20African%20Revenue%20Service%20(SARS)               on suspension’, Daily Maverick, Available at:
%20wishes%20to%20anno2-December-2014---Resignation-            https://www.dailymaverick.co.za/article/2017-11-23-scorpio-
of-SARS-COO.aspx                                               the-makwakwa-dossier-part-2-sars-no-2-was-paid-a-bonus-
21
   Van Wyk, P. ‘Jonas Makwakwa’s swift rise to power, and      worth-nearly-r1-million-while-on-suspension/
                                                               24
his abuse of it’, Daily Maverick, Available at:                   Williams, A. ‘Statement for Judicial Commission of Inquiry
https://www.dailymaverick.co.za/article/2018-06-29-jonas-      into Allegations of State Capture, Fraud and Corruption’, para
makwakwas-swift-rise-to-power-and-his-abuse-of-it/             113.
22
   Cowan, K. ‘SARS Inquiry hears how Jonas Makwakwa tried
to meddle in VIP taxpayers affairs’. 2018. News24, Available
Page 7

African        Revenue            Service       (“Nugent        In 2018, it was exposed how he had used
Commission”). It is, however, important to                      almost R1million of taxpayer funds to mount
note that the testimony of Mr Williams has yet                  a campaign to defend himself at the Nugent
to be tested through cross-examination.                         Commission which was never                       properly
                                                                justified or approved29          30
                                                                                                   . He was one of
Luther Lebelo                                                   several senior executives suspended in 2019,
According to van Loggerenberg in his book                       and he resigned following an agreement with
Rogue, following Moyane’s arrival at SARS,                      SARS that no further actions would be taken
he allegedly began to increasingly rely on                      against him31.
Labour Relations executive Luther Lebelo
(“Lebelo”) as a spokesperson for SARS, side-                    Summary of the events
lining official SARS spokesperson Adrian
Lackay25.      Lebelo and Makwakwa                    were      One of the primary questions for this report is
among        Moyane’s            closest      confidants.       why      “capture      and      repurpose”        SARS?
Ultimately Lebelo became the de facto                           According to Foley, there are several possible
spokesperson for SARS after Lackay was                          motives for capturing SARS32, including but
instructed in February 2015 not to speak on                     not limited to:
any matters related to employment at                            ●     aiming to weaken tax enforcement
        26
SARS . Lebelo was also promoted to the                                particularly to the benefit of individuals in
role of head of Human Resources. In that                              past conflict with SARS enforcement;
position, he would have been involved in the                    ●     using SARS as a means to target political
suspensions          of        Pillay,     Richer,        van         opponents;
Loggerenberg and Gene Ravele carried out                        ●     extract the ‘rents’ from the state, either by
by Moyane who, according to the Nugent                                lowering tax claims or by inflating
Commission report, “was bent on driving                               refunds; and
                          27
them out of SARS” . Lebelo also attended                        ●     having access to personal information,
meetings with taxpayers that were politically                         as the nature of SARS business meant
                                                     28
connected for reasons never explained .                               that there was extensive access to both

25
   Van Loggerenberg, J. and Lackay, A. Rogue, Jonathan Ball     https://www.news24.com/citypress/business/judge-nugent-
Publishers, Jeppestown. 2016, Page 4-5                          sars-is-spending-taxpayer-money-like-water-20181021
26                                                              30
   Nugent, R. ‘Commission of Inquiry into Tax Administration       Nugent, R. ‘Commission of Inquiry into Tax Administration
and Governance by SARS: Final Report’. December 2018,           and Governance by SARS: Final Report’. December 2018,
page 89.                                                        page 15
27                                                              31
   Nugent, R. ‘Commission of Inquiry into Tax Administration       SARS. ‘Media Statement’, 2019. Available at:
and Governance by SARS: Final Report’. December 2018,           https://www.sars.gov.za/Media/MediaReleases/Pages/2-
page 90                                                         October-2019---Ms-Makhekhe-Mokhuane-and-Mr-Lebelo-
28
   Van Wyk, P. Scorpio: The curious case of ANC benefactor      resign.aspx
                                                                32
Robert Huang, a never-ending investigation and billions owed       Foley, R. ‘The Role of Bain and KPMG in capturing SARS’,
to SARS. 2018. Available at:                                    Ahmed Kathrada Foundation Seminar: How Business
https://www.dailymaverick.co.za/article/2018-01-23-scorpio-     Enabled State capture, 2019, Available at:
the-curious-case-of-anc-benefactor-robert-huang-a-never-        https://www.kathradafoundation.org/2019/10/03/bussiness-
ending-investigation-and-billions-owed-to-sars/                 enabled-capture-presentation/
29
   Brown, J. Judge Nugent: SARS is spending taxpayer
money ‘like water’. 2018. Available at:
Page 8

        personal and financial information of                     discussed above to capture and repurpose
        individuals and businesses, which would                   SARS, the protagonists in this report were
        provide a life-style overview of all                      successful.
        registered taxpayers.
                                                                  Culture of fear
To achieve the above, Foley, a researcher at
the         Centre   for   Complex       Systems        in        Before Moyane taking over as Commissioner
Transition, described in a presentation how,                      of SARS, the morale and pride in those
for SARS to be captured, the existing                             working at SARS were very high. Those who
structures and investigative and enforcement                      worked at SARS between its inception in
capacity of SARS would need to be                                 1997 and 2014 believed that working at
dismantled, control of the organisational                         SARS was building on democracy and
functions would need to be centralised and                        working for “the higher purpose”, a phrase
managed by individuals’ part of the capture                       coined and promoted by Gordhan when he
strategy, and a culture of fear would need to                     was Commissioner, and later perpetuated by
be created to keep other employees with                           both Magashula and Pillay34.                         Some
                                  33
integrity from speaking up . It seems that, in                    comments by employees, as outlined in the
line with the requirements                                        Nugent Commission Report35:

     Name of Employee                               Comments
     Ms Seremane                                    ‘Well, I think it's the brand, SARS, the reputation SARS but certainly,
        •     joined SARS in 2009 as the            it was the drive to actually contribute to the country realising that we
              executive for integrity promotion;    have such a good institution that performs and [was] laying such a
              and                                   critical role in the country and I wanted to be part of that to contribute
        •     was subsequently dismissed.           to the country’
     Mr Ndlangalavu                                 ‘There was a vibrancy, ma’am. People wanted to join the unit and
        •     joined SARS in 2001.                  the excitement and joy and SARS people I still want to believe even
                                                    now are proud to work for SARS. I am a proud SARS official despite
                                                    the challenges.’
     Ms Mthebule                                    ‘To summarise, I would say I had lots of fun […]. You know cohesion
        •     a trained lawyer who joined           that existed among colleagues, having leadership of a certain quality.
              SARS in 2008.                         People you felt you could look up to and learn from. I was a happy
                                                    employee. Moreover, at that stage Minister Gordhan was talking
                                                    about that term he liked, higher purpose […]. I had support from
                                                    colleagues, from bosses. I wasn’t scared of approaching anybody.’

33                                                                34
  Foley, R. ‘The Role of Bain and KPMG in capturing SARS’,           Nugent, R. ‘Commission of Inquiry into Tax Administration
Ahmed Kathrada Foundation Seminar: How Business                   and Governance by SARS: Final Report’. December 2018
                                                                  35
Enabled State capture, 2019, Available at:                           Nugent, R. ‘Commission of Inquiry into Tax Administration
https://www.kathradafoundation.org/2019/10/03/bussiness-          and Governance by SARS: Final Report’. December 2018
enabled-capture-presentation/
Page 9

          “The hallmark of good governance in an institution is the existence
                                            of a culture of healthy dissent.
           Mr Moyane substituted instead a culture of fear and intimidation.”
                                              Nugent Commission Report

However, after Moyane secured control as                       Current SARS Commissioner, Kieswetter,
Commissioner           of    the      organisation        in   stated in his presentation to the Standing
September 2014 with Zuma’s blessing, he                        Committee on Finance on 4 July 2019 on the
seems to have intentionally begun to weaken                    state of SARS38, “Internally, the organisation
the organisation, with over 2000 experts                       has been traumatised… A climate of fear and
resigning over three years, 550 of which had                   intimidation      has      been      installed      in   the
retired     and      approximately         600       facing    organisation, racial tensions are palpable.
disciplinary action36. The post-2014 SARS                      People openly talk about trauma.” Kieswetter
was filled with fear, suspicion and distrust,                  further outlined the internal culture of SARS
with many employees not wanting to testify at                  as one lacking trust in the leadership, full of
the Nugent Commission because of fear for                      racial tension, intimidation and fear, and that
their jobs.                                                    many staff appeared to have a ‘broken
                                                               spirit’39. He further stated: “The deliberate
Mr Ndlangalavu recounted how, early in his                     process of weakening SARS was initiated by
tenure, Mr Moyane had a plethora of CCTV                       the bogus claim of a Rogue Unit and the
cameras installed, such that employees felt                    Nugent outcome speaks of denuding the
themselves under constant surveillance, so                     organisation of skills”. For SARS to be fully
much so that some employees took to                            functional again, decades of stripping of skills,
covering      the     camera        lenses      on    their    morale and capacity would need to be
computers with tape, lest they be watched                      reversed and governance structures rebuilt.
while they went about their work, fearful of                   This climate of fear has been seen at several
any perceived misdemeanour that might                          state institutions across South Africa, as part
result in disciplinary proceedings37.                          of the modus operandi when certain groups of

36                                                             38
   Foley, R. ‘The Role of Bain and KPMG in capturing SARS’,       Merten, M. ‘Rebuilding SARS one step at a time: Kieswetter
Ahmed Kathrada Foundation Seminar: How Business                tells MPs of a culture of fear and loathing’, Daily Maverick,
Enabled State capture, 2019, Available at:                     Available at: https://www.dailymaverick.co.za/article/2019-07-
https://www.kathradafoundation.org/2019/10/03/bussiness-       04-rebuilding-sars-one-step-at-a-time-kieswetter-tells-mps-of-
enabled-capture-presentation/                                  a-culture-of-fear-and-loathing/
37                                                             39
   Nugent, R. ‘Commission of Inquiry into Tax Administration      Khumalo, S. ‘Culture of fear and racial tensions at SARS,
and Governance by SARS: Final Report’. December 2018.          says Kieswetter’, Fin24, Available at:
page 25.                                                       https://www.news24.com/fin24/economy/culture-of-fear-and-
                                                               racial-tension-at-sars-says-kieswetter-20190605-2
Page 10

individuals attempt to capture and repurpose                  According to SARS employees testifying at
state     organisations.         This      has       been     the Nugent Commission, SARS’ compliance
particularly      highlighted       at    the    Judicial     and operating models were successful before
Commission of Inquiry into Allegations of                     Moyane’s appointment in 2014.                         Upon
State Capture, Fraud and Corruption (“Zondo                   entering SARS, he immediately got to work
Commission”), where dozens of witnesses                       on a total overhaul of SARS’ structure and
have testified to the culture of fear created in              compliance and operating model. It is
state-owned entities.                                         estimated that, due to Moyane’s actions, by
                                                              2017 SARS was experiencing a revenue
Change of SARS operating model                                deficit of at least R50-billion, with predictions
                                                              of that number growing41.
Before Moyane took over as Commissioner in
2014, SARS based its compliance model on                      Bain & Company Inc and the
three aspects, namely Service, Education
                                                              restructuring of SARS
and Enforcement40. Superimposed over this
model was the continued modernisation of                      Bain & Company Incorporated (“Bain”) is a
information technology advances, electronic                   global management consulting company,
filing, and segmentation of the tax base                      based in Boston, Massachusetts, USA. They
according to small businesses, individuals,                   are considered to be one of three big
tax practitioners, medium-sized enterprises                   consulting companies in the world, including
and     large     businesses.        The      underlying      McKinsey and Company (“McKinsey”)42 and
philosophy of the model was to always                         the Boston Consulting Group (“BCG”).
encourage taxpayers to do the right thing, by
providing a convenient and easy to use                        According to the Nugent Commission report43
service offering and educating people on                      and the statement by Williams to be
compliance. The enforcement strategy had                      presented at the Zondo Commission, Bain
three parts, namely reaching all taxpayers in                 had been trying to get into public sector
all corners of the country, having the capacity               business for some time.
to deal with complex tax crimes, and being
able to leverage relationships with law                       Williams is a Senior Lecturer at the University
enforcement          to     prosecute        those       in   of Cape Town, Graduate School of Business
contravention of tax and customs laws.                        in the Allan Gray Centre for Values-Based

40                                                            42
  Van Loggerenberg, J. and Lackay, A. Rogue, Jonathan Ball       It is of interest to note that McKinsey is also widely
Publishers, Jeppestown. 2016, page 16-17.                     implicated in State Capture activities in South Africa,
41
   Van Wyk, P. ‘Scorpio: the Makwakwa Dossier, Part 2 –       particularly in relation to advisory contracts with SOEs. A
SARS No 2 was paid a bonus worth nearly R1million…while       question could be asked about the organisational culture of
on suspension’, Daily Maverick, Available at:                 these consulting companies and their actions and behaviour
https://www.dailymaverick.co.za/article/2017-11-23-scorpio-   in developing countries.
                                                              43
the-makwakwa-dossier-part-2-sars-no-2-was-paid-a-bonus-          Nugent, R. ‘Commission of Inquiry into Tax Administration
worth-nearly-r1-million-while-on-suspension/                  and Governance by SARS: Final Report’. December 2018,
                                                              page 33
Page 11

Leadership.           He lectures and conducts                   Stakeholder        Management”            contract      with
research in Corporate Responsibility, Ethical                    Ambrobrite        (Pty)     Ltd,     now      known        as
Leadership, and is a Research Fellow in the                      Kanoboya          Consulting          (CIPC        number:
Centre for Applied Ethics at Stellenbosch                        2009/020492/07)                        (“Ambrobrite”)44.
University. He has worked as a management                        Ambrobrite        had      two      directors,      namely
consultant for over 15 years at various                          Dumakude Mayivuke Ndlovu (“Ndlovu”), a
organisations including Bain.               He has also          well-known businessman in the entertainment
held senior executive roles at Old Mutual, Rio                   and television industry, and a close friend of
Tinto in London and RMB Corvest. He was a                        Zuma, and Mpumelelo Njabulo Ngema
former      independent         contractor to Bain,              (“Ngema”) 45.
working        from      September           2018       until
December 2019 to perform an oversight role                       Ambrobrite was also co-owned by creative
of Bain’s investigation into their contracts and                 artist Mr Mandla KaNozulu (“KaNozulu”)46                   47
                                                                                                                              .
work at SARS.            He was also a part-time                 William claims to have found that, according
employee as a Partner in the South African                       to KaNozulu’s website, media reports and a
business,        serving      on     the    Bain      Africa     Bain email48, he served as the Special
Oversight Board from 15 May to 28 August                         Advisor to the Minister of Police, Mr Nathi
2019.                                                            Nhleko.

Based on his experience and position,                            The head of the local office of Bain in South
Williams assisted the Nugent Commission                          Africa,      Vittorio      Massone          (“Massone”),
with their investigation and submitted a                         disclosed to Nugent that he had multiple
statement        to     the     Zondo        Commission          meetings with former President Jacob Zuma
concerning his findings whilst consulting at                     (“Zuma”) between 2012 and 2014, the first of
Bain. Williams is scheduled to give evidence                     which was arranged on 11 August 2012 by Mr
at the Zondo Commission, and Bain has                            Sipho Maseko (“Maseko”)49 50. This meeting
applied to cross-examine Williams.                               was also attended by Ndlovu. According to
                                                                 Atholl Williams (“Williams”), in his statement

To assist in entering the public sector, Bain                    to the Zondo Commission51, Massone spoke

entered      a    “Business        Development           and     widely and proudly of his proximity to Zuma.

44                                                               49
   Williams, A. ‘Statement for Judicial Commission of Inquiry       Sipho Maseko was CEO of Telkom. He was also briefly
into Allegations of State Capture, Fraud and Corruption’, para   considered for the position of GCE at Transnet under the
46.                                                              tenure of Barbara Hogan but retracted his interest. Brian
45
   Williams, A. ‘Statement for Judicial Commission of Inquiry    Molefe was eventually appointed as GCE of Transnet.
                                                                 50
into Allegations of State Capture, Fraud and Corruption’, para      Nugent, R. ‘Commission of Inquiry into Tax Administration
46.                                                              and Governance by SARS: Final Report’. December 2018,
46
   Nugent, R. ‘Commission of Inquiry into Tax Administration     page 35, para 25
                                                                 51
and Governance by SARS: Final Report’. December 2018,               Williams, A. ‘Statement for Judicial Commission of Inquiry
page 35, para 33                                                 into Allegations of State Capture, Fraud and Corruption’, para
47
   Mandla KaNozulu is also known as Mandla Kheswa.               76
48
   Williams, A. ‘Statement for Judicial Commission of Inquiry
into Allegations of State Capture, Fraud and Corruption’, para
46.
Page 12

Williams further confirmed that the global                       restructuring which, in my view, was aimed at
leadership of Bain was all aware of the                          bringing as many organisations and as many
meetings with Zuma and it was well known                         financial resources under more concentrated
that    the      relationship      with    Ndlovu       and      control, which would greatly facilitate state
Ambrobrite was to create connections with                        capture. Much like Bain did at SARS […], the
Zuma and other politically connected people.                     restructured        public      entities      would       be
                                                                 repurposed to serve an agenda most likely
Bain acknowledged these meetings in a                            not in the public interest. Bain labelled these
public statement on 17 December 2018,                            plans “reshaping the South African economy.”
outlining that Massone claimed to have had                       Bain also formulated plans to reshape the
12 meetings with Zuma between 2012 and                           South       African      government,         seeking       to
201452. However, Williams believed that this                     centralise procurement processes in state
number was understated, as it appeared that                      institutions. According to Williams, an email
between           2012        and         2015,        Bain      from Massone on 18 January 201456 appears
representatives were meeting regularly with                      to reveal how Bain had sight of plans for the
Zuma and his associates to actively create                       large-scale           restructuring          of      public
strategies and documents/proposals for the                       institutions57.
restructuring of state agencies and entities,
alongside plans to structure entire sectors of                   It    was      further     discovered         that     Bain
the South African economy53.                     In these        representatives were meeting with Moyane
meetings, amongst other things, they also                        and Zuma more than a year before Moyane
discussed “Project Phoenix”, a                     strategy      was     appointed        to    SARS58.            Massone
aimed       at    getting      more       public     sector      confirmed to the Nugent Commission that the
business54.                                                      first engagements with Bain were in 2013
                                                                 before       Moyane           was      removed         from
According to Williams55 “While claiming that                     Correctional Services, for so-called ‘CEO
such restructuring would offer economic                          coaching’ with a particular focus on what to do
benefits and service improvement to South                        as SARS Commissioner59.
African society, the consistent theme is that of

52                                                               55
   Khumalo, S. ‘5 key takeaways from Bain’s statement on            Williams, A. ‘Statement for Judicial Commission of Inquiry
SARS’, Fin24, Available at:                                      into Allegations of State Capture, Fraud and Corruption’, page
https://www.news24.com/fin24/companies/financial-                30
                                                                 56
services/5-key-takeaways-from-bains-statement-on-sars-              Williams, A. ‘Statement for Judicial Commission of Inquiry
20181218                                                         into Allegations of State Capture, Fraud and Corruption’, para
53
   Williams, A. ‘Statement for Judicial Commission of Inquiry    81
into Allegations of State Capture, Fraud and Corruption’, page
                                                                 58
28 and Nugent, R. ‘Commission of Inquiry into Tax                   Nugent, R. ‘Commission of Inquiry into Tax Administration
Administration and Governance by SARS: Final Report’.            and Governance by SARS: Final Report’. December 2018.
December 2018, page 34                                           Page 33-34
54                                                               59
   Nugent, R. ‘Commission of Inquiry into Tax Administration        Foley, R. ‘The Role of Bain and KPMG in capturing SARS’,
and Governance by SARS: Final Report’. December 2018,            Ahmed Kathrada Foundation Seminar: How Business
page 35.                                                         Enabled State capture, 2019, Available at:
                                                                 https://www.kathradafoundation.org/2019/10/03/bussiness-
                                                                 nabled-capture-presentation/
Page 13

In the year before Moyane’s appointment at                       outlines that a SARS official may not disclose
SARS, he met with a Bain representative, at                      taxpayer’s information or SARS confidential
least four times to discuss several aspects,                     information          other      than        for     specific
including the actions of the first 100 days at                   circumstances64.
SARS and developing a restructuring plan for
SARS60.          According to Williams,                 Bain     The ‘diagnostic’ and restructuring plan
produced four documents for Moyane before
Moyane              was         appointed             SARS       Shortly      after     Moyane’s         appointment          in
                    61
Commissioner . One presentation document                         October/November 2014, Moyane appointed
dealt with what Moyane had to do within his                      Bain to review the SARS operating model,
                               62
first 100 days at SARS , including identifying                   whilst at the same time disbanding the
and      “neutralising”        persons        who       were     executive committee of SARS65 based on
identified as “problematic” and “watch out” for                  several reports published by the Sunday
others. The second document set out, with                        Times newspaper, which have since proven
little   to    no     proper        research      and      no    false. Nugent commented in his interim report
engagement with SARS at that time, the                           that using newspaper reports to disband the
deficiencies in the internal structure of SARS                   executive of SARS was ‘extraordinary in any
and how to alter and change it.                                  rational terms66.

Makwakwa was also present in the meetings                        According to Williams, it appears Bain knew
with Bain and shared information with them                       they would be appointed for this review, going
that       helped         Bain         formulate           the   as far as “pre-identifying teams” to work on
                                                63
recommendations for restructuring . At the                       the projects. The request for proposal (RFP)
time, Makwakwa was an employee of SARS,                          for this review was issued on 12 December
and he allegedly handed SARS information                         2014 and titled “Consultancy Services to
over to the Bain representative and Moyane.                      Review       the     SARS        Operating        Model67.”
This     exchange         of    information          was    in   Evidence indicates that Bain had already
contravention of Chapter 6 of the Tax                            written the draft for the RFP two months
Administration Act, No. 28 of 2011, which                        before. Furthermore, Williams states that a

60                                                               65
   Nugent, R. ‘Commission of Inquiry into Tax Administration        Sole, S. SARS set for ‘rogue unit’ showdown. 2015.
and Governance by SARS: Final Report’. December 2018.            Available at: https://mg.co.za/article/2015-04-30-sars-set-for-
Page 35 – 38.                                                    rogue-unit-showdown/ and Nugent, R. ‘Commission of Inquiry
61
   Williams, A. ‘Statement for Judicial Commission of Inquiry    into Tax Administration and Governance by SARS: Final
into Allegations of State Capture, Fraud and Corruption’, para   Report’. December 2018, page 75
                                                                 66
109                                                                  Ryan, C. ‘Tom Moyane fired, leaving SARS in a state of
62
   Nugent, R. ‘Commission of Inquiry into Tax Administration     “intrigue, fear, distrust and suspicion”. 2018. Available at:
and Governance by SARS: Final Report’. December 2018.            https://accountingweekly.com/tom-moyane-fired-leaving-sars-
Page 37                                                          in-a-state-of-intrigue-fear-distrust-and-suspicion/
63                                                               67
   Williams, A. ‘Statement for Judicial Commission of Inquiry       Williams, A. ‘Statement for Judicial Commission of Inquiry
into Allegations of State Capture, Fraud and Corruption’, para   into Allegations of State Capture, Fraud and Corruption’, para
113                                                              122
64
   Nugent, R. ‘Commission of Inquiry into Tax Administration
and Governance by SARS: Final Report’. December 2018,
page 132.
Page 14

document dated October 2014 and titled                                  “The new organisational structure of
“South African Revenue Service / Strategy                               SARS       was      often      called     the     ‘new
and     Operations         review      /    Request        for          operating model’ but that is a misnomer.
Proposal” was retrieved from a Bain computer                            An operating model is a strategy upon
by      Baker         McKenzie             during         their         which a structure is built. There was no
                 68
investigation .                                                         new strategy upon which the structure
                                                                        was rebuilt by Bain. It did no more than
Bain began their work immediately to produce                            restructure       the     organisation,         based
a    diagnostic       evaluation       report       for    the          largely, according to Mr Massone, upon
restructuring of SARS.               According to the                   what Bain considered to be ‘best
Nugent Report, the entire process was kept                              practice’, drawn from Bain’s second-
secret from the various division managers,                              hand knowledge of other tax collection
with Moyane instructing who Bain should talk                            agencies, with little insight, nor any
to, under the eye of a steering committee                               apparent interest, into why SARS had
headed by Makwakwa69.                   Bain conducted                  been structured in the way in which it
interviews with 33 employees over only six                              was, and in what direction SARS was
days, an inadequate sample to take out of                               headed.”
                             70
14000 SARS officials . Managers who gave
evidence at the Nugent Commission all stated                      Also, according to Williams, it appears that
that they were either not consulted or                            Bain misrepresented the depth of their
consulted in a perfunctory manner on the                          expertise, with the team working at SARS
diagnostic process, and ultimately could not                      having no discernible experience in tax
understand why the organisation needed                            agencies73.        Essentially, thanks to their lack
restructuring71.                                                  of research and understanding, Bain provided
                                                                  a restructuring plan for SARS that weakened
Ultimately, the original SARS operating model                     oversight and destroyed a large part of SARS’
was stripped of its effectiveness. According                      capacity, side-lining key senior executives
to Judge Nugent72:                                                and downsizing the SARS Business Centre74.

68                                                                72
   Williams, A. ‘Statement for Judicial Commission of Inquiry        Nugent, R. ‘Commission of Inquiry into Tax Administration
into Allegations of State Capture, Fraud and Corruption’, para    and Governance by SARS: Final Report’. December 2018,
124                                                               page 51
69                                                                73
   Nugent, R. ‘Commission of Inquiry into Tax Administration         Williams, A. ‘Statement for Judicial Commission of Inquiry
and Governance by SARS: Final Report’. December 2018,             into Allegations of State Capture, Fraud and Corruption’, para
page 50                                                           138
70                                                                74
   Van Wyk, P. For Moyane and Zuma, Bain was a team                  Marian, N. ‘Sars and Treasury to pursue criminal charges
player. 2018. Available at:                                       against Bain & Co’, Mail and Guardian, Available at:
https://www.dailymaverick.co.za/article/2018-09-04-for-           https://mg.co.za/article/2019-07-02-sars-and-treasury-to-
moyane-and-zuma-bain-was-a-team-player/                           pursue-criminal-charges-against-bain-co/
71
   Nugent, R. ‘Commission of Inquiry into Tax Administration
and Governance by SARS: Final Report’. December 2018,
page 49
Page 15

Bain proposed four different new structures,                        d. Fragmenting             functions       within     the
but adopted a proposed fifth structure, largely                          Large Business Centre which offered
influenced by Moyane himself75. The new                                  end-to-end service to SARS clients.
structure made the following changes, inter                              Professor Nel of the South African
alia:                                                                    Institute of Tax Practitioners told the
                                                                         Nugent          Commission            that       this
     a. Combined all taxpayers’ affairs (both                            ultimately led to inefficiencies in SARS
          individual and business) into one                              processes and declining taxpayers’
          division known as the Business and                             morality and compliance, because of
          Individual Tax (“BAIT”) unit. This unit                        the frustration experienced by large
          was      ultimately        headed        up     by             businesses in particular when not
          Makwakwa (Chief Officer);                                      getting the efficient service they had
     b. According to Dr Malobhele, head of                               previously         experienced78.               This
          the Compliance Division at SARS, the                           statement         supported         submissions
          fragmentation         of    the     compliance                 from        other       representatives            of
          division and the disbanding of the                             professional bodies such as Mr Retief,
          compliance research unit ultimately                            who is the chair of the National Tax
          meant there was no compliance                                  Committee of the South African
          programme for the newly established                            Institute of Professional Accountants.
          BAIT unit76;
     c. Customs oversight diminished so                        The     Large       Business        Centre       generated
          drastically that inspection processes                approximately one-third of SARS’ tax-related
          went from two days to 23 days,                       revenue79.
          resulting in a massive decline in
          customs revenue collection77;

75                                                             79
   Nugent, R. ‘Commission of Inquiry into Tax Administration     De Greeff, K. ‘Boston firm admits ‘massive failure’ in plan to
and Governance by SARS: Final Report’. December 2018,          aid South Africa tax agency’, New York Times, Available at:
page 50                                                        https://www.nytimes.com/2018/09/02/world/africa/south-
76
   Nugent, R. ‘Commission of Inquiry into Tax Administration   africa-tax-agency-bain.html and Umraw, A. ‘Nugent
and Governance by SARS: Final Report’. December 2018,          recommends criminal proceedings over SARS contract with
page 53                                                        global consultancy firm Bain’, Times live, Available at:
77
   Nugent, R. ‘Commission of Inquiry into Tax Administration   https://www.timeslive.co.za/politics/2018-12-14-nugent-
and Governance by SARS: Final Report’. December 2018,          recommends-criminal-proceedings-over-sars-contract-with-
page 55                                                        global-consultancy-firm-bain/
78
   Nugent, R. ‘Commission of Inquiry into Tax Administration
and Governance by SARS: Final Report’. December 2018,
page 52-53
Page 16

As a result of this restructuring, SARS has
been experiencing massive shortfalls in tax
revenue collection. The difference in annual
collections can be seen below80:

               10.6
                                     9.6

                                                           8.5

                                                                                6.9
                                                                                                    6.3
                                                                                                                          5.9

                                                           1.07                1.14                1.22                  1.29
               0.90                  0.99

            2013/2014            2014/2015              2015/2016            2016/2017          2017/2018             2018/2019

                                               Annual increase in Tax Revenue Collection (%)

                                                Revenue Collected (ZAR trillion)

This shortfall also seemingly resulted in the                                   “In the past, we could have brought a
first increase in VAT in 2018 since democracy                                   preservation       order      on     a    group       of
in 1994, from 14% to 15% to try and cover the                                   companies with maybe four or five
shortfalls in tax collection. This increase                                     signatures or six. Now we need anything
affected South African’s at every level, but in                                 between eight and 12 signatures. So, I
particular, disproportionately affecting the                                    can assure you we’ve lost, and I’ll show
poor and vulnerable81.                                                          you a submission, we have lost possibly
                                                                                hundreds of millions of Rands over the
The effect on Enforcement, one of the pillars                                   last     few   years       because         of    these
of the previous structure of SARS, was                                          inefficiencies. Legal counsel approval
severe.       Mr      Dion      Nannoolal          of     debt                  takes 1 month to a year for approval on
enforcement told the Nugent Commission82:                                       memos. In summary, it could take up to

80                                                                      81
  One is aware that there are many factors that may lead to a              De Greeff, K. ‘Boston firm admits ‘massive failure’ in plan to
declining increase in year-on-year tax collection, but one              aid South Africa tax agency’, New York Times, Available at:
factor that could be attributed to this is the downsizing of the        https://www.nytimes.com/2018/09/02/world/africa/south-
business centre. SARS Tax Statistics 2013 – 2019. Available             africa-tax-agency-bain.html.
                                                                        82
at: https://www.sars.gov.za/About/SATaxSystem/Pages/Tax-                   Nugent, R. ‘Commission of Inquiry into Tax Administration
Statistics.aspx                                                         and Governance by SARS: Final Report’. December 2018,
                                                                        page 54
Page 17

        three      years       after       the         original    expected to take six to twelve months85.”
        transgression         to    proceed        with        a   This was before Moyane took office at SARS
        preservation order (as an example) or to                   and the RFP was even issued.
        commence collection steps.”
                                                                   The diagnostic of SARS took only six weeks
Nugent          also    commented          that    Moyane          and cost approximately R2.38 million86.
seemed to dismantle the governance of                              Judge Nugent raised major concerns with the
SARS, through this ‘restructuring’, reckless                       fairness of the appointment of Bain87,
mismanagement and the destruction of                               considering they knew about the project four
institutional knowledge at SARS, by removing                       months before it was released, and added a
many individuals that had helped build SARS                        50% discount to their fee to become in just
over the previous 20 years and displacing                          below the next lowest bidder and come out
around 200 managers from their jobs83. The                         the most competitive. But it appears that they
Nugent Commission also questioned the                              cut costs under the promise of Bain receiving
approach, methodology and value of the                             the contract for “Phase 2”, where they would
restructuring          plan    produced           by     Bain,     be able to “remove” the discount and charge
considering            they    seemed         to        ignore     at the full rate. Bain was appointed to continue
                                    84
international benchmarks                 and limited their         with “Phase 2” at a fee of R164 million, the
interaction with critical SARS staff members.                      actual restructuring of SARS, using a
                                                                   deviation process and not following proper
Bain’s pricing                                                     tender procedures. According to Nugent88:

Bain appeared to have seen this restructuring                            “Although         the       Bid        Adjudication

project as a way to generate more business                               Committee had been told the appointed

with SARS, regardless of whether it was                                  service provider for phase 1 must ‘give

needed. What came out of the Nugent                                      recommendations               that       can        be

Commission is that on 28 August 2014, Bain                               implemented by any service provider not

sent an email stating that they were to                                  them alone,’ and that any later work

“undertake              an         ‘operational/strategic                arising from phase 1 would be ‘go to

assessment’ of SARS, to set a platform for a                             market again’, that is not what occurred,

‘broader SARS transformational program’                                  nor was it intended by the conspirators to

83 83                                                              86
    Nugent, R. ‘Commission of Inquiry into Tax                       Nugent, R. ‘Commission of Inquiry into Tax Administration
Administration and Governance by SARS: Final Report’.              and Governance by SARS: Final Report’. December 2018,
December 2018, page 4                                              page 50, page 44
84
   Nugent, R. ‘Commission of Inquiry into Tax Administration
                                                                   87
and Governance by SARS: Final Report’. December 2018,                 Nugent, R. ‘Commission of Inquiry into Tax Administration
page 21-26                                                         and Governance by SARS: Final Report’. December 2018,
85
   Nugent, R. ‘Commission of Inquiry into Tax Administration       page 47
                                                                   88
and Governance by SARS: Final Report’. December 2018,                 Nugent, R. ‘Commission of Inquiry into Tax Administration
page 50.                                                           and Governance by SARS: Final Report’. December 2018,
                                                                   page 50
Page 18

      occur. Instead, phase 2 was awarded                      modernisation program. The Nugent Report
      through a deviation from the ordinary                    outlines some of the extensive hand-over
      procurement          process,       on      spurious     notes     that        Hore     prepared,       before     his
      grounds, that earned Bain approximately                  departure in January 2015, on the direction
      R164 million calculated at its ordinary                  and       future        of         the     Modernisation
                                                                                91
      rates less an initial discount of 12%.”                  Programme :

The only way that phase 2 could have been                            1. The Modernisation Programme was to
confined to Bain is if it was an emergency or                          run in three phases. The initial phase
Bain was the only supplier. According to the                           required SARS to create capacity,
Nugent Commission report, it seemed neither                            design the programme in detail and
was true and from these actions, it appeared                           prepare          the         organisation          for
that Moyane and Makwakwa did not intend to                             modernisation. In the next phase,
                                                  89
return to the market for phase two . It is                             SARS          would        implement        the   new
important to note that part of this restructuring                      business         model           throughout       the
process        did     not      include        Information             organisation. The final phase of the
Technology Systems (“ITS”) requirements.                               Modernisation Programme was the
Contracts to restructure ITS were given to                             delivery of world-class technology-
Gartner.                                                               driven services to support SARS’ new
                                                                       business model.
Modernisation program and Gartner                                   2. The Modernisation summary states
                                                                       “SARS anticipates further benefits with
Part of the development of SARS was a
                                                                       the Modernisation Programme in the
modernisation program that began back in
                                                                       next few years. These will be achieved
200490, with a simple e-filing system. This
                                                                       by    overhauling           the    systems        and
modernisation program became one of
                                                                       processes yet to be addressed by the
SARS’       greatest      strengths,       implementing
                                                                       modernisation programme, refining the
information technology systems that assisted
                                                                       innovations already implemented and
SARS in its mandate and identified areas that
                                                                       introducing further new services and
required enforcement much quicker than
                                                                       facilities.”
before.

                                                               The modernisation program aimed to improve
Barry Hore (“Hore”) who was the Chief
                                                               the     performance           of    SARS       in    service;
Operating Officer (“COO”) of SARS, drove the
                                                               enforcement and compliance; and cost

89                                                             91
   Nugent, R. ‘Commission of Inquiry into Tax Administration     Nugent, R. ‘Commission of Inquiry into Tax Administration
and Governance by SARS: Final Report’. December 2018,          and Governance by SARS: Final Report’. December 2018,
page 46                                                        page 61
90
   Van Loggerenberg, J. Death and Taxes, Jonathan Ball
Publishers, Jeppestown, 2018, page 102
Page 19

efficiency, and that SARS would need to                        The appointment of Gartner
continually evolve, upgrade and refine the
technology to best meet the needs of the                       Gartner Inc (“Gartner”) is a global research
organisation’s        operations.       In     September       and advisory firm providing information,
2014, Pillay informed SARS employees that                      advice, and tools for leaders in IT, finance,
they had “approved the SARS modernisation                      HR,       customer           service        and        support,
programme comprising 25 projects, of which                     communications,              legal     and       compliance,
8 are legally mandatory projects and 3 are                     marketing, sales, and supply chain functions.
collaborations         with      other       government        Gartner did not have much of a presence in
agencies.       The      list    of    projects      under     South        Africa       before        2016        but      was
modernisation is now the baseline and may                      represented through a sales agent and local
only be amended with EXCO’s approval.                          senior managing partner Neville Willemse
EXCO will review progress on the projects                      (“Willemse”).
regularly. Several projects could not be
accommodated               within        the        current    Willemse told the Nugent Commission that
programme. The Programme Management                            Monyeki approached him around December
Office will maintain a list of the proposed                    2014 about a new Commissioner that began
                                                        92
projects to plan for their implementation.”                    at SARS and had identified issues with the
However, despite the strides made with the                     modernisation program to be addressed94.
modernisation program and the success                          Monyeki specifically discussed with Willemse
SARS had already enjoyed, when Moyane                          details about an IT review contract SARS was
took over as Commissioner in 2014, he                          about to publish95. According to Willemse,
decided without consultation to appoint an                     Monyeki made it known to him that SARS
external service provider to conduct an                        specifically wanted Gartner to do an IT review
independent review of the SARS Operating                       of its systems and to draft the Terms of
Model, Structure and its Modernisation                         Reference for SARS96. Willemse admitted to
Programme93. Moyane also insisted that the                     the Nugent Commission that he was not sure
rollout of any further modernisation plans be                  why Monyeki was involved in managing the
stopped until he had completed this review.                    process, nor did Gartner enquire about his
                                                               involvement. They only knew that Monyeki
                                                               had a close relationship with Moyane97.

92                                                             95
   Nugent, R. ‘Commission of Inquiry into Tax Administration      Van Wyk, P. ‘SARS Inquiry shines a harsh light on Gartner
and Governance by SARS: Final Report’. December 2018,          Chiefs’, Daily Maverick, Available at:
page 62                                                        https://www.dailymaverick.co.za/article/2018-10-24-sars-
93
   Nugent, R. ‘Commission of Inquiry into Tax Administration   inquiry-shines-a-harsh-light-on-gartner-chiefs/
                                                               96
and Governance by SARS: Final Report’. December 2018,             It is highly irregular that a supplier would draft the terms of
page 63                                                        reference for the contract they are bidding for.
94                                                             97
   Nugent, R. ‘Commission of Inquiry into Tax Administration      Nugent, R. ‘Commission of Inquiry into Tax Administration
and Governance by SARS: Final Report’. December 2018,          and Governance by SARS: Final Report’. December 2018,
page 65.                                                       page 65
Page 20

There were two phases to the project, phase
one being to conduct a review of the
modernisation programme, with further phase
two      implementation           projects.       Gartner
received the initial phase one contract for R12
million.    The phase two contract was also
secured       by    Gartner,      for    an    additional
approximately R144 million.                   Along with
additional         contracts,       Gartner        earned
approximately R200 million in fees to review
SARS’s information technology systems.

Willemse also claimed that SARS requested
that Gartner subcontract part of the work to a
subcontractor from their preferred Broad-
Based Black Economic Empowerment (B-
BBEE) supplier list. The request was that
30% of the work was then subcontracted to
Rangewave,          a    business        belonging        to
Monyeki. It was however noted that there was
no formal agreement between Rangewave
and Gartner98. The IT system that was
developed          by      Gartner        was        never
implemented by SARS.

98
  Nugent, R. ‘Commission of Inquiry into Tax Administration
and Governance by SARS: Final Report’. December 2018,
page 66-67
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