Judge Dennis Davis. Picture: SUNDAY TIMES
Judge Dennis Davis. Picture: SUNDAY TIMES

Absa’s "apartheid debt" is hardly a new story to the media or the authorities, which have probed the matter in at least three separate investigations since 1985. At the time, the South African Reserve Bank, concerned that apartheid-era economic sanctions would negatively affect the country’s banks, elected to provide financial assistance to them. Bankorp was one of the banks that received financial assistance.

According to an investigation headed by Judge Dennis Davis in 2000 and commissioned by then Reserve Bank governor Tito Mboweni, the package benefited Bankorp to the tune of R1.1bn. This was paid out in R225m instalments between 1991 and 1995.

In terms of the agreement, low-interest loans were provided by the Reserve Bank to Bankorp. The bank, in turn, reinvested this money in the Reserve Bank in a combination of cash and bond investments at higher-yielding rates, earning Bankorp a handsome net interest margin.

Also in 1991, Sankorp, a subsidiary of Sanlam, Bankorp’s major shareholder prior to the Absa acquisition, agreed to provide Bankorp with R510m, to be paid over 10 years.

Both lots of financial assistance were to be used to write off bad or doubtful debts.

Conditional

Absa, formerly the Amalgamated Bank of SA, was created in 1991 through the unification of United Bank, Allied Bank, Volkskas, Sage and Bankorp (itself made up of Trustbank, Senbank and Bankfin). Absa’s acquisition of Bankorp became effective in April 1992 and was conditional on the financial assistance from the Reserve Bank and Sankorp remaining in place.

Davis found that the amount paid by Absa for all Bankorp’s ordinary shares (R1.23bn) accounted for the continued Reserve Bank assistance between 1991 and 1995. Absa could not, therefore, be regarded as a beneficiary of the Reserve Bank "lifeboat".

It was more plausible, according to Davis, that Sanlam, as Bankorp’s major shareholder at the time of the Absa buyout, benefited from the higher price paid for Bankorp shares and was in this way the major beneficiary of the Reserve Bank assistance package.

But due to the additional capital Sanlam had injected into Bankorp over the years to keep it afloat, by way of a rights offer, interest payments and reinvested dividends, Davis concluded that Sanlam received a benefit of approximately R1.9m from the Absa takeover.

He concluded that an enrichment claim against Sanlam would be problematic to prosecute because of the difficulties "pertaining to the quantification of the enrichment and the identity of the beneficiaries".

Sanlam was a mutual society at the time and its policyholders, rather than the company itself, would have been the main beneficiaries.

Davis’s findings, although the most recent on the matter, run contrary to the findings published in November 1999 by Judge Willem Heath, head of the Special Investigating Unit at the time, as well as those published in the CIEX report, on which Public Protector Busisiwe Mkhwebane relied heavily for her evidence.

Heath’s report concluded that the unit would have recovered the R1.1bn loan from Absa "plus interest", but for the systemic risk this would cause to the banking system, which would in itself exceed this amount.

While Davis disagreed that Absa shareholders enjoyed undue benefit from the Reserve Bank’s assistance package, he did find that the form and structure of the loan were seriously flawed

While Davis disagreed that Absa shareholders enjoyed undue benefit from the Reserve Bank’s assistance package, he did find that the form and structure of the loan were seriously flawed and amounted to a breach of the Reserve Bank’s statutory powers.

Davis took issue with the considerable number of years over which assistance was given, the secrecy with which the transfers were made and the fact that a "simulated transaction" was used to disguise the assistance as a loan when it was, in effect, "solvency support in the form of a grant or donation".

"Most of the individual undesirable features of the assistance given to Bankorp were also found in the Reserve Bank’s assistance given to other banks, but their combined application to the extent seen in Bankorp is exceptional," Davis wrote in his report.

Years before Davis was commissioned by Mboweni to investigate payments made to Bankorp, a company by the name of CIEX approached the government in August 1997 to do the same.

CIEX is a covert UK-based asset recovery agency headed by Michael Oatley, a retired British intelligence officer. Oatley offered his services to the government to investigate and recover money misappropriated during apartheid.

In terms of an agreement signed in October 1997 between Oatley and the then head of the South African National Intelligence Agency, Billy Masetlha, CIEX would be paid a fee of £600,000 over a period of six months. It would also claim a commission on any money it recovered for the government, minus legal and other costs of recovery. A commission of 10% would be paid on the first $100m recovered, with a commission of 7.5% paid on any subsequent money recovered.

Oatley claimed that there was opportunity to recover R3.2bn from Absa and R3.6bn from Sanlam and Rembrandt.

The government received an interim report from CIEX in March 1998, after which it suspended the contract with
the company and then authorised Heath to pursue a similar investigation.

Mkhwebane relies heavily on CIEX’s findings in her December 2016 provisional report detailing the alleged failure by the government to recover funds lent to Absa.

No Evidence

Mkhwebane submits that the government, the Treasury and the Reserve Bank, in failing adequately to process findings in the CIEX report, violated the Constitution. "No evidence could be found showing that the CIEX report was properly deliberated on, by either a Cabinet committee, [Reserve Bank] board or any other legitimate structure, and that the said structure took a decision not to proceed or implement the report with rational reasons for such a decision," she wrote.

Advocate Paul Hoffman, founder of Accountability Now, first submitted the complaint to the public protector’s office in November 2011. It was initially investigated by Thuli Madonsela and passed on to her successor.

In a statement on Friday, Absa confirmed that the public protector, presumably Madonsela, had interviewed senior executives of the bank in June 2016 on the Bankorp issue. Although accepting an offer to inspect confidential documents in the possession of the bank, the public protector did not take up the offer.

"This offer remains open," Absa said.

"These documents pertain to, among others, due diligence performed by Absa prior to acquiring Bankorp.

"Absa acquired Bankorp in April 1992 at fair value. All the obligations pertaining to the Reserve Bank’s assistance were discharged in full by October 1995," Absa said.

The bank would make submissions to the public protector that would "correct several factual and legal inaccuracies that are contained in the provisional report", Absa said.

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