About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: North Gauteng High Court, Pretoria
SAFLII
>>
Databases
>>
South Africa: North Gauteng High Court, Pretoria
>>
2021
>>
[2021] ZAGPPHC 19
|
|
Olive Health Consulting (Pty) Ltd and Another v South Africa Reserve Bank (66863/2020) [2021] ZAGPPHC 19 (18 January 2021)
HIGH
COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
(1)
REPORTABLE: NO.
(2) OF
INTEREST TO OTHER JUDGES: NO.
(3)
REVISED.
DATE:
18 JANAURY 2021
CASE
NO: 66863/2020
In
the matter between:
OLIVE
HEALTH CONSULTING (PTY) LTD
First
Applicant
FABRICE
MUBENGA KADIMA
Second
Applicant
and
SOUTH
AFRICAN RESERVE BANK
Respondent
J
U D G M E N T
This
matter has been heard in terms of the Directives of the Judge
President of this Division dated
25
March 2020, 24 April 2020 and 11 May
2020.
The judgment and order are published and distributed electronically
in accordance with these Directives.
DAVIS, J
[1]
Introduction
This is the judgment in an urgent application in which a
foreign owned South African company seeks to have a “block”
which the South African Reserve Bank (the Reserve Bank) has placed on
funds in the company’s bank account, uplifted.
The
blocking of funds was done in terms of Exchange Control Regulations.
[2]
The parties
2.1
The first applicant is Olive Health Consulting
(Pty) Ltd (the company). It is a South African company.
Its sole shareholders
and directors are Mr and Mrs Kadima.
2.2
Mr Kadima is the second applicant.
2.3
The sole respondent cited is the Reserve Bank.
2.4
The bank at which the company’s account
relevant to this application is held, is First National Bank (FNB).
It was not
cited as a respondent and the Reserve Bank claimed that
this amounted to a fatal non-joinder, having regard to the nature of
the
relief claimed. Prior to the hearing of the matter, FNB in
writing indicated that they abided the decision of the court.
In my view, no further joinder is required.
[3]
The applicants’ case
3.1
Mr and Mrs Kadima are citizens of the Democratic
Republic of Congo (the DRC). They are both permanently resident
in South
Africa.
3.2
Mr and Mrs Kadima operate a management and
consulting business in the medical field. The business is
conducted “through”
the company.
3.3
Although the company is registered in South
Africa, all of its operations are conducted in the DRC “and
abroad”.
It derives the bulk of its income from a
contract it has with SNEL, which has been described as the DRC’s
equivalent of Eskom.
3.4
Mr Kadima stated that he and his wife “thought
it practical” for all funds derived by the company from the
SNEL contract
to be paid into a South African bank account, held by
the company at FNB. Mr Kadima stated that “they”
(presumably
he, his wife and the company) also operate bank accounts
in the DRC. From the proceeds of the contract paid to the
company
from the DRC (amounting to some R70 million p.a) into the FNB
account, transfers are made to Mr and Mrs Kadima into accounts held
by them at FNB and Standard Bank. Mr Kadima stated that he and
his wife annually need some R 9 million to pay their “personal
expenses”. They also “repatriate” funds back
to the DRC to support their parents and other family members
living
in the DRC. Mr Kadima also operates a bank account in Portugal
to which Mrs Kadima also has access. They also
“support”
a certain Ms Ellie Bwalya, another foreign citizen permanently
resident in South Africa.
3.5
The “personal expenses” referred to
above, include, according to Mr Kadima:
3.5.1
The purchase of a property in Dubai.
3.5.2
The purchase of “Golden visas” for
him and Mrs Kadima to the Dominican Commonwealth.
3.5.3
Expenses for purposes of travel.
3.5.4
The purchase of an antique table in Portugal.
3.5.5
The provision of financial support to their
families in the DRC.
3.6
Much was made by the applicants of the fact that
Mr and Mrs Kadima (and Ms Bwalya) each had a R1 million annual single
discretionary
foreign exchange allowance and that the company had a
R10 million annual International Travel Allowance Facility. Mr
Kadima
also relied heavily on the fact that, upon becoming
permanently resident in South Africa and implementing the arrangement
of transfer
of funds from the DRC to the company, the transfer of
funds to the Kadimas and their then intended payments of expenses
such as
those mentioned in paragraph 3.5 above, they made enquiries
at FNB, particularly regarding the use of their credit cards for
purchases
or transfers in foreign currency. They were in
general terms, advised that the only limit on such transactions, were
the
amounts to their credit on the credit cards.
3.7
In July 2020 the Reserve Bank’s Financial
Surveillance Department advised Mr Kadima that it had reasonable
grounds to believe
that Mr Kadima had exceeded his discretionary
allowance limit as well as his R50 000,00 limit per credit card
transaction.
Mr Kadima’s case is that he had fully
responded to the letters of enquiry directed to him by the Reserve
Bank by furnishing
particulars of foreign exchange transactions on
oath. This response was prompted by a “block” which
had been
placed on Mr Kadima’s personal Standard Bank account
at the time.
3.8
In his explanation provided to the Reserve
Bank on 16 July 2020, Mr Kadma explained the method of the Dubai
property payments referred
to in paragraph 3.5.1 above as follows:
“
I provide Ms Ellie Bwalya … with
funding for her living expenses and certain of the funds utilised by
her were used to assist
me in paying the monthly instalments on a
property which I purchased in Dubai
”.
(He repeated these explanations in his founding affidavit). Mr
Kadima also annexed two bank statements of Mr Bwalya
in support of
these explanations as proof of the “swift” foreign bank
payments. These indicate that Ms Bwalya
received a salary from
the company as well as payments marked either “ohc” or
“ohc doctor” and that certain
petty cash payments from
the company also flow through her account. The “outward
swift” payments and the sources
thereof were reflected in the
statements as follows:
2019
Statement no 18
2 May 2019 FNB deposit “Fabrice” R
900 000.00
3 May 2019 Outward Swift “Fabrice” R
877 890.00
2020 Statement no 7
17 February 2020 Ohc deposit R 350 000.00
17 February 2020 Ohc deposit R 450 000.00
17 February 2020 Ohc doctor deposit R 7 800.00
17 February 2020 Outward Swift “Marina”
R807 246.76
(“Fabrice” is Mr Kadima’s first name,
the Dubai property is, according to Mr Kadima, situated at Marina
Vista
and “Ohc” appears to be an acronym for the
company).
3.9
The explanations also include a reference to an
amount loaned by Mrs Kadima to an erstwhile director of the company,
Mrs Claire
Opolot, which loan was repaid into the Kadima’s bank
account in Portugal.
3.10
On 9 November 2020, Mr Kadima’s attorneys
wrote to the Reserve Bank, complaining about the aforementioned block
and stating
that as a result thereof, the Kadimas were at risk of
losing their property in Dubai as the block prevented them from
making monthly
payments. On 20 November 2020 the Reserve Bank
telephonically advised Mr Kadima’s attorneys that the issue of
Foreign
Exchange Control Regulation contraventions was still being
investigated. The attorneys were advised that legislation
provided
the Reserve Bank with a 36 month period within which to
complete its investigations.
3.11
On 26 November 2020 Mr Kadima’s attorneys
objected to the ongoing investigation and the envisaged period
thereof and demanded
finalization within 7 days.
3.12
On 28 December 2020 the attorneys in a letter to
the Reserve Bank set out the company’s position as follows: On
that day,
a block was placed on an amount of us $ 400 000.00
which had been paid into the company’s FNB account. The
amount,
representing some R 1, 3 million formed part of a 50% deposit
explained in a further letter as being in respect of “
7
(seven) ambulances which were purchased from Olive Health Consulting
(Pty) Ltd by a customer in the DRC … . The seven
ambulances have been purchased by Olive Health Consulting (Pty) Ltd,
on behalf of its aforesaid DRC customer from a South African
Company
and the full amount … is required to be utilised towards
payment of such deposit
”.
3.13
The applicants accused the Reserve Bank’s
investigator of bias, alleged that there is no justification for the
blocking of
the funds and claim that the applicants have a real as
well as a prima facie right to the following relief on an urgent
basis:
“
2. In the case of the
first applicant, unblocking its Demand Deposit Bank Account held at
First National
Bank … inter alia, in order to release the R
1 322 900,49 held therein, for it to fulfil its
contractrual obligations
to supply 7 (seven) ambulances.
3. In the case of
the second applicant, directing the Respondent to finalise its
investigations
in relation to any alleged foreign exchange
contraventions … within 30 days of the granting of this
order
”
.
3.14
As an alternative to paragraph 3 of the Notice of
Motion quoted above, the applicants seek to interdict the Reserve
Bank from blocking
“…
any bank
account operated by the second applicant, whether directly, or
through the first applicant and/or preventing the second
applicant,
whether directly or through the first applicant, from concluding and
giving effect to any foreign exchange transactions
contemplated in
the Currency and Exchanges Manual pending finalization of any
investigations …
”. Costs
are also claimed.
[4]
The relevant legislative framework
4.1
As will appear from the framework set out
hereunder, the regulations applicable to foreign exchange
transactions from South Africa,
confer wide powers on the Reserve
Bank and, in particular, the power to block funds in accounts where
it is suspected that the
holder of the account engaged in
contraventions of these regulations.
4.2
The Exchange Control Regulations (the Excon
Regulations) promulgated in terms of
section 9
of the
Currency and
Exchanges Act, 9 of 1933
, provide in Reg 10 (1)(c) that “
no
person shall, except with permission granted by [the Minister] and in
accordance with such conditions as [the Minister] may impose
…
enter into any transaction whereby capital or any right to capital is
directly or indirectly exported from the Republic
”.
4.3
Exchange control has been relaxed from time to
time and the practice has been developed whereby the Minister of
Finance in his annual
budget speech announces what conditions are
being imposed in relation to the export of capital. These would
then be reduced
to circulars issued by the Reserve Bank.
4.4
The Financial Surveillance Department of the
Reserve Bank has since 1990 issued the Currency and Exchanges Manual
for Authorised
Dealers (the Manual) wherein all interested persons
and the public is informed of the purpose, scope and operation of the
exchange
control system, including the permissions, circulars,
conditions and limits applicable to each transaction. This
Manual is
updated from time to time, is available on the Reserve
Bank’s website and forms part of the papers in this
application.
Its contents are not in dispute.
4.5
Acting in terms of Regulation 22E of the Excon
Regulations, the Minister of Finance has delegated the functions in
relation to the
regulations relevant to this application, to the
Reserve Bank and, in particular the Financial Surveillance Department
thereof.
4.6
The regulations relating to the blocking of funds
are provided for in aforementioned
section 9
of the
Currency and
Exchanges Act, 9 of 1933
as follows:
“
9(2)(a) Such regulations may provide [for] …
any sanctions therein set forth … wether civil or criminal.
(b)
any regulation contemplated in paragraph (a) may provide for –
(i)
the blocking, attachment and obtaining of interdicts … and the
forfeiture and disposal … of any money …
(aa) which are suspected … on reasonable
grounds to be involved in an offence or suspected offence against any
regulation
referred to in this section, or in respect of which such
offence has been committed or so suspected to have been committed;
(bb) which are in the possession of the
offender, suspected offender by any other person or have been
obtained by any
such person … and which would not have been in
such possession or so obtained or due if such offence or suspected
offence
had not been committed; or
(cc) by which the offender or
suspected offender or any other person has been benefitted or
enriched as a result
of such offence or suspected offence …
(ii) in general, any matter …
necessary for the fulfilment of the objectives and purposes …
including the blocking
, attachment, interdicting, forfeiture
and disposal referred to in subparagraph
(i)
…
of any money
…
belonging to the offender or suspected
offender or any other person in order to recover an amount
equal
to the value of the money … recoverable
in terms of the regulations …
”
(my emphasis).
4.7
Leach JA, has explained the import of the above
as follows in
South African Reserve Bank v
Khumalo and Another
2010 (5) SA 449
(SCA) at
[6]: “
As appears from this, a
distinction is drawn between money or goods involved or suspected of
having been involved in any contravention
of the regulations
(sometimes referred to as ‘tainted’ money or goods) and
other money or goods (which may be described
as ‘untainted’)
”.
4.8
There are three regulations which deal with the
situation at hand. They are
Regulations 22A
,
22B
and
22C
.
In
South African Reserve Bank v Torwood
Properties (Pty) Ltd
[1996] ZASCA 104
;
1997 (2) SA 169
(A)
Harms JA (as he then was) described these regulations as being
“lengthy and convoluted”. Nevertheless, as
Leach JA
in Khumalo explained at paragraph [8], for present purposes the
following summary will suffice:
·
Regulation 22A
deals with the blocking or
attachment of “tainted” goods and money, that is goods
and money whereby a contravention
of the Exchange Control Regulations
were perpetrated.
·
Regulations 22C deals with the blocking or
attachment of “untainted” money to the value of the
contravention perpetrated
by the exporting of “tainted”
money.
·
Regulation 22B deals with the procedures
to be followed to obtain a forfeiture of either or both “tainted”
and “untainted”
money. Blocking, “freezing”
or attachment of such money by way of Regulations 22A or 22C usually
precedes such
forfeiture.
4.9
The period for a blocking order, as determined in
Regulations 22A (3) and 22C (3) respectively, is 36 months “or
such longer
period as may be determined by a competent Court”.
4.10
The relevant limits or allowances of capital to
be exported without separate prior permission are the discretionary
R1 Million annual
allowance and the R50 000.00 per credit card
transaction allowance. These are catered for in the Manual as
follows:
Section B.4 (A)(i) of the Manual provides that residents of
South Africa “
may be permitted to avail”
themselves of a single discretionary
allowance “
with an overall limit of R1
million per individual per calendar year”.
Section
B.16 (E)(i) of the Manual provides that residents or “local
entities” in whose name bank credit or debit cards
have been
issued, may be permitted to make foreign currency payment for
transactions, limited in terms of Section B.16 (E)(ii)
of the Manual
to R50 000.00 per transaction.
[5]
The Reserve Bank’s position:
5.1
Since about March 2020, Standard Bank had placed
Mr Kadima’s personal account under surveillance at the instance
of the Reserve
Bank and been told to block the account if the balance
exceeded R50 000.00. This was due to the Reserve Bank
having
become aware of “various suspicious transactions”
being conducted through the account.
5.2
The account was indeed blocked on 6 July 2020 and
the Reserve Bank found Mr Kadima’s explanations, referred to in
paragraph
3 above, unsatisfactory. The Reserve Bank indicated
as much to Mr Kadima in an email dated 13 July 2020. Having
regard
to the limits referred to in paragraph 4.10 above, the email
indicated that Mr Kadima had, in operating the account:
5.2.1
In 2019 effected outward foreign currency
transactions in excess of R2, 9 million;
5.2.2
Also in 2019 effected credit card transactions
above R50 000.00 in favour of two non-resident companies to a
total value of
R3, 72 million;
5.2.3
In 2020 effected foreign currency transactions in
excess of R2, 1 million; and
5.2.4
Also in 2020 effected credit card transactions
above R50 000.000 in favour of a non-resident company in excess
of 2.1 million.
5.3
The above determinations by the Reserve Bank were
not contradicted by an explanatory affidavit furnished by Mr Kadima
on 16 July
2020 in response to the said email.
5.4
As a result of the Reserve Banks’s
investigations of Mr Kadima’s accounts (as part of the large
volume of investigations
conducted by the Surveillance Department),
FNB was requested on 17 November 2020 to place two accounts operated
by the company
under surveillance together with an instruction to
block the accounts, should the balance exceed R500 000.00.
This
was, again, done due to suspicions of activity in
contravention of the Exchange Control Regulations referred to above.
5.5
In similar fashion as with Mr Kadima personally,
the Reserve Bank sent a letter to Mr Kadima via his attorneys, not
only explaining
the findings of its investigations to that date
regarding Mr Kadima’s accounts, but also listed apparent
contraventions of
the Exchange Control Regulations committed by the
Company. Full explanations and disclosure, supported by
documents
were requested in respect of outward foreign currency
transactions.
5.6
Mr Kadima’s response to the above letter
and the request for disclosure contained therein, in broad terms,
corresponded with
the Reserved Bank’s factual findings
pertaining to the outward flow of foreign currency. The
explanations furnished
accord with those contained in the founding
affidavit and which have been referred to in paragraph 3 above.
The result is
that Mr Kadima in effect confirmed that the
transactions “flagged” by the Reserve Bank in its letter
of 10 December
2020 in respect of the company’s outgoing
foreign transactions, contravened the limits imposed in terms of the
Excon Regulations.
His explanations that he did not know about
the limits and were not told thereof by his bankers do not detract
from this fact.
There were various other features of Mr
Kadima’s explanations regarding how he, his wife, Ms Bwalya
(and the company) dealt
with outgoing foreign currency transactions
which the Reserve Bank found wholly unsatisfactory, but which are not
relevant to this
urgent application.
5.7
The result of the above was that, once the
balance of the company’s account held at FNB exceeded R500 000.
000, which
it did after the deposit therein of the amount mentioned
in paragraph 3.12 above, it was blocked on 28 December 2020.
5.8
The Reserve Bank’s position is that the
company appears to have contravened the R50 000.00 per credit
card transaction
limit in 2019 in the amount of R 3 182 459,
71 and has again done so in 2020 in the amount in the amount of R
467 744,85
and that the Reserve Bank was therefore entitled to
block “untainted” money up to the total of these amounts.
[6]
Evaluation
6.1
On behalf of the company and Mr Kadima it was
argued, both orally and in the written heads of argument (and
supplementary heads
of arguments) that the blocking of the company’s
funds held in its FNB account “has no basis in fact and in
law”.
6.2
Firstly, in addition to what has already been
summarised above, Mr Kadima had the following to say in his founding
affidavit to
the urgent application, in respect of the factual
position of the company: “
As regards the
Company, I was unaware of the fact that provisions of Section 16
(E)(ii) of the Currency and Exchange Rates Manual
allows for
R50 000.00 per transaction. In this instance, the actual
amounts disbursed were R 3 182 459,71
in the 2019 Financial
year and R 467 744.85 in the 2020 Financial year
”.
This statement expressly confirms the facts suspected by the Reserve
Bank as set out in paragraph 5.6 and 5.8 above.
6.3
Once this factual basis has been established, the
legal basis is that the Reserve Bank’s jurisdictional
entitlement to invoke
Regulation 22C in relation to the blocking of
‘untainted’ funds has been established.
6.4
Once the jurisdictional basis for the blocking of
the funds has been established and the funds have in actual fact been
blocked,
the block may remain in place for 36 months whilst the
Reserve Bank concludes its investigations, which may in turn lead to
the
forfeiture provisions contemplated in Regulation 22B.
6.5
Insofar as Mr Kadima in effect pleaded an absence
of
mens rea
in respect
of the admitted contraventions, this only means that “the
relevant parties may not be punished criminally”
for their
failures to comply with the Exchange Control Regulations. This
much has been found in
Oilwell v Protec
International
2011 (4) SA 394
(SCA) at [16]
by Harms DP.
6.6
There can be no doubt that the Reserve Bank has a
statutory duty to investigate transactions which give rise to
suspicions of contraventions
of the Excon Regulations.
Ancillary to this duty, is the power to block funds utilised in such
transactions as well as the
power to block “untainted”
funds equal to the amount of the contraventions, which amount may
later be forfeited, the
nett result being that amounts exported
“without permission” are then repatriated.
The relief sought
by the applicants, namely the upliftment of the
blocking of funds (which are currently still far less than the
admitted contraventions
of the regulations by the company), the
limitation of the period of investigations conducted by the Reserve
Bank to 30 days and
the abrogation of the Reserve Bank’s powers
under Regulation 22A and 22C, will all result in an impermissible
suspension
of the Reserve Bank’s duties and powers. Such
limitation would even encroach on the protection of the Reserve
Bank’s
powers and functions afforded by section 225 of the
Constitution.
6.7
Apart from the admitted contraventions by the
company, it is further clear that the other transactions in respect
of which Mr Kadima
had furnished his explanations but without
answering or disclosing the particulars sought by the Reserve Bank’s
investigators,
justify, not only the blocking orders, but further and
ongoing investigations. There are no time limits placed by the
statutory
regime on these investigations. The only time limit
is the 36 month period placed on the validity period of a blocking
order
(after which consent of a court is necessary).
6.8
In heads of argument submitted on behalf of Mr
Kadima and the company, it has been suggested that the Reserve Bank’s
investigator
in its Financial Surveillance Department, is biased,
took irrelevant considerations into account, appears to have acted
capriciously
and/or arbitrarily and/or in bad faith and that her
actions were not rationally connected to the purpose for which they
were taken.
These accusations can only pertain to the
investigations referred to above as well as the blocking order of the
company’s
FNB account which form the subject matter of this
urgent application. As illustrated in paragraphs 5.8 and 6.2
above, these
accusations are without foundation.
6.9
Insofar as there may be urgency in relation to
the relief claimed, such urgency has clearly been self-created by the
contraventions
of the Excon Regulations, committed by the company and
as directed by Mr Kadima.
6.10
The company and Mr Kadima appear to labour under
the incorrect perception that, firstly, their explanations were
sufficient and
amounted to a “full disclosure” and,
secondly, once such disclosure had been made, the steps taken under
Regulation
22C should automatically fall away and the block/s should
be uplifted, irrespective of the Excon Regulation contraventions.
Both these perceptions are factually and legally incorrect.
6.11
Lastly, Mr Kadima and the company argued that
“key issues” were not addressed by the answering
affidavit delivered on
behalf of the Reserve Bank. One of these
issues, was the R10 million annual international travel allowance
facility of the
company. Having regard to the credit card
transactional limit transgressions referred to above, this allowance
has
no bearing on this case. One can hardly argue that, because
of an overall allowance, one is now entitled to breach the R50 000.00
maximum credit card payment transactional limit without consent.
The explanations also fall short of bringing the nature
of payments
within the ambit of travel expenses contemplated by the allowance.
The second “key issue” was that
of the advice allegedly
received from Mr Kadima and the company’s bankers. As
already pointed out, even if the bankers
had furnished incorrect
advice this is legally irrelevant in respect of the blocking issue.
6.12
In the premises, I find that the applicants have
not established a basis on which any of the relief claimed should be
granted.
I also find no reasons why costs should not follow the
event.
[7]
Order
The
application is dismissed with costs.
N
DAVIS
Judge
of the High Court
Gauteng Division, Pretoria
Date of
Hearing: 13 January 2021
Judgment
delivered: 18 January 2021
APPEARANCES:
For
the Applicants:
Adv. M Nowitz
Attorney for
Applicants:
Hirschowitz Flionis Attonreys,
Johannesburg
c/o Brazington &
McConnell, Pretoria
For
the Respondent:
Adv.
A Friedman
Attorney for
Respondent:
Allen & Overy, Santon
c/o Friedland Hart
Solomon& Nicolson, Pretoria