Standing Committee on Finance (South African Revenue Services) in the matter of Mr Mashudu Jonas Makwakwa: 23 May 2018

Good morning Chairperson and Honourable members of the Standing Committee,

Thank you for asking Hogan Lovells to attend this open session and to answer your questions on our Report.Stsa

I have previously publically stated that I wanted our confidential and privileged Report to be made public, but that it was for SARS to waive its attorney client privilege. I am delighted and somewhat relieved that SARS has released our Report to this Standing Committee and that you are now giving us this opportunity to publicly answer your questions on our Report.  

Our Report is the significant missing piece of the puzzle that I hope emphatically and finally puts an end to any further speculation about Hogan Lovells' role and involvement in the Makwakwa Disciplinary Inquiry.   

Any statement that Hogan Lovells' investigation extended into allegations of criminal conduct or tax evasion on the part of Makwakwa and arising from the FIC Report, is misleading and incorrect.

Our Letter of Engagement (which is public and attached to a December 2017 Daily Maverick article) made it clear upfront, and this is now confirmed by our Report, that our labour-related investigations in relation to Makwakwa were focussed on whether any of the suspicious, unusual or ad-hoc payments identified in the FIC Report were a breach by Makwakwa of SARS' internal policies and/or the Public Finance Management Act – in other words, whether it amounted to misconduct in the employment context. Investigations into criminal conduct and tax evasion had to be made by the Hawks and SARS within their respective statutory and constitutional mandates and were not matters that Hogan Lovells could legally attend to.

Our Report clearly and unequivocally follows our Letter of Engagement.

The Disciplinary Inquiry itself was therefore a properly convened Disciplinary Inquiry at the time, consistent with labour laws, our Letter of Engagement and the express recommendations contained in our Report, to address only the specific labour-related matters that Hogan Lovells was legally permitted to investigate and address.

In this context, our Letter of Engagement, our Report and the Disciplinary Inquiry were not on any stretch of the imagination part of a masterfully designed "whitewash plot" to ensure that Makwakwa was permanently re-instated, as suggested by some in the media, who unfortunately did so without the benefit of studying our Report.

Advocate Motau SC, who chaired the Disciplinary Inquiry, found Makwakwa not guilty of the charges, after having considered the admissible evidence led by SARS and the defence put up by Makwakwa, who was represented by his attorneys and his advocate during this process. This resulted in the return of Makwakwa to his position at SARS.

It is clear from our mandate set out in our Letter of Engagement and our Report that there is still a series of critical outstanding parallel investigations being conducted by the Hawks and SARS into Makwakwa's conduct in relation to the unusual, suspicious and ad hoc payments identified by the FIC. The outstanding criminal and tax evasion investigations, which can only lawfully be conducted by the Hawks and by SARS, once concluded, may well lead to further separate charges of criminal conduct or tax evasion being prosecuted in a competent Criminal Court or Tax Court, against Makwakwa.

Having regard to the outstanding investigations, although Makwakwa has now resigned from SARS, this does not mean that he has escaped justice as he may still face prosecution in a Criminal Court or Tax Court on possible future criminal charges or tax evasion charges.

Against this background, I turn now to address some specific accusations and criticisms publicly levelled at Hogan Lovells, which I anticipate you may want to ask me about, and which we can now answer as both our Report and the terms of the Disciplinary Inquiry are in the public domain.

We have been accused of "tailoring" our Letter of Engagement to deliberately limit our investigations and the resultant charges that could be put to Makwakwa at a "questionable" or "whitewash" or "cooked" Disciplinary Inquiry. Our answers to this are that:

It is not Hogan Lovells, but it is the law, that dictates that the Hawks (not Hogan Lovells) are lawfully entitled and best suited to investigate alleged criminal activities or activities where individuals are obstructive, and to procure admissible evidence for possible prosecution in a Criminal Court, which can then be used in a Disciplinary Inquiry.

It is likewise dictated by law that SARS (not Hogan Lovells) is entitled to investigate any alleged tax evasion and to procure admissible evidence for possible prosecution in a Tax Court.

Therefore any statement that Hogan Lovells "tailored" its Letter of Engagement is incorrect and wrong in law.

We have been accused of not putting all possible available charges arising from the FIC Report to Makwakwa at the Disciplinary Inquiry and not levelling charges against Makwakwa based on PwC's Source of Funds Report. Our answers to this are that:

All possible charges available at the time, within the scope of our Letter of Engagement and as expressly recommended in our Report, were put to Makwakwa at the Disciplinary Inquiry.

As background, PwC forensics was appointed by Hogan Lovells to conduct a forensic investigation to make factual findings as to the identity of the source of funds in relation to payments identified as suspicious, unusual or ad hoc in the FIC Report, which identification would assist Hogan Lovells to determine whether or not Makwakwa had breached any SARS internal policies and/or the Public Finance Management Act, as we were required to do in our Letter of Engagement.

The PwC Source of Funds Report provided to us was inconclusive as to the facts relating to the identity of the source of funds, because:

(a) SARS in its capacity as employer was limited in its ability to investigate an employee's sources of income;

(b) Makwakwa was to a degree uncooperative in the Hogan Lovells and PwC separate investigations on this aspect; and

(c) the Hawks were best placed with the necessary powers to investigate the nature and source of the funds and their investigation was not complete.

It is a question of law whether or not inconclusive findings of fact as contained in the PwC Source of Funds Report would justify any charge at a Disciplinary Inquiry relying on the identity of the source of funds to substantiate the charge. In our professional opinion it did not; and so in discharge of our ethical and professional duties we recommended in our Report that charges that could not be substantiated by the facts should not be put to Makwakwa at the Disciplinary Inquiry.

In a perfect world, the Hawks and SARS would have ideally concluded their respective investigations by the time of the Disciplinary Inquiry and provided conclusive admissible evidence of the identity of the source of funds and criminal-related activities or tax evasion, but they had not.

From a timing perspective, Makwakwa had in February 2017 strategically launched a CCMA application to declare his indefinite suspension an unfair labour practice which hearing was initially set down for 29 June 2017. In any event SARS (as Employer) could not in terms of labour law place Makwakwa (as Employee) under precautionary suspension in September 2016 and then indefinitely delay putting valid charges with reasonable prospects of success to him at a properly convened Disciplinary Inquiry. So it was necessary not to delay the Disciplinary Inquiry, but to proceed with all possible charges against Makwakwa at the time, as expressly recommended in our Report.

At the time of the Disciplinary Inquiry, there was no admissible evidence available to support any charge with any reasonable prospects of success at the Disciplinary Inquiry based on the identity of the source of funds and/or any alleged criminal activities or tax evasion activities.

We have been accused of not demanding that SARS provide us with the PwC Tax Evasion Report because surely that report would have constituted admissible evidence of tax evasion and a dismissible offence; and SARS not providing that report to us should surely have been a "red flag" for us. As background, SARS had outsourced the tax evasion investigation in relation to Makwakwa as a taxpayer to PwC because of his seniority and conflicts with having other SARS employees investigate such a senior employee. The PwC Tax Evasion Report therefore constitutes a part of SARS' investigation into any alleged tax evasion. Our answers to this are:

First, that the matter of investigating and prosecuting any alleged tax evasion was not, as a matter of law, part of our role under our Letter of Engagement and so it was not, and could not have been, a "red flag" for us.

Second, SARS is the competent authority lawfully required to investigate and prosecute any alleged tax evasion by a taxpayer. SARS has no obligation to provide any confidential information relating to any taxpayer to any person.

Third, Hogan Lovells does not have any right to demand any confidential information about any taxpayer from SARS, nor did we have any expectation to receive any such information. As mentioned above, at the time of the Disciplinary Inquiry SARS as the competent authority had not initiated the prosecution of any alleged tax evasion activities on the part of Makwakwa and so, as contemplated by our Letter of Engagement, there was at the time of the Disciplinary Inquiry no charge available to be put to Makwakwa (as employee) based on any alleged tax evasion.

We have also been accused of being involved in a "questionable" or "whitewash" or "cooked" Disciplinary Inquiry because statements have been made and an impression has been created by some in the media that Hogan Lovells investigated "all" the possible charges arising from the FIC Report, and put "all" possible charges to Makwakwa at the Disciplinary Inquiry, and the Disciplinary Inquiry then exonerated Makwakwa of "all" possible charges from the FIC Report, and that is therefore the end of all the matters and Makwakwa could be permanently re-instated. Our answers to this are that:

Having regard to the above background and context, including the reality that there are still outstanding investigations into Makwakwa's conduct by the Hawks and SARS as outlined in our Letter of Engagement and our Report, it is clear that such statements and "impression" are simply wrong.

It follows that any reliance on any such misstatements and impression is either a mistake or cynically deliberate.

In order to assist the Standing Committee with the series of events and documents, I have set out below a brief chronology of events and documents, which contextualises the matter and which I incorporate below in my statement for your convenience.

Mr Chairperson and Honourable Members of the Standing Committee, in conclusion, Hogan Lovells has prior to and since my appearance before this Standing Committee on 5 December 2017 been under immense public attack by persons who did not have all the facts, who in some cases did not care what the facts were or chose to ignore the facts, or who simply insisted that we as lawyers should break our legal, ethical and professional obligations, and apologise and "come clean" as regards our role in the investigations relating to Makwakwa and his re-instatement.

As attorneys we are required to fulfil our professional role without fear or favour and to do so at all times honestly, ethically and professionally, which we have done. We do not take our professional obligations lightly. We have not been tempted, nor have we succumbed, to immense pressure by politicians, individuals or the media to breach our professional obligations – if I did so, I would no doubt have been sanctioned by our Law Society and would possibly have been struck off the roll of practicing attorneys.

We fully respect and salute the efforts of professional investigative journalists and all the good work they do and continue to do for all of us South Africans. Regrettably, however, information and documents in the Makwakwa matter have been leaked to the media piecemeal and selectively. For very good reasons, and as part of a developed legal system, we as attorneys are bound not to disclose to the third parties our Client's confidential and privileged documents. This, unfortunately, has created a platform for rife speculation in the media targeting Hogan Lovells.

Fundamental to our democracy is the rule of law. This means that even in the case of Makwakwa, like any other citizen and employee, he is entitled to due process and not to have unsubstantiable charges prematurely put to him at a Disciplinary Inquiry hastily convened to satisfy populist but dangerous activism. Sometimes, frustratingly for all of us as it may be, the wheels of justice grind slowly.

As lawyers our fundamental professional role, no matter how unpopular it makes us in the public eye, is to uphold the Rule of Law and apply due process, including professionally assessing all the available admissible evidence lawfully procured against the likes of Makwakwa and presenting a substantiable case with reasonable prospects of success to an independent Chair at a Disciplinary Inquiry. In dealing with the role of lawyers in our society, former Chief Justice Arthur Chaskalson stated that:

"Without the assistance of lawyers judges would not be able to discharge their constitutional duty to uphold the law without fear or favour, it is in the public interest, and the interest of clients, that the culture of the legal profession should be rooted in the independence of the profession, and that lawyers should not be subject to outside influences or be concerned that if they take on a case for a particular client they will incur the hostility of the government or other powerful instances."

We trust that now with the release by SARS of our Report all speculation about our role in relation to the Disciplinary Inquiry can finally be explained, and that all notions that the Disciplinary Inquiry was "questionable" or a "whitewash" or "cooked", can now be put to rest.

I hope that my opening statement has answered all of your questions to your satisfaction. My colleague, Mr Wessel Badenhorst and I are happy to answer any questions you may have for us.

Lavery Modise

Chairman

Hogan Lovells (South Africa) Inc

23 May 2018
CHRONOLOGY OF MATERIAL FACTS

Item

Date

Event

Reference

1.

17 May 2016

FIC sends FIC report to SARS, Commissioner Moyane ("FIC Report") identifying suspicious and unusual transactions, and requesting investigations to be held.

Hogan Lovells Report, page 3, paragraph 4.1

2.

July 2016

SARS invites Makwakwa and Elskie to submit written responses to the allegations contained in the FIC Report by 1 August 2016.  Both Makwakwa and Elskie asked for and were granted an extension until 30 September 2016

Hogan Lovells Letter of Engagement, paragraph 8

3.

15 September 2016

Makwakwa suspended by SARS

Modise Statement dated 5 December 2017 to Standing Committee on Finance, paragraph 9;  Motau SC Outcome, paragraph 2.1

4.

15 September 2016

Hogan Lovells instructed by SARS

Modise Statement dated 5 December 2017 to Standing Committee on Finance, paragraph 9

5.

4 October 2016

Hogan Lovells Letter of Engagement signed by Commissioner Moyane

Hogan Lovells Letter of Engagement, page 7; Hogan Lovells Report, Page 3, paragraph 8

6.

20 January 2017

SARS serves Makwakwa with disciplinary charge sheet

Motau SC Outcome, paragraph 2.6

7.

28 February 2017

Makwakwa refers dispute to CCMA claiming that his continued suspension is an unfair labour practice

8.

9 March 2017

PwC delivers its report on the source of the funds of the transactions identified in the FIC Report (the "PwC Source of Funds Report") – findings are inconclusive

Hogan Lovells Report, page 19 (the PwC Source of Funds Report is annexure A thereto)

9.

17 March 2017

Hogan Lovells issues to SARS its preliminary report (on which further documents were awaited)

10.

16 May 2017

Hogan Lovells delivers to SARS its final investigation report (the "Hogan Lovells Report") (including document awaited under the preliminary report)

Hogan Lovells Report, page 17

11.

12 June 2017

SARS serves Makwakwa with further disciplinary charges (consolidated charge sheet)

Motau SC Outcome, paragraph 2.6

12.

29 June 2017

CCMA hearing on Makwakwa suspension postponed

14.

27, 28 July 2017

Disciplinary Inquiry before Motau SC

Motau SC Outcome, paragraph 1.3

15.

15 August 2017

Continuation of Disciplinary Inquiry before Motau SC

Motau SC Outcome, paragraph 1.3

16.

13 October 2017

Motau SC delivers his decisions on the Disciplinary Inquiry (the "Motau SC Outcome")

Motau SC Outcome, page 60

17.

17 October 2017

CCMA application on suspension withdrawn as it became moot

18.

27 October 2017

Makwakwa reinstated by SARS

SARS Media Statement

19.

3 November 2017

Hogan Lovells issues media statement correcting the impression created by the SARS media statement

Hogan Lovells Media Statement (Hogan Lovells website)

20.

27 November 2017

SARS issues further media statement

SARS Media Statement

21.

5 December 2017

Lavery Modise attends Standing Committee hearing and makes statement; and again corrects the impression made by SARS in its media statements

Modise Statement (Hogan Lovells website)

22.

15 January 2018

Lord Peter Hain makes speech in British House of Lords accusing Hogan Lovells of issuing a "whitewash" of a report

Lord Hain published statement

23.

22 January 2018

Hogan Lovells publishes a media statement as to why Lord Hain's statement of a whitewash was incorrect

Hogan Lovells Statement (Hogan Lovells website)

24.

January 2018

Hogan Lovells publishes Sunlight over Shadow, a detailed examination of and response to Lord Hain's remarks to the House of Lords

Hogan Lovells Sunlight over Shadow document



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