Are blind trusts really blind?

2013-02-17 10:00

Unlikely that billionaires really release full control

Where do wealthy politicians who become state officials park their money?

Minister of Human Settlements Tokyo Sexwale’s now public divorce proceedings – and newly elected ANC deputy president Cyril Ramaphosa’s vast business interests – have brought the concept of “blind trusts” into the spotlight.

Ramaphosa and Sexwale pursued political careers when they were captains of industry and are among the wealthiest men in South Africa, causing obvious conflicts of interest and requiring them to park their wealth in some way.

Sexwale was not included in last year’s ranking of the richest people in South Africa because his listed investments were moved to a blind trust when he was appointed to Cabinet in 2009.

His worth at the time was estimated at R1.95?billion on a 2010 rich list.

Sexwale dumped his riches in a blind trust before he left business in 2009 to take up his current position.

Though the extent of his current wealth is unknown because of the secrecy provided by the blind trust, the divorce demands made by Sexwale’s estranged wife Judy suggest it is still considerable.

Among other things, she reportedly wants a R70?million house, R3?million to furnish it, a new R1?million car every five years and monthly maintenance payments of R150?000.

She has accused Sexwale of hiding the true extent of his wealth and she says her husband has been “controlling and secretive” about his financial affairs.

Ramaphosa, whose fortune is estimated by Forbes magazine to be R2.7 billion, is currently reviewing his business interests, which include: stocks

in mining, property and energy companies; all of South Africa’s 179 McDonald’s restaurants; stakes in financial services firms; and an interest in Africa’s largest mobile telephone network operator, MTN.

All these investments are enveloped in Ramaphosa’s Shanduka Group.

Ramaphosa has already stepped down from the boards of packaging group Mondi and platinum miner Lonmin.

Over his nearly two-decade business history, he has had 150 directorships, according to company register records.

Shortly after Ramaphosa’s election in December, ANC secretary-general Gwede Mantashe hinted that the billionaire mining and industrial tycoon would operate like a “de facto prime minister”.

If this happens, Ramaphosa would be forced to untangle himself from the myriad conflicts of interest that would come with being, in effect, the head of government while running businesses.

Shanduka spokesperson Steyn Speed refused to be drawn on whether Ramaphosa will sell his shares or dump them in a blind trust.

“He is undertaking a review (of his business interests) and when he feels it is necessary he will make a further statement,” said Steyn.

Depositing wealth in a blind trust is a popular practice preferred by the world’s richest men who’ve gone into politics.

Italy’s former prime minister Silvio Berlusconi, New York’s Mayor Mike Bloomberg, Thailand’s Thaksin Shinawatra, and the powerful American economic and political dynastic Bush family have all used blind trusts after gaining office to avoid public scrutiny.

In theory, blind trusts work on the premise that the original creators of the wealth are not meant to have a say or know what is happening in their trusts.

However, in practice, it is seen as a useful cover to avoid the prying eyes of the media and other watchdogs.

Blind trusts are usually managed by an investment bank, which invests funds on behalf of the beneficiaries.

According to US and British blind trust rules, the manager of the trust has the discretion to sell all the assets in the portfolio and buy others, without having to consult beneficiaries.

The owner of the assets cannot know what is happening to or has happened to the investments. The owner must always remain blind.

But how blind are these trusts in reality? Hlelo Giyose, chief investment officer of asset management firm First Avenue, is sceptical.

“I don’t know how blind a blind trust is. I don’t even know what it is. Silvio Berlusconi’s wealth is in a blind trust, but do you believe for a minute that he does not have influence over how it is run and managed?

“Do you think you can collect R2.7?billion of assets over many years and outsource the decision making on how they are invested to someone else without getting involved? Personally, I wouldn’t,” Giyose said.

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