SARS drama spills over into the UK

Carnilinx directors Kyle Phillips (left) and Adriano Mazzotti (second from left) with advocate Nazeer Cassim (second from right) and attorney Shaheed Dollie in London on Thursday
Carnilinx directors Kyle Phillips (left) and Adriano Mazzotti (second from left) with advocate Nazeer Cassim (second from right) and attorney Shaheed Dollie in London on Thursday

Johannesburg - The sordid SA Revenue Service (SARS) drama is spilling over into the UK, where police are now investigating whether secret payments made to confidential informants in South Africa broke bribery laws.

At the centre of the drama is one of the world’s largest tobacco companies, British American Tobacco (BAT). Last year, it emerged that BAT had paid Pretoria attorney Belinda Walter to feed them intelligence on the illicit tobacco trade in South Africa. Others, however, claim that Walter was paid for information on some of BAT’s competitors in South Africa, including one of Walter’s own clients, Carnilinx Tobacco Company.

On Thursday, two of Carnilinx’s directors, Kyle Phillips and Adriano Mazzotti, held a nearly four-hour meeting with at least four investigators from different divisions of the City of London police. They were accompanied by their lawyers, Advocate Nazeer Cassim, SC, and attorney Shaheed Dollie.

Carnilinx produces low-cost cigarette brands such as Premium, JFK and Atlantic. As members of the Fair-Trade Independent Tobacco Association (Fita), it has been embroiled in an ongoing war with its rivals, the Tobacco Institute of Southern Africa and, in particular, BAT, which sells brands such as Dunhill.

BAT and Walter have always maintained they only paid her for information about the illicit tobacco trade, but the directors of Carnilinx believe otherwise and laid a complaint with both UK and South African police.

City Press understands that Thursday’s meeting was requested by UK police, who followed up on the complaint. After the meeting, Phillips confirmed an investigation was under way.

“It’s being taken very seriously in the UK,” Phillips said. “The allegations they are investigating include bribery and corruption – it’s covering a wide range of issues.”

City Press understands that British police are not only investigating the fact that BAT made payments to informants such as Walter, but also how the payments were made.

According to an affidavit Walter deposed in February 2014, she was introduced to BAT through her handlers at the State Security Agency. She was already acting as an informant for the state and agreed to do the same for BAT, which wanted intelligence on the illicit tobacco trade in South Africa.

Over 11 months in 2013, BAT paid Walter roughly £3 000 (R55 650 at the current exchange rate) a month – a total of £30 500, although a letter from BAT indicates an additional £5 500 was outstanding.

BAT either gave Walter cash or loaded the money on to Travelex cards registered in the name of a BAT employee in the UK. Walter was then given the cards and instructed to use them to withdraw cash from ATMs in South Africa.

Walter was not the only informant being paid this way. A confidential request allegedly sent in 2013 by SARS's Office of the Competent Authority to their counterparts in the UK, HM Revenue & Customs (HMRC), which City Press has seen, states that SARS identified at least eight South Africans who had a “peculiar relationship with BAT” and received payments from BAT through “concealed transactions” – either cash or “stored-value cards” such as Travelex cards.

In the letter, SARS told HMRC that it conducted lifestyle audits on individuals who appeared to be living beyond their means.

“These South African residents do not reflect this income in their tax returns,” the letter states. “At face value, these transactions fall within the statutory definition in terms of anti-money laundering legislation in South Africa.”

Correspondence between Walter and BAT shows she became worried about BAT’s payment methods.

In an email sent to BAT in March 2014, Walter tells Ben Stevens, BAT’s financial director: “I had no reason or suspicion that the method of payment and use of the cards was not legitimate. In fact, [senior BAT employee] Mr [Allan] Evans assured me that the same method of payment is used by BAT UK around the globe for payment of agents.”

Walter went on to say that, after discussions with SARS, “I am no longer convinced that the method of payment is appropriate and lawful.”

In response, BAT’s anti-illicit trade unit head, Ewan Duncan, replied, assuring her their interactions had been “legal and proper throughout”, and that any information she gave them they passed on to the relevant South African authorities.

But SARS seems to disagree and, in the request to HMRC, said “possible offences” that may need to be referred for further investigation included “income tax evasion” by the informants, “pay as you earn evasion” by BAT, “money laundering” and “state-security-related offences, including the illegal collection of covert and private information by foreign entities”.

The letter asked for HMRC’s assistance with the investigation.

Both SARS and HMRC declined to comment on the 2013 request, saying they could not comment on “taxpayer information” or “operational matters”.

Although BAT previously insisted its relationship with Walter was above board, recordings apparently made by Walter of conversations between her and Evans indicate BAT was very concerned about how Walter’s activities had come to light.

“How could they link these withdrawals to you unless they followed you or something?” a person presumed to be Evans asked repeatedly.

The person appears to have tried to dissuade her from revealing too much information about BAT to SARS at a meeting, saying: “I would not volunteer tomorrow that, unless you were legally forced to, where the sources come from … Legally provide them with the details that they need. But don’t obviously ...  there’s no need to get into extra detail – like I would not expose that you worked so closely with us.”

At the time Walter was working as an informant for BAT, she was not only Carnilinx’s attorney, but also the chairperson of Fita, the industry body that represented smaller tobacco companies such as Carnilinx.

In a 2014 affidavit, she denied breaching attorney-client privilege when she shared information with BAT, saying she only shared information when it was clear one of her clients was engaged in illegal activities.

Walter declined to comment, saying her 2014 affidavit was a secret disclosure to SARS and “the publication of its content also constitutes an offence”.

Walter, however, has been rehired as an attorney for Carnilinx. Asked whether the ongoing investigation could potentially implicate her in wrongdoing, Phillips said: “It could, but Belinda has been happy to come clean and she has given over any evidence she has.”

Last year, Carnilinx launched a court application against Walter and cited BAT SA as a respondent.

BAT declined to respond to the allegations, saying: “Given there is a pending case before a South African court regarding these matters, it would be inappropriate for us to comment in any detail,” a spokesperson said.

“However, our company takes its responsibility as a legitimate business very seriously. As part of this, all British American Tobacco subsidiaries adhere to a strict code of business conduct – ensuring they respect local, national and international laws.”

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