Apartheid loan to Absa called back

Public Protector Busisiwe Mkhwebane could face a legal challenge from Absa after ordering the bank to repay R1.125-billion that she claims was an "illegal gift" in the form of an apartheid-era loan.

Yesterday Mkhwebane released a number of reports, including her findings on the controversial Ciex report.

Mkhwebane found that the government breached its constitutional duty to spend public money wisely when it made no effort to act on the findings of the 1997-1999 Ciex report in which it was alleged that the Reserve Bank irregularly gave money to Bankorp - a predecessor of Absa.

Absa has said it might go to court to contest Mkhwebane's findings.

"Absa has received the public protector's report on her investigation into the Reserve Bank's assistance to Bankorp between 1985 and 1995. We are studying the report and will consider our legal options, including seeking a High Court review," the company said.

"Absa met all its obligations in respect of the loan provided by the Reserve Bank by October 1995. It is our firm position that there is no obligation to pay anything to the government."

The investigation emanates from a complaint by Paul Hoffman, director and head of projects at NGO Accountability Now. He questioned why the government had spent £600,000 on contracting a company to investigate the loan but then took no action.

The deal, in the last years of apartheid, was referred to as a "lifeboat" loan and was not repaid.

The report, by the UK recovery and investigations agency Ciex, alleged that R24-billion was unlawfully given to Bankorp by the South African government. Ciex told the Mandela administration that it could recover the funds.

"The correct amount of the illegal gift granted to Bankorp Ltd/Absa bank is in the amount of R1.125-billion. Two investigations into the matter established that the financial aid given to Bankorp/Absa bank was irregular," Mkhwebane said.

She said the government's spending on a report that was never used was contrary to the principles of Batho Pele (People First) in that there was no value for money.

She said the government's inaction was in contravention of section 195 of the constitution, which calls for public administration to be governed by a high standard of ethics and the "efficient, economic and effective use of resources".

Mkhwebane said allegations that South Africans were prejudiced by the conduct of the government and the Reserve Bank were substantiated.

Hoffman, an advocate, lodged the complaint on behalf of the Institute for Accountability in Southern Africa, the parent body of Accountability Now, in 2010. He welcomed Mkhwebane's findings, saying they substantiated his complaint.

"We have waited seven years for this," Hoffman said. "We complained that not following up on the Ciex report was a waste of public money."

Mkhwebane said the money given to Absa belonged to the citizenry, and the state's failure to recover it prejudiced the people because the money could have benefited society as a whole instead of only a handful of Absa shareholders.

She has referred the case to the Special Investigating Unit for the recovery of the "misappropriated public funds unlawfully given to Absa bank".

She has also asked the SIU to ask President Jacob Zuma to amend the relevant proclamation to facilitate the investigation and the recovery of the money.

Mkhwebane ordered the Reserve Bank to co-operate with the SIU.

She has recommended the constitution be amended to stipulate that the Reserve Bank's primary objectives include protecting citizens' socioeconomic conditions.

Hoffman said he suspected that such a recommendation was beyond her powers to impose. Mkhwebane can propose changes to the constitution but cannot order parliament to alter the law.

Bloomberg reported that the central bank's independence was protected by the constitution and it was cited as a pillar of institutional strength by the credit-rating agencies and investors.

Altering its mandate was likely to add to policy uncertainty, already causing investor jitters after the cabinet reshuffle in March and changes to other regulations, such as the Mining Charter.
- Additional reporting by Bloomberg