SARS

Carnilinx admitted to fraudulent schemes to defraud SARS of tobacco taxes and was not taken to criminal court.

“Carnilinx, the tobacco manufacturer whom we came across in the context of General Khan’s communications, who pleaded guilty to schemes essentially to defraud SARS, did not plead guilty, admitted, they were not ever taken to a criminal court, admitted to fraudulent schemes to defraud SARS of tobacco taxes”

There are established working relationships and specific agreements among agencies such as SARS, NPA and SIU to manage investigations and operations.

“There is even, for example, a tripartite between SARS, the NPA, and I think the SIU.”

The e-disclosure system pulls data from CIP, NATIS and the Deeds office for verification but does not currently use SARS data, which could provide better indicators of wealth and income but faces legal limitations on tax information disclosure.

“The e-disclosure system... pulls data from the two systems, the three I think you say CIPC, the NATIS and the Deeds office for verification... what you have not listed and maybe suggested is whether it should not be able to pull data from the SARS system... The challenge... is that SARS has, in terms of its mandate, it is very restricted in disclosing taxpayer information and that creates certain limitations...”

The Nyatlo affidavit suggests that Carnilinx improperly utilizes organs of state against competitors, which Carnilinx unequivocally denies, asserting it responsibly reports suspected unlawful conduct to relevant authorities and does not control investigative functions of state organs such as SARS or SAPS.

“The Nyatlo affidavit further suggests that Carnilinx improperly utilizes organs of state against competitors. Carnilinx unequivocally denies those allegations. Like any responsible corporate citizen, Carnilinx has where appropriate reported information concerning suspected unlawful conduct to the relevant authorities. There is nothing improper in providing information to SARS, SAPS, or any other competent authority. Once such information is provided, all investigative and enforcement decisions remain those of the relevant authority acting under its own statutory powers. Carnilinx has never exercised control over the investigative functions of SARS, SAPS, or any other organ of state.”

Carnilinx and SARS concluded a settlement agreement in 2020 based on facts different from those in the 2014 Mazzotti affidavit; the affidavit was provided to SARS under subpoena with necessary permissions for use in these proceedings.

“The settlement agreement that was concluded between Carnilinx and SARS was only concluded in 2020. And in fact, I do not propose to go to it in detail, but it is before the Commissioners and I will just take you to the page reference in a moment. The basis upon which that settlement was reached were facts, different facts and admissions, let me not say admissions, different facts that were agreed to by Carnilinx than the 2014 facts in the Mazzotti affidavit. So it extends over a period of time and we have the objectively verifiable evidence before us, because we requested it from SARS under a 10.6 subpoena and it was provided to us with the necessary permissions to be able to use it in these proceedings.”

The affidavit admits unlawful surveillance of SARS officials and access to personal records.

“admissions of unlawful surveillance of SARS officials and access to personal records”

There is an admission of obtaining a confidential SARS document for cash, involving someone inside SARS to get access to it.

“an admission of obtaining a confidential SARS document for cash, so paying someone inside SARS to get access to this document”

There are admissions of improper cash payments to legal advisers made on the belief that SARS officials were being paid off to assist in resolving Carnilinx's problems with SARS.

“admissions of improper cash payments to legal advisers ... cash payments were made on the belief that SARS officials were being paid off and that by making these cash payments to these legal advisers, they would assist in resolving Carnilinx's problems with SARS”

Mr Mazzotti believes he was naive to think that the SARS officials could be bought.

“Mr Mazzotti also says ... he believes he was naive to think that the SARS officials could be bought”

Carnilinx was registered and operated lawfully to date, and made payments due to SARS on time and accurately, except as mentioned in the affidavit.

“Carnilinx was registered and operated lawfully to date ... the company has always made the payments due to SARS on time and accurately, except as mentioned below”

The affidavit details conduct involving evading income tax, excise duties, VAT, and illegal trading related to the Grindling heading, including cash payments to avoid tax and infiltration of SARS.

“they relate to ... evading income tax, excise duties, VAT, illegal trading ... concerns the payment of cash for certain benefits ... also cash payments to avoid tax, infiltration of SARS”

A legal adviser persistently referred to his contacts at SARS, particularly mentioning Johann Van Loggerenberg and Ivan Pillay, with the company naively believing he could influence them to favour the company. This was later accepted as nonsense, and the company was misled, paying R800,000 cash to the adviser.

“we were naive to believe that he could influence van Loggerenberg and Pillay to favour our company. This, we accept now, is in a manner of speaking nonsense, and that we were misled. But in the process, we paid R800,000.00 cash to this legal adviser.”

A settlement agreement, dated 6 May 2014, was signed concluding a dispute involving SARS and Carnilinx; the agreement records SARS' position that cigarettes manufactured by Carnilinx were presented as lawfully moved and exported on paper, but there were no documents to prove lawful export, resulting in SARS treating the cigarettes as diverted into South Africa without paying duties and VAT.

“that agreement is, I mean, really what it does in a nutshell is it records SARS' position and view that the cigarettes, that cigarettes manufactured by Carnilinx were presented on paper as having been moved and exported lawfully, but that there were no documents to prove a lawful export, so the effect was that SARS treated the cigarettes as having been diverted into South Africa without customs duties, VAT, etcetera, being paid.”

The amount in dispute raised by SARS against Carnilinx and its directors including Mr Mazzotti, Mr Phillips, and Mr Sayed is about 31.5 million, but the settlement agreement was concluded on a basis of 5 million and some.

“the amount in dispute means the debt raised by SARS against Carnilinx, the company of which Mr Mazzotti, Mr Phillips, and Mr Sayed are directors, so it is against the company as well as Phillips and Mazzotti in their personal capacities. The amount in dispute is about 31.5 million, but the settlement agreement concluded on basis of 5 million and some.”

Allegations of fraud and corruption were admitted in an affidavit but there is no known follow up, charges, or actions taken by SARS; it is not within SARS jurisdiction to follow up further, and it is unknown if the matter was referred for any purposes.

“The allegations, well, the admissions in the affidavit of fraud and corruption, we have no knowledge of anything further coming of it, whether there were any charges or whether there was any action that was taken. It is not within SARS jurisdiction to follow up upon those, but we do not know if it was referred for any purposes. So we do not have knowledge on that.”

Colonel Jacob explained he opened and resealed the container because he was responsible for ensuring no red flags were raised concerning the contents and that the consignee accurately declared the goods, although SARS had detained the container for inspection.

“We were the one that , or I was the one that took that decision . So the actual releasing of the container and ensuring that there is nothing further in that container and to ensure that this consignee was not doing it , or declared his goods accurately on the SAD 500 and the packing list was my duty to ensure that there was no red flags with these entities .”

SARS was assisting with investigations of the case about one month after the operation.

“You have got item three which is SARS is assisting with investigations. This is a month, 5 weeks later after the operation.”

SARS involvement in the investigation was limited and not forthcoming in sharing information about the profile of the investigated container.

“But if I have to be honest, they are not very forthcoming in sharing intricacies of where the information came from, what led them to profile a certain container you know. So, we bring them on board as a formality, but I think their mandate is first and foremost Customs and Excise.”

SARS does not have a mandate for law enforcement further investigation in drug investigations and thus provides limited cooperation.

“So with regards to law enforcement further investigation interms of drug investigations, we do not have that much cooperation. Or maybe they are not in a position to assist with further investigation. It is not their mandate.”

The objective of involving SARS was to understand why SARS put a detention on the container, as it indicated a red flag and might assist the investigation.

“Yes, you know I think the objective was to try and find out why did SARS put a detention on this. Obviously there must have been something that was a red flag, maybe something other than the port of origin, maybe something that could assist us. So, it is done, I am covering my bases, they have put a detention notice on the said container, it would not hurt our courts to engage with them, let us put it that way Commissioner.”

SARS did not put a stop on the container because it needed to be inspected by the state vet, the detention notice was for reasons other than the state veterinary inspection.

“SARS did not put a stop on this because it needed to be inspected by the state vet. That was not the reason for a detention notice.”

Colonel Jacob clarifies the operation at the depot was purely a DPCI operation involving Crime Intelligence and not a joint operation with SARS.

“No , not at all at that stage , Commissioner. No . ... Yes . No , it was not .”

Lt-Col Duma was not informed of any detention on the container except for an email after the fact on 23 June 2021 showing SARS detention.

“No , not that I know of , except that I believe there is an email that came after , on the 23rd , it was after the fact , and it showed that it had SARS detention .”

Warrant Officer Sander explains that securing containers at yard takes place with seals, sometimes by SARS or the yard itself to insure against loss, requiring cordial relationships between police and yards.

“When I close that container, I do not have a container seal. So if it is a SARS detention, SARS needs to be there to put their seal on, but then the container yard must still supply me the resources to reseal that container, which is their yard seal. For insurance, they need to document that because it is a loss to that company. So the cordial relationship must exist.”

The consignment was still under the authority of SARS as it had not been cleared by Customs yet at the time of the operation.

“the consignment was still within the reach or authority of the SARS because it had not been cleared. So it had not cleared custom”

SARS officers normally conduct their own operations under the Customs Acts and are not obligated to communicate with Crime Intelligence or other police units unless drugs or other illegal items are found during inspections that require police involvement.

“normally SARS conduct their own operations in terms of their customs acts. So they are not obliged to communicate with Crime Intelligence or anyone else unless they pick up something that requires the police, then may on their inspection, they will then say, oh, we found drugs here. Okay, call the Narcotics Squad to come in and continue”

Lt-Col Duma was not aware that SARS had put a stop on the container until after the operation was conducted on 23rd; this stop was not brought to his attention beforehand.

“At the time I was not aware that SARS had put a stop on the container ... The only time that it came to my notice was on the 23rd when the operation was already conducted and it was not brought, I do not know, maybe DPCI it was brought to their attention that SARS had put in a stop, but to me it was not brought to my attention”

Depot Manager did not inform Lt-Col Duma that the container was under detention by SARS, nor was there any indication or obvious sign from customs officials or anyone else that the container was detained.

“The Depot Manager does not tell you that it is in fact under detention by SARS? ... there is no indication whatsoever from anybody, there are no custom officials, Depot Manager, nobody indicates to you and there is no obvious signs that this container is under detention.”

Lt-Col Duma states that he would only know about a SARS detention if he is told, since customs operates independently without informing them.

“people who will have the documentation will be most probably the depot who will know that there is a SARS detention but on my side, unless I am told, I will know that there is a SARS detention because the way customs operate, they do not come to us and tell us we have stopped such a container.”

Lt-Col Duma confirms that he does not have access to SARS profiling systems and would not know about stops on containers unless informed.

“but if we are not told we would not come to know that there is a SARS stop on it because we do not have access to their systems of profiling. We do not have access to profiling of containers.”

When the seal of the container was broken during the operation, there were no customs or SARS personnel present, only SAPS, DPCI, and the Depot Manager.

“In the opening of this when, in this, now we are back in this operation, when the seal is broken there was no customs or veterinarian together with your police people. They were not there. You had only your SAPS, DPCI, the Depot Manager I think you say and, ja, pretty much. There was no SARS people there or customs people.”

Lt-Col Duma states he was not informed about the stop from customs before the operation and only learned of the stop after the fact via email, on the 3rd (month not specified).

“On my side it was not brought to my attention that there was a stop from customs. It only came to me after the fact. So if there was a stop I would have expected that I will be told that there is a stop and then would then, I am sure DPCI would have waited for other counterparts to be present if there is a stop, but in this case I do not know if they were informed. On my side I was not informed of SARS detention. The email only came on the 3rd.”

The handling over of detained goods from Customs to SARS involves a dual inspection process targeting other containers to find more illicit goods.

“But because it came from a container, SARS goes further with their investigations and then they profile which group of containers are coming in on the vessel or part of that and they detain all of those containers for inspection ... we do a dual inspection of the other containers hoping to find 10 more illicit goods.”

Profiling of containers includes checking databases for history of the shipper or past transgressions to support profiling by Customs and SARS.

“From my side, we have to rely on our databases to see if there is history with the import of the shipper or transgressions. Customs has that. I know they do have that. So that helps them with their profiling.”

Bone meal as a foreign food product must be inspected and cleared by the Department of Health, not by SARS.

“It is actually the Department of Health, not SARS.”

In a February 2020 incident, someone from SARS was unscrupulous and intended to move the Mandrax tablets from a bonded warehouse container.

“The original call was there was someone from SARS that was unscrupulous and going to move the tablets.”

In this February 2020 case, someone from SARS was going to steal the Mandrax.

“So somebody from SARS was going to steal the Mandrax? Correct.”

For large scale seizures like copper, diesel, or illicit diesel, Warrant Officer Sander relies on SARS for storing the exhibits due to lack of space at the police station.

“To say for large scale seizures we battle every day. Copper, diesel, illicit diesel. I have got no space to store it. Too late now. I have got no place to store it. I rely on SARS for storing it.”

Corrupt officials within customs, police, SARS or similar agencies remove drug consignments from containers at bond yards through the rip-on-rip-off method and then redistribute the drugs to syndicates for further distribution.

“In the case of the illicit side and the criminal element within the law enforcement environment , they would remove at the bond yard , they would remove by ripping off this drug consignment , they would remove it and they would seal it again to say that we found nothing and they then would distribute it to the drug syndicates for further distribution .”

A multi-department partnership including Group Financial Services, Group Economic Development, SARS, Provincial Department, and NYDA was formed to train SMMEs on supply chain management and tax matters to overcome barriers to entry for suppliers.

“This was a partnership with supply chain management and Group Financial Services that was managing in conjunction with Group Economic Development. You can see...We had representatives from SARS, we had representatives from Provincial Department, we had representatives from NYDA. It was a provincial issue-wide matter that we were trying to resolve.”