The wheels of justice slowly turn
Two men appeared in the Pretoria High Court on Monday to answer charges stemming from the 2002 collapse of Saambou Bank. Charles Edwards (Saambou’s former director for personal banking) and Gerhardus De Clerq (general manager of Saambou’s group finance) pleaded not guilty to the charges put before them. The charge sheet is daunting. Each defendant stands accused of fraud (10 charges), theft (one charge) and contravening the Companies Act (two charges totalling R640m). A third accused, Johan Myburgh passed away in December last year.
Five years in the making this case is being billed as the largest insider trading case ever to be heard in South Africa. The soon to be disbanded Directorate of Special Operations (DSO) decided to proceed with the case in 2005 after reportedly compiling a forensic report running to 6 000 pages.
Panic sets in
To refresh your memories, Saambou used to be South Africa’s seventh biggest bank. In September 2002, the Registrar of Banks placed the management responsibilities of this once proud bank in the hands of a curator. “Recent events pertaining to Saambou have led to a situation where Saambou will evidently be unable to repay deposits made with it or will probably be unable to meet all of its obligations when legally obliged to do so,” read the matter-of-fact official announcement.
Authorities were forced to take action because the bank was experiencing increasing liquidity problems and it was not certain the institution would be able to repay deposits and meet other legal obligations as required. As panicked investors attempted to withdraw up to R1 billion in deposits, drastic measures were implemented to prevent a run on the bank. This included closing branches across the country to deny investors access to their deposits and the implementation of a staged withdrawal plan.
FirstRand’s First National Bank (FNB) came to the rescue and bought out Saambou’s operations and also acquired Saambou’s traditional housing book, comprising 60 000 accounts and valued at R8 billion. The bank also took over approximately half of Saambou’s low-cost housing book, which comprised a total of about 20 000 accounts. It was a move which cost FNB dearly. Late in 2006 the group had to fork out R154 million to compensate ex-Saambou home loan clients who had paid too much interest between 1990 and 1999. Approximately 50 000 individuals were affected because Saambou had failed to alter an interest calculation used before it became a bank in 1990.
Soon after Saambou’s collapse, BOE bank fell to pressure from worried investors too. The group was acquired by Nedcor.
Delaying the inevitable
De Clerq and Edwards allegedly stalled the release of the poor financial status at Saambou Bank and Saambou Holdings. Shareholders and depositor were left in the dark about the true extent of the problem until it was too late. Chief prosecutor Danie Dörfling told the court “The State will seek to prove that the accused conducted the business of Saambou Bank in a reckless manner, that they concealed or made false entries in the books, financial records and financial statements of Saambou Bank and Saambou Holdings and that they gave financial assistance in respect of the purchase of shares of Saambou Bank in contravention of the provisions of the Companies Act.”
Prior to 2000 the South African banking industry went through some tough times. The Reserve Bank released a report in April 2003 in which it emerged: “In his testimony in 2001 before the Commission of Inquiry into Regal Bank, the Registrar of Banks testified that approximately a bank a year had failed in the past decade due to corporate governance failures.” Fortunately the industry appears better regulated today – and although we have seen financial scandals since Saambou none have resulted in a bank going under.
Since Saambou’s collapse late in 2002 the only delay has been in seeing that justice is done. It has taken five years to bring the case to court – and it could easily be another five before the defendants exhaust their legal options.
Editor’s thoughts:
We have previously mentioned how long it takes to exhaust every legal avenue in a criminal case. It took years to bring the LeisureNet accused to book and other high profile cases simply never seem to be finalised. How can South Africa improve its legal system to ensure that serious economic crimes are dealt with more efficiently? Add your comment below, or send an email to [email protected]
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