Absa is poster child for apartheid corruption, but this does not mean the Public Protector can order the amendment of the Constitution

The report by the Public Protector on the failure of the government to recover more than R1 billion from Absa for a “lifeboat” granted to Bankorp during the apartheid era by the South African Reserve Bank, shines a light on the way the then Reserve Bank used public money to protect Bankorp – one of the poster children for white Afrikaner empowerment – in order to rescue that company from collapse. However, the report also raises some uncomfortable questions about the legal knowledge and competence of the Public Protector.

A few months before I was supposed to start my University studies, my father ordered me to put on my pinstriped grey suit (which I wore for the first time to my confirmation in the Dutch Reformed Church a year earlier) and took me to the local Volkskas branch in the town which was then still called Pietersburg. We needed to obtain a study loan from Volkskas because without it I would not have been able to afford to go and University.

Volkskas granted me the loan (which was renewed every year) until I completed my LLB studies. This it did on the strength of my father’s signature who stood surety for the loan. The decision did not make any business sense as my father had defaulted on a loan to Volkskas two years earlier. Because of the default on the loan, Volkskas sent the sheriff of the court to our house to repossess all our furniture (they left the beds, the stove and the fridge).

At the time when the sheriff came to our house and took away our furniture my father was in rehab to treat his alcoholism, but his alcoholic friends brought us boxes of wine every night (but, to my horror, never any food), which my mother and my father’s friends consumed in large quantities while I sat listening to the hilarious stories recounted by his friends about my father’s many drunken escapades.

Volkskas almost certainly gave me that loan because I was white and Afrikaans. It was a company that was formed many decades before as part of a deliberate programme of Afrikaner empowerment, and it continued to operate within that ethos when I asked them for a student loan. (I would not be surprised to hear that one could only become the CEO of Volkskas if one also belonged to the secret Afrikaner Broederbond – who operated a bit like a more secretive and more organised version of the Gupta family.)

Later Volkskas bought Bankorp (who, at the time was in serious financial difficulty) and became Absa Bank. But before Volkskas bought Bankorp the Reserve Bank granted a “lifeboat” to Bankorp. The contentious part of the “lifeboat” (to simplify matters slightly) was a discount on the interest of the loans it gave to Bankorp, which amounted to R1.125 billion.

The Public Protector report deals with the failure of the post-apartheid government to recuperate this amount from Absa, who had bought Bankorp in the meantime.

The important political point to make is that both Bankorp and Volkskas (the forerunner of Absa) were the kinds of companies favoured by the apartheid regime. The suspicion is that the Reserve Bank would never have “gifted” Bankorp a whopping R1.125 billion if it was not a company well-connected to the white Afrikaner elite. In other words, the “lifeboat” smelt very much like a form of apartheid corruption.

It is exactly because a bank like Volkskas would look the other way to give a privileged white Afrikaans person like myself a student loan, that many of us remain sceptical about any claims by its successor (Absa bank) that it repaid its debt to the Reserve Bank and does not owe South Africans the R1.125 billion its predecessor was gifted. I can therefore imagine many cheering on the Public Protector for at least trying to do something to rectify one of the many injustices resulting from apartheid corruption.

However, the Public Protector had a problem when confronted with the request to investigate the Bankorp/Absa scandal. The Public Protector could not investigate the original decision to grant Bankorp the “lifeboat” because this happened long before the office of the Public Protector was established and the office therefore did not have the jurisdiction to investigate the matter.

To overcome this problem the Public Protector therefore investigated the decision of the Mbeki government and the Reserve Bank at the time not to implement a report by a British company called CIEX (who the government paid 600 000 British Pounds). CIEX had recommended that the government should retrieve the funds from Absa, with the agreement that it would receive a percentage of the funds recovered. This decision by the government was taken after the office of the Public Protector was established, which means she could investigate this aspect of the scandal.

The Public Protector found that the failure by the Mbeki government to implement the CIEX recommendations was improper. The crux of the legal reasoning on this point was as follows:

Section 195(1)(b) of the Constitution provides that public administration must be governed by the democratic values and principles enshrined in the Constitution, which include that efficient, economic and effective use of resources must be promoted. The South African government had a constitutional obligation to ensure that in its dealings with CIEX Ltd, it promoted the efficient, economic and effective use of state resources.

While the legal reasoning on this point is a bit thin, one may be tempted to let this go, given the fact that – from an ethical and/or political perspective – it would be laudable if at least some of those who benefited from apartheid corruption could be made to pay back the money they were enriched with – much like President Zuma was made to pay back the money with which he was enriched by the renovations of his private home at state expense.

I leave it for others to nit-pick over these legal arguments about which reasonably informed people may well disagree. The fundamental problems with the report arise out of the remedial action imposed by the Public Protector to deal with the finding mentioned above.

First, the report ordered the Special Investigative Unit (SIU) to approach the President (who is the only person who can authorise this) to re-open its investigation, inter alia, to recover the more than R1 billion from Absa. Interestingly, the Public Protector does not order the President to re-open the investigation, but asks the SIU to request the President to do so. (It thus avoids the argument raised by President Zuma in the State of Capture case that the Public Protector did not have the power to order the President to take specific action.)

This remedial action would have been perfectly appropriate, but for the fact that the debt which the Public Protector found Absa owed towards the Reserve Bank had expired. Debt expires after 15 years, yet more than 20 years have now passed since the debt was incurred.

The Public Protector attempted to address this by quoting from a position paper of the South African Law Reform Commission which argued that ideally the law on prescription should be changed to include the interests of all segments of society, especially the socially and economically disadvantaged. As a policy principle this view is laudable. But the law was never changed and in law the prescription period remains 15 years.

As this policy principle has not yet been incorporated into our law, the first thing that will happen when the SIU go after Absa is that Absa will go to court to get an order that the debt had prescribed. (Absa actually contests the fact that there is a debt at all, but this is not relevant for the point being made here.) The remedial action therefore ignores the law as it currently stands, to request the SIU to do something which the law almost certainly does not currently allow it to do.

Second, the Public Protector decided that section 224 of the Constitution needed to be amended, motivating the conclusion as follows:

Leading authors advocating and promoting the ideology of state banks and nationalization of monetary currency believe that the notion of the lender of last resort’s status that is inherent to central banks internationally would cease to exist if governments take sole power in creating money through the establishment of state banks…. The debate on nationalization of monetary currency and creation of state banks is one that has found its way in to our democratic society and is a debate which must reach its conclusion by the people of South Africa.

Unfortunately none of the “leading authors” mentioned above are cited in the report. But as I understand it, in order to address this issue raised above, the Public Protector imposed remedial action telling the Chairperson of the Portfolio Committee on Justice and Correctional Services that he or she “must initiate a process that will result in the amendment of section 224 of the Constitution”. She then provides the wording that must be adopted in amending the Constitution. This means the Public Protector instructed Parliament to amend the Constitution in a particular manner.

As we know from the Constitutional Court Nkandla judgment the remedial action of the Public Protector is binding when it is imposed in such mandatory terms. The only way to avoid the implementation of this instruction is to approach a court to have the remedial action of the Public Protector reviewed and set aside. The Reserve Bank has said that it intends doing just that.

There is no doubt that if asked to do so a court will declare that this remedial action is unlawful and invalid. This is because the Public Protector does not have the constitutional or legal power to instruct Parliament to amend the Constitution. In Economic Freedom Fighters v Speaker of the National Assembly and Others; Democratic Alliance v Speaker of the National Assembly and Others the Constitutional Court held that the Public Protector is subject “only to the Constitution and the law”.

Section 74 of the Constitution prescribes in detail how the Constitution may be amended. Apart from the various procedural requirements, it also exclusively authorises the National Assembly and the National Council of Provinces to amend the Constitution. This must be done with special majorities. Section 74 states that a provision such as section 224 of the Constitution can only be amended if supported by at least two thirds of the members of the National Assembly.

By instructing Parliament to amend the Constitution the remedial action of the Public Protector is purporting to subvert these explicit provisions of the Constitution. I have no doubt that if asked to do so, a court will declare this remedial action invalid.

I assume the Public Protector has the requisite knowledge of the law to be aware of this. What is more difficult to understand is why she nevertheless decided to impose remedial action which she knows she has no authority to impose.

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