Hogan Lovells: The professional role of lawyers is sometimes misunderstood or misconstrued

All relevant information in the report we produced for SARS into the employment law issues surrounding Jonas Makwakwa’s receipt of “suspicious and unusual payments” is now in the public domain. We have long asked for the release of the report and welcome this opportunity to set the issues out simply and clearly, as we recognise that there are important and legitimate questions in the public interest. We also acknowledge the frustration and suspicion that the delayed release of our report has caused.

We share that frustration, but as lawyers we are bound by rules which are designed to ensure that the rule of law applies equally to all of us. Breaking these rules to serve our personal interest would simply have been wrong.

Daily Maverick has accused us of a whitewashed mandate, investigation, report and disciplinary inquiry resulting in Jonas Makwakwa’s reinstatement by SARS. Each of these accusations is false and misleading. With all the relevant information now public we want to summarise the facts.

As background, we have acted for SARS on Employment Relations (ER) matters for many years, under various commissioners. Our terms of reference and fee structures are agreed with the SARS ER department, and we have (and had) no personal relationship with Tom Moyane or Makwakwa. Our fees are based on discounted government rates and we would be happy for SARS to make the fees we have received for this matter public.

Makwakwa was suspended on full pay by SARS in September 2016. This followed the receipt by SARS of the Financial Intelligence Centre’s (FIC) report in May 2016, identifying a number of unusual and suspicious transactions involving Makwakwa and requesting SARS to investigate those transactions on a number of grounds. These included corruption (under anti-corruption laws in PRECCA and POCA), tax evasion, breach of internal policies and concealment of sources of funding.

Immediately after suspending Makwakwa, SARS ER executives approached us, as longstanding labour law advisers to SARS, to assist in deciding if Makwakwa had made payments in contravention of SARS’s internal policies and/or the PFMA.

SARS ER executives also requested us to advise on the labour law aspects of the anticipated disciplinary inquiry, required as part of the rule of law and fair labour law procedures to be followed by SARS to discipline or dismiss Makwakwa as an employee. That was the limit of the Hogan Lovells brief and this did not change from Day 1. The statements made by Moyane claiming we had fully investigated all aspects of the FIC report were wrong. And we tried to correct those in our public statements issued thereafter.

We can understand the questions which have been raised about the limits to our labour law work, particularly while the other investigations have yet to report around potential criminal charges and tax evasion.

We can also understand the questions which have been raised about the limits to our mandate, especially as a number of the investigations concerning potential criminal charges and tax evasion have not been completed. However, these were clearly addressed in our original terms of reference and in our report. We told SARS upfront which government agencies were the right ones with the necessary powers to conduct the corruption and tax investigations. We are not the police and law firms like Hogan Lovells do not have the necessary legal powers or authority to gather and secure evidence from hostile and/or unco-operative persons, by way of search and seizure etc and are not the correct people to undertake or judge these matters.

Therefore, it was clear from the start in October 2016 that:

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  Corrupt activities had to be investigated by the Hawks (Colonel Heap of the Hawks confirmed to us in October 2016 that the Hawks had commenced this investigation);

  
  


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  Tax evasion had to be investigated by SARS as tax regulator (which investigation was outsourced by SARS to an independent PwC because of the conflicts of interest of SARS employees investigating Makwakwa, being his junior);

  
  


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  Payments constituting breaches of internal policies and/or the PFMA would be investigated by Hogan Lovells, with the support of PwC Forensics only to establish the facts and try to identify the sources of funds of the payments to Makwakwa; and

  
  


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  Money laundering had to be investigated by the Hawks.

  
  

The theory that we deliberately “tailored” our mandate, and consequentially our investigation and report, to only those possible limited or “trivial” charges, and thus issue a whitewash, is simply wrong. These limits on our ability to investigate potential corrupt activity and tax evasion are imposed by the law, not by Hogan Lovells. It is a matter of South African law which investigative government agency is legally authorised and empowered to lawfully gather and secure the necessary evidence required by SARS and to be able to collate and present such evidence in an internal disciplinary inquiry.

We completed our examination of the available evidence and our report in May 2017. At this stage the other lines of enquiry (and in particular the criminal investigations by the Hawks and tax evasion investigation by PwC for SARS) still had to be completed. Critically, Makwakwa’s lawyers, Baker & Mckenzie, had launched an application to the CCMA at the end of February 2017 to declare Makwakwa’s indefinite ongoing suspension on full pay an “unfair labour practise”. This application would probably have been successful because suspension of an employee beyond six months without a hearing is generally regarded under labour laws as an “unfair labour practise”. This in turn would have resulted in Makwakwa being automatically re-instated at SARS. In order to keep Makwakwa suspended, and possibly disciplined or dismissed, SARS had to then proceed with the disciplinary inquiry, based on all the charges against Makwakwa which we, in consultation with Senior Counsel, then regarded as having reasonable prospects of success.

As SARS recognised before Parliament’s Standing Committee on Finance on 23 May 2018, it was a matter of regret that the various other lines of enquiry by the Hawks and SARS were not completed at the time of the first hearing. In the circumstances, however, because of the parallel CCMA application and Makwakwa’s pending re-instatement, it was inevitable that this first hearing could deal only with a limited number of matters. It was never the intention that this first hearing would be the end of the matter, as is clearly shown in our report. We understand the questions that have arisen about the limited number of matters put to Makwakwa in the hearing and are happy to have finally been able to explain this fully with the release of our report. As to future evidence, our mandate letter and our report made it quite clear that as and when such evidence was procured by the Hawks and SARS, then additional charges could be levelled at Makwakwa.

The disciplinary inquiry went ahead on this basis in mid-July/August 2017. The available charges we recommended be put to Makwakwa by SARS are set out in our report. They were the best available at the time given the failure of the other investigations to report. These charges include Makwakwa breaching SARS internal policies in not disclosing his outside business interests and bringing SARS into disrepute (a broad charge encompassing an assessment of whether his conduct would disqualify him from continuing being employed in his senior position). The independent Senior Counsel chairing the disciplinary inquiry, after having assessed the evidence available at the time, found in favour of Makwakwa. Subsequent to that Makwakwa was reinstated by SARS. We were not involved in the decision of the Senior Counsel chairing the disciplinary inquiry or SARS’ decision to re-instate Makwakwa.

Our report sets these issues out clearly, especially the limitations of Hogan Lovells’ powers to conduct investigations into criminal and tax evasion matters, which we clearly said should be dealt with by other parties – and that they should not be ignored.

We have also been criticised for not getting to the bottom of certain matters including exchange control violations, money laundering and the source of gifts. These matters were, in fact, explicitly raised as issues needing to be considered, but we did not have the powers to investigate them further.

Clearly it is regrettable that the Hawks and SARS with their various investigative powers and their specific mandates did not complete those investigations by the time of the hearing. Further questions should be asked about these investigations and where they stand.

From all the information available to us in 2017 (and as appears from our report), there was no clear evidence at the time of any alleged looting of any money, let alone millions of taxpayers’ rands, from SARS, nor any evidence of any alleged corruption by Makwakwa at SARS at any time. The sole basis of Hogan Lovells’ recommendations as to action and available charges against Makwakwa were taken on the facts Hogan Lovells believed could be proved at the hearing.

In conclusion, we have always acted appropriately and independently, without fear of or favour to Makwakwa, in our professional legal role as labour law adviser to SARS and as prosecutor for SARS of Makwakwa at the disciplinary inquiry.

The release of our report by Parliament’s Standing Committee of Finance on 23 May 2018 was the release of the last piece of the puzzle. This could only happen after SARS waived its privilege over the report. It would have been to everyone’s advantage if our report had been disclosed by SARS earlier. It would have helped avoid criticism and suspicion. But the simple truth is that we couldn’t, without the permission of SARS as our client, release our report. The same would apply to you and any dealings you might have with your own lawyers. We, as lawyers, are bound by SARS’s legal privilege and confidentiality and we could not release the report ourselves without SARS’ consent. This is a fundamental principle of our Constitution and the rule of law in our country. We appreciate this is a complex issue but it is an important pillar of our legal system. It is regrettable that the professional role of lawyers is sometimes misunderstood or misconstrued by those who have so strongly criticised us.

We fully appreciate and understand the outcry about the Makwakwa case. We too believe that in matters of great public interest involving senior government employees at public institutions, there should be greater transparency and support the call for Parliament to look into this. These are important issues and there are lessons to be learned by us all and we are committed to contributing to any further public debate. DM