Mazzotti's Smoke 'n Mirrors – a matter of taxes, fraud, smuggling and cigarettes

Adriano Mazzotti, a director of controversial cigarette company Carnilinx, said he made the donations to the ANC either personally or through his entities and that it is in excess of his contribution to the EFF. He refused to divulge exactly how much he had donated.

The ANC's Zizi Kodwa said in a written reply that the organisation is aware that in January this year, Mazzotti participated in an ANC fundraising gala dinner in East London and “bought” a table for R250,000.

Mazzotti purchased a so-called “Platinum package”, which would have guaranteed the cigarette manufacturer the company of one of the top 6 officials of the ANC.

The ANC did not comment on any other donations by Mazzotti.

Mazzotti and the Carnilinx co-directors are self-confessed tax cheats who allegedly stand at the centre of South Africa’s lucrative multi-billion-rand cigarette smuggling enterprise.

Mazzotti has been in the news for allegedly dodging a tax bill of hundreds of millions of rand and for being close to Julius Malema. He has admitted to contributing R200,000 to the EFF while another Carnilinx director loaned the EFF leader a million rand to help him settle his tax bill.

It was revealed in early December that Malema’s family are Mazzotti’s neighbours and rent a villa from him in Johannesburg’s plush Hyde Park suburb.

Questions have been raised about why the EEF has of late expressed support for disgraced former South African Revenue Service (SARS) commissioner Tom Moyane – whose regime was at the centre of allegedly “fixing” Carnilinx’s tax bill – a claim that Mazzotti angrily and vehemently denies.

Late last week, Daily Maverick obtained an affidavit from a top SARS executive and Moyane crony in which he perjured himself to show that Tom Moyane had no part in assisting Carnilinx to settle its multi-million-rand tax bill.

SARS group executive Luther Lebelo blatantly lies in his affidavit, which he made at the end of November, by claiming that Carnilinx’s tax affairs were settled long before Moyane’s arrival at SARS.

Lebelo made his affidavit in response to the Nugent commission who he claims has ignored some of his representations.

He says in Paragraph 23 of his affidavit:

“The tax affairs of Carnilinx were resolved by and during Mr Magashula tenure as Commissioner of SARS, and on (Johann van) Loggerenberg’s motivation, long before Mr Tom Moyane joined SARS. This is contrary to the prevailing narrative in the media.”

Lebelo talks balderdash. Magashula resigned in July 2013. By 2014, confidential SARS documents show that the investigation against Carnilinx was in full swing. In 2016, Carnilinx was still “in discussion” with SARS about its tax problems.

Lebelo is a staunch defender of Moyane’s calamitous policies at the tax collector and a proponent of the so-called “rogue unit narrative”.

Lebelo’s affidavit, in which he claims that his submissions to the Commission of Inquiry into Tax Administration and Governance at SARS are being suppressed, follows a recent attempt by Moyane to challenge the validity of the commission.

The affidavit begs the question: why is Lebelo prepared to lie under oath and commit perjury in defence of Carnilinx and Moyane?

Is it because the case is such a glaring example of the complete failure of governance at SARS under Moyane?

Or is there something even more sinister: trying to hide how the former commissioner and his cronies aided and abetted self-confessed criminals and tobacco smugglers?

When confronted with Lebelo’s affidavit, Mazzotti accused Daily Maverick’s journalist of floating “reckless” and “spurious” allegations while his attorney, Kameshni Naidoo, said her client “will not be bullied by your poison pen”.

Mazzotti said he has never met Moyane and had no dealings with him. He did, however, confirm that Lebelo’s statement about settling their tax problems before the arrival of Moyane is untrue.

Here is his response in full:

***

On 6 May 2014 – almost a year after Carnilinx’s tax affairs had according to Lebelo been settled – Mazzotti signed an affidavit on behalf of the company’s other directors. He admits to unlawful conduct and a host of crimes.

Mazzotti made the affidavit in the hope that Carnilinx could reach a tax settlement with SARS. To achieve his goal, Mazzotti and Carnilinx had to make a full and honest disclosure.

Mazzotti admitted in his 52-page affidavit to serious criminality, including smuggling, corruption, fraud, money laundering, tax evasion and attempted bribery of SARS officials.

He admits: “This was not only improper conduct but immoral. This was unlawful and morally wrong. No records were kept of the manufacturing process. This was deliberate as to avoid any detection.”

The company had to acknowledge liability for all income tax, VAT and excise duty previously not paid.

He therefore admitted: “Carnilinx entered into a host of transactions, some of which were lawful and others corrupt and unlawful.”

Documents show that Mazzotti’s disclosures were presented to a SARS settlement committee on 30 May 2014. The committee rejected his disclosures, among others because “the information uncovered by SARS contradicts the information provided in the disclosure”.

Two months later, and another document said “the team is in the process of cancelling the license of Carnilinx” and that SARS had issued a notice of intent to the company.

SARS expected a court challenge and said a further investigation was necessary “to raise additional reasons for the cancellation of the licence”.

SARS says in their documentation that it was doing lifestyle audits on the Carnilinx directors and their spouses and said, “extensive investigations are ongoing on the matter which seems to be growing in terms of complexity and intelligence warfare”.

Mazzotti and his directors were in serious trouble and the company faced financial ruin. It was about to be shut down by SARS while the directors faced a tax bill of hundreds of millions of rand.

According to yet another SARS document, the NPA had agreed to prosecute Carnilinx, Mazzotti and his directors as part of a plea agreement.

Mazzotti says in his affidavit: “It is hoped that this process will culminate in the company accepting criminal liability in a criminal court.”

He, however, said this week that Carnilinx has “no knowledge of the NPA’s involvement and the NPA has never confirmed this”.

Mazzotti has accused this reporter of brazenly possessing, publishing and/or disseminating confidential tax payer’s information.

“You were the first to make the reckless allegation last year that either Carnilinx or I owed R600 million in taxes but you have been unable to support these scandalous remarks, yet you continue repeating them even though they are false and unsubstantiated,” said Mazzotti.

***

Project Pandora, the name under which Carnilinx was investigated, was part of Project Honey Badger, the tax collector’s massive investigation into the illicit tobacco trade.

In the process, SARS extracted hundreds of millions of rand in unpaid taxes from cigarette manufacturers, closed several factories, sequestrated companies and raided a host of others.

Honey Badger was under the ultimate control of Gene Ravele, Chief officer for enforcement and managed by SARS investigations head Johann van Loggerenberg.

Documents tell how SARS investigators obtained affidavits from implicated parties that demonstrated how Carnilinx used dormant companies, HOCR and Skit Investments, to operate a sophisticated scam whereby they pretended to import tobacco to Swaziland when the true destination was, in fact, Carnilinx's Johannesburg factory.

Mazzotti says in his affidavit:

“Carnilinx accepts that it acquired tobacco unlawfully and wrongfully of two tonnes per week over a period of some 40 weeks.”

He said this week:

“Your allegations that this was a ‘diversion scam’ has no substance and you are invited to produce the relevant evidence should you intend to make these vexatious allegations.”

Other SARS documents show how, by early 2014, SARS had also detained around 250 tonnes of tobacco smuggled using this same scheme. Which means at least 330 tons (the admitted 80 tons plus 250 tons detained by SARS) of tobacco were smuggled by Carnilinx in this way.

Mazzotti said this week that the reference to “tonnes of tobacco being seized is misleading as SARS had confirmed that the 250 tonnes were the property of an international company and not Carnilinx”.

Under the headline The Unlawful Conduct, Mazzotti described in his affidavit how he gave a bag with R500,000 in cash to one of the country’s most celebrated senior advocates after a rare victory over SARS. The advocate drove off with the money in the boot of his car.

Carnilinx handed R800,000 in cash to a well-known Johannesburg attorney to bribe Van Loggerenberg and Pillay. Instead, the attorney pocketed the money. Another attorney got R780,000 in cash.

Mazzotti implied in his affidavit that some of Carnilinx’s proceeds of their crimes were used to entertain politicians.

He says:

“A substantial amount of money was used by the three of us as company expenses, engaging in expensive dinners, entertaining business people, politicians and other people who we considered would be useful in advancing the business of Carnilinx.”

SARS was still calculating Carnilinx’s taxes in the second half of 2014. Documents show that their tax bill could have run into hundreds of millions of rands.

Carnilinx would have been penalised for the seized and smuggled tobacco itself, which was used to manufacture illicit cigarettes. A Customs expert explained that they would also have lost the tobacco as it would have been forfeited to the state. They would also have failed to pay income tax on the illicitly manufactured packets of cigarettes and would have been taxed and penalised for this too.

According to industry experts interviewed, between 15 and 20 grams of tobacco make up a packet of twenty cigarettes, which means that 330 tonnes can manufacture approximately 16-million packets. The excise and VAT on that alone would make up around R247-million.

Tax experts say that because fraud was involved, SARS' penalty regime would have imposed penalties, forfeiture amounts and interest of up to 200 percent, which would theoretically have pushed Carnilinx's total tax bill to over R600 million rand.

Mazzotti called the above statement “reckless” and said, “you have been unable to support these scandalous remarks yet you continue repeating them even though they are false and unsubstantiated”.

Ravele and Van Loggerenberg never saw this investigation through. By the middle of 2014, the latter was suspended after a relationship with Pretoria attorney Belinda Walter. She was at the time also Carnilinx’s attorney.

Walter was eventually unmasked as an agent of the State Security Agency and part of an intelligence campaign to rid SARS of Van Loggerenberg and its top executives.

***

By the time Tom Moyane arrived at SARS in October 2014, the investigation against Carnilinx was still in full swing.

But then, everything changed.

Acting commissioner Ivan Pillay, chief officer for enforcement Gene Ravele and other executives departed SARS. By then, Van Loggerenberg had also resigned.

Moyane disbanded all five investigations units at SARS, fictitiously claiming that one had gone rogue. It allegedly spied on former president Jacob Zuma and ran a brothel.

Among the remaining people involved in the project was experienced investigator Kumaren Moodley, who later also fell victim to the “intelligence warfare”, ending up being suspended for over a year.

Project Honey badger was unceremoniously shut down. As a result, Project Pandora perished as well.

Ravele testified before the Commission of Inquiry into Tax Administration and Governance at SARS earlier this year how Moyane and his former right-hand man, Jonas Makwakwa, had stopped tobacco investigations.

A host of tobacco smugglers, money launderers and tax evaders used the so-called “rogue unit defence” in order to discredit the tax investigations against them.

They said they were investigated by a “rogue unit” and therefore their audits and tax bills were invalid. As the architect of the “rogue unit” chronicle, Moyane could hardly repudiate their claims.

In the process, years of painstaking investigations and expensive tax hearings went down the drain. The fiscus lost probably billions of rand through Moyane’s short-sightedness and deception.

Controversial Cape Town businessman Mark Lifman used the “rogue unit defence” to get rid of his R388-million tax bill. Convicted killer and money launderer, Robert Huang also used it to get rid of his R1-billion tax bill.

And Carnilinx used it.

***

A SARS memo of 20 March 2016 and addressed to among others Jonas Makwakwa said Carnilinx had raised the “alleged unfair treatment and criminal activities committed by SARS enforcement team whilst they audited the affairs of Carnilinx and related entities”.

The Carnilinx lawyers told SARS that their client was “unfairly treated by virtue of certain SARS officials behaving in a manner which seems to indicate that they are biased”.

Yet Carnilinx was investigated by a combination of several SARS units. Moyane’s invented “rogue unit”, the High Risk Investigation Unit, only conducted background work.

According to more SARS documentation, SARS agreed that “we should accede to the Carnilinx request to appoint a new audit team to investigate the matters presently under investigation by SARS”.

SARS further agreed that the team that had been working on the case until then, which would have been mainly Moodley’s Tactical Intervention Unit, would hand over the investigation to a “new team”.

SARS ultimately caved in and responded: “SARS has acceded to their [Carnilinx] demand, and that all Letters of Finding issued against the clients will be withdrawn.”

Mazzotti has slammed the notion that there was any untoward conduct by any members of SARS in making Carnilinx tax compliant. He said he has no relationship with either Moyane or Lebelo.

In a letter in July this year to News24.com, Carnilinx attorney Nicqui Galaktiou said: “Carnilinx complied and paid the assessed amount (which would have included penalties and interest) after the correct processes at SARS had been followed and the relevant committees adjudicated thereon. Carnilinx paid what was due to SARS which was approximately R25-million.”

She said this week: “The majority of documents that you refer to, including the affidavit, relate to 2014. Since then both Carnilinx and I have been tax compliant and have paid SARS approximately R600-million in taxes.”

***

SARS said this week that it may investigate the deal between Carnilinx and SARS under Moyane in order to determine if anything untoward went down.

There is little doubt that a tax collector with Tom Moyane at the helm has been beneficial to Mazzotti and Carnilinx. The criminal charges disappeared, their license wasn’t cancelled, and they could use the “rogue unit defence” to delay the process and get a new audit.

A rejuvenated SARS poses a real threat to Mazzotti and Carnilinx, not just because their tax affairs might be re-investigated, but because of a revival of Project Honey Badger.

The Tobacco Institute of Southern Africa (TISA) recently released a commissioned report into the illicit trade of cigarettes by the research agency Ipsos. It says the country is facing a massive onslaught from illicit tobacco traders.

They found that since Moyane had taken over the helm at SARS the illicit tobacco trade had shot up markedly, with an estimated loss to the taxpayer of R7-billion per year.

Said Francois van der Merwe, chairperson of TISA: “If SARS had continued with Operation Honey Badger, we wouldn’t be standing here today. When Moyane put a stop to this initiative, illegal operators took the gap, and made billions.”

Ipsos found that several independent cigarette manufacturers – among them Carnilinx – sell their cigarettes below the minimum tax owed to SARS.

SARS demands a minimum of R17.85 in taxes per packet of 20 cigarettes, yet Carnilinx brands sell for as little as R10.40 per packet.

The research shows that 80% of Carnilinx brands are selling for below the minimum collectable tax (MCT).

It begs the questions: if they properly declare all the cigarettes they manufacture and pay their taxes and excise, how do they manage to make a profit?

Despite two lengthy replies from two attorneys, Mazzotti did not comment on the Ipsos findings.

***

Mazzotti said this week that false allegations continue to circulate regarding his friendship with Malema.

“It is no secret that Mr Malema and I have been friends for over a decade. I have always been and remain an ANC supporter and have made donations to the ANC.”

“I supported the ANC historically and continue to do so under the leadership of President Ramaphosa. I am entitled to have different political views to my friends although I support the EFF’s view on the Freedom Charter.”

Many are asking the question about why the EFF has changed its position about Moyane and become his loudest defenders?

“The EFF’s position regarding Mr Moyane has no relevance to me and I do not share their views. That alone should demonstrate that it is unreasonable that Mr Moyane would interfere in my or Carnilinx’s tax affairs,” Mazzotti said.

Malema denied this week that Mazzotti is the reason why the EFF supports Moyane. He said they are supporting him because he shouldn't be removed through a wrongful process, just like they supported their current enemy, Public Enterprises Minister Pravin Gordhan, previously.

EFF spokesperson Mbuyiseni Ndlozi has questioned Ramaphosa’s decision to fire Moyane while chairperson Adv Dali Mpofu is defending the former commissioner in a case that he has taken all the way to the Constitutional Court.

This, despite the devastating evidence of how Moyane and his cronies had destroyed SARS and recorded a R90-billion shortfall in just three years.

If TISA and Ipsos are to be believed, almost 10% of that amount is attributable to illicit tobacco.

And Carnilinx seems to be in the middle of it all. DM

• A SARS spokesperson said the tax collector cannot comment on any of the allegations as tax payer’s information is confidential.


• Luther Lebelo did not respond to requests for comment.