SARS tip-offs lead to successful multi-province coal smugglers search-and-seizure operation

12 Oct 2023

Inter-governmental cooperation and information-sharing has resulted in a major breakthrough in the investigation of a sophisticated coal-smuggling syndicate, potentially saving the fiscus R500-million and preventing further damage to Eskom's ability to generate electricity.

In a welcome move towards repairing the broken utility that is often referred to as ‘Eishkom’, a massive inter-governmental search and seizure operation across five provinces was carried out on 12 October, 2023.

The operation, intended to “break the back” of a sophisticated criminal syndicate of alleged coal-smugglers, was led by the South African Revenue Service (SARS) after information regarding a host of tax crimes allegedly committed by members of the coal-smuggling syndicate became available.

Regulatory authorities have attributed the success of the operation to the inter-governmental cooperation and information-sharing under the auspices of the NatJoints Energy Safety & Security Priority Committee tasked with unmasking and bringing criminals to book.

Read more in Daily Maverick: Introducing the four crime cartels that have brought Eskom and South Africa to their knees

In this particular case, an estimated R500-million loss of revenue to the fiscus, has been prevented. The alleged coal smugglers and their related entities are active and have a presence in Gauteng, Mpumalanga, KwaZulu-Natal, the Free State and Limpopo.

In a media statement, SARS said the suspects targeted on the day included former Eskom employees who facilitated procurement fraud, as well as other individuals involved in the diversion of high-grade coal.

Read more on Daily Maverick: Eskom’s broken heart — inside the leaking procurement systems that keep South Africa in the dark

SARS managed to establish links between individuals and related entities and confirmed the following possible gross contraventions from a tax perspective:

Non-registration for income tax, VAT and/or PAYE.

Failure to submit tax returns.

Under-declaration of income.

Claiming undue VAT refunds.

Making false submissions (fraud)

The uncovered operations

The sophisticated network of coal smugglers is suspected to consist of local and foreign nationals. Coal trucks destined for power stations are diverted to designated coal yards where high-grade coal is replaced with low-grade or sub-standard product. The high-grade coal is then exported or sold to willing buyers. The low-grade coal is often blended with scrap or other materials and then delivered to power stations.

The low-grade coal damages the infrastructure at the Eskom power stations, which is a major factor in crippling the power utility’s ability to generate electricity for the South African grid. Late last month, Eskom signalled that it hoped to limit rolling blackouts to stage four in the coming summer months. However, that remains to be seen.

SARS Commissioner Edward Kieswetter commended the country’s law enforcement agencies for the massive breakthrough in ongoing investigations.

“It is because of such naked greed that the country has experienced unprecedented load shedding, which harms business, undermines foreign direct investment and leads to job losses — all of which negatively affect revenue collection,” he said, adding that SARS will continue to pursue taxpayers involved in intentional and wilful non-compliance — without fear, favour or prejudice.

In May this year, Lt Gen Peter Jacobs, divisional commissioner for crime intelligence at SAPS, told Parliament that the SAPS intelligence team had uncovered the presence of criminal syndicates operating in the coal supply line, where coal that was en route to Eskom was diverted and dumped at illegal coal yards. The intelligence team had raided several illegal coal yards and identified their owners. For example, the team found that one farm of about 400 hectares contained 28 sub-coal yards, which were rented out to various people. DM

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The uncovered operations