Limpopo businessman and ANC big shot Kabelo Matsepe has gone to court to challenge the legality of the municipal regulation that precludes municipalities from investing funds in mutual banks.
Matsepe, who is ANC Limpopo treasurer Danny Msiza’s business partner, filed papers in the Pretoria High Court on Friday, asking the court to review and set aside Regulation 6c of the Municipal Investment Regulations, whose violation by the municipalities resulted in his criminal prosecution and whopping R35-million tax bill.
The former ANC Youth League leader cited his company Moshate Investment Group as the second applicant and the minister of finance, minister of co-operative governance and traditional affairs, National Prosecuting Authority (NPA) and the South African Local Government Association as respondents in the suit.
Matsepe said if the court rules in his favour, it must also declare the criminal charges preferred against him by the NPA invalid.
Matsepe and Msiza, Venda Mutal Bank Society (VBS) executives, and several municipal officials were arrested and charged with fraud, corruption, money laundering, and racketeering among other charges after more than R2-billion was looted from the bank, which was later liquidated.
Matsepe and his co-accused are expected to appear in the Pretoria High Court on Monday for trial after pleading not guilty to the charges in the Palm Ridge Specialised Commercial Crimes Court last year.
In the court papers, which Sunday World has seen, Matsepe said he had a locus standi to challenge the regulation as the criminal charges formulated against him were based on or flowed from its legality.
He said he and Moshate had entered into a referral agreement with VBS in terms of which his company would be paid a commission on every deposit made by clients he referred to the bank.
He said after the agreement, his company referred several municipalities to the bank and was paid commission from investments, as agreed with VBS.
He said it had been widely reported that the investments by municipalities had added to the meteoric rise of the bank’s investments.
“A liquidity problem arose within VBS Bank when the National Treasury directed municipalities which had invested in the bank to withdraw their investments because such investments were unlawful on account of Regulation 6c of the Municipal Investments Regulations,” he said.
Matsepe said the regulation only allowed municipalities to invest in banks registered under the Banks Act 90 of 1994.
He said the bank was placed under curatorship after advocate Terry Motau, who was hired by the Reserve Bank, uncovered massive financial losses at the bank.
Motau’s report, he added, stated that he received R35-million from VBS and recommended he be criminally prosecuted and the taxman be informed by the prudential authority of his offenses and non-compliance with South African tax laws.
As a result, the taxman imposed a colossal tax bill on him and disregarded his company income earned as commission from VBS, instead of adding it to his personal income.
He said if the regulation is declared invalid, this will regularise the commission his company earned from VBS.
“There is a tax dispute between me and SARS, which is being attended to in parallel proceedings,” he said.
Advancing grounds for review, Matsepe said although the regulation precludes municipalities from investing funds in mutual banks, the Municipal Finance Management Act (MFMA) defines investment as the placing on deposit of funds of a municipality with a financial institution.
“The term ‘financial institutions’ is not defined in the MFMA, but an extensive definition of the term appears in section 1 of the Financial Institutions (Protection of Funds Act 28 of 2001 read with section 1 of Financial Services Board Act 97 of 1990.
“In terms thereof, a ‘financial institution’ includes a bank registered in terms of the Banks Act and a Mutual Bank in terms of the Mutual Bank Act.
“The upshot of the above is that the principal legislation, being MFMA, embraces investments in Mutual Banks whilst its subordinate legislation being the regulations preclude investments in Mutual Bank,” he said.
He said there was a clear disconnect between primary and subordinate legislation, which demonstrates that the finance minister when making and issuing the regulation, failed to consider relevant considerations being the definition of investment in section 1 of the MFMA.
This made the issuing of the regulation irrational, he said.
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