ON FACTS: SARS CLAIM AGAINST SASFIN- DOES LIABILITY EXTEND TO THE BANK FOR THE MISCONDUCT OF THE CLIENT:

Written by: GirayaSan-RIP

The core of the inquiry touches on a critical jurisprudential debate: To what extent does a financial institution’s duty of care extend to third parties (specifically the state fiscus) for the illicit financial flows facilitated by its infrastructure or employees?

Here is a legal breakdown of the SARS vs. Sasfin matter.

1. Background Facts

The Parties:

Plaintiff: SARS (The South African Revenue Service), responsible for tax collection.

Defendant: Sasfin Bank, a niche banking and financial services group.

The Allegations:

The dispute arises from a massive alleged tax evasion and money laundering scheme involving the Gold Leaf Tobacco Corporation (GLTC) and associated entities.

The Scheme: SARS alleges that between 2014 and 2019, Sasfin accounts were utilized to expatriate approximately R3 billion (with the total claim now approaching R4.87 billion including damages/interest) to jurisdictions like Dubai. These transfers were allegedly disguised as payments for imported tobacco leaf, which allegedly never existed or were significantly over-invoiced (Ghost Imports).

Internal Collusion: Crucially, SARS alleges that this was not merely a case of a client fooling a bank. SARS contends that former Sasfin employees actively colluded with the syndicate. These employees allegedly manipulated the SWIFT banking system to bypass exchange controls and deleted transaction records to hide the flows from the South African Reserve Bank.

The Claim: SARS claims that Sasfin, through its employees and lack of controls, facilitated the loss of tax revenue. Consequently, SARS argues Sasfin should be held liable for the taxes owed by the tobacco companies that can no longer be recovered because the assets have been expatriated.

2. The Legal Issue

The central legal issue is Vicarious Liability and the Duty of Care regarding Pure Economic Loss.

Specifically, the court must determine:

1. Vicarious Liability: Is Sasfin Bank liable for the criminal/fraudulent acts of its employees who allegedly facilitated the scheme?

2. Wrongfulness (Legal Duty): Does a bank owe a legal duty to a third party (SARS) to ensure that its clients do not use the bank's facilities to evade tax?

3. Causation: Did the bank's failure (or its employees' actions) factually and legally cause the loss to SARS, or was the loss caused solely by the tax-evading client?

3. Applicable Legal Principles

To resolve this, the court will look to the South African Law of Delict.

A. Vicarious Liability

An employer is liable for the wrongful acts of an employee if those acts are committed within the "course and scope of employment."

The Test: Even if an employee acts criminally or against instructions, the employer may be liable if there is a sufficiently close link between the employee's authorized duties and the wrongful act (the "close proximity" test).

B. Pure Economic Loss

SARS is claiming for financial loss, not physical damage. In South African law, causing pure economic loss is not prima facie wrongful. To succeed, SARS must prove that public policy demands the imposition of liability on the bank.

Indeterminate Liability: Courts are hesitant to impose liability if it opens the door to liability in an indeterminate amount for an indeterminate time to an indeterminate class.

C. Statutory Duties (FICA)

The Financial Intelligence Centre Act (FICA) imposes duties on banks to verify clients (KYC) and report suspicious transactions.

The Principle: While FICA creates regulatory penalties, SARS will argue that a breach of these statutory duties also supports a civil claim for damages.

4. Application of Principles: The Arguments

SARS (The Plaintiff's Case)

Imputation of Intent: SARS will argue that the knowledge and actions of the Sasfin employees (who allegedly scrubbed SWIFT data) are imputed to the bank itself. The bank cannot hide behind the "rogue employee" defense when the employees used the bank's own systems to commit the fraud.

Gatekeeper Liability: Banks hold a privileged license to operate in the financial system. SARS will argue that public policy dictates that banks must be the first line of defense against illicit financial flows. If they fail to police their systems, they must bear the cost of the leakage.

"But For" Causation: SARS will argue that 'but for' the bank’s infrastructure and the employees' collusion, the money could not have been moved offshore, and SARS could have attached those assets for tax debts.

Sasfin (The Defendant's Case)

Scope of Employment (Frolic of their own): Sasfin will likely argue that the employees were acting criminally and solely for their own benefit (or the client's), effectively stepping completely outside the scope of their employment. Therefore, the bank should not be vicariously liable.

No Legal Duty to SARS: Sasfin will argue that a bank's duty is to its client and to the regulator, not to SARS. Imposing a duty on banks to ensure their clients pay tax would create an unmanageable burden and "indeterminate liability."

Proximate Cause: Sasfin will argue that the cause of the loss was the tax evasion by Gold Leaf Tobacco. The bank was merely the tool used; the liability for tax remains with the taxpayer, not the conduit.

5. Prospective Conclusion

Legal Assessment:

This is an uphill battle for SARS, but they have a viable pathway via Vicarious Liability.

If this were a case of simple negligence (Sasfin just didn't spot the fraud), Sasfin would likely win, as courts rarely hold banks liable to third parties for negligence. However, because SARS alleges active collusion by employees, the "Close Connection" test becomes dangerous for Sasfin.

If the court finds that the Sasfin employees utilized their authorized powers (access to SWIFT, account management) to commit the fraud, the court will likely impute that liability to Sasfin.

Prediction: The court may find in favor of SARS regarding the specific amounts facilitated by the colluding employees, but may reject a broader claim that banks are generally liable for client tax evasion. Sasfin faces a high risk of settlement to avoid a precedent that establishes they were "part of the laundry."

6. Implications of the Finding

Scenario A: Sasfin is found Liable (in favour of SARS)

For the Banking Sector: This creates a massive precedent. Banks effectively become insurers of the fiscus. If a bank facilitates a transaction that turns out to be tax evasion, the bank could be on the hook for the tax.

*Compliance Costs: Banks will drastically tighten compliance. "De-risking" will occur, where banks shut down accounts of any client involved in high-risk sectors (tobacco, cash-heavy businesses) to avoid liability.

For Sasfin: A judgment of R4.8 billion would likely exceed the bank's capitalization, posing an existential threat to the institution unless they have specific indemnity insurance that covers internal fraud (which often excludes deliberate illegal acts).

Scenario B: Sasfin is found Not Liable (in favour of Sasfin)

Legislative Reform: If the courts say current laws don't hold banks liable, SARS will likely lobby Parliament to amend the Tax Administration Act or FICA to create strict liability for banks in the future.

Moral Hazard: It may create a moral hazard where banks can take a "see no evil" approach, knowing that as long as they aren't the primary fraudsters, they aren't financially liable for the lost tax revenue.

Loss to Fiscus: The state loses the ability to recover billions in illicit flows once the money leaves the country, placing a heavier tax burden on compliant taxpayers.

DISCLAIMER: THIS WAS GENERATED FROM AN IDEA, A QUESTION. IT DOES NOT SERVE AS AUTHORITY. PLEASE DO YOUR OWN RESEARCH SHOULD YOU BE MORE INTERESTED.