Investors in illegal schemes get their millions back

About R368 million has been repaid to the investing public in the last two years from various illegal deposit-taking schemes, some of which were pyramid or Ponzi schemes.

Unathi Kamlana, head of the policy, statistics and industry support department at the Prudential Authority (PA) at the South African Reserve Bank (Sarb), confirmed on Thursday that these repayments were made from assets seized from TVI Travel and Marketing Agency CC, Defencex and other schemes. Kamalana was speaking at a briefing on the latest annual report of the PA, the regulator responsible for the promotion of the safety and soundness of individual financial institutions.

Kuben Naidoo, deputy governor of the Sarb and chief executive of the PA, said the regulator spent a significant amount of resources to try and close down these schemes, in some cases to recover money and then to find the beneficiaries of the monies it recovered.

“It’s quite a significant part of the work of the PA, although it is fairly distinct from the supervision of financial institutions,” he said.

Naidoo said TVI was one of the largest illegal deposit-taking schemes and also one of the biggest successes of the Sarb, because it was one of the schemes where the bank was able to recover almost all of the money.

“It’s very rare that we recover a lot of money. It’s probably the second-largest illegal deposit scheme we have come across and was of the magnitude of about R150 million,” he said.

Kamlana said the PA had also secured some convictions related to illegal deposit-taking schemes and last year two people involved in TVI were sentenced to 375 years in jail each on counts of fraud. However, Kamlana stressed it was difficult to secure convictions related to these types of schemes.

Between April 1 last year and the end of March this year, the PA finalised 16 illegal deposit-taking scheme investigations and is busy with six current investigations. Of these investigations, 20 were carried over from the previous financial year and it launched two new investigations.

Kamlana said about 60% of the 16 investigations the PA finalised in the past year were found to be illegal deposit-taking schemes. He said the PA worked closely with the commercial crimes unit of the SAPS but all it could do was present to the unit its investigation report and lay the charge.

“From there the ball is in their court. Sometimes we could be asked to appear in court and give evidence but the criminal prosecution is outside of the bank’s hands,” he said. Kamlana said, in general, the PA did not name entities while they are subject to investigation because it might jeopardise the investigation.

He confirmed there was a definite correlation between a slowdown in the economy and an increase in illegal deposit-taking schemes and it had again been evident in the current economic slowdown. Naidoo said there had been a sharp increase in the number of license applications received by the PA.

He said it received a banking license application from Tyme Digital shortly after he was appointed registrar of banks in 2015. Naidoo went to the bank supervision department at the Sarb to ask which division dealt with banking license applications.

“They said there isn’t one because we haven’t received any applications for 11 years. But since then we have received 27 license applications,” he said.

Naidoo said not all of these applications were for banking licenses and some were for insurance, mutual bank licenses and foreign bank offices.

“We think that this is positive. It signals the dynamism of the South African financial sector and it will promote competition and financial inclusion.

“We are quite excited about new players, some of them using new technologies to enter the sector.

“I think it’s too early to say what overall impact it will have on both competitiveness and pricing in the sector but. But very early indications are that it will have a positive impact on pricing and inclusiveness,” he said.

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