Vicarious Liability as a Tax Strategy? Exploring the Sasfin Case and new anti-corruption laws

Sasfin, a banking and wealth management group, is disputing a substantial R4.9 billion damages claim from the South African Revenue Service (SARS). This claim alleges that Sasfin's former clients failed to make accurate tax disclosures and collaborated to transfer funds offshore in a way that obscured their origins, thus evading taxes and SARS now wants these lost taxes from Sasfin.

CEO, Michael Sassoon, has stated that Sasfin was not the primary bank for these clients; rather, it provided foreign exchange services while the clients had their main banking relationships elsewhere. https://www.news24.com/fin24/companies/we-were-not-the-primary-bank-sasfin-pushes-back-on-r49bn-sars-claim-for-tax-dodging-clients-20240413

This situation underscores the intricate relationships among banks, regulatory authorities, and the enforcement of tax laws. It particularly focuses on the challenges in managing foreign exchange transactions and the role banks may play in potential tax evasion schemes.

This development was followed by amendments to South Africa's anti-corruption legislation imposing potential criminal liabilities on all companies not just banks, for failing to enforce adequate anti-corruption measures, especially in their relationships with third parties such as consultants or contractors.

Companies can now be held accountable if these third parties engage in corrupt practices, unless they can demonstrate that they had robust procedures in place to prevent such misconduct.

In the context of Sasfin and the R4.9 billion damages claim by the South African Revenue Service (SARS), this new legislation emphasizes the critical importance of comprehensive due diligence and anti-corruption measures within financial institutions and companies in general.

Although the claim against Sasfin primarily concerns tax evasion and the failure of clients to make accurate disclosures, the broader implications relate to the bank's responsibility in monitoring and preventing potential financial crimes, including the sufficiency of their Know Your Customer (KYC) and due diligence processes.