A DISCUSSION OF SECTION 38 OF THE PREVENTION OF ORGANISED CRIME ACT 121 OF

1998 WITH REFERENCE TO CASE LAW.

by

SARVESH NAIR

ASSIGNMENT

Submitted in partial fulfilment of the requirements for the subject

Advanced Criminal Law

for the degree

MAGISTER LEGUM

in

LAW

in the

FACULTY OF LAW

at the

NELSON MANDELA METROPOLITAN UNIVERSITY

March 2015

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Declaration by student:

I hereby declare the following:

This is my own work and I have not copied any parts thereof from anyone else; I have referenced all direct quotations and paraphrased explanations of

another’s work I understand that plagiarism is a violation of the university disciplinary code and

that should I be guilty thereof that I will be subject to any disciplinary steps that the university may institute against me,

Student’s name: Sarvesh Nair

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Table of contents

1 Introduction……………………………………………………...….…………….....4

2 Confiscation and Forfeiture..............…………....................................……...4-7

3 Preservation order…………….……………..........….….…….........…................7

3 1 Instrumentality of an offence …………….……………...……...........8-10

3 2 Proceeds of unlawful activities …………….……………................10-11

4 Conclusion…….…….……………………….….…………........….............….…12

5 Bibliography…….………………………………......………………......……..13-14

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1 Introduction

In the past, the punishment imposed by the criminal justice system failed to strip convicted

persons of the profits of their crimes.1 Huge fines and the forfeiture of illegal goods to the

State still left economic offenders with substantial amounts of illicit profits. Even after

spending years in jail, criminals would still be able to enjoy the proceeds of their crimes

when they were released with some re-investing ill-gotten gains into new criminal

activities.2 Newspapers in South Africa ran stories for instance relating to a supposed

“police officer who managed on his R15,000-a-month salary to drive his Lamborghini to

work every day from his R17 million Durban North mansion.”3

While section 25 of the Constitution of the Republic of South Africa 1996, guarantees

everyone the right to property4, this right is by no means absolute and may be limited by a

law of general application in favour of a public purpose or public interest.5 In terms of

section 38 of the Prevention of Organised Crime Act 121 of 1998 (hereafter referred to as

POCA), the court may issue a preservation order if there are reasonable grounds to believe

that the property concerned is the instrumentality of the offence or the proceeds of unlawful

activities.6 What follows is a discussion on the application of the above requirements with

reference to recent case law.

2 Confiscation and ForfeiturePOCA introduces a civil forfeiture procedure and is a result of national and international

efforts to combat drug trafficking, terrorism, organised crime and economic offences.7

Proceedings for forfeiture are argued to be in rem8 rather than in personam9 and therefore

neither a criminal conviction nor pending charges are prerequisites for forfeiture.10

1 de Koker KPMG Money Laundering Control Service Butterworths, Durban 1999 at Com 5 3. 2 de Koker KPMG Money Laundering Control Service Butterworths, Durban 1999 at Com 5 3. 3 Moore “The Rise and Fall of Shauwn and S’bu Mpisane, Durban’s Teflon Couple” (2013-02-11) Daily Maverick 3; Shauwn Mpisane a “model police officer” and sole director of Zikhulise Cleaning, Maintenance and Transport, was awarded multi-million rand tenders for the construction of RDP houses. The Daily Maverick newspaper established that the council had paid a total of R219 million to the company during 2009, and that the last payment of R4,785,720 had been made on 14 December 2009, two weeks before the Mpisanes threw a New Year’s Eve party featuring golden thrones for the couple, the unveiling of their new Rolls Royce Silver Ghost, valued at R10 million, and unlimited whisky and champagne for their political connections. 4 S 25 of The Constitution of the Republic of South Africa, 1996 (the Constitution); Govindjee and Vranken (eds) Introduction to Human Rights Law (2009) ch 22; see also Currie and De Waal The Bill of Rights Handbook 6ed (2014) 531.5 Currie and De Waal The Bill of Rights Handbook 6ed (2014) 531.6 Section 38 of the Prevention of Organised Crime Act 121 of 1998 (hereafter referred to as POCA)7 de Koker KPMG Money Laundering Control Service Butterworths, Durban 1999 at Com 5 3. 8 In other words against the thing.9 Or in other words against the person.10 National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR

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At the outset, one must clearly distinguish between a criminal confiscation or forfeiture11

and a civil forfeiture procedure. Criminal confiscation focuses on the criminal benefit

obtained through unlawful activities, whist civil forfeiture in addition allows for the forfeiture

of property that aided the commission of an offence.12 Criminal forfeiture follows upon the

conviction of a person for an offence giving rise to a criminal benefit while no conviction or

even prosecution is required for tainted property to be forfeited.13 A successful criminal

confiscation procedure results in a court order requiring the accused to pay a specified

amount to the State, whilst a successful civil forfeiture results in an order forfeiting the

specific property to the State.14

In South Africa, a specialised Assets Forfeiture Unit was created in terms of the National

Prosecuting Authority Act.15 This unit is headed by a special director, who was given the

mandate to develop detail policy guidelines for forfeiture proceedings, to institute such

proceedings and to co-ordinate the management of assets subject to restraint orders.

POCA “gives effect to South Africa’s international obligation to ensure that criminals do not

benefit from their crimes. [POCA] uses two mechanisms to ensure that property derived

from crime or used in the commission of crime is forfeited to the state.”16 These

mechanisms are set forth in Chapter 5 and Chapter 6. “Chapter 5 provides for the forfeiture

of the benefits derived from crime but its confiscation machinery may only be invoked when

the ‘defendant’ is convicted of an offence.”17 “Chapter 6 provides for forfeiture of the

proceeds of and instrumentalities used in crime, but are not conviction based; it may be

invoked even when there is no prosecution.”18

In terms of Section 18 of POCA confiscation orders may be issued after a conviction has

been obtained against a defendant. In terms of section 2619 the National Director of Public

11 Chapter 5 of POCA; The criminal confiscation procedure may only be instituted once a person is convicted of an offence. The purpose of the enquiry is to determine the benefit which the offender has derived from the offence of which he or she is convicted, as well as from other related unlawful activities. This enables the court to order the confiscation of property to the value of the benefit through issuing a confiscation order. The confiscation order is similar to a judgment for the payment of a sum of money and is made in addition to any other sentence that the court may impose12 de Koker KPMG Money Laundering Control Service Butterworths, Durban 1999 at Com 5 3. 13 See chapter 5 of POCA.14 de Koker KPMG Money Laundering Control Service Butterworths, Durban 1999 at Com 5 3. 15 32 of 1998.16 National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR at par (c).17 Section 18(1) of POCA; National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR par (d).18 Sections 48(1) and 50(1), read with section 38; National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR par (d).19 Of the POCA.

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Prosecutions may apply for a restraint order prohibiting any person from dealing in any

manner with property to which the order relates.

Section 38 entitled “[p]reservation of property orders” reads as follows:

(1) The National Director may by way of an ex parte application apply to a High Court for an order prohibiting any person, subject to such conditions and exceptions as may be specified in the order, from dealing in any manner with any property.

(2) The High Court shall make an order referred to in subsection (1) if there are reasonable grounds to believe that the property concerned— (a) is an instrumentality of an offence referred to in Schedule 1; or (b) is the proceeds of unlawful activities.

(3) A High Court making a preservation of property order shall at the same time make an order authorising the seizure of the property concerned by a police official, and any other ancillary orders that the court considers appropriate for the proper, fair and effective execution of the order.

In terms of Section 3820 a preservation of property order may be issued by the High court

on application of the National Director of Public Prosecutions. The order may be issued if

reasonable grounds exist that the property concerned is an instrumentality in a Schedule 1

offence or is the proceeds of unlawful activities.21 “Section 38 forms part of a complex, two-

stage procedure whereby property which is the instrumentality of a criminal offence or the

proceeds of unlawful activities is forfeited.”22 Chapter 6 provides for forfeiture in

circumstances where it is established, on a balance of probabilities, that property has been

used to commit an offence, or constitutes the proceeds of unlawful activities.23 In terms of

section 4824, application may be made for an order forfeiting assets, subject to a

preservation order to the State.

3 Preservation order

“The forfeiture process...commences when the National Director applies ex parte in terms

of section 38 of [POCA]...for a preservation order.”25 There is no specific provision for a rule

nisi.26 Once the preservation order is granted, notice must be given to “all persons known

20 Of the POCA.21 S 38 of POCA.22 The procedure referred to in S 38 is set out in great detail in sections 37 to 62, which form chapter 6 of POCA; See also National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR par (d).23 National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR par (d).24 Of POCA.25 National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR at par (f).26 A rule nisi is an interim order granted by a court, often in the absence of the person against whom the relief is being sought, calling upon the person to give reasons on (or before) a date specified why a final order, as

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to the National Director to have an interest in the property”27 and a notice of the

preservation order must be published in the Gazette.28 Within 14 days of notice of the

order, an affected party who wishes to oppose the grant of a final forfeiture order must

enter an appearance of his or her intention to oppose that order.29 The National Director

must then within 90 days of the granting of the preservation order apply for the forfeiture of

the property. At that stage, affected parties are entitled to a full hearing to determine

whether the property should be forfeited or not.30

A person who is affected by a preservation order made in respect of immovable property

may apply for the order to be rescinded and the High Court shall rescind the order “if it

deems it necessary in the interests of justice”31 to do so. In respect of movable property, a

High Court may, on the application of an affected party, vary or rescind the preservation

order “if it is satisfied” that the order will “deprive the applicant of ... reasonable living

expenses and cause undue hardship for the applicant; and ... the hardship ... outweighs the

risk that the property concerned may be destroyed, lost, damaged, concealed or

transferred.”32

3 1 Instrumentality of an offence

In terms of section 50 of POCA, the High Court shall make an order that was applied for by

the National Director if the court finds on a balance of probabilities that the property is an

instrumentality of an offence referred to in Schedule 1.33 Where one deals with civil

forfeiture, POCA34 is focused on the property that has been used to commit an offence or

which constitutes the proceeds of crime and not on the guilt of the wrongdoers.35 The guilt

specified in the rule nisi, should not be granted. Rule nisis are often used in urgent applications, for example, interdicts.27 S 39(1) of POCA. 28 S 39(1) of POCA. 29 S 39(3) of POCA. 30 National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR at par (c).31 S 37 (3)(b)(i) of POCA. 32 S 47(1) POCA; National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR at par (c).33 S 50 of POCA; Schedule 10 of POCA; Or if the property is associated with terrorist and related activities for that matter; Note that the absence of a person whose interest in property may be affected by a forfeiture order does not prevent the High Court from making the order. The validity of a confiscation order is not affected by the outcome of criminal proceedings, or of an investigation with a view to institute such proceedings, in respect of an offence with which the property concerned is in some way associated.34 In Chapter 6 of POCA for instance.35 See in general National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR par (d).

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or wrongdoing of the owner’s possessions is not primarily relevant to proceedings however

POCA does make provision for an innocent owner defence.36

To establish instrumentality, a scheduled offence must be involved.37 POCA contains a list

of serious offences under schedule 138 and defines instrumentality of an offence as “any

property which is concerned in the commission or suspected commission of an offence at

any time before or after the commencement of [POCA], whether committed within the

Republic or elsewhere.”39

There must be reasonable grounds to believe that the property concerned is the

instrumentality of an offence.40 In National Director of Public Prosecutions v Carolus41

(hereafter referred to as Carolus) the applicants (National Director of Public Prosecutions)

sought to demonstrate that property in casu fell either within the definition of instrumentality

of an offence or proceeds of unlawful activity. (The proceeds of unlawful activity will be

discussed separately infra.) In short, the NDPP contended that the respondent was

extensively engaged in dealing in drugs in the six properties in question. The respondent

disputed the allegations and stated that he had engaged in lawful activities, from which he

had derived a legitimate income. The court held that the words “which is concerned” in the

definition of “instrumentality of an offence” were not very clear. The court called for a

restrictive interpretation of this definition in view of the far reaching effect of the provisions

of Chapter 6. Property would therefore only qualify as an instrumentality where it had been

used as a means to commit an offence.42 In casu there was no reasonable ground from

which the inference could be drawn that any of the properties fell within the definition of

proceeds of unlawful activity. It was accordingly held on the facts that the property did not

constitute an instrumentality of an offence as the applicant failed to establish a connection

or link between the alleged unlawful activity and the property.43

36 Burchell Principles of Criminal Law (2005) 1001-1002; Burchell Principles of Criminal Law 4ed (2013) ch 71; See also National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR par (d).37 Burchell Principles of Criminal Law 4ed (2013) Juta & Co CapeTown 905.38 Schedule 1 lists a number of serious offences and includes reference to any offence the punishment wherefore may be a period of imprisonment exceeding one year without the option of a fine.39 S 1 Definition and Interpretation of POCA.40 Burchell Principles of Criminal Law 4ed (2013) Juta & Co CapeTown 905.41 1999 (2) SACR 27.42 Burchell Principles of Criminal Law 906.43 Burchell Principles of Criminal Law 906.

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Similarly, in National Director of Public Prosecutions v Patterson44 the court faced similar

facts to that of Carolus in that the applicant alleged that the premises in question was used

for the purposes of selling drugs. In essence, Foxcroft J referred to foreign case law and

concluded that there is by no means any settled law in America as to the method to be

adopted to ascertain whether a property has indeed been an instrumentality or instrument

of an offence.45 In its judgement the court held that the mere fact that a particular offence

was committed on a particular property would not necessarily entail that the property was

concerned in the commission of the offence, or that the property had become an

instrumentality of an offence; evidence of some closer connection would ordinarily be

required.46 The court concluded that there was a good deal of evidence to suggest that the

entire neighbourhood was riddled with drug dealers, the mere fact that one smoked a

prohibited substance on a property did not make the property instrumental in the smoking.47

The applicant was unable to provide evidence from any person who had actually bought or

sold any drugs on the property.48 The application was accordingly dismissed.

In the National Director of Public Prosecutions v Prophet49 the applicant sought a forfeiture

order and alleged that the respondent was using the property in question to manufacture,

deal in and possess a schedule 2 drug under the Drugs and Drug Trafficking Act.50The

applicant argued that the property was instrumental in the commission drug related

offences.

Erasmus J was of the view that a number of recent judgements have examined the term

instrumentality of an offence.51 The court confirmed that “[e]vidence of some closer

connection than mere presence on the property would ordinarily be required in order to

establish that the property had been concerned in the commission of the offence.”52 The

court noted that the Oxford English Dictionary defines the word "concerned" as "involved,

interested" suggesting the need for a direct connection to the offence.53

44 2001 (2) SACR 665 (C).45 National Director of Public Prosecutions v Patterson and Another 2001 (2) SACR 665-669.46 National Director of Public Prosecutions v Patterson and Another 2001 (2) SACR 665-669.47 National Director of Public Prosecutions v Patterson and Another 2001 (2) SACR 665-669.48 National Director of Public Prosecutions v Patterson and Another 2001 (2) SACR 665-669.49 2003 (8) BCLR 906 (C).50 140 of 1992.51 Such as National Director of Public Prosecutions v Carolus1999 (2) SACR 27.52 National Director of Public Prosecutions v Prophet 2003 (8) BCLR 911-915.53 National Director of Public Prosecutions v Prophet 2003 (8) BCLR 911-915.

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The American and Australian approach provided guidance to the court in determining the

type of relationship that needs to exist, between the property to be forfeited, and the crime

in question.54 The essential element that was required to return a successful outcome was

a `nexus' connecting the property to the unlawful use and consequently "tainting" it.55

The court concluded that the property was a place to store the chemicals and rooms were

used to process, refrigerate and synthesise chemicals. The court concluded that in the light

of the evidence and on a balance of probabilities the property was concerned in the

commission of the offences.56 In terms of section 50 of POCA the property which was

subjected to a preservation of property order was forfeited to the State.

Therefore, in determining the ambit of instrumentality of an offence the focus is not on the

state of mind of the owner, but on the role the property plays in the commission of a

crime.57 It would be insufficient to rely merely on the property being indispensible to the

commission of the offence, one would also need to allege that a sufficiently close

connection existed between the property and the crime.58

3 2 Proceeds of unlawful activitiesAs reiterated supra, in terms of section 50 of POCA, the High Court shall make an order

that was applied for by the National Director if the court finds on a balance of probabilities

that the property is the proceeds of unlawful activities.59

Proceeds of unlawful activities are defined in POCA as “...any property or any service,

advantage, benefit or reward which was derived, received or retained, directly or indirectly,

in the Republic or elsewhere, at any time before or after the commencement of this Act, in

connection with or as a result of any unlawful activity carried on by any person, and

includes any property representing property so derived[.]”60

54 Generally the United States courts have adopted either the "instrumentality test" or the proportionality test or one that combines both of these. In terms of the instrumentality test the forfeited property must have a sufficiently close relationship to the illegal activity.55 National Director of Public Prosecutions v Prophet 2003 (8) BCLR 911-915.56 National Director of Public Prosecutions v Prophet 2003 (8) BCLR 911-915.57 Burchell Principles of Criminal Law 907.58 Burchell Principles of Criminal Law 907; Burchell contends that both factual (i.e the property is indispensible to the crime) and legal causation (a sufficiently close connection between the property and the crime) will need to be established.59 See heading 3 supra; See also S 50 of POCA; Or if the property is associated with terrorist and related activities for that matter.60 S 1 Definition and Interpretation of POCA.

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Unlawful activity is further defined by POCA as “... any conduct which constitutes a crime or

which contravenes any law whether such conduct occurred before or after the

commencement of this Act and whether such conduct occurred in the Republic or

elsewhere.”61

In National Director of Public Prosecutions v Seevnarayan62 (hereafter referred to as

Seevnarayan) the respondent made a long series of rolling investments in Sanlam products

under a variety of mostly fictitious names. The investments were allegedly in order to evade

tax. A preservation order in terms of section 38(2) of POCA was granted and the applicant

applied for an order in terms of section 48(1)63 declaring forfeited to the state the property

preserved under the preservation order. The unlawful activities the applicant relied upon

included (i) fraud on the South African Revenue Service (SARS); (ii) contravention of

s104(1) of the Income Tax Act 58 of 1962 and (iii) fraud on Sanlam.

The court held that it would be contrary to the purpose of the POCA if one were to describe

the property in question as the means by which the alleged offences were committed.

Fraud was not committed by means of money or other property, but by means of intentional

misrepresentation. Tax evasion was not committed by means of undeclared income - the

undeclared income formed the subject matter of the offence. The court held further that the

applicant had failed to establish a connection between the alleged unlawful activity and the

receipt of the property concerned.

The court concluded that a literal interpretation of proceeds of unlawful activities could lead

to absurd and grossly inequitable consequences unless a restrictive interpretation was

applied to the provision in question.64 The property concerned did not constitute the

proceeds of unlawful activities and the application was dismissed. Incidentally, the court in

Seevnarayan concluded that POCA was designed to cover organised crime and not a

crime by a single individual.65 The SCA however has held that POCA clearly applies to

cases of individual wrongdoing with the court even proposing that the definition of

“proceeds of criminal activities” should be given its full ambit limited only to where

necessary, the words “in connection with” are used.66

61 S 1 Definition and Interpretation of POCA.62 2003 (1) SACR 260 (C).63 Of POCA.64 Burchell Principles of Criminal Law 909.65 Burchell Principles of Criminal Law 909.66 National Director of Public Prosecutions v RO Cook Properties (Pty) Ltd; 37 Gillespie Street Durban (Pty) Ltd; Seevnarayan 2004 (2) SACR 208 (SCA).

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5 Conclusion

Forfeiture is important. It seems obvious that the state should do its best to ensure

that crime does not pay. Asset forfeiture is often portrayed simply as a means of

reclaiming what has been wrongfully gained by criminals.67 In this sense, it is merely

the state claiming the fruits of crime on behalf of society. Put in this light, it is hard

to understand the objections raised to asset forfeiture.68 Nonetheless, under a

benevolent government, South African asset forfeiture laws appear to incorporate

sufficient checks and balances. In a society that has a robust constitution, an active

economy and ingenious tenderpreneurs,69 one can’t help but marvel at the police

officer referred to in the introduction supra acquiring a Lamborghini and a R17

million mansion while earning a salary of R15 000 per month.70

67 Redpath “Forfeiting Rights? Assessing South Africa's Asset Forfeiture Laws” 2000 9 ASR 5/6.68 Redpath “Forfeiting Rights? Assessing South Africa's Asset Forfeiture Laws” 2000 9 ASR 5/6.69 The word tenderpreneur is a portmanteau of "tendering" and "entrepreneur” and is a South African term for a person, often in government, who abuses their political power and influence to secure government tenders and contracts. 70 Moore “The Rise and Fall of Shauwn and S’bu Mpisane, Durban’s Teflon Couple” (2013-02-11) Daily Maverick 3; Shauwn and S’bu Mpisane were the recipients of tenders in excess of R 200 million for construction work of RDP houses which transpired to be substandard.

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6 BIBLIOGRAPHY

LEGISLATION

The Constitution of the Republic of South Africa, 1996

Drugs and Drug Trafficking Act 140 of 1992

Prevention of Organised Crime Act 121 of 1998

National Prosecuting Authority Act 32 of 1998

Income Tax Act 58 of 1962

BOOKS

Burchell Principles of Criminal Law (2005) Juta & Co CapeTown

Burchell Principles of Criminal Law 4ed (2013) Juta & Co CapeTown

Currie and De Waal The Bill of Rights Handbook 6ed (2014) Juta & Co Cape Town

Govindjee and Vranken (eds) Introduction to Human Rights Law (2009) LexisNexis

Durban

Martin and Law A Dictionary of Law 5ed (2002) Oxford New York

JOURNAL ARTICLES

de Koker “KPMG Money Laundering Control Service” Butterworths Durban 1999 Com 5

Redpath “Forfeiting Rights? Assessing South Africa's Asset Forfeiture Laws” 2000 9 ASR 5/6

TABLE OF CASES

National Director of Public Prosecutions v Carolus 1999 (2) SACR 27

National Director of Public Prosecution v Mohammed 2002 SA 843 (CC) 2002 (2) SACR

National Director of Public Prosecutions v Patterson and Another 2001 (2) SACR 665 (C)

National Director of Public Prosecutions v Prophet 2003 (8) BCLR 906 (C)

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National Director of Public Prosecutions v Seevnarayan 2003 (1) SACR 260 (C)

National Director of Public Prosecutions v RO Cook Properties (Pty) Ltd; 37 Gillespie Street Durban (Pty) Ltd; Seevnarayan 2004 (2) SACR 208 (SCA).

NEWSPAPERS

Moore “The Rise and Fall of Shauwn and S’bu Mpisane, Durban’s Teflon Couple” (2013-02-11) Daily Maverick 3.

WEBSITES

South African Legal Information Institute http://www.saflii.org (accessed 2015-04-10)

Marais and Dennison “Prevention of Organised Crime Act – Reasonable Grounds to Forfeit Assets” April 2012 http://www.polity.org.za/article/prevention-of-organised-crime-act-reasonable-grounds-to-forfeit-assets-2012-04-11 (accessed 2015-15-04)

De Voss “Changing the Constitution? Probably Not” January 2014 http://constitutionallyspeaking.co.za/category/constitution/# (accessed 2015-15-04)

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