Is this the biggest fraud in history?
In this wide-ranging interview, Dicks outlines his years of research into the monetary system and what he calls the legal deception that has allowed banks to on-sell mortgage and other loans by way of securitisation. It is, he says, one of the gravest threats facing South Africa and the world today. It was responsible for SA’s first major banking collapse, that of Natal Building Society and Twenty-20 in the late 1980s. If this practice is allowed to go unchecked, he says it could bring ruin on the world financial system. Banks are allowed to operate in a kind of legal twilight zone when it comes to securitisation, playing a legal shell game by shifting huge volumes of assets around without any public accounting for the actual ownership of the underlying loans.
Dicks makes the point that banks do not disclose the fact that the mortgage, credit card and other retail loans they have issued have long since been packaged and on-sold to investors. In doing so, the bank’s legal position has changed from one of lender to agent which, NewERA argues, means they no longer have the legal standing to foreclose. The implications of this – if proven in court – are staggering. It means a sizable percentage of the liquidations and sequestrations orchestrated by the banks over the last nearly two decades were illegal.
Two years ago if you asked anyone on the street what is securitisation, you’d draw a blank. Today millions of South Africans are familiar with the concept, thanks almost entirely to the educational work done by NewERA, which was formed less than two years ago to campaign for transparency in banking and public institutions.
In this interview, Dicks points out that despite – or because of – the failure of Natal Building Society in the 1980s due to securitisation, the Reserve Bank allowed this shadowy practice to continue unregulated until the mid-1990s, but even then the secrecy surrounding securitisation was allowed to continue. Dicks says this practice remained unregulated until the mid-1990s with the approval of the Reserve Bank and the Receiver of Revenue, because to do otherwise would have sunk more banks than just NBS.
We believe this may turn out to be one of the major legal and financial stories of recent times, and it is worth delving a little deeper into the work being done by NewERA, and its future plans. (We were also pleased to learn that Raymondt uses the Acts.co.za website almost daily as part of this research!)
Acts: Raymondt, thanks for taking the time to speak to us. Could you start off by giving us a little background about yourself, how you got involved with NewERA, and your legal qualifications to represent the organisation, since this came up as an issue in Investec’s recent case against NewERA asking the court to hold the directors of NewERA responsible in their personal capacities for their court costs (which the court granted).
Raymondt Dicks (RD): Sure. I joined the SA Police at age 17, which was then a very young age for anyone entering the police. I studied criminology, ethnology, criminal law, criminal procedure, forensic science, among other subjects. I qualified with a B. Police (Administration in Policing), then a B Proc, LLM and LLD.
Acts: So you’re a doctor of law?
RD: They say so! (laughs). Yes. My duties in the police involved forensic investigations, white collar crime and that sort of thing, and I played a pivotal role in the formation and early years of the Scorpions (the now disbanded elite police investigation unit), and in 2001 I was assigned to the post of legal advisor to the Rapid Deployment Force for SA National Defence Force (SANDF). I enjoyed this tremendously. My time with the SANDF came to an end in 2001 when I refused to sign off on a report that I disagreed with, so I left the force and became involved in the recovery of debt in SA. Fundamentally what you see in the National Credit Act (NCA) is what I helped develop. We developed a system called negotiations before litigation, to create an environment that was not intimidating (for those with credit difficulties). This is now embodied in Section 179 of the NCA. I formed my own company called Credit Control Development, of which I was MD.
We started talking to credit bureaus, and the like, but banks didn’t like it (the concept of negotiations before litigation). I decided to go into private practice, consulting to NewERA and other people with credit problems.
Acts: We read through the Investec heads of argument where they were challenging your capacity to represent NewERA, the fact that you are not an attorney at law or an advocate. What is the background to that?
RD: Nor do I want to be (an attorney or advocate). We made history with this case. In all previous applications where an individual stood before a court and asked permission to represent their cases, it was disallowed by the court. I was the first in SA. The Constitution allows you that right provided you are not a juristic person. A juristic entity would be a registered company, prudent partnerships, trusts for gain, government, for example. A sole proprietor for example can defend himself in court in terms of the Constitution.
Acts: How did you get involved in NewERA?
RD: I had been receiving emails from the Joubert Society and I had a fundamental disagreement with the way they were going about challenging the status quo. (The Joubert Society, broadly speaking, invokes the “Freeman” concept of natural or common law rights as being senior to statutes). I disagreed with that approach, and I engaged with Scott Cundill (a founder of NewERA) on this. We argued back and forth for many months. This was two and a half years ago when NewERA was formed. I advised a preventative approach: in other words, I said we should attack securitisation and argued that we could build a case around that.
Nothing was in the media or on the web about securitisation two years ago. Even today, no website tells you where the money comes from to buy the securitised debt, or why they are buying the debt, or who is buying. Or how much they are making, or whose debt is securitised. That is the dark alley where I am shining a torch.
Acts: There are international cases where banks have been forced to pay multi-billion dollar settlements to customers whose homes had been fraudulently or wrongly foreclosed. We’ve reported on a few of these, many of them involving so-called robo-signing, where attorneys rubber stamped foreclosure documents claiming they had full knowledge of the particulars of the case, when they didn’t. Is this the start of an international trend?
RD: Without doubt. In fact, I played a role in some of these US cases. I was contacted by US attorneys who became aware of the research I had done in this area, and I was asked to give advice, which I did.
Sadly, SA courts don’t see things the way US courts do. The US is more liberal, and it is easier to get class action suits heard in the courts by large groups of people who have been wronged. The reason for this is that the US accepted the French concept of natural rights, which evolved into human rights.
We, in SA, followed the lineage of the Persian king Cyrus, who developed the first expression of natural rights. First he enslaved people, then declared them to be free, equal in fact to the king, but still subjected to tax, to arrest and other restrictions. Very much like SA today.
Acts: It must have taken a huge amount of work to wade through volumes of statutes line by line to develop the case you are now bringing against the banks. That takes some dedication. The truth is that the law is written in such a way that even educated people cannot navigate their way through it.
RD: Our Constitution says the law must be written to be understandable to the average person. Previous to that it was a common law right that the law must be comprehensible to the ordinary person. We’ve obviously deviated from that quite a bit. Look at the Traffic Act: it’s clear, if you go over 120kms an hour, the Metro Police will hit you with a bribe or a fine.
But when you get into the Banks Act you get completely overwhelmed by the language. I had to go back and restudy economics in order to wade my way through it, which I did. It is the strangest act, for reasons I’ll get to in a minute.
For example, did you know that under Section 22 (Banks Act) it says if you are a bank, you must refer to yourself as a bank in your company name, yet we have some companies calling themselves banks that are clearly not.
Acts: Talking of the Banks Act, it does have an entire section dedicated to securitisation, which is your main beef with the banks. So there is some degree of regulation covering this.
RD: Yes of course it does. Let’s go back into a bit of history on this. Securitisation was first used in 1986 by the banana bank, NBS. Then they got into bed with a company called Twenty/20. All that “yellow egg run” came from a thing called securitisation. That failure was caused by the Reserve Bank.
The SA Reserve Bank website has a document called Fundamental Principle of the Regulator/History. Go to 1986, on that web page, you won’t find any documents, nor in 1987 nor in 1988. It starts in 1989, and there you will see the full reasons for the NBS/Twenty-20 failure. There was no legislation for securitisation at that time. The Registrar (of Banks) said “we will authorise it temporarily.” Then in 2001, the first regulations came out authorising the banks in terms of Basel I and II to start securitisation. But it made no provision for declaring, reporting or disclosing securitisation transactions, and that’s where the trouble really starts.
From 2001 to 2004 there was carte blanche. Nothing in terms of securitisation was recorded. Then there was a tax inquiry by KPMG, who wrote to SARS (SA Revenue Services) saying we need a tax directive on how to deal with securitisation, can you give it to us please. The response came in 2002, with the tax man saying “carry on, just don’t include it in your books.” A second inquiry was held in October 2002, when PWC (PricewaterhouseCoopers) wrote a request to the tax man asking for a tax directive on securitisation. The response came back in February 2004 when the tax man said “carry on as you are, just don’t publish it.” So basically, you have had this undeclared, unregulated but massively profitable enterprise going on and no one asking too many questions – until we (NewERA) came along.
Why was this allowed to continue this way for so long? My opinion, several banks in SA had already failed. The only way to cover this was to allow securitisation to continue.
In 2004 the Registrar of Banks issued a report saying the banks must report securitisation on their FDI208 (standard bank reporting documents) documents, but not the individual securitisation transactions.
Acts: Ok, so up to this point we have banks starting to move massive volumes of loans off their balance sheets by way of securitisation, which perhaps disguises the actual nature of their financial position. Securitised loans do not have the same prudential reserve requirements as other loans, and there appear to be special tax benefits.
RD: Here’s the shocker. Between 1986 and 2004, 80% of banks’ debt to public was placed in securitisation. Some 75% of civil cases, and you can pick this up from Stats SA, sued by the banks were sued irregularly.
Attorneys are obliged to bring all relevant information to the court’s attention. They can argue “we didn’t know.” But the attorneys who represent banks also drafted the securitisation transactions.
Acts: So the attorneys are on both sides of the fence on this one?
RD. That’s it.
Acts: So you’re saying from your research that you have done that all transactions between 1986 and 2004 were illegal?
RD: That’s right. They breached the statute. What they did was not allowed by law. This makes it a criminal offence.
Acts: That’s a rather stunning claim. Let’s jump to the last few weeks when you were hauled before the court by Investec and its Special Purpose Vehicles (SPVs), when the directors of NewERA were ordered to pay the bank’s court costs in their personal capacities. You say in your papers words to the effect that this was a clear attempt to bankrupt NewERA and so make the case go away. Will you appeal this?
RD: No, we won’t appeal this. We will take it straight to the Constitutional Court. We ask which judge can pierce the corporate veil without any papers being presented before it. The piercing of the corporate veil to hold the directors of a NPO (Non-profit organisation) liable for court costs is constitutionally invalid. Who is this judge to pierce this veil? No papers were before the court. The entire manner in which this was brought before the court was irregular in our opinion, and we will take this direct to the Constitutional Court.
In our application to interdict the banks from foreclosing against our members, the judge said, and I quote: “The people who are purportedly members of this application should bring their own applications independently.” Excuse me if I call him a *****. The NPO is the voice of the people who cannot speak for themselves. These people stand on brink of eviction. Do you think they have the money to bring their own cases?
Acts: After the application to interdict the banks from foreclosing failed in December last year, you brought the case on the main roll in the South Gauteng High Court in February this year. The banks’ attorneys called the case “vague and embarrassing” and asked for it to be dismissed with costs. They basically asked NewERA to present a vast volume of additional evidence to back up its case. Then NewERA withdrew the case and decided on a new tack. What was that?
RD: The banks’ strategy was to move away from the subject of securitisation by convoluting it with other aspects to confuse the issue. We decided to seek discovery of the banks’ securitisation transactions through the National Credit Regulator, but I cannot go too much into what our strategy is at this point. We have to keep some cards back.
Acts: NewERA has undoubtedly done a lot of work in educating people on the subject of securitisation and their rights in law. What’s next on the agenda in this regard?
RD: We are shooting a documentary about securitisation with Air Time Productions. I’d like to mention that a great band called Grasshopper Conspiracy has very kindly taken the time out of a very busy schedule to write the score for the documentary, which will be out in about three months. This documentary will blow you away!
Acts: We look forward to that. You stated in recent weeks that you intend bringing criminal charges against the banks. Where does that stand?
RD: All those (securitisation) transactions prior to 2004 were criminal acts, because they were transacted outside the law. The public were deceived by those doing the transactions. Of course, the deceit has continued up to the present.
Acts: We checked the Prevention of Organised Crime Act, and it does say that two or more people acting in concert to deceive for gain is a criminal racket, or words to that effect.
RD: Exactly. But I do not want to say much more about this for the moment.
Acts: Okay. Do you think it was an accident that Judge Baqwa held that the SPVs were “subsidiaries” of the banks (in the same case where NewERA directors were held personally liable for Investec's costs), and what does this mean? Investec seems to have taken exception to NewERA’s reading of the Judge’s findings, based on the fact that they got what they wanted: the Judge after all held NewERA directors personally liable for their costs.
RD: I don’t think it was an accident that Judge Baqwa mentioned “subsidiaries” in his judgement. He is normally in the North Gauteng High Court, then finds himself in the South Gauteng to hear our case. Why? Perhaps he was a special import for the banks, I don’t know, but he had to weigh the moral obligation to defend the rights of the people, as required by his oath and the Constitution, with those of the banks. The result was that he confirmed that these SPVs are subsidiaries of the banks. This has everything to do with (NewERA’s) main cause. Did we approach the court with a real case, or a stupid averment? We are not doing this lightly. The well-being of millions of South Africans hangs on the outcome of our actions.
Let’s look at the importance of Judge Baqwa referring to these SPVs as subsidiaries. Remember, in our main case, there were 65 respondents. Respondents 1-11 are registered banks, Respondents 12-64 are SPVs or SPIs (Special Purpose Institutions) and the 65th respondent was the National Credit Regulator. In other words, we sued 11 banks and all their SPVs, plus the National Credit Regulator.
If these SPVs are subsidiaries of the banks, the ramifications are huge. It means the banks are selling assets to themselves, which they cannot do in terms of the Companies Act; it means they are not disclosing the full extent of their transactions; they are acting as agent and principal in the sale of these assets; they are breaking the law all over the place. They are not reporting these transactions to a credit bureau as a change in ownership of a loan as required under the National Credit Act. They are not being transparent with their customers as required under the Consumer Protection Act. I could go on… These transactions are done to shift assets off balance sheet, which reduces the prudential (reserve) requirements imposed on the banks by the Reserve Bank.
There is a common law principle: a criminal act is also civil act. The difference is in the burden of proof. In a criminal case, the burden of proof is “beyond reasonable doubt.” So we say there are grounds for criminal charges.
Remember, the Banks Act was not a baby of the Constitution, unlike the Consumer Protection Act (CPA) and the National Credit Act (NCA), etc. These are all derivative of Chapter 1 of the Constitution. So these (more recent acts) are superior acts to the Banks Act, yet the Banks Act overrules all of these.
Acts: How is it that the Banks Act overrules these more recent acts?
RD: That is the way it is treated in the courts. Look at how easily people are deprived of assets such as houses and cars when the banks do not have the legal standing to bring these actions. The courts are rubber-stamping these liquidations and sequestrations. That’s the way it has always been, sure, but it cannot continue that way.
If Banks Act were drafted today in conformity with the Constitution, transparency would prevail, and there would be liability on the bank to disclose its true legal position when a consumer approaches it for a loan. People will say “Aggh, but that’s the way it’s been for years, why should it change now?" It’s true this is the way it has been operating for years, but look what happened to the insurance industry once the FAIS (Financial Advisory and Intermediary Services) Act came into being, and why did it come into being?
Acts: Because before FAIS, you had insurance companies selling products through advisors who pretended to be independent but were actually flogging products that were not in your best interests, but certainly in the interests of the insurance company.
RD: Exactly. Spot on. The same is true of the banks, why should they be held to a different standard? They do not disclose the huge financial benefit they gain through securitisation. What are those benefits? They do not have to set aside prudential (reserves) for the loans because they have shifted them off balance sheet. They are receiving up to three times the face value of the loan once it is securitised, then on top of that the loans are 80% insured against default. On top of that they collect fees, and levy other charges against the borrower. None of this is disclosed to the borrower. Why, when insurance companies and people selling financial products, in terms of the FAIS Act, are required to disclose that they are acting as agent, should the banks be treated any differently?
Let's also not forget that the money they make on securitisation is then recycled through the banks, allowing them to lend under the fractional reserve system up to 10 times that amount, which they then again securitise and repeat the process.
Acts: After the recent finding handed down by Judge Baqwa confirming these SPVs are subsidiaries, a lot of people are asking how this benefits them. What do you say to them?
RD: Let’s make one thing clear. We are not looking for benefits. I have people phoning me and saying "I just got a R2 million home loan from the bank, now I don’t have to pay." That’s clearly immoral. We don’t advise or encourage this kind of thing at all.
We want three things:
- Historically, we want justice for people disadvantaged because of securitisation;
- We need to correct the fact that from 2004 to now, the banks have been acting as agents – with all the financial benefits that accrue from that position – without disclosing this to their borrowers or the public at large;
- Then looking to the future, how do we correct this and build a strong and sustainable banking system based on fairness and transparency?
Acts: Because we operate in a completely different economic environment, with different inflation and interest rates.
RD: The existence of inflation is an illusion. It’s done at the Reserve Bank in secret through money issuance. Can’t we participate in this? If monetary policy is dictated by a few, the consequences should be borne by few. Not by everyone.
Acts: That's an interesting subject that we will pick up in a future interview. Thank you Raymondt.
RD: My pleasure.
Post Script: Reserve Bank secrecy
This is the response received from the Reserve Bank to a request from Michael Tellinger of the Ubuntu Party requesting disclosure on the subject of securitisation.
Banks Hide Crimes Behind Laws That Protect Them
This is the response I received from the Legal Counsel for the Registrar of Banks, Rene van Wyk at the Reserve Bank, to an enquiry I sent on the 6th Feb 2013, requesting answers to a host of questions regarding disclosure on SECURITISATION. My original email can be seen on this page from activity on the 6th Feb 2013.
Please share this letter on behalf of Rene van Wyk, the Registrar of Banks, with everyone.
It constitutes a complete desecration of all our rights – especially our right to access to information on matters that have destroyed millions of peoples’ lives.
It is absolutely clear from the response, and there can be no more doubt that the banks are protected by the law and the courts – this is how they get away with fraud and other criminal activity without any repercussions. After thousands and thousands of cases against ordinary hardworking people, the banks always seem to win – or they withdraw if they feel that they have been cornered. There is something fundamentally wrong with this equation.
The so-called secrecy clause, Sec. 33 of the South African Reserve Bank Act, as outlined by the Registrar of Banks, protects the banks and they do not have to answer any questions or disclose any information that may incriminate them.
It will take a special and collective effort from the people of South Africa to expose this to everyone and cause this Act to be pronounced unconstitutional by the Constitutional Court.
Michael of the family Tellinger
All rights reserved - Non Assumpsit
Reply from the Reserve Bank:
South African Reserve Bank
Legal Services Department
2013-01-14 Ref. 10/5/5/6
Mr Michael Tellinger
E-mail: contact@ubuntuparty. org.za
Dear Mr Tellinger,
Disclosure of Securitisation
We refer to your e-mail letter dated 6 February 2013 addressed to Mr Rene van Wyk, Registrar of Banks.
Before I address your enquiries in particular, permit me to comment on securitization in general.
The concept of securitization, a process which involves the pooling and repackaging of cash-flow producing financial assets into securities for sale to investors, constitutes an internationally recognized and established structured finance process. In this country, securitization schemes are authorized and regulated by the Office for Banks in terms of regulations (currently published in Government Gazette No. 30628 dated 1 January 2008 - "Security Regulations") issued in terms of the Banks Act, 1990 (Act No. 94 of 1990). All securitization schemes, irrespective of whether they originate from a bank or non-bank, are required to comply with the Security Regulations, which, inter alia, regulate: the corporate status, ownership and control of the issuer of notes; requirements in respect of the transfer or true sale of assets from the originator to the issuer; the provision of credit enhancement and liquidity facilities and disclosure.
The questions listed in your aforementioned letter relate to the operation of banks and the fulfillment of reporting requirements to the Registrar of Banks in terms of the Banks Act. The South African Reserve Bank is subject to the South African Reserve Bank Act, 1989 (Act 90 of 1989) ("the Act").
Section 33 of the Act provides as follows:
"33. Preservation of secrecy- (1) No director, officer or employee of the Bank, and no officer in the Department of Finance, shall disclose to any person, except to the Minister or the Director-General: Finance or for the purpose of the performance of his or her duties or the exercise of his or her functions or when required to do so before a court of law or under any law -
(a) any information relating to the affairs of-
(i) the Bank;
(ii) a shareholder of the Bank; or
(iii) a client of the Bank,
acquired in the performance of his or her duties or the exercise of his or her functions; or
(b) any other information acquired by him or her in the course of his or her participation in the activities of the Bank,
except, in the case of information referred to in paragraph (a)(iii), with the written consent of the Minister and the Governor, after consultation with the client concerned.
(1A) The provisions of subsection (1) shall not be construed as preventing any director, 'officer or employee of the Bank who is responsible for exercising any power or performing any function or duty under the Exchange Control Regulations, 1961, issued in terms of section 9 of the Currency and Exchanges Act, 1933 (Act No. 9 of 1933), from disclosing to the Commissioner for the South African Revenue Service any information as may be required for purposes of exercising any power or performing any function or duty in terms of any Act administered by the Commissioner.
(2) No person shall disclose to any other person any information contained in any written communication which is in any manner marked as confidential or secret and which has been addressed by the Bank to any person or which has been addressed by any person to the Bank, except -
(a) for the purposes of the performance of his duties or the exercise of his powers in terms of any law or when required to do so before a court of law; or
(b) with the written consent of both the sender and the recipient of that communication."
In light of the provisions of the aforesaid section 33 we are unable to provide you with the requested information.
We trust that you will appreciate our position herein. You are of course entitled to follow the formal processes available to you in accordance with the Promotion of Access to Information Act should you wish to do so.
Dr JJ De Jager
Legal Services Department
Banks Act 1990
National Credit Act
Consumer Protection Act
Financial Advisory and Intermediary Services Act
Prevention of Organised Crime Act
Constitution of the Republic of South Africa
South African Reserve Bank Act