Sol Kerzner commentary: Let sleeping tycoons lie – judge
commentary | Kerzner

Sol Kerzner commentary: Let sleeping tycoons lie – judge

One could say it’s the story of corporate enterprise in any developing country – and Sol Kerzner would have probably have dismissively chuckled at any ‘moralistic’ journalist trying to hold him to a higher bar. Which is what troubles former investigative magazine, Noseweek’s founder, Martin Welz; particularly, the curtain drawn by a South African high court judge on highly questionable aspects of the charismatic late billionaire’s corporate exploits. Judge Monas Flemming gave an eponymous High Court stamp of disapproval to Kerzner Unauthorised, effectively deleting several passages in the detailed work by former Financial Mail editor and Finance Week founder, Allan Greenblo. Here, Weltz takes up the cudgels on behalf of his much-respected late colleague, posing some searching questions and making some telling observations about the judgement. In 2019, the late Sol Kerzer’s Tsogo Sun and its associated operations raked in R11,6 billion, according to its annual report. This came out within months of the four-times married Kerzner dying of cancer at the age of 84. Judge for yourself. – Chris Bateman 

GREENBLO / KERZNER [INTRO] COMMENTARY

In his 1997 judgment banning publication of Kerzner Unauthorised, Allan Greenblo’s biography of Sol Kerzner, Judge Monas Flemming of the Gauteng High Court noted with patent irritation what he called Greenblo’s “attempt to taint [Kerzner] by association”. 

“[Greenblo] seems unable to refer to a homeland except when adding the emotionally laden adjectival ‘apartheid created’,” the judge complained. 

Allan Greenblo

Odd, considering the fact that Greenblo, a former editor of the Financial Mail and co-founder of Finance Week, had made clear in his affidavit to the court that his book was exactly that: “A rigorous and detailed investigation into the manner in which business operated in apartheid South Africa.” 

And in it he was able to demonstrate that, explicitly as a reward for successfully “marketing apartheid abroad”, Kerzner’s companies negotiated tax and other financial incentives that resulted in their paying next-to-no tax in South Africa.

Maybe the reason for the judge’s sensitivity – and his declared view that bygones should be bygones – lay closer to home. The courts were one of the institutions most tainted by their association, over 50 years, with apartheid. The Appeal Court from the mid-’60s onwards was, undoubtedly, apartheid created. 

Given that context, it came as no surprise that, in his judgment, Judge Flemming refused to consider American insight into the importance of freedom of speech in a democracy. His reason: “Each community has its own culture and develops its own ideas of what is fair, proper and desirable.” He therefore saw no reason to deviate from “what has developed in the [South African] Appellate Division over years”. 

Already a decade earlier, one of Britain’s best known newspaper columnists, Bernard Levin of The Times, proffered this explanation for what he perceived to be the obvious bias of many of South Africa’s magistrates and judges: “A lifetime of accepting [white] South African values … of feeling part of a protective laager … has resulted in a withered imagination.”

Levin clearly had a point and Allan Greenblo, who died earlier this week, had the courage and ethical commitment to confront it head-on. I am sure you will agree, once you’ve read these short extracts from the book Judge Flemming saw fit to ban. 

Slightly longer extracts appeared in Noseweek in March 1998, cheekily extracted from the court record as a gesture of defiance.  

Maybe after all these years, Kerzner Unauthorised may yet be published for all to read. I know that was one of Allan’s last wishes. He told me so only weeks before his death.

It’s a story that undoubtedly still needs to be told.

Martin Welz

GREENBLO ON SOL: WHAT YOU WEREN’T SUPPOSED TO BE TOLD

[Intro strap:] In December 1997, hotel and casino magnate Sol Kerzner and his ex-wife Anneline Kriel instituted urgent court proceedings to have certain passages deleted from an about-to-be-published biography of Kerzner written by well-known financial journalist Allan Greenblo. 

The book, titled Kerzner Unauthorised, published by Jonathan Ball, was already printed and ready for distribution.

Judge Monas Flemming banned publication of the entire book and any of its contents. 

Two months later, Noseweek (subtitle: ‘News you’re not supposed to know’), published this telling extract from the book, retrieved from the court record.

_______________________________

SOL IN BOP: THE FULL MONTY

On the 6 April 1987 President Lucas Mangope of Bophuthatswana wrote to Sun International Chief Sol Kerzner asking him to make “yet another contribution to Bophuthatswana”. 

This time Mangope wanted Sun to “augment” the salary of his Minister of Finance, Leslie Young – he suggested R20 000 p.a., for three years, would do the trick. 

In his letter, Mangope revealed in passing that Gencor had been “augmenting” Young’s income in this way since 1985, and had agreed to continue doing so until 1990. Sun’s contribution was required to afford Young a salary increase. Gencor, with major mining interests in Bophuthatswana, relied heavily on its negotiations with Young to get huge tax, labour and financing concessions in the so-called “independent” homeland, so it is not surprising that they agreed to make this – private – concession.

The point was not wasted on Sun International. Chairman Sol was abroad when the letter arrived, but his deputy, Ian Heron, had no difficulty in immediately obliging. “We would certainly be prepared to contribute towards the augmentation of Mr Young’s salary,” he wrote in reply. “Upon receipt of the advice of the amount required each year and the desired manner of payment we will make the necessary arrangements.”

The favours Young had done for Sun were many. For instance, only six months earlier, on 4 September 1986, Young had given Kerzner’s deputy, Ken Rosevear a hand-written note which recorded his (Young’s) approval of a “management” agreement concluded between SunBop and an offshore company called Sun International Management (SIM). By law all material contracts must be disclosed in the prospectus of a public company which is inviting the public to invest in its shares. This one was not. 

SIM shelters from tax in Bermuda, and is wholly owned by another of Kerzner’s off-shore companies, Royale Resorts. The SunBop prospectus, which was issued on 22 October 1985 – six weeks after Rosevear had obtained his note guaranteeing Young’s silence – duly made no mention of the fact that Kerzner and friends had contrived to, in effect, get themselves awarded nearly double the “dividend” which was likely to be paid to any other SunBop shareholder, by the simple expedient of a hidden so-called management agreement. Not only was the management fee, which in some years, by Young’s account, exceeded R100 million (in 1987 money!), not disclosed; at least half of it – (by Young’s own later account) in effect amounted to an extra, preferent, tax-free dividend paid – off shore – to Kerzner and his close circle only.

In 1984 Young had also used his discretion in allowing Sun International special tax deduction which was available to the “export service” industry. In allowing Sun International this special deduction from tax, he had to apply some most unusual definitions to the term “export service”. 

According to Young’s definition, contained in a letter written to Kerzner in February 1984, an “export service” did not, as one might reasonably have expected, refer to income which a Bophuthatswana company earned by rendering services to an overseas customer. According to Young, the tax allowance was not even “necessarily related” to overseas earnings which would be received [and kept] in another country. They could be “events that are widely publicised on an international scale”. Finally, at the end of the letter, came clarity: “Actions which beneficially publicised Bophuthatswana so that the republic benefited indirectly in the future, could also be regarded as ‘expert services’,” he explained. In short, any investment which might contribute to what others might, less discreetly, have called “marketing apartheid abroad” could be deducted from Sun’s tax bill.

Another (secret) concession with a similar drift was the secret kickback that Sun received – throughout the 1980s – from the Bop treasury on taxes paid by foreign entertainers and sports stars when they were hired to perform at Sun City. In 1987 the tax rate for visiting entertainers and professional sportsmen who earned more than R26 000 in Bop in any month, was increased to 50% of their fee (it had been 40%). In terms of an agreement which was “not generally known” – Young said he regarded it as “classified” – 90% of any taxes collected from the entertainers was then given back – to SunBop, to add to its income. 

If Sinatra was paid R5 million for his appearance at the Superbowl, SunBop would secretly have got R2.25 million of it back from the Bop government. In a 1986 memo to the Bop Executive Council, Young explained: “The publicity generated overseas [by the entertainers] has been great. The country has obtained wide media coverage portraying it as a peaceful and prosperous African State.”

In Greenblo’s view, Bop (a product of apartheid ideology and ostracised in the world for that reason) was rewarding Sun International for promoting its image abroad. 

In 1988, Sun International started negotiations with Young about special tax allowances on hotels. They wanted – and got – the allowance on investments in hotel buildings and “attractions such as golf courses, gardens, infrastructure, etc.” increased from 10% to 20%, in addition to other write-offs and allowances. All were promptly granted. Greenblo sums up: “From the 1960s and into the 1970s there was a one-time allowance on new equipment; a depreciation allowance on used equipment; and a further investment allowance for the first year. There was a ‘basic’ buildings allowance; plus an additional ‘gradings’ allowance, plus another investment allowance on the cost of the buildings … The upshot was that Southern Sun [as it was at the time] paid next to no tax …” 

And all of it negotiated with Minister Young, whose salary Sun was secretly subsidising. Greenblo [and Noseweek] thought the conflict of interest was obvious. Not so, ruled Judge Flemming: Gencor had seconded an accountant (Young) to “give Bophuthatswana a competent Minister of Finance”. Sun International had, thereafter, made a “contribution to promoting” the minister. As for the rest, said the judge, “attempts at promoting tourism at joint expense, or subsidies for Sun International’s efforts, are in order.” The judge notes with disapproval that, in Kerzner Unauthorised, these matters are cast in a sinister light, and that Greenblo “minimises or argues against” what could be perceived as an acceptable excuse, mitigating, or serve as a reason to “close the book on the past.”

Greenblo, he said, had given no reasons for attaching “more significance than acceptable behaviour” to “assisted secondment”, “promotion of income” of both Sun International and the Bop government and, finally, what the judge prefers to describe as “incentive-inspired tax patterns”.

All fair enough in a democracy: Indeed, for a moment, it appeared that was how the judge saw their differences, too. “To hold a negative opinion on acceptability is [Greenblo’s] privilege,” he declared. But the mildly sarcastic use of the world “privilege” was the giveaway. Judge Flemming wasn’t into the new democratic order; he’s a man of the “ancien regime” (to quote another of his sharp phrases). The judge’s view is (or becomes) The Law. Which makes Greenblo’s view … unlawful!Back to that off-shore management fee: a memo written by Young a few weeks before his retirement, shows that by 1989 Mangope’s finance minister had himself come to the conclusion that Bop was being used to fund Kerzner’s off-shore empire, and that Bop was not getting anything like its money’s worth from SIM. To his successor Young now bravely confided: “On the basis of information obtained internationally … it would seem that SunBop have been paying [SIM] from two to two-and-a-half times the normal management fees.” 

Greenblo comments: “SIM was an off-shore company. Unless the management fees were being paid by SunBop in contravention of exchange control regulations, SIM must have been granted permission by the SA Reserve Bank for the payment of management fees abroad. It would appear that SIM were being paid outside South Africa for skills provided by South Africans (including Kerzner) in South African States, for the development and management of South African assets.”

Eight years after he, himself, had condoned the directors’ decision not to disclose the management contract in SunBop’s prospectus, Young now cautioned his successor with a cursory, but telling note: “The rights of shareholders to knowledge of the management contract is not mentioned [in the new draft management agreement],” adding, in parenthesis: “Legal requirement?”.

Young then goes on to estimate the extent of that omission: the “excess” paid by SunBop to the Bermuda-registered company was “probably R50 million p.a.”. This money, he says, now “probably resides” in [Sol’s European-registered] Royale Resorts, “who will no doubt have enormous cash reserves”.

Young concludes with a summary of the position: “One must now [raise the] question of the rights of other shareholders … the controlling shareholder, KERSAF, is “creaming off” one rand per share p.a., paying it out of the Rand Monetary Area etc. when the ordinary shareholder … has no knowledge of the … agreement because of non-disclosure in the accounts.”

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