Did Dave King Teach Craig Whyte His Tax Strategy? + Are There 2 Dave Kings?

It is funny how some things seem very simple, yet become very complicated. One such example is that of Dave King, or, with a tip of the hat to TH White, “the once and future Dave King”.

Other people, including Phil Mac Giolla Bhain and Andy Muirhead at Scotzine have written about the position of Mr King as regards the SFA “fit and proper person” test. For what it is worth I would not expect Mr King to have any problems from the SFA with being classed as “fit and proper”.

There is also more to be written about how his position would affect his chances of being appointed to the present PLC Board.

But for now I wanted to look at one of the issues which is fundamental to both of those matters – does Mr King actually have any criminal convictions from his dealings with the South African Revenue Service? You would have thought that was a simple question – either one has a conviction or one does not.

But the Scottish media, perhaps being “spun” by interested parties, have come up with a range of answers.

For example the Herald said this:-

At the end of August, Mr King, a director brought in by former owner David Murray, agreed a £43.7 million settlement with the South African tax authorities after criminal charges against him were dropped.

…

However, the Castlemilk-born ­executive, who is executive ­chairman of South African investment company Micromega Holdings Ltd, believes his situation with SARS was not serious enough to prevent him investing or having power within Rangers.

He said: “My settlement with the authorities in South Africa provides me with a unique status of credibility.

“I don’t know anyone else on the planet who has the level of clearance that I now have in terms of court-approved rulings.”

He added: “I have made all my ­disclosures to AIM and they can have no basis for anything other than unequivocal support.”

That seems clear – all charges were dropped and indeed, as Mr King says, he has a unique status of “credibility” and “clearance in terms of court-approved rulings.”

(It might seem a trifle unfair to record that a judge at an earlier stage in his legal proceedings in South Africa called Mr King “a glib and shameless liar”. That is a fairly unique status of credibility i.e. none – but I don’t think that was what Mr King wanted his listeners to recall somehow.)

The Record reported:-

King reached a £43 million settlement that saw all allegations of fraud made against him dropped.

That statement is the truth, and nothing but the truth, but not the whole truth.

So I thought I would see if there are any primary sources which can be relied upon. After all it has been argued vigorously, including by commenters on this blog, that Mr King has no convictions arising from this matter, having agreed to pay money in return for the criminal case being dropped.

The following is a statement issued by the South African equivalent of Crown Office – the National Prosecuting Authority (I have highlighted some parts of the statement):-

The State versus David Cunningham King (Case No: CC 257/2005)

29 Aug 2013

Mr David Cunningham King, the accused in the case of The State versus DC King (Case no.: CC257/2005 – otherwise referred to as the King 1 case), today entered a plea of guilty in the South Gauteng High Court held at Palm Ridge, on 41 counts of various contraventions of section 75 of the Income Tax Act 58 of 1962, as per the indictment.

The said plea is in accordance with a plea and sentence agreement in terms of section 105A(1) of the Criminal Procedure Act 51 of 1977, entered into between the accused and the National Prosecuting Authority. The High Court was satisfied that the aforesaid agreement complied with the requirements of the provisions of section 105A(1) of the Criminal Procedure Act, that the accused admitted the allegations in the above-mentioned counts and that he was guilty of the offences.

The Court was moreover satisfied that the sentence agreement was just, whereupon the Court proceeded to convict the accused of the offences and sentenced the accused in accordance with the sentence agreement.

In terms of the agreement, the accused was sentenced to a fine of  R80 000.00 or 24 months’ imprisonment on each of the 41 counts, being the maximum sentence provided for in the Income Tax Act read with the Adjustment of Fines Act 101 of 1991. The effective sentence, as confirmed in the agreement, is a fine of R3 280 000.00 or 984 months (82 years) imprisonment.

The accused has, moreover, agreed to pay to the Criminal Assets Recovery Account (“CARA”) the amount of R8.75 million as contemplated in section 64(e) of Act 121 of 1998. This payment will be effected within 30 days of the plea agreement having been finalised today. The plea and sentence agreement was entered into having due regard to the following factors, as stipulated in the agreement:

1. the State consulted with the complainants, being representatives of the South African Revenue Service (“SARS”) and representatives of the South African Reserve Bank (“SARB”), and afforded them the opportunity to make representations; as required by the law.
2. the said complainants, namely SARS and SARB, are satisfied with the agreement as entered into
3. SARS has instituted various actions against the accused relevant to the offences and will (in terms of the actions and by agreement with the accused) recover an amount of R 706.7 million (figure verified by SARS)
4. the accused has reached an agreement with SARS and SARB to settle all disputes between them. In terms of the agreement with SARS, the accused has entered into an agreement to settle his tax indebtedness with SARS and has reached a settlement with SARB
5. the length of the trial should the accused plead not guilty, and the consequent burden on the criminal justice system
6. the trial related prejudice by virtue of material witnesses who have passed away or have become unavailable or unable to testify
7. the expense to which the State would be put by such a trial, which would be lengthy and require the testimony of experts and witnesses based in foreign countries
8. the nature, aggravating circumstances and facts relating to the offences
9. the personal circumstances of the accused
10. the fact that the accused has no previous convictions
11. the interests of society.

Statement issued by Bulelwa Makeke, Executive Manager: Communications, National Prosecuting Authority, August 29 2013

That all seems clear, doesn’t it?

Mr King pleaded guilty to 41 offences. He was fined the maximum on each charge and failing payment he is liable to 82 years’ imprisonment. I imagine he will already have paid by now!

As the statement says, in light of the agreed plea, the High Court CONVICTED Mr King.

That all looks to me like criminal convictions!

But maybe there is a misunderstanding about the nature of his “offences”. What is Section 75 of the Income Tax Act?

I am glad you asked! The relevant parts of the section are quoted below and can be read here:-

Section 75

Penalty on default

(1) Any person who –

(a) fails or neglects to furnish, file or submit any return or document as and when required by or under this Act; or

…

(b) without just cause shown by him, refuses or neglects to –

(i) furnish, produce or make available any information, documents or things;

(ii) reply to or answer truly and fully, any questions put to him; or

(iii) attend and give evidence, as and when required in terms of this Act; or

(c) fails to show in any return made by him any portion of the gross income received by or accrued to or in favour of himself or fails to disclose to the Commissioner, when making such return, any material facts which should have been disclosed; or

(d) fails to show in any return prepared or rendered by him on behalf of any other person any portion of the gross income received by or accrued to or in favour of such other person or fails to disclose to the Commissioner when preparing or making such return, any facts which, if so disclosed, might result in increased taxation; or

(e) obstructs or hinders any officer in the discharge of his duties; or

(f) without just cause fails to comply with the provisions of section 70A, 70B, 73A, 73B or 73C; or

(g) submits or furnishes a false certificate or statement under section seventy-three; or

…

shall be guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding 24 months.

Failing to file tax returns, failure to co-operate with the tax authorities, failure to declare income – all of these constitute breaches of the Act and as the last part of it reads, a person who does so is – “guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding 24 months”.

And in case there remains any dubiety (which would be hard to find I know) there was also a statement issued by the South African Revenue Service. It reads as follows (with my highlighting):-

Joint Media Statement – Settlement between the State and Mr DC King

PRETORIA, 29 August 2013 – The South African Revenue Service (SARS) confirms that a settlement agreement was reached between Mr Dave King and the State.

This settlement was achieved following submissions made to SARS by Mr King and entities associated with him. The governance and oversight committee in SARS found that the submissions that were made met the requirements of the applicable tax legislation. HSBC, which acts as trustee on behalf of Mr King and the associated entities, as well as Mr King in his personal capacity and members of his family, were all signatories to the settlement agreement. Other relevant state institutions were also parties to the overall settlement.

Mr King has conceded his tax debt and has agreed to a payment of R 706. 7 million to SARS in respect of his personal income tax and the tax liability of Ben Nevis, a King trust company managed out of Guernsey. The fraud charges against Mr King were not pursued by the State and Mr King accepted liability in respect of 41 lesser counts of contravening Section 75 of the Income Tax Act, including the failure to disclose information and the failure to provide correct information about incomes earned over a number of years.

Today Mr King appeared before the Palmridge Regional Court and entered into a plea and sentencing agreement to this effect with the NPA. Mr King has to pay a fine totalling R 3.208 million (R 80 000 per count) or 24 months imprisonment. In addition, he was ordered to pay an amount of R 8.75 million towards the Criminal Asset Recovery Asset Fund via the Asset Forfeiture Unit.

In response to the settlement agreement, Mr King stated: “When this tax dispute arose many years ago I took a conscious decision not to cooperate with the authorities. That was a mistake. I regret not engaging with the State sooner as I have found them to be extremely firm but fair in their dealings with me once I fully engaged with them. I accept the fact that I have been non-compliant in the past and will rectify this.”

SARS welcomes the finalisation of the matter and the settlement. The outcome demonstrates that SARS remains approachable to any taxpayer who wants to resolve a tax dispute in a bona fide manner, even when formal processes of litigation are before the courts, Mr Gene Ravele, the SARS Chief Officer for Tax and Customs Enforcement Investigations, said.

“SARS believes this settlement is in the interest of the fiscus and in the interest of justice. This brings to an end a period of protracted litigation. SARS appreciates that Mr King has accepted responsibility for his tax position and the message he has communicated to taxpayers who may find themselves in a similar position – to rather engage SARS and seek resolution to a tax dispute rather than resort to litigation. This matter demonstrates the level of commitment SARS has to executing its statutory duty, regardless of the time and cost that complex tax disputes may require to reach finality. Taxpayers and the public in general should expect no less of SARS,” said Mr Ravele.

Mr King further said: “Part of the agreement is that my family and I will be filing all outstanding tax returns to ensure that we become fully compliant. My experience should serve as an example to taxpayers who find themselves in a similar position with SARS – rather seek early resolution and cooperate with SARS when asked by them to explain your tax affairs. I am delighted to finally put this behind me and to be able to actively resume my business career.”

That statement, being a joint one from Mr King and SARS seems only to have been fully reported in one mainstream Scottish news outlet I have been able to see – being STV’s online service.

Now, how can one read the statements from SARS and from the National Prosecuting Authority and reconcile them with the comments of Mr King in the Herald quoted above?

Yes, he had charges of fraud against him dropped, but in return he pleaded guilty to offences leading to very large fines and in addition had huge sums in back tax to pay to the tax authorities.

And where does Mr Whyte come in?

One might recall that he stopped paying VAT and PAYE in the last few months of oldco Rangers. This lead to HMRC pressuring for payment, and administration. Now, according to the testimony given to the SFA Disciplinary Tribunal, Mr Whyte deliberately stopped paying the taxes, not because the money which oldco had was to be used (a) to pay the bills (b) pay the wages and (c) provide a “nest egg” for the administrators but rather because he saw this as being a way to force HMRC to deal with him.

That worked, although not in the way he might have thought!

But the strategy of deliberately refusing to co-operate with the Revenue, adopted by Mr Whyte, was, as Mr King himself makes clear, originally his own tactic.

That too worked out well, didn’t it?

Mr King was fined just over £206,000.

He was ordered to pay a fraction under £550,000 towards the Criminal Asset Recovery Asset Fund via the Asset Forfeiture Unit.

He has agreed to make a payment of £44,393,195.46 to SARS in respect of his personal income tax and the tax liability of Ben Nevis.

(All figures above at today’s exchange rate.)

So, to conclude, things are clear.

Mr King has been convicted of 41 offences under the Income Tax Act. He has accepted responsibility for deliberately not paying SARS and not sending in tax returns. He has accepted responsibility for paying £44 million in back taxes.

Let’s look back at what Mr King was quoted as saying in the Herald piece:-

“My settlement with the authorities in South Africa provides me with a unique status of credibility.

“I don’t know anyone else on the planet who has the level of clearance that I now have in terms of court-approved rulings.”

He added: “I have made all my ­disclosures to AIM and they can have no basis for anything other than unequivocal support.”

It must be an entirely separate Dave King whose “settlement” and conviction is reported above – because it is hard to see how those details amount to “clearance” or a “unique status of credibility” or indeed how they can give the AIM “no basis for anything other than unequivocal support.”

But, for all that, the chances of the SFA refusing to accept him as a fit and proper person remain, in my opinion, zero.

Posted by Paul McConville

 

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