High Court rules on SARS’s R5.3bn claim against Sasfin Bank

Both Sasfin Bank and the South African Revenue Service have welcomed the recent judgment in the R5.3-billion civil damages case between them.

SARS described the ruling as a “significant step forward” because it allows its alternative statutory claim against Sasfin to proceed to trial under the Financial Sector Regulation Act (FSRA). Sasfin, meanwhile, hailed the decision as a vindication of its position that the two main claims against it had “no merit”.

“The two most significant claims against Sasfin have been found to have no merit. SARS has been ordered to pay Sasfin’s legal costs,” said Sasfin chief executive Michael Sassoon.

“The third potential claim, which is by far the smallest of the three, will be decided by a trial court. Sasfin and its legal team remain confident that it will successfully defend claim three. Sasfin has zero tolerance [for] financial crime and has taken rigorous action against it where it has been found.”

SARS’s claim against Sasfin Bank alleges the bank directly or indirectly assisted taxpayers to expatriate undeclared taxable funds.

The judgment, delivered on 3 November, resolved a set of legal exceptions raised by Sasfin. The High Court in Pretoria upheld some of those exceptions and dismissed others, leaving an alternative statutory claim under the Financial Sector Regulation Act (FSRA) to go forward.

SARS launched the damages action in December 2023, seeking R5.3bn in respect of alleged losses caused by the wrongful expatriation of undeclared taxable funds. The allegations centre on conduct during the operation of Sasfin’s former foreign-exchange business and on transactions involving, among others, Gold Leaf Tobacco and related parties.

In its particulars of claim, SARS pleaded both a novel common law claim – seeking recognition of a duty on authorised dealers not to cause SARS patrimonial harm by facilitating unlawful expatriation of undeclared taxable funds – and an alternative statutory claim under section 278 of the FSRA, which provides a remedy for losses suffered because of contraventions of financial sector laws.

The High Court’s ruling was mixed. It accepted key parts of Sasfin’s exceptions – notably that the statutory framework composed of the Banks Act, the Financial Intelligence Centre Act (FICA) and the Exchange Control Regulations does not, as a matter of law, give rise to a private-law duty of care owed to SARS (or other creditors) in the terms SARS had pleaded. The Court said imposing such a duty by way of a new common law category could have a “chilling effect” on the banking sector by creating unforeseen exposure for banks arising from customer conduct over which banks have limited control.

At the same time, the Court dismissed Sasfin’s exception to SARS’s alternative statutory claim, holding that SARS has properly pleaded a cause of action under section 278 of the FSRA and that this part of the claim may proceed to trial.

The dismissal of the exception on causation and the acceptance of the FSRA-based cause of action means SARS retains a statutory route to pursue damages for contraventions of financial-sector laws. SARS described this as “significant progress” because it confirms the availability of a statutory remedy to recover losses arising from breaches by banks and other financial institutions.

The judgment flagged practical and policy concerns about recognising a broad, novel common law duty in circumstances where existing statutory mechanisms regulate conduct and provide administrative or criminal enforcement channels. The Court observed that liability that hinges on customers’ unlawful behaviour, and on banks’ relationships with customers, risks imposing a liability regime that could destabilise the industry and increase costs – for example through higher insurance or compliance burdens – that would ultimately be borne by banking customers.

SARS welcomed the judgment as clarifying the legal landscape and strengthening mechanisms to hold financial institutions accountable where they facilitate illicit financial flows.

SARS reiterated that financial institutions should do more than lodge suspicious-transaction reports and should manage the substantive risks posed by suspicious transactions. SARS has said it will consider amending its pleadings where the Court permits or applying for leave to appeal aspects of the judgment to the Supreme Court of Appeal.

Because the Court dismissed Sasfin’s exception to the FSRA-based alternative claim, that statutory cause of action is now part of the trial bundle. The scope of the trial will therefore include the question of whether SARS can recover patrimonial losses through the FSRA for contraventions of financial-sector laws by a bank, and the contested factual matrix relating to the alleged role of Sasfin (including the conduct of particular employees and the bank’s compliance and remediation steps).

The allegations: Gold Leaf and the former forex business

Media reports and SARS’s pleadings identify Gold Leaf Tobacco and transactions linked to that group as a focal point of the alleged expatriations.

SARS alleges Sasfin directly or indirectly assisted Gold Leaf to move undeclared funds offshore; Sasfin disputes those allegations and has characterised the conduct at issue as the work of a criminal syndicate that allegedly involved former employees operating outside the scope of their employment.

Sasfin has rejected the damages claims and said it will defend the litigation rigorously. The bank has stated that it obtained legal advice and considers the claim to have “no merit”, characterising it as a damages claim about third-party taxes rather than an issue of Sasfin’s own tax affairs.

Sasfin’s difficulties with regulators predate the High Court judgment. In August last year, the Prudential Authority imposed administrative sanctions on Sasfin Bank relating to historic non-compliance in its discontinued foreign-exchange business; the total sanction notified was about R209.7 million, of which roughly R49.05m was suspended. The lender subsequently exited the forex business and took disciplinary and criminal action against former employees implicated in misconduct.

‘Judgment is good news for banks’

ENSafrica, which represented Sasfin Bank in the proceedings, characterised the decision as one that allows “banks to breathe a sigh of relief”.

In its analysis, the firm explained that the Court’s dismissal of SARS’s two principal common law claims rested on foundational legal principles about wrongfulness and the limits of delictual liability for pure economic loss.

The Court held that the statutory architecture – consisting of the Banks Act, FICA and the Exchange Control Regulations – already provides a comprehensive regulatory framework that governs banks’ obligations in monitoring, reporting, and preventing illicit financial flows.

Recognising an additional private law duty of care in favour of SARS, the Court found, would effectively duplicate and distort this framework by imposing open-ended civil liability on banks for customers’ unlawful conduct – something the legislature had never intended. ENS noted that the Court emphasised that these laws were designed to serve the public interest by ensuring the stability and integrity of the financial system, protecting depositors, and empowering regulators with enforcement powers – not to confer compensatory rights on specific creditors such as SARS.

The judgment, ENS said, also highlights that SARS already wields extensive statutory remedies under the Tax Administration Act to assess, recover, and repatriate unpaid taxes and to pursue responsible taxpayers and their associates. Creating a parallel delictual claim against banks would therefore risk inconsistency and regulatory overlap, undermining the coherent structure of financial regulation.

ENS’s commentary further underscored the Court’s policy reasoning: extending private law duties in this context could expose banks to indeterminate liability, inflate compliance and insurance costs, and ultimately raise costs for consumers. “If banks could be sued for every instance where a customer’s illegal activity allegedly resulted in a tax loss,” the firm observed, “the commercial and systemic implications for the financial sector would be profound.”

Although the Court struck out SARS’s two main common-law claims on the element of wrongfulness, ENS noted that the third, alternative claim under section 278 of the FSRA remains alive, albeit far narrower in scope. That provision enables a statutory cause of action for losses caused by contraventions of financial sector laws but requires SARS to prove a direct breach and a causal link between the contravention and the alleged loss.

ENS said the outcome strikes an appropriate balance. It preserves the integrity of the statutory enforcement regime while avoiding the creation of uncertain new private law duties that could destabilise the banking system. It also sends a clear signal that future recovery actions by regulators or tax authorities will have to rely on explicit statutory mechanisms, not extensions of the common law.