The Financial Services Tribunal (FST) has set aside the debarment of a representative who assisted a colleague with a fraudulent transaction, finding that the evidence was insufficient to conclude that the rep lacked honesty and integrity.
The financial services provider relied heavily on the results of a polygraph test to support its contention that the rep was intentionally involved in a fraudulent scheme.
The decision – delivered on 11 August – provides an insight into the Tribunal’s position on the evidentiary threshold that must be met to prove that a rep lacks honesty and integrity.
Background to the debarment
The reconsideration application was brought by Mhleli Gwala, a service consultant who had been in Capitec Bank’s employ for almost a decade when he was debarred last year.
On 3 June 2024, a senior colleague, a “Mr DM”, processed an unauthorised R1 000 “send cash” transaction on a client’s account. On the same day, DM messaged Gwala on WhatsApp. He asked Gwala to withdraw R1 000 from a Capitec ATM, deposit R900 into DM’s son’s account, and keep R100 for himself. Gwala did so.
On 8 June, DM asked Gwala to delete their WhatsApp conversation, but Gwala refused to comply.
Capitec charged Gwala with misconduct. The bank alleged he acted dishonestly and as an accomplice by withdrawing R1 000 from a client’s account, which DM had fraudulently created. It was further alleged that he kept R100 for himself and returned the remaining funds to DM.
Gwala denied any wrongdoing. He said he was unaware of the fraudulent nature of the transaction and expressed his willingness to return the R100.
Gwala underwent a polygraph test in July. The test results indicated that Gwala was dishonest about his knowledge of the unauthorised nature of the transaction.
During the disciplinary inquiry, the facts of the transaction were undisputed. The core issue was Gwala’s awareness and knowledge of DM’s wrongdoing and assistance in perpetrating the fraud. Capitec’s case depended on the polygraph test results. Gwala presented evidence from DM, who testified that Gwala was unaware that DM had defrauded the client.
The chairperson of the inquiry found Gwala guilty of misconduct. He was issued with a final written warning and a two-day suspension.
Capitec initiated debarment proceedings, which resulted in Gwala’s debarment in December 2024 on the grounds that he no longer met the FAIS Act’s honesty and integrity requirements.
Concepts of honesty and integrity
The Tribunal said it was required to assess whether it could be reasonably inferred, based on the evidence, that Gwala lacked honesty or integrity, or both.
The FST said honesty and integrity are distinct legal concepts.
Referring to the Tribunal’s decision in Vries and Others v Standard Bank of South Africa (2023), it said honesty is rooted in a person’s state of mind and intent to deceive. The key question was whether Gwala had a “defective character” or was actively “lying, cheating, or acting fraudulently”.
“Integrity, on the other hand, is a broader concept that extends beyond simple honesty to include professional judgment, a duty of care, and accountability. A person of integrity is expected to adhere to a high standard of professional conduct, even in the absence of a malicious or dishonest intent,” the Tribunal said.
Gwala’s contended he could not have been dishonest because he was unaware of the fraudulent nature of the fund, and his actions after the transaction were evidence of his integrity.
The Tribunal said that at the core of the dispute was Capitec’s far broader approach to the concepts of honesty and integrity.
The bank’s view – acknowledging Vries – was that integrity extends beyond simple honesty to include professional judgment and a duty of care. Capitec contended that, regardless of Gwala’s intent, his failure to question a highly suspicious transaction constituted a material breach of professional integrity.
It said Gwala demonstrated a lack of integrity when he failed to report DM’s request to delete the WhatsApp conversation to his superiors. Furthermore, the results of polygraph test indicated deception.
Evidence did not support the inference
The Tribunal found the debarment decision substantively unfair because of insufficient and contradicted evidence.
It said the principles articulated by the Labour Court in DHL Supply Chain SA (Pty) Ltd v De Beer, LW NO and Others (2012) highlighted the weakness of Capitec’s case. The Court held that polygraph results alone are not sufficient proof of guilt, and an employer cannot rely on them without other distinct evidence that points specifically to the individual’s wrongdoing.
The Tribunal said the unusual nature of the transaction and DM’s request to delete WhatsApp messages did not create a sufficient chain of evidence.
“Importantly, none of the proved facts establishes that the applicant was dishonest. They do not provide direct insight into his state of mind or prove that he possessed a fraudulent intent. Instead, the respondent relies on these circumstances to infer a lack of integrity, but this inference fails to bridge the gap between circumstantial events and the applicant’s knowledge or wilful participation in the wrongdoing.”
Capitec’s inference could be challenged by equally plausible counter-arguments, including Gwala’s explanation that he was simply doing a favour for a friend and colleague.
The inference that Gwala lacked honesty and integrity was also weakened by evidence that pointed away from his guilt. In this regard, the Tribunal cited DM’s unchallenged evidence that Gwala was unaware of the fraudulent scheme.
Additionally, Gwala’s actions, such as his refusal to delete the WhatsApp messages, his full co-operation with the investigation, and his offer to repay the R100, were consistent with the conduct of an innocent person and served as direct evidence of his integrity.
The Tribunal said Capitec’s argument that Gwala should have suspected a senior colleague, particularly one who could have completed the transaction himself, was not as compelling as it may initially seem.
“Although the transaction might seem unusual in hindsight, it is not inherently implausible for one colleague to request assistance from another. The argument that the applicant should have suspected that DM was acting improperly sets a high standard, and the respondent has provided no evidence that the applicant had any previous reason to distrust DM’s motives.”
Discrepancy between disciplinary and debarment outcomes
The Tribunal said the discrepancy between the sanction imposed in the disciplinary hearing and the far more severe penalty of debarment further undermined Capitec’s case.
“While the outcome of the disciplinary hearing does not legally determine the debarment decision, the nature of the disciplinary finding is very revealing.”
The chairperson of the inquiry found that Gwala had “blindfoldedly followed through with the instruction without investigating the source of funds and reason for the request”. Although this finding could be interpreted as a form of negligence, it did not automatically justify debarment.
The primary grounds for debarment are a lack of honesty and integrity. Negligence, in the absence of dishonesty, is generally a matter for internal disciplinary action, not for an industrywide sanction such as debarment.
The purpose of debarment is to protect the public from dishonest or untrustworthy representatives. If Gwala’s actions were merely negligent, meaning he made a mistake without malicious intent, then debarment was a disproportionate and unjust sanction.
Gwala’s continued employment also contradicted the bank’s claim that he no longer met the fit and proper requirements.
The Tribunal granted Gwala reconsideration application and set aside his debarment.
The ruling is a reminder to FSPs that debarment decisions must be based on robust, fact-based grounds, ensuring that inferences of dishonesty are not drawn only from circumstantial evidence or the results of a polygraph test.
