JOHANNESBURG - The South African Revenue Service (SARS) has been hit by a new CIPRO based scam. Earlier this year a number of companies had their directors fraudulent replaced at the Companies and Intellectual Property Office (CIPRO), new bank accounts were opened, and tax refunds from SARS were diverted.
It is not yet clear how many companies have been affected, nor the total sum of money that has been lost.
Among the companies targeted were Gap Distributors, AFC Ltd, Vanern Investments, Nestle Purina Petcare (South Africa), and A Million Up Investments 48. In all these cases the legitimate directors were deregistered and one Itumeleng Malotsa, 23, was inserted as the sole director. A number of companies also had their registered addresses changed. In the case of AFC Molatsa was inserted as a director on May 7 2010 and the company's registered address was changed to No. 1204 Botshabelo, Bloemfontein, 9301.
Business Report reported late last month that Malotsa had earlier been arrested by police investigators working with SARS and released on bail. Investigations are apparently ongoing.
In one of these incidents the fraudsters successfully switched the banking details at SARS of a company and a considerable sum of money due in tax refunds was stolen. In another case banking details were switched - using a fraudulently altered copy of an identity document of an existing director - but it was red-flagged by SARS before the money was paid out.
How the scams work
In CM 29 based scams fraudsters - often with the collusion of corrupt CIPRO officials - deregister the legitimate directors of a company using the CM 29 function. A new director or directors are inserted. The new director will then approach a friendly bank branch to set up a new account in the name of the company. In order to do so they require copies of internal company documents. As in the current case an effort is then made to change the banking details of the company, held by SARS, and to divert tax refunds to the bogus company account. Such scams suggest some kind of collusion from within SARS as fraudsters need to know which companies to target.
In early August PriceWaterhouseCoopers issued a tax alert to their clients warning them of this type of scam. Since then CIPRO has announced numerous new controls for the electronic lodgement of CM 29 forms. The new controls will make it harder for outsiders to fraudulently alter directorship details. However, it is not clear whether it will put a stop to CIPRO insiders altering details on the CIPRO database at the behest of criminal syndicates.
CM 29 based fraud has long been a problem at CIPRO - along with company cloning fraud (see previous report here). In an earlier clamp down CIPRO halted the electronic lodgement of CM29 forms in February 2009. According to Elsabe Conradie of CIPRO electronic lodgement was reintroduced with the implementation of "the customer verification process in June 2009. Customers had to be vetted by a Commissioner of Oaths (who in turn had to undergo training), before customers received a password to access the system." This control has proved to be ineffectual.
In 2008 SARS lost R51m through CIPRO based fraud. A syndicate set up two companies on CIPRO in the names of two legitimate concerns: "SBC International Management Services" and "Sun Microsystems South Africa Pty Ltd". Corrupt SARS officials then diverted tax refunds due to the legitimate companies to the new bank accounts set up in the duplicate companies names.
Numerous arrests were subsequently made (although not of any CIPRO officials involved). In early September this year one of the directors of those fraudulent companies, Zaheer Seedat (real name Imran Abbas) pleaded guilty to two counts of fraud for his role in this scam. According to Business Report a SARS official Audelia Makhubu subsequently pleaded guilty to a charge of corruption for her role in the fraud.
On April 28 2009 "Zaheer Seedat", along with "Waleed Khan", were inserted, on the CIPRO database, as the directors of Tata Sons Limited Incorporated in India. The legitimate directors were "resigned".
At the time of publication neither SARS nor the DTI had responded to our requests for comment. CIPRO was unable to comment on the details of the specific case.
COPY OF ITUMELENG MALOTSA ID USED IN ATTEMPT TO SET UP BANK ACCOUNT:
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