On Mondays, my Undictated column appears in Business Day newspaper. Here is this week’s contribution. It reminds us how billionaire Dave King actually made his money. And how the most unlikely of beings – a totally committed public servant – proved to be his Nemesis. The family of the late Charles “Carl” Chipps have good reason to be proud of his determination to do what he believed was right. As a direct result of his doggedness, the nation is R700m richer. Mr Chipps is the real hero of this story. SARS should erect a statue in his memory. Or, better still, create an education endowment. As for King, he’s very much back in the game. His latest JSE-listed creation MICROMega, has been the SA market’s best performing stock in the three trading sessions since the settlement was announced last Thursday. It’s up 43% from 400c to 575c as punters fall over each other to grab a slice of the magic they believe King still possesses. Caveat Emptor. – AH
By Alec Hogg*
Another piece of the Old South Africa died last week when serial entrepreneur Dave King agreed to pay SARS R706m.
He also issued a groveling joint Media Statement; promised to unwind offshore structures and bring the funds back home; and submit outstanding tax returns going back to 2001.
King’s public persona has undergone a conversion of Damascene proportions.
He reflects nothing of his former self. The confident typical Old SA businessman with one foot in the country and assets stashed abroad. The self-absorbed narcissist has been transformed into a model of remorse and humility.
So was his decade long belligerence all an act? Or might the “new” King be an invention for the media?
Mulling these questions triggered a reminder of conman turned FBI advisor Frank Abagnale, subject of the 2002 movie Catch Me If You Can. Using a crook to catch many, Abagnale’s insights helped the good guys weak havoc on America’s white collar criminals.
King is unlikely to be joining SARS anytime soon. But by having his affairs so publicly exposed, he’s already become an unwitting Abagnale. Never before has SARS dedicated so much time to the murky financial machinations of SA’s uber-rich. It should prove a great investment.
King did not invent offshore tax-shields. Neither did he perfect them. His structures were complicated, but not overly so, centered on the British Virgin Islands registered Ben Nevis. That in turn was owned by a Guernsey-based discretionary trust called Glencoe.
Hardly rocket science. But it enabled him to “legitimately” keep the SA taxman in the dark for years. A practice in which he was certainly not alone.
Between 1990 and 2001, King disclosed taxable annual income averaging just R60 000. From that modest inflow he managed to live comfortably and acquire a game farm. No objections were raised. No audits called.
He may well have stayed under the radar. Except that 16 years ago, King hit the big time when landing a treasury outsourcing contract from Umgeni Water Board. Chief supporter of the idea, Umgeni’s financial manager Greg Morris, resigned to join King the day the contract was signed. That would be the cornerstone of a future legal battle. But in 1997, such niceties mattered not.
A JSE’s New Listings Boom was in full swing. Anchored by the Umgeni contract, King created Specialised Outsourcing. Shares privately placing shares at 50c were pumped up by increasingly optimistic quarterly reports. The stock eventually hit a peak of R70.
Back then JSE regulations did not require directors to disclose share dealings. So over the next three years, unbeknown to anyone except Outsourcing’s founder, Ben Nevis sold its 70% stake, reaping a profit of R1.2bn. The funds were immediately “repatriated” to offshore bank accounts.
Asset managers unable to find shares in the open market privately approached King for stock. He always denied being a seller. To his mind that was true. Ben Nevis, not DC King was offloading.
Also to his way of thinking, the profit was tax-free. By the time SA’s Capital Gains Tax was introduced in October 2001, Ben Nevis had sold out completely.
By then King had resigned from Outsourcing to start a similar business called Legacy Ventures. His original creation ended up worthless. Sanlam, Old Mutual, Coronation and Southern Life tried to make King accountable, claiming he fudged the financials and manipulated the share price. That, too, has faded from memory, no more than a historical footnote.
What eventually made things public was King’s refusal to declare the profit as taxable income. He argued it wasn’t his to declare. Besides, even if it had been, he maintained, it was a tax free capital gain.
With hindsight, had King kept a low profile, SARS may have remained unaware. His error was conspicuous consumption. Almost as quickly as the money came in, he spent it.
Properties in Sandhurst, Plettenberg Bay, Fancourt; wine farms in the Cape; half of Gary Player Stud; a R175m Falcon 900 jet, a £20m investment in Glasgow Rangers. The list stretches much longer.
Not surprisingly, the spendthrift sparked the media’s attention. Tipping off the man who was to become King’s nemesis, the late Mr Chipps, a frumpy, seemingly distracted SARS-employed chartered accountant.
He was the closest person I’ve met to a real-life Columbo, the dithering TV detective who always got the criminal. His dingy office at the bottom of Jeppe Street in downtown Johannesburg suggests Mr Chipps was motivated solely by public service. I never knew his first name. Nobody he worked with ever used it. Although christened Charles, he was known to family and friends as Carl. He died last year deep into his eighties. At the time he was still working on the King matter.
The obsession began after Mr Chipps looked at King’s tax file. He was amazed at how someone earning so little could be buying so much. So this unlikely detective started digging. The result was a series of court cases generating north of R400m in legal fees.
Mr Chipps built a case that resonated with Mr Justice Hartzenberg who opened his September 2002 Judgment with: “Scotsmen are known to be thrifty. (King) is a Scot. He cannot be accused of squandering his money on the unnecessary payment of income tax.”
South Africa’s old money families are disciplined. They may have yachts in Monaco, apartments in Mayfair and party up a storm in Manhattan. But while home in SA, they play down their wealth. And they are at pains to keep their tax affairs updated.
King on the other hand, was brought up barefoot in a Glaswegian council project. The fifth of seven children sired by a policeman, he worked for Glasgow-headquartered Weir Group Plc, a manufacturer of slurry pumps. Sent to then riot-torn South Africa in 1976, King grabbed the opportunity of a fresh start.
The nature of King’s actions this past week suggests he wants to begin another chapter. We’re a forgiving lot. He might just get it. Judging by the post-settlement reaction in the share price of his new creation MICROMega, some people already have.
* Alec Hogg is the publisher of Biznewz.com
