By Zenobia Ismail and Robin Richards

State capture occurs when a small number of elites in the public and private sectors collude to modify rules, policies and legislation for their own benefit at the expense of the public interest. The term emerged in the 1990s to describe relations between the state and the private sector in Eastern European states that were transitioning away from communism. In South Africa, state capture became a prominent topic in the media in 2016 following widespread allegations that several state-owned enterprises and other agencies, including South African Airways, Electricity Supply Commission of South Africa (ESKOM), South African Broadcasting Corporation (SABC), Denel (arms manufacturer), South African Revenue Service (SARS) and the State Security Agency, were “captured” by individuals with close ties to the then president of South Africa, Jacob Zuma.

The literature on state capture tends to focus on the close relations and exchange of favours among key actors in the public and private sectors. It does not provide detailed accounts of how institutions are captured or the consequences of this for the functioning of the institution. In order to deepen the evidence on state capture, this study provides a detailed account of the impact of state capture on the capacity of one state agency, SARS. The research examines the capacity of SARS to detect, investigate and prevent tax and financial crime and how this changed as a result of state capture.

There were three key components of the so-called capture of SARS:

• Infiltration of the organisation by new employees aligned to politicians associated with state capture. This included Tom Moyane, appointed by Zuma as the new Commissioner of SARS in 2014;

• Allegations in the media which cast doubt on the integrity of the institution and its leaders. These included aspersions regarding an alleged ‘rogue unit’ in SARS which exceeded its legislative authority to investigate tax and financial crimes. These accusations undermined the integrity of some senior managers at SARS and enabled them to be suspended pending investigation;

• Organisational change and staff purges that further weakened the institution. Moyane, with the help of the local office of the consulting firm Bain International, introduced a sweeping restructuring of SARS. During the restructuring process, key units that were responsible for detecting and investigating financial crimes pertaining to the illicit economy were disbanded. There were staff purges and an organisational climate of intimidation, which contributed to widespread resignations. Consequently, SARS lost much of its human capacity to detect and investigate tax and financial crimes. Likewise, information technology systems that were used to detect or investigate tax or financial crimes were dismantled or altered under the guise of improvement.

This study contributes to the literature on state capture by providing evidence of the detrimental impact of state capture on institutions and the public interest. It suggests that the lack of similar detailed case studies may lead to an underestimation of the negative impact of state capture for institutions in the public sphere. The study illuminates the unintended consequences of state capture on institutions. The integrity of SARS as the receiver of revenue has been tarnished; this is expected to lead to taxpayer apathy and a decline in direct and indirect tax revenue. This prediction does not bode well for national development which is a critical function of the South African state. The study suggests that state capture will undermine economic development in South Africa.

SOC ACE Research Paper No. 12. Birmingham, UK: University of Birmingham, 2023. 42p.