CONTRAVENTIONS OF ORGANIZED CRIME ACT (POCA)

Prinsloo and others v S [2016] 1 All SA 390 (SCA)
Criminal law – Operation of unlawful multiplication scheme – Racketeering activity – Requirements for conviction in terms of sections 2(1)(b),2(1)(e), 2(1)(f) and 4 of the Prevention of Organised Crime Act 121 of 1998 (“POCA”) – Elements to be proved by the State to secure convictions under relevant provisions of POCA.
Words and phrases – “enterprise” – Section 2(1)(f) of the Prevention of Organised Crime Act 121 of 1998 – Any person who manages the operation or activities of an “enterprise” and who knows or ought reasonably to have known that any person, whilst employed by or associated with that enterprise, conducts or participates in the conduct, directly or indirectly, of such enterprise’s affairs through a pattern of racketeering activity, shall be guilty of an offence – “Enterprise” includes any individual, partnership, corporation, association, or any other juristic person or legal entity and any union or group of individuals associated in fact, although not a juristic person or legal entity.
Words and phrases – “manage” – Section 2(1)(f) of the Prevention of Organised Crime Act 121 of 1998 – Any person who “manages” the operation or activities of an enterprise and who knows or ought reasonably to have known that any person, whilst employed by or associated with that enterprise, conducts or participates in the conduct, directly or indirectly, of such enterprise’s affairs through a pattern of racketeering activity, shall be guilty of an offence – Ordinary meaning of “manage” – To be in charge of or to run.

Flowing from the operation of an investment scheme initiated by the first appellant and subsequently joined by the remaining appellants, approximately R1,5 billion was invested by participants. Upon the demise of the scheme, scores of investors had lost all their money and were left destitute. The State contended that, what the appellants had conducted was a Ponzi or unlawful multiplication scheme, and in view thereof, a plethora of criminal charges was preferred against them. They were convicted and sentenced on a large number of the charges. In the present proceedings, they appealed against their convictions and sentences.
The appellants did not contest the notion that the scheme operated by them was in fact a Ponzi scheme. The evidence clearly showed that the underlying cash loan businesses conducted by the first appellant never generated sufficient income to meet or sustain the interest payments to be made to investors. In the result, investors’ capital was used to satisfy the interest commitments. The appellants were not criminally charged for operating the Ponzi scheme, but for offences committed by them in the process of conducting the scheme.

Held – In considering the appeal, it was convenient to consider the first two counts together, as they encompassed offences concerning racketeering activities under section 2 of the Prevention of Organised Crime Act 121 of 1998. The first count was brought under section 2(1)(f), and was levelled solely against the first appellant. The said subsection provides that any person who manages the operation or activities of an enterprise and who knows or ought reasonably to have known that any person, whilst employed by or associated with that enterprise, conducts or participates in the conduct, directly or indirectly, of such enterprise’s affairs through a pattern of racketeering activity, shall be guilty of an offence. The State therefore had to prove that an enterprise existed; that the first appellant managed the operations or activities of the enterprise; that a pattern of racketeering activity took place; and that the first appellant knew or should reasonably have known that a pattern of racketeering activity took place. The second count was brought under section 2(1)(e), which provides that any person who, whilst managing or employed by or associated with any enterprise, conducts or participates in the conduct, directly or indirectly, of such enterprise’s affairs through a pattern of racketeering activity, within the Republic or elsewhere, shall be guilty of an offence. Section 2(1)(e) is wider than section 2(1)(f) in that mere knowledge, as opposed to actual participation, suffices. The offence in terms of section 2(1)(f) is committed by a person managing the operation or activities of an enterprise and who knows or ought reasonably to have known that the enterprise’s affairs are conducted through a pattern of racketeering activity. The plain wording of the subsection requires mens rea in the form of either dolus or culpa. Despite her contentions to the contrary, the Court found that the first appellant had the necessary mens rea in the form of culpa for a contravention of section 2(1)(f). Her appeal in respect of the first count was thus dismissed.
What the State was required to prove in respect of the second count was that, whilst managing an enterprise (the scheme) the first appellant directly or indirectly participated in the conduct of the scheme’s affairs through a pattern of racketeering activity. The essence of the offence in terms of section 2(1)(e) is participation through a pattern of racketeering activity and not knowledge. Once it was proved that the appellant had participated in the conduct of an enterprise’s affairs through a pattern of racketeering activity, ie by committing two or more predicate offences listed in Schedule 1 of the Act, she was guilty of a contravention of section 2(1)(e). There was no need for a further inquiry, as suggested on behalf of the first appellant, as to an additional mens rea requirement over and above the mens rea required by the predicate offences. The appeal against the conviction and sentence on the second count also failed.

The only counts in respect of which the first appellant’s appeal against her convictions succeeded were as follows. She had been charged with 9 071 counts of contravention of section 42 of the Co-Operative Act 91 of 1981 for carrying on business under the name of M & B Co-Operative without being registered as a co-operative. The Court upheld her argument that there had been a duplication of convictions, and that she should have been convicted on only one count in that regard. The same applied in the appeal of the second appellant, whose conviction on these charges was also reduced to a single conviction. The counts relating to failure to pay secondary tax on companies were not proven and the appeal in that regard was upheld – in respect of both the first and second appellants. Finally, the first appellant had been convicted on 17972 individual counts of conducting a harmful business practice in terms of section 12(6) of the Consumer Affairs (Unfair Business Practices) Act 71 of 1988. The Court upheld the first appellant’s submission that she should only have been convicted on one count and not on 17972 individual counts. She correctly contended that the intention of the Legislature was to proscribe harmful business practices, which implies the practice of the business in its entirety and not each separate transaction.
The limited success that the first two appellants had on appeal, did not impact at all on their effective sentences.
The second, third, fourth and sixth appellants also achieved very limited success in their appeals against their convictions, and no success in their appeals against sentence – while the fifth appellant was entirely unsuccessful.

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