Prudential Authority accuses Ithala of blocking access to records

News24

08-05-2025

Ithala 'bank' faces an existential threat.
A court order was issued in December 2023 for the Prudential Authority's repayment administrator to access the state-owned entity's banking system.
A leaked email, court documents, and dramatic interactions between the repayment administrator and Ithala have exposed allegations of hacking, alleged conflicting interests, and counter-allegations of blocking access to the SOE's systems, using antiquated banking systems, etc.
Claims of hacking, the alleged conflict of interest of the repayment administrator, and the blocking of access to Ithala's banking records are some of the dramatic allegations made in a legal dispute between the South African Reserve Bank-administered Prudential Authority (PA) and Ithala's senior management and lawyers.
The allegations are laid bare in the PA's court application filed at the North Gauteng High Court in Pretoria, as well as a leaked email exclusively seen by News24.
After the PA's court application to provisionally liquidate the state-owned entity (SOE), the PA requested a court order to force the SOE to comply with a previous order that ruled Ithala should give the PA's repayment administrator (RA), Johannes Kruger, access to its banking systems so that depositors could be repaid.
However, Ithala lawyers refuse to 'hold the hand of the repayment administrator to access Ithala's banking system', according to an internal email by Malatji and Co Attorneys managing director Tebogo Malatji.
Ithala is also lobbying the provincial government to oppose the PA's attempts to allegedly hand over the SOE's 22 000 clients' confidential information to a financial services competitor.
The emails show that lawyers refuse to hand over the SOE's data as they believe Ithala complied with the court order.
The lawyers' email claims the RA had 'imaged the entire server' on 21 January 2025 and, therefore, had 'full access of the data' sought.
The email came just days before Ithala filed responding papers in the Gauteng High Court in Pretoria on 6 May.
The administrative standoff also exposes a political fight between National Treasury and the KwaZulu-Natal government leaders about the future of Ithala.
The PA's banking insurance supervision head, Kerwin Martin, in his founding affidavit deposed on 24 April, accuses the SOE of withholding information relating to its banking systems and, therefore, ignoring a court order.
According to court documents, in July 2024, and on Kruger's instruction, his attorneys of record, Bowman Gilfillan – where Kruger is an executive director – sent a letter to Ithala's legal representatives, Malatji & Co Attorneys, requesting 'unhindered access' to Ithala's banking system, in line with a previously issued consent order.
According to Martin, Kruger and his team had previously been provided with 'some reports' from Ithala's banking system after the KwaZulu-Natal High Court in Pietermaritzburg issued an initial order in December 2023.
'I am advised by the RA (Kruger) that these reports... were incomplete and (are now) outdated.
'The RA needs access to Ithala's banking system to obtain the most recent banking reports in order to perform his functions in accordance with his statutory appointment,' Martin said in his affidavit.
Malatji, in July 2024, wrote to Kruger's attorneys at Bowmans, requesting an explanation of why Kruger wants 'super administrator access' more than six months after the offer was made to access some reports relating to Ithala's banking system, and to what use this access would be put.
Martin's affidavit recalls a dramatic standoff where, on 2 October 2024, an IT company representing Kruger in an attempt to extract information from the banking system was barred from gleaning the information.
He said representatives of the IT company, Cyanre, were given a laptop, logged on and granted access to the SOE's bank application.
'One of Ithala's employees, [senior business analyst Sanjay] Ramdeyal, joined Mr Labuschagne and Mr Griffin [of Cyanre], ostensibly to assist them in retrieving the relevant documentation [and to extract the required reports].'
But Ramdeyal refused to do so, 'saying he wasn't allowed to share the required information'.
Martin said Ramdeyal told the Cyanre officials they had been granted access to the banking
application and 'therefore needed to extract the reports themselves'.
Subsequently, Ithala, in emails between the RA and the SOE representatives, accused Kruger
of using one of the Cyanre representatives to hack into its systems – an allegation Martin's affidavit denies.
In November, Malatji wrote an email to Werkmans, representing Kruger, recalling an earlier meeting where an agreement was reached about how Kruger's office 'will only be granted limited access to the system. In line with our previous advice to the RA (Kruger), this limited access is necessitated by various factors'.
These include, among others:
Confidentiality issues which may lead to a contravention of the Protection of Personal Information Act, No. 4 of 2013.
The agreement aiming to protect the integrity of the data or information in Ithala SOC's banking system and the confidentiality thereof.
Requirements for a certain level of expertise in accessing the system and extracting reports therefrom.
But Martin said Werkmans denied such an agreement had been made and said the RA's office was told in no uncertain terms they wouldn't have access to the record.
'Ithala's turn in its position was presumably due to pressure it had received from Ithala's ultimate shareholder, the provincial government,' Martin said in the affidavit.
Ithala has been asked to file its opposing affidavit by 21 May 2025, with the hearing set for 12 June 2025 in Pretoria.
The South African Reserve Bank was approached for comment but a spokesperson said the matter was sub judice and therefore won't comment.
Meanwhile, the leaked email from Malatji reveals Ithala's likely response.
'Curiously, we can now see in para 80 of the affidavit and annexure 24, which is presumably an email from FNB, what transaction has the PA and the RA lined up for the anointed so-called repayment bank, which is, by all accounts, FNB.
'A term sheet is being negotiated for FNB to receive Ithala's records of depositors' details including the balance due to them, [as well as] cash from Ithala's bank accounts and a guarantee from National Treasury which will enable FNB to open accounts for the depositors, who will be approached for either repayment of deposits or continuation of a client/banker relationship.
'Ithala can clearly not aid and abet the unlawful transfer of its deposit book to another bank with no benefit for Ithala and its shareholder,' Malatji said in the email circulated in the legal company.
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He viewed the cooperation sought by Kruger as motivated by an 'ulterior purpose' and meant 'to facilitate an unlawful transaction of transferring Ithala's deposits to a repayment bank'.
'They are not paying for the resources and assistance they seek,' Malatji said in the email.
An FNB spokesperson confirmed that in February 2025, the National Treasury requested the bank to support Ithala's South African Social Security Agency (Sassa) customers with bank accounts in light of the bank's liquidation process.
In responding to queries on FNB 'recruiting' Ithala clients, FNB CEO Harry Kellan said: 'It would have been easier for us to decline the request from National Treasury.
'Opening thousands of accounts on short notice is not an easy task. But in keeping with our core value of providing help whenever and wherever we felt we had to step up and assist.
'Sassa beneficiaries are the most vulnerable members of our society, and we wanted to ensure they were not left stranded.'
The KwaZulu-Natal government holds a dim view of Kruger's alleged conflict of interest as he is both the RA and a partner at Bowmans.
The Special Investigating Unit previously confirmed it's investigating a R34 million tender issued to Tech Mahindra, which is represented by Bowmans, where Kruger is a director.
KwaZulu-Natal Finance MEC Francois Rodgers is against what he views as Kruger's attempts to shut Ithala's operations.