The respondent in this application brought by the Prudential Authority was sequestrated for unpaid amounts exceeding R2 million arising from her having conducted the business of a bank, namely acting as a conduit for money for a massive pyramid scheme. Section 11(1) of the Banks Act prohibits any person from conducting the business of a bank unless registered as a bank. The business of a bank includes the acceptance of deposits from the public as a regular feature of the business conducted.
Investigations revealed that the respondent had actively participated in the pyramid scheme by receiving and paying out money from and to investors. There were 254 inflows in a total amount exceeding R2.5 million and 959 outflows of more or less the same amount. The respondent alleged her involvement was bona fide and she paid out money received immediately to investors. The amounts received were not repaid to the persons that deposited those amounts. The respondent willingly participated in the pyramid scheme and her participation constituted the unlawful conducting of the business of a bank, contravening the Banks Act.
The respondent was sequestrated in terms of section 83(3) of the Banks Act.
It is not often we see judgments relating to this issue. It is a reminder to anyone tempted that if you use your bank as a conduit for the money of others, there are often serious consequences and a number of pieces of legislation you will probably be contravening.