The Financial Services Tribunal has brought much-needed clarity to the position of statements made under section 112(2) of the Criminal Procedure Act, 1977 (CPA) and the implication under section 37D of the Pension Funds Act, 1956 (PFA). On 23 October 2024, the FST in the case of Nyathi South Africa (Pty) Ltd v Carmelia Mngomezulu and Others – Case No: PFA39/2024 delivered a ruling, where it held that a statement made by a member in terms of section 112(2) of the CPA constitutes a “written admission of liability” under section 37D of the PFA.

The factual background relevant to this matter is as follows:

  1. Ms Carmelia Mngomezulu (Ms Mngomezulu) had been employed by Nyathi South Africa (Pty) Ltd with effect from 01 March 2008 until her retrenchment on 26 April 2019.  As a consequence of her employment, she became a member of the FundsAtWork Umbrella Provident Fund.
  2. Shortly after her retrenchment, it emerged that she had committed fraudulent electronic payments from the employer’s bank accounts that she controlled, amounting to R 3.74 million.
  3. Criminal proceedings on charges of fraud, forgery, and money laundering ensued against Ms Mngomezulu, resulting in her conviction and 15 years direct imprisonment, following a plea bargain with the state in terms of section 105A of the CPA.
  4. After her conviction and subsequent sentencing, Ms Mngomezulu attempted to withdraw her benefit. The benefit was not paid within the prescribed timelines. The Fund advised that the benefit was paid to the employer pursuant to a court order, advising it of the conviction and sentencing of Ms Mngomezulu in the criminal proceedings.

The matter was initially before the Pension Funds Adjudicator (OPFA) who determined that the primary purpose of a guilty plea under section 112(2) of the CPA was for the criminal court proceedings and not for the benefit of the employer.  As such, that guilty plea is not intended to provide a written admission of liability as contemplated in section 37D of the PFA. Consequently, the OPFA found that the employer had not satisfied the criteria set out in section 37D(1)(b)(ii) of the PFA and as such ordered that the Fund releases Ms Mngomezulu’s benefits.

Subsequently, a reconsideration of the OPFA’s determination was launched by the employer. The FST held that Ms Mngomezulu’s guilty plea under section 112(2) of the CPA included an explicit acknowledgment of the financial loss her fraud caused to the employer and as such, the same was sufficient to satisfy the criteria set out in section 37D. In addition, it held that the failure to recognise the section 112 acknowledgement would result in an absurd scenario where Ms Mngomezulu, despite her admission and conviction would receive the full benefit without any recourse for the employer.  Such an outcome would undermine the objectives of section 37D(1)(b)(ii), as it would effectively reward Ms Mngomezulu and punish the employer.

The FST’s ruling provides additional scope for employers when considering the “written admission of liability” envisaged in section 37D of the PFA.  In addition, funds must take a considered approach where an admission of liability has been made by the employee, even where it is not within the context of civil action instituted by the employer, having regard to what the section seeks to achieve.  That being said, where possible, employers must still seek a written admission of liability from employees in the normal course.