South African mineworkers plan to sue multinationals, vendors over pensions

JOHANNESBURG — Multinational companies conspired with their financial service providers to defraud thousands of primarily black South African mineworkers out of tens of millions of dollars in pension entitlements, according to an attorney planning to file a lawsuit against the firms.

The claimants — 10,000 former mineworkers in South Africa — will seek $100 billion in damages.

But the case might have wider ramifications for the money management industry if attorneys for the plaintiffs succeed in including money managers, actuaries and insurers who advised the corporate schemes in the 1980s, during the apartheid era.

That expansion is very likely, according to Gugulethu Oscar Madlanga, partner with Ngcebetsha Madlanga Attorneys, Randburg, South Africa. The firm is acting as attorneys for the claimants, working with attorney Edward D. Fagan. Mr. Fagan, a principal with Edward D. Fagan Esq. Inc., Short Hills, N.J., got involved in the case as an outgrowth of his work against the South African government and assorted companies over human rights abuses during the apartheid era.

Mr. Fagan was the attorney successfully representing surviving victims of the Holocaust, who sued a number of Swiss banks for their involvement in concealing Nazi assets after the war.

The South African suit will revolve around the question of plan surpluses as mining companies shifted from defined benefit schemes to defined contribution plans.

Mr. Madlanga said after the suit is filed, he will file a further application in a South African court seeking information on which firms managed assets in the pension schemes accused of defrauding the workers. He said these firms might have participated in the alleged conspiracy to defraud pension assets at the time.

Mr. Madlanga said the plaintiffs will name Alexander Forbes Ltd., Johannesburg, South Africa's biggest actuarial consulting and administration firm, in the lawsuit.

A spokesman for Forbes declined to comment on the matter.

Forbes is the market leader in actuarial and investment consulting to South African corporate pension schemes, and is accused in the suit of providing advice that led to the cherry-picking of pension entitlements.

According to South African money management industry sources, dominant managers in the 1980s apartheid era included Old Mutual PLC, Standard Banking Corp. Ltd., Liberty Life Ltd. and First National Bank Ltd., all based in Johannesburg.

"We will be seeking information on the role they played in this case," said Mr. Madlanga. "We are making an application to discover more information."

The money management units of these firms were responsible for managing the majority of pension assets at the time, although the market is less concentrated now with the influx of foreign firms, a South African industry source said.

Mr. Madlanga claims the alleged fraud occurred during the height of the apartheid era, when companies across South Africa sought to lower the cost of occupational pension provisions by shifting from defined benefit to defined contribution schemes.

The manner in which companies shifted workers will form the basis of the case, Mr. Madlanga said. Exact details of the mineworkers' case aren't yet clear.

According to one estimate from actuarial firm NBC Consultants and Actuaries Ltd., Johannesburg, about 200 billion rand ($27 billion) was shifted to defined contribution plans from defined benefit schemes between the mid-1980s and the early 1990s.

"A lot of companies saw it as a way to limit costs and liabilities. Over the time a lot of surpluses were held back (in the conversion) and there was a lot of cherry-picking of benefits by company directors," said Lindy Mowaki, a consultant with NBC.

The so-called "cherry-picking" meant the removal of defined benefit surpluses by company directors and other company executives, she said.

"Actuaries were very conservative in their advice to companies. They probably held back more than was necessary when workers converted to DC. That meant there was a big surplus that remained," said Samantha Davidson, a pensions lawyer with Stepson & Wylie, Durban. The firm is unconnected to the suit.

"The issue may be what eventually happened to that surplus in those companies. There were some very unorthodox practices going on in South Africa at the time, and some of the surpluses disappeared."

South Africa introduced new laws in 2001 aimed at, among other things, preventing the conversion of surplus assets in defined benefit schemes.

Most of the country's estimated 650 billion rand pension market is now invested in defined contribution schemes.