Letters seen by the Sunday Times reveal how Pillay arranged to meet SARS commissioner Tom Moyane on February 2 at Kgosi Mampuru II Prison in Pretoria under the pretence that he would tender his resignation letter.

Instead, Pillay, who was deputy SARS commissioner until he quit this week, tried to negotiate a lucrative payout and asked for any investigations into his role in setting up the rogue spy unit to be canned.

When this failed, Pillay, a former soldier of Umkhonto weSizwe, the ANC’s liberation army, used his struggle connections to clinch a cushy exit package.

Sources in SARS said Pillay approached his struggle mates, including Mac Maharaj, President Jacob Zuma’s former spokesman, after his efforts to get Moyane to bend the rules failed. Pillay and Maharaj played key roles in the ANC’s Operation Vula when Zuma was the ANC’s intelligence chief.

Zuma then asked Deputy President Cyril Ramaphosa to negotiate with Moyane, but the xenophobic violence that gripped South Africa delayed their meeting, finally held in Cape Town on Monday.

Two days later, Moyane returned to Pretoria and immediately signed Pillay’s settlement, the sources said.

SARS sources said Pillay was paid R2.5-million, which is equivalent to 18 months’ salary.

Last week, retired judge Frank Kroon found that SARS had broken the law in setting up the rogue unit and that it had committed illegal acts.

Kroon chairs an advisory board appointed by Finance Minster Nhlanhla Nene to investigate the mess at SARS after a Sunday Times exposé revealed it had run a rogue unit that spied on taxpayers illegally.

“We have satisfied ourselves that the covert unit was an unlawful one, and that its activities were unlawful,” Kroon told a press conference last week.

Kroon also announced last week that former chief justice Sandile Ngcobo would chair disciplinary hearings against Pillay and SARS head of strategy and risk Peter Richer, scheduled for this week.

But on Thursday, SARS unexpectedly issued a terse statement saying it had parted company “amicably” with Pillay and Richer.

All charges and pending investigations against them were summarily dropped.

Investigations into the rogue unit by audit firm KPMG and an independent counsel are continuing. The inspector-general of intelligence has also completed an investigation into the unit but those findings have not been made public.

I trust that based on the above you will seriously consider doing the right thing, that is, to let the SARS internal processes to take its course and preserve your reputation by disproving the allegations against you and or decide on your own to resign or not

A paper trail obtained by the Sunday Times and interviews with SARS officials reveal the real reasons behind the tax authority’s about-turn on Pillay and Richer.

The documents include letters between Pillay and Moyane and correspondence between lawyers representing SARS, Co-operative Governance Minister Pravin Gordhan, former SARS commissioner Oupa Magashula and former rogue unit commander Skollie van Rensburg.

They show Moyane was determined to take action against Pillay before political wrangling behind the scenes forced him to change tack.

The letters between Pillay and Moyane, written after the February meeting at the prison, make it clear the SARS commissioner wanted Pillay and Richer to face the music. They reveal that Pillay:

• Haggled with Moyane for more cash, asking to be paid out the four years remaining in his contract because the 62-year-old was too old to find another job;
• Wanted Moyane to ensure “all current and potential” disciplinary, criminal and civil charges and claims against him were dropped;
• Invoked his and Richer’s struggle credentials to justify getting special treatment from Moyane; and
• Wanted the same deal to apply to Richer and his former special adviser, Yolisa Pikie, who was fired after he lied on his CV about having a BCom degree.

Moyane refused to budge and insisted on sticking to the rules, refusing to sign a settlement agreement drafted on Pillay’s terms on March 15.

In a terse reply, he said he had expected Pillay to come to the prison meeting with his resignation letter, not a list of demands.

Moyane pointed out he had no power “to withdraw criminal complaints or charges laid with the SAPS” and that he could not interfere with any civil claims against Pillay. “You know very well that SARS is a creature of statutes and I cannot act outside its provisions and or other related statutes.”

He rejected Pillay’s efforts to squeeze more money out of SARS. Paying him out for the remainder of his contract would violate several laws, including the Public Finance Management Act, he said. There were also questions raised “regarding the validity” of Pillay’s contract, renewed by Gordhan just before he was moved from the finance portfolio. “I am awaiting the forensic report to that effect,” said Moyane.

Moyane was “puzzled” by Pillay’s claim that he was too old to get a new job, as he had asked for early retirement in 2010, which was granted with full benefits before he was rehired on a contract.

Moyane rejected Pillay’s request for a free pass for Pikie as he faced “serious criminal proceedings”.

Under Pillay’s watch, Pikie, whom he described as “legally trained, smart and hardworking”, had been allowed to negotiate international tax treaties for South Africa despite lying on his CV and allegedly passing himself off at official meetings as a qualified lawyer.

“I trust that based on the above you will seriously consider doing the right thing, that is, to let the SARS internal processes to take its course and preserve your reputation by disproving the allegations against you and or decide on your own to resign or not,” Moyane wrote.

Since March, Moyane’s lawyers had tried to line up witnesses for Pillay’s disciplinary hearing, including Van Rensburg, Gordhan, and Magashula. Gordhan would have been grilled on his “possible knowledge of the establishment and activities of the covert unit” under his watch and Magashula on his approval for the unit to continue operating. SARS spokesman Luther Lebelo said he could “neither confirm nor deny” this, and declined to comment further.

Pillay declined to be interviewed. “As you know, I am not allowed to comment on SARS matters including the exit,” he said in a text message.

Maharaj yesterday said claims that Pillay lobbied Zuma for political support were “mischievous”.

“If it is true that persons within SARS have made such allegations to you, then it should be clear from my denial that such persons inside SARS are not [acting] in the interest of SARS but with a view to spread mischief,” he said. “Pillay made no such request to me.”

Asked whether he had ever intervened directly or indirectly to broker a truce between Moyane and Pillay, Maharaj said “the question does not arise”.

Ramaphosa could not be reached for comment yesterday. His spokesman’s phone went unanswered and he failed to respond to questions sent by SMS.

rampedip@sundaytimes.co.za, stephanh@sundaytimes.co.za, mzilikazi@sundaytimes.co.za