- The SIU wants the global software giant to pay back more than R400-million in software license fees it took from two department of water and sanitation contracts.
- Court papers reveal SAP paid R86-million to a "business development partner" alleged to have ties to the then-minister Nomvula Mokonyane, a charge both the minister and the company deny.
- The SIU says the department received no value, and five years later the SAP software is unused "shelfware".
It started with an anonymous whistleblower and a tweet from Julius Malema.
In February 2017, the EFF leader tweeted out a five-page anonymous complaint addressed to law enforcement.
"I'm writing to express my concerns about the corrupt activities that are taking place in our organisation, the National Department of Water and Sanitation under the leadership of the Hon Minister Nomvula Mokonyane," the complaint read.
The letter was signed: "Anonymous (In fear of being victimised by this powerful syndicate)."
The first complaint on the whistleblower's list was a R949-million software contract that the department signed with software multinational SAP in 2016. According to "Anonymous", the deal was secured by paying R35 million in kickbacks.
Just over a month ago, the Special Investigating Unit (SIU) finally put meat on those bones when it filed a 1 287-page application with the Special Tribunal, the court set up to fast-track state capture cases.
The SIU, along with the water department, is demanding that SAP return more than R400 million already paid on the basis that the department will supposedly not have derived a single cent of value by the time the five-year contract expires in six months' time.
"This project has never been implemented, the SIU's principal forensic lawyer, Jason Schmidt, stated in the court application.
"According to [the deputy director for information service] there is no proof that the Department ... received any services nor were any products and/or software licenses deployed by the Department."
The SIU's aim with this case is to recover R413 million in fruitless and wasteful expenditure for a department that is borderline bankrupt and failing to provide clean drinking water and proper sanitation to millions of households.
But SAP has much bigger problems: The SIU also has an ongoing investigation into allegations of corruption – some of which are apparent from the present case already. What the current evidence shows is that SAP channeled R86 million in commissions to a shadowy "business development partner", some on the eve of the 2016 local government elections.
SAP was already caught out during the #GuptaLeaks when it was revealed that it paid more than R100 million to Gupta-controlled companies – also acting as business development partners – to secure software deals at Transnet and Eskom.
Now the evidence gathered by the SIU shows that people throughout SAP's global organisation knew about the R86-million commission but seemingly refused to say "no" to the biggest deal in SAP South Africa's history.
And it suggests that some of the water department's most senior officials were prepared to lie to make the deal happen.
The first lie was in December 2015.
Zandile Mathe, then deputy director general in charge of water infrastructure, approached her boss with a problem: It was 22 December and in just three working days' time, the license for the department's SAP system would expire, she claimed.
Mathe wanted permission from then director general Margaret Diedricks to renew the contract for another three years at a cost of R87 million.
Inexplicably, neither Diedricks nor the bid adjudication committee that had okayed the proposal a day earlier checked if Mathe's claims were true.
In fact, the SAP license would only expire on 31 December 2016, more than a year away. And the new contract's actual cost was R113 million plus R25 million a year for maintenance (although SAP had offered a R26-million credit for the unused year).
"Had I known that [the contract] only expired on 31 December 2016, I would not have approved the request for renewal as the existing contract still had a full year to run," Diedricks told the SIU in an affidavit.
Mathe written motivation claimed that the department had budget available. Acting chief financial officer Frans Moatshe later told the SIU: "[T]here was no approved budget ... and funds had to be shifted from central operations budget to pay SAP."
What officials seemed not to know, was that a bet had been placed that the department could be talked into concluding the SAP deal before midnight on 31 December 2015.
The R14.9-million 'bet'
The bet in question was spelled out in a sales commission agreement signed by SAP and an obscure software company, NBS Infosys.
The agreement, dated 23 December 2015, said that if NBS Infosys was the "effective cause" of the water department signing a contract with SAP on or before 31 December 2015, NBS Infosys would be entitled to a sales commission of 14.9%.
In fact, Diedricks had already signed on 22 December, the day Mathe brought it to her – making this a sure bet for NBS Infosys – but according to SAP Africa's then chief financial officer, Deena Pillay, NBS Infosys had "commenced groundwork" weeks earlier, implying that SAP was obliged to follow through.
But what kind of "groundwork" does a R14.9-million commission require?
When we interviewed Pillay in 2017, he told us that business development partners were "small guys who would go out there, identify business and come to SAP with that opportunity".
Except in this case, the water department was a long-standing SAP client and the contract was for all intents and purposes a renewal of an existing deal. Moatshe, the department's acting chief financial officer, confirmed "there was no need for SAP to utilise agents to secure contracts" since the department had been an SAP client since 2001.
"I do not know what services were rendered by NBS in order to earn a sales commission," Moatshe told the SIU in his affidavit. He added: "NBS should not have [the department's contracts with SAP] in its possession."
Meetings with the minister
The purported answer is set out in the "Road to Closure", a standard SAP document designed to capture what role the business development partner will play in closing a deal.
According to this document, NBS Infosys would, amongst other things, "meet informally with the Minister, DG and CFO to ascertain budget availability and allocation to project" and obtain "top management" and "[bid adjudication committee] approval".
How NBS Infosys would obtain approval from a procurement committee that cannot legally be interfered with, or why informal meetings with then minister Mokonyane would influence the contract, is not spelled out in the SAP documents.
Mokonyane, who was removed as minister in 2018, told us that she was unaware of these meetings and that they "never occurred in my presence nor with my knowledge". She said she had at the time appointed Adv Terry Motau, who made "recommendations for immediate action and further investigations". She said the national treasury did not approve her request for an extension of Motau's investigation.
The then director general, Diedricks, also denied ever meeting anyone from NBS Infosys about the SAP deal.
The SIU told the court it found "no supporting evidence to confirm that NBS achieved the deliverables reflected in the Road to Closure, in order to earn the commission".
So how did NBS Infosys – a company with little track-record and a single director/shareholder – insert itself into this billion-rand deal?
In 2019, we went to NBS Infosys' Bryanston office to ask owner and sole director Monirul Islam for answers. He intercepted us in the parking lot and promised to grant us an interview. But within a few days he had lawyered up, and his offer was replaced by legal threats.
After the SIU filed its case, we sent Islam another round of questions, but his lawyer told us that Islam was "presently abroad", had not been served with the SIU's papers and could therefore not comment.
We tried, once again, to visit NBS Infosys in person, but a security guard at the Bryanston office said the company had moved and the company's phone numbers no longer work.
One of the untested allegations from the anonymous whistleblower was that NBS Infosys was a "proxy company" for Luvo Makasi, a lawyer who is alleged to have close ties to Mokonyane. The SIU papers do not mention this allegation and Makasi maintains he had no involvement in the deal at all.
Yet SAP was evidently satisfied with whatever service NBS Infosys had delivered. On 3 March 2016, SAP transferred R14 795 780 into its bank account.
The biggest deals in the darkest times
Christmas had come early for SAP in 2015.
While the rest of the country reeled from the fallout of Nenegate, SAP marveled at two R100-million contracts it had just secured: the one at the water department and one at Transnet.
In both instances it paid commissions to business development partners: 14.9% of the water department deal to NBS Infosys and 14.9% of the Transnet deal to the Gupta-controlled company, CAD House.
SAP already knew that there was a chance that these huge commission deals were tainted. We know this thanks to a leaked internal memo from SAP's then global head of compliance, Melissa Lea, who in early 2016 described the use of business development partners as high risk, "subject to abuse", and "most often at the centre of corruption cases you may read about globally".
The risk is that the business development partners may on-pay at least part of the commission to politicians or officials.
But instead of taking a step back, SAP South Africa was gearing up for a bumper year.
Records show that as soon as the department's money landed in its bank account, SAP started working on a new deal to expand its software to all 10 of the department's water boards.
The price tag this time would be R180 million, and two business development partners would need to be paid: 14.9% to NBS Infosys and another 5.1% to ERP Consultancy, a newly-formed company with no auditor and a registered address at a flat in Midrand. (SAP's documents incorrectly identify the company as "ERP Consulting", which does not exist.)
This would push the sales commissions to 20% (R36 million) of the R180 million. A comment added to SAP's Deal Approval Form notes: "3rd Party Sales Commission strictly at 20% max."
But as the value of the deal expanded from R180 million to R450 million, the demands of the business development partners grew too.
A steal, at R450 million
On 2 June 2016, Mathe approached the department's bid acquisition committee with a new proposal: The auditor-general had criticised the department's ability to monitor where funds went once they were transferred to water boards and municipalities; if all the water boards ran SAP, the department could crack down on waste and corruption, she argued.
Mathe's proposal was to extend the recently-signed SAP contract from three years to five, and to expand access to SAP software to all the water boards.
This new expanded deal with the water boards, Mathe told her colleagues, would cost R450-million but would save the department R1.5 billion over the next five years. Impressive-sounding, but the SIU told the court it could find no explanation for how Mathe reached this figure.
How Mathe pushed the contract through – successfully – makes for fascinating reading. A lot of this detail is already known from a recently released public protector report. In short, Mathe was repeatedly told that she had not done her homework to determine whether the water boards needed SAP products, how many licenses were required and how the department would benefit from this massive investment.
When the public protector questioned Mathe about some of the claims made in her submissions – for example, how had she determined which SAP modules to buy – Mathe said:
"I am too old to prepare submissions, the director in my office prepares submissions, I gave her an instruction, this is what is going to happen, but ask SAP to help you."
(Mathe later contradicted this, telling the public protector that she did not allow SAP to write her submissions.)
Mathe, who was dismissed from the department in 2018 and then reinstated, told us that she was not allowed to speak to the media and that she had not received copies of the SIU's papers, despite being named as a respondent.
The department, which is in the unusual position of litigating, along with the SIU, against its own employee, told us this last part was not true – it had given Mathe copies of the papers. Spokesperson Sputnik Ratau added that the department is appealing the decision to reinstate Mathe.
In a repeat of what happened in December 2015, when Mathe claimed there was budget available to renew the existing SAP contract, she now once again claimed that she had consulted the finance department and confirmed that there was budget available for the new expanded water boards deal. This too was seemingly a lie.
In response, on 24 June 2016 the chief financial officer, Mpho Mofokeng, wrote to Mathe's boss Diedricks raising six objections, including that there was no need for additional licenses, there was no budget and he had not been consulted.
Diedricks resigned the same day, although she claimed to the SIU she never saw Mofokeng's email. Her sudden departure has never been explained.
Other officials also objected to the R450-million SAP deal – including the chair of the department's IT committee, the chief director of legal services and the head of the State Information Technology Agency.
But unbeknownst to Mofokeng and the others there was another lucrative bet underway.
Elections and advance payments
Inside SAP, executives had already been told that two business development partners would need to be paid on this new deal: 14.9% would still go to NBS Infosys but ERP Consultancy had now been replaced by a new partner, Matsei Technologies and Consulting; and the 5.1% stake had grown to 14.9%.
It is unclear why ERP Consultancy was replaced. But amaBhungane's research suggests that ERP Consultancy, whose sole director would become a shareholder of NBS Infosys only a few months later, had performed badly during SAP's due diligence. We wanted to ask ERP Consultancy these questions, but the company is in the process of being deregistered and all attempts to conduct its sole director failed.
Matsei, by contrast, was a well-established boutique consultancy with a track-record in the industry.
But this now meant that an astonishing 29.8% of the R450 million would be siphoned off as commissions.
On 26 June 2016, Lawrence Kandaswami, the newly-appointed managing director of SAP South Africa, approached Pillay, his counterpart at SAP Africa, with an unusual request: the business development partners – now NBS Infosys and Matsei – had incurred "expenses" and were asking for an advance on their sales commission.
Advance payments are amongst the biggest red flags for corruption and are unheard of, even at SAP.
The only person who could approve an advance was Peter David, the chief financial officer of SAP's Europe, Middle East and Africa region, who was based in Germany.
Pillay took the request to him the next day: "Due to the size of the deal the partners are asking for an advance payment of €600k (€300k each) to defray expenses that they have already incurred.
"As a principle, we do not pay commission in advance on [business development partner] led deals – following this request I have received an exception from the compliance team subject to your approval."
The exception had been granted by Christian Mueller, a global compliance officer also based in Germany.
"If you are in agreement to this advance payment we will get the signed contract from the customer (DWS) tomorrow," Pillay wrote.
Remember, Pillay told us that commissions are meant to reward business development partners who introduce new business to SAP. This looks more like a quid pro quo: If SAP promised an advance payment, the department would sign the contract.
Pillay told David that the department had promised to pay the first R200 million by 31 July 2016.
This was also not true. Despite Mathe's best efforts, the bid adjudication committee was still skeptical and other officials were openly hostile to the deal.
But Pillay had attached Mathe's original submission, where she first recommended the R450-million deal. Mathe was the only person who had signed, but Pillay gave it a different spin:
"The attached minute confirm that this transaction was approved internally by DWS and that they have the budget for this spend," he told David, making no mention of the war raging inside the department.
The following day, David okayed the €300 000 advance for each of NBS Infosys and Matsei, on condition that "[the water department] contracts are irrevocably signed with SAP".
Something else that should have raised a red flag was the timing of the request. There was barely a month to go before the local government elections and Mokonyane, the minister that NBS Infosys had supposedly been meeting "informally", was running the perpetually cash-starved ANC's election campaign.
Whether this was just a coincidence, we do not know; Mokonyane told us she was unaware of any connection while the ANC did not respond. But as the election drew nearer, the pressure to finalise the expanded water board deal ramped up and those who stood in the way were shifted.
'Invest and move at speed'
On 6 July 2016, Mathe delivered a revised submission to the chair of the bid adjudication committee and the acting director general for approval.
Although there were still many unanswered questions, Mathe's advice was: "[G]iven the current challenges faced by the department and its subsidiaries, there is no option but to invest and move at speed."
But how much the department would need to invest was still a mystery.
Just one week earlier, the chair of the IT sub-committee, Fundiswa Kula, had warned:
Kula was right to be worried: Not included in the R450-million price tag, was R76.5 million a year for maintenance as well as the unspecified costs of implementing the project and buying new hardware.
Mathe's submission simply said these costs were "still to be determined".
On 21 July 2016, the department held an "urgent" meeting with SAP, in order to "negotiate and iron-out any possible areas of concern" before the contract was signed.
Minutes show that there was still strong opposition to the expanded water board deal. Puseletso Loselo, the chief director of legal services and one of those pushing back, claimed in an affidavit to the SIU that Mathe's behaviour was "very strange ... she acted as if she was a SAP representative. She advanced arguments on SAP's behalf whenever anyone from [the department] raised any queries... She was extremely defensive and pro-SAP".
After the SAP sales team left the meeting, acting director general Sifiso Mkhize "reprimanded" department officials for their "lack of professionalism by attacking each other" in front of SAP.
Less than a week later, on 26 July, he signed. With maintenance costs and other extras added in, the department was now on the hook for at least R949-million. (Mkhize, who has since left the department, did not return our calls.)
Another sure bet
Matsei had gladly accepted the role of business development partner when it was first asked to replace ERP Consultancy in April 2016.
Sure, it had not brought the deal to SAP but as Matsei director Bertus van Niekerk explained to the SIU: "Initially I was under the impression that SAP offered Matsei a percentage of the deal, in order to [be more competitive in] the tender process... I subsequently learned that SAP was not subject to any competitive bidding process to secure the contract."
Over the next few months, Matsei helped SAP to prepare the business case – work that should have cost SAP no more than R3.5-million, according to Van Niekerk.
On 28 July 2016, SAP sent Matsei an appendix to the standard sales commission agreement, spelling out that it would get a 14.9% commission if the department agreed to sign a deal of R400-million or more before 31 July 2016.
It is not clear whether anyone at Matsei was aware that the department had already signed the deal two days earlier; at SAP's request, Van Niekerk had backdated the commission agreement to 26 July 2016.
But Matsei's luck – scoring R59.6-million for R3.5-million worth of work – was about to come to an end.
Could we use your bank account?
On 2 August 2016, the day before the local government elections, SAP made the first "advance payment" "€300k" to NBS Infosys, which translated into R5.5 million, excluding VAT. The next day, election day, SAP paid another R1.4 million into the same account, according to the SIU. It is not clear whether this related to the same deal.
On 4 August 2016, Matsei received an unusual request: SAP wanted to make an (another) advance payment to NBS Infosys and wanted to divert the payment through Matsei's bank account.
"For reasons unknown to me, SAP could not at that time directly pay [NBS] Infosys for sales commission," Van Niekerk told the SIU.
This was, of course, not true: SAP had already paid NBS Infosys directly.
Van Niekerk told the SIU that SAP account executive Shehzaad Noormohamed "requested that I submit an invoice in the amount of R5.5 million (VAT exclusive) from Matsei to SAP for sales commission. This would enable SAP to pay Matsei and Matsei could thereafter pay it over to [NBS] Infosys."
This R5.5 million was the second of the "€300k" advance payments that SAP had okayed for the business development partners. Noormohamed, who has since left SAP, declined to comment.
Over the next week, invoices were drawn up to paper over what was starting to look like money laundering: Matsei presented its invoice to SAP and NBS Infosys presented Matsei with an identical invoice. Emails show that the process was coordinated by SAP.
On 11 August 2016, Matsei passed the second advance payment to NBS Infosys.
"I can confirm that Matsei had no contractual relationship with [NBS] Infosys and was not a customer of [NBS] Infosys. Furthermore, [NBS] Infosys did not provide any services to Matsei and Matsei did not owe [NBS] Infosys any payment," Van Niekerk told the SIU.
Matsei, he added more than once in his affidavit, "trusted that SAP was governing and managing the process".
Robbing water infrastructure to pay SAP
By October 2016, it was time for the water department to make good on its side of the expanded water board deal. Mathe prepared a new submission asking for permission to pay SAP a first tranche of R285 million.
The funds would be found, she noted, from her department's revised half yearly budget: R112-million would come from infrastructure projects, R26-million from the budget to fix leaking canals, R52 million cut from operating costs, and R95 million from "other projects".
On 25 October 2016, the department paid the R285 million.
As per the sales commission agreement, the two business development partners were now entitled to invoice for 14.9% of this tranche, minus the R6.3-million advance payments they had already received.
Within days, NBS Infosys invoiced for and was paid R36.2 million.
Van Niekerk told the SIU: "Mr Noormohamed advised that Matsei can invoice an amount of R36.2-million to SAP," but added, "Mr Noormohamed requested that we paid the full amount of R36 195 000 over to [NBS] Infosys."
Supposedly unaware that SAP had already paid NBS Infosys directly, Van Niekerk told the SIU that it was his understanding that NBS Infosys would be paid first but that "the balance of the payment would be received from DWS within the next few months" and that at that point "Matsei would receive the 14.9% sales commission".
On 25 November 2016, Matsei dutifully complied and paid the R36.2 million to NBS Infosys, which had now received R85 million commission on the deal.
It is difficult not to be skeptical about Van Niekerk's version: At a bare minimum, Matsei was helping SAP to disguise who it was paying and manufacturing bogus invoices to help the process along. We approached Van Niekerk for comment but he told us that his affidavit was "confidential", adding: "I am not at liberty to discuss it."
In the end, Matsei supposedly got nothing for its troubles, Van Niekerk claimed: "I agreed to receive a total of R42 465 000 from SAP and paid it over to [NBS] Infosys on the basis that I understood [NBS] Infosys was a vetted SAP Sales commission Partner ... and that SAP wanted to conclude the commission payments to [NBS] Infosys first," Van Niekerk told the SIU.
Perhaps the most damning claim in the SIU's whole 1 287-page submission is that, despite R285 million being paid, the project to expand SAP to the water boards has never been implemented and one of the most critical and cash-starved departments in the country received no benefit.
Considering that the 2016 contract will expire on 31 March 2021, things are unlikely to change.
In industry parlance this is called "shelfware", that is software that is sits on a shelf unused.
But this situation is not unusual. Minutes from the "urgent" meeting between SAP and the department on 21 July 2016, even noted that the State Information Technology Agency has "a specialist team" to help government negotiate software licensing because "exorbitant contracts with no value have been signed by Government Departments before".
SAP Africa managing director Cathy Smith has spoken about how SAP South Africa is moving on from the #GuptaLeaks scandal, but SAP has declined to answer our questions about the water department deals or for an interview to discuss other public sector deals.
We urged the local and global offices of SAP to reconsider: "As a beneficiary of our tax money, SAP is accountable not only to the people of South Africa but also to its South African clients, who dutifully pay their taxes hoping that it will be used to provide clean drinking water and safe and dignified sanitation to the people of our country.
In response, an SAP spokesperson added: "SAP is in the advanced stages of investigations by local authorities with whom we are fully cooperating.
We are eager for these investigations to conclude, and SAP welcomes a just and fair outcome for the people of South Africa."
For the SIU, that would start with SAP paying back more than R400 million it earned on the 2015 and 2016 deals.