ANALYSIS | Can a public-private alliance succeed in VBS fraud case after Prasa failures?

Seven of eight VBS suspects appeared in the Palm Ridge Magistrates’ Court on counts of corruption, racketeering, fraud and money laundering.
Seven of eight VBS suspects appeared in the Palm Ridge Magistrates’ Court on counts of corruption, racketeering, fraud and money laundering.
PHOTO: Tebogo Letsie/City Press
  • With the Hawks rounding on nine men accused of involvement in defrauding VBS Mutual Bank, the state may lean on evidence gathered by law firm Werksmans.
  • Werksmans previously uncovered evidence of corruption at rail agency Prasa, though that probe was seemingly not welcomed with open arms by the Hawks.
  • In recent years, South Africa's prosecuting arm and law enforcement agencies have been "hollowed out", leading to a dearth of financial investigators.

The government has spent hundreds of millions of rands funding the investigation by private law or audit firms of alleged multi-billion rand looting and financial malfeasance at state-owned entities and government institutions – with little to nothing to show for it.

But that may soon change, with the National Prosecuting Authority's (NPA) use of evidence uncovered by private law firm Werksmans to pursue charges against those accused of involvement in what's been described as The Great Bank Heist (as advocate Terry Motau's report is named) of VBS Mutual Bank.

This case, as well as the promised prosecution of Gupta associates implicated in the multi-billion rand looting of Transnet, could prove to be crucial in showing if and how forensic probes conducted by private corporations can translate into effective prosecutions.

If it fails, however, it may also raise serious questions about the real value of these often very expensive taxpayer-funded investigations.

One thing needs to be stated at the outset: The ability of state law enforcement to conduct sophisticated investigations into the complex criminal webs that underpin government and corporate corruption has, for a very long time, been virtually non-existent.

There are multiple reasons for this, which include the "hollowing out" from the NPA and law enforcement agencies of effective financial crimes investigators and prosecutors and, arguably, an apparent lack of political will by the Zuma administration to resource the state in prosecuting high-level economic crimes.

Never was this inability more apparent than in the NPA's disastrous attempts to prosecute Gupta family associates over the so-called Estina Dairy Farm scam. Under the leadership of then-NPA head Shaun Abrahams, and in the dying moments of Zuma's presidency, the NPA's Asset Forfeiture Unit (AFU) also attempted to freeze R180 million of Gupta family assets that it argued were the proceeds of crime linked to the scam.

But the prosecution and the asset forfeiture case, which should have secured some form of justice for the dozens of poor black farmers who were meant to be empowered through the allegedly fraudulent Estina project, fell apart spectacularly.

It would emerge that AFU investigators had relied on transactions conducted through the Bank of Baroda's Nedbank pool account – which served 800 clients – to make a case that Atul Gupta and various Gupta-owned companies had received Estina funds. This apparent misunderstanding of banking practices prompted Gupta advocate Mike Hellens to argue that the state had showed "reckless incompetence".

While Judge Fouche Jordaan noted that Bank of Baroda transactions involving the Estina Dairy Project account and Gupta-linked accounts may be "suspicious", he effectively found there was not adequate proof to show that they were connected.

The criminal prosecution of Gupta family associates and Free State government officials implicated in the Estina Dairy Project scam collapsed months later – but NPA Independent Directorate head Hermione Cronje remains adamant that it will be revived, presumably following a more thorough investigation of international and local money flows linked to the project.

Whether such an investigation involves the use of private forensic investigators remains to be seen.

What is apparent, however, is that detailed forensic investigations conducted by private firms certainly do not guarantee prosecutions.

Prasa investigation train stalled

Nothing illustrates this more powerfully than the failure of state law enforcement bodies to take any action over the well-documented evidence of alleged massive corruption at the Passenger Rail Agency of SA (Prasa) – evidence that was uncovered, largely, by Werksmans.

Popo Molefe, the former chairperson of the Prasa board, says he spent years begging the Hawks to investigate R14 billion of wasteful, irregular and potentially corrupt expenditure at the rail agency – following then-public protector Thuli Madonsela's damning Derailed report.

READ | Prasa fires 4 senior managers linked to 'Derailed' report

Following that report, Treasury investigated all Prasa contracts valued at R10 million or more, concluded between 2012 and 2015.

Out of 216 contracts with a combined value of almost R19 billion, Treasury found that only 13 were lawfully concluded – and recommended that former Prasa chairperson and former deputy finance minister Sifiso Buthelezi be criminally charged for overlooking this blatant mismanagement and alleged corruption.

Nothing happened.

Molefe, who testified at the commission of inquiry into state capture on Monday, says the Hawks claimed they didn't have the ability to do in-depth forensic investigation into where this money went – a claim that the Hawks would later fiercely deny. As a result, Prasa turned to Werksmans.

The subsequent forensic investigations conducted by the law firm are estimated to have cost between R150 and R300 million.

ALSO READ | 'I reported Prasa corruption to ANC national executive committee' - Molefe tells Zondo commission

Former Prasa CEO Lucky Montana, who was heavily implicated in wrongdoing in investigations conducted by Madonsela, Treasury and Werksmans, would repeatedly slam Molefe and his board for spending such large amounts of money on this investigation, which reportedly saved Prasa R2.5 billion.

Ex-transport minister Joe Maswanganyi also tried to put the brakes on the Werksmans investigation, claiming Prasa could not afford to pay its cost, estimated at R150 million at the time.

Controversy over the costs of Werksmans' investigations may also arise in the VBS prosecution, but – at least in that case – individuals are currently facing charges.

Not so in the Prasa saga.

According to Molefe, the Hawks failed to act on the massive amount of evidence uncovered by Werksmans, which included over 1.4 billion documents.

As a result, Molefe asked the Gauteng High Court in Pretoria in 2017 to declare that the unit failed to conduct investigations into Prasa contracts worth R9 billion and had also failed to coordinate their inquiries with the NPA.

Former transport minister Dipuo Peters almost blocked this legal action from going ahead by dissolving the Prasa board, but Molefe challenged this in court and won.

Prasa's case against the Hawks sparked a counter-attack from the unit on Molefe's authority to launch the litigation against it in the first place. After Molefe left Prasa, the case went dormant.

Court papers, however, reveal how suspicious and adversarial the Hawks were towards both Prasa and Werksmans – and indicate a massive reluctance by the law enforcement body to accept the evidence uncovered by the law firm.

In a sworn statement written two years ago, Major-General Alfred Khana, national head of the Hawks' Commercial Crime Unit, confirmed that the Serious Economic Offences Unit was investigating two of Prasa's most problematic tenders: the Swifambo and Siyangena contracts.

According to Khana, Prasa had caused delays in the investigation by not cooperating with Hawks investigators and accused the rail agency of trying to "stage manage" its criminal probe.

He said:

Prasa wanted Werksmans to be involved when potential witnesses are interviewed and wanted Prasa to be the one taking down witness statements and submit to (the Hawks). If that were to be allowed, it would certainly compromise the investigation and its impartiality, opening it up to attack by those who are subsequently charged.

In other words, Khana suggested, Prasa's efforts to supply the Hawks with evidence through Werksmans could render any future prosecution linked to that evidence open to attack. These words could well be used as ammunition by the VBS accused, who are almost certain to attack Werksmans' role in the case against them when they face trial.

While Khana repeatedly insisted under oath that the Hawks were "urgently" seeking to investigate the Swifambo and Siyangena contracts, because of the huge amounts of money involved in these deals, it appears that no criminal prosecutions have come of these investigations.

The Swifambo contract involved the now notorious procurement of some 70 "too tall" locomotives for the local rail system – which was awarded in 2013, at a cost of R2.6 billion. Backed up with the damning evidence uncovered by Werksmans, Prasa successfully challenged the legality of that tender in the Gauteng High Court in Johannesburg, where Judge Ellem Jacob Francis found that Swifambo was essentially nothing more than an unlawful "front" for the international rail company Vossloh España.

The judge said there was enough evidence to prove that Swifambo was a "token participant that received monetary compensation in exchange for the use of its B-BBEE rating. Vossloh could not bid on its own. Instead it concluded an agreement with Swifambo in which its B-BBEE points were exchanged for money".

That ruling was upheld by the Constitutional Court last year.

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The second set of Prasa contracts that Khana claimed the Hawks have been investigating relates to the installation of integrated security management in train stations across the country during and following the 2010 World Cup‚ which was awarded to Siyangena Technologies.

Prasa group executive in charge of Legal Risk and Compliance Onica Martha Ngoye – who is also due to testify at the state capture inquiry – has detailed how certain of the rail agency's executive seemingly bent over backwards to ensure that Siyangena was awarded increasingly lucrative deals – without proper tender processes taking place.

Ngoye revealed in court papers how Siyangena went from providing security gates and CCTV cameras to two stations for R2.5 million each during the 2010 World Cup, to scoring a R1.9 billion tender with Prasa – for security for 62 train stations. This meant Siyangena was effectively being paid a staggering R31.5 million per station.

In 2016, News24 reported that Siyangena had paid over R550 million to companies directly linked to known ANC benefactor and friend of former president Jacob Zuma, Roy Moodley. Moodley is the same man who author Jacques Pauw claims paid Zuma a monthly salary of a million rand during his first four months as president.

Prasa is seeking to again challenge the legality of the almost R4 billion in contracts awarded to Siyangena, after its first bid to do so was quashed on legal technical grounds.

That case was postponed in February this year, after Werksmans cut ties with Prasa over non-payment of its fees. In its application for a postponement of the Siyangena case, Prasa acknowledged this and blamed it on the "financial and operational challenges which it has been experiencing".

Werkmans has now returned to fight the case, after being paid.

Should Prasa win that case, it will again raise questions about the glaring lack of prosecution linked to the apparent looting of funds from the rail agency.

But, it must be stressed, this lack of action is far from unusual. There are a myriad of forensic investigations by private firms into SAA, the Estina Dairy Project, Eskom, Transnet and a host of other government departments and institutions that have uncovered serious cause for criminal prosecution and civil recovery of stolen or irregularly spent funds – and have then seemingly gone nowhere.

It is apparent that the state must develop its own effective forensic investigation capacity. Until it is able to do so, however, it may arguably have no choice but to make effective use of the evidence uncovered by firms like Werksmans to build watertight cases.

The VBS prosecution is a test case for whether such state-corporate alliances can succeed in the oft fiercely contested domain of criminal law.

Its outcome, whether an impunity-busting success or an expensive and humiliating failure, will be game-changing.

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