VBS gang finally goes down – what you need to know

VBS Mutual Bank's former chairperson Tshifhiwa Matodzi.
VBS Mutual Bank's former chairperson Tshifhiwa Matodzi.
PHOTO: Lucky Morajane/Netwerk24
  • Mass arrests follow the apparent collapse of drawn out plea bargain talks with a top VBS executive.
  • Among those arrested is a former CFO of the police service who sat on the VBS board during the looting spree.
  • Racketeering charges could mean prison terms of between 15 and 30 years on top of other charges.

Eight men who are prime suspects in the looting and collapse of VBS Mutual Bank have been arrested in a coordinated multi-province search and seizure operation by the Hawks and the National Prosecuting Authority (NPA).

This includes the bank’s former chair, Tshifhiwa Matodzi, chief executive, Andile Ramavhunga, treasurer, Phophi Mukhodobwane, and chief financial officer, Philip Truter.

Heavily compromised outsiders were also arrested. This includes two former representatives of the Public Investment Corporation (PIC) to the VBS board, Paul Magula and Ernest Nesane. They allegedly accepted bribes to look the other way.

Another board member in the dock is Phalaphala Avhashoni Ramikosi, the former chief financial officer of the South African Police Service (SAPS).

The top cop was a nonexecutive member of the VBS board and served on the highly compromised audit committee as well as its risk and compliance committee – theoretically making him one of the key checks on the VBS executives’ alleged plundering of the bank.

Shortly after VBS collapsed in March 2018, Ramikosi was suspended from the police due to an unrelated investigation into tender fraud by the Independent Police Investigative Directorate (IPDID). He has not previously been identified as a key person of interest in investigations into VBS.

Last but not least, among the accused is Sipho Malaba, the disgraced audit partner from KPMG who signed off on the bank’s fake financial statements to hide from regulators how the bank was hollowed out.

It is understood that one of the men was not taken into custody as he is in Covid-19 isolation. It was not immediately clear who.

Arrests have been repeatedly delayed by, among other things, the NPA wrangling with a potential state witness from the inner sanctum of the fraud: long-serving finance boss Truter.

There were several months of negotiations with Truter, who was offered a plea bargain.

AmaBhungane understands from several sources that the talks were on-again-off-again since at least November last year.

Truter was going to provide a sworn affidavit apparently totalling several hundred pages to the NPA in exchange for limiting his own jail term to seven years under relatively comfortable circumstances in a minimum-security prison.

It now appears that the deal has collapsed entirely with Truter facing the same fate as his colleagues if found guilty.

That fate is a minimum 15 years’ mandatory sentence – and maximum 30 years – on a charge of racketeering, the crime of running or benefitting from a "criminal enterprise" over time.

The racketeering charges could also be supplemented by other distinct commercial crimes like fraud and money laundering.

The eight are expected to appear in the Palm Ridge Magistrate’s Court, in Ekurhuleni, tomorrow.

Recap

Despite public scrutiny and several distinct investigations, both the full extent and the exact role of central and peripheral role-players remain remarkably opaque.

The men arrested today were the core of the alleged conspiracy even though dozens of others played roles allegedly from facilitating the bribery of municipal officials, to forging documents.

Some of them had already confessed aspects of these crimes to the investigative team working for the South African Reserve Bank (SARB) under advocate Terry Motau in 2018. That evidence, widely publicised in Motau’s Great Bank Heist report, is however inadmissible in a criminal trial.

An enormous amount of additional information from Motau’s investigation, in the form of interviews and bank records, has however been made available to the Hawks by the Reserve Bank. This has not been made public.

Kuben Naidoo, Terry Motau and Ismail Momoniat
South Africa Reserve Bank deputy governor Kuben Naidoo, author of the forensic report into VBS Mutual Bank advocate Terry Motau, and Treasury deputy director general Ismail Momoniat.

In the old VBS offices in Rivonia, hundreds of neatly filed boxes of documents occupy a large empty room after having been scanned. Search and seizure operations occurred at the bank’s offices a month after it went into curatorship.

What happened at VBS was technically complicated but essentially a classic Ponzi scheme that took off modestly in 2015 and reached catastrophic proportions by 2018.

The bank took in real deposits, largely from municipalities, and then redistributed that money to a coterie of the bank’s executives, their friends, their companies and to a vast network of officials at municipalities that required bribing.

The single largest beneficiary of the scheme was Vele Investments, VBS chair Matodzi’s investment company.

Vele used VBS money to rapidly acquire and run a number of very real companies. It even used VBS money to ostensibly buy shares in VBS.

VBS ultimately ran out of money on 16 February 2018. It was placed under curatorship on 11 March 2018 after intense last-minute wrangling with the Reserve Bank and National Treasury. Clients were suddenly faced with being unable to withdraw their deposits.

The mechanics of the fraud involved creating accounts in the name of a company or individual who had never deposited money. These accounts were then credited with whatever amount VBS bosses saw fit.

This fake money was however worthless until it left the bank. To achieve that, these accounts had to make external payments to accounts at other banks.

These external payments are what added up to a grand total of R1 894 923 675 – almost R1.9 billion – in "gratuitous benefits" cited in the Great Bank Heist report.

That was not the total amount that left the bank; the number is just the total for 53 targeted "persons of interest", including all eight arrested individuals.

Another way to get money out was simply to create accounts and let them run up apparently indefinite overdrafts without these ever getting repaid.

Then there were also vehicle loans and mortgages that were not repaid.

At last count, VBS was missing R2.3 billion. This is the difference between proven claims of R2.7 billion and existing assets of R400 million recorded in liquidator Anoosh Rooplal’s most recent report following a creditors’ meeting last October in Limpopo.

That is not all theft. VBS also had what looks like extremely bad, but legal, loans on its books.

Although municipalities were by far the largest losers, small retail depositors were the ones queuing overnight at VBS branches hoping to recover their deposits after 11 March 2018, the day the bank was placed under curatorship.

National Treasury ultimately made R260 879 594 available to pay these mostly poor people from rural Limpopo up to R100 000 each. Depositors with more than that in the bank, including stokvels, lost another R75 680 758.

Businesses with deposits have lost R296 700 297.

The single largest creditor is however the PIC, which is owed R412 961 589 thanks to capital it provided to VBS as an investor, as well as a R350 million fuel finance facility it gave VBS in 2015, which was spectacularly abused through fraud.

Who next?

A major problem with the investigation by Motau was that it was not always clear who got the money once it left the bank. It often went to presumably blameless recipients like car dealerships and estate agents for the cars and houses VBS bosses splurged on.

Reams of bank statements extracted from the ruins of VBS that have been leaked or surfaced in court records show dozens of likely targets for prosecution in the near future.

These range from the Venda king Toni Ramabulana Mphephu to the ANC’s treasurer-general in Limpopo, Danny Msiza, who played a key role in getting municipal deposits to VBS – a role laid bare in annexures to several VBS court cases.

Other ANC figures are also implicated as recipients of "gratuitous" benefits.

The leadership of the EFF has also received VBS money through a company belonging to the brother of its second-in-command, Floyd Shivambu.

Prosecutors will probably find very fertile hunting ground in the municipalities that shovelled money into VBS.

Mukhodhobwane, the VBS treasurer, told investigators that bribes were paid to officials at every single municipality that put money in VBS.

About 20 local governments did so, providing most of the cash that got looted.

At the time the bank collapsed in March 2018, a total of 15 of these municipalities had a collective R1.5 billion stuck in the bank with little to no hope of recovering it.

Separate forensic reports have been commissioned at every one of these municipalities and VBS insiders tasked with delivering bribes have given confidential evidence to Motau and perhaps the NPA or Hawks as well.

Who did what

The alleged conspirators who got arrested all played key roles.

Ramavhunga, the chief executive of VBS from 2014 to the implosion of the bank, is said to have received R28.9 million in "gratuitous" benefits starting early 2015.

His benefits apparently started with him receiving a generous "second salary" from Vele Petroport, Matodzi’s first venture that would rely on VBS funding. Ramavhunga would get paid by Vele directly as well as through front companies, receiving bonuses of several millions of rands.

His work for the scheme included allegedly implementing a plan playfully dubbed "Black Ops" which entailed creating fake contract finance assets to cover up the hole in VBS’ books.

His regular payments from Vele are clearly visible in bank statements. When he was opposing his sequestration in court, he tried to explain them away as fees for extracurricular work.

Ramavhunga was key to the incestuous relationship between VBS and Vele. He personally brokered major deals and was about to be richly rewarded just when VBS crashed. He was supposed to become head of a far grander entity called Vele Financial Services which would own VBS and other Vele acquisitions.

He was simultaneously running the bank and working for its largest client – a gross conflict of interest.

Ramavhunga was also allegedly the one who signed off on an audacious deal for Vele to acquire an insurance premium collection company called Insure Group Managers with R250 million that never existed except as an entry in the VBS books. This nonetheless led to Insure withdrawing R173 million in real depositors’ money.

Ramavhunga also allegedly helped arrange a bribe to unknown parties at the Passenger Rail Agency of South Africa (Prasa) to secure a R1 billion deposit that was meant to save VBS in early 2018.

He has steadfastly insisted he had no idea what was going on at the bank he ran.

Mukhodhobwane, the treasurer, was the last of the alleged conspirators to join the bank in August 2016, but was in many ways the personification of what went wrong there.

When he got hired by VBS he was an unemployed 32-year-old banker with money problems. Within 18 months he had bought R30 million worth of cars and property on an official salary of R75 000 per month.

He has admitted to participating actively in most of the major frauds at VBS in an affidavit provided to the Reserve Bank’s investigators in May 2018.

This "whistleblower" affidavit is the source of much of what is known about the VBS fraud and the various allegations against the main players. In it, Mukhodhobwane confessed to manipulating VBS’ books to facilitate the Insure deal, as well as a massive purge of overdrafts in March 2017, among other things.

Truter, the chief financial officer, allegedly manipulated the bank’s records alongside Mukhodobwane.

Truter is also by far the longest-serving VBS executive implicated in defrauding the bank. He had been with VBS since 2005, long before the apparent start of the pillage which followed the arrival of a new shareholder in the form of Matodzi and colleagues.

His alleged share in the largesse has been pegged at a surprisingly minor R5.8 million.

Magula and Nesane, the PIC’s two representatives at VBS, were paid extravagantly from 2015 through to the collapse of VBS.

Magula had an annual salary of R2.4 million from the PIC but got R14.8 million in "gratuitous benefits" in just two years from VBS. Nesane likewise had a salary of R2 million at the PIC but got R16.6 million out of the bank.

Their job was mostly to do nothing. They allegedly did not raise any questions and did not report anything they saw at VBS to their employer, the PIC.

The PIC owned 26% of VBS and repeatedly funded it.

An investigation the PIC itself commissioned from Nexus Forensic Services revealed how both Magula and Nesane worked on a R350 million fuel finance facility that the PIC granted VBS way back in 2015.

Magula was the one who allegedly initially put it together and Nesane allegedly intervened secretly to change the conditions of that contract to prejudice the PIC.

The two also recommended that the PIC make further investments in VBS, which led to the state-owned asset manager giving VBS R90 million in December 2017, shortly before the bank collapsed.

Magula and Nesane have both subsequently been struck off the list of registered financial service providers and are now debarred because they do not "comply with personal character qualities of honesty and integrity".

Ramikosi, the top police bureaucrat, played a role that is still unclear.

None of the previous investigations delved very far into his case. According to Motau’s report, he however did confess to getting paid off alongside Magula and Nesane.

Nesane told the investigators that Ramikosi constantly defended the VBS executives at audit committee meetings where he was the chair. Like the two PIC men, he got his VBS money through a front company and his total alleged payoff totalled just under R6 million.

Malaba, from KPMG, was arguably key to the entire VBS enterprise. As audit partner to VBS he was allegedly tasked with hiding the fact that VBS had dissipated virtually all of the cash it claimed to have in the bank.

His main contribution was allegedly to clamp down on the audit of VBS’ financial statements for the year to 31 March 2017. Junior audit clerks were baffled by VBS’ inability to show where its claimed cash was, and the problem was kicked up the chain of command to Malaba.

He allegedly told everyone he had sorted it out.

His sign-off on the financials was the basis of KPMG also signing off on VBS’ financial report to the Reserve Bank, making Malaba instrumental in hiding the fraud from the authorities. He allegedly got paid R34 million through two front companies, a tally that indicates how important he was.

Matodzi, the chair and mastermind behind it all, will likely be facing an excruciatingly long list of charges.

It starts with the way in which he, through Vele, took control of VBS in the first place by allegedly buying shares with fake money from the bank itself, abetted by Ramavhunga and others.

From there, VBS money funded his personal expenses, but also Vele’s various acquisitions totalling hundreds of millions.

The big ones were Insure for R250 million, the Mvunonala Group for R300 million and Anglo African Finance for R80 million.

A laundry list of his companies operated on VBS overdrafts and he infamously got himself a R6.5 million Ferrari.

Millions more left the bank from accounts belonging to other companies he controlled.

More than anything else, he stands accused of orchestrating every fraud the others committed. It is impossible to calculate exactly how much money left VBS to fund him and his businesses, but the going estimate is R326 million for Matodzi, plus his smaller concerns, and R937 million for Vele.

In this context, extravagances like a R12 million helicopter bought in Vele’s name for the use of the Venda king are really the tip of the iceberg.

All the individuals arrested today have already been sequestrated and have lost their registration as financial service providers.

Matodzi and Ramavhunga lost their chartered accountant designations, but real material consequences have been limited to the loss of a few assets like Matodzi’s house in the exclusive Eagle Canyon Estate, which was seized and sold off for a meagre R5 million.

Now the real accounting begins.

an amaBhungane investigation


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