As yet, no-one has been criminally charged in any of the recent high-profile corporate disasters in SA, be it at Eskom or Steinhoff. The question is why.
Lawyers have told the Financial Mail that the answer is simple: the authorities are simply not equipped to investigate large-scale economic crime.
Consider the most high-profile bungle, which has thrown the ability of the state to prosecute commercial crime into sharp relief. Last month the Gupta family successfully argued in court that the freezing order on R180m as part of the alleged Estina dairy project "scam" ought to be overturned.
Their argument was simple: state investigators had failed to prove their claims that Atul Gupta or any of the Gupta associates had directly received money from Estina’s account.
The Guptas’ advocate, Mike Hellens SC, slammed the headline-grabbing Estina asset preservation order as a "national embarrassment" defined by "reckless incompetence" on the part of the state.
The Asset Forfeiture Unit (AFU) regrouped and obtained a court order to freeze R169m allegedly linked to the Estina "scam" and held in the Dubai bank account of shelf company Gateway. The National Prosecuting Authority (NPA) also got a high court order freezing R250m as the alleged "proceeds of crime" linked to Estina.
But lawyers for the Guptas have told the Financial Mail that Gateway "has nothing to do with our clients", and they will challenge any AFU claim on this score in court.
"In relation to the Estina case," the lawyers say, "the state lost any order made against the Gupta family or any company linked to them. That situation has not changed."
In that case, Bloemfontein high court Judge Fouche Jordaan noted that Bank of Baroda transactions involving the Estina dairy project account and Gupta-linked accounts may be "suspicious", but there was not adequate proof to show they were connected. Jordaan also pointed out the bank statements did not show any payments to the Guptas.
It seems that AFU investigators had relied on transactions conducted through the Bank of Baroda’s Nedbank pool account — which served 800 clients — to make the case against the Guptas. This apparent misunderstanding of banking practices prompted Hellens to argue that the state had shown "reckless incompetence".
Buoyed by the Estina win, the Guptas are now fighting to unfreeze accounts containing nearly R2bn that the state says is involved in fraud linked to the Optimum and Koornfontein mine rehabilitation trusts.
In papers filed before the high court in Pretoria this week, one of the funds’ trustees accused the NPA of launching a "vexatious and unmeritorious" application against the Guptas. The trust funds in question held R1.46bn and R280m, respectively.
Pushpaveni Govender, the co-trustee for the Optimum and Koornfontein rehabilitation trusts, says the freezing order should never have been granted in the first place. She fiercely denies that the assets in question are the proceeds of crime.
Govender says the only money transferred from the Optimum rehabilitation fund was R7.5m, needed by the mine’s business rescue practitioners to "make payment to a rehabilitation contractor for rehabilitation work at the mine". And, she says, no money was transferred from the Koornfontein trust; instead, a R100m loan from the Bank of Baroda was used to fund rehabilitation work.
Govender argues that the state’s case is based on "observations" made in former public protector Thuli Madonsela’s "State of Capture" report, as well as documents compiled by the Organisation Undoing Tax Abuse — with little evidence that prosecutors did independent work to verify the allegations.
"The [national director of public prosecutions’] function is to not merely accept allegations levelled against parties in civil proceedings as the truth, but is expected to do his own independent investigations to come to a conclusion," Govender says.
Any effort by the authorities to properly investigate these irregularities has been met with obstruction
— Karyn Maughan
The AFU is expected to oppose the application for the unfreezing of the Optimum and Koornfontein rehabilitation trust funds.
What the Estina and the Optimum cases appear to show, however, is a worrying failure to do proper and sophisticated forensic investigation before going to court. In both cases, there may well be smoke — but more work needs to be done to find the fire.
These forensic failings in such a high-profile case point to the greater problem identified by academics and commentators: the "hollowing out" of key state institutions meant to ensure financial compliance.
Sophisticated criminal enterprises don’t operate in simple ways, which is why you need experienced and well-resourced experts to explain these machinations in ways that prove guilt.
But the exodus of experts from state law enforcement authorities in recent times means government is now outsourcing much of this investigation work to private legal and auditing functions. But even then, it’s not guaranteed that these expensive investigations will lead to charges.
Nothing illustrates the crisis in effective state forensic investigation more powerfully than the legal drama surrounding the Hawks’ apparent failure to act on evidence of blatant criminality at the Passenger Rail Agency of SA (Prasa). There, the scale of alleged corruption, according to one investigator, "makes Eskom look like a Sunday picnic".
What makes this all the more concerning is the growing evidence that the inexplicable awarding of rail contracts may be linked to ANC "fixers" and an elaborate system of kickbacks.
Insiders told the Financial Mail that any effort by the authorities to properly investigate these irregularities has been met with obstruction, political interference and legal action.
This is despite a mountain of evidence. For a start, treasury investigated all Prasa contracts valued at more than R10m from 2012 to 2015. Out of 216 contracts with a combined value of almost R19bn, treasury found that only 13 had been lawfully concluded. It recommended that former Prasa chairman Sfiso Buthelezi — also the former deputy finance minister — be criminally charged.
Nothing happened.
So last year, former Prasa board chairman Popo Molefe went to court to force the Hawks to investigate more than 40 charges laid by Prasa in relation to shady contracts. At the time, Molefe said: "We are in court to force the Hawks to do their job. They have lied to the SA public."
Startlingly, 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.
Molefe’s action could have significant implications for the prosecution of large-scale corruption.
A key point here, however, is that Prasa under Molefe had hired legal firm Werksmans to conduct in-depth forensic investigations into the apparent evidence of corruption at Prasa unearthed by Madonsela, and hinted at by the auditor-general. Madonsela had been stymied by a lack of co-operation and access to documentation, but Werksmans used IT experts to track down thousands of documents. It was this damning evidence that Prasa gave to the Hawks.
The first series of dodgy contracts involved the installation of security management solutions in train stations across SA during and after the 2010 soccer World Cup‚ awarded to a company called Siyangena Technologies.
According to Madonsela’s "Derailed" report, the first contract awarded to Siyangena was improperly extended well beyond the original scope of the tender. Prasa group executive Onica Martha Ngoye has detailed how some members of the Prasa executive bent over backwards to ensure Siyangena got the lucrative deals — without proper tender processes.
Ngoye detailed how Siyangena began small, providing security gates and CCTV cameras to two stations for R2.5m each during the World Cup. But over time, it ended up scoring a R1.9bn Prasa contract to provide security for 62 train stations. This meant Siyangena was effectively being paid a staggering R31.5m per station.
In 2016, News24 reported that Siyangena had paid over R550m to companies directly linked to Chockalingam (Roy) Moodley, the known ANC benefactor and friend of former president Jacob Zuma.
Moodley is the same man who allegedly paid Zuma a salary during his first four months as president in 2009.
The authorities are simply not equipped to investigate large-scale economic crime
— What it means
Prasa is now challenging the legality of R4bn in contracts awarded to Siyangena. Siyangena has hit back with an urgent application seeking proof that Werksmans was duly authorised to bring this legal action on behalf of the Prasa board.
Perhaps the Prasa executive with the most to lose is former CEO Lucky Montana, who was heavily implicated in wrongdoing in various investigations. Montana has repeatedly slammed Molefe for spending R150m with Werksmans, even though the Werksmans investigation has reportedly saved Prasa R2.5bn.
But Montana isn’t the only one. Recently, former transport minister Joe Maswanganyi also tried to put the brakes on the Werksmans investigation, claiming Prasa could not afford to pay the R150m.
The second contract that Prasa wants the Hawks to investigate was for the purchase of 70 locomotives from a consortium called Swifambo in 2013 for R2.6bn. The problem was that those locomotives were "too tall" for the local rail system.
Prasa successfully challenged the legality of that contract in the Johannesburg high court, where Judge Ellem Jacob Francis found that Swifambo was 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 BBBEE rating. Vossloh could not bid on its own."
Swifambo has successfully applied for leave to appeal the ruling.
Meanwhile, the Hawks will face off with Prasa this month, challenging Molefe’s authority to bring the case compelling them to do their jobs.
The Hawks deny they haven’t investigated Prasa’s evidence, but have yet to explain why no-one has been charged.
The stakes are immense. If Molefe succeeds, it clears the way for other organisations, and indeed private sector companies, to also head to court to force our laggardly authorities to do their jobs.
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