EXCLUSIVE: How top municipality officials laundered millions

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Africa News 24-7 Team

JOHANNESBURG- Top officials and a senior councilor at the small Lesedi Municipality in Heidelberg have been accused of stealing millions of rand which they allegedly laundered through a private company that had barely been contracted by the municipality for weeks.

The money, an insurance pay-out made in December last year never reached the coffers of the municipality as the insurance company was allegedly instructed by Lesedi Municipality’s acting chief financial officer Gugulethu Mncube to deposit about R2.5m into the bank account of Nolewu Construction and Chemical Supplies, a company that was contracted by the municipality for maintenance and refurbishment in November 2018, just a month before the insurance pay-out was made into its bank account.

The insurance claim was a result of severe damage suffered by the municipality during two floods in 2017 that saw many houses flooded, roads washed away and electrical poles blown to the ground. The total loss to the municipality was estimated in excess of R25m. The municipality’s efforts to have the area declared a disaster failed after all processes were followed, including submission of relevant documents to the Department of Cooperative Governance and Traditional Affairs (COGTA) through the district municipality disaster department.

Sources say Lesedi Municipality had to spend its own money to fix all the essential infrastructure that was affected and went on to file a claim with a municipal insurance company. But the insurance company took longer to process the claim and eventually ended up paying only R2 418 630 ex gratia, arguing that the municipality was underinsured.

Proof of payment that shows Insurance company paid money into Nolewu’s bank account. FILE PHOTO: Supplied

A highly-placed source at Lesedi Municipality who spoke on condition of anonymity said the instruction by Mncube, approved by her boss, acting municipal manager Gugu Thimane to the insurance company was irregular “since there is no legal basis for such an instruction to authorize payment to a third party”. Added the source: “All monies due to municipalities must be paid directly into their primary bank account in terms of Section 6 of the Municipal Finance Management Act (MFMA).”

“The Insurance company initially refused to pay to a third party but was coerced to do so by a council executive. This conduct constitutes fraud and is a clear indicator of fraudulent intent”, said the source. He added that the council was not informed about the matter, neither was council approval sought in this regard. The source said it is suspected that Nolewu, which was appointed by the municipality just weeks before the insurance pay-out, was used by senior Lesedi officials to launder the money for their own benefit.

“The only reason they used a private company was that they knew it would be difficult for them to steal the money if it was deposited into the municipality’s primary account. They were also under the impression that the council would not be aware of the pay-out. This is a clear case of theft and money laundering which constitutes a criminal act,” the source said.

Lesedi Municipality acting municipal manager, Gugu Thimane. FILE PHOTO: Supplied

Africa News 24-7 sent questions to both Mncube and Thimane. The latter declined to comment, saying Mncube was best placed to answer the questions. Mncube did not say who issued an instruction to divert monies due to Lesedi Municipality to a third party. “No municipal funds were withdrawn from the municipality’s bank accounts, an insurance claim was sent to the municipality’s insurer, upon approval of the claim,  the insurer appointed Nolewu to conduct the works on their behalf, Nolewu’s details was sent to the insurer as they were already appointed for similar work in Lesedi and already authorized by Lesedi to work on Lesedi’s network,” said Mncube.

Asked if the diversion of funds to a third party was disclosed, reported and approved by the council in accordance with the MFMA, Mncube said: “No funds were diverted, it was like any other insurance claim and the insurer settled the claim through the normal processes and acquired the services of Nolewu Construction to execute the work as per approved claim. It should be noted that Nolewu was already appointed by the municipality to do similar work and already authorized by Lesedi to work on Lesedi’s network.”

When asked to explain the reasons for the alleged violation of the law by not depositing monies due to the municipality into its primary bank account as required in terms of legislation, Mncube said: “The insurer can opt to settle the claim by depositing the funds to the municipality or execute the work required to settle the claim through a contractor. In this case, it was decided that they appoint the contractor directly for the execution of the work. The municipality merely advised on the competent contractor who is already executing similar works for the municipality and already authorized by Lesedi to work on Lesedi’s network.”

However, a source from the insurance company who spoke anonymously contradicted Mncube. He said the company only agreed to make the payment through the third part after being pressured by Mncube. “For several weeks the acting chief financial officer called us every day, demanding that the money not be paid directly to Lesedi Municipality but to a private company. Finally, we succumbed to her pressure just to salvage the relationship with the client,” said the source.

When Africa News 24-7 contacted Nolewu Construction director Brandon Louw telephonically, he said the matter was “scary”. When asked what happened to the money, Louw asked that questions be emailed to him. In his written response, Louw said: “We take strong exception to any statement that states that we are in any way corrupt or that we associate ourselves with corrupt activities. We have throughout maintained a good working relationship with all our clients and have delivered on all tasks assigned to us with the utmost professionalism and workmanship required from us.”

Louw added: “We do not authorize payments or have anything to do with the payments made by Lesedi and therefore maintain that we have at no stage breached any of the provisions of the MFMA Act. We, therefore, bare no knowledge of these allegations.”

Despite Louw’s denial of such a payment, Africa News 24-7 is in possession of documents that show that an amount of R2 418 630.07 was made into Nolewu’s Nedbank Account on 10 December 2018 by insurance company Guardrisk Holdings Limited.