CAPE TOWN, October 10 – A forensic report by investigators appointed by the South African Reserve Bank into the failure of VBS Mutual Bank has found that there is no hope of salvaging the institution and details in crime thriller fashion how it was captured by corrupt directors and accomplices with political connections.
The report, titled “The Great Bank Heist”, was released by the central bank on Wednesday and finds that some 50 people gratuitously received R1.894 billion from the bank over a three-year period starting in March 2015. Most of that money flowed to VBS executives and entities linked to them, notably Vele Investments, resulting in the “significant impoverishment” of the bank’s depositors.
The report was penned by Advocate Terry Motau, who led the probe along with Werksmans Attorneys, and recommend that criminal sanctions be brought against the culprits, that funds be frozen by the Asset Forfeiture Unit to recover the spoils and that steps be taken against KPMG. It found that the firm signed off on the bank’s statements though it was aware of its R1 billion shortfall.
“The investigation has revealed a wide range of criminality in the conduct of the affairs of VBS. That is also so in regard to Vele. Indeed, it emerges very clearly that VBS and Vele have been operated as a single criminal enterprise, with (chairman Tshifhiwa) Matodzi firmly at the helm. It is imperative that those who have been identified as participating and benefitting from this criminal enterprise be charged and prosecuted.”
Motau compared what transpired at VBS to a daring heist at Standard Bank in Krugersdorp over Easter in 1977 when robbers made off with R400,000 after tunnelling into an underground vault. He found that Matodzi alone pocketed more than R300 million.
“My report will reveal that the perpetrators of the heist at VBS made away with almost R2 billion. And they certainly did not put in anything like the hard work and effort of Mister Nightingale and his team. I trust that, in this case, arrests will be made.”
Motau wrote that VBS, historically a small lender and a depositor for retailers, burial societies and stokvels, embarked on a campaign to attract substantial deposits from municipalities and, later, the Passenger Rail Agency of South Africa (Prasa) through a system of paying “commissions”. It also set its sights on bigger state entities, including Transnet and South African Airways.
“This, in many instances, included the payment of bribes to various public officials who were in a position to influence the making of such deposits.
“Payment of very large sums of money was made to the various perpetrators of the scheme of looting as a reward for their participation, and substantial bribes were paid to certain of VBS’ directors and other related parties in order to buy their silence and to look the other way while the looting was going on.”
Somewhere along the way, at roughly the same time the bank was trying to secure a deposit of R1 billion from Prasa, instructions were given to deposit R1 million into the Jacob G Zuma Foundation run by former SAA chairwoman Dudi Myeni. Ultimately Prasa did not make the deposit, for which VBS was apparently prepared to pay millions in “commissions” to high-ranking officials at the rail agency. The report gives credit for this narrow escape to Prasa’s former acting CFO Yvonne Page.
“Page’s steadfast and principled refusal to bend the rules saved PRASA from making what would have proved to be a very bad “investment”.
VBS did however secure deposits of R3.4 billion from municipalities and in the course of the investigation those who testified reluctantly named the treasurer general of the ANC in Limpopo, Danny Msiza, as a “kingpin” in the commissions’ scheme that secured the deposits. This happened despite warnings that the Municipal Finance Management Act did not allow deposits in mutual banks.
The scheme involved VBS directors creating large fictitious deposits in favour of Vele, which was put forward as the bank’s biggest shareholder, and its associates. They then went on what Motau terms “a massive spending spree at the expense of VBS’ depositors”.
He said that this could have been detected much earlier but for the fraudulent misrepresentations in monthly regulatory returns that VBS submitted to the Registrar of Banks, and in its audited financial statements for the 2016-17 financial year.
“These frauds misled the Registrar into believing that VBS was in a financially sound position whereas, in truth, its liabilities exceeded its assets by about R180 million and it was, thus, hopelessly insolvent as at 31 March 2017. By the time that the bank was eventually placed under curatorship, the position was exponentially worse. Had the truth been told the Registrar would have been able to act far more expeditiously and the looting could have been stopped earlier.”
Three directors of VBS confessed to taking illicit payments. One of them was Paul Magula, a non-executive director who used to be the executive head of risk management at the Public Investment Corporation (“PIC”), which holds some 26 percent of the issued shares in VBS.
Another was Phalaphala Avhashoni Ramikosi, a non-executive director and the chairman of the audit committee, as well as the former chief financial officer of the SA police. He admitted that he received unlawful payments made to a nominee for his benefit. Phophi Londolani Mukhodobwane, the general manager of Treasury at VBS, admitted that he received vast sums from Vele’s banking account at VBS in return for his complicity in the scheme.
Also among those who received big payments were Paul Makhavhu, an attorney who acts as an advisor to the Venda king, TP Mphephu Ramabulana.
“Makhavhu, as well as the king, received vast sums of money for lending the support and influence of the royal family to VBS and Vele,” the report finds.
It concludes that urgent steps must be taken to wind up the failed bank.
“It seems clear to me that there is no prospect of saving VBS. It is corrupt and rotten to the core. Indeed, there is hardly a person in its employ in any position of authority who is not in some way or other complicit.”
– African News Agency (ANA)