- Three former city officials arrested in connection with the VBS fraud are accused of making 26 illegal investments in the defunct bank.
- The case sheds new light on how the three allegedly ignored their fiduciary obligations in return for home loans, cars and a holiday party.
- The case also links some payments to shell companies, used by senior VBS officials, to pay bribes.
Millions in cash. Actions. Ready to buy luxury homes and cars. Even a year-end staff party. This is what it took, according to the National Prosecuting Authority (NPA), to ensure that three former West Rand District Municipality (WRDM) officials would continue to make illegal deposits into the now defunct bank mutual VBS. .
The three are the latest suspects arrested in connection with the large-scale looting of VBS. Collectively, they face 20 counts of corruption and two counts of violating the Municipal Financial Management Act (MFMA). If found guilty, they face mandatory minimum sentences of at least 15 years each.
Former city manager David Mokoena, former chief financial officer Romeo Mohaudi and former director of income and expenditure Mzwandile Mkhize have reportedly authorized cumulative investments of more than Rand 347 million from the municipality in VBS.
During a stint as interim city manager in Merafong Municipality from May 2017 to October 2017, Mohaudi also requested that R50 million be invested in VBS.
When VBS collapsed, WRDM lost over R76 million and Merafong lost over R50 million.
About 20 municipalities have made irregular investments in VBS. But the three West Rand executives have a special place in the VBS saga: their municipality was the primary source of large-scale funding for what turned out to be a Ponzi scheme.
A 73-page indictment released by the NPA details how the money was improperly invested, withdrawn and reinvested in 24 different transactions between February 2015 and March 2018. The indictment confirms much of the details of a forensic investigation carried out in 2019 by the audit firm Deloitte – revealed by amaBhungane in June of last year – and adds further evidence.
Addition to the Deloitte case
Deloitte examined the irregular investments of two municipalities in Gauteng, WRDM and neighboring Merafong. The investigation revealed that in August 2017, after supporting VBS for two and a half years, Mohaudi and Mkhize were copied into an email from the National Treasury warning municipalities that deposits made with VBS violated the MFMA and the municipal investment policies.
Mohaudi then dutifully forwarded this email from his personal email account to VBS Managing Director Andile Ramavhunga.
Instead of heeding the Treasury warning, the indictment shows the three officials doubled down and cleared nine more investment deals from WRDM to VBS, which totaled over R 150 million.
The indictment also shows that the three officials received a number of “gratuity” payments either through former VBS chairman Tshifiwa Matodzi, former general manager Andile Ramavhunga, or from the former treasurer of VBS Phopi Mukhodobwane. Solly Maposa, the former general manager of retail for VBS, is also accused of having approved a number of facilities which have been granted to the three city officials.
It appears from the indictment that most of the alleged gratuities received by the three officials took the form of VBS credit products.
The NPA confirms the evidence found by Deloitte, suggesting that the three received “preferential treatment” with regard to home and auto loans for their cooperation in facilitating illegal transfers.
The case against David Mokoena
Mokoena, the former city manager, faces charges of “illegally and intentionally” accepting a total of more than R 5.2 million in “corrupt gratuities”.
The money includes two home loans of R 1.7 million and a credit facility of R 1.8 million granted to trusts of which Mokoena was co-trustee and beneficiary.
Mokoena also had two car loans at VBS, including the R555,000 loan that Deloitte found created when Mokoena transferred its Audi Q7 car loan from Absa to VBS in 2016.
What’s odd about this loan is that Mokoena would be supposed to pay a much higher 10% interest rate at VBS, compared to a 7.85% repayment rate at Absa. Two years later, the car was fully reimbursed.
Deloitte asked why he would shift his auto financing from Absa to VBS at a higher interest rate and how he then managed to reduce the amount of principal “so drastically” afterwards.
What was also curious was that Mokoena had secured the loan through a closed vehicle finance program which, according to Deloitte, was only intended for “approved members, VBS board, staff and to shareholders “. Mokoena did not appear to qualify.
But the NPA’s evidence shows that he was, in fact, a shareholder. In September 2015, Mokoena’s Ngwato Mahlako Business Trust share account with VBS received a transfer of 10,000 shares (valued at R100,000) from the permanent share account of former VBS chairman Matodzi.
Although it is not explained how, Matodzi and Ramavhunga are also accused of facilitating a payment of Rand 150 to the Red Cap Ranch Lodge to host the year-end function of municipal staff.
The Mohaudi and Mkhize affair
During another stint as interim city manager in Merafong Municipality from May 2017 to October 2017, Mohaudi asked Merafong’s CFO Matthys Wienekus to put R50 million into VBS.
Wienekus ended up being the first city official arrested in connection with VBS. According to the indictment, he is now one of the witnesses that the State will present in its case against Mokoena, Mohaudi and Mkhize.
Mohaudi had two home loans with VBS valued at R 1.9 million and R 580,000. In addition, in February 2016, it was granted an overdraft facility of R600,000 by VBS.
Mkhize received a total of R3.2 million from VBS in the form of a bond, two vehicle finance loans and overdraft facilities.
Bribes from shell companies
The NPA indictment sheds new light on the larger system VBS allegedly used to deal with officials in many municipalities – a system involving cash payments, as well as VBS credits.
Mokoena has also reportedly received a number of payments from companies linked to senior VBS officials.
To learn more about VBS, read this:
In particular, the indictment shows how the “slush funds” of front companies were used, the most important of which, called Robvet. Mokoena received a number of payments from this company, including a payment of Rand 400,000 made against one of his obligations with the bank and a payment of Rand 100,000 into his personal account in July 2016.
The Reserve Bank opened an investigation in 2018, led by lawyer Terry Motau. Former VBS treasurer Mukhodobwane told Motau that Robvet was used to pay “commissions” or “facilitation payments” to city officials.
In its separate and subsequent investigation, Deloitte was unable to link any of the West Rand officials to the Robvet account.
But the state will rely on the testimony of Sasa Nemabubuni, general manager of sales of VBS in Makhado, who will be called as a witness.
According to Mukhodobwane’s testimony in Motau, it was Nemabubuni who made the payments from the Robvet account, and sometimes even withdrew physical money to hand it over to city officials. Nemabubuni confirmed his role in managing municipal corruption in his own testimony.
According to the indictment, three of these physical cash withdrawals, totaling R440,000, were intended for Mohaudi in September 2017.
In addition to Robvet, the NPA found a payment of R200,000 which was made to Mokoena’s account in February 2017 from another account controlled by Mukhodobwane called Samuma Enterprises. In July 2016, Mokoena also received R200,000 from Vele Logistics in Matodzi.