Cape Town - 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 recommends 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 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 benefiting 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."
Mohau detailed how deposits were made into their accounts but the media is barred from revealing those transactions following the decision of the Reserve Bank to ask the Hawks to probe the alleged crime.
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 commission's 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 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."
The forensic report has recommended that steps be taken to recoup monies lost at the bank from the following people:
- Vele and its associates + R936 million
- Tshifhiwa Matodzi = R325 million
- Free State Development Corporation = R104 million
- Kabelo Matsepe = R35 million
- Sipho Malaba R34 million
- Phophi Mukhodobwane R30 million
- Paul Makhavu = R30 million
- Robert Madzonga = R30 million
- Andile Ramavhunga = R28 million
- Solly Maposa = R24 million
- Ralliom Razwinane = R24 million
- Firmanox = R17.4 million
- The Venda king, Toni Mphephu = R17.7 million
- Ndivhuwo Khangale = R16.8 million
- Sechaba Serote = R16.6 million
- Ernest Nesane = R16.6 million
- Brian Shivambu = R16 million
- Foxburgh = R15 million
- Paul Magula = R14.8 million
- Charl Cilliers = R12.6 million
- Tiisang Private Capital = R12 million
- Maanda Manyatshe = R11 million
- Sasa Nemabubuni = R9 million
- Sabicorp = R8 million
- Avashoni Ramikosi = R5.9 million
- Takalani Mmbi = R4 million
- Phillip Tshililo = R2 million
"I recommend further that an auditor's liability claim be instituted by the Prudential Authority, the curator and National Treasury against KPMG for recovery of their respective damages," Motau wrote in the report.
He did not specify how much money the state should seek in damages from KPMG.
Two KPMG partners who had dealings with VBS, Sipho Malaba and Dumi Tshuma, resigned after failing to disclose financial interests in VBS.
Motau said the scale of the looting from VBS would not have been possible had KPMG not signed off on the bank's financial results.
"Malaba was aware that there was a cash hole when, on 17 July 2017, he gave his audit opinion in respect of the annual financial statements for the year ended 31 March 2017," he wrote in the report. "I accordingly find that Malaba committed fraud."
KPMG said it had noted the investigation's publication. Earlier this year it announced changes to its corporate governance to try to restore the reputation of its South African business.
"We will only be in a position to comment once we have studied the full contents of the report," the auditor said in an e-mailed response to questions.
Malaba did not respond to a request for comment sent via his LinkedIn social media account. During the investigation, Malaba blamed failures in the VBS audit on another auditor and said he could not be held responsible for reckless lending by VBS, according to Motau's report.
The ANC on Wednesday welcomed the report and said that "heads must roll, and the law must take its cause without fear or favour".
"The report points towards grave abuse of authority and office as well as worrying instances of corruption. The ANC’s concern has always been about the thousands of pensioners and individuals who depend on this bank, as well as institutions of state who deposited funds from their budgets, earmarked for much-needed infrastructure and services," party spokesman Pule Mabe said.
"On 13 April 2018, and consequent upon the initial findings of the curator which revealed massive losses in VBS, the South African Reserve Bank Prudential Authority, established in terms of the newly promulgated Financial Sector Regulation; appointed legal entities for the purposes of conducting an investigation into the affairs of VBS.
"The ANC-led government championed and led the process towards the establishment of the Prudential Authority within the SARB, which is now expected to act decisively and with the necessary speed to process recommendations from this report.
"The ANC maintains that where there have been wrongdoing by individuals and institutions, heads must roll, and the law must take its cause without fear or favour. The manner in which authorities process this report, will be an important indication on our nation's commitment to renewal and ethical leadership," Mabe said.
Meanwhile, the DA has challenged the EFF to "set the record straight" and publicly confirm whether or not it has ever received money from VBS to fund its operations.
"The EFF has not been shy in their repeated and public defence of VBS Mutual Bank. Reports today, which reveal the extent of the looting and corruption at the bank, show that the brother of EFF deputy president, Floyd Shivambu, Brian received a massive R16 million from VBS.
"For the EFF, which parades itself as quasi-revolutionaries championing the plight of poor communities, to be intimately linked to individuals who shamelessly stole from the poor, affirms that their political posturing towards VBS may be rooted in protecting the personal interests of their leaders.
"Confirming if they did receive funds or not should be a simple exercise that can be settled instantly," the DA said.
"Many hard-working South Africans almost lost their life savings and were forced to wait in long lines, often overnight, just to make sure they could get their money out. A total of 15 municipalities may never see the R1.5 billion they deposited with the bank and will not be able to deliver services to their residents.
"The DA will lay criminal charges against those who have been named in the South African Reserve Bank report including the likes of Brian Shivambu who need to be held accountable for theft.
"The EFF has an opportunity to simply confirm if they have or have not accepted money from VBS and should do so as soon as possible," the DA said.
In a statement, the EFF "noted" the report and called for immediate prosecution of those involved in defrauding the bank.
"The EFF is concerned that the bank cannot be saved. Shutting down the bank will not help efforts to increase black participation in the financial sector... Finally, it is concerning that such looting has been allowed to happen since 2015 and all the much celebrated institutional mechanisms of reporting and monitoring banks by the SARB were not sufficient to prevent the defrauding of VBS.
"Only upon the bank giving Jacob Zuma a loan did concerns arise and decisions to closely look into its affairs happen."
* Read more on the #VBSBankHeist
.