Scorpio

The Great Bank Heist: How VBS bought the silence of two key PIC officials

By Pauli Van Wyk 20 August 2019

While politicians used colourful rhetoric to iron out the VBS-creases in parliament and on the streets, the bank's administrators bought the silence of two PIC officials tasked with safeguarding the fund manager's investment. This is the story about Dan Matjila’s right-hand men – executive head for legal counsel, governance and compliance Ernest Nesane and executive head of risk Paul Magula – and how they personally benefited from the VBS robbery.

Former Public Investment Corporation (PIC) officials Ernest Nesane and Paul Magula were bribed to “look away and not raise issues” while VBS Mutual Bank was being robbed into insolvency and the PIC defrauded.

Detail of how much their blinkers cost, and how the money was channelled to Nesane and Magula, is contained in an ancillary report to the forensic report The Great Bank Heist, penned by advocate Terry Motau and law firm Werksmans. The ancillary report focuses on the PIC and is dated May 2019.

Nesane and Magula’s duty, as non-executive directors of VBS, was to guard the PIC’s investment in the bank.

But they were handsomely rewarded to do exactly the opposite: Nesane received R16.64-million in cash payments and loans, while Magula pocketed R12.89-million.

In the process of compiling the Motau report, Nesane and Magula admitted they each received at least R7-million in VBS loot in exchange for their silence.

Nesane and Magula also confessed to Motau that, in an attempt to mask their involvement in the bank robbery, they made use of three “front men”.

Originally from Limpopo, the front men, businessmen Rudzani Nndwammbi, Lufuno Mudau and Lot Magosha, now ostensibly operate businesses in Gauteng.

Magosha was the frontman for Paul Magula, and his links to dodgy PIC deals deserve some scrutiny. He is a chartered accountant and is involved in oil consortium Tosaco, which owns a stake in oil company Total.

A questionable deal the PIC made with Tosaco is under investigation by the PIC Commission. (Read Susan Comrie of amaBhungane’s article on the Tosaco deal). This is how the money flowed.

The silence of the lambs

The PIC had a small investment in VBS, compared to the mammoth deals the fund manager was involved in. Yet both Nesane and Magula were appointed by PIC CEO Dr Dan Matjila to the VBS board to guard R180-million in permanent interest-bearing shares and a R350-million revolving credit facility supposedly used by VBS for fuel finance.

VBS’s fuel finance scam was initially sold to the PIC as a buoy to emerging companies that were awarded fuel supply contracts by the state. Instead, VBS extracted funds from the PIC while using the funds for other means – an act itself likely amounting to fraud.

Nesane, Magula and Matjila signed off on these requests – often lacking crucial supporting documents, a forensic investigation by Nexus Forensic Services, dated April 2019, stated.

The Nexus investigation at the behest of the PIC recommended that criminal charges be laid against several PIC officials, including Matjila, Nesane and Magula. Matjila denied wrongdoing. (Read Sabelo Skiti from Mail & Guardian’s article on the dodgy VBS fuel scheme.)

Earlier in 2019, Magula told the PIC Commission that he had no knowledge and no part in “any illegal activities during my tenure as a VBS board member”.

However, Magula’s PIC commission testimony is in stark contrast to his confession to Adv Motau in the VBS investigation.

Both Nesane and Magula in 2018 conceded to Motau that they were bribed to keep quiet about numerous irregularities identified in three rights issue processes in VBS where the PIC’s stake was illegally diluted, as well as irregularities relating to the PIC fuel finance fraud.

Confessing to Motau, Nesane is quoted in the report as saying:

We received these payments, and it had become clear that these payments were for us so that we would not really raise any issues when there were issues that we would ordinarily have to raise.”

Nesane resigned hours after being questioned by Motau.

During his interview, Magula agreed that the VBS payments, also directed via front companies, were made for his “benefit”.

Both Nesane and Magula confessed to having received north of R7-million in bribes. Motau’s investigations later linked a full R16.46-million in VBS loot to Nesane and R12.89-million to Magula.

When contacted for comment on Friday, 16 August, Nesane telephonically answered questions relating to personal VBS loans. Despite agreeing to comment on additional questions Scorpio had, he was unreachable on Monday, 19 August.

Since the VBS bomb dropped, Magula has changed his telephone numbers. He did not answer queries sent to his personal email address.

VBS loot to Magula

Magula spent his R12.89-million on cars, a property and a home renovation, VBS bank statements leaked to Scorpio suggest.

At least R1.3-million of this was also channelled in 16 payments to the personal Investec account of Lot Magosha, whom Magula claimed was his bagman. Some of the payments to Magosha were marked as “loans”, and others as “advance”.

Magosha is a Limpopo businessman and chartered accountant. His ostensible ownership of two companies, Investar Connect Holdings and Hekima Capital, was used to hide the VBS money flowing towards Magula.

We know this because Magula confessed to Motau during the VBS investigation that he “controlled and benefitted from Investar Connect Holdings and Hekima Capital”, and that Magosha “was simply his nominee”. This, despite Magosha’s much-repeated denials.

Magosha had not reacted to Scorpio’s five telephone calls and eight WhatsApp messages since Friday, despite being online.

Companies and Intellectual Property Commission (CIPC) documents detail an extensive business relationship between Magosha and Magula. Magula is listed as the former director of Hekima Capital. He resigned as director in October 2016, the same day Magosha was appointed as director of Hekima Capital, the very same company. The business is registered at Magula’s residential address in Albertville, Johannesburg. The same address is used for two other businesses Magosha and Magula have in common.

VBS-linked companies Vele Investments and Vele Petroport Holdings paid R3.7-million to Investar Connect Holdings and R3.9-million to Hekima Capital. VBS bank managers used both companies, Vele Investments and Vele Petroport Holdings, to funnel money out of the bank towards themselves and others for bribes, and Motau described the companies as key “washing accounts” of VBS funds. No services were rendered by Investar or Hekima in exchange for these funds, Motau said. According to the report, various payments of R150,000 and later R300,000 were effected consistently over time, which “could be considered to be a ‘salary’ in nature”. A salary, that is, to keep quiet.

 

In addition to the cash payments, Magula received just over R680,000 in vehicle finance and a R4.8-million mortgage bond for a home in Randburg, Johannesburg. Close to R760,000 was paid towards the mortgage bond and just over R100,000 towards the vehicle, Motau’s PIC report states. The Nexus report into the PIC asked for a further probe to ascertain whether Magula received the loans on favourable terms that were not market-related. Magula never disclosed any conflicts of interest in respect of the money or the loans he received while making profound decisions and advising the PIC on its shareholding in VBS, Nexus stated.

 

Bank statements show Magula used about R3.32-million to pay Johannesburg service providers for what seems to be a home renovation. These include payments to luxury kitchen designers Totem Kitchens, Van Acht Windows & Doors as well as services relating to plumbing, building, painting and tiling.

Magula received these bribes because of his positions at VBS: he was a non-executive director of the VBS board and the chairperson of the Credit Committee of VBS Mutual Bank. The first illicit payments from VBS-linked companies to Magula were made in around April 2016, just months after his appointment as non-executive director in 2015.

VBS loot to Nesane

Ernest Nesane spent his R16.64-million in bribe money on three properties, a car and a home renovation, VBS bank statements suggest. The first item on Nesane’s shopping list was a R1.1-million BMW. In addition, VBS bank managers further smoothed over a R2.8-million funding deal for a company of which Nesane was a director, Motau’s PIC report found.

Tshepiso McWazzer, VBS’s business development manager, testified that the bank managers instructed the finance team to approve a previously declined deal of R2.8-million for a company called Ralethongwane Trust Investment with links to Nesane. McWazzer said the deal was “declined two or three times before it was actually approved. Then the last time we were actually told to do it, but it wasn’t really a nice deal to do.” In quintessential VBS style, the loan was never paid back.

Nesane did not comment on questions relating to this deal.

Nesane used two bagmen to hide his hand in the bank robbery, he admitted to Motau. Both are originally from Limpopo.

Of Nesane’s R16.64-million, Pretoria businessman Rudzani Nndwammbi received almost R73,000 in his personal bank account for running Parallel Property Holdings as Nesane’s front, bank statements show.

Parallel Holdings did not provide any services to the VBS-linked companies, but merely received the money which bought Nndwammbi’s silence.

During a phone call on Monday 19 August, Nndwammbi stated that he had “nothing to say”.

Go ask Nesane, he told Motau these things.”

Nndwammbi cut the call when he was asked whether he denied any wrongdoing.

Nesane further used Johannesburg businessman Lufuno Mudau’s company Rengani Group to move R1.3-million out of Parallel Property Holdings. It has not been ascertained whether Mudau, a friend of Nesane’s brother-in-law, received any benefits.

Mudau is also a director of Parallel Capital, CIPC documents show. The company shares an address in Atteridgeville, Pretoria, with Nndwammbi’s similarly named Parallel Property Holdings. Nesane is a director of two unrelated companies with the same address in Atteridgeville. Mudau on Friday 16 August said he would consider commenting. He has not answered telephone calls or emailed queries since that day.

VBS-linked companies Vele Investments, Vele Petroport Holdings and Venmont paid R7.45-million to Parallel Property Holdings. The money was used as a “slush fund”, Motau’s PIC report states. VBS bank managers used the three VBS-linked companies to funnel money out of the bank. Motau described the companies as key “washing accounts” of VBS funds.

When interviewed by Motau in 2018, Nesane at first vehemently denied having illegally benefitted from the VBS robbery. After the interview, Nesane returned, saying he had “omitted” a few facts. An excerpt from his discussions with evidence leader advocate Ross Hutton SC last year is worth being quoted in full:

Hutton: “You were getting a salary?”

Nesane: “Yes.”

Hutton: “An additional salary for doing the job of not doing your job. Correct?”

Nesane: “Yes.”

Hutton: “Your job as a director of the company?”

Nesane: “Yes.”

Hutton: “So you were being paid for not carrying out your fiduciary duties towards the company and its shareholders?”

Nesane: “Yes.”

Nesane later said: “We received these payments, and it had become clear that these payments were for us so that we would not really raise any issues when there were issues that we would ordinarily have to raise.”

Nesane’s frontman, Rudzani Nndwammbi, had two additional VBS accounts. Both accounts were named “Mr RM Parallel Property Holdings”. These were used to acquire two properties, in Middelfontein and Louis Trichardt. VBS money also flowed between these three entities, Motau’s PIC report found.

Nesane opened a mortgage account and a vehicle finance account with VBS in his own name. He acquired a third property in Rietfontein, Pretoria, for close to R1-million and a BMW for just over R1-million.

Nesane says he makes monthly payments towards the Rietfontein property.

The Nexus report into the PIC states, however, that Nesane “received favourable repayment terms which are not market-related”.

The BMW debt was settled by the payment of a lump sum in October 2018, about three months after Nesane’s interview with Motau, the VBS/PIC report states. Nesane confirmed that it was “a performing bond which I paid off every month” and that he later sold the car.

Nexus could not verify whether Nesane received favourable interest terms relating to this loan too, and suggested further investigation.

Nexus did, however, state that Nesane never disclosed any conflicts of interest in respect of the money or loans he received.

Nesane, too, received these bribes because of his position at VBS: he was a non-executive director of the VBS board. The first illicit payments from VBS-linked companies to Nesane were made in around November 2015, about five months before Magula received any money.

The PIC’s 2018 annual report states that Magula received an annual salary of R2.6-million from the PIC, and had a full cost to the company of just over R4-million.

Nesane, the annual report shows, received a salary of R2.3-million with a full cost to the company of R3.98-million.

They left the PIC in April and July 2018 respectively.

The background to the VBS bank robbery: What happened again?

The SA Reserve Bank published Motau and Werksmans’ The Great Bank Heist forensic report in October 2018. Initiated after VBS recorded ostensible “liquidity problems”, the five-month investigation detailed how 53 people and companies stole R1.89-billion. The bank was looted into insolvency over a period of about five years, the investigation found. VBS’s managers, auditors, politicians and the politically connected ran off with the lion’s share of stolen VBS loot.

Initially, stokvels, burial societies and funds looking after dead mineworkers’ children and widows were the main depositors. As early as 2013, the bank’s managers started to set up a criminal network based on the stick-and-carrot-principle. In contravention of the Municipal Finance Management Act, municipalities were coaxed or forced into investing taxpayers’ money in the bank. The money was funnelled to the criminal network’s enforcers and guardians – politicians, unions, the politically connected, auditors and VBS board members.

The criminal network was paid to recruit new depositors, on the one hand, and to keep the robbery a secret, on the other.

The game was up by the end of 2017 when law-abiding citizens at Prasa refused to make a multibillion-rand investment in VBS, which may have kept the Ponzi scheme going for another couple of years. The bank could not return the municipalities’ investments. National Treasury and the SARB realised something was very wrong and initiated the investigation.

Motau and Werksmans listed Nesane and Magula as among the “biggest recipients” of the VBS loot.

The Hawks have supposedly been investigating the VBS matter since October 2018. The anniversary of the conclusion of The Great Bank Heist report is fast approaching, and still, no arrests have been made. DM

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