COVID-19 CORRUPTION – DAILY MAVERICK INVESTIGATION VINDICATED
‘Unconscionable’: Competition Commission says Red Roses Africa marked up hand sanitiser sold to the SAPS by 236%
Red Roses Africa (Pty) Ltd, a company that sold hand sanitiser to the SAPS for R515-million in the early days of the Covid-19 pandemic, has been referred to the Competition Tribunal after an investigation by the Competition Commission found it had made a gross mark-up of 236% on the sale. In addition, after investigation by the Special Investigative Unit (SIU) it has also now been referred to the NPA and the Special Tribunal.
When Daily Maverick first raised questions about the sale of hand sanitiser to the South African Police Services (SAPS) in 2021, the company claimed innocence and its attorneys threatened to report us to the Press Council. Last week the Competition Commission (“Commission”) announced that it had “referred a third Covid-19-related public procurement case to the Competition Tribunal (“Tribunal”) for prosecution.”
After a complaint referred to the Commission almost exactly three years ago by the SAPS, the Commission says it has found that Red Roses Africa (Pty) Ltd (“Red Roses”), previously registered as Mainstreet 669 (Pty) Ltd, “charged excessive prices to the SAPS for the supply of bulk hand sanitisers in 25-litres”.
After conducting an investigation the Commission says Red Roses supplied SAPS with 90,000 25-litre containers of hand sanitisers at a price of R4,700 per 25-litre container with “a gross mark-up of 236%.” That is 2,250,000 litres of hand sanitiser, or, about 12 litres of hand sanitiser per SAPS member.
The Commission’s investigations stem from special regulations issued on 19 March 2020, under the Disaster Management Act, which aimed to prohibit companies from taking advantage of the Covid-19 crisis to make excessive profits (Government Gazette, R350). Their declared purpose was “to protect consumers and customers from unconscionable, unfair, unreasonable, unjust or improper commercial practices during the state of disaster”.
But this was just what Red Roses did. In its statement, Commissioner Doris Tshepe is quoted as saying “The excessive price was exploitative and directed at taking advantage of the SAPS at a time when PPEs, and particularly hand sanitisers, were in high demand.”
Dodgy deals and feigned innocence
The sale of hand sanitiser to the SAPS by Red Roses Africa at a grossly inflated price was first exposed by Daily Maverick in September 2021.
At the time, the company denied that it was being investigated by anyone and said the Competition Commission “had not made any adverse findings against Red Roses following its investigation”.
We persisted with our investigation and in November that year the company’s lawyer declined to respond to our questions about “the specs of the disinfectant/detergent that you supplied to SAPS, its manufacturer, as well as NRCS registration number for the product” on the grounds that Daily Maverick’s “reports (investigative journalism?) about our client are filled with, inter alia, inaccuracies, innuendos, sensationalism and assumptions.
“Our client declines to respond to your enquiries…”
However, since then questions about the R515-million contract Red Roses scored with the SAPS – paid in full – have refused to go away. Now the company has also been investigated by the Special Investigative Unit (SIU), and has featured in its two latest reports to the President.
In April 2023, in another matter concerning SAPS procurement of hand sanitiser, the Competition Tribunal found the company, Blue Collar Occupational Health, guilty of excessive pricing. We explained in an article then that:
“Blue Collar Health had supplied SAPS with 10,000 25-litre containers of hand sanitiser at a price of R3,550 (including VAT) per container. The Commission says this was ‘a mark-up of 120%’ per 25-litre container of hand sanitiser and earned a gross margin of more than 50%. The excess profit or ‘overcharge to SAPS’ amounted to more than R9-million.”
Given that Red Roses sold its hand sanitiser at more than R1,150 per 25l more than Blue Collar, the eventual judgement of the Tribunal would seem to be a foregone conclusion. In addition, we know from the SIU’s report to the President that the sanitiser was purchased directly from Dis-Chem and delivered by them to the SAPS warehouse in Silverton, Pretoria. This has been confirmed to us by a spokesperson for Dis-Chem.
However, of concern in the Blue Collar case, as well as in this one, is the fact that in terms of the Competition Act there is a cap (of 10% of the annual turnover of a firm) on the administrative fine the Tribunal may levy on a guilty party. As a result, the Tribunal’s statement in April pointed out that because of the cap:
“The penalty amount is significantly lower than the excess profit (i.e., the overcharge to SAPS).” It adds that: “…in terms of section 65(6) of the Competition Act, a person who has suffered loss as a result of a prohibited practice (in this case SAPS), may commence action in a civil court for damages arising out of a prohibited practice.”
Under the Act and the special Regulations, the Tribunal does, however, also have the power “to declare the whole or any part of an agreement to be void” and to order a period of imprisonment of no more than 12 months.
Unless it does, lawyers say the danger exists that hundreds of millions of Rand obtained through unlawful excessive pricing may only be recovered through civil litigation initiated by the SAPS or through an order of the Special Tribunal. Based on its current lethargy (some might say disinterest) in investigating allegations of large-scale internal PPE corruption, it seems doubtful whether the SAPS, some of whose senior officials are implicated in the sale, has any intention of doing so.
SIU concludes its investigation
However, questions about this contract go deeper than “unconscionable” excessive pricing.
On 3 May 2023 the Presidency published the Third Final Report of the SIU under Regulation 23 of 2020 into Covid-19 corruption on its website. This report also provided an update on the ongoing investigation into Red Roses and again declared that the procurement was unlawful (the SIU report no longer appears on the Presidency website). It noted that a SAPS whistle-blower alleged that the contract had arisen from “a complete dereliction of duty and complete disregard of accountability by two senior managers. The SCM [supply chain management] department is alleged to have been involved in collusion, price inflation, flouting procurement processes and policies.”
The SIU names two senior officials, from the SAPS and Treasury – Maj Gen J Riet and Mrs Duiker – who are “alleged to be involved in perpetrating these irregularities”. But curiously the latest SIU report omitted to explain what steps the SIU were recommending.
This week, in response to our questions, Kaizer Kanyago, spokesperson for the SIU, told us the Mainstreet 699/Red Roses investigation has now been finalised. Kanyago declined to provide names or details but said one criminal referral had been made, as well as three disciplinary referrals to the SAPS and “one civil matter which might be heard by the Special Tribunal or High Court”.
However, according to a source who asked not to be named, although progress has now been made on several fronts, what should trouble the public is that on each front further investigation and time will be required, possibly taking several more years. Meanwhile those who carried out and benefited from prima facie unlawful acts continue to hold onto the proceeds of likely corruption.
This unfortunately is the case with much of the Covid-19 procurement corruption, disproving the adage that crime doesn’t pay. DM
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