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VBS mutual bank: The great bank heist
Date: 16 October 2018 Category: Economics |
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We take a look at snippets from the report published by the South African Reserve Bank (SARB) regarding the "heist" of the VBS bank in which a large number of officials, a lot of them politicians from the ANC and the EFF have been implicated in looting the bank via corrupt means which lead to the ultimate collapse of the bank.
The report was compiled by advocate Terry Motau SC, and he was assisted by WERKSMANS attorneys |
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Scary and hairy stuff.
The opening address of the report sets the tone, and makes one aware of the content of the report and the seriousness it should be dealt with. The report starts off quoting the following:
"More than forty years ago the most daring heist in South Africa’s banking history took place. A group of industrious thieves, led by the elusive Mister Nightingale, skillfully tunneled their way some twenty-one meters underground into the vault of the Standard Bank in Krugersdorp. The bold bank robbers withdrew the princely sum of R400 000. They disappeared with the loot and no arrests were ever made.
I have, for the past five months, investigated the sorry affairs of the VBS Mutual Bank. 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. "
"More than forty years ago the most daring heist in South Africa’s banking history took place. A group of industrious thieves, led by the elusive Mister Nightingale, skillfully tunneled their way some twenty-one meters underground into the vault of the Standard Bank in Krugersdorp. The bold bank robbers withdrew the princely sum of R400 000. They disappeared with the loot and no arrests were ever made.
I have, for the past five months, investigated the sorry affairs of the VBS Mutual Bank. 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. "
According to the author of the report there were two main pillars of unlawfulness that ultimately led to the collapse of VBS. The below is an extract from the report.
"The evidence that has been gathered traverses what I have found to be two principal pillars of unlawfulness that ultimately resulted in the collapse of VBS.
18.1 The one pillar constitutes the methods used by those who had captured VBS which enabled them to embark upon widescale looting and pillaging of the monies placed on deposit at VBS. I found that there were three intertwined processes at play:
18.1.1 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.
18.1.2 VBS went on a concerted and deliberate campaign to attract very substantial deposits from municipalities and, at a later stage, state entities such as the Passenger Rail Agency of South Africa ("PRASA"), by the payment of so-called "commissions" in order to solicit such deposits. 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.
18.1.3 The captors of VBS manipulated its banking systems by creating enormous fictitious deposits in favour of Vele, its myriad associates and related parties, as well as by obliterating overdrawn banking facilities enjoyed by Vele and its associates running to hundreds of millions of Rands. The captors and their associates went on a massive spending spree at the expense of VBS’ depositors.
18.2 The other pillar is the way in which, by fraudulent means, the looting of VBS was hidden from view and was allowed to continue and, indeed, escalate. In this regard I shall report my findings on fraudulent misrepresentations contained in VBS’ audited annual financial statements for the year ending 31 March 2017 as well as fraudulent misrepresentations that were made in the monthly regulatory returns that VBS was obliged to make to the Registrar of Banks ("the Registrar") in terms of the provisions of the Mutual Banks Act and the Regulations made under that Act. I shall also deal with the fraud that permeated the regulatory audit of the returns. 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 much earlier"
So who were the big players in this heist? Well the author of the report divided all those players into the following categories. "Insiders", "Outsiders", "Auditors". They are listed below as well as a brief description of their respective roles at VBS or the Audit team. The below is an extract from the VBS report.
"For convenience, I have divided the dramatis personae into three categories – the insiders, the outsiders and the auditors. At times, as will be seen, these lines are somewhat blurred. 21 The "insiders" comprise directors and employees of VBS. The following persons were interviewed:
21.1 Phophi Londolani Mukhodobwane ("Mukhodobwane"), the General Manager of Treasury at VBS. Mukhodobwane, by his own admission, played a central role in the manipulation of VBS’ banking systems as well as the fraudulent misrepresentations contained in the regulatory returns, known as "DI returns". Mukhodobwane admitted to receiving vast sums from Vele’s banking account at VBS as a reward for his complicity.
21.2 Philip Nicolaas Truter ("Truter"), an Executive Director and the Chief Financial Officer of VBS. Truter testified that he was an essential participant in the manipulation of VBS’ banking systems, the fraudulent misrepresentations contained in the 2017 annual financial statements and the submission of fraudulent DI returns. Truter also admitted to receiving a large reward from Vele’s banking account for his complicity in the scheme.
21.3 Andile Malusi Attwell Ramavhunga ("Ramavhunga"), an Executive Director and the Chief Executive Officer of VBS. He is a chartered accountant and banker by profession. Ramavhunga, despite the weight of evidence to the contrary, has steadfastly denied that he was in any way involved in any unlawful conduct. He received vast sums of money from Vele’s banking accounts at VBS, but he contends that these payments were for consultancy services that he rendered.
21.4 Paul Magula ("Magula"), a Non-Executive Director of VBS, who was appointed as such on the nomination of his erstwhile employer, the Public Investment Corporation ("PIC"), which holds some 26% of the issued shares in VBS. Magula, who previously held the post of Executive Head: Risk Management at the PIC, eventually confessed, after putting up strenuous denials, that he had received unlawful payments, made to two companies which acted as his nominees, in a total amount in excess of R7.6 million in order to buy his silence.
1.5 Ernest Nesane, ("Nesane"), a Non-Executive Director of VBS, who was also appointed as such on the nomination of the PIC. Nesane, who is a qualified attorney, was the Executive Head: Legal Counsel, Governance and Compliance at the PIC. Like Magula, he eventually confessed, after putting up strenuous denials, that he had received unlawful payments, made to a nominee company, in a total amount in excess of R7.2 million in order to buy his silence. Nesane resigned from his post at the PIC two days after he testified before me.
21.6 Phalaphala Avhashoni Ramikosi, ("Ramikosi"), a Non-Executive Director of VBS, and the chairman of the Audit Committee. Ramikosi is a chartered accountant and is employed by the South African Police Service as its Chief Financial Officer. As was the case with Magula and Nesane, he eventually confessed, after putting up strenuous denials, that he had received unlawful payments, made to a nominee company for his benefit. The price for his complicity seems, however, to have been significantly lower than theirs.
21.7 Hlohonolofatso Tshepiso Mcwazzer ("Mcwazzer"), employed by VBS as a Business Development Manager. Mcwazzer testified as to her role in the creation of fraudulent draw-downs on a facility granted to VBS by the PIC. She also testified about the creation of fictitious contract finance agreements, intended to falsely inflate VBS’ income.
21.8 Bhekwayinkosi Gift Manyanga ("Manyanga"), who acted as a consultant to VBS in terms of an agreement between VBS and his company, Bhekwam Holdings (Pty) Ltd. Manyanga, a chartered accountant, was to become the Chief Banking Officer of VBS, but in February 2018 he declined to take up that post. Manyanga testified about the attempts to solicit a R1 billion deposit by PRASA.
21.9 Yolanda Deale ("Deale"), who was, until February 2017, an accountant in the employ of VBS. After her departure from VBS the looting of the bank proceeded with alacrity.
21.10 Dudley Futcher ("Futcher"), who is employed by VBS as its Information Technology Manager. He gave some insight into the EMID system, including its weaknesses.
21.11 Mulimisi Solomon Maposa ("Maposa"), who is employed by VBS in a post termed "Managing Director for Retail". He is not, despite the grandness of that title, a director of VBS. Maposa testified about the use of numerous banking accounts at VBS which can best be described as "slush funds".
21.12 Ntendeni Sassa Nemabubuni ("Nemabubuni"), who is employed by VBS as the General Manager: Sales. Nemabubuni was intrinsically involved in the payment of bribes to municipal officials. He provided the names of many of these corrupt officials.
21.13 Phillip Ndivhuwo Tshililo ("Tshililo"), who is nominally the Branch Manager of the Thohoyandou branch of VBS. Tshililo was, however effectively redeployed to be the personal assistant and paymaster to the chairman of VBS, Tshifhiwa Matodzi ("Matodzi"). "
"The evidence that has been gathered traverses what I have found to be two principal pillars of unlawfulness that ultimately resulted in the collapse of VBS.
18.1 The one pillar constitutes the methods used by those who had captured VBS which enabled them to embark upon widescale looting and pillaging of the monies placed on deposit at VBS. I found that there were three intertwined processes at play:
18.1.1 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.
18.1.2 VBS went on a concerted and deliberate campaign to attract very substantial deposits from municipalities and, at a later stage, state entities such as the Passenger Rail Agency of South Africa ("PRASA"), by the payment of so-called "commissions" in order to solicit such deposits. 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.
18.1.3 The captors of VBS manipulated its banking systems by creating enormous fictitious deposits in favour of Vele, its myriad associates and related parties, as well as by obliterating overdrawn banking facilities enjoyed by Vele and its associates running to hundreds of millions of Rands. The captors and their associates went on a massive spending spree at the expense of VBS’ depositors.
18.2 The other pillar is the way in which, by fraudulent means, the looting of VBS was hidden from view and was allowed to continue and, indeed, escalate. In this regard I shall report my findings on fraudulent misrepresentations contained in VBS’ audited annual financial statements for the year ending 31 March 2017 as well as fraudulent misrepresentations that were made in the monthly regulatory returns that VBS was obliged to make to the Registrar of Banks ("the Registrar") in terms of the provisions of the Mutual Banks Act and the Regulations made under that Act. I shall also deal with the fraud that permeated the regulatory audit of the returns. 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 much earlier"
So who were the big players in this heist? Well the author of the report divided all those players into the following categories. "Insiders", "Outsiders", "Auditors". They are listed below as well as a brief description of their respective roles at VBS or the Audit team. The below is an extract from the VBS report.
"For convenience, I have divided the dramatis personae into three categories – the insiders, the outsiders and the auditors. At times, as will be seen, these lines are somewhat blurred. 21 The "insiders" comprise directors and employees of VBS. The following persons were interviewed:
21.1 Phophi Londolani Mukhodobwane ("Mukhodobwane"), the General Manager of Treasury at VBS. Mukhodobwane, by his own admission, played a central role in the manipulation of VBS’ banking systems as well as the fraudulent misrepresentations contained in the regulatory returns, known as "DI returns". Mukhodobwane admitted to receiving vast sums from Vele’s banking account at VBS as a reward for his complicity.
21.2 Philip Nicolaas Truter ("Truter"), an Executive Director and the Chief Financial Officer of VBS. Truter testified that he was an essential participant in the manipulation of VBS’ banking systems, the fraudulent misrepresentations contained in the 2017 annual financial statements and the submission of fraudulent DI returns. Truter also admitted to receiving a large reward from Vele’s banking account for his complicity in the scheme.
21.3 Andile Malusi Attwell Ramavhunga ("Ramavhunga"), an Executive Director and the Chief Executive Officer of VBS. He is a chartered accountant and banker by profession. Ramavhunga, despite the weight of evidence to the contrary, has steadfastly denied that he was in any way involved in any unlawful conduct. He received vast sums of money from Vele’s banking accounts at VBS, but he contends that these payments were for consultancy services that he rendered.
21.4 Paul Magula ("Magula"), a Non-Executive Director of VBS, who was appointed as such on the nomination of his erstwhile employer, the Public Investment Corporation ("PIC"), which holds some 26% of the issued shares in VBS. Magula, who previously held the post of Executive Head: Risk Management at the PIC, eventually confessed, after putting up strenuous denials, that he had received unlawful payments, made to two companies which acted as his nominees, in a total amount in excess of R7.6 million in order to buy his silence.
1.5 Ernest Nesane, ("Nesane"), a Non-Executive Director of VBS, who was also appointed as such on the nomination of the PIC. Nesane, who is a qualified attorney, was the Executive Head: Legal Counsel, Governance and Compliance at the PIC. Like Magula, he eventually confessed, after putting up strenuous denials, that he had received unlawful payments, made to a nominee company, in a total amount in excess of R7.2 million in order to buy his silence. Nesane resigned from his post at the PIC two days after he testified before me.
21.6 Phalaphala Avhashoni Ramikosi, ("Ramikosi"), a Non-Executive Director of VBS, and the chairman of the Audit Committee. Ramikosi is a chartered accountant and is employed by the South African Police Service as its Chief Financial Officer. As was the case with Magula and Nesane, he eventually confessed, after putting up strenuous denials, that he had received unlawful payments, made to a nominee company for his benefit. The price for his complicity seems, however, to have been significantly lower than theirs.
21.7 Hlohonolofatso Tshepiso Mcwazzer ("Mcwazzer"), employed by VBS as a Business Development Manager. Mcwazzer testified as to her role in the creation of fraudulent draw-downs on a facility granted to VBS by the PIC. She also testified about the creation of fictitious contract finance agreements, intended to falsely inflate VBS’ income.
21.8 Bhekwayinkosi Gift Manyanga ("Manyanga"), who acted as a consultant to VBS in terms of an agreement between VBS and his company, Bhekwam Holdings (Pty) Ltd. Manyanga, a chartered accountant, was to become the Chief Banking Officer of VBS, but in February 2018 he declined to take up that post. Manyanga testified about the attempts to solicit a R1 billion deposit by PRASA.
21.9 Yolanda Deale ("Deale"), who was, until February 2017, an accountant in the employ of VBS. After her departure from VBS the looting of the bank proceeded with alacrity.
21.10 Dudley Futcher ("Futcher"), who is employed by VBS as its Information Technology Manager. He gave some insight into the EMID system, including its weaknesses.
21.11 Mulimisi Solomon Maposa ("Maposa"), who is employed by VBS in a post termed "Managing Director for Retail". He is not, despite the grandness of that title, a director of VBS. Maposa testified about the use of numerous banking accounts at VBS which can best be described as "slush funds".
21.12 Ntendeni Sassa Nemabubuni ("Nemabubuni"), who is employed by VBS as the General Manager: Sales. Nemabubuni was intrinsically involved in the payment of bribes to municipal officials. He provided the names of many of these corrupt officials.
21.13 Phillip Ndivhuwo Tshililo ("Tshililo"), who is nominally the Branch Manager of the Thohoyandou branch of VBS. Tshililo was, however effectively redeployed to be the personal assistant and paymaster to the chairman of VBS, Tshifhiwa Matodzi ("Matodzi"). "
Now we know who the "Insiders" are. So what about the "Outsiders"? While not inside the formal structures of the VBS they played critical roles in the whole VBS sage. The following is extracted from the report.
"A variety of persons comprise the "outsiders". Although outside the formal structures of VBS, some of these persons played crucial and central roles. Those interviewed were:
22.1 Kabelo Matsepe ("Matsepe"), a politically connected fixer, who became a very well remunerated middleman and acted as a gatekeeper between VBS and the municipalities. Matsepe’s role in the affairs of both VBS and Vele became ubiquitous.
22.2 Paul Makhavhu ("Makhavhu"), a practicing 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. He described the receipt of those payments as "shameful".
22.3 Charl Cilliers ("Cilliers"), the Chief Executive Officer of Insure Group (Pty) Ltd, a lucrative business which Vele acquired a substantial stake in using a fictitious deposit of R250 million for the acquisition. Cilliers is a chartered accountant. His company, having received the proceeds of a manifest fraud, now finds itself in an untenable position.
22.4 Takalani Veronica Mmbi ("Mmbi"), Matodzi’s faithful assistant. Mmbi set up and operated numerous companies on Matodzi’s behalf that were used to launder some of the funds stolen from VBS. When VBS was put into curatorship Mmbi participated in the disposal of assets by Matodzi. She also spirited away documentary records. She was remunerated richly for her efforts.
22.5 Mmbulaheni Robert Madzonga ("Madzonga"), a qualified attorney who was the former Chief Operating Officer of VBS and later COO and then CEO of Vele. Madzonga has denied knowledge of anything untoward. He derived very large rewards, much of which was in the form of undeclared income.
2.6 Yvonne Page ("Page"), the former acting Group CFO of PRASA who told us about the attempts that were made by VBS to solicit a deposit of R1 billion from PRASA. Her intervention blocked very senior officials at PRASA from depositing that sum into what she described as "a Ponzi scheme".
22.7 Mariette Venter ("Venter"), a chartered accountant and the acting CFO of the Capricorn District Municipality, who stood up to immense pressure and managed to force VBS to return the municipality’s funds to it. She was unfairly suspended from her post as a result and pilloried as a racist who did not want to invest public monies in a Black bank.
Next up the auditors. These were the guys and gals responsible for ensuring the financial statements of VBS are true and correct. Well the clearly failed in their duties. The list of those involved in the audit of VBS is taken from the report.
"A variety of persons comprise the "outsiders". Although outside the formal structures of VBS, some of these persons played crucial and central roles. Those interviewed were:
22.1 Kabelo Matsepe ("Matsepe"), a politically connected fixer, who became a very well remunerated middleman and acted as a gatekeeper between VBS and the municipalities. Matsepe’s role in the affairs of both VBS and Vele became ubiquitous.
22.2 Paul Makhavhu ("Makhavhu"), a practicing 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. He described the receipt of those payments as "shameful".
22.3 Charl Cilliers ("Cilliers"), the Chief Executive Officer of Insure Group (Pty) Ltd, a lucrative business which Vele acquired a substantial stake in using a fictitious deposit of R250 million for the acquisition. Cilliers is a chartered accountant. His company, having received the proceeds of a manifest fraud, now finds itself in an untenable position.
22.4 Takalani Veronica Mmbi ("Mmbi"), Matodzi’s faithful assistant. Mmbi set up and operated numerous companies on Matodzi’s behalf that were used to launder some of the funds stolen from VBS. When VBS was put into curatorship Mmbi participated in the disposal of assets by Matodzi. She also spirited away documentary records. She was remunerated richly for her efforts.
22.5 Mmbulaheni Robert Madzonga ("Madzonga"), a qualified attorney who was the former Chief Operating Officer of VBS and later COO and then CEO of Vele. Madzonga has denied knowledge of anything untoward. He derived very large rewards, much of which was in the form of undeclared income.
2.6 Yvonne Page ("Page"), the former acting Group CFO of PRASA who told us about the attempts that were made by VBS to solicit a deposit of R1 billion from PRASA. Her intervention blocked very senior officials at PRASA from depositing that sum into what she described as "a Ponzi scheme".
22.7 Mariette Venter ("Venter"), a chartered accountant and the acting CFO of the Capricorn District Municipality, who stood up to immense pressure and managed to force VBS to return the municipality’s funds to it. She was unfairly suspended from her post as a result and pilloried as a racist who did not want to invest public monies in a Black bank.
Next up the auditors. These were the guys and gals responsible for ensuring the financial statements of VBS are true and correct. Well the clearly failed in their duties. The list of those involved in the audit of VBS is taken from the report.
23 The auditors comprise the various members of the KPMG audit team which conducted the statutory and regulatory audits of VBS for the financial year ending 31 March 2017, as well as the manager of the PWC internal audit team. The following persons were interviewed:
3.1 Zondi Nduli ("Nduli"), a third year clerk on the 2017 VBS audit. He prepared a nonsensical audit working paper when he was unable to complete the audit of VBS’ cash and bank.
3.2 Kafuma Munalula ("Munalula"), a qualified chartered accountant who was the audit manager on the 2017 VBS audit. She was the person in charge of the day-to-day audit. 23.3 Luan Niewoudt ("Niewoudt"), a first year clerk who was initially deployed to audit the cash and bank section.
23.4 Tersia Monare ("Monare"), a second year clerk who took over the cash and bank audit.
23.5 Cindy-Lee Williams ("Williams"), another second year clerk, who was involved in various other aspects of the audit.
23.6 David Broom ("Broom"), a chartered accountant who was the engagement quality control review ("EQCR") partner on the 2017 audit.
23.7 Cezanne Krieg ("Krieg"), a member of the regulatory audit team who audited the DI returns that had been submitted by VBS in accordance with the provisions of the Mutual Banks Act and its regulations. 23.8 Johan Scheepers ("Scheepers"), a senior member of the regulatory audit team who oversaw Krieg’s work.
23.9 Nhlanhla Kelvin Sipho Malaba ("Malaba"), a chartered accountant who was the engagement partner on the 2017 VBS audit. Malaba had obtained very substantial facilities from VBS which cannot be regarded as arm’s length borrowings and were not declared to KPMG. He gave an unqualified audit opinion in circumstances where he knew the financial statements were misstated. He also gave a regulatory audit opinion which he knew to be false.
23.10 Regina Erasmus ("Erasmus"), the manager of the PWC internal audit team. She provided insight into the limitations of the internal audit. She put paid to any notion that KPMG had relied on the results of the internal audit.
And once again the name of KPMG pops up when there are shady dealings in South Africa. The audit firm seems to be the go to audit firm if politicians or connected officials wants to get away with corrupt and dodgy dealings. How their head office is actually allowing the firm to continue to operate in South Africa is mind boggling. Surely the reputational damage for the firm has to hit their international office's pockets at some point. One wonders if there are any firms they are auditing and that they are the main audit partner of that are not involved in some form of dodgy dealings. Surely SA firms who are still audited by them would want to get rid of them ASAP as not to be connected or associated with a audit firm that seems to be doing nothing more than hide dodgy dealings?
So some of the key findings of the report. The report is extremely long and detailed and we will not copy all of the findings and content of it, but will highlight a few of the main findings: The findings below are copied from the report.
"As already alluded to, the investigation has revealed that the business of VBS was indeed conducted in a fraudulent manner which has resulted in the widespread impoverishment of VBS’ depositors for the benefit of Matodzi and his associates.
28 The evidence that has been gathered shows that until 2014 VBS was a modest, but financially struggling, mutual bank. It was principally involved in the taking of deposits from retail depositors, including burial societies and stokvels. In turn, it mainly lent money to its clients to acquire immovable property secured by mortgage bonds. It also made short term loans to its clients against the security of the deposits they had made with the bank.
29 Originally VBS’ shareholders were largely its depositors who had chosen to invest by way of paid-up shares. The PIC, which had succeeded to the pension fund of the Venda bantustan government, held a substantial shareholding in VBS. During 2013 Matodzi approached the Venda king, Toni Mphephu Ramabulana, through his advisor, Makhavhu, to put together a structure to acquire a stake in VBS. According to Makhavhu, this led to the establishment of Dyambeu Investments (Pty) Ltd ("Dyambeu"), which was owned by Matodzi’s company, Brilliant Telecommunications (Pty) Ltd ("Brilliantel"), Promafco (Pty) Ltd ("Promafco") owned by David Mabilu ("Mabilu") and the Vhavenda Trust ("Vhavenda") representing the Venda royal family. Vhavenda held 51% of the shares in Dyambeu with Brilliantel and Promafco each holding 24.5%. Dyambeu then purchased 26% of VBS for R6 million.
30 Makhavu testified that "the people in the royal family are clueless as far as business is concerned" and that "We didn’t have a single cent as the royal family. Not a single cent". The R6 million was paid by Brilliantel and Promafco and Vhavenda received a free pass to its share in Dyambeu.
31 On 24 July 2015, Matodzi became the chairman of the board of directors of VBS. In his first chairman’s report, dated 22 June 2016, Matodzi stated that "I have however been involved with the bank strategy and turnaround since the acquisition of majority stake (sic) in 2013 by Dyambeu Investments under the leadership of His Majesty Khosikhulu Toni Mphephu Ramabulana". Although 2 the office of chairman was nominally a non-executive one, Matodzi became the central force in the conduct of VBS’ business.
Matodzi and Ramavhunga embarked upon a strategy which was ostensibly aimed at turning VBS around, making it a significant profit making enterprise. There were two main parts to the turnaround strategy. First, VBS’ traditional reliance on small retail depositors to fill the bank’s coffers was abandoned and VBS now set its sights on obtaining very large, but short term, deposits from municipalities. Second, VBS’ conservative lending practices gave way to accommodate far more ambitious, and potentially lucrative, markets to lend money to. VBS entered into numerous high-value fuel financing and contract financing deals with a variety of clients. The evidence reveals that many of those clients were connected to either Matodzi or Ramavhunga
35 Mukhodobwane testified that during April and May 2017 Matodzi paid him a so-called "bonus" totalling R500 000. Payments were made from Vele’s banking account at VBS and were paid into Mukhodobwane’s personal account. R350 000 was paid on 13 April 2017 and R150 000 was paid on 13 May 2017. On 5 October 2017 he received a further "bonus", this time in the amount of R10 million. This payment was made into an account operated by Lemawave (Pty) Ltd ("Lemawave"), which Mukhodobwane admitted was a front for him. He testified that during December 2017 yet another "bonus" in the amount of R500 000 was paid.
36 Mukhodobwane stated that Matodzi had instructed him on 5 October 2017 to make further "bonus" payments from the Vele account as follows: 36.1 an amount of R18 million to Matodzi;
36.2 an amount of R15 million to the account of Ramavhunga’s company, Dambale Holdings (Pty) Ltd ("Dambale"); and
36.3 an amount of R5 million to be paid into the account of Truter’s company, Shangri-La (Pty) Ltd ("Shangri-La"), at First National Bank.
37 Truter stated in his testimony that he had been promised R5 million but that he had only actually received R2 million. "
53 When we interviewed Ramikosi, he was asked about various payments received by him from an entity called Zanoware (Pty) Ltd ("Zanoware"). He testified that Zanoware is owned by a friend of his, Goitsemang Alice Manye ("Manye"), and that she, through Zanoware, occasionally made loans to Ramikosi totalling R99 400 over the period August 2017 to March 2018. He stated that these supposed loans were personal, not in writing and intended to be repaid to Manye "as and when the situation comes right".
54 He was also asked about payments totalling R96 618.16 made by Zanoware to Bopani Holdings, his former wife’s business, between May and August 2017. He testified that he was not "privy to that arrangement" and, since they have been divorced since 2014, he did not know what the purpose of the payments was.
55 Ramikosi was referred to Zanoware’s bank statements and to the fact that the total of R750 000 received by it from March to October 2017 from Venmont Holdings are the sole source of money coming into Zanoware. It was put to Ramikosi that, inter alia, Nesane and Magula, received benefits, through the use of front companies, for keeping silent about many irregularities and that the set-up of Zanoware appeared to be the same modus operandi. The interview was adjourned at that stage, at Ramikosi’s request, in order to provide him with time to reflect. 31 Investigator’s Report to the Prudential Authority
56 When the interview reconvened on the next day, Ramikosi availed himself of the use immunity in terms of section 140 of the FSR Act in respect of the remainder of the evidence given by him. Subsequently:
56.1 Ramikosi admitted that Zanoware was in fact, and contrary to his previous testimony, a nominee company used by him to receive payments and that Manye was simply his nominee.
56.2 He testified that initially Zanoware was set up to be used for opportunities that may come up in the trucking business. It was set up with a nominee director because Ramikosi thought if he was a director there would be a conflict of interest. He explained that the first payment of R250 000 was said by Matodzi to be a "windfall" from deals done. He stated that Zanoware did some catering work for Vele but that no services were rendered by Zanoware that entitled it to later payments. He was taken through all the payments received and testified that:
56.2.1 the payment of R250 000 on 13 March 2017 was not received as a result of any services rendered by Zanoware;
56.2.2 a small part of the payment of R200 000 on 26 July 2017 was received as a result of event management services rendered to Vele by Zanoware but that the bulk of the payment was not earned at all; and
56.2.3 the payment of R300 000 on 29 October 2017 was entirely for Ramikosi’s benefit and no services were rendered to earn it.
56.3 He conceded that the payments made to his ex-wife’s company were also for his benefit and that there were no "loans" to him by Manye as he had testified the previous day. He admitted that all payments made through the Zanoware account are payments made in respect of his expenses.
56.4 Ramikosi testified that he "did nothing" to earn this money and that it was simply "a windfall". He stated that "I get a sense that because from where we sit Vele Investments were doing well, he [Matodzi] felt dutybound to sort of provide some of these what I call windfalls for lack of a better word". He denied, however, that he was expected to not be too officious in his duties as non-executive director of VBS and he insisted that he did not "abrogate" his responsibilities as a result of receiving these payments. He testified that: "…I kept on asking questions, to say: What is this? The assurance I got was: Don’t worry, it’s nothing; what we are dealing with is legit. So I suppose at the time, if we knew that Vele Investments was not as legitimate as it should have been, it would have given a different perspective altogether."
56.5 Ramikosi eventually conceded that:
56.5.1 he knew that, as the chairman of the audit and risk committee, he had to act in a capacity of fiduciary responsibility towards VBS;
56.5.2 he could plainly not receive monies on the side, and he knew that he was entitled to a stipend, his expenses and nothing else; and
56.5.3 he knew that it would be wrong to exploit his relationship with VBS for any personal benefit.
56.6 It was put to Ramikosi that he was well aware that he could not take the R750 000 payment made to Zanoware. He then testified that: "I agree I was complicit in this arrangement. In hindsight I should have known better, and this is something I know should not have happened."
56.7 After further probing Ramikosi eventually conceded that the intention to disguise his involvement was, in fact, present right from the outset and was aimed at obscuring that he was benefitting from the payments to Zanoware.
56.8 Astonishingly, despite this concession, Ramikosi continued to insist that notwithstanding the fact that he was receiving money from VBS’ majority shareholder and its chairman, Matodzi, for doing absolutely nothing, he "could still create a distinction between what needed to be done. I had kept a separate view of the transaction and the work I needed to do for the bank".
57 I find that Ramakosi, despite his self-serving protestations to the contrary, was thoroughly corrupted by the unlawful rewards he received. In the result there was no honest person occupying the vital position of audit committee chair.
3.1 Zondi Nduli ("Nduli"), a third year clerk on the 2017 VBS audit. He prepared a nonsensical audit working paper when he was unable to complete the audit of VBS’ cash and bank.
3.2 Kafuma Munalula ("Munalula"), a qualified chartered accountant who was the audit manager on the 2017 VBS audit. She was the person in charge of the day-to-day audit. 23.3 Luan Niewoudt ("Niewoudt"), a first year clerk who was initially deployed to audit the cash and bank section.
23.4 Tersia Monare ("Monare"), a second year clerk who took over the cash and bank audit.
23.5 Cindy-Lee Williams ("Williams"), another second year clerk, who was involved in various other aspects of the audit.
23.6 David Broom ("Broom"), a chartered accountant who was the engagement quality control review ("EQCR") partner on the 2017 audit.
23.7 Cezanne Krieg ("Krieg"), a member of the regulatory audit team who audited the DI returns that had been submitted by VBS in accordance with the provisions of the Mutual Banks Act and its regulations. 23.8 Johan Scheepers ("Scheepers"), a senior member of the regulatory audit team who oversaw Krieg’s work.
23.9 Nhlanhla Kelvin Sipho Malaba ("Malaba"), a chartered accountant who was the engagement partner on the 2017 VBS audit. Malaba had obtained very substantial facilities from VBS which cannot be regarded as arm’s length borrowings and were not declared to KPMG. He gave an unqualified audit opinion in circumstances where he knew the financial statements were misstated. He also gave a regulatory audit opinion which he knew to be false.
23.10 Regina Erasmus ("Erasmus"), the manager of the PWC internal audit team. She provided insight into the limitations of the internal audit. She put paid to any notion that KPMG had relied on the results of the internal audit.
And once again the name of KPMG pops up when there are shady dealings in South Africa. The audit firm seems to be the go to audit firm if politicians or connected officials wants to get away with corrupt and dodgy dealings. How their head office is actually allowing the firm to continue to operate in South Africa is mind boggling. Surely the reputational damage for the firm has to hit their international office's pockets at some point. One wonders if there are any firms they are auditing and that they are the main audit partner of that are not involved in some form of dodgy dealings. Surely SA firms who are still audited by them would want to get rid of them ASAP as not to be connected or associated with a audit firm that seems to be doing nothing more than hide dodgy dealings?
So some of the key findings of the report. The report is extremely long and detailed and we will not copy all of the findings and content of it, but will highlight a few of the main findings: The findings below are copied from the report.
"As already alluded to, the investigation has revealed that the business of VBS was indeed conducted in a fraudulent manner which has resulted in the widespread impoverishment of VBS’ depositors for the benefit of Matodzi and his associates.
28 The evidence that has been gathered shows that until 2014 VBS was a modest, but financially struggling, mutual bank. It was principally involved in the taking of deposits from retail depositors, including burial societies and stokvels. In turn, it mainly lent money to its clients to acquire immovable property secured by mortgage bonds. It also made short term loans to its clients against the security of the deposits they had made with the bank.
29 Originally VBS’ shareholders were largely its depositors who had chosen to invest by way of paid-up shares. The PIC, which had succeeded to the pension fund of the Venda bantustan government, held a substantial shareholding in VBS. During 2013 Matodzi approached the Venda king, Toni Mphephu Ramabulana, through his advisor, Makhavhu, to put together a structure to acquire a stake in VBS. According to Makhavhu, this led to the establishment of Dyambeu Investments (Pty) Ltd ("Dyambeu"), which was owned by Matodzi’s company, Brilliant Telecommunications (Pty) Ltd ("Brilliantel"), Promafco (Pty) Ltd ("Promafco") owned by David Mabilu ("Mabilu") and the Vhavenda Trust ("Vhavenda") representing the Venda royal family. Vhavenda held 51% of the shares in Dyambeu with Brilliantel and Promafco each holding 24.5%. Dyambeu then purchased 26% of VBS for R6 million.
30 Makhavu testified that "the people in the royal family are clueless as far as business is concerned" and that "We didn’t have a single cent as the royal family. Not a single cent". The R6 million was paid by Brilliantel and Promafco and Vhavenda received a free pass to its share in Dyambeu.
31 On 24 July 2015, Matodzi became the chairman of the board of directors of VBS. In his first chairman’s report, dated 22 June 2016, Matodzi stated that "I have however been involved with the bank strategy and turnaround since the acquisition of majority stake (sic) in 2013 by Dyambeu Investments under the leadership of His Majesty Khosikhulu Toni Mphephu Ramabulana". Although 2 the office of chairman was nominally a non-executive one, Matodzi became the central force in the conduct of VBS’ business.
Matodzi and Ramavhunga embarked upon a strategy which was ostensibly aimed at turning VBS around, making it a significant profit making enterprise. There were two main parts to the turnaround strategy. First, VBS’ traditional reliance on small retail depositors to fill the bank’s coffers was abandoned and VBS now set its sights on obtaining very large, but short term, deposits from municipalities. Second, VBS’ conservative lending practices gave way to accommodate far more ambitious, and potentially lucrative, markets to lend money to. VBS entered into numerous high-value fuel financing and contract financing deals with a variety of clients. The evidence reveals that many of those clients were connected to either Matodzi or Ramavhunga
35 Mukhodobwane testified that during April and May 2017 Matodzi paid him a so-called "bonus" totalling R500 000. Payments were made from Vele’s banking account at VBS and were paid into Mukhodobwane’s personal account. R350 000 was paid on 13 April 2017 and R150 000 was paid on 13 May 2017. On 5 October 2017 he received a further "bonus", this time in the amount of R10 million. This payment was made into an account operated by Lemawave (Pty) Ltd ("Lemawave"), which Mukhodobwane admitted was a front for him. He testified that during December 2017 yet another "bonus" in the amount of R500 000 was paid.
36 Mukhodobwane stated that Matodzi had instructed him on 5 October 2017 to make further "bonus" payments from the Vele account as follows: 36.1 an amount of R18 million to Matodzi;
36.2 an amount of R15 million to the account of Ramavhunga’s company, Dambale Holdings (Pty) Ltd ("Dambale"); and
36.3 an amount of R5 million to be paid into the account of Truter’s company, Shangri-La (Pty) Ltd ("Shangri-La"), at First National Bank.
37 Truter stated in his testimony that he had been promised R5 million but that he had only actually received R2 million. "
53 When we interviewed Ramikosi, he was asked about various payments received by him from an entity called Zanoware (Pty) Ltd ("Zanoware"). He testified that Zanoware is owned by a friend of his, Goitsemang Alice Manye ("Manye"), and that she, through Zanoware, occasionally made loans to Ramikosi totalling R99 400 over the period August 2017 to March 2018. He stated that these supposed loans were personal, not in writing and intended to be repaid to Manye "as and when the situation comes right".
54 He was also asked about payments totalling R96 618.16 made by Zanoware to Bopani Holdings, his former wife’s business, between May and August 2017. He testified that he was not "privy to that arrangement" and, since they have been divorced since 2014, he did not know what the purpose of the payments was.
55 Ramikosi was referred to Zanoware’s bank statements and to the fact that the total of R750 000 received by it from March to October 2017 from Venmont Holdings are the sole source of money coming into Zanoware. It was put to Ramikosi that, inter alia, Nesane and Magula, received benefits, through the use of front companies, for keeping silent about many irregularities and that the set-up of Zanoware appeared to be the same modus operandi. The interview was adjourned at that stage, at Ramikosi’s request, in order to provide him with time to reflect. 31 Investigator’s Report to the Prudential Authority
56 When the interview reconvened on the next day, Ramikosi availed himself of the use immunity in terms of section 140 of the FSR Act in respect of the remainder of the evidence given by him. Subsequently:
56.1 Ramikosi admitted that Zanoware was in fact, and contrary to his previous testimony, a nominee company used by him to receive payments and that Manye was simply his nominee.
56.2 He testified that initially Zanoware was set up to be used for opportunities that may come up in the trucking business. It was set up with a nominee director because Ramikosi thought if he was a director there would be a conflict of interest. He explained that the first payment of R250 000 was said by Matodzi to be a "windfall" from deals done. He stated that Zanoware did some catering work for Vele but that no services were rendered by Zanoware that entitled it to later payments. He was taken through all the payments received and testified that:
56.2.1 the payment of R250 000 on 13 March 2017 was not received as a result of any services rendered by Zanoware;
56.2.2 a small part of the payment of R200 000 on 26 July 2017 was received as a result of event management services rendered to Vele by Zanoware but that the bulk of the payment was not earned at all; and
56.2.3 the payment of R300 000 on 29 October 2017 was entirely for Ramikosi’s benefit and no services were rendered to earn it.
56.3 He conceded that the payments made to his ex-wife’s company were also for his benefit and that there were no "loans" to him by Manye as he had testified the previous day. He admitted that all payments made through the Zanoware account are payments made in respect of his expenses.
56.4 Ramikosi testified that he "did nothing" to earn this money and that it was simply "a windfall". He stated that "I get a sense that because from where we sit Vele Investments were doing well, he [Matodzi] felt dutybound to sort of provide some of these what I call windfalls for lack of a better word". He denied, however, that he was expected to not be too officious in his duties as non-executive director of VBS and he insisted that he did not "abrogate" his responsibilities as a result of receiving these payments. He testified that: "…I kept on asking questions, to say: What is this? The assurance I got was: Don’t worry, it’s nothing; what we are dealing with is legit. So I suppose at the time, if we knew that Vele Investments was not as legitimate as it should have been, it would have given a different perspective altogether."
56.5 Ramikosi eventually conceded that:
56.5.1 he knew that, as the chairman of the audit and risk committee, he had to act in a capacity of fiduciary responsibility towards VBS;
56.5.2 he could plainly not receive monies on the side, and he knew that he was entitled to a stipend, his expenses and nothing else; and
56.5.3 he knew that it would be wrong to exploit his relationship with VBS for any personal benefit.
56.6 It was put to Ramikosi that he was well aware that he could not take the R750 000 payment made to Zanoware. He then testified that: "I agree I was complicit in this arrangement. In hindsight I should have known better, and this is something I know should not have happened."
56.7 After further probing Ramikosi eventually conceded that the intention to disguise his involvement was, in fact, present right from the outset and was aimed at obscuring that he was benefitting from the payments to Zanoware.
56.8 Astonishingly, despite this concession, Ramikosi continued to insist that notwithstanding the fact that he was receiving money from VBS’ majority shareholder and its chairman, Matodzi, for doing absolutely nothing, he "could still create a distinction between what needed to be done. I had kept a separate view of the transaction and the work I needed to do for the bank".
57 I find that Ramakosi, despite his self-serving protestations to the contrary, was thoroughly corrupted by the unlawful rewards he received. In the result there was no honest person occupying the vital position of audit committee chair.