South African Probe Finds $130 Million Looted From Failed Bank

(Bloomberg) -- A probe into the failure of VBS Mutual Bank found that at least 53 people and companies may have benefited from the looting of 1.9 billion rand ($130 million) from the South African lender before its collapse.

Investigator Terry Motau, who was appointed by the central bank to lead the inquiry, is calling for arrests to be made and for tax authorities to swoop on those identified in his 139-page report, titled “The Great Bank Heist.” He also recommends that VBS be wound up and an auditor’s liability claim be brought against the company’s accountants, KPMG South Africa.

“There is no prospect of saving VBS,” Motau said in the report, which was posted on the central bank’s website on Wednesday. “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.”

While VBS’s collapse didn’t destabilize the country’s financial system, it exposes wrongdoing by politically connected individuals who went on spending sprees buying luxury cars and charting helicopter flights with the savings of almost 23,000 retail depositors. Motau’s report detailed a bank that issued payments to individuals in exchange for massive deposits from state entities and municipalities, which are at risk of losing the money they parked with VBS even though most retail deposits are safe.

Zuma Link

Before being taken over by an administrator in March, the bank caught public attention in 2016 when it gave former President Jacob Zuma a mortgage to settle a Constitutional Court order to repay taxpayers some of the money spent upgrading his private residence.

According to the report, Andile Ramavhunga, former chief executive officer of VBS, said he oversaw the payment of 1.5 million rand to what he called the Dudu Myeni Foundation in order to secure a 1 billion rand deposit from a state-owned rail agency.

No foundation with this name existed and it may have been a reference to Zuma’s own foundation, which is chaired by Myeni, Motau alleged. Myeni, was ousted as chairwoman of South African Airways last year, having served on the board of the unprofitable airline in various capacities since 2009.

WhatsApp messages showed that SAA and state-owned ports and freight-rail operator Transnet SOC Ltd. were among Ramavhunga’s targets for deposits. Investigators also heard testimony claiming that VBS sought 2 billion rand of funding from the Public Investment Corp., Motau said. Ramavhunga “steadfastly denied that he was in any way involved in any unlawful conduct,” his report showed.

There were many examples of loans extended by the bank where “few, if any, monthly installments were honored," the report said. “There are also very large overdraft facilities where no amounts were ever paid into the accounts and the facility limits simply increased to permit the escalating outflows.”

The Free State Development Corp. was the third-largest beneficiary of the plundering, having received 104 million rand. The institution in 2014 took over a controversial diary farm project linked to Zuma’s friends, the Gupta brothers, who have been accused of influencing key government decisions during the ex-president’s tenure, and ANC secretary general Ace Magashule. Zuma, the family and Magashule deny any wrongdoing.

‘Gratuitous Payments’

Among the biggest recipients of “gratuitous payments” from VBS was Brian Shivambu, which several local news services including TimesLIVE and Daily Maverick identified as the brother of Floyd Shivambu, the deputy president of the opposition Economic Freedom Fighters. He received 16 million rand, according to the report.

The EFF, which had called for VBS to be defended from being taken over by regulators at the time of its curatorship, in a statement on Wednesday said “all who are responsible and illegally benefited from the fraud must be criminally prosecuted,” without directly referring to Shivambu. EFF national spokesman Mbuyiseni Ndlozi rejected calls to his mobile phone. EFF Secretary General Godrich Gardee referred queries to Ndlozi when contacted by phone.

The scandal has claimed two of the directors that the PIC, which manages 2.1 trillion rand on behalf of South African government employees, seconded to VBS’s board, the money manager said in a statement on Wednesday night. Paul Magula, the PIC’s head of risk management, was dismissed in April, while Ernest Nesane, its executive head of legal counsel, governance and compliance, resigned two days after testifying before Motau’s panel, the PIC said.

South Africa’s Financial Sector Conduct Authority has granted the PIC’s application to have the individuals debarred and the money manager will also bring criminal charges against them, it said. Both had confessed to Motau to receiving unlawful payments, the report said.

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