How banks, auditors and lawyers sent Prasa off the rails

IN 2012, the Passenger Rail Agency of South Africa (Prasa) entered an agreement with the European company Swifambo Rail Leasing which contributed to the near total collapse of rail passenger transport in South Africa. The Swifambo deal for the supply of 70 locomotives led to billions of rand in losses for Prasa.

Swifambo, a front company set up shortly before the deal, partnered with Vossloh España — the Spanish subsidiary of Swiss rolling stock manufacturer Stadler — to supply locomotives to Prasa. Stadler acquired Vossloh España in 2016 from the German rail technology company, Vossloh. Vossloh España was owned by Vossloh when it collaborated with Swifambo on the R3.5 billion Prasa deal. As so often in other transactions, Luthuli House's footprints can also be seen in the tea leaves.

Few areas of corruption and destruction of infrastructure affect the working class and the poor as much as the cynical dismantling of Prasa's passenger services. By the time Covid had taken over and Fikile Mbalula's term as minister of transport ended, only a carcass remained of a transport system that had taken millions of South Africans to their workplaces on a daily basis, relatively affordably. What the taxi industry had not burnt down, the ANC — through its tenderpreneurs and cadres — looted and stole.

Attempts to expose the destroyers are hampered by the absence of political will to hold cabinet ministers and officials accountable, but also by shortcomings in the Hawks, the National Prosecuting Authority (NPA) and companies in the private sector. For various reasons, the latter are either not doing the right thing or are actively involved in undermining the regulatory regime that is supposed to protect the country's infrastructure. Last week, Open Secrets released a research report that provides a gloomy overview of the persistent and sometimes corrupt failure of private companies, financial institutions and government institutions to meet their obligations to South Africans.

I spoke with one of the researchers, Ra'eesa Pather. Much of the information in the report is already in the public domain, but the focus of the report is on the working methods of legal practitioners, auditing firms and financial institutions. The way in which they are benignly inclined towards the enablers of corruption is the alarming reality exposed by Pather and her colleagues.

The research

PC: What was the purpose of this report? Why the focus on Prasa? The Zondo commission, the Hawks and the NPA dealt with the matter in detail. What can your investigation add to what we already know?

Our investigation was directed at the corruption and irregular financial transactions within the operations of Prasa, especially with reference to Swifambo Rail Leasing. Our focus has been the complicity of auditors, financial institutions and legal practitioners who we suspect have failed in their professional obligations.

PC: Give me an example.

Investigations by the Independent Regulatory Board for Auditors (Irba) show that the audit firm WKH Landgrebe and the law firm Nkosi Sabelo were most likely the important players in the corrupt relationship between Swifambo Rail Leasing and Prasa. Four of the six Swifambo accounts that forensic auditor Jan Dekker investigated for Swifambo's liquidators are with Standard Bank. The other two were with Bidvest Bank. Both the Johannesburg high court and the appeal court confirmed that Swifambo was a front company which, up to and including the illegal contract with Prasa in 2012, had no significant funds or activities. In fact, WKH Landgrebe has been identified in various forensic investigations regarding Prasa's questionable contract with Swifambo. 

PC: The red light in this case was the unusually high audit fees?

Yes, Ryan Sacks (a forensic auditor who conducted an investigation commissioned by the Hawks) found that the audit fees to WKH Landgrebe were indeed “excessive".

PC: According to the Dekker report, Swifambo made 26 payments worth R32.6 million to WKH Landgrebe between April 2013 and May 2017?

That is so. The audit firm (WKH Landgrebe) confirmed to the liquidators of Swifambo that the funds had indeed been received. At the time, they acted as the auditors for Swifambo Rail Leasing, but most of the payments came from Swifambo's controlling company, Swifambo Rail Holding (renamed Railpro), which was audited by another firm.

According to the Dekker report, WKH Landgrebe was paid R1.3 million to cover its fees and an additional R6.7 million for legal services. However, the biggest payment was for R24.5 million that WKH Landgrebe used to secure a stake in Okapi Farming, worth R24 million, for the Mashaba family trust — the Mamoroko Makolele Trust. Auswell Mashaba and his wife, Joyce, are the trustees of the trust, with their children listed as beneficiaries.

PC: You say Open Secrets sent questions about the allegations against WKH Landgrebe to Irba in February?

Yes, and after that the reply, “Following your inquiry, an investigation into WKH Landgrebe has been opened" was received from the CEO, Imre Nagy.

PC: Swifambo was finally liquidated. Were there any attempts to recover funds?

Yes, Swifambo's liquidators have brought a civil claim against WKH Landgrebe to recover the funds it received from Swifambo.

PC: What is the relationship between Bahn Wheels and Enerwaste Solutions and WKH Landgrebe?

Open Secrets also found new information in the Sacks report that WKH Landgrebe received large sums of money from two companies, Bahn Wheels and Enerwaste Solutions. These companies were connected to Makhensa Mabunda. There are no records in the Companies and Intellectual Property Commission (CIPC) database that WKH Landgrebe acted as the auditor of these two companies.

PC: If I understand it correctly, the reporting duties of audit and legal firms and financial institutions are spelt out clearly in South African legislation.

Theoretically, yes. In terms of the Financial Advisory and Intermediary Services Act, a provider of financial services must report all non-compliance as well as activities related to money laundering. Auditors are also required to report serious irregularities to Irba in terms of the Auditing Profession Act. However, Nagy told Open Secrets that no irregularity had been reported for any of the entities that received money from Swifambo. We also approached Wolf Landgrebe of WKH Landgrebe for comment. His reply was that their lawyers had advised them not to comment until the legal process had come to fruition.

PC: But other financial firms also did work for Swifambo?

Indeed. Van Wyk Auditors provided various financial services to Swifambo Rail Holding between June 2015 and October 2016. When Prasa approached the Johannesburg high court to set aside its contract with Swifambo due to irregularities, the then head of the Prasa board, Popo Molefe, said the financial statements were unreliable. Van Wyk Auditors' senior partner, Willem Schoeman, claims to Open Secrets that although they handled Swifambo's VAT registration and payroll, this company never audited Swifambo's books. “We tried to help with the preparation of financial statements but never undertook any audits. We cannot comment on whether any transaction was reliable as we only worked with the information we received from the directors."

Doubts about lawyers

PC: According to the Sacks and Dekker reports, the law firm Nkosi Sabelo was paid R28.5 million from proceeds related to Swifambo's corrupt contract with Prasa.

Yes, two payments were made in April 2013. During a private investigation related to Swifambo's insolvency process, George Sabelo, a partner at the firm, said the money received by the law firm was transferred to a company called Similex.

PC: And, as we all know, Maria Gomes is a director of Similex, but she also collects money for the ANC.

Exactly. The Dekker report confirmed that Gomes received the money from Nkosi Sabelo and that R17 million of it was transferred to an account belonging to Gomes. The Dekker report also confirmed that Gomes paid R10 million of this amount to the ANC.

PC: George Sabelo worked with Maria Gomes?

However, Mashaba revealed in a company document detailing Swifambo's financial status during the liquidation proceedings — and which was submitted as evidence in the Zondo commission — that the payments to Nkosi Sabelo and Gomes were originally intended to be much higher. According to Mashaba, he and Mabunda met two ANC “fundraisers" shortly after the Prasa contract was awarded to Swifambo. They were, of course, the lawyer George Sabelo and Maria Gomes. According to Mashaba, Sabelo was at that time a partner-shareholder in a law firm by the name of Nkosi Sabelo. The details are contained in the document that Sacks cited in his evidence before the Zondo commission.

PC: But it becomes even more opportunistic and obscure.

According to Mashaba's evidence, the original amount that Sabelo and Gomes tried to raise for the ANC was R80 million in funds diverted by Swifambo from Prasa. Sabelo and Gomes offered to pay Mashaba a “handling fee" of R8 million for the payments. Mashaba agreed. However, the Dekker report contains no evidence that these payments were actually made and only finds that Nkosi Sabelo received the R28.5 million, of which Gomes' company, Similex, received R17 million and paid R10 million to the ANC. The Dekker report also found that Nkosi Sabelo's company spent R1.1 million at a luxury Cartier boutique store after the law firm received the Swifambo funds. Nkosi Sabelo did not respond to questions about his actions in relation to corruption at Swifambo, but George Sabelo denied being an ANC fundraiser during a private investigation related to the liquidation proceedings.

The banks

PC: Questions also arose about the role of the banks in terms of reporting and the Swifambo transactions.

Sacks told the Zondo commission in 2021 that Standard Bank was aware that Swifambo's accounts were inactive. Clearly, this was a company that had no operating history. Swifambo's auditors indicated to Sacks that it was a new company that had never traded before and Standard Bank indicated that Swifambo had no financial history that the bank could use to assess the company's financial viability.

PC: Yet this does not appear to be a concern for the banks.

Under the Financial Intelligence Centre Act, Standard Bank had a duty to monitor the Swifambo accounts and report any irregularities or suspicious transactions to the Financial Intelligence Centre (FIC). Banks are also required to conduct “know your customer verification" to detect corruption and they are legally authorised to close accounts to prevent corrupt transactions. Neither the Sacks nor Dekker reports mention any reporting by the banks to the FIC.

PC: What does Standard Bank say about the Swifambo accounts?

Open Secrets contacted Standard Bank's spokesperson, Ross Linstrom. His reply was: “Where any customer is alleged to be involved in corruption or any other suspicious activities, the bank applies its policies and procedures to ensure that the customers comply with the relevant laws when using the banking services provided to them by the bank.” However, he could not “comment on the specific allegations".

♦ VWB ♦

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