- The first chapter of Volume 1 of the State Capture Report runs to more than 400 pages – just to deal with SAA and assorted other aviation matters.
- Justice Raymond Zondo has a few choice things to say about companies such as Nedbank, PWC, and others.
- Other companies appear to have been victims, rather than perpetrators or facilitators of state capture.
- For more stories go to www.BusinessInsider.co.za.
His report on state capture "will consist of manageable volumes" to deal with different state-owned enterprises (SOEs) to "enable anyone who wishes to read a part of the report that relates to a specific SOE or topic to take the particular volume and read about that SOE or topic," said Justice Raymond Zondo, in a preamble to the first volume he handed over to President Cyril Ramaphosa on Tuesday.
In the case of SAA, and some related companies, that means more than 400 pages of dense text, as part 1 of Volume 1 of the final report.
Zondo's commission's proceedings spanned more than 400 days, with more than 300 witnesses appearing – and presenting more than 1.7 million pages of documents as evidence.
"Approximately 1,438 persons and entities were implicated by evidence led before the Commission," said Zondo.
In the case of the aviation sector, that includes a number of otherwise unknown companies – and some household names.
Much of the first chapter of the report deals with South African Airways (SAA), and South African Airways Technical (SAAT), and two key figures at their helm. There had been "a steady decline in the quality and effectiveness of the governance" at those companies from 2012, over the period that close associate of Jacob Zuma, Dudu Myeni, was chairperson of SAA, and a close associate of Myeni, Yakhe Kwinana, was the chair of SAAT, Zondo points out.
That created the conditions for large-scale corruption and looting. Some companies turned a blind eye, some appear to have been victims, and others profited.
Here is some of what we've learnt about companies mentioned in Volume 1 of Part 1 of the report of the Judicial Commission of Inquiry into State Capture.
Money flowed from the Free State provincial government, in the form of a housing project, to VNA Consulting. That company, the commission heard, in turn, made payments to Premier Attraction, a company associated with Dudu Myeni's son Thalente Myeni, and to the Jacob Zuma Foundation, except when it went – in cash – to Myeni herself.
"The flow of funds from the Free State to these various individuals and entities need to be investigated further in order to establish whether there was a corrupt relationship between any of these parties in terms of which state funds were redirected to benefit private parties, including the Jacob Zuma Foundation," said Zondo.
(Asked about VNA, Thalente Myeni maintained there had been a legitimate business relationship. He was unable to answer basic questions about the company and that relationship, and even after a summons, "Mr Myeni could not produce a single document".)
Zondo's report incorporates the findings of the high court on Dudu Myeni's conduct, when it declared her a delinquent director. That includes SAA's "code sharing relationship with Emirates that was one of the most profitable areas of SAA’s business and generated profits of over R170 million per year", on routes SAA itself could not operate profitably.
Myeni involved herself in talks between SAA and Emirates, including travelling to Dubai for a meeting she then cancelled at the last minute, and simply failing to pitch up for another meeting in Cape Town, and then failing to attend a meeting with a review committee her board set up to examine a deal reached despite her.
A ceremonial conclusion of a deal between SAA and Emirates was called off, because Myeni said Zuma had ordered the deal not be signed, "leading to national embarrassment" – and ruining relationships with other potential partners "because SAA was now seen as entirely irrational".
"Eventually, every member of the SAA team responsible for engaging with Emirates was removed or resigned," said Zondo of the high court findings.
Dudu Myeni similarly inserted herself into dealings with Airbus, also the subject of the high court's findings, and also quoted by Zondo.
SAA had been due to cancel the purchase of 10 Airbus A320-200s – and an upcoming payment of R1 billion it did not have – and instead lease five aircraft from Airbus.
SAAs executive management worked for months on a "crucial" and "very beneficial" deal, which was approved by the national treasury, and needed only SAA board sign-off.
"Ms Myeni simply failed to meet the deadline and did not ratify the deal," Zondo relates. She wrote a letter to the president of Airbus, trying to change the terms of the agreed deal, and to introduce a third-party company to handle the leasing, for reasons she has never explained to just about anyone's satisfaction.
As before, "all senior executives who opposed Ms Myeni’s plan to change the transaction were removed".
LSG Skychefs, vs SAA's Air Chefs
LSG Skychefs South Africa was set up as a black-empowered local subsidiary of Lufthansa. It went head-to-head on a contract to feed people in SAA's lounges with the SAA subsidiary Air Chefs – which, the commission heard, had seen plenty of complaints about poor food and service.
Air Chefs could not compete, and the contract was supposed to go to the Lufthansa company.
Two weeks after LSG Skychefs was told it had won the contract, Dudu Myeni demanded that it be cancelled.
Skychefs sued, customers continued to complain about the bad food, and Myeni's board "never concerned itself with even attempting to improve Air Chef’s services".
Bidvest subsidiary BidAir found itself on the wrong side of a supposed empowerment drive by Dudu Myeni's confidant Yakhe Kwinana who, the commission heard, had "instructed BidAir to put aside 30% of its share" in an SAA tender for a BEE partner – despite already being rated as a top-tier empowered company.
BidAir later wrote to SAA, "requesting SAA to advise as to the firm with which they are supposed to partner", and asking some other rather pointed questions – on top of pointing out it was nearly a quarter owned by black women, and more than 64% owned by black people.
Swissport had a long history of doing ground handling for SAA when, in 2014, it grew frustrated working on a month-to-month basis because SAA somehow could not get around to signing a proper multi-year contract.
"SAA not only resisted signing an agreement, but it also changed the requirements for the tender by introducing new conditions for Swissport about BEE supplier requirements," Zondo heard, even though it was already 49% black owned.
It was told that partnering with a company called Jamicron – in a deal that would effectively see it give away a part of its business but would not, it believed, add in any meaningful way to transformation – would get the SAA contract signed.
SAA threatened to pull its business from Swissport, which would have been the end of the company in South Africa.
Instead, SAA inserted the company JM Aviation into a deal in which Swissport was due to buy equipment owned by SAA's technical division. JM Aviation had, apparently without Swissport's knowledge, a shareholder and director in common with Swissport itself, in the form of Vuyisile Ndzeku.
"The Commission’s investigations revealed that this payment of R28.5 million was made to JM Aviation in March 2016, the month before the ground handling contract between SAA and Swissport was finally concluded," said Zondo.
R20 million of that went to Jamicron. R2.5 million went to Ndzeku. Another R2.5 million went, via BMK Attorneys, to two sports cars for SAA's head of procurement at the time, Lester Peter. JM Aviation also kicked in R2.5 million towards a house for former SAA Technical procurement head Nontsasa Memela, and kicked R4.3 million of a R6 million profit (made in a day, by being middleman in a sale deal between SAA Technical and Swissport) to Yakhe Kwinana.
Swissport insisted it had legitimate business with JM Aviation. Zondo asked for proof, and Swissport "did not have a single scrap of paper that evidenced any aspect of the alleged contract having been entered into between the parties. There was not a single email. There were no meeting notices, no invoices, no slideshows, no logs, no design documents – absolutely nothing."
"In the light of this substantial evidence that corrupt payments were made to secure the ground handling contract with SAA, the Commission will recommend that the [National Prosecuting Authority] consider prosecutions of all those involved in these transactions," said Zondo.
His commission ran out of time before it could hear from Nedbank, Zondo said, but its relationship with the infamous Regiments Capital on a number of deals "requires further investigation by the appropriate authorities".
Specifically, Zondo thinks two Nedbank dealers may have entered into a deal that breached the Prevention and Combatting of Corrupt Activities Act, by incentivising an agent to act against the interests of its client.
The agent, in this case, was Regiments Capital, which made R50 million from the Airports Company of South Africa (Acsa), paid to it by Nedbank, which pulled the money out of interest-swap deals with Acsa – by way of a shared margin.
"Nedbank’s arrangement with Regiments Capital was, accordingly, one in terms of which Regiments Capital, which was Acsa’s agent, incentivised to act contrary to its principal’s interests by increasing the margin payable by ACSA to Nedbank and, thus, increasing its 50% share of this margin," said Zondo.
Auditors PWC initially stood by its work, which Zondo found had such features as a "baffling" conclusion about SAA's compliance with rules when there were no supporting documents to be had.
The company eventually admitted to errors and omissions in its work – leaving Zondo irate about its use of semantics.
"Whether one calls it a 'dereliction' of duty or an 'omission' of duty, the fact remains that PWC was not in any position to make a determination about SAA’s compliance with legislation if it did not even have at its disposal the records that it would have needed to make this assessment," said Zondo.
PWC knew for years that it had messed up at SAA, said Zondo, and "a responsible auditor" would have admitted as much long before.
"It should not have taken two more years, and a Commission of Inquiry to achieve this level of accountability from an entity like PWC."
PWC's team apparently also failed to read newspapers and financial websites, and so didn't know about irregular dealings that were being widely reported while it was signing off on SAA's numbers.
PWC and its partner Nkonki "gave clean audits to SAA for five consecutive years between 2012 and 2016," said Zondo, during a time when SAA's board was "engaging in acts of corruption and fraud. None of this was, however, detected by its auditors. Instead, their audit reports each year conveyed to the public that SAA was complying with the law and that irregular expenditure was under control."
(Compiled by Phillip de Wet)