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Zimbabwe Chief Justice's nephew named in SA 'bank heist'?

by Staff reporter
07 Sep 2019 at 20:35hrs | Views
A damning report into the looting of VBS Bank has found that former KPMG partner Sipho Malaba, who is Zimbabwe Chief Justice's nephew knew about the nearly R1bn cash shortage at the bank but signed off on its financials anyway - benefitting roughly R28m for his efforts.

The report found that the embattled audit firm, which came under fire for its discredited investigation into the so-called "rogue unit" at the South African Revenue Service, must be held liable for damages incurred by the VBS curator, National Treasury and the Prudential Authority (formerly the registrar of banks).

Malaba defrauded the South African Reserve Bank (SARB) and should be criminally charged and held liable through civil proceedings, the report by advocate Terry Motau, titled ‘The great bank heist' says. Motau was appointed by the Prudential Authority to investigate possible fraud following the collapse of VBS earlier this year. VBS was placed under curatorship in March.

Motau's final investigation report, which supports and confirms initial findings of wholesale fraud by curator Anoosh Rooplal, has now been presented to the SARB, who published it on Wednesday.

Motau has recommended a raft of charges against the bank's former executives, and the executives of its largest shareholder, Vele Investments. The recommendation extends to the more than 50 individuals he has identified as having benefitted unduly from the "widescale looting and pillaging" of deposits held at the bank totaling nearly R2bn.

He has advised that the National Prosecuting Authority's Asset Forfeiture Unit step in to recover some of the assets.

Malaba's sins

"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 regulatory audit opinion which he knew to be false," Motau's report reads by way of introduction for Malaba.

Motau detailed how Malaba was allegedly extended "soft" facilities by VBS, under the direct instruction of VBS chairman Tshifhiwa Matodzi and its CEO Andile Ramavhunga.

This means that he was given an overdraft facility of R11m, increased steadily from R2m, and a bond of nearly R8m which was utilised - but very little in terms of repayments were made to the bank.

The facility limits were increased on numerous occasions and Motau found that Malaba was living "far beyond his means".

Malaba admitted during his testimony before Motau that he owed VBS a staggering R28m as a result, but later returned to an earlier version claiming that he could have afforded to repay the funds. Motau dismissed this.  

He also met with VBS CFO Philip Truter where, according to Truter, the cash discrepancy was discussed â€" before the bank's annual statements were signed off but Malaba disputed this during his testimony before Motau. Motau found that Malaba had received R33m in total.

The scheme, the bond and the overdraft

The report also found that Ihaawi Lesizwe Trading (ILT), a company owned by Malaba's wife, Jacqueline, was one of three vehicles allegedly used to enrich the former KPMG executive.

The company's account with VBS was granted a R2m overdraft facility, despite having never traded and not having any assets.

Over time, usually through a call or an email to VBS CEO Andile Ramavhunga or Matodzi, the facility was increased without any credit assessment process to R11m.

The account was opened on January 27 2016 and "not one single cent" was ever paid into the account, but Malaba utilised the overdraft facility to repay a R2.2m loan to KPMG in respect of a loan he took to purchase vehicles, including a Range Rover Sport worth R840 000.

He also spent some R1.4m on tuition at Oxford University. He transferred an amount of R3m to his personal bank account at First National Bank.

Other than that he was granted vehicle loans for a Range Rover Evoque, a Land Rover Discovery (valued at R1.5m) and a Mercedes Benz â€" often not making any repayments.  

"The debit orders for payments to this account were almost invariably reversed and VBS never took any collection steps on the accounts apart from making phone calls to him from time to time," Motau found.

Malaba confirmed he had paid just two monthly instalments in 2016, and one payment of R341 000 on a R7.3m bond granted by VBS.

It also emerged that an overdraft facility similar to that of Ihaawi Lesizwe Trading was granted to a company that Malaba's wife and the wife of his KPMG colleague Dume Tshuma were directors of, called Betanologix.

Malaba conceded that he and Tshuma were 'behind' the company. Motau found that by March 2018, the overdraft facility stood at R9.7m .

Motau noted that Tshuma received one payment of R200 000 out of the Betanologix account, whereas payments to ILT amounted to R1.7m as well as R450 000 to Malaba directly.

"If in fact Tshuma and Malaba were partners in the Betanologix enterprise then Malaba was clearly the senior partner," Motau quips.

The fraud

Motau goes into great detail to set out how, under Malaba's direction, the audit of VBS was manipulated to draw the attention of the Reserve Bank away from the glaring irregularities.

Hundreds of millions of rands were siphoned out of the bank through the creation of fictitious deposits on the internal systems â€" the money existed on paper and would become ‘real' once it was transferred out of a suspense account set up by VBS chief financial officer Philip Truter. But the money actually belonged to clients of VBS.

But crucially it was what Malaba knew when he signed off on not only the annual financials, but also compulsory regulatory reports Malaba rubber-stamped that Motau honed in on the so-called DI 100 reports.  

Banks are compelled by law to submit monthly and quarterly reports to the Prudential Authority called returns. One of these returns is called the DI 100. The return, according to Motau, "requires setting out of VBS' monthly balance sheet in the manner required".

These returns help the Prudential Authority keep a close watch on the banks to ensure their risk profiles to not alter dramatically.
VBS however, submitted DI 100's filled with intentional errors, according to Motau.

"I have already reached the conclusion that Malaba was aware that there was a cash hole when, on 17 July 2017, he gave his audit opinion in respect of the annual financial statements," Motau finds.

When Malaba signed off on the regulatory reports filed with SARB, he knew of the errors and irregularities, said Matau.

"I accordingly find that Malaba committed fraud by approving and signing the…DI 100 return for the month ended 31 March 2017."

Motau also recommends that National Treasury, the curator and the Prudential Authority seek damages from KPMG.

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Source - fin24