The money train

Transnet, liquidators of Gupta-linked Nkonki fight over R57m in ‘corrupt’ payments and invoices

Transnet is keeping its foot on the pedal in its campaign to recover billions of rand lost to corruption when state capture forces defrauded the state-owned logistics company.

One of those Transnet recovery projects is a battle to get back R57 million in alleged fraudulent payments and invoices, related to “non-audit services”, from the liquidators of the estate of Gupta-controlled accounting and audit firm Nkonki Sizwe Ntsaluba (Nkonki Inc). The company went into liquidation following the departure of the Guptas from South Africa and the exposure of their state capture schemes.

Before Nkonki was taken over by state capture forces, it was an independent black-owned auditing and accounting firm with a history dating back to 1990. In 1996, the company merged with another black firm of accountants to form Nkonki Sizwe Ntsaluba.

In September last year, in court papers lodged in the South Gauteng High Court in Johannesburg, Transnet applied for the review and setting aside of a decision made by allegedly corrupt senior Transnet executives in 2017 to procure “non-audit” services from Nkonki for massive fees.

Then in December last year, Transnet followed up with a summons against the estate of Nkonki and its joint liquidators. The purpose of the summons is partly to counter the Nkonki liquidators’ demand that Transnet must still pay R19m in outstanding Nkonki bills.

In addition to countering this claim, Transnet also wants to recover R38m it had already paid to Nkonki that it allegedly shouldn’t have paid, bringing the total amount of the claim to R57m.

A successful ruling in the matter lodged in September to set aside the procurement of the “non-audit” services will strengthen Transnet’s hand in the claim.

Transnet spokesperson Nompumelelo Kunene said that the Nkonki liquidators have not yet filed a response to Transnet’s summons, since an agreement was reached between the parties to put the litigation on hold pending the outcome of settlement negotiations.

The whole matter of the downfall of Nkonki stems from the involvement of the Gupta brothers and their associates in the company. The Indian brothers used financial incentives to cultivate a network of key people in the South African government, state owned enterprises and the ANC, especially under former president Jacob Zuma, in order to gain substantial business and facilitate theft from state enterprises.

When Zuma fell from power, the Guptas fled the country. The government and state owned enterprises are now attempting to recover some of the massive losses they incurred as a result of the corrupt activities of the Guptas and their collaborators. Nkonki is a case in point. [See editorial.]

Transnet’s relationship with Nkonki started in August 2013 when the state logistics utility entered into a joint five-year internal auditing contract with Nkonki, KPMG and SekelaXabiso (SkX). When this contract was awarded its estimated worth was put at R1.3 billion.

Mitesh Patel

However, three years later, from October 2016 to January 2017, a dark shadow was cast over Nkonki when it was taken over by Gupta-linked forces. At that time managing director of Nkonki, Mitesh Patel, through funding supplied by Gupta-linked Centaur Ventures, acquired a majority shareholding in the firm on behalf of Salim Essa’s Trillian Management and Consultancy, which was also a Gupta entity, for R107m, according to  investigative unit amaBhungane.

In terms of their original contract, Nkonki was required to let Transnet know of any change to its controlling shareholding, and if it failed to do so without prior written consent from Transnet, then the state company could cancel the contract.

Nkonki never notified Transnet of this change, and once Transnet discovered this infringement, Nkonki lost all its business with the state company. Too late.

Another point worth noting is that Patel was not a registered auditor, according to amaBhungane.

So, following the transfer of shares, the majority shareholding in Nkonki was held by those who were not registered auditors, resulting in the firm’s being in contravention of the Auditing Professions Act and operating illegally.

Considering this fact, one might justifiably ask why Transnet is not claiming all monies it paid Nkonki from the time that ownership of Nkonki changed in late 2016 and early 2017 and not just the ”non-audit” work. [Perhaps Nkonki, now insolvent and in liquidation, doesn’t have the money to repay? – Ed.]

Returning to the story, almost immediately after the Trillian takeover of Nkonki was completed, in January 2017, Nkonki submitted two separate unsolicited bids/proposals to Transnet for so-called “non-audit” work.

The first unsolicited bid was entitled: “Cost savings and efficiency proposals” while the second unsolicited bid was entitled: “Transnet Freight Rail coal contract enhancement initiative”.

The new Nkonki owners and the existing Transnet top management at the time allegedly colluded to hatch a plan to defraud the state company of up to R500m in funds through needless Nkonki “non-audit” work.

In addition, key managers at Transnet allegedly pulled the wool over the eyes of the members of two key committees of the board, who approved this work despite questions being raised about this “non-audit” work’s potential conflicts with the internal audit work that Nkonki was doing at Transnet.

However, later down the line, it appears then Transnet CEO Siyabonga Gama got cold feet about this “non-audit” work amid increased scrutiny of state and Transnet procurement practices when the days of the Gupta influence had started to wane.

So Transnet reduced the maximum procurement cap for this “non-audit” work from R500m to R95m and, ultimately, R57m was billed.

Nevertheless, the whole procurement process involved with this work broke numerous laws and regulations. Transnet said in court papers that the Nkonki agreement for “non-audit” work was “unlawful and tainted by misrepresentation, statutory non-compliance and collusion”.

The decision to procure “non-audit” work from Nkonki was inconsistent with the provisions of Section 217 of the Constitution of South Africa, the requirements of the Public Finance Management Act (PFMA) and Transnet’s procurement procedures manual, Transnet added.

Transnet also raised the issue of Nkonki’s not having had a written agreement for the “non-audit” work, which was also in contravention of various laws and regulations.

In addition, Nkonki provided no evaluation reports for the “non-audit” work, as it was required to do, so failing to provide any evidence that it had delivered a service of value to Transnet.

Mohammed Mahomedy

Mohammed Mahomedy, who was then acting Group CEO of Transnet, in court papers filed in September last year, characterised the situation as follows: “As a result of these unlawful acts of state capture, illegal contracts were purportedly concluded on behalf of Transnet with [Nkonki].”

Transnet’s former executives embezzled the group’s financial resources by paying Nkonki for “improperly procured” services, and for which the state company “did not receive value for money”, Mahomedy added.

Nkonki had claimed in its proposal that it could save Transnet between R1bn and R2.5bn with its cost-saving strategies over three years. However, Mahomedy, who left Transnet in March, wrote in his affidavit that Nkonki achieved no savings.

“Through [Nkonki], Essa was able to infiltrate and fleece Transnet under the guise of a reputable audit firm with whom Transnet had an existing commercial relationship,” according to Mahomedy.

In April 2018, Nkonki started to disintegrate as the company’s fraudulent existence was revealed. On

Salim Essa

April 18, 2018, the Auditor General announced that it had halted its contract with Nkonki because of the revelations that the company was involved in state capture. Days later on April 24, Nkonki started proceedings for the voluntary liquidation of its Sunninghill operation in Johannesburg and 180 people at the company lost their jobs.

Then on May 2 of that year, Transnet terminated its key contract with Nkonki as a result of the auditing company’s failure to disclose the fact that Salim Essa’s Trillian bought Nkonki’s controlling shareholding without this being revealed to Transnet.

Some weeks later, on June 26, the Master of the High Court appointed the joint Nkonki liquidators. They are Reuben Miller of RMG Trust, Norman Klein of Westrust, Aigle Finance director Vimbai Tsopotsa and Refilwe Tlhabanyane.

In the court papers, Mahomedy and Transnet pointed out the top Transnet managers who were instrumental in giving Nkonki Inc extra work and described what happened to them once their actions were exposed.

 Siyabonga Gama

Then Transnet supply chain manager Edward Thomas and former Transnet chief executive Siyabonga Gama made misrepresentations to both Transnet’s audit committee and its acquisitions and disposal committee, Transnet stated in its submission.

Thomas and Gama knew that their representations were false and significantly so and they also knew that they were acting in Nkonki’s interests rather than that of Transnet, Transnet stated.

Thomas’ submission regarding Nkonki’s unsolicited bids was approved by Gama, as well as by Transnet’s then chief audit executive Mmathabo Sukati and by Gary Pita, who was then Transnet’s chief financial officer.
Gama, Thomas and Pita were all implicated in allegations of state capture at Transnet and had either resigned in the face of disciplinary proceedings instituted by Transnet, or Transnet had dismissed them, Mahomedy wrote in court papers.

According to Mahomedy’s affidavit, Sukati confirmed that the unsolicited bids did not arise from any business need or gap analysis done by Transnet to justify procurement of “non-audit services” from Nkonki.

Sukati also raised the question of a real conflict of interest arising from Nkonki’s unsolicited bids. She expressly questioned how Nkonki would objectively execute its audit functions while at the same time performing “non-audit services”.

The minutes of the meeting recorded that  Transnet’s then chief legal officer Ndiphiwe Silinga did raise a concern with how the unsolicited proposals were approved, Mahomedy added in the court papers.

On 31 October 2018, Transnet suspended Thomas following probes into misconduct involving consultants, including Regiments Capital, Trillian Advisory Services, Trillian Capital Partners and Nkonki. Following the internal investigation into the allegations, Transnet instituted disciplinary action against Thomas in November 2018, charging him with four counts of gross misconduct. One of the charges pertained directly to the abuse of the Transnet procurement processes in the appointment of Nkonki for one of the two “non-audit” contracts.

Also, Transnet instituted civil proceedings against Thomas for R11.4m paid to Trillian for work not done or completed. The aim was to recover fruitless and wasteful expenditure incurred by Transnet from Thomas, Mahomedy wrote in his affidavit.

Thomas was dismissed on 2 October last year, after a disciplinary process, the Daily Maverick reported.
Thomas has challenged steps taken against him by Transnet in the Labour Court, and these proceedings were ongoing, Mahomedy stated in his affidavit.

Pita not only played a central role in the process leading to the approval of Nkonki’s “non-audit services” unsolicited bid but he also authorised R179m in payments to Trillian in a manner that was unlawful and without work being provided by Trillian to Transnet, Mahomedy stated.

In early 2018, Transnet took disciplinary steps against Pita due to his involvement in the recommendation and support of Nkonki unsolicited bids inconsistent with Transnet’s procurement obligations.

The disciplinary steps also followed Pita’s authorisation of the payment of about R40m to Trillian in June 2016 when he ought to have known that Trillian did not provide any billable work to Transnet to justify the payment, according to Mahomedy’s affidavit.

Transnet suffered losses and instituted civil proceedings against Pita to recover wasteful expenditure, Mahomedy wrote.

In April 2018, Pita resigned as Transnet chief financial officer, according to a News24 article. Since May 2018, he has been a business consultant, according to his LinkedIn profile.

Transnet has instituted civil proceedings against Gama for the recovery of wasteful expenditure due to overpayments made by Transnet to Regiments Capital and Trillian of R323.7m.

Transnet fired Gama in October 2018. Business Day reported that one of the key reasons why Transnet fired him was due to probes that implicated him in maladministration in the acquisition of locomotives worth R54bn from General Electric, Bombardier Transport, China South Rail and China North Rail in 2012.

Mahomedy stated in his affidavit that there was a discernible pattern concerning Thomas, Pita, Gama and Stanley Shane, chairman of  Transnet’s acquisition and disposal committee, that showed that they conspired among themselves and facilitated the Nkonki transaction, as well as having siphoned off money to other Gupta companies and fronts.

Stanley Shane

“This is evident in the approval and implementation of [Nkonki’s] unsolicited bid proposals,” he wrote.

Noseweek contacted Gama’s lawyer Brian Kahn and sent him a list of questions for his client. In response, Kahn said that Gama was “not at liberty - nor is he inclined - to respond to your questions”. In addition, Gama also declined to comment because the matters were sub judice.

Pita was contacted for comment and questions were sent to the email address that he provided. His response: “I am advised that due to the fact that various court actions are currently pending, these issues are sub judice and I cannot respond to [Noseweek’s] questions at this stage.”

Noseweek wasn’t able to get in touch with either Thomas or Shane. A call to Thomas’s old Transnet cell phone showed that it was no longer in use. Thomas’s LinkedIn profile shows that since he was fired by Transnet in November last year, he has been working as a finance and supply chain management consultant.

The two numbers that Noseweek discovered through a trace search for Shane rang, but no one answered the calls.

Edward Thomas

Fascinating testimony included in Mahomedy’s court papers concerns Transnet’s “culture of intimidation” during the times of state capture. Transnet targeted employees who refused to carry out illegal orders, and in particular, Mahomedy said, his superiors bullied him when he refused to authorise payment to Trillian.

As a result, he was “subjected to unbearable acts of intimidation by my superiors”.  As part of this, in September 2016, Thomas contacted Mahomedy and requested that he attend an interview at PricewaterhouseCoopers’s Sunninghill offices in Johannesburg. Thomas said that the interview was part of a probe to establish who at Transnet was leaking confidential information to the media, Mahomedy wrote.

At the interview, Transnet subjected Mahomedy to a voice analysis test, which was effectively a lie-detector test; handwriting analysis; and forensic interrogation over seven months. Transnet also made a copy of the entire contents of his computer and mobile equipment for examination.

Mahomedy said he considered his employment at Transnet “unbearable”. In April 2017, he requested a voluntary separation package to exit the company, but Transnet management refused to let him leave. Instead, Pita told Mahomedy that the forensic team did not establish any evidence that implicated Mahomedy in any wrongdoing and that his services were still required.

Mahomedy said his testimony was “an elementary example” of how staff at Transnet were intimidated and subjected to “unjustified investigation”.

“Simply because they were performing their functions and duties consistent with the procurement and governance processes of Transnet, and were not willing to do the bidding of the officials who were illicitly associated with acts of state capture,” he wrote.

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