Last week, the liquidators of VBS Mutual Bank announced that the municipalities that had invested in the fraud-ridden bank would receive 7% of their money back. This means that the Vhembe District Municipality (VDM) effectively had lost more than R350 million of its ratepayers' funds. Many of the people involved are, however, still actively involved in politics in the province or are still serving in positions in municipalities or government departments. We tried to trace where the people responsible for the losses are today.
When what many describe as nothing other than a Ponzi scheme collapsed at the end of 2017, VDM still had R300 million of its investments tied up in the bank. In total, the VDM invested more than a billion rand in the bank, even after being instructed by the national and provincial treasury departments that this is not legal.
The VDM received back roughly R22 million from the liquidators last week. Had the VDM simply put the original money on deposit in a Money Market account at one of the registered banks, the amount would have grown to more than R370 million. This means that the decision makers cost the people of the region dearly, because such money could and should have been used to improve the lives of many.
You had been warned!
The defence of the politicians and the officials involved in many of the cases was that they had not known that they were not supposed to invest in a mutual bank. This argument was not, however, accepted by investigators tasked with finding out what had transpired and what had caused the losses. They found that, in just about all the cases, politicians were accused of applying pressure on officials to flaunt procedure and not to do proper checks. Officials were seemingly quite willing to push through transactions and look the other way.
The VDM seems to be the pioneer in terms of investing in VBS. This municipality started pumping money into VBS on 12 February 2015, when R10 million was invested at an interest rate of 6% for a period of 21 days. The money was then subsequently re-invested, but each time at a slightly higher interest rate. For the next three years, the investments continued, but the amounts became larger (presumably as the bank needed more money to fund the greed of the people involved).
VBS Mutual Bank's "takeover" happened around 2014/15. The directors were replaced with ones who clearly wanted to make a lot of money and very quickly. A R350 million facility provided by the Public Investment Corporation (PIC) was seemingly not enough, and the mutual bank started to look at more avenues to feed its thirst for cash. Whereas the bank had previously catered for small investors and lenders, it now had its eyes on the business sector, especially those dealing with government tenders, but it needed money to lend out.
The sudden appetite for risks by municipalities such as VDM must have attracted the attention of people at national treasury and the provincial treasury. In August 2016, the Limpopo Provincial Treasury (LPT) sent out a circular to all municipal managers (MMs) and chief financial officers (CFOs) to supply detailed investment registers. Very few municipalities seem to have complied with this directive.
A year later, on 15 August 2017, the National Treasury (NT) sent an email to all municipalities, explicitly warning them that investments with VBS were contrary to the provisions of the Municipal Finance Management Act (MFMA) and the Municipal Investment Regulations. This letter was received by the VDM on 22 August 2017. The NT followed this up in November 2017 with another circular with a similar message when it realised that the trend was continuing.
The LPT was clearly also concerned about this trend and, on 31 October 2017, sent a letter to all MMs and CFOs, highlighting the relevant regulations. A link was even provided to assist municipalities wanting to check whether an institution met the necessary criteria.
No one is stopping us
In the 2015/16 financial year, the VDM, in total, invested just over R538 million with VBS. (The total includes re-investments, when money was left at the bank for extended periods.) The following year, a total of R800 million was invested at VBS. (The single biggest investment was in November 2016, when R200 million was invested). In December 2016, the rate offered by VBS already exceeded 9%.
The VDM seemed to use an independent broker, Gundo Wealth Solutions, to facilitate some of the investments. This company, with Ralliom Razwinane as director, also interacted with other municipalities such as Polokwane to secure VBS deposits. Exactly what commission Razwinane earned from facilitating the VDM's deposits remains uncertain. The Motau report states that Razwinane received more than R24 million for facilitating deposits from various institutions in VBS.
In the 2017/18 financial year, the VDM continued to invest its funds with VBS. On 12 September 2017, a few weeks after the national treasury's explicit warning against this practice, another R200 million was invested for 60 days at 7,5% interest.
When it became clear that VBS was about to go down, the municipality tried to get its money back, but to no avail. On 6 December 2017, R50 million was paid back into the VDM's bank account, but that still left the municipality with R 336 107 243,26 that could not be recovered.
Who was responsible?
The VDM's executive mayor during the whole period was Ms Florence Radzilani. After a lot of pressure was applied, she resigned in December 2018. In her letter of resignation, Radzilani professed her innocence, saying that she was not involved in the VBS investments, and that she "leave[s] the office with a clear conscience after being vindicated by two forensic investigations".
Radzilani, who was also the deputy-chairperson of the ANC's provincial executive, proved to be a major headache for the ANC. She was mentioned in the SA Reserve Bank's report on the shenanigans at the mutual bank. A conversation between the then chairman of VBS, Tshifhiwa Matodzi, and Kabelo Matsepe (described as "a politically connected fixer"), was published in the report. This conversation implied that Radzilani wanted more money to keep investments at VBS. Radzilani denied the allegations.
To complicate matters even further, a phone recording surfaced early in 2018 wherein the province's premier, Stan Mathabatha, is alleged to have professed his love for Radzilani. This caused an extremely awkward situation, seeing that the premier was asked to implement a directive of the ANC's national executive committee (NEC) to remove the mayors, including Radzilani, from their positions.
The report compiled for the LPT was clearly not among the ones Radzilani referred to. This report reflects that she was either completely incompetent (in not knowing what her responsibilities were) or simply ignored legislation.
Radzilani said that she had never been informed of where the VDM had made investments. She also "did not know" if the municipality had done a background check into the registration, compliance, liquidity and credit ratings of VBS. She relied on officials and representatives of LPT to inform her of any irregularities, which did not happen.
Radzilani, however, did not take into account that "the buck" has to stop somewhere and she, as mayor, had to comply with the MFMA. In terms of the legislation, the responsibility to oversee the work done by the MM and CFO was hers. The VDM's investment policy was also found not to be in line with legislation, something which the mayor should have checked.
This is not my fault!
When the VDM started investing with VBS in 2015, the MM post was vacant, with Mr M Mothibi taking up this responsibility. The CFO was Mr A Thokwane. When many of the investments were made, these were only signed off by Thokwane.
In May 2016, when huge amounts were invested with VBS, Mr J Raphela was the (acting?) CFO and Mr N Ngoepe was acting MM. Raphela kept on recommending the investments, with Ngoepe signing off, until the end of 2016. In December 2016, Mr T Mufamadi became the acting CFO, with Mr M Mudau signing off on investments as acting MM. Two months later, Mr Nyiko Mchavi was appointed as the CFO, with Ngoepe again acting as MM.
In June 2017, the somewhat controversial Reuben Rambado was appointed as MM at VDM. This was not Rambado's first stint as MM. He was the MM at Makhado Municipality, where he was suspended in July 2004 on allegations of mismanagement. He later received a golden handshake and was redeployed at the Department of Communications.
On 5 July 2017, Rambado authorised an investment of R60 million in VBS, on recommendation of the CFO, Mchavi. A week later, Mchavi approved another investment of R100 million, but this time the deputy CFO, Mr Marutha, signed off on the deal.
Interestingly enough, the 5 July investment was the only one signed off by a permanent MM in more than three years. The VDM made two more investments, on 7 August 2017 (R150 million) and on 13 September 2017 (R200 million), but both were recommended by the deputy CFO, Mr Marutha, and signed off by Mchavi.
In the LPT report, the mayor as well as officials are criticised for not adhering to legislation. Proper records were not kept, the people involved failed to carry out their delegated duties and no internal control mechanisms were in place to manage risks.
In November 2018, Rambado and Mchavi were suspended by the council (ironically, with Radzilani still in the position of mayor.) At that stage, Mchavi threatened to reveal the "real" identities of those behind the VBS looting.
Rambado later received a "golden handshake". In the 2018/19 draft annual report of the municipality, both men had reportedly "resigned". Rambado is a farmer nowadays, but exactly what Mchavi is doing remains unclear.
As far as Florence Radzilani is concerned, she is still very active and about to be re-elected as deputy chairperson of the ANC's provincial executive council. The Vhembe region is one of the regions that voted for Premier Stanley Mathabatha to retain his position, with another VBS accused, Danny Msiza, being the provincial secretary.