ANC brass named in US fraud probe
ANC bigwigs scored millions of rands from a botched broadband project for the City of Johannesburg while its costs more than doubled to nearly R1.7bn.
Police are investigating the possibility of fraud and corruption in the contracts, which involve multinational telecommunications giant Ericsson, and the US department of justice has also shown an interest in the case.
A report by Nexus Forensic Services and affidavits by city officials allege that mismanagement and deception compromised the project to provide Johannesburg with cheap broadband services.
The report says public service & administration minister Ayanda Dlodlo, deputy defence and military veterans minister Kebby Maphatsoe and former diplomat Lerema Kekana were directors of the BEE partner involved, CitiConnect Communications (CCC).
Though the report does not attribute specific wrongdoing to the three, it contains allegations about CCC, Ericsson and its local arm Ericsson SA (ESA).
Legal fees and audits have resulted in the total cost of the project - which was initially supposed to cost R600m and go live in 2013 - ballooning to nearly R1.7bn. And still the network, now owned by the city, is not operational.
The report details how the project's bosses bent over backwards to accommodate ESA and how this later added millions to the original costing.
In its report, Nexus states that ESA presented a company called Masakhe - which it later dropped in favour of CCC - as "a front company in order for them to obtain scores for BEE".
'Maybe too lax'
The document, given to Johannesburg mayor Herman Mashaba in December, called for the city to ask the US department of justice to investigate whether the project fell within the ambit of the US Foreign Corrupt Practices Act.
On Tuesday, Mashaba and other city executives met US officials to discuss the report.
US embassy spokesman Rob Mearkle declined to comment, but Mashaba told the Sunday Times the US officials had undertaken to ascertain if US laws had been violated.
Dlodlo this week acknowledged her role in the project, saying she had been "naïve" and had been led to believe it would benefit Umkhonto we Sizwe (MK) veterans.
Though admitting that she had made R3m from selling her shares in CCC, she said she had declared her stake. She said she resigned her directorship when she joined parliament.
Dlodlo said she had not yet seen the report and neither Nexus nor the city had consulted her during the investigation.
She said she was an executive member of the MK Veterans Association when she was approached to join CCC, and was told it was a BEE entity.
"It was a lucrative deal which I wanted to be part of. It was not illegal.
"I specifically asked if I was being approached to give the shares to MK or if the shares would be for us as individuals. It was for us as individuals.
"What we agreed was that MK cadres would be given work through CCC, which never happened."
Dlodlo acknowledged that directors would be expected to look at a company's books, "but we were not running the operations".
"[I] would not say we were careless, but maybe a bit naïve and too lax at the time. We never scrutinised the books or the agreement. There was no reason to suspect the city would decide to take over the contract."
Maphatsoe said he was unaware of the forensic investigation. He said he had joined CCC after an approach from MK veterans.
"I was not an executive director and did not earn a salary. In 2010 I resigned. When they [wound] up the company we were given our settlements. I don't recall what I got but it was not more than R3m."
Kekana declined to comment, as he had not seen the report.
The report, along with an affidavit by city manager Ndivhoniswani Lukhwareni, questions how Ericsson secured the contract despite failing aspects of the tender process.
Among other problems, the bid did not include critical financial documents and ESA did not have a BEE partner, it said.
ESA was initially awarded the contract in 2008, but had to bid again in 2010 after it was found the city's infrastructure was not compatible with the offered systems.
According to the report, CCC, which former director Pieter de Wet says no longer exists, was formed in late 2008 just months before ESA won the initial contract.
It became ESA's BEE partner and was ceded the entire contract, despite at the time having no operational knowledge of broadband technology.
"The cessation was against the city's legal [officers] and Treasury's instructions and recommendations," the report reads.
Documents showed that shortly before resigning, Dlodlo and Maphatsoe, along with several other shareholders, signed loan agreements for R400m and R766m respectively with ESA and Ericsson Credit. The two joined CCC on November 12 2008 and resigned exactly two years later, shortly before Dlodlo became deputy public service and administration minister.
But both kept their 8.5% share of the company.
The city eventually purchased the project in 2015 for R1.2bn, after a two-year dispute with CCC over missed deadlines.
Nexus said there was "reasonable suspicion that ESA and CCC committed fraud" and the asset was really worth only half what the city paid.
Police spokesperson Capt Kay Makhubela said a case of fraud and corruption was being investigated. "If there is a need, the case will be referred to the commercial crimes investigation team."
De Wet said he had co-operated with Nexus investigators.
"This deal was not corrupt and in my view there was nothing untoward done by either Ericsson or CCC," he said.
"Our work was exceptional. We completed our job. This was taken away from us at the point of it going live.
"The loan from Ericsson was paid with interest. Dlodlo and Maphatsoe signing the loan agreements would have been part of their shareholder duties. Nothing untoward about this."
Mashaba said the city had approached the Hawks and the US department of justice (DoJ) in line with the report's recommendations.
"My team provided the DoJ with a copy of the final report. We are doing a feasibility study to see if there is a way forward with the project."
Ericsson spokesperson Johannes Persson said the company had not seen the report and could not comment on its contents.
"Ericsson is aware of the investigation and has co-operated with the City of Johannesburg . Ericsson has also communicated what information it has available and the challenges in locating further information.
"Ericsson regards all allegations of irregularity or misconduct as a serious matter."
Nexus declined to comment on the matter, citing client confidentiality...