International auditing firm KPMG is in possession of a potentially explosive top secret list said to include the names of government ministers who allegedly stood to profit from a gold “offset” project linked to the arms deal.
Only a handful of people at KPMG and the Scorpions have seen The List. But it is said to have greatly excited the then national director of public prosecutions Vusi Pikoli. This has led to speculation that his interest in the matter provided ex-President Thabo Mbeki with additional motivation for suspending Pikoli in September last year – after which KPMG’s forensic investigation into the gold scam was terminated and a long-running probe by the Scorpions ground to a halt.
The offset project which produced The List came about thanks to BAE Systems-Saab being awarded a $2.2bn tender to supply aircraft to the SAAF – they were required in return to pledge $8.7bn in investment and credits for export sales on “offset” projects that would uplift the previously disadvantaged and boost the country’s export sales.
One of the projects that BAE Systems helped get off the ground was a small company called South African Royal Manufacturers. SA-registered SARM, as it was known, planned to provide hundreds of jobs for women in the depressed Free State town of Virginia by making gold rope necklace chains for export. BAE Systems provided a $5m loan to fund capital equipment and finance export sales; the Industrial Development Corporation put in R10m; and Harmony Gold, the world’s fifth biggest gold producer (chairman: Patrice Motsepe) provided premises and agreed to lend raw gold, and receive payment for it when the chains were sold.
The project was the brainchild of two businessmen hailing from Miami, Florida – Luis Perez and Valentino Diaz. Perez, 59, originates from Peru; Diaz, 43, from Cuba.
When the SARM factory was officially inaugurated in March 2003 it boasted the creation of 700 new jobs. By then it had been in operation since mid-2002 and managing director Perez announced it had already exported $3m in finished and semi-finished product to North America. Projected sales for 2003, the first full year of production, were estimated at $15m and the plan was to develop a business generating $100m in annual export sales within five years.
Initially the chains were exported to Royal Chain Canada (whose vice president sales, according to a DTI press release, was none other than Valentino Diaz). But after a mysterious dispute involving $4.5m the SARM chains went to Miami, Florida, to a company called Mega Gold (president – the aforementioned Valentino Diaz).
It didn’t last long. In June 2003, only three months after the triumphant inauguration, SARM’s auditors, Waterford Financial Management, issued a material irregularity warning to (sole) director Perez that the company was trading in insolvent circumstances. Sarm continued to trade until December 2004, when BAE Systems called in the liquidators, who discovered an initial shortfall of R98m.
July 2004 had seen the arrival at Harmony Gold of a new financial director, Nomfundo Qangule, who very quickly became alarmed at the massive exposure the company had assumed in lending gold to SARM.
Within months Qangule called in KPMG to do a forensic audit. But very soon the Scorpions took over and had KPMG reporting direct to them. In February 2005 Perez and Diaz, lured back from Miami by Harmony, were arrested on charges of fraud and contravention of the Companies Act. They were bailed for R500,000 each. When they were brought for trial in June 2006, Scorpions prosecutor advocate Elize le Roux declared that she was not ready to proceed with final charges. The defence objected and the case was removed from the court roll, leaving Perez and Diaz to return to Miami.
And there the whole thing may quietly have died away, but for an odd tale recounted by a well-placed employee at KPMG. It went as follows: documents and information had been submitted to the firm stating that, once in Miami, the gold chains were melted down and sold as ingots. And that the beneficiaries of this scam were a number of shell CCs linked to prominent government ministers. Vusi Pikoli, so the story went, was determined to get to the bottom of this, but was suspended as director of national prosecutions before he could do so.
At KPMG, the probe into SARM was conducted by forensic auditor Lynette van der Merwe. She reported to her director, Tasha Rossouw, whose boss in turn was the firm’s forensics supremo, Herman de Beer.
Van der Merwe confirms that her investigation started in 2004. How did the list of ministers and the CCs come into the gold chain picture? “Well, I can’t really say anything to you,” replies Van der Merwe. “I’m in a very difficult situation; I can lose my job. It was supposed to be discreet [...]. It’s just we and the Scorpions that knows about the investigation.
“We’re bound by the NPA Act not to speak to anyone. I don’t know who to trust. Harmony have got their own agenda. They would do anything to discredit us because they are cross with me.”
Noseweek: “As I understand it, ministers were involved in these shell companies, the gold chains were exported and then melted down at the other end and the gold sold. That’s basically the story, isn’t it?” “Yes,” replies Van der Merwe. “You know a lot.”
A top source at KPMG elaborates: “Everything you describe is factually correct on a high level, except to prove that last bit, where the monies ended up, or in backhanders. That had to be done offshore, and that part we never got to. The proof that the proceeds went to these high fliers, or the ministers, we didn’t get that far.
“I’m not sure the Scorpions have the appetite for what it’s going to cost to really tie this case up. The cost of going to all these locations, get all those documents, prove the cashflows. I just got the impression that there was not an appetite to pursue this matter any further, based on the financial considerations. We’re not actively working on it at the moment.
“There were constant stories about benefits that were going to flow to ministers, and all these CCs. [...] there’s a lot of names and a lot of CCs so-called linked to this deal. But where they fit in, that we could never crack.
“SARM wasn’t administered the way it was supposed to be. The monies never came back. There were clear indications that people at Harmony didn’t do their work. Harmony lost millions – in my view they lost R200m over a period of time. Somebody stole the gold, that’s the bottom line. The question is: after they stole it what did they do with the money?”
Was it Perez and Diaz doing the stealing? “I think that’s firm,” says our source. “However, who was going to be in with the deal? Who helped them to structure this deal? Who made the calls to the IDC and all the other places to be the funders of this thing? In retrospect the IDC should have asked significantly more questions. Did somebody speak to them so they didn’t ask questions and just put in the money? The IDC’s unresponsiveness when we wanted them to become a complainant was amazing. Why wouldn’t a public company that’s lost money – the venture was clearly fraudulent – want to pursue it?
“So there were enough issues to say there’s a lot wrong here. But the factual determination, to get to the point where you say there were these entities and they were going to play a certain role and for that they got benefit, that has never been established purely because the case fizzled out.”
On 6 August last year Bernard Swanepoel shocked the market when he resigned without explanation as Harmony’s chief executive. It was later stated that a new accountancy system had failed to capture R250m in costs in quarterly reports to March.
Sixteen days later, on 22 August, Nomfundo Qangule resigned her position of financial director, again without explanation.
NPA director Vusi Pikoli was suspended a month later.
Swanepoel, 47, who now runs his own mining investment company To the Point, says that he “vaguely remembers” the Sarm debacle: “That’s the deal where we got shafted.”
He still feels sore about the attitude of the Scorpions and KPMG. “Nomfundo [Qangule] brought in KPMG, then the Scorpions took over. In their normal flashy style they arrested two people [Perez and Diaz] but they hadn’t done enough homework and had to let them go. That was quite frustrating.”
Swanepoel says he saw KPMG’s reports, but they did not mention The List and he had never heard of it. “I certainly wasn’t privy to that rumour or allegation. It’s always difficult when you deal with these cloak and dagger guys – they don’t tell you. They started investigating [Harmony] instead of the people who defrauded it.”
Swanepoel says that his departure from Harmony, and that of Qangule, had nothing to do with the KPMG investigation.
Qangule, 41, who joined Harmony just five months before SARM went into liquidation, says: “I was at the tail end of it, I actually killed it,” she says. “I just tried to establish exactly what happened.”
She says she never heard about gold being melted down, or the existence of The List. “The problem is, I don’t think I’ll be at liberty to speak on behalf of Harmony, because I’m out now. It’s very difficult for me to comment.”
According to share certificates held by liquidator Theo van den Heever, SARM’s capital was 1000 authorised shares, with just 100 issued – all to Luis Perez. This is odd, for back in March 2003 the DTI stated that SARM’s shares were held by Royal Chain Canada and US-based investors (60%) and the IDC with the remaining 40%.
The IDC has, astonishingly, told Van den Heever that its records are in storage and it cannot recall what stake it held in SARM. However, if the latter is the correct version, could those mysterious CCs be lurking among those vaguely-described “US-based investors”?
Vusi Pikoli did not respond to noseweek’s request for clarification over The List. But Scorpions investigator on the SARM case, adv Elize le Roux, claimed not to know about a list of CCs linked to prominent names. “I’m not aware of that,” she says.
So it wasn’t included in the material you received from KPMG? “I cannot comment on that. But in any way that’s not the focus of our investigation.”
Noseweek asks again: Are you aware of such a list? “No comment on that at this stage.”
Le Roux insists the case against Perez and Diaz has not been closed. “Of course we are in a period of transition. What KPMG is, I think, trying to convey to you is that from their side the case has been shelved because we are still awaiting certain information and we haven’t given them any task to do at this stage. That doesn’t mean the case has been closed.”
At D&T Trust, liquidator Theo van den Heever says he’s planning to launch a reckless and negligent trading claim against Perez and Diaz. The loss at present, he says, is around R115m – R70m due to Harmony Gold; R35m to BAE Systems and R10m to the IDC. Harmony’s total exposure was R120m but they recovered R50m worth of gold, leaving a shortfall of R70m.
The liquidator’s take on the scam? “Perez and Diaz (SARM) sold the gold chain to themselves (Mega Gold in Miami). When the music stopped there was a R25m hole in chain supplied by Sarm to Mega Gold, which was never paid for.
“SARM always sold to Mega Gold at a loss, so they were getting gold out of the country at 80% of its value. The Scorpions came and got documents from us, but we never got any definitive feedback from them. What they did confirm was what our investigations revealed – the gold was always sold at a loss.”
Van den Heever says he never heard about The List. He had heard, though, about the gold chains being melted down in Miami. “Apparently Diaz was having an affair with one of the SARM staff members. He told her in the last days, just before they closed down.”
See Also:-
Author urges new probe into arms deal - February 04 2009
Why we need a judicial inquiry into the arms deal - Paul Holden - 04 February 2009
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