Copper case poised to blow lid off SA's sordid scrap industry

There's money in metal: Scrap dealer Neil Davies at his bail hearing on Thursday after he was arrested allegedly in possession of R100 000 worth stolen copper. (Madelene Cronjé)

There's money in metal: Scrap dealer Neil Davies at his bail hearing on Thursday after he was arrested allegedly in possession of R100 000 worth stolen copper. (Madelene Cronjé)

Last Friday, police on the West Rand arrested five men with what they said was R100 000 of stolen copper after receiving a tip-off. The case, investigators implied, could be linked to water shortages experienced in Gauteng recently, which were in part caused by a power failure at a pumping station, which, in turn, was caused by stolen cables.

One of the men, later identified as Johannesburg businessperson Neil Davies, was also accused of offering a R30 000 bribe to the police during the raid.

The outcome of Davies’s bail application, which was due to be heard on Thursday, had not been determined by the time of going to press.

But Davies is not simply a scrap dealer caught on the wrong side of the law.

In civil and criminal cases spread across years and multiple courts, he stands accused of being one of a handful of key individuals in the metals trade either guilty of fraud worth tens of millions of rands, theft that can be measured only in tonnes, and an array of dirty tricks that makes the accompanying paranoia seem pragmatic.

On the other hand, Davies may simply be the victim of such dirty tricks. In the incestuous and cut-throat world of metals dealing, it is even possible that Davies is both perpetrator and victim.

          Neil Davies's Sandton home
The opulent home in Sandton that Davies is selling for R12.5-million. (Property24.com)

Estimates of the total annual economic cost of copper theft start at R5?billion. It has affected electricity supplies, water supplies, telecommunications and trains. Parastatals and even homeowners with copper water pipes have increased their spending on security to combat such theft. Very few areas in South Africa have gone untouched.

“The high prevalence of cable theft, in particular copper theft, and its consequences, has become a major concern throughout the metros and towns,” Co-operative Governance Minister Pravin Gordhan told Parliament in September, in yet another instance where the crime was described as economic sabotage.

Although the scale of the problem has been recognised for years, measures to prevent the theft of metal (in cables, tracks and pipes spanning the country and in unmanned installations) have comprehensively failed. Authorities now believe that focussing instead on the points of trade – the businesses where stolen metal is cashed in and processed – stands the best chance of cutting off the flow.

But the accusations levelled against Davies and his alleged accomplices – and the accusations they have levelled against others – suggest that the task will not be an easy one.

Black bags full of money
Those accusations tell of an industry where business is done by way of black bags full of money, where workers are corrupted and turned against their employers, where security guards are for sale.

They tell of a business where blue-collar workers buy flashy new cars for cash, where chief executives have bodyguards and where the once-loyal turn on their former comrades. They also tell of a world where fraud is perpetrated by those working closely with the police, of recalcitrant prosecutors, lost dockets and mysterious lapses in the criminal justice system.

Almost none of these allegations has been proven and many of them have yet to be tested in court, where they will probably be subject to dispute. But whatever the final outcome, the picture they paint is of an industry that not even the largest players with the most sophisticated systems can control.

The implications for stemming copper theft are dire.

Davies (44), the high court in Johannesburg said in a ruling in a civil matter in March this year, was just about born into the metals trade. “His love of the scrap metals industry started as a child growing up. He had the intention to one day succeed in his father’s business and eventually take it over and operate it.”

Davies’s father owned West Rand Recycling, one of many smaller operators in a business that was marginal during the 1980s and 1990s but exploded into profitability in the early 2000s, thanks to what became known as the commodities supercycle.

As the price of metals, including copper, went from bust to boom and back again, a wave of consolidation washed over the industry, and West Rand Recycling was one of the operators bought by what would become the New Reclamation Group (Reclam), today one of the biggest dealers in scrap in the country.

Davies became an employee of Reclam, where his qualification as an accountant and his knowledge of the industry saw him secure both a management job and the loyalty of important players. But it ended in disaster.

Court documents show that Davies left Reclam in 2003 to go into business for himself, in plastics. That “proved unsuccessful”. In 2008 he was again employed by Reclam. By October 2012 the company had accused Davies of fraud, by October 2013 Davies had implied Reclam had a vendetta against him, and this October Davies was arrested on charges of involvement in copper theft and bribery.

Unflattering picture
It is in the trail of paperwork left behind by several related criminal and civil cases that an unflattering picture emerges of the metals trade and those involved in it.

In the March 2014 high court matter, Reclam tried to enforce what it said was a noncompete clause that would prevent Davies from working in the industry for two years, even after it had fired him.

When it was pointed out that Davies had been working in the trade all his life and needed to work, the response from Reclam was the legal equivalent of a shrug of the shoulders.

The court sided with Davies, and he was cleared to continue trading in metals, but the same court is due to rule in coming weeks on an appeal.

But that is only the very tip of the iceberg of disputes between the company and its former employee. Reclam says it fired Davies after a routine audit of stock in yards he was overseeing showed huge shortages. On closer inspection, it found far deeper trouble.

The as yet untested allegations by Reclam amount to a criminal conspiracy between Davies and a competitor company, FMP Metal Connection. To add what would turn out to be an unnecessary extra dash of industry incestuousness to the whole affair, FMP was largely owned by three members of the Rozentvaig family who had previously been Reclam shareholders – and who had left the Reclam fold amid considerable acrimony.

Davies’s opulent Sandton home, registered in the name of his homemaker wife, is for sale for R12.5-million. His neighbours include members of the Rozentvaig family.

What exactly happened between those at FMP and the owners of Reclam in recent years is shrouded in a fog of mutual accusations and whispered rumours of undocumented shipping containers filled with copper and unmarked trucks moving in the dead of night.

In documents seen by the Mail & Guardian, FMP accuses Reclam of using dirty tricks to corner the market and lock out all competition. Other documents show that FMP launched a concerted effort, under the name “Project Closedown”, to put Reclam out of business by showing it was engaging in illegal activities.

That, roughly speaking, is where events took a turn for the truly bizarre. Investigators working for FMP looked into “suspicious” individuals lurking around the premises and the homes of its management. One of these people, the investigators reported, “might be linked to the investigation agency called NEA [National Intelligence Agency] [sic]. This needs to be confirmed and his handler needs to be identified.”

Dubious motivations
That intelligence agents may have been watching any or all of those involved is not impossible. At the time both FMP and Reclam were working with the police’s Hawks investigating unit, and both were implicated – by informants with dubious motivations – in involvement in the cross-border smuggling of metals such as copper.

Into the middle of this war, according to sworn statements by former FMP staff turned whistle-blowers, came Davies. He knew the systems and processes used by Reclam to buy copper and other scrap metals from casual contractors, and he knew how to subvert them. And so, the allegation goes, he did.

Davies allegedly “turned” Reclam employees, eventually establishing a network of operators willing to help to defraud the company.

“Whilst employed at Reclam, I committed fraud against Reclam by duplicating, manipulating and fabricating purchase documentation or weighbridge tickets [and] by entering incorrect product details and weights on the system, which led to incorrect amounts being generated on the weighbridge tickets,” wrote one such operator in a sworn statement provided in return for a suspended sentence.

In theory, the buyers of scrap metal run tight ships. Companies dealing with large volumes of such metal use sophisticated systems that weigh trucks arriving at their yards with scrap, take photos of their loads, and then weigh the trucks again when they leave to calculate the weight of the delivery.

In terms of increasingly strict regulations, copper cable also requires documents to prove provenance and ensure it was not stolen.

These systems failed spectacularly. At one point, former FMP director Robert Brand said in a statement, his company dug up sand at one of its yards, loaded it on trucks, and sent it to a Reclam receiving station. FMP, he said (perhaps unintentionally drily), “paid for the sand as if it were scrap, when in fact it was not”.

Reclam, by way of its lawyers, this week said it has identified 323 transactions worth R6.9-million that it considers fraudulent.

          Pile of copper scrap
The colour of money: Scrap dealers love copper. (AFP)

Subverting operators charged with weighing would not be enough to pull off such a scam over any period of time – but it seems that everyone had their price.

According to mutually corroborating statements, four security guards at Reclam were paid R100 000, carried in a black plastic bag, after they threatened to expose the scheme.

Others were provided with highly paid sinecures in return for their silence. One former Reclam employee, said former FMP director Brand, was hired by FMP and “gets paid a salary of R50 000 for not doing much other than keeping his mouth shut”.

Others were simply made to disappear, such as a Mozambican driver apparently sent back to that country to put him beyond the reach of the police.

And although there is no proof of violence entering into the equation, the Mail & Guardian understands that at least one potential witness to the alleged scam is in hiding.

If Reclam was the only company to have seen such failures of its systems, the implications for stemming copper theft may have been less dire. Two other companies in the metal trade are known to have complained of similar fraud by FMP, although only one was willing to speak about the matter. Several other companies are still investigating.

“Towards the end of 2012, Fry’s Metals received an anonymous complaint through its internal whistle-blower mechanism that certain of its employees appeared to have more disposable income than would be expected for persons occupying their particular positions at the organisation,” Fry’s said in a statement issued through its lawyers following inquiries by the M&G this week.

On investigation, Fry’s said, “accountants reported that there appeared to be payments being made by Fry’s Metals for deliveries that did not physically occur. In other words, trucks that did not in fact enter the Fry’s Metals premises and make any deliveries appeared on the weighbridge records and in the accounting systems.”

Between late 2009 and early 2013, Fry’s said, it paid FMP R38.8-million for deliveries “which the evidence demonstrates did not occur”.

When it comes to the odds of successfully policing the trade in scrap metals and copper, perhaps most telling is how much confusion reigns, and how slowly the wheels of justice turn.

A lawyer for FMP owners the Rozentvaig family this week said they could not comment on allegations against them because they had not seen the details of such allegations.

Meanwhile, Schalk van der Sandt, the advocate acting for Davies, railed against the treatment of his client by prosecutors and the police after nearly a week in detention without a bail hearing.

“I think in about four other cases Mr Davies was granted bail almost immediately,” Van der Sandt said.

“A couple of cases were withdrawn because they couldn’t prove the case … On Friday [October 17] there was no theft charge, only the so-called bribery charge.”

Van der Sandt said he could not comment on the merits of a matter in which the police and prosecutors were, as of this week, still unwilling or unable to explain why they were opposing bail or what the nature of their investigations was.

 
Phillip de Wet

Phillip de Wet

Phillip de Wet writes about politics, society, economics, and the areas where these collide. He has never been anything other than a journalist, though he has been involved in starting new newspapers, magazines and websites, a suspiciously large percentage of which are no longer in business. PGP fingerprint: CF74 7B0F F037 ACB9 779C 902B 793C 8781 4548 D165 Read more from Phillip de Wet

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