The lid has been lifted on a massive commercial conflict of interest shared by former defence minister Joe Modise and top defence officials
Stefaans Brmmer and Paul Kirk
Former defence minister Joe Modise and top defence officials had a substantial interest in a technology company which tried during Modise’s tenure to cash in on the R50-billion-plus arms deal that he oversaw.
The Financial Mail revealed this week that Modise and four senior officials held a controlling stake in a company called Log-Tek Holdings (later Conlog Holdings) during Modise’s tenure as minister. Previously it was assumed that Modise bought into the company only after he retired from the Cabinet in June 1999.
News of Modise’s very substantial conflict of interest should also raise anew questions on whether the joint investigation into the arms deal, led by the auditor general, public protector and national director of public prosecutions, really uncovered all.
The joint investigative report, which was submitted to Parliament late last year and “exonerated” government, said this about Modise: “It has come to the attention of the investigation teams that the former minister of defence was allegedly involved in a company that was to benefit from the strategic defence package procurement.
“The minister concerned was actively involved in the procurement process before his retirement. Although no evidence of impropriety was found in this regard such a situation seems extremely undesirable as it creates negative public perception.”
From the context it seems the investigators either came across nothing more than Modise getting involved with the company after he retired as minister, or through a strange contortion of logic decided and did not take Parliament into its confidence on the details that Modise’s shareholding during his tenure was not improper and was at best distasteful.
But the facts speak for themselves. The Financial Mail, through elementary sleuthing that included looking at the company’s share register, came across Modise’s stake acquired in 1997 three years into his five-year term as minister. And what makes this clearly irregular is the fact that Log-Tek/Conlog certainly attempted to get business from the arms deal which Modise oversaw.
What also seems strange business practice is that Modise and some of his colleagues government employees in the defence sector obtained their shares in the company free or at ridiculous discounts. Along with Modise in the deal were Ron Haywood, chairperson of the state arms procurement agency, Armscor, until last year, Major General Ian Deetlefs, chairperson of the state arms manufacturer Denel until last year, and Seshi Chonco, then acting MD and for a while CEO of Denel.
The Financial Mail says the saga began in mid-1997 when the five men formed a company, Charleston Marketing, which bought Conlog for R34-million from Anglo American’s industrial holding company, Amic. Each of the men held his Charleston shares through a trust.
Conlog was at the time a small unlisted company that manufactured prepayment meters and car security systems. Within weeks, on September 1 1997, says the Financial Mail, the five sold Conlog to Log-Tek in return for Log-Tek shares then worth R124-million R90-million more than they had just paid for it. A fraction of the shares were passed on to a bank to cover a loan for the original purchase of Conlog, and the rest was theirs to keep.
The result of the deal was that the five men acquired a substantial stake in Log-Tek and that they got it free or at least massively discounted. The Financial Mail says Modise’s Letaba trust held 10,5% of Log-Tek’s shares, worth R20,8-million at the time.
Log-Tek changed its name in October 1999 to Conlog Holdings. Early last year what seems to be the original Conlog was sold off and Conlog Holdings changed its name again, this time to Dynamic Cables. Both companies are now under new control.
But how did Log-Tek/Conlog, during the ownership of Modise and his colleagues, intend to benefit from the arms deal?
The company’s 1998 annual report stated the company was “expecting to receive a number of substantial logistic contracts arising from the recent counter-trade agreements entered into by the SANDF [South African National Defence Force] with Italy and Germany for light utility helicopters, submarines and corvettes”.
The submarines and corvettes, to be supplied by German consortia, were among the more controversial contracts in the arms package. Modise’s early “initialling” of the submarine deal in June 1999 days before he left office and before the deals were in fact finalised raised eyebrows.
An early list of “industrial participation” projects released by the Department of Trade and Industry shows that Modise’s conflict of interest extended to two more controversial contracts in the arms package: $2,2-billion worth of Hawk trainer jets and Gripen fighter jets to be supplied jointly by international defence giants BAe Systems and Saab.
Where Conlog would have benefited was through an industrial participation project, offered by BAe/Saab, where Conlog would have gone into a joint venture with ABB, a Saab sister company, to produce pre-payment electrical meters and solar power manufacturing.
Apart from that seemingly outside of the defence deal ABB and Conlog also entered a separate agreement in early 1998 for ABB to market Conlog pre-paid electricity meters abroad.
Modise, by virtue of his stake in Log-Tek/Conlog, arguably had an interest in helping BAe and Saab succeed in their bid to supply jet aircraft, which was being adjudicated at the time by Armscor, Modise’s Department of Defence and a Cabinet sub-committee on which Modise served.
And indeed, as earlier reported by the Mail & Guardian, Modise’s intervention helped the BAe/Saab bid. In June 1998 Modise instructed arms-deal adjudicators to compile a non-costed shortlist in the category in which the relatively expensive Hawk jet was competing. The outcome was a higher ranking for the Hawk, and the Cabinet eventually choosing it above its competitors.
The ABB-Conlog marketing deal lasted until 1999. The industrial partici-pation deal as announced by the trade and industry department never materialised, although there are conflicting explanations for this. Sources sympathetic to BAe and Saab this week claimed the intended tie-up was cancelled after BAe/Saab found evidence of “a potential conflict of interest”.
But Edwin Smith, trade and industry spokesman, had another explanation: The ABB-Conlog deal was dropped as an industrial participation project only last year and because early publicity had boosted the Conlog share price to the extent that the project became unviable.
Whichever way, and whether or not Log-Tek/Conlog did benefit from the arms deal, the intention was clearly there. Modise, who died last November, made R2,5-million through share sales during his tenure as minister, according to the Financial Mail. If he did not make anything from Conlog directly out of the arms deal, it was not for lack of trying.