/ 13 November 2009

Dikgang Moseneke: The businessman judge

Deputy Chief Justice Dikgang Moseneke has a substantial stake in a group of companies whose style of business has put him uncomfortably close to the cut and thrust of corporate controversy.

The investment choices of the group — from the state-supported pursuit of oil rights abroad to a property portfolio housing the justice department and police headquarters — also appear to jar against the demand for judges to be independent.

Moseneke said this week: ‘There is nothing in my conduct … which undermines my judicial independence. From 2001, when I was elevated to the Bench, I have served as a judge diligently, with integrity and with the full observance of the law and judicial ethics.”

Moseneke’s probity has been widely hailed, but the results of a Mail & Guardian investigation may occasion the need for a reassessment, particularly considering assurances he gave the Judicial Services Commission (JSC) in 2002 about the abdication of his business interests — as he was acquiring more.

Moseneke controls 18% of Encha Group through his family trust. The rest belongs to various relatives, with the largest block held by his youngest brother, Tiego.

The brothers could not have had more divergent careers. Moseneke shot though the ranks of the judiciary to be appointed deputy chief justice in 2005. That same year Tiego was fighting to stay out of jail in a scandal about allegedly misappropriated shares. Criminal charges, which he maintains were ‘completely trumped up”, were later nullified, but in 2006 he was struck from the roll of attorneys for offences including the misappropriation of funds held in trust for a client.

Yet the brothers have stuck together. In 2007 Moseneke paid public tribute to his brother and the latter’s wife, saying they ‘have always been there and will be there when it counts most”. Tiego confirmed this week: ‘He is my brother. We are very close. We spend a lot of time together.”

Moseneke’s decision to co-invest with Tiego has, however, brought him closer to apparent conflicts of interest, to allegations of corporate malfeasance — and to an alleged crook — than might be comfortable for a judge. The M&G can reveal:

  • Moseneke’s family trust invested in New Diamond Corporation, where Tiego already held a major share, on the eve of his November 2002 appointment to the Constitutional Court. When both took up a rights offer in 2004, the same disputed shares that featured in Tiego’s later arrest were pledged to raise the necessary capital. The eventual nullification of the charges allow Tiego to complain with some justification about the way the ‘stink in the room” lingers, but this does not undo the objective problem of a judge’s family trust having benefited from shares others claimed were theirs, or of it having been entangled in a criminal investigation.
  • Six weeks after Moseneke’s June 2005 elevation to deputy chief justice, a position which entails helping to manage the judiciary’s arms-length relationship with the executive, Encha finalised an agreement to buy a R330-million portfolio of properties in downtown Pretoria. The major tenant was and remains the department of public works, with the minister and department of justice and the police national commissioner and headquarters staff as occupants.

    Moseneke’s son, Sedise, the chief executive of Encha Properties, said this week that negotiations for the purchase had started well before his father’s elevation and emphasised that the contractual relationship was with public works.

  • Since the second half of 2006 Encha, alongside the little-known Divine Inspiration Group, has pursued oil concessions in the Democratic Republic of Congo’s (DRC) highly prospective Albert basin. Its efforts, supported by diplomatic initiatives and state oil company PetroSA, have provisionally landed it two exploration blocks — leading a competing firm, previously awarded rights to one of the same blocks, to accuse it of ‘opportunistic, unethical” conduct. A key consultant to Divine and Encha in the DRC has been Nozi Mwamba, accused of large-scale counterfeiting operations in his home country and internationally. He has denied the allegations.

Moseneke’s family trust, the Sedise Properties Trust, was registered in 1995, coinciding with the start of his rise in the corporate world, which saw him serving as chair of Telkom and chief executive of BEE pioneer New Africa Investments Limited.
The reference to ‘properties” appears to refer to an initial intention to use the trust to own personal property interests, including two upmarket family homes in Pretoria and a holiday unit on the KwaZulu- Natal coast. The ultimate capital beneficiaries were Moseneke’s children, but interim disbursements were at the discretion of the trustees — Moseneke and, until he resigned in 2006, Tiego.

Discretionary family trusts are commonly used to preserve family wealth tax efficiently for subsequent generations, but the parents are free to enjoy the fruits in the meantime.

During 2001 Moseneke resigned a raft of directorships he had accumulated by then, preparing him for judicial appointment. But that same year Encha Properties, a forerunner of the Encha Group, took off. Sedise Properties Trust held 50%, indicating that by then it was no longer a holding structure for private homes and had become commercially oriented investment vehicle.

The JSC interviewed Moseneke, by then an acting high court judge, in October 2002 for a Constitutional Court seat. The then chief justice, Arthur Chaskalson, and JSC member Marumo Moerane wanted reassurance that Moseneke had extricated himself from business:

Chaskalson: ‘As far as the termination of your commercial interests are concerned: has that been finally wound up, your commercial interests in so far as your responsibilities, your directorships and other matters are concerned?”

Moseneke: ‘My answer is yes … I have completely resigned. In other words if I am not appointed here I will have to go and look for a job in other words.”

Moerane: ‘Now, you have been asked about your directorships etc and you say in your CV that you have disposed of them, relinquished them. Does that include rounding up your share options and the like?”

Moseneke: ‘The answer is yes. It does. It is a total disposal. I have no share options of any type in any company.”

Moseneke’s answer may have been truthful in the strict sense, as his trust held shares, and not he in person ‘share options”. But Chaskalson and Moerane may well have gained the impression that there was nothing more to ask.

On November 29 that year then president Thabo Mbeki appointed Moseneke to the Constitutional Court. A week earlier Moseneke’s son, Sedise, had joined the board of New Diamond Corporation as representative of the Sedise Properties Trust, which had taken up a shareholding. If Chaskalson and Moerane’s line of questioning at the JSC had been to ensure there was no reputational risk to the judiciary, the subsequent controversy surrounding the diamond miner demonstrated the converse.

Moseneke appeared before the JSC again on May 26 2005, this time to confirm his nomination, by Mbeki, to become deputy chief justice.

Simultaneously, a reorganisation of Moseneke family interests was under way, leading to the creation of Encha Group. Tiego and Sedise Moseneke were appointed its first directors two days before the interview.

Moseneke’s trust was soon formally allocated an 18% stake via a shell company, the latter’s share register shows.

The Encha Group has interests as diverse as property, information technology (including a stake in Siemens) and resources. One subsidiary, Encha Trading, is part of a joint venture that produces traffic signs and won a tender to brand police vehicles.

The property side is potentially lucrative: the rental income from the downtown Pretoria buildings alone is reflected in Encha Group’s 2008 annual financial statement as R27,8-million. But Encha’s Eldorado lies in the DRC. The opportunity came with a diplomatic rapprochement between Mbeki and DRC President Joseph Kabila after the latter was finally confirmed as president after a tumultuous second-round victory in October 2006.

Kabila paid a state visit in June 2007. The proceedings included a business forum, attended by both presidents, signalling that the DRC was open to South African investment. Within six months Encha and Divine, the latter led by sole director and former BEE consultant Andrea Brown, had signed production sharing agreements with the DRC government on blocks one and three of the Albert basin.

Irish multinational Tullow Oil, part of a consortium originally awarded block one but bumped off it by DRC authorities three months earlier, disputes the award. It sent a lawyer’s letter to Divine and Encha, saying: ‘These actions … amount to wrongful interference with our contractual rights; they are opportunistic, unethical and conduct well below the accepted norms of the international oil and gas industry.”

Tiego Moseneke denies Encha received a letter, but confirms South African state lobbying, which is ongoing, as the blocks remain unconfirmed until Kabila ratifies them. He defends the state support as being in South Africa’s interest, as oil is a strategic commodity.

Widely reported to be key to the oil award has been consultant Mwamba, who also has a home in South Africa.

In October 2002, when Moseneke attended his first JSC interview, Mwamba was named in a United Nations report on the wartime looting of DRC resources as ‘a Congolese diamond trader; counterfeiter”. Mwamba’s group, the report claimed, had ‘distributed large quantities of counterfeit Congolese francs” to a rebel movement.
Mwamba was arrested in 2000 on a similar set of allegations — one of the largest counterfeit operations, involving the printing of 140-million Bahrain dinars. Although on trial in Belgium, he has somehow managed to return to South Africa and
the DRC.

Mwamba remains innocent until proved guilty. Judgement in the Belgian court is expected next month. But whatever the outcome, Moseneke’s investment in Encha Group has again placed him near a considerable amount of controversy.

The remaining question is whether Encha, and Moseneke, knew.

Tiego Moseneke claimed this week to be ‘unaware” of Mwamba’s involvement, even after a due diligence on Divine. The latter’s Brown, however, confirmed: ‘He is my direct adviser and indirectly therefore to Encha.”

The trouble with Tiego
You may not be able to choose your brother, but you can choose your business partners — and when Moseneke chose to invest with his brother, Tiego, he chose trouble.

Tiego’s woes began in 2000 when the Law Society applied to have him struck off the roll of attorneys because of trust fund irregularities and unprofessional conduct at Moseneke & Partners, his up-and-coming Pretoria law firm.

The case dragged on until June 5 2006 when Tiego was struck off. He appealed against the judgement but from April 2 2007 his removal from the roll was confirmed.

Evidence revealed not only how Tiego was entrusted with sensitive matters, but also how that confidence was misplaced when it came to the proper handling of his firm’s trust account.

Noseweek reported in 2006 that an audit of the firm’s books showed the receipt of R1,9-million from the British aircraft engine manufacturer, Rolls-Royce, in June 1999.

Of this, about R1,8-million was paid to the private intelligence firm Kroll in March 2000.

During the Law Society hearing Tiego would only say via affidavit: ‘I was directed by clients to so treat the amount which was being made available for the advancement of a strictly confidential high-security project …”

That was true. But, unfortunately, it became clear that between June 1999 and March 2000 some of the Rolls-Royce money had been ‘borrowed”.

Then Tiego’s advocate produced a different explanation. He said: ‘The evidence of Mr Moseneke would be that … the R1,9-million was payment to him for … a country risk assessment … ”

That would have entitled Tiego to do what he liked with the money — which included, on July 9 1999, transferring R408 000 to the bank account of another controversial Tiego business: New Diamond Corporation (NDC).

Unfortunately this explanation was false and he was struck off by the high court in a 2006 judgement that dwelled on his dishonesty.

But Moseneke stood by his brother, and his Sedise Properties Trust kept co-investing with him.

The trust remains a significant shareholder in the Encha Group, of which Tiego was a director until 2007 — and where he remains a prime member of what is termed on the company website ‘the Encha team”.

Moseneke’s family trust was also a shareholder in NDC, which remains a controversial episode in Tiego’s business history.

In October 2002 the department of minerals and energy granted NDC, chaired by Tiego, a diamond prospecting and mining licence at Schmidtsdrift, in the Northern Cape, on land restored to the local community.

Dikgang Moseneke took up a shareholding in NDC, via the family trust, on the eve of his November 2002 appointment to the Constitutional Court.

In October the 2003 government suspended the Schmidtsdrift mining operations because of health and safety lapses.

A later report said mining had had massive impact on grazing, cultural and natural assets, while the community complained of not gaining the benefits promised in their agreement with NDC.

In 2005 a first payment of R4-million was made, after a long dispute with NDC. Soon Tiego fell out with one of his partners in NDC, African Renaissance Holdings (ARH).

On September 23 2005 Tiego, with two others, was arrested and shackled in a humiliating display of police overzealousness.

Tiego was quoted at the time saying the charges ‘at most relate to a commercial dispute in ownership of shares”.

It was these disputed shares that were used as security for a loan Tiego and the judge’s family trust used to take up further shares in NDC in 2004.

Moseneke’s reply
At the outset, I must say that there is nothing in my conduct or in the relationship between Encha Group and Sedise Properties Trust, a discretionary family trust, in which I serve as a trustee, which undermines my judicial independence. From 2001, when I was elevated to the Bench, I have served as a judge diligently, with integrity and with the full observance of the law and judicial ethics.

I am the sole trustee of a discretionary family trust known as Sedise Properties Trust … My brother, Tiego Moseneke, was one of the first trustees. However, he resigned in 2006. The beneficiaries of the trust are my children and grandchildren who are entitled to distribution of the capital.

Over time, Sedise Properties Trust acquired and holds various classes of assets, including cash, fixed property, listed and unlisted shares. In particular, in 2005, Sedise Properties Trust became a shareholder in … a shell company which in turn holds 45% of Encha Group. This of course means that the effective interest of Sedise Properties Trust in Encha Group is 18%.

I am not an executive or director of Encha Group. I play no part in any transactions they conclude or any executive decisions management makes. Naturally, I am available for advice to my brother Tiego Moseneke and my son Sedise Moseneke, who both work at Encha Group.

[Note: The M&G has a copy of an affidavit from a former Encha associate, who asked for anonymity, claiming knowledge of ‘at least two occasions when Dikgang Moseneke specifically participated” in board meetings. Tiego Moseneke did not deny his brother had attended at least one board or strategy meeting, ‘but he doesn’t vote or anything”.]

Your letter suggests that I may not have been true to the undertakings I made to the JSC that I have terminated all commercial interests and directorships. I must emphasise that any such inference is incorrect. When I was appointed a judge I resigned from all directorships and business executive roles. And that remains so. I have never received any remuneration, directors’ fees or financial benefit from any source other than in my capacity as a judge. I have no share options in any company and I have made a complete break from all the companies I have been associated with.

[Note: The Sedise Properties Trust acquired an upmarket property in Houghton Estate, Johannesburg, in January 2007. Moseneke has used it as his residence. The trust paid R6,25-million, apparently in cash as no bond is registered.]

However, that does not mean that I may not be a trustee of a family trust or that a family trust may not hold any class of assets. Judicial ethics and the law make it quite clear that a judge may be a trustee of a family trust or hold family assets in a private company and there is no bar to the trust or private company holding listed or unlisted shares. For this, no permission is required from anybody …

[Note: The code of judicial conduct adopted by the JSC, and sent to the M&G by Moseneke, says: ‘The rules are not absolute or precise, nor are they exhaustive. Conduct may therefore be unethical which, on a strict reading of a rule, may appear to be permitted; and the converse also applies.” It goes on: ‘A judge behaves in his or her professional and private life in a manner that enhances the public trust in or respect for the judiciary and the judicial system. A judge avoids impropriety and the appearance of impropriety in all of the judge’s activities.” And adds: ‘A judge is not engaged in financial and business dealings that may reasonably be perceived to exploit the judge’s judicial position or are incompatible with the judicial office.”]

In conclusion, I must emphasise again that there is nothing in my role as a trustee of a family trust that is inconsistent with my oath of office. I have and will continue to serve as a judge with diligence and integrity.