/ 7 December 2012

Auditors’ secret report reveals how millions flowed to President Zuma

President Jacob Zuma.
President Jacob Zuma.

The Mail & Guardian can reveal crucial evidence in the case against President Jacob Zuma – evidence that was kept hidden when the National Prosecuting Authority (NPA) abandoned its prosecution of him.

Watch our video with the investigative team behind this story

The M&G is publishing the key findings of the confidential September 2006 forensic report that auditors KPMG prepared for Zuma’s trial.

Read more on the 'kept politician'

Zuma corruption: South Africans have a right to know
Zuma corruption: Of battleships and Nkandla
Banks bent over backwards for Zuma
All the president's willing benefactors: Part one
All the president's willing benefactors: Part two
Other politicians at the Zuma trough

The report exposes the president as a "kept politician" – a financial freeloader who accepted money and favours on a routine and increasingly extravagant basis not only from his so-called financial adviser, Schabir Shaik, but also from other benefactors, including Nelson Mandela.

Running to about 500 pages, the "draft" report – although it is understood to be the final version – is based on tens of thousands of documents Scorpions investigators had seized from Shaik, Zuma and others.

The report contains dramatic new disclosures including:

  • Former president Mandela came to Zuma’s rescue with a R1-million cheque on June 23 2005. This was just nine days after then-president Thabo Mbeki fired Zuma as his deputy and three days after the NPA announced it would charge Zuma. The Mandela transfer, which has never been reported before, suggests that the retired elder statesman intervened directly in the battle between Mbeki and Zuma to back the latter in his hour of need. Before this, Zuma was more than R400 000 overdrawn on his various bank accounts;
  • Payments ordered by Shaik continued, and in fact accelerated, long after the M&G revealed in November 2002 that the Scorpions were investigating Zuma and long after Shaik was put on trial in 2004. Payment even continued for a short period after Shaik’s conviction in June 2005, until Shaik resigned as Zuma’s financial adviser the following month. Altogether 783 payments from Shaik or his Nkobi group for Zuma’s benefit were identified, amounting to R4 072 500 – well beyond the figure of about R1.25-million known at the time of Shaik’s trial. Zuma appears to have repaid less than R500 000 of this by the end of February 2006;
  • KPMG asserts that Zuma benefited from benefactors other than Shaik and Mandela to the value of at least another R3-million. They included politically connected businessperson Jürgen Kögl; Zuma’s friend, Nelspruit businessperson Nora Fakude-Nkuna; Durban mogul Vivian Reddy; Zuma’s nephew Khulubuse Zuma, who provided cash that was used to partially repay Reddy; Zuma attorney Julie Mahomed; some unknown benefactors; and French defence company Thomson-CSF. It was Thomson (later renamed Thales) that promised a payment of R500 000 a year for Zuma’s benefit in the notorious "encrypted fax", although only R250 000 is known to have been paid;
  • It appears that Zuma may also have benefited from another arms deal company, Ferrostaal, which won the submarine contract; and
  • Large commercial banks bent over backwards to accommodate Zuma because of his political position and accommodated Shaik because of his association with Zuma. This was despite the fact that Zuma had a terrible credit profile and defaulted regularly.

The KPMG report was prepared on the Scorpions’ instructions ahead of Zuma’s high court appearance in Pietermaritzburg in September 2006.

Prosecutors had applied for a postponement to formulate a new charge sheet based on additional material seized during the August 2005 raids that followed Shaik’s conviction – including, for the first time, raids on Zuma’s home and office.

They also asked for time to deal with Zuma’s challenge to the legality of those raids.

Judge Herbert Msimang refused the postponement and the case was struck from the roll without the report being tabled.

It remained hidden throughout the protracted legal battles that saw the NPA clear the path to prosecution and until April 7 2009 when the then acting national director of public prosecutions, Mokotedi Mpshe, buried it by deciding to abandon the case just days before the national election that propelled Zuma to the presidency.

Against the views of the prosecuting team, Mpshe ruled that Zuma’s rights to a fair trial had been poisoned by perceived meddling revealed in the so-called Zuma spy tapes.

Now the M&G’s disclosure of the wealth of evidence available to the prosecution deepens the controversy surrounding Mpshe’s decision. It also raises the stakes for the Democratic Alliance bid to have that decision reviewed.

Finally, it lays bare in excruciating detail the ongoing recklessness of Zuma’s financial relationships. Those relationships not only lay the basis for the current Nkandla scandal, but expose fundamental questions about Zuma’s fitness for office.

For instance: 

  • Payments in cash to Zuma – as opposed to the settling of bills and debts – increased annually from R10 000 during 2002 to payments amounting to R181 800 during 2005. Cash payments during the first four months of 2006 amounted to a staggering R305 500.
  • Zuma blithely incurred large debts – for cars, property, loans, building his Nkandla homestead – without bothering to consider where the money would come from. There were times when not even the first payment due cleared the bank owing to insufficient funds in his account. 

In the words of the report: "The financial position of Zuma deteriorated over time, mainly as a result of the fact of the shortage in daily funding required to fund his lifestyle … Zuma’s cash requirements by far exceeded his ability to fund such requirements from his salary … 

"The predicament that Zuma found himself in from the early years did not result in reduced spending on his part. Shaik, as the claimed ‘financial adviser’, also did not reduce it. In fact, Shaik funded the shortfall … Spending continued …"

Sometimes this infuriated Shaik, such as in October 2000 when he ordered that construction cease on Nkandla's first phase.

Builder Eric Malengret told the Shaik trial that Shaik had exclaimed: "Does he [Zuma] think money grows on trees?"

But Zuma simply countermanded Shaik and told Malengret to carry on.

The report revives the spectre of the "mutually beneficial symbiosis" – the term Judge Hilary Squires used when he convicted Shaik in 2005.

Whatever struggle bonds Shaik shared with Zuma, the former could not fund Zuma’s spending from his own resources.

The report finds Shaik was able to fund no more than 13% of the funds that were made available to Zuma.

The balance had to be funded from the Nkobi group. This placed Shaik’s cash-starved companies under immense pressure. 

KPMG says: "The general decline in the net cash resources for the group has a direct correlation with the amounts that we identified as having been paid for and on behalf of Zuma … As the cash balances of the Nkobi group decreased, the payments made for and on behalf of Zuma increased."

In return, Shaik made blatant and repeated use of his connection with Zuma. Says KPMG: "It is evident that at least Shaik considered the association with Zuma and his wider political connectivity as a key driver to the success of the business activities of the Nkobi group … 

"We could not find any evidence in the documentation at our disposal of Shaik being advised or requested by Zuma not to engage in such activities, despite numerous examples indicating his [Shaik’s] approach."

Shaik is often presented as the arch-manipulator in the relationship, but the scale of the payments to Zuma and the extent of the pressure this outlay placed on Shaik and his companies emerges very clearly from the report, raising questions about who was really using whom.

Should you be implicated in the report, you are extended a right-to-reply. Please email: [email protected]

Read the rights-to-reply here.

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The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.