It seemed unlikely that the hunt to trace all the funds belonging to SA’s first democratic president, the late Nelson Mandela, would lead to the Isle of Man — a tiny island in the Irish Sea, struggling to shake off its notoriety as a tax haven.
However, the Paradise Papers — the leak of 13.4-million documents from 19 “secrecy jurisdictions” obtained by German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists — contains references to a mysterious offshore account held on Mandela’s behalf.
The first inkling of this trust emerges in the leaks when, in May 2015, the Bermuda-based law firm Appleby was asked by the executors of Mandela’s estate to provide a “legal opinion on the validity of an Isle of Man Trust, known as the Mad Trust.”
But the circumstances of exactly how the Mad Trust — a reference to Mandela’s clan name, Madiba — was to be established in one of the most secretive tax jurisdictions has been hotly contested in court in recent years.
Mandela, who emerged after 27 years in prison to lead the talks that led to the dismantling of apartheid in 1994, remains a deified figure in SA, nearly four years after his death.
But following the money trail of the Mad Trust revealed an epic behind-the-scenes clash between Mandela’s former lawyer, Ismail Ayob, and the executors of his estate, led by the country’s former deputy chief justice, Dikgang Moseneke, over the R17.8-million left in the trust’s account.
The original 17-page trust deed shows the Mad Trust was established by Ayob on January 21 1995 on behalf of Mandela as a repository for donations that could be used for “community-based beneficiaries, as well as educational and charitable objects .”
It said: “The trust shall be domiciled in the Isle of Man, and the laws of the Isle of Man shall be of application.”
Quite why Ayob chose the Isle of Man isn’t clear. The Tax Justice Network ranks the Isle of Man poorly on transparency: it doesn’t keep a register of trusts, and doesn’t require proper disclosure to the authorities in someone’s home country.
That trust deed is dated four months after Ayob opened an account at the London branch of the SA bank Nedbank in September 1994 in the name of the Mad Trust, with £2.4-million. It cited the “settlors” of the trust (essentially the founders) as “Mr and Mrs
At the time, that would have included Winnie Madikizela-Mandela, who divorced Mandela only in 1996.
By October 2003, that London account held $2,096,220, according to an audit of Mandela’s affairs by Deloitte & Touche at the time. In 2009, the Mad Trust’s money was transferred back to a Nedbank account in SA .
Ayob, who is now 75, still operates his law firm from Houghton, a stone’s throw from Mandela’s last home. The lawyer had known Mandela since the 1970s, and was one of the few allowed to visit him in jail.
Ayob’s office is stacked with wall-to-wall apartheid struggle memorabilia: faded photos of Mandela and other activists, arrest warrants for struggle icons and a framed ballot paper from SA’s first free election in 1994.
In an interview, Ayob says Mandela “wanted the trust created so that he could give away money to people abroad, who’d been ‘good’ or needed it — he was always very generous.”
He says, for example, that Mandela used part of the money in the Mad Trust to support Margot Honecker, wife of Erich Honecker, the last president of East Germany (he resigned weeks before the Berlin Wall fell in 1989).
Margot Honecker, considered the most powerful woman in the communist state, fled to Chile soon after her husband was extradited from Russia back to Germany. Honecker eventually joined her in Santiago, Chile, where he died in May 1994.
Ayob says she’d fallen on hard times. “At the time, she was really struggling, as she had no pension. So Mandela said he’d like to assist her. From time to time, he’d tell me to give that person money, or this person money, and that’s what we’d use the trust for,” he said.
It’s a remarkable revelation — not least because Margot Honecker was anything but a defenceless widow: her mauve-coloured hair and tough personality earned her the title of the “purple witch” of East Germany. She held the post of education minister for many years, reshaping the syllabus to encourage hard-line socialism.
Asked why the trust was to be governed by the laws of the Isle of Man, Ayob says: “At the time, it was quite difficult to move money in and out of SA, especially to foreign countries”. It seemed a sensible solution, he said.
Court papers show the trust was declared to the SA Reserve Bank. Ayob says it was “fully legally compliant”.
However, few people, even in Mandela’s inner circle, seem to have known of the trust’s existence, until after he died in December 2013, when the cataloguing of his assets began.
Some of those contacted doubt whether Mandela was aware of the mechanics of this offshore account.
“I would be very surprised if Madiba ever gave instruction to have offshore assets, or was aware he had offshore assets,” says Michael Katz, chairman of law firm Edward Nathan Sonnenbergs, and the lawyer for the executors of Mandela’s estate.
Others are sceptical of Ayob’s account. They point to a much-publicised fallout with Mandela in 2004.
Ayob had overseen Mandela’s legal affairs for decades. But in 2004, Mandela’s advisers accused him of exploiting Mandela’s name to sell artworks in the US for millions. Mandela filed court papers describing Ayob as “duplicitous”, ordering him to quit as a trustee of all his trusts.
(Appleby, in its client screening, flagged that Ayob had been “reportedly investigated by police for alleged failure to channel royalties into the Mandela Trust in 2003 [R15-million]”, but added that he “denied any wrongdoing”.)
Says one of Mandela’s confidantes: “I knew Mandela for years, and I never saw him as angry and as emotional as he was with Ayob.”
Two years ago, the estate’s discovery of the Isle of Man account led to a furious court scrap, revealed here for the first time.
Mandela’s estate demanded the money in the Mad Trust’s bank accounts — which at last count consisted of about €1.1-million and R223,000 in cash, about R19.8-million in today’s money.
But Ayob, still the sole trustee, refused. He said he’d let a court decide. So the messy scrap went to Johannesburg’s high court.
The court papers show how in November 2003, Mandela wrote to Ayob, asking him for details about the Mad Trust: who is the signatory, where are the bank statements, and what money is in the account?
Ayob replied, saying Mandela was the “proprietor ”, but he was sketchy on the details. The court papers show that Ayob later told his lawyers that the executors wanted him to “account to them for all the transactions from inception to date, [but] it is common cause that I have no such information.”
Ayob said: “All the funds held in the Mad Trust came from foreign beneficiaries, and none of the funds held in the Mad account came from local sources .”
He said the money came to Mandela on his “numerous travels abroad”, and some of the Mad Trust’s money was given to Mandela’s family — including his new wife, Graça Machel.
But Ayob’s unwillingness to transfer the Mad Trust ’s funds to the estate infuriated Moseneke, who dubbed the lawyer “uncooperative and obstructive”.
Moseneke argued that the money was Mandela’s “personal funds” as the Mad Trust had never been properly created.
Ayob denied this. In a letter to the estate in May 2015, he said: “I have made it clear that the Mad Trust is a valid trust, that the laws of the Isle of Man apply thereto, and that the object of the trust is primarily educational and charitable.”
In another letter, he says: “[Mandela] donated the funds to a valid trust. He never revoked his donation. He never terminated [my] instructions.”
Moseneke, in his court papers, fired back that Ayob should no longer have been a trustee of the Mad Trust anyway, since Mandela had demanded he quit all his trusteeships in 2004.
Ayob, in an affidavit in September 2015, replied: “My mandate to act on behalf of the late Mr Mandela was indeed terminated, but that did not result in my removal as the sole trustee of the Mad Trust.”
Moseneke said Ayob’s version was largely empty and uncreditworthy. “His assertion that he established the Mad Trust at the request of Mr Mandela is a good example. Where? When? How, and why did Mr Mandela give the instruction? Why did he open the account before the trust deed was signed? Why was the trust never registered?”
It was then that the estate hired experts to give a verdict on whether the Mad Trust was legitimately established in the Isle of Man.
One of those companies was Appleby. In 2015, Appleby gave an opinion, in which it said it was hard to tell, since there was no register of trusts in the Isle of Man. But it said: “Under the laws of the Isle of Man, the Mad Trust would be void (from the outset) on the basis that it fails to identify adequately any beneficiaries.”
Maitland, a legal firm in the Isle of Man, said while “it appears that there was a clear intention to create a trust” and that “the choice of Isle of Man law to govern the trust is a valid choice”, it warned the trust may be “void for uncertainty”.
Finally, on November 11 2015, Judge Lucy Mailula laid the matter to rest. She ruled the estate was the “beneficial owner” of Mad Trust’s money, while Ayob had “no authority” over the funds.
The money — equal to R17.8-million at the time — was transferred to the estate.
Though the Paradise Papers have added another piece to the puzzle of Mandela’s money, the estate has yet to finish its labyrinthine task of accounting for the funds.
This week Madikizela-Mandela, argued in SA’s supreme court of appeal that she should be awarded his former homestead in Qunu, rather than allowing it to remain in the hands of the estate.
In 2013, SA’s high-priority crimefighting unit, the Hawks, launched a probe into Mandela’s “missing millions”. Nothing has yet come of it, in part because the criminal authorities have been so severely weakened under SA’s current president, Jacob Zuma.
* Written in collaboration with the Financial Mail (RSA)