/ 15 March 2019

PIC man digs himself a deep hole

In denial: Paul Magula
In denial: Paul Magula, the former head of risk and compliance at the Public Investment Corporation, told Reserve Bank investigators that he received bribes to turn a blind eye to corruption at VBS Mutual Bank

Former Public Investment Corporation (PIC) head of risk and compliance Paul Magula could find himself in hot water as details emerge that he might have misled the commission of inquiry into the state asset manager when he testified this week.

Magula, who sat on the board of the now defunct VBS Mutual Bank as a non-executive representative of the PIC, told the inquiry on Monday that he had only learned about the fraudulent activities, bribes and fictitious deposits at VBS when he appeared before advocate Terry Motau SC’s forensic investigators on June 8 last year.

The PIC had a 25% shareholding in the bank.

Motau was appointed by the South African Reserve Bank to investigate allegations of fraud at the bank. In his report, titled The Great Bank Heist, Motau found that there had been “wide-scale looting and pillaging of the monies placed on deposit at VBS”.

This week, Magula told the PIC commission: “I have never participated in any illegal, fraudulent activities during my tenure as a VBS board member. Some of the things like fictitious deposits, fraudulent withdrawals, bribes, et cetera, that are said to have happened at the VBS I got to know about when I went before the prudent authority’s [Reserve Bank’s] forensic investigators. I am willing and ready to subject myself and co-operate with the law enforcement agencies.”

But Magula, who is also a subject of a criminal investigation by the Hawks and who was fired for incompetence by the PIC in April last year, seems to have been economical with the truth about his role in the looting of VBS. According to the transcript of an interview with former VBS chief executive Andile Ramavhunga, he accepted gratuities from the bank through Vele in return for turning a blind eye to its illegal activities.

Magula declined to comment when contacted and said it was better for the law to take its course.

During a marathon grilling at the Motau hearing by evidence leader advocate Ross Hutton SC on June 8, Magula confessed to receiving R7.6-million in bribes. These details are confirmed in a transcript of Ramavhunga’s interview when he appeared before Motau on July 13 last year.

Ramavhunga, who allegedly unlawfully received R15-million from Vele, attached the transcript in his audacious Constitutional Court application against Motau, the Reserve Bank and Justice Minister Michael Masutha to have the investigation declared unlawful and for the court to rule that Motau had acted beyond his powers.

In Ramavhunga’s transcript, when Hutton was cross-examining him, Hutton said Magula initially made up stories claiming that the monies he had received were loans and money he had borrowed from the then VBS chairperson, Tshifhiwa Matodzi.

“Mr Magula came here and he defended himself for almost an entire day. He gave us a false story; he told us that he borrowed money from Mr Matodzi to repay a young man who had, through his company, Hakema, lent him money. He stuck to that story until about 15h30 in the afternoon, and eventually, when the weight of the evidence that demonstrated that his story was absurd in every material respect, and that his story was extraordinarily improbable, he then said, ‘I want to tell the truth’,” Hutton said during an interview with Ramavhunga.

According to the transcript, Hutton said Magula apologised for giving false evidence and requested immunity.

“He had spent the whole day lying and the weight of his lie ultimately forced his conscience to tell the truth and he confessed to receiving bribes of R7.6-million in total. They were receiving those bribes in the same amounts and on the same days that you received what you [Ramavhunga] say was the petroleum money,” Hutton said to Ramavhunga.

A reliable source has confirmed Hutton’s claims about Magula’s confessions, adding that Magula confessed to receiving various amounts of monies, ranging
from R150 000 to R2.8-million, through an entity called Investar from VBS’s major shareholder, Vele, between December 2016 and February 2018.

The source revealed that Magula also admitted to benefiting from further payments ranging from R300 000 to R1-million that were paid into Hekima Capital, whose registered business address is Magula’s home address.

Magula confessed that the two companies, Hekima Capital and Investar, were vehicles created for his benefit and that they were also set up for future purposes as advisory companies.

Meanwhile, Ramavhunga wants the Constitutional Court to order that section 140(1)(b) of the Financial Sector Regulation Act is “irreconcilable [with] the Constitution”. The section allows an investigator like Motau to subpoena evidence even if the evidence may incriminate someone.

He also wants the court to declare that the terms of reference guiding the Motau investigation unconstitutional.

“In awarding the powers reflected at the certificate of appointment, the second respondent [the Reserve Bank] has, in effect, granted prosecuting and executive powers to the investigator and his team, which ought to be executed by the South African Police Services, in terms of the separation of powers,” Ramavhunga said in his court papers.

He also argued that the investigation did not afford a subpoenaed person an opportunity to “re-examination by a legal representative so as to correct any inaccuracies”.

Ramavhunga said what he had disclosed to Motau had been used to sequestrate him provisionally and that there was a likelihood that “the prosecuting authority will likely have regard to the finding of the investigator”.

But, in his answering court papers, Reserve Bank chief executive Kuben Naidoo said there was nothing unlawful about the VBS investigation.

“The investigation uncovered evidence of fraud and corruption in the conduct of VBS’s business. However, the investigator’s powers were limited to reporting on that evidence and then making recommendations for the further steps that may be taken,” he said. “The investigator’s recommendations include that charges should be laid against individuals implicated in the report and that the report be made available to law enforcement agencies.”

Naidoo said Ramavhunga’s application could not undo the evidence that was given and reverse the answers he gave during Motau’s investigation. He also said the application was defective because it didn’t cite the right minister [the finance minister, rather than the justice minister] and that it failed to disclose a course of action because it challenged the lawfulness of administrative action without referring to the provisions of the Promotion of Administrative Justice Act.