Hawks’ Steinhoff probe angers MPs

Tumbling: Steinhoff’s Louis du Preez named former chief executive Markus Jooste (left) as among those involved in suspicious transactions. (Waldo Swiegers/Bloomberg/Getty Images)

Tumbling: Steinhoff’s Louis du Preez named former chief executive Markus Jooste (left) as among those involved in suspicious transactions. (Waldo Swiegers/Bloomberg/Getty Images)

South Africa’s law enforcement authorities have again been lambasted for their failure to move on the investigation into retailer Steinhoff, after a dismal showing in Parliament on Tuesday.

Steinhoff chairperson Heather Sonn and chief executive Louis du Preez faced a joint sitting of the standing committees on finance, public accounts, trade and industry, and public service and administration in a briefing that included various financial regulators, the Hawks and the National Prosecuting Authority (NPA).

It followed last Friday’s release of a sparse overview of the forensic investigation into alleged accounting fraud at Steinhoff, done by auditing firm PwC. The overview revealed that fictitious and irregular transactions over several years had inflated the company’s profits and assets by more than €6.5-billion (R100-billion).

The Hawks’ Lieutenant General Godfrey Lebeya told parliamentarians that, aside from combining four cases into a single docket, the special police investigative unit had managed to follow “one act” transaction, on the basis of apparent fraud, in the past year. The Hawks had almost completed the investigations into this transaction.
But the revelations of the PwC report “points out that there is at least 10 that we may want to be looking at”, said Lebeya.

The limited progress of the investigations drew the ire of parliamentarians and unions.

The Democratic Alliance’s Alf Lees called the lack of action “flabbergasting”. “One transaction has been followed for over a year and no one has been prosecuted or charged,” he said.

Trade union federation Cosatu has described the Hawks’ achievement as “appalling”.

Cosatu’s deputy parliamentary office co-ordinator, Tony Ehrenreich, said in a statement that the manner in which the matter was being dealt with was “leading to a loss of confidence by the South African public into the state’s ability and willingness to confront and stop corruption”.

In response to follow-up questions from the Mail & Guardian, Hawks spokesperson Brigadier Hangwani Mulaudzi said: “The investigation has been prioritised; however, we [must] follow due process with a view to charge anyone who might have transgressed the law.”

The head of the special commercial crimes unit of the NPA, Mpho Doudaba, told MPs that it was aware of the seriousness of the matter, and said that, as soon as the agency received the PwC report, it would “fast track the investigation” and ensure that those implicated were brought to book.

Markus Jooste (David Harrison/M&G)

But Steinhoff has maintained that the 3 000-page report and its annexures remain privileged information. Du Preez said there had been no undertaking to share the report with regulators, including the Financial Sector Conduct Authority, even though the FSCA’s officials, who appeared before the committee, were under the impression that they would be given sight of the full report.

The parliamentary committee had to compel Steinhoff to give up the names of the group of former executives and associated external individuals who were identified as allegedly key to the many suspicious transactions that took place at the company.

Du Preez gave the names of Markus Jooste, the former chief executive; Dirk Schreiber, the former chief financial officer for Europe; Ben le Grange, Steinhoff’s former chief financial officer; and Stehan Grobler, a one-time Steinhoff company secretary.

He also named the individuals allegedly associated with three groups of corporate entities who were key to these transactions, namely Siegmar Schmidt, who until 2012 was the chief financial officer of Steinhoff Europe; Alan Evans, an international financier named in a report by journalist investigative unit amaBhugane, and whom Jooste named in Parliament as a senior partner of Campion Capital; Jean-Noel Pasquier and a “Mr Romano” (reportedly Davide Romano), both listed as directors of Campion Capital, according to Bloomberg.

Although PwC did not name these individuals in the overview of the report, it noted: “A small group of Steinhoff Group former executives and other non-Steinhoff executives, led by a senior management executive, structured and implemented various transactions over a number of years, which had the result of substantially inflating the profit and asset values of the Steinhoff Group over an extended period.”

According to the report, these suspicious transactions inflated Steinhoff’s profits and assets by more than €6.5-billion between 2009 and 2017. But Du Preez said the full financial effects on Steinhoff are yet to be completely quantified.

In interim results released in June 2018, the company said it had to write down €11-billion of equity. The complexity of the investigations has delayed the release of the company’s full 2017 and 2018 financial statements, but Steinhoff is committed to disclosing the cumulative effect of all the prior years’ restatements in the 2017 annual report.

Sonn defended the company’s position to protect the full contents of the PwC report.

She warned of the “stack of debt” it operated under and the need to get its creditors on board in its restructuring plans. In December, Steinhoff announced it would allow group companies to reach voluntary arrangements with their creditors.

“The creditors do take priority. If they don’t agree to sign up to the three-year lock-up period with us this company will be in serious trouble,” Sonn said.

The Steinhoff board owed “a duty to the company” and had to “reserve some value, if we can, at the end, for shareholders”.

But that did not mean they would cover up illegal activity. “We are not here to cover any wrongdoing; we are here to do the best thing for the company,” she said.

The PwC report details four categories of transactions used to obfuscate the true value of Steinhoff. It also identified three groups of corporate entities that were counterparties to Steinhoff in these transactions — the Campion/Fulcrum Group, the Talgarth Group and the TG Group.

Companies in the Steinhoff Group “recorded sales to, or received benefits or income” from these entities, and others, which were purportedly independent of the Steinhoff Group but it now appears were closely related to the Steinhoff Group, former employees and third parties, or former management.

“The income from these transactions was in many instances not paid by the so-called independent entities to the Steinhoff Group, resulting in loans or other receivables owed to the Steinhoff Group that had little or no economic substance,” the report said. From there, a complex web of further transactions were engineered to account for this suspect or fictitious income.

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