/ 9 September 2022

Ex-KZN treasury boss Sipho Shabalala gets 15 years in ‘Amigos’ case

Sipho Shabalala, who elected not to give evidence in his trial, admitted by affidavit that he was an ANC member and had facilitated a R1.053-million “donation” by Savoi to the party. (Waldo Swiegers/Bloomberg via Getty Images)

Sipho Shabalala, the former head of the treasury in KwaZulu-Natal and an ANC member, who says he acted on the orders of “his principals”, was on Thursday sentenced in the Pietermaritzburg High Court to 15 years imprisonment.

In June, Shabalala, a family friend of former KZN premier Dr Zweli Mkhize, was found guilty of corruption, fraud, money laundering and contravening the Public Finance Management Act for his role in the R44-million irregular purchase of water purifying plants.

Shabalala, 56, was treasury head when he was arrested in 2010 and charged in connection with the purchase from Intaka, a company owned by Uruguayan businessman and ANC donor Gaston Savoi.

Shabalala, who elected not to give evidence in his trial, admitted by affidavit that he was an ANC member and had facilitated a R1.053-million “donation” by Savoi to the party.

He then hung on to the money for a year, used it to try to rescue his private businesses, before paying it over to Mike Mabuyakhulu, former KZN MEC and the ANC provincial treasurer at the time.

In finding Shabalala guilty, Judge Dhaya Pillay issued a stinging judgment.

She said he recommended a transaction that the provincial government did not want or need and, in the process, gave money destined for the poor to Savoi after giving the businessman a free hand to manipulate the terms of the deal.

When the province dealt with Savoi, it waived procurement processes, in spite of the reservations of officials.

Pillay said Shabalala, despite protestations about his innocence, took money that he knew was the proceeds of unlawful procurement.

The judge said she had considered imposing a heavier sentence, but taking into account his age and health, had “restrained” herself.

She sentenced Shabalala to 45 years in total for various counts but the sentences will run concurrently, meaning an effective 15 years behind bars.

His failure to testify was “tragic … he takes the fall, while the real villains go free,” she said.

“I cannot ignore the seriousness of the offences I have found him guilty of. A most compelling consideration has been the fact that the funds involved were destined for the alleviation of poverty but were used for the opposite effect.”

The judge likened the offence to “treason”.

She said: “It sabotages our constitutional project … to achieve substantive freedoms from poverty and inequality.”

The idea that white-collar crime should be treated less seriously because no blood was spilled was “heresy”. 

The costs of fraud were immeasurable. Shabalala had enthusiastically pursued the Intaka deal and laundered the benefits from it, she said.

Shabalala’s defence immediately applied for leave to appeal the conviction and sentence, which will be heard next week. His bail of R100 000 was extended.

Shabalala’s case was initially dubbed the “Amigos” trial and included 23 accused, among them Mabuyakhulu and the ANC’s Peggy Nkonyeni, currently the KZN MEC of finance. The “Amigos” tag was a reference to how the accused referred to each other in correspondence.

Shabalala successfully petitioned to have his case separated.

Charges against Nkonyeni and Mabuyakhulu were withdrawn but the Zondo state capture commission recommended they should be recharged.

Arguing in mitigation of sentence this week, Shabalala’s advocate Khumbu Shazi said her client started working for the erstwhile KwaZulu government in 1984 and, by 1996, had become head of the newly amalgamated provincial treasury.

His skills were “revered” by colleagues after he helped structure the new treasury department and he received an international accolade for facilitating the public-private partnership that created Durban’s Inkosi Albert Luthuli Hospital.

He also structured the financing of the King Shaka International Airport and Durban’s Moses Mabhida Stadium. He acted on instruction from Mkhize, who moved him to the state-owned development bank Ithala when he left the treasury a year prior to his arrest.

As a result of the saga, his reputation was in tatters and he couldn’t get work.

Probation officer Mpumelelo Shiba recommended a non-custodial sentence because Shabalala had already been “punished”, having lost his power, privilege and the properties that were seized by the Asset Forfeiture Unit. These included a farm, a hotel, a guest house and two restaurants, worth R5-million at the time.

Rather than acknowledging his guilt, Shiba said Shabalala was “very disappointed” at the court’s ruling because he maintained he was following orders in the Intaka purchase.

But Pillay asked where his remorse was as Shabalala fraudulently used funds meant for poor people. She asked Shiba if she wanted to reconsider her recommendation but the probation officer said “no”.

This prompted Pillay to ask: “Has anyone promised you anything, a gift or a gratuity to produce this report?”

Shiba said “no”.

The court heard evidence of how the Intaka deal was hastily pushed through when experts said there were better ways to provide drought relief.

Pillay slammed Mkhize as neither a water expert nor a credible witness.

State advocate Mlu Magwanyana asked for an effective 15 year sentence for Shabalala, comparing his case to those of ANC Northern Cape heavyweight John Block, former police chief Jack Selebi and Schabir Shaik, former president Jacob Zuma’s financial adviser.

Corruption was rife and the court had a duty to show its seriousness in response.

Magwanyana said he didn’t think Shabalala understood the separation of party and state, that he wasn’t accountable to the ANC, but this wasn’t a mitigating factor. Shabalala wasn’t appointed by the ANC and, as treasury head, he was meant to protect the public purse.

During the trial, details of the ANC donation emerged. As early as 2004, Savoi tried to hawk his water purification system but he met with resistance. He took Shabalala on a field trip to Brazil and Shabalala recommended to Mkhize that money from the poverty-alleviation fund be used to buy 22 “Wataka” water-purification plants from Intaka.

Among the 35 witnesses who testified were investigating officer Colonel Piet du Plooy and PricewaterhouseCoopers forensic auditor Trevor White.

In court it emerged that officials were bullied into treating the Intaka purchase as urgent. While some said similar water-plant technology was locally available, and the price of the Intaka plants had not been tested in the marketplace, the purchase was pushed through with an illegal waiver of procurement processes.

The deal was done without the input of the national department of water affairs and in spite of the fact that local officials anticipated problems relating to the placement and maintenance of the plants. 

In addition, the price for their purchase had doubled from R22-million to R44-million with no credible explanation, Pillay said.

The company was paid on presentation of its invoice and, by 2010, six years after discussions with Intaka started around an apparently urgent purchase, only eight of the water plants were in working order and most were “gathering rust”.

Pillay said the Intaka deal was started under the “political stewardship” of Mkhize and ultimately resulted in a purchase that was clearly unlawful and not fair, equitable, transparent, competitive or cost effective.

Shabalala denied Mkhize had influenced him improperly and testified that the Wataka project arose not from treasury but from the communities.

Pillay said this was not supported by evidence. Communities had not asked for or desired the Watakas. Mkhize’s testimony that communities wanted them was “patently false”.

She said the “probabilities are that Mkhize supported doing business with Savoi, even before he received” a proposal from Shabalala. 

Savoi’s vague promises to invest in a manufacturing plant in KZN to build Watakas was dangling a carrot but critical terms of the transaction were “unknown, undisclosed or not discussed”. 

Whether the purchase and sale included only the equipment or also installation and delivery, and what municipalities would have to pay for maintenance, repairs and consumables, was unclear.

Pillay said Shabalala, abusing his position and privilege, ensured the deal went through. It was his “singular intention” and he directed the process “like a puppeteer”. Officials complied with his wishes and were willing to turn a blind eye to his transgressions.

“This is the ecosystem in which corruption flourishes.” 

Remarkably, the auditor general’s office did not disqualify the payments to Intaka.

This, she added, was “an enquiry for another day”.

The judge said Shabalala was not the only one who should have been indicted.

White’s investigations revealed that Intaka made a profit of R30-million from the Poverty Alleviation Fund. This, the judge said, was a “shameful indictment” on Shabalala and “all those who pretended to advance the cause of the poor while they pocketed extortionary profits”.

And he hadn’t disclosed his discussions with Savoi about donating to the ANC.

The judge said the “impropriety and unfairness of the quid pro quo relationship between donors and governing political parties is self-evident from the fact that legislation was promulgated to control political party funding. Quid pro quo donations encouraged malfeasance.”

She said evidence that the ANC actually received the donation was “dubious”.

It emerged in court that Savoi’s donation was paid into Durban attorney Sandile Kuboni’s account and then paid to Shabalala who, in turn, gave it to Mabuyakhulu, but the donation was not reflected in the ANC’s financial records.

The case against Savoi, Kuboni and other accused is ongoing. Savoi has launched several pre-trial applications, including for a permanent stay of prosecution.