/ 28 April 2023

Lamola wants answers after first state capture case collapses

Ed 443597
Current Justice Minister Ronald Lamola. (Brenton Geach/Gallo Images and Phill Magakoe/ Gallo Images)

The state was at a loss this week about how to respond to the humiliating courtroom defeat the National Prosecuting Authority (NPA) suffered in the first state capture trial, a fortnight after learning that Dubai had dismissed its extradition request for the fugitive Gupta brothers.

Justice Minister Ronald Lamola has asked the national director of public prosecutions, Shamila Batohi, to explain what went wrong for the Nulane Investments case to end in the acquittal of all eight accused.

A well-placed source said the two were to meet to find a way forward on grand corruption cases following last Friday’s withering ruling.

The case was considered the nursery slopes of the mountain the state must overcome to convict those implicated in state capture.

But the Free State high court judge, Nompumelelo Gusha, found that the prosecution had failed to pass even the barest threshold to prove the charges against provincial officials, Iqbal Sharma, Gupta associate Ronica Ragavan and their company Islandsite Investment. 

The NPA’s Investigating Directorate is leaning towards filing for leave to appeal but lawyers have cautioned that the prospects of success were poor because the state cannot introduce new evidence at this point. 

“I hope if they go that route, they will take proper advice on how to proceed,” said one lawyer who has followed the case closely.

Whatever the NPA’s decision or its explanation, neither it nor the ministry can claim complete surprise at the court ruling because fault lines in the case were apparent in the pre-trial stage last year and flagged at the highest level.

Concerns about the case, and related charges in the Estina dairy farm scandal, were put to Batohi at the media briefing in July last year where she and Lamola confirmed that they had filed the formal request for the extradition of Atul and Rajesh Gupta. 

She replied that the NPA did not proceed if it were not confident of a reasonable chance of success in court. “We certainly have evidence in the other matter that would actually meet the standard of reasonable prospects of a successful prosecution and those documents are being finalised as we speak.”

As for the defence’s claim that the state’s case was hopeless, Batohi said: “That is the role of some defence lawyers — to create the impression that there is no case. But we expect that.”

Still, the prosecution stumbled at the first hurdle in the trial court because it was unable to prove that Free State officials broke the law and illicitly awarded a contract worth R24.9  million for a feasibility study to Sharma’s newly founded Nulane Investments. 

Without proof that the money was stolen, it was then hard-pressed to sustain the charge of money-laundering in relation to the myriad transfers that followed between companies in the Gupta brothers’ business empire.

The question that arises is why the defence could not meaningfully adduce evidence from Bank of Baroda records at its disposal, in which Sharma justified a transfer to the Emirati bank account of Gateway as payment for the same feasibility study that he had subcontracted in South Africa to Deloitte, at a fraction of the cost.

The state’s original indictment stressed that Sharma made a material misrepresentation to the bank, and the South African Reserve Bank, about the reason for the transfer of R19 million because there was “no legitimate business transaction” that merited the payment.

Sharma was arrested in June 2021, a decade after the feasibility study that set up the Estina dairy farm scam in which more than R280  million allegedly flowed to the Gupta family.

The state successfully opposed bail on the basis that Sharma was a flight risk with a foreign passport and financial interests abroad. Its submissions were drafted with the help of private counsel, who was not kept on brief when Sharma appealed and secured bail set at R500 000.

The seeming reluctance to retain private counsel, in terms of section 38 of the National Prosecuting Authority Act and in the public interest, to compensate for the state’s shortage of prosecutors versed in complex commercial crime matters is a recurring theme in the case.

Counsel has told the Mail & Guardian that they had availed themselves and they were prepared to waive their fees. When the case reached the stage of pre-trial hearings, only Nazeer Cassim SC was still assisting prosecutors Peter Serunye and Jacintha Witbooi.

It was, on the face of it, not an easy brief, which those with experience of section 38 secondment said may stem from the fact that prosecutors lacked the skill and authority to steer the process when working alongside private counsel.

“You have to have confidence in your own abilities to engage outsiders,” a lawyer said. “Prosecutorial interest has to govern any private interest, private counsel has to be instructed and directed but if you cannot do that the relationship cannot work.” 

As Cassim stood in court in June last year, it was plain that he had not been favoured with a full copy of the state’s reply to a request for further particulars filed by the Guptas’ attorneys on 24 May. 

The state’s answering papers had been filed a few days before the pre-trial hearing and Mike Hellens SC, for Ragavan and Islandsite, was arguing that these were inadequate.

The failure to detail the actions taken by the accused and the Gupta family, as well as the place and time where these were carried out, were fatal to its case, Hellens contended.

The prosecution conceded in reply that it could not provide the answers but argued that it need not do so to make out a case of common purpose. 

The court could infer the collusion between state officials, Sharma, Ragavan, and Atul and Rajesh Gupta and their spouses to defraud the state and benefit companies in the family empire, the argument went.

This wrangle between the state and the defence would continue over months, and sources have said Serunye’s repeated refusal to furnish Hellens with more comprehensive details pointed to a central flaw in the case, although the pre-trial court entertained this stance. 

It was not impossible to prove common purpose, but it required placing better evidence before court, a lawyer familiar with the case said, and adding that the answer lay in large part in having relevant information in the Gupta leaks emails cache admitted as evidence.

“The defence was spot on. Those issues were the issues at the heart of the matter. How are you going to prove the connections?

“You need the Gupta leaks [emails] and you need the bank statements. The bank statements corroborate the Gupta leaks emails.”

Faced with the defence’s objection, Serunye abandoned his bid to have the emails admitted as evidence. He did so despite having a legal opinion, written early in the process by esteemed advocates, who argued that it was possible and set out the applicable legal precedent.

“The opinion said it was admissible. One could then debate weight and so forth, and one could authenticate it in many ways,” a source with close knowledge of the matter said.

The state did struggle to obtain authenticated bank records from the United Arab Emirates (UAE) directly linking the Gupta brothers to the money flows that saw R19  million sent to a Standard Chartered Bank there controlled by the Guptas before wending its way back to the Absa Cash Focus account held in South Africa.

Before that, the money was laundered, with what the charge sheet termed “bewildering rapidity”, through the bank accounts of Islandsite, Pragat, Wone Management, Confident Concepts, Tegeta Resources, Oakbay Investments and Arctos Trading, which all formed part of the Guptas’ operations.

The accounts of Pragat and Islandsite were linked to the Absa Cash Focus account facility of Sahara Computers, of which Atul Gupta was the authorised system manager. 

To make out a case of money-laundering against the brothers, it needed to show that he directed transfers in South Africa, while Rajesh Gupta did the same in the UAE. This is where the emails were critical because they contained ledgers with instructions to effect transfers. The bank accounts reflect that the instructions were followed to the letter and together these speak with some persuasion to the intent of the accused.

“What then becomes apparent is that the fact that the brothers are writing emails about how the money is flowing and then this transpired proves that they controlled these accounts,” the legal source said.

If the UAE was not cooperative, finer details of transactions in the Absa Cash Focus account were available in South Africa but the state failed to ask for these.

Retired Absa employee Linda Channing testified that the fact that Atul Gupta was the manager of the facility did not necessarily mean that he made or authorised every transaction. It may have been done by others who he had given access to the account.

But it would have been easy to obtain information from the bank pinpointing whether he or someone else made a particular transfer. 

“Mrs Channing testified that she was not requested by the state to check who of the operators and or system manager was responsible for the transactions in question,” Gusha said in her ruling.

“In fact, she conceded that the information was readily available and would have been furnished had it been requested by the state.”

As for the swift transfer of funds between accounts in the Gupta stable, Ragavan testified that she served as the treasurer for these entities and would direct money to companies that were short on funding.

It is not clear why the state was unable to formulate a convincing counter argument that the money could not have shored up entities in distress if it barely landed in their accounts before being shifted elsewhere. 

A financial investigator engaged by the NPA testified that funds moved between accounts at an alarming rate and apparently in a manner contrary to the ordinary course of business. It is alien for treasurers to move money in this manner without authorisation.

But under cross-examination he conceded that his “period of review was narrow” and said there might be nothing sinister about the stream of loans to companies in the Gupta stable.

“They instruct that money goes from one bank account to the next, in one day, in about 10 minutes, the amount of money flows to about four different accounts. What possible legitimate business rationale can you present for doing that?” a lawyer familiar with the evidence asked.

“Ragavan said she was the treasurer of this financial empire and what she did was to take money from where there is plenty to where it is needed. Firstly, that is not how it works, but secondly, even if you accept that stupid explanation, why does the company need millions for two seconds and then it gets transferred to another company?” the lawyer asked.

The state fared no better in making out a case that three former senior Free State officials — Peter Thabethe, Limakatso Moorosi and Seipati Dhlamini — broke the law to secure a deviation that allowed the government to appoint Nulane to do a feasibility study for the dairy project.

They did so, the state said, after the department received an unsolicited letter from an Indian scrap metal company, Worlds Window Impex, declaring its readiness “to participate as a strategic partner in the Project Mohoma Mobung” provided due diligence was done by a service provider “of our choice”.

The court faulted the investigating officer for failing to authenticate the letter. But this was not dispositive of the case. 

The court said the case came undone with the questioning of state witness Shadrack Cezula, a supply chain manager in the agriculture department, who testified that he typed out a letter motivating for a deviation from procurement rules to award the contract to Nulane. 

He said Dhlamini stood in his office and dictated the letter to him.

Cezula’s testimony was central to the state’s contention that the three accused who worked for the province acted in concert to make misrepresentations that would enable the fraud that would follow. 

But once on the stand, despite the prospect of immunity, Cezula proved an evasive witness who was seemingly “hell-bent” on distancing himself from any crime, Gusha said.

As a result, he gave no factual evidence setting out the essential elements of fraud from which the court could then infer that the offence was committed.

“Tried as he did, not even Mr Serunye could get Mr Cezula to admit to committing an offence, let alone fraud,” said Gusha.

Again, it is not clear why the prosecution was not able to pursue the charge of breaching the Public Finance Management Act further because the letter, authentic or not, could never be a basis for a deviation yet the Free State officials demanded one to let Sharma secure the contract.

Nulane outsourced the feasibility study to Deloitte — for a fee of R1.5 million — and then changed the auditing firm’s finding to insert Paras, an Indian firm linked to the Guptas, as the preferred entity to lead the dairy farm project.

But here the prosecution ran into further difficulty with the testimony of former Deloitte employee Omri van Zyl, who told the court the original report must have been destroyed in routine seven-year documentation clearance at the company and that he could not recall who altered it, nor to whom at Nulane it was sent.

“The less said about Mr Van Zyl’s bona fides and credibility, the better,” Gusha remarked.

Granting section 174 discharges to the accused, the judge lamented that the case had been approached in a “lackadaisical” manner, adding: “An application for discharge cannot be refused in the hope that the accused person will incriminate himself when he gives evidence, thereby closing material defects in the state’s case.”

The charges in the Nulane indictment were the foundation for the application for the Gupta brothers’ surrender. It was rejected in mid-February, seven weeks before the justice ministry was finally informed, and their whereabouts are unknown at present.

Although the brothers are also wanted for fraud in the Estina matter, the failure of the first case does not bode well for the second. A more immediate consequence is that the provisional restraint order freezing a wealth of assets belonging to Sharma and the Gupta family will now likely fall away. These included Sharma’s R12  million Sandton home, his Porsche and other luxury cars and a second, sectional title property in Sandton worth R1.3  million, as well as the Guptas’ properties in Saxonwold and Constantia, valued respectively at R12  million and R22  million.