The Gupta-linked Scarlet Sky Investments 60, which allegedly illegally won a tender with state diamond mine Alexkor without having a diamond licence, and sold the mineral below market value to the detriment of the state and a previously disadvantaged Northern Cape community, must be criminally investigated.
Also needing to be investigated are Alexkor chief executive Mervyn Carstens, chief legal officer Zarina Kellermen and other directors and executives at both firms.
This was among the findings of part four of the Zondo commission’s report on state capture, which summarised the evidential dealings of Alexkor in its Pool Sharing Joint Venture (PSJV) agreement with the Richtersveld community and the award of a tender to market and sell all diamonds on behalf of the joint venture in 2015.
Scarlet Sky Investments 60 changed its name to Alexander Bay Diamond Company in 2018 and then later to ABCD.
The Pool Sharing Joint Venture reports to Alexkor, which handled the allegedly irregular tender bidding process for the diamond deal. Its executives were in regular communication with Gupta associates, including more than 100 calls that were made to Kuben Moodley and Iqbal Sharma.
“The evidence reveals that SSI [Scarlet Sky Investments] had links to the Gupta enterprise through its main shareholder, Kuben Moodley. It was a dormant company with no diamond licence or track record in the diamond industry,” the commission said in the report.
The Scarlet Sky Investments’ expression of interest dated 6 November 2014 on a letterhead indicated that the directors were Daniel Nathan and Kuben Moodley.
The commission found that the Pool Sharing Joint Venture awarded the tender to Scarlet Sky Investments on 27 February 2015 despite having failed to meet the specified minimum requirements of the tender and “more particularly in that SSI had no track record in the diamond industry; no experience in trading in diamonds or in cutting and polishing rough diamonds”.
Scarlet Sky Investments also had no cutting or polishing factory, no licence to buy rough diamonds, no licence to sell rough diamonds, no licence to cut and polish rough diamonds, no diamond trading house licence and no black economic empowerment certificate, which it only acquired after being awarded the tender.
“These were all minimum requirements for the tender … SSl’s bid was non-responsive and should have been disqualified at the outset,” the commission found.
The commission recommended that law enforcement agencies conduct further investigations with a view to the possible prosecution of Scarlet Sky Investments, ABDC, Daniel Nathan and the directors and employees of SSI, ABDC or any associated company on charges of contravening sections 18, 19, 20, 21, 44 or other relevant provisions of the Diamonds Act.
Members of the Alexkor tender committee, including Rafique Bagus, Roger Paul and Duncan Korabie should also be investigated by Alexkor and the Pool Sharing Joint Venture for allegedly being in breach of their fiduciary duties, as contemplated in section 76 of the Companies Act, by making a misrepresentation to the board regarding Scarlet Sky Investments’s compliance with the tender requirements with a view to an application to declare them delinquent in terms of section 162(5)(c) of the Companies Act.
“It is recommended that the law enforcement agencies conduct such further investigations as may be necessary with a view to the possible prosecution of Bagus, Paul and Korabie for fraud or a contravention … of the Companies Act by deliberately making a misrepresentation regarding SSl’s compliance with the tender requirements,” the commission added.
The commission further recommended that the board of Alexkor and the Pool Sharing Joint Venture investigate whether Carstens and Kellerman were in breach of their fiduciary duties as contemplated in section 76 of the Companies Act by making a misrepresentation to the board regarding the performance of a due diligence on Scarlet Sky Investments with a view to an application to declare them delinquent in terms of of the Act.
It also recommended that law enforcement agencies investigate with a view to prosecute both Carstens and Kellerman for fraud or a contravention of section 214(1 )(b) of the Companies Act for making a misrepresentation to the board that a proper due diligence was performed prior to the award of the tender to Scarlet Sky Investments.
In addition, the South African Diamond and Precious Metals Regulator should launch an inquiry in terms of the Diamonds Act to determine if all the buyers to whom Scarlet Sky Investments sold rough diamonds were in possession of the requisite licences and to refer any suspected contraventions to law enforcement agencies for any further investigation.
Regarding the Gupta-linked firm Regiments, the commission said its role in the attempted capture of Alexkor had not been sufficiently clarified. “The relationship between Regiments and Alexkor requires further investigation and no finding of any specific wrongdoing can be made in that regard.”
It recommended that the board of Alexkor conduct a full investigation into any contract with and fees paid to Regiments to determine the precise nature of any services rendered and whether the parastatal had received full consideration and value.