Saambou Bank in Pretoria. File photo: Independent Newspapers

JOHANNESBURG – Early in September 2002, the Registrar of Banks placed the management responsibilities of this once proud bank (Saambou Bank) in the hands of a curator. Sounds familiar not so? The minister of finance, upon the recommendation of the Registrar of Banks has placed the VBS Mutual Bank under curatorship with effect from Sunday March 11, 2018.

Following up on the never ending VBS saga we decided to have a look at the root cause of the Bank seizure. The system on which the Bank operated on, namely the EMID system. The system on which thousands of people, the Reserve Bank and many other stakeholders relied to provide a solid platform on which business can be conducted safely and securely and accurately.

VBS used the EMID system. Now who would ever believe that, and we quote from the EMID web page: “EMID was established through a management buy-out of Saambou Group`s information technology assets. EMID offers comprehensive end-to-end banking solutions based on an application solution provider (ASP) and third-party processor model. ”BSVA Integrated Services was acquired by EOH and renamed back to Emid. As an EOH company, Emid is part of one of the largest, JSE-listed, information technology providers in South Africa.

It turns out that Saambou failed as a Bank, (no directors were found criminally liable) yet the remains of one of one of its assets, finds its way from the grave to VBS Bank, where the system was open to manipulation in such a manner as to bring to an end the hopes of many a faithful customer and brings disaster to struggling municipalities trying to support a bank to which they can relate. Municipalities used their scarce and earmarked cash resources destined to alleviate service delivery issues to support an undeserving institution.

As we are now well entrenched in the Fourth Industrial Revolution and all and everyone is digitalising and integrating, seamlessly and in real time, across all devices anywhere in the world, on a 24/7 basis and more and more business is done on some digital platform. As per HCL Technology “ Digitization is the conversion of data into a digital format with the adoption of technology. Adoption of digitalization is very important for the banking sector. By embracing digitalization, banks can provide enhanced customer services. This provides convenience to customers and helps in saving time. Digitalization reduces human error and thus builds customer loyalty.

Today, people have round-the-clock access to banks due to online banking. Managing large amounts of cash has also become easier. Digitalization has also benefitted customers by facilitating cashless transactions. Customers need not store cash anymore and can make transactions at any place and time.”

 Are we making progress? It certainly seems that some have made little progress in the last decade. Is it not amazing that it was not some whiz kid from New York or some Geek from Germany or a super Nerd from Norway that managed to beat the System. With due respect to our locally bred fraudsters, we were learnt a lesson from unlikely candidates, far less sophisticated yet efficient to manage The Greatest Bank Heist in SA history. 

The Prudential Authority will probably take a closer look at the systems Banks operate from; We quote from their web site: The FSR Act gave effect to three important changes to the regulation of our financial sector. First, it gave the SARB an explicit mandate to maintain and enhance financial stability. Second, it created a prudential regulator, the Prudential Authority (PA). The PA is responsible for regulating banks, insurers, cooperative financial institutions, financial conglomerates and certain market infrastructures.  

Things are getting Messy

We once again set out the current role players:

  1. The Registrar of Banks has placed the bank VBS Mutual Bank under curatorship with effect of Sunday March 11, 2018 under the curatorship of Mr Anoosh Rooplal.
  2. Insure Group Managers Ltd (IGM) is a registered collection agency and its main business is the collection of premiums on short-term insurance products. It's what IGM does and has been doing since 1998. Following a review by the Financial Sector Conduct Authority (“FSCA”) of the regulatory solvency of  IGM, (Insure Management Group) the company agreed on 14 September 2018, to a proposal by the FSCA to be placed under voluntary curatorship. Mr Pieter Bezuidenhout was appointed as curator.
  3. Acting Deputy Judge President Moroa Tsoka wasted no time on Tuesday 31 July 2018 in granting a final liquidation order against Vele Investments, the bank’s controlling shareholder. The application for the liquidation of Vele had been brought by the bank’s curator, Anoosh Rooplal.

What the parties (both curators) now need is to establish whether the transaction between Vele Investments and Insure was done at an arms- length and in the normal course of business.

Vele Investments contemplated the purchase of an interest in Insure shares with the intervention and participation of VBS Bank. The purchase price at R250m for a 26% interest in a company with liquidity problems raises some serious concerns. This places a value of close to R1bn on Insure. However, serious erosion of value was probably caused due to the reputational risk profile of Insure. Reputational risk is the risk of possible damage to their brand and reputation, and the associated risk to earnings, capital or liquidity, arising from any association, action or inaction which could be perceived by stakeholders to be inappropriate, unethical or inconsistent within acceptable levels of stakeholders’ values and beliefs.

 With regard to the Value of Insure ordinary shares the other issues at Insure need a further look. We received the following answer from the Curator:”The regulatory solvency concerns raised by the FSCA resulted from the investment of funds by IGM into long‐term and illiquid investments, which funds are required to service short‐term obligations. These short‐term obligations refer to premiums due to Insurers.”  The nature of these investments are stated as:”   The investments referred to are, a mining rehabilitation operation located in Springs, Gauteng, a property portfolio comprising a number of high value property developments located in various     parts of the country.”  

We think Solvency is a strong word implying more than just illiquidity.

Since VBS Bank was placed in the hands of the Curator I also asked some other questions. The answer is stated below:

 “The intention was for Vele (not VBS) to subscribe for shares in Insure. The transaction was not consummated as the conditions precedent were not fulfilled. The transaction was accordingly void.

This response has prompted us to ask a legal expert Mr De Klerk from De Klerk Mundelstam the following: (at time of Print we have not yet received his reply, which we will publish once received)

Questions to Mr De Klerk:

a) Is it correct that since Vele Investments is being liquidated, they (the liquidators) will be seeking to attach the shares held in Insure, irrespective that both parties colluded with VBS?

b) Can the Insure Curator correctly claim that the transaction was not consummated? It seems clear that money was withdrawn against the R250m deposit as per Advocate Motau's report. (They are co-creators of a factious scenario and could be barred from relying on the reality?)

We quote from the Advocate Motau Report: "par. 134 Once the R250 million fraudulent deposit was created in a 32 day notice account in Insure’s name, Insure made numerous draw downs on the account over the following months. 

The Curator of Insure told us that the contemplated sale of Insure shares would have been a transaction between the shareholders of Insure and Vele Investments, yet he expresses the opinion that the deal was void ab initio. At the same time he do not wish to disclose the sale agreement to IOL as he states he is not the Curator for Insure’s Holding company. Perhaps this is a contradiction that he may expand on. Mr Charl Cilliers (suspended CEO) initially indicated his willingness to discuss the Insure issues with IOL but has since not responded to requests for a meeting to state his version of events. The exact word of the Curator and we repeat. “The intention was for Vele (not VBS) to subscribe for shares in Insure” It is therefore not correct to state that the transaction with Vele Investments was with the shareholders of Insure Group Managers as Vele would have subscribed for new shares in Insure. It seems more likely that the deal was with Insure, the company, as the deposit created was in the Insure name and money was withdrawn from there. It seems to us that the draw-down of the R250m was still insufficient to solve the liquidity problem as the Curator has withheld premium due to the Insurers of between R1,250,000,000 and R1,400,000,000. AS per our question to the Curator of Insure: -“IGM collects approx. R15 – R17 bill of premiums per annum.” The SAIA website indicates that the    total market value of ALL premiums is R108,2 bill per annum.

The following is an extract from: INSURE GROUP MANAGERS: MARKET UPDATE NUMBER 3 dated 19 September 2018. -“I have been updating all insurers on the process to be followed in terms of the retained premium     for the August collection period”

IOL will try to establish if the various investigations that are to follow will inter alia investigate the possibility that the ground work was laid to create a money laundering operation. Certainly from Vele Investment’s view the investment in Insure did not make prudent investment sense. Why would they fork out R250m even with fictitious money for a company with a liquity problem? Perhaps their eyes were on the large cash handled by Insure. The illiquid investments are perhaps more than illiquid, perhaps the difference in book value and market value is the main problem. Insure does not have a good track record of investments in unlisted entities. 

Courrie Kruger is an independent correspondent.

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