Hawks inquiry: VBS saga now enters the era of consequence management
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By Corrie Kruger
LAST WEEK SAW the arrest of an individual in Klerksdorp in relation to the VBS Mutual Bank looting. Twitter lit up as people started trying to guess who this person could be.
It was clear that there were two groupings among the tweeters. Those who suggested the person was a member of the EFF, and those who said the individual could be from another political party, perhaps the ANC.
A small minority expected it could perhaps be someone from Insure Group Managers, which till now have been largely ignored by the media in relation to their dealings with VBS.
Very few VBS transactions seem to have been at an arm's length and based on sound business principles. Once the Hawks start digging into Insure Group's past dealings, the transactions with VBS may bring a further dimension.
As per the Financial Intelligence Centre Act (Fica) No 38 of 2001, attorneys, accountants, real estate agents, casinos, boards of executors, trust companies and persons who invest, keep in safe custody and control or administer trust properties are currently considered designated non-financial businesses and professions.
South Africa is being assessed against the Financial Action Task Force's 40 recommendations for effectiveness in its anti-money laundering and counter-terrorist financing regimes.
It is important to recognise the role of designated non-financial businesses and professions. One can safely expect that the Insure Group falls within this definition.
Money laundering is a very serious offence and it is not often proven in our courts. Money laundering is described as using a series of financial transactions to introduce illicit or “dirty” funds into the financial system.
Once money is obtained illegally, the subsequent use, therefore, is dirty money. Each transaction disguises the source of the money until eventually it's housed in a legitimate financial institution or business, and it appears to be “clean”.
A series of financial transactions appear to have taken place between the Insure Group and the VBS Mutual Bank.
The Insure Group handled many thousands of legitimate collections relating to insurance premiums and may have been an ideal target as a front company.
Front companies are businesses which combine “dirty money” with money from legitimate operations. Front companies have relationships with banks and other financial institutions that provide a path to “clean” money.
The Prevention of Organised Crime Act 121 of 1998 (Poca) includes, inter alia, aspects such as racketeering, money laundering, gangs and the civil recovery of property.
It also deals with the conduct of individual wrongdoing and crimes that cannot be categorised as organised crime. In a Constitutional Court case (CCT Case no: 71/13 KZNHC case no: 8006/12), the court defined what is meant by being part of an “enterprise” and what a “pattern of racketeering activity” entails.
It may be pure speculation at this stage, but one should not be surprised if the Hawks take a closer look at the provision of Poca in relation to Insure's investment activities over the past 10 years, including the pattern of their investments relating to VBS.
The onus to prove criminality can be onerous and the lack of sufficient capacity and resources often fails our system. However, recently a police officer stated that they would never have convicted the mastermind behind certain murders if they had not made use of the racketeering legislation.
The National Prosecuting Authority in the Western Cape achieved a first when Edmund Fredericks became the first SA Revenue Service employee to be convicted and sentenced to direct imprisonment of 15 years by the Western Cape High Court on charges of racketeering and money laundering in South Africa.
Two people were convicted of having contravened Section 2(1)(f) of Act 121 of 1998 for managing an enterprise through a pattern of racketeering. The court found that they participated in an enterprise through a pattern of racketeering.
The person in the street will be forgiven if the thought arises that the relationship between VBS and the Insure Group is that of an “enterprise” colluding in illegal activities from various parties to benefit such entities. Insure and VBS seem so similar in their approach to business it is no surprise that they became more familiar with one another.
The focus on Insure relates mostly to the diverting of investments of up to R1.7 billion at any given time of insurance premiums due to the insurance companies to investments for their benefit. This was not a once-off activity – it was perpetuated and repeated on a monthly basis over a number of years.
According to Market Insights South Africa, there are just more than 7 million registered cars on South African roads. It is estimated by various sources that almost 5 million of these cars, from 65 percent to 70 percent, are not insured. If any person is involved in an accident in which his or her car is damaged, the chances are one in three that the damage will be covered by an insurance company.
The reason for people not insuring their cars is mostly financial as the premiums are costly. The insurance industry, therefore, can ill afford to lose more than R1bn to “clever” people diverting their money to their own pockets. It is well known in investment circles that with “high risk comes high reward”.
The clever Insure Group's Charl Cilliers and company knew this did not apply to them as the risk of losing money was always going to apply to anybody except themselves. Should they become lucky, though, all would be well – they could pay over the standard low return on a short-term deposit to the insurance industry and keep the upside.
The consequence of stealing insurers' money causes an indirect hardship for car owners, whose premiums for insurance are adversely affected through reducing the capital of insurers. So far there have been no consequences of significance for Cilliers, apart from a curator trying to salvage what is left at the Insure Group.
The 5-year ban by the Financial Sector Conduct Authority (FSCA) to participate in the industry is similar
to Schabir Shaik living out his medical parole on the golf course. Cilliers did not even receive the same treatment as Dudu Myeni as he was not declared a delinquent director. That no action has been taken against the auditors of the Insure Group is also mind-boggling.
They cannot ever have concluded that Cilliers was acting with a proper mandate as his investment actions were clearly reckless. The question arises: Should the Independent Regulatory Board for Auditors self-regulate auditors?
When we approached the curator for the Insure Group regarding irregularities at the firm, Pieter Bezuidenhout informed us: “I report to the FSCA every month on progress with the curatorship. I have a very specific duty to advise also on reportable irregularities, which report was submitted to the FSCA in September 2020.”
It would be interesting to see how far back the Hawks will investigate Cilliers, as his modus operandi has most probably been ongoing for the past decade and longer.
Corrie Kruger is an independent analyst