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State of capture

Unmasking of chronic corruption in South Africa



Thulisile “Thuli” Madonsela has probably done more than any single person in South Africa to bust the lid off widespread fraud and corruption during the term of former President Jacob Zuma. She speaks to Fraud Magazine about her experiences during that time and what more needs to be done.

Just as she was about to leave office in October 2016 as South Africa’s public protector, a type of national ombudsperson, Thulisile “Thuli” Madonsela released a 355-page report entitled “State Capture” — a real blockbuster that threw a bright light on the underbelly of corruption in her country.

The front cover left little doubt about the report’s main theme. It displayed the hand of a puppet master manipulating his strings while the South African flag flapped in the background. (See State of Capture Report, news24, Nov. 24, 2016.)

Inside, the report catalogued how three India-born brothers — the Guptas — had used their close relationship with then-President Jacob Zuma to allegedly influence the hiring of ministers and directors of state-owned companies to win contracts and garner benefits for the family business. The tentacles of the Guptas’ business empire had reached far and wide and had implicated reputable international firms such as consultant McKinsey and German software giant SAP in its wrongdoing. (See Jacob Zuma, the Guptas and the selling of South Africa, by David Pilling and Joseph Cotterill, Nov. 30, 2017, the Financial Times, and State Capture: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets, by Karan Mahajan, Vanity Fair, March 3, 2019.)

Madonsela’s investigation into state capture topped what had been a roller-coaster and groundbreaking tenure as public protector between 2009 and 2016. During that time, she won worldwide accolades for her bravery and determination in exposing both large and small incidences of fraud and corruption — including a probe into the excessive costs of upgrades at the president’s own private residence.

Time magazine named her one of the 100 most influential people in 2014, calling her “an inspirational example of what African public officers need to be.” She’s also the recipient of the ACFE’s 2021 Cressey Award, which is bestowed annually for a lifetime of achievement in the detection and deterrence of fraud. Madonsela was a keynote speaker at the 32nd Annual ACFE Global Fraud Conference. And when she sat down to speak to Fraud Magazine earlier this year via Zoom, she’d just been awarded a French knighthood.

Madonsela is now a law professor and holds a chair of social justice at Stellenbosch University, just outside Cape Town. But the impact of her investigations at the highest level of government are still rippling through a South African society angered by, and now very much aware of, the extent of chronic corruption in the country.

Corruption of this type, of course, is hardly unique to South Africa, which ranked 69 out of 180 countries in Transparency International’s Corruption 2020 index. Brazil, which springs to mind, stands at 94 after its notorious “Car Wash” probe into bribery, kickbacks and misappropriation of funds at state-owned oil company Petrobras. (See Corruption Perceptions Index, Transparency International.)

Even so, the South African government estimates that about 500 billion rand, or about $30 billion, was pilfered from the state during Zuma’s time in office between 2009 and 2018. In 2018, Zuma was forced to step down under the threat of impeachment and was replaced by then-deputy president Cyril Ramaphosa, who has prioritized stamping out corruption. (See South Africa’s ANC Takes Responsibility for Graft, Ramaphosa Says, by S’thembile Cele, Bloomberg, April 28.)

Thanks to Madonsela’s efforts, and those of a string of whistleblowers, corruption and ways to combat it have become a never-ending source of conversation among South Africans concerned about their fledgling democracy. And the Zondo Commission, the public enquiry established in 2018 at Madonsela’s request to investigate allegations of state capture, corruption and fraud, is now part of the daily news stream.

Expressions such as state capture — once an obscure academic term — have been dusted off and are today common parlance. And cultural references to fraud and corruption abound, ranging from the homegrown colloquialism “tenderpreneur” (a businessman who uses his political connections to secure government contracts), to activist Sizwe Mpofu-Walsh’s hip-hop song about state capture. (See Sizwe Mpofu-Walsh – State Capture, YouTube.)

Protecting the public

“When I went into this job, corruption was not on my radar,” says Madonsela, remembering when Zuma himself first appointed her to the post of public protector — one of six state institutions established in the 1990s to protect democracy and that are independent of the government and subject only to the South African Constitution and other laws.

Back then, the Directorate of Special Operations, set up in 1999 and better known as the Scorpions, played a big role in crushing corruption, making high-profile raids on high-ranking officials within the ruling African National Congress (ANC) party. However, it was disbanded in 2008 and replaced with the Directory for High Priority Crime Investigation, or Hawks. (See SA abolishes crime-fighting unit, BBC, Oct. 23, 2008, and Countering corruption in South Africa: the rise and fall of the Scorpions and Hawks, by Joey Berning and Moses Montesh, Sabinet African Journals, March 1, 2012.)

“During the time of President Zuma, the Hawks didn’t do much hawking, and the anti-corruption work fell on the public protector,” recalls Madonsela.

When the job of public protector became available in 2009, Marthe Muller, the chief operating officer of the nonprofit organization South African Women in Dialogue, encouraged Madonsela to apply. Her pitch to Madonsela was that she’d already been helping South Africans vindicate their rights informally through various agencies, and the job of public protector would allow her to have a larger impact on this front.

“That is what attracted me to the role: the interface of social justice and good administration,” says Madonsela. “With the cases I handled on my own pro bono before becoming public protector, I realized that a whole load of suffering came from just bad administration."

Indeed, for Madonsela the fight against corruption and fraud has always gone hand in hand with social justice. Before becoming public protector, Madonsela had already enjoyed an illustrious career as a lawyer and advocate for the downtrodden. In the 1990s she had joined the Centre for Applied Legal Studies at Wits University, where she focused on labor issues and worked with women in trade unions.

After Nelson Mandela become South Africa’s first post-apartheid president in 1994, Madonsela set up her own company, working closely with the government on laws and policies regarding such issues as equality and human rights. She also had a hand in drafting the South African Constitution, which was ratified in December 1996, and other laws that strengthened the country’s democracy. (See Thuli Madonsela’s biography, World Justice Project.)

Madonsela, the first woman to hold the position of public protector, saw the job as an opportunity to expand access to justice for the ordinary person whom she calls Gogo Dlamini (“Grandmother Dlamini” in the Sotho language) — her description for the average grandmother who lacks the economic means or knowledge of how sophisticated systems work.

Sewage pipes to nowhere

That link between corruption and justice for every Gogo Dlamini became abundantly clear in one of Madonsela’s early cases dubbed “Pipes to Nowhere.” She discovered that David Shongwe, the former municipal manager of the Nala municipality in the Free State, had illegally awarded a sewerage tender to a company that failed to complete the work. This resulted in sewage spilling into homes and left local communities reliant on buckets in the absence of flush toilets. (See Ex-council manager blacklisted for fraud, by Baldwin Ndaba, IOL, July 26, 2013.)

“It sounds funny, but it is not because we went on site and found a great many children were dying from tuberculosis because they were continuing to use the bucket system,” she says.

Such corruption has far-reaching consequences, says Madonsela. When politicians award tenders (invitations to bid) to well-connected but unqualified bidders who use the money for their own pleasure, ordinary people are left to suffer. It also drains limited state resources needed to improve the lot of South Africans and for sustainable development.

“By the time you discover the problem, the money has been eaten,” says Madonsela. “It undermines social justice because if you are looking at housing, water, electricity and health — all services provided by the government — they are mostly used by the poor and less affluent. If those services cannot be developed because the money is being misused or the wrong people have been appointed, they are left on the ledge.”

These kinds of stories have been repeated over and over again in South Africa, and Madonsela investigated a whole range of cases involving low-level government corruption. But bigger cases were yet to come and would put Madonsela’s fight against corruption on the global map.

Nkandla hits the headlines

Not long after then-President Zuma started upgrading his private residence in Nkandla in August 2009 for what he said were security purposes, the South African newspaper Mail & Guardian came out with a report questioning the large sums of money being spent on the renovations. (See Zuma’s R65m Nkandla splurge, by Mandy Rossouw, Mail & Guardian, Dec. 4, 2009.)

As media reports about excessive spending on the Nkandla residence emerged over the subsequent years — amid denials of any wrongdoing by the government — the public protector’s office received a flood of complaints and questions about the project, according to Madonsela’s report, Secure in Comfort.

Where was the money coming from and who had approved the funding? Was any undue influence being placed on the Department of Public Works to allocate the funds this way? Had the funds to revamp Zuma’s residence been transferred from other much-needed projects? And why are state funds being used to upgrade a private residence that will no longer belong to the government once Zuma leaves office? The list goes on.

This resulted in an 18-month investigation into Zuma’s use of state funds to renovate his private Nkandla residence. And in early 2014, Madonsela released a 443-page report called “Secure in Comfort” on the upgrade whose costs ballooned from an initial 65 million rand to the estimated final cost of around 246 million rand. The findings caused a media firestorm. (See Can Thulisile Madonsela Save South Africa From Itself? by Alexis Okeowo, The New York Times, June 16, 2015.)

The public protector’s office concluded that several parts of the project went beyond what was required for Zuma’s security, that there was a lack of supply-chain management prescripts — including a dearth of competitive tenders for goods over 500,000 rand — and that overall expenditures were excessive and caused a misappropriation of public funds, unduly adding value to the president’s private property. (See Secure in Comfort.)

“There were issues around excessiveness, and lack of compassion, because some of the money had been taken away from an urban renewal project that was supposed to rehabilitate the inner city in Durban, plus create youth employment opportunities,” says Madonsela.

Madonsela asked Zuma to determine the cost of upgrades that didn’t pertain to security — including a pool, an amphitheater, a cattle kraal (or enclosure) and a visitor’s center — and pay a percentage back to the state. Zuma ignored the request.

Stay calm and carry on

During the Nkandla enquiry, Madonsela faced several challenges, not least the difficulity of convincing people that the constitution gave the public protector binding powers to request information from institutions such as banks and phone companies. “We didn’t bully them or subpoena them,” says Madonsela. “We just had meetings, leveraging our soft power, sitting around the table with people and showing them the law and asking to work together. In the end, it worked.”

Madonsela’s calm demeanor has at times caught perpetrators off guard and has proven to be a useful a type of soft power when she tried to extract information from state officials during the Nkandla enquiry.

“Because those conversations were very amicable, there may have been an expectation that the outcome would be amicable as well, but for us the outcome was only going to be determined by facts and the law,” says Madonsela. “As soon as we had the preliminary report (on Nkandla), they realized that things were not going in the right direction or the direction they understood it should go, and there was a whole lot of public vitriol unleashed.”

Shortly thereafter, Madonsela and her family started receiving death threats. The intelligence services also spread rumors that she was a spy, she says. This was a tactic used on Bulelani Ngcuka, the country’s first national director of public prosecutions when in the late 1990s he investigated Zuma — then the deputy president of the ANC — for corruption. (See Apartheid spy smear rebounds, by Rory Carroll, The Guardian, Jan. 21, 2004.)

Ngcuka accused Zuma of taking bribes from French defense firm Thales. The case was dropped, but the charges have since been reinstated, and the former president was expected to stand trial in May. Both Zuma and Thales deny any wrongdoing. (See Arms deal corruption trial against South African ex-President Zuma to start in May, by Reuters staff, Feb. 23, 2021.)

“Had they really been intelligent intelligence officers, I would have ended up like Bulelani Ngcuka,” says Madonsela. “They [accused] him of being a spy during apartheid, and by the time he was cleared, his career had been killed."

Madonsela stood her ground and was vindicated. In March 2016, South Africa’s highest court ruled that Zuma had violated the constitution after he refused to pay back expenses incurred by the state for upgrading non-security features at his Nkandla residence. And in September that same year, Zuma paid back more than $500,000 of the public money spent on non-security upgrades. (See South Africa’s Jacob Zuma breached constitution – court, BBC News, March 31, 2016 and Jacob Zuma pays $500,000 over Nkandla row, by Aljazeera, Sept. 12, 2016.)

State capture and the Guptas

Further allegations of corruption were about to widen the cracks appearing in Zuma’s presidency. Later in 2016, Madonsela launched her investigation into state capture revolving around the close connections between the Zuma and the Gupta families, and accusations that the three Gupta brothers — Ajay, Atul and Rajesh — had influenced cabinet appointments and benefited from official contacts to win business, including a contract to supply coal to the state-controlled electricity utility Eskom. (See Zuma launches legal bid to block release of state capture report, by Joseph Cotterill,  the Financial Times, Oct. 13, 2016.)

The Gupta brothers stood accused of plundering state coffers through bribes and illicit connections during the 2009-2018 term of Zuma, with whom they had carefully cultivated a close relationship on his rocky path to the presidency. (See The Brothers Who Bought South Africa, by Matthew Campbell and Franz Wild, Bloomberg, Nov. 9, 2017.)

A 2013 wedding for the brothers’ niece in the upscale Sun City resort in South Africa brought the Guptas’ influence into the public’s plain sight. The family used a nearby air force base to fly in Bollywood stars and guests to celebrate the event, raising questions about how and why the Guptas could do this. (See Who was on the Gupta wedding plane? by Peter Fabricius, IOL, May 1, 2013.)

It was later reported that the wedding had been partly funded through laundered money obtained from a tender the family had won to run a government-funded dairy farm near the town of Vrede to help poor black farmers. The farm had been left in disarray. (See Gupta wedding money laundering saga: KPMG responds to audit watchdog probe, by Alec Hogg, Biznews, July 2, 2017.)

The Guptas also allegedly used their influence and the improper awarding of contracts to expand their business empire in iron ore, coal, railways and uranium sectors. Accounting firm KPMG, consultancy McKinsey and German software firm SAP were all implicated in some way in the scandal. (See KPMG, McKinsey Feel the Heat Over South Africa Graft Scandal, by Mike Cohen, Arabile Nhlanhla Gumede and Paul Vecchiatto, BloombergQuint, Sept. 20, 2017.)

The importance of prevention

Tips are by far the most common way organizations discover occupational frauds, according to the ACFE’s 2020 Report to the Nations. And whistleblowing also played a vital role in uncovering the Gupta family’s and its accomplices’ wrongdoing.

Madonsela has called whistleblowers “the life and blood of our struggle against corruption, ineptitude and injustice” but says that protections for tipsters in South Africa are still inadequate. While the country’s Protected Disclosures Act of 2000 lays out a framework and some protections for whistleblowing, it falls short in other areas, she says. Brave whistleblowers such as Mosilo Mothepu and Bianca Goodson, who both blew the lid on corruption and influence peddling at the Gupta-linked company Trillian, helped Madonsela in her efforts to lay out evidence of state capture that eventually led to the downfall of Zuma.

(See sidebar: “Whetting the whistle for whistleblowers

Zuma, tarnished by corruption allegations and scandals, narrowly survived a vote of no confidence in 2017, but he was forced to resign in early 2018 after the ANC said it would back another no-confidence vote proposed by an opposition party. (See South Africa’s President Zuma: A chronology of scandal, Deutsche Welle (DW).)

At a crossroads

The ANC, the party celebrated for leading South Africa out of the oppression of the apartheid system, is now facing an internal struggle. President Cyril Ramaphosa, who replaced Zuma in 2018, has vowed to sweep the system clean of graft, but some have undermined those efforts. The party has asked members facing corruption charges to step aside until their cases were resolved, but dozens of midlevel officials have ignored such guidance. And party leaders such as Zuma and the powerful security general of the ANC, Elias Sekgobelo “Ace” Magashule, who both fought to topple the apartheid regime and still have a popular following among South Africans, are also defying the authorities. (See Top A.N.C. Official Charged With Corruption in South Africa, by Monica Mark, The New York Times, March 25, 2021.)

Zuma, who now faces charges of corruption, racketeering and money laundering, disobeyed a Constitutional Court ruling to appear before the Zondo Commission. (See South Africa’s president fights own party over corruption, by Mogomotsi Magome, AP, Feb. 19, 2021 and South African ex-President Zuma’s legal team quits ahead of corruption trial, Reuters, April 22, 2021.)

Magashule, who’s also being charged with kickbacks, fraud and other crimes (including his alleged involvement in the Vrede dairy farm case mentioned earlier), has defied ANC policy by refusing to step down from his post until investigations are resolved. (See “Top A.N.C. Official Charged With Corruption in South Africa.”)

Meeting constitutional goals

South Africans are growing increasingly frustrated by the inequities of a system that fails to meet the ideals set out by a constitution founded on democratic values, social justice and fundamental human rights. (See Thuli Madonsela: The majority of South Africans feel democracy is not working for them, by Janet Heard, Daily Maverick, April 18, 2021.)

U.S. legal scholar Cass Sunstein has called South Africa’s Constitution, which Madonsela helped draft, “the most admirable constitution in the history of the world.” The late U.S. Supreme Court Justice Ruth Bader Ginsburg was also a fan and described the document as a “deliberate attempt to have a fundamental instrument of government that embraced basic human rights.” (See Why does Ruth Bader Ginsburg like the South African constitution so much? Joshua Keating, Foreign Policy, Feb. 6, 2012.)

So, why the vast gulf between the harsh realities of South Africans’ day-to-day lives and the values set out in the constitution? Madonsela equates the situation to how a person who lacks technical skills might use an iPhone.

“I always take shoddy pictures when I do selfies,” she says. “You could argue that there is something wrong with my iPhone, but the truth is that there is nothing wrong with my iPhone. There is something wrong with the person using the iPhone. … I don’t think we have done enough to educate our politicians."

Madonsela makes the case for South Africa to require its politicians to take a short course in constitutional law and ethics when they start out and, like doctors, undergo periodic reviews. “Like a manual for a new system you need to train people,” she says. “You (also) have to put the right people in the right positions, and there has to be consequence management."

And in what is a controversial move at a time when South Africans have little tolerance for any type of fraud or corruption, Madonsela also favors some amnesty for lower-ranking officials as a way to “detoxify the system so we can properly reset.”

By doing this, Madonsela says, prosecutors are more likely to obtain firsthand evidence of wrongdoing and connect the dots in corruption cases that required a whole army of people to succeed. It would also weed out corrupt individuals who’d have otherwise remained in their positions and would likely be repeat offenders given that they’re often living beyond their means. “I am more concerned about the system itself because politicians and high-flyers come and go, but the system is supposed to uphold as it is here to stay,” she says.

Prevention is key

Indeed, the prevention of fraud and corruption — one of the key tenets of ACFE founder and Chairman Dr. Joseph T. Wells, CFE, CPA — is crucial. “In a system like ours, prevention and deterrence are absolutely important,” says Madonsela.

For Madonsela, that first means investing in ethics training and the hiring of ethical people. “Everyone thinks, ‘let’s fight corruption,’ but I found it is better to start with ethics because when ethics fail that is when corruption creeps in.”

Second, Madonsela advocates for consequence management not only as a cure but also as a preventative measure. As an example of this, she cites how Malawi’s President Lazarus Chakwera recently showed no compunction in firing his labor minister and arresting 19 officials for fraudulently using funds slated for coronavirus relief. Chakwera sacked the labor minister for spending less than $800 from a COVID fund and said that anyone connected to fraudulently using COVID money would face consequences. (See Malawi President Fires Cabinet Minister Over COVID Funds, by Lameck Masina, VOA, April 19, 2021.

“South Africa will have to do the same thing. Wrong is wrong,” says Madonsela. “When people know there are no holy cows, they are less likely to get involved in wrongdoing."

Third, the former public protector says term limits in government posts or departments might be another way to avert corrupt practices.

Finally, prevention means investigators should be clued up on the latest schemes and tricks of the trade. Madonsela recalls how her team had hit a roadblock in a probe into improper conduct on management contracts awarded to On-Point Engineering, a firm owned by Julius Malema who at the time was the ANC’s youth leader. “Everything was done by the book, but what we (really) needed to look at was the scoring,” she says.

After getting a tip from a journalist, her team discovered that the engineering firm was less than five months old, but the bid document claimed it had nine years of experience. (See Public Protector’s report on Malema-linked tender, Politicsweb, Oct. 10, 2012.)

“You have to look at the new ways people are beating the system and be trained in picking them up,” Madonsela says.

Training for fraud investigators is vital, says Madonsela, who when she first started as public protector attended training courses in England and Canada to sharpen her investigative skills, especially on the forensic side. Selby Baqwa, South Africa’s first public protector, set up that system, but many lawyers in South Africa still lack expertise in basic interrogation techniques, she says.

Madonsela saw this lack of training firsthand when she watched questions being asked during the Zondo inquiry, which is now in its third year. “You can’t ask questions for the sake of asking. It just prolongs these investigations,” she says. “You have to ask questions having done the investigation and knowing the answers. And if someone gives the wrong answer, you point to the documentary evidence.”

The Zondo commission is expected to end this year. It’s been a consistent news item in the local media and has gripped the public’s attention as over 270 witness have walked through its doors to testify about corruption and fraud at the highest levels of South African society.

“With the commission we have learned a lot,” says Madonsela. “There is a systemic disregard of rules, a systemic problem of corruption, and we need to fix and acknowledge that."

Madonsela’s Thuma Foundation, which she set up to make democracy work for all, is working on what she calls an M Plan — a Marshall Plan for social justice and equality.

“My greatest desire is to work with likeminded people to bridge the gap between the constitutional promises and reality because I do think we are sitting on a time bomb if we don’t deal with that,” she says.

Paul Kilby is editor-in-chief of Fraud Magazine. Contact him at pkilby@ACFE.com.




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