By 2015, Regiments had taken an estimated R300-million in fees.<\/p>\n\n\n\n
Emails and documents obtained by amaBhungane reveal for the first time publicly that Regiments agreed to pay 10% of those fees to Makhubo\u2019s company, Molelwane Consulting.<\/p>\n\n\n\n
\nClick on the evidence docket to access the information we used for our investigation.<\/span><\/strong><\/p>\n<\/blockquote>\n\n\n\n
Makhubo denies acting as an \u201cinfluence broker\u201d and says the deal was above-board. While their contract stipulated that Molelwane would provide some initial financial analysis, significantly it also required Molelwane to \u201cmaintain\u2026 strategic relationships with CoJ\u201d.<\/p>\n\n\n\n
The 2006 Regiments sinking fund contract with the city endured for almost ten years \u2013 as did Molewane\u2019s 10% cut, as far as could be established.<\/p>\n\n\n\n
At the time the 10% contract was signed Makhubo did not hold an official position in the ANC or in the city, though he was said to be an ally of Parks Tau, then the member of the mayoral committee (MMC) for finance. The Regiments contract fell under Tau\u2019s portfolio.<\/p>\n\n\n\n
But as Makhubo\u2019s political star rose, he increased his potential to open doors and smooth political roadblocks.<\/p>\n\n\n\n
In 2008, Makhubo was elected as treasurer of the ANC\u2019s Johannesburg region. Then, in 2011, after Tau became mayor, he took over as MMC for finance, placing the Regiments sinking fund contract directly within his sphere of responsibility.<\/p>\n\n\n\n
Tau admitted in a written response that he knew Makhubo was linked to Regiments when he appointed him as MMC, but maintained Makhubo had done the right thing to remove the conflict of interest.<\/p>\n\n\n\n
\u201cI was aware that Regiments and Molelwane had a business relationship. However, I was not privy to their internal business arrangements or transactions,\u201d he told us.<\/p>\n\n\n\n
Geoff Makhubo<\/em><\/figcaption><\/figure>\n\n\n\n He added: \u201cOn [Makhubo\u2019s] appointment he committed [to unwind] and begun winding down his business interests, which ensured that he was not \u2018the player\u2019 and \u2018a referee\u2019 on the said contract, or any other contracts in the City.\u201d<\/p>\n\n\n\n
But Makhubo did not \u201cunwind\u201d his interest in Molelwane.<\/p>\n\n\n\n
Records from the company registrar still list him as an active member of Molelwane.<\/p>\n\n\n\n
And despite providing eight pages of written responses, Makhubo could neither explain this nor why he continued to declare that he held a 67% stake in Molelwane in the city\u2019s public register of councillor\u2019s interests.<\/p>\n\n\n\n
\u201cOur records reflect that Mr Makhubo continued to declare his majority shareholding in Molelwane Consulting CC until 2017\/18,\u201d the city confirmed in a written response.<\/p>\n\n\n\n
Makhubo said he could not disclose how much Regiments paid Molelwane. He told us: \u201cUnfortunately I haven\u2019t had the opportunity to do a reconciliation of the actual total earnings\u2026\u201d<\/p>\n\n\n\n
But evidence shows that Molelwane continued to be paid after Makhubo was appointed as MMC. Regiments\u2019 internal budgets show, for example, that R4.9-million was earmarked for Molelwane in fiscal 2013 and another R5.5-million the following year.<\/p>\n\n\n\n
This means that as the city’s official tasked with policing one of its most lucrative and controversial contracts, Makhubo was benefitting from that same contract in exchange for \u201cmaintain[ing] \u2026 strategic relationships\u201d with the city.<\/p>\n\n\n\n
\u201cI can emphatically state that all my dealings and the operations of [Molelwane] have been ethical and in accordance with strict corporate governance\u2026. This is no different as an office bearer of the ANC and during my tenure as the MMC of Finance in the City of Johannesburg,\u201d Makhubo told us.<\/p>\n\n\n\n
On Thursday last week, the council passed a motion that would allow the city to take back control of the sinking fund before Regiments\u2019 second contract expires in September 2020.<\/p>\n\n\n\n
The city has launched a forensic investigation into both the sinking fund contracts as well as numerous other contracts the city awarded when it was under ANC control.<\/p>\n\n\n\n
Although Regiments\u2019 ongoing payments to Molelwane after Makhubo became MMC may be construed as \u201ckickbacks\u201d and potentially contravene anti-corruption legislation, we have no direct evidence that the payments started out as common-or-garden-variety bribes to secure the 2006 sinking fund contract or its renewed award to Regiments in 2015.<\/p>\n\n\n\n
Either way, the payments appear to be part of a decade-long campaign by Regiments to build a financially symbiotic relationship with different levels of ANC through lobbying, \u201cfacilitation fees\u201d, and donations of flights, merchandise, victory parties and cash. (Read more about these in our next instalment.)<\/p>\n\n\n\n
Regiments ignored all requests for comment.<\/p>\n\n\n\n
\u201cYour conclusion on the relationship between the ANC, City of Johannesburg and Regiments is unfortunate,\u201d Tau told us.<\/p>\n\n\n\n
Unfortunate, but not unjustified.<\/p>\n\n\n\n
Cashflow<\/h5>\n\n\n\n
\u201cWe are a bit low on cashflow\u2026\u201d Makhubo told Regiments\u2019 director Eric Wood via email.<\/p>\n\n\n\n
It was Monday 30 August 2010, and Makhubo was desperately looking for money to plug \u201cmonth-end commitments\u201d just two days away.<\/p>\n\n\n\n
\u201cI will appreciate if the transfer can be done today,\u201d he continued, attaching an invoice for R1.14-million for \u201cconsulting fees\u201d to be paid to Molelwane, which on the face of it specialised in accounting, tax consulting, advisory and financial services. Makhubo\u2019s mother held a one-third stake in the firm alongside his two thirds.<\/p>\n\n\n\n
Makhubo\u2019s request to Wood was not a once-off request: a second document attached to Makhubo\u2019s email showed that Molelwane had received R3.95-million from Regiments in the preceding nine months.<\/p>\n\n\n\n
At the time \u2013 August 2010 \u2013 Makhubo had not yet been appointed MMC for finance, but as treasurer of the ANC\u2019s Johannesburg region he had political influence over a key source of patronage: the City of Johannesburg metropolitan municipality.<\/p>\n\n\n\n
\u201cI will send on a separate email a letter from the ANC discussed with [Regiments\u2019 chairperson Litha Nyhonyha] on the donation of R200,000 to R250,000 that was needed urgently into the ANC account,\u201d Makhubo\u2019s email concluded.<\/p>\n\n\n\n
By 10.30 the next morning, Regiments had paid R600 000 into Molelwane\u2019s account with the promise that the rest of the R1.14-million would be paid \u201cby the end of the day or latest tomorrow\u201d.<\/p>\n\n\n\n
Makhubo\u2019s \u2018strategic relationships\u2019<\/h5>\n\n\n\n
To understand why Regiments would jump at Molelwane\u2019s request for money in 2010, one needs to go back to 2005, when the City of Johannesburg first decided to establish a sinking fund.<\/p>\n\n\n\n
When we first asked about the secretive deal between Regiments and Molelwane, Makhubo tried to downplay it, telling us in a written statement that Regiments and Molelwane had agreed to \u201cexplore business opportunities on mutual areas of interest\u201d and that Molelwane had merely agreed \u201cto provide advisory services within its areas of expertise\u201d.<\/p>\n\n\n\n
But the actual wording of the contract, signed by Makhubo for Molelwane and Nyhonyha for Regiments in January 2006, suggests otherwise.<\/p>\n\n\n\n
Under \u201cfee structure\u201d, for instance, there was only one deal on the table: Regiments\u2019 freshly inked sinking fund deal. Molelwane was promised 10% of Regiments\u2019 fixed fee, 10% of Regiments\u2019 outperformance bonus, and almost half of Regiments\u2019 R850 000 upfront \u201cstructuring fee\u201d.<\/p>\n\n\n\n
In exchange for this windfall, Molelwane effectively agreed to act as a lobbyist. Under \u201cresponsibilities\u201d, one of Molelwane\u2019s tasks was to \u201c[m]aintain on an ongoing basis all strategic relationships with COJ before, during and after completion of fund management mandate for the mutual benefit of the parties\u201d.<\/p>\n\n\n\n
Makhubo refused to identify which \u201cstrategic relationships\u201d he would be required to \u201cmaintain\u201d, but in a second written response told us: \u201cThe clauses of the contract were very clear, commercial and had no other meaning as suggested. Any suggestion \u2026 of impropriety or corruption in the relationship between Molelwane and Regiments is without basis.\u201d<\/p>\n\n\n\n
Pushed to explain what Molelwane did to justify the estimated R30-million in fees it received, Makhubo told us in a third response: \u201cPart of Molelwane Consulting\u2019s responsibilities was to analyse and understand the City\u2019s capital expenditure requirements, capital raising needs, appetite for different funding mix and a broad funding direction\u2026<\/p>\n\n\n\n
\u201cThere are no merits to suggest that a risk based remuneration agreement would be solely based in \u2018exchange for maintaining strategic relations\u2019. That\u2019s a very narrow and simplistic way of looking at it\u2026 [I]t naturally becomes the responsibility of all parties to the agreement, without exception, to build and maintain relations with the client. There\u2019s absolutely nothing peculiar with that.\u201d<\/p>\n\n\n\n
What is peculiar is that, despite Molelwane taking very large fees, both the city and Umbono Fund Managers, which partnered Regiments on the contract, told us they had no record of Molelwane\u2019s involvement.<\/p>\n\n\n\n
The evidence shows that Regiments was buying something more than vague financial analysis that it could do itself. By late 2010, with Makhubo installed as ANC treasurer, it was clear what Regiments believed it had bought.<\/p>\n\n\n\n
Makhubo\u2019s cheat sheet<\/h5>\n\n\n\n
\u201cAs discussed I have attached the one pager that we gave to Geoff,\u201d Wood told Nyhonyha, his chair at Regiments, in a 19 November 2010 email with the subject line \u201cCoJ cheat sheet\u201d.<\/p>\n\n\n\n
In case there was any doubt about which \u201cGeoff\u201d he was referring to, the attachment was saved as \u201cGeoff Makhubo Briefing.docx\u201d and it contained an extraordinary shopping list of what Regiments seemingly expected Makhubo \u2013 now a member of the Johannesburg ANC\u2019s executive \u2013 to deliver.<\/p>\n\n\n\n
There was a R1-billion loan that Regiments was trying to sell to the city: \u201cStalled because Parks [Tau] made some negative comment re the pricing \u2026 Direction needs to be provided to Treasury to proceed with this loan,\u201d Wood directed. Treasury is the department that falls under the finance MMC, which Tau was at the time.<\/p>\n\n\n\n
There was also an interest rate hedge that Regiments stood to profit from: \u201cTreasury has approved the transaction in principle, needs mandate from Mayoral Committee\u201d. And a Johannesburg Property Company tender: \u201cNeeds to be adjudicated and appointment needs to be made\u201d.<\/p>\n\n\n\n
And R27-million in Regiments fees that the treasury was sitting on: \u201cThe withholding of these funds is unlawful and needs to be released forthwith,\u201d Wood ordered.<\/p>\n\n\n\n
But Wood\u2019s most telling instruction related to the renewal of Regiments\u2019 sinking fund contract, which was due to expire in January 2011 and was back up for tender.<\/p>\n\n\n\n
\u201cNeeds to be adjudicated and appointment needs to be made. The issue around splitting the mandate between two [fund] managers needs to be killed,\u201d the cheat sheet read.<\/p>\n\n\n\n
How, we asked Makhubo, was Regiments so confident of winning the tender that it wanted to \u201ckill\u201d any suggestion that the contract be split between two fund managers?<\/p>\n\n\n\n
His response to this and other questions about the cheat sheet was evasive: \u201cI have never been involved in procurement processes therefore I wouldn\u2019t know how a bidding party would derive a sense or feeling of surety.\u201d<\/p>\n\n\n\n
When pushed he told us: \u201cI have no recollection of the so-called \u2018cheat sheet\u2019 and the issues raised have nothing to do with neither Molelwane nor our agreement with Regiments Capital.\u201d<\/p>\n\n\n\n
No influence?<\/h5>\n\n\n\n
By law, there is meant to be a Chinese wall between political office bearers and the procurement departments of the municipalities they control. Even Tau, as the then-MMC for finance, could not legally interfere with the city\u2019s tender processes.<\/p>\n\n\n\n
Yet over the next year, Regiments received almost everything on its wish-list: In January 2011, the city agreed to release R18.4-million of Regiments\u2019 fees; in March, Regiments facilitated a smaller R250-million loan for the City and received R1.25-million as a raising fee; and in December, Regiments was one of two bidders awarded Johannesburg Property Company tender.<\/p>\n\n\n\n
The only hiccup was the tender for the new sinking fund contract.<\/p>\n\n\n\n
Under Regiments the fund had performed well, but a review conducted by KPMG in 2010 criticised Regiments\u2019 fees for being excessive.<\/p>\n\n\n\n
When the bids for the new tender to replace Regiments\u2019 first contract were adjudicated, \u201cRegiments Fund Managers \u2026 was not a preferred bidder and had in fact been disqualified\u201d, Isaac Mogashoa, the city\u2019s group head: legal and contracts, told us.<\/p>\n\n\n\n
But just as the goose laying the golden eggs appeared to be running out of luck, Tau discovered a fundamental flaw with the tender process.<\/p>\n\n\n\n
Finding gaps in the Chinese wall<\/h5>\n\n\n\n
\u201cThe MMC Finance’s view \u2026 is that the evaluation process must include social investments to uplift the communities around the City,\u201d Khomotso Letsatsi, the head of treasury, told colleagues in an April 2011 memo.<\/p>\n\n\n\n
The award of the new sinking fund contract was already months overdue, but according to Letsatsi\u2019s memo, Tau halted the tender on the grounds that it did not include a programme to address transformation in the city\u2019s procurement practices.<\/p>\n\n\n\n
Tau denies he intervened to protect Regiments\u2019 interests: \u201cThe articulated principles of transformation requirements in the memos applied to every tender in the city and not just the Sinking Fund tender.\u201d<\/p>\n\n\n\n
Instead he pointed us to a letter, written by Gauteng\u2019s then-MEC for co-operative governance, Humphrey Mmemezi, in March 2011.<\/p>\n\n\n\n
\u201cThe primary reason for the cancellation of the sinking fund tender was as a result of an issued instruction by [Mmemezi] at the time to defer all local government tenders until after the 2011 elections,\u201d Tau explained.<\/p>\n\n\n\n
Although Mmemezi had already walked back on his instruction in a follow-up letter in April 2011, emphasising that municipalities should continue with their normal business, the second sinking fund tender was put on hold.<\/p>\n\n\n\n
It would take a year for the city to re-issue the tender. In the interim, Regiments\u2019 original contract was extended and kept running, and seemingly so did Molelwane\u2019s fees.<\/p>\n\n\n\n
So did Regiments just get lucky? Or was it a case of the more they invested, the luckier they got?<\/p>\n\n\n\n
Tau, Makhubo, their wives and Regiments<\/h5>\n\n\n\n
By 2011, the evidence suggests Regiments had already \u201cinvested\u201d quite heavily in and around both Tau and Makhubo \u2013 quite apart from Molelwane\u2019s 10%.<\/p>\n\n\n\n
In 2007, Regiments jointly-led a BEE consortium that bought a stake in Capitec, then an upstart in the banking industry.<\/p>\n\n\n\n
The Coral Lagoon consortium was stacked with ANC funders and those with links to the party, but the deal also included a small but lucrative stake for Tau\u2019s wife, Philisiwe Twala-Tau.<\/p>\n\n\n\n
At the time, her shares were worth R3-million but today, those shares are worth roughly R50-million.<\/p>\n\n\n\n
An identical stake was also allocated to Makhubo\u2019s wife, Dikeledi Majola.<\/p>\n\n\n\n
Regiments has previously maintained that it did not hand-pick consortium members.<\/p>\n\n\n\n
However, a year later it happened again. In September 2008, Regiments put together a BEE consortium to acquire a 4.24% stake in JSE-listed Vox Telecom.<\/p>\n\n\n\n
Regiments\u2019 own documents show that under several layers of the corporate onion was a small group of \u201cstrategic partners\u201d who would each receive shares worth just over R1-million.<\/p>\n\n\n\n
Included in the group was Makhubo, who had been elected treasurer of the ANC\u2019s Greater Johannesburg region just one month before at a conference partly funded by another R250 000 donation from Regiments.<\/p>\n\n\n\n
Emails show that Tau was also listed as one of the \u201cstrategic partners\u201d but withdrew from the consortium at the last minute.<\/p>\n\n\n\n
Unlike the Capitec deal, the Vox deal quickly unraveled. On the day it was signed the share price collapsed. The \u201cstrategic partners\u201d walked away unscathed.<\/p>\n\n\n\n
What conflict?<\/h5>\n\n\n\n
By 24 May 2011, the local government election results were in. The ANC had kept its majority in the City of Johannesburg and appointed Tau as the new mayor.<\/p>\n\n\n\n
With Tau moving up, Makhubo was tapped to take his place as MMC for finance.<\/p>\n\n\n\n
Makhubo denies the Molelwane contract made him conflicted.<\/p>\n\n\n\n
\u201cThere was never a conflict of interest as the term of Molelwane agreement with Regiments on the first Sinking Fund would have lapsed in January 2011 the year I took public office,\u201d he said.<\/p>\n\n\n\n
\u201cI \u2026 made a commitment to the Mayor of the day and the ANC when I was appointed MMC that I will unwind my interests and resign all my directorships. All this was done in November 2011\u2026 to deal with real or potential conflict of interest.\u201d<\/p>\n\n\n\n
But it is only half true that Molelwane\u2019s contract \u201cwould have lapsed in January 2011\u201d.<\/p>\n\n\n\n
When the second tender was cancelled, Regiments\u2019 original contract kept running, and running. In fact, the city confirmed that Regiments\u2019 first contract was ultimately extended until September 2015.<\/p>\n\n\n\n
Records show that the payments to Molelwane only increased in this period. For example, Regiments\u2019 budget for the year ending 28 Februarty 2014, predicted that Molelwane would net R5.2-million for the year. Yet, a Regiments actual income statement shows that by September 2013, with another five months to go, Molelwane had already received R6.9-million.<\/p>\n\n\n\n
Over the past month, we repeatedly asked Makhubo to confirm when Molelwane stopped receiving payments from Regiments. Each time he dodged the question.<\/p>\n\n\n\n
Makhubo also did not offer any explanation for why his \u201cresignation\u201d was never officially registered or why he continued to declare his stake in Molelwane for the seven years after he supposedly resigned.<\/p>\n\n\n\n
Last week, ANC spokesperson Jolidee Matongo sent us a resolution signed by Makhubo purporting to show that he resigned from Molelwane in November 2011.<\/p>\n\n\n\n
But the records are ambiguous. The resolution had Makhubo resigning as a \u201cdirector\u201d \u2013 not shareholder \u2013 meaning that he would have remained entitled to his two thirds of Molelwane’s profits. But complicating matters further, Molelwane was a close corporation, a form of company which does not have \u201cdirectors\u201d, only members.<\/p>\n\n\n\n
Despite our request for clarity, Makhubo refused to own a version. Instead, in a final written response told us: \u201cI would like to reiterate that I have replied to the questions and provided requisite clarity.\u201d<\/p>\n\n\n\n
Even if we were to accept Makhubo\u2019s claim that he resigned, this would have left his 64-year-old mother as the sole beneficiary of the company and Regiments\u2019 largesse.<\/p>\n\n\n\n
New tenders, new questions<\/h5>\n\n\n\n
In April 2012, the city issued a new tender for the sinking fund contract. This time Regiments not only made the shortlist, it was the only company to do so.<\/p>\n\n\n\n
The 12 bidders included four major banks \u2013 Standard Bank, Nedbank, Investec and Rand Merchant Bank \u2013 as well as several large asset managers \u2013 Momentum, Sanlam, Stanlib and Old Mutual. Most were eliminated on technicalities and those that made it through were marked down for lacking a track record in managing sinking funds.<\/p>\n\n\n\n
Only Regiments \u2013 whose fees were the highest out of eight bids analysed in the bid evaluation committee\u2019s report \u2013 was left standing.<\/p>\n\n\n\n
In August 2012, rival bidder Colourfields approached the Johannesburg High Court to try to stop the city from awarding the second sinking fund contract to Regiments.<\/p>\n\n\n\n
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