No trace of VBS 'donation' in FState FDC's books

It is unclear why the development corporation would have received funding from the bank

No trace of VBS 'donation' in Free State Development Corporation's books

11 October 2018

The Free State Development Corporation (FDC) was paid a handsome gratuity of more than R104m by VBS Bank, according to a forensic report compiled by advocate Terry Motau SC and Werksmans Attorneys.

However, there is no trace of the VBS millions in FDC financial statements between 2014 to date, and the FDC's chief executive denied being aware of the money.

The sole indication of a link between the FDC and its R104m donor is a single entry in its latest financial statements, stating that little more than R10m of the FDC’s money was inaccessible due to the curatorship imposed on the bank.

'Why would we have received so much money from them?'

The FDC is an economic development agency incorporated in terms of the Free State Development Corporation Act, 1995. The entity’s objectives are the promotion of small, medium and micro enterprises in the province.

It is unclear why the FDC would receive funding from the likes of the North West-based VBS, especially if the FDC seems to be unaware of the funding in the first place.

On Thursday morning, investigative journalist Pieter-Louis Myburgh tweeted that FDC chief executive Ihkraam Osman was unaware of the FDC receiving the payments.

"Waiting for their forensic report. Why would we have received so much money from them? Don't know," he reportedly said.

Even if the Free State-based funding agency wanted to raise capital with the North West-based VBS, it would need the go-ahead from the Provincial Treasury to do so. The FDSC Act clearly prescribes when, and how, the MECs for Finance and Economic Development, Elzabe Rockman and Limakatso Mahasa respectively, had to get involved.

This raises more questions regarding the FDC’s implication in the VBS report, as well as the eventual destination of the money.

News24 has requested comment from Osman, but had not yet received his response at the time of publication.

VBS: Wholescale theft

On Wednesday, Motau released a damning report on widespread looting at the Venda Building Society (VBS) Mutual Bank. His report detailed how nearly R2bn had been siphoned off, in what the report calls "gratuitous payments".

The free-for-all was only halted in March this year after VBS was hit by a liquidity crisis, prompting the South African Reserve Bank (SARB) and the newly formed Prudential Authority to place the entity under curatorship. At the time, it was believed the liquidity was caused by the bank’s acceptance of deposits from municipalities, a practice specifically prohibited by the Municipal Financial Management Act. The bank was also thought to have used short-term deposits to fund long-term loans, meaning the cash would still be tied up by the time the creditors came knocking.

As it turned out, the bank had a bigger problem: the money was missing.

"A lack of liquidity would imply merely that there was a mismatch between short-term deposits and long term lendings by VBS. This of course was not the actual reason for the 'illiquidity' experienced by VBS. That 'illiquidity' was the result of whole scale theft of the bank’s funds," the report states.

The other beneficiaries of the scheme include Vele Investments, a majority shareholder of the bank, vhaVenda King Toni Mphephu Ramabulana and Brian Shivambu, the brother of EFF deputy president Floyd Shivambu.