Middlemen who facilitated the transfer of municipal funds into the doomed VBS Mutual Bank were paid hefty commissions for their work.
Those who earned handsome commissions for enticing cash-strapped Limpopo municipalities to invest huge chunks of their budgets with VBS – which is now under curatorship – included top politicians in the province, ANC sources said.
The Reserve Bank said yesterday: “From the preliminary findings of the curator’s assessment it appears that VBS paid middlemen to entice municipalities and unions to place their money in VBS. These middlemen were remunerated on a commission basis.”
It did not elaborate, saying a forensic investigator had been appointed to dig deeper.
Municipal officials who signed for the investments could find themselves in hot water, with members of the Limpopo legislature pushing for criminal charges to be brought.
On Wednesday, all the mayors, municipal managers and chief financial officers of municipalities that invested in VBS were hauled before the provincial legislature’s co-operative governance and traditional affairs committee to explain themselves.
Dan Sebabi, a senior member of the legislature, led the charge as municipal officials described one after the other how they took money that should have been used for service delivery and handed it to VBS. The curator appointed by the Reserve Bank to probe VBS has found that R900-million of that money has disappeared.
“We are dealing with an organised criminal syndicate, a group of criminals who will take service delivery money and invest it in a hole that is bottomless,” an angry Sebabi said.
“We want that money back into their accounts. Tell us how we are going to get that money.”
He said when communities found out that their underperforming municipalities had handed money to VBS, it would lead to widespread anger.
“You are plunging Limpopo into a ball of fire. You tell our people you invest money when they don’t have water, when they don’t have roads.
“What do you expect our people to say? How do you expect them to respond?” he asked.
Snowy Kennedy, the chairwoman of the legislature’s standing committee on public accounts, told the mayors and municipal officials that they had failed the people of Limpopo and should be held to account.
It also emerged during the hearings that most of the municipal officials who signed off on the investments had bypassed their own councils and not sought permission before committing millions of rands to VBS.
Eddie Makamo, the acting municipal manager of Collins Chabane municipality in Malamulele, told the committee additional approval had not been needed in terms of the investment policy of the municipality, which had been approved by its council.
“From this policy it’s obvious that the responsibility to make investments is delegated to the administration, the municipal manager and those that he or she delegates responsibility to,” Makamo said.
Asked why the municipality ignored National Treasury directives barring municipalities from investing in mutual banks, he said he only became aware of these directives after the money had been committed. “We made an assumption which we later realised we did not test correctly,” he said.
“We thought the banks operating are registered under the same act. Our impression was that VBS is registered under the same act, which turned out later not to be the case.”
Tinyiko Muchavi, the chief financial officer of the Vhembe municipality, Musina, who signed off on the investment, also argued that the authority to do so had been delegated to his office.
“We did not see a reason to inform the mayor or council. This was an administrative decision,” he said.
The Limpopo provincial treasury is also instituting a forensic investigation into the VBS saga.
Ten Limpopo municipalities initially invested a combined R1.5-billion in VBS. Three municipalities have since been repaid but the other seven – Fetakgomo-Greater Tubatse, Lepelle-Nkumpi, Collins Chabane, Vhembe District, Makhado, Greater Giyani and Ephraim Mogale – still have a combined balance of just over R1.1-billion held by VBS.
A report compiled by the National Treasury shows that the municipalities were promised suspiciously high returns over a very short period if they put money into VBS.
For example, the Fetakgomo-Greater Tubatse local municipality in Sekhukhune initially invested R30-million with VBS in February last year and was told the money would earn 8% interest over a four-month term, earning the municipality an extra R2.4-million.
The following month it placed another R40-million with VBS, this time with the promise that the money would earn R3.5-million in interest in three months.
The municipality pumped in another R100-million on July 12 last year and in November paid in two separate deposits of R30-million each for a total of R230-million.
This was supposed to earn the municipality R10.6-million in interest, but now it cannot access the money and if the Reserve Bank does not come to its rescue at the conclusion of the curatorship, the money might be lost forever.