Denel is moving forward with nearly a dozen investigations into criminal matters at the company concerning dubious contracts, intellectual property theft and suspect loan extensions.
Briefing the Standing Committee on Public Accounts (SCOPA) on 24 August, Denel Acting Group CEO William Hlakoane gave an update on numerous ongoing forensic investigations.
In 2017 Denel signed a contract with Chad for 40 Casspirs but the contract was loss-making with unrealistic delivery timelines. Despite Denel being paid a R100 million deposit, Denel could not deliver on its contractual milestones. An investigation by Denel’s audit committee found that Denel’s CFO and CEO at the time “…had acted with high levels of negligence” and contravened legislation. Chad cancelled the contract with Denel and demanded its deposit be returned.
Technical advisor Philippe Solomon was apparently paid R10 million of the R100 million deposit after the contract had been signed. Law firm Bowmans is investigating Solomon and a Letter of Demand for the $720 000 he was paid has been sent out. Disciplinary action against current employees has been completed and summons are currently being prepared against former Denel employees who are implicated in this transaction, the company told SCOPA. In addition, Fundudzi Forensic Services is investigating South African company ENNE 7 over the Chad deal (R69 million).
Denel is also looking at recovering some of the funds paid by Denel to VR Laser Services following the irregular awarding of contracts to the company. Denel’s relationship with steel cutting and armoured vehicle fabrication specialists VR Laser Services, and the subsequent establishment of Denel Asia with VR Laser, is one of the most controversial and damaging to Denel.
BDO and Ngidi Business Advisory are investigating R356 million in contracts awarded to VR Laser. Even though all contracts with VR Laser were cancelled, Denel has lodged a court application to challenge the validity of the contracts. Three Denel executives named in the Ngidi report, who remain in Denel’s employ, have been suspended and will be going through disciplinary hearings as recommended by Ngidi and others, Denel told SCOPA.
In September 2012, the Denel board approved a R290 million credit facility with the City of Johannesburg. This was loaned through Gupta-linked Regiments Capital. The money was repaid by December 2018, but not before Regiments secured millions in fees. In its presentation to SCOPA, Denel said that Gobodo Forensic and Investigative Accounting is investigating Regiments Capital (R6.9 million). “No recovery recommended as Denel received benefit as funds were raised. All persons involved were no longer employed by Denel,” the company said in a presentation.
The Special Investigating Unit (SIU) is probing legal firm Khampha Attorneys over its ties to former Denel management. It is alleged that former Chairperson of the Denel Board had during 2016, and on a number of occasions afterwards, appointed Khampha Attorneys to render legal professional services to Denel without following proper procurement processes. R10 million in fees is being investigated.
The SIU also finalised a claim against information security company Telspace Systems (R6 million) after it was alleged the contract did not follow any formal procurement/competitive bidding process, and Denel was probed over this.
Other investigations are underway into governance matters, Hlakoane told SCOPA. PricewaterhouseCoopers investigated the extension of loans (R300 million inclusive of interest) by Denel to its subsidiary LMT and a report has been completed and presented to the Audit Committee.
PricewaterhouseCoopers also completed a report on the sourcing and contracting of Fireblade as Denel’s tenant including requisite permits and licenses and other related authorisations. Recommendations are being implemented.
A report by ENS Africa has been completed into the outsourcing of Denel’s fuel farm at the Kempton Park campus and the report is under review for the implementation of recommendations.
The theft of intellectual property is being investigated internally and by the SIU, with the SIU opening a criminal case. The SIU looking at missile data packs being sent to Saudi Arabia and the United Arab Emirates, amongst other issues. The scope of the investigation has been extended to include the Hoefyster contract for Badger vehicles for the SA Army.
The SIU is also probing Barij Dynamics, a joint venture between Denel Dynamics (49%) and Barij Dynamics (51%) – the latter became Halcon, part of the UAE’s Edge group of companies. Munition intellectual property was apparently unlawfully transferred to Halcon, the company that succeeded Barij. Meanwhile, an internal audit has been finalised regarding the intellectual property arrangements with Barij Dynamics – “consequence management process is underway on affected employees.”
Hlakoane said one employee has been suspended in the Barij matter and other people are being sought by the Hawks and SIU.