Former Transnet executive to pay back secret profits of R26.4m

On Tuesday (August 31) Judge Lebogang Modiba of the Special Tribunal handed down judgment against the former Transnet group executive for capital projects, Herbert Msagala, finding that while he was in the employ of Transnet he had derived unlawful secret profits of R26.4 million from IGS Consulting Engineering Services and its sole member, Sipho Sithole.

The Special Tribunal was established in terms of the Special Investigating Unit and Tribunals Act in 2019 to recover public funds syphoned from the fiscus through corruption, fraud and illicit money flows. 

The Msagala matter was placed before the Special Tribunal in July 2020 after the Special Investigations Unit (SIU) investigated a series of contracts that had been awarded to IGS under Transnet’s New Multi Product Pipeline (NMPP).

The project involved the construction of a 715km multi-product pipeline for the high pressure transportation of liquid petroleum products from Durban to Heidelberg  in Gauteng. Sithole was the only member of IGS.

‘Flamboyant lifestyle’

The NMPP was first investigated by Nexus, at the behest of Transnet, and the Nexus report dated October 13, 2017, found that Msagala was “living a flamboyant lifestyle and owned several properties”.

Read: Transnet investigating suppliers for kickback payments – CEO (Oct 2017)

Nexus lacked the statutory powers to subpoena bank records.

The SIU conducted a lifestyle audit on Mgasala and found that he was living excessively beyond his remuneration at Transnet.

The SIU completed its investigation in May 2020. It found that between January 2015 and December 2016, Msagala, directly and through his Msagala Investment Trusts, received various cash payments amounting to R18.4 million from IGS and Sithole. This was amended to R26.4 million in the trial (see below), on the basis of further evidence gathered by the SIU.

Msagala was dismissed by Transnet following a disciplinary process in May 2020.

In November 2020 the SIU was granted an order to freeze Msagala’s assets and interdict Transnet from paying out his pension benefits, pending the institution of civil recovery proceedings against Msagala.

Msagala, who had established the Msagala Investment Trust, the Msagala Family Trust, and the Msagala Residence Trust, maintained that he had accumulated profits from his several business activities. However he never produced evidence to justify this claim.

Five-day trial

The SIU and Transnet (the plaintiffs) instituted this action in August 2020, seeking to hold the relevant defendants – Herbert Msagala, Roberto Velosa, Loretta Msagala, Bonolo Msagala, IGS and Sithole – personally liable for the loss Transnet suffered as a result of Msagala’s alleged nefarious relationship with IGS and Sithole.

A five-day trial was conducted in May 2021. Msagala’s application to postpone the trial was not granted, and he elected not to participate. His wife Loretta and daughter Bonolo also did not participate. The trial proceeded in their absence.

The plaintiffs alleged that IGS was paid in excess of R160 million for the services rendered under the project, and during that time IGS and Sithole made substantial payments to Msagala or to his trust. 

Damning evidence

The SIU had carried out extensive investigations which resulted in damning evidence:

• The SIU forensic investigators had traced the cash deposits made into the Msagala Investment Trust to the cash cheques that had been drawn against the IGS bank account. In most instances the reverse of the cheque had been signed by Msagala and contained his details including his cellphone number. There were instances where Msagala’s VIP protectors had cashed the cheques on his behalf, also reflecting Msagala’s details on the reverse side, and had deposited these amounts into the Msagala Investment Trust. The SIU thus established beyond any reasonable doubt that the deposits made into the Msagala Investment Trust account came from the IGS cash cheques.

• Msagala had transferred moneys from the trust account to purchase various properties, all itemised by the SIU.

• Evidence was led from crucial witnesses, including Msagala’s VIP protectors, the SIU forensic investigators, employees at Steyn City Real Estate which had sold properties to Msagala, as well as the conveyancing attorney.

• The SIU chief forensic investigator, Vervandhan Govender, was able to establish that “between November 2015 and September 2016, on each occasion, shortly after IGS cash cheques were presented for payment at Standard Bank Sandton City, cash was deposited into the Msagala Investment Trust Account”. In other words, “whenever Transnet made payments to IGS, IGS made payments to Msagala”.

• The evidence presented by the SIU demonstrated that it was improbable that Msagala had earned this money from his other businesses. Msagala had not presented books of account for his businesses.

• The fact that on April 22, 2016, R2 million was deposited in the Msagala Investment Trust Account in 10 000 R200 notes, “renders his version that he earned the funds from his businesses, improbable”.

• More than 20 of the IGS cheques were cashed at the Standard Bank Sandton City branch, even though IGS’s mother branch is in Polokwane. The Msagala Investment Trust Account mother branch is the Standard Bank Sandton City branch.

• When Msagala made ATM transfers or IGS channelled money to Msagala for his personal benefit, the payment was broken down into smaller transfers “to avoid scrutiny for purposes of banking and Financial Intelligence Centre controls”.

Assets purchased during the period under review

Msagala acquired 36 cars which were registered to the Msagala Family Trust.

Msagala purchased the following properties amounting to R15.2 million:

• Bedworth Park, acquired on September 16 2015 for R1.46 million

• Dainfern, Steyn City, acquired on September 8 2015 for R7 million

• A Rondheuwel property, acquired on March 23 2016 for R4.56 million

• A Harrismith property purchased on November 16 2015 for R840 000, and

• A Phuthaditjaba property acquired on October 8 2015 for R200 000.

Two of the properties were registered in Bonolo’s name, and the court found that it is “highly probable that Msagala paid for this transaction”, and that it is probable that she was not aware of Msagala’s “nefarious activities” and the source of his funds. No order was made against Bonolo.

All the properties were forfeited to the state.

Findings

Very briefly, the tribunal found as follows:

• Msagala did in fact receive secret profits amounting to R26 423 028.77 from IGS and Sithole, and had made no disclosures to Transnet.

• “IGS, Sithole and Msagala acted in concert, in an unlawful conspiracy, to benefit Msagala, his family Trusts and his relatives, to the prejudice of Transnet.”

• IGS and Sithole are jointly and severally liable, with Herbert Msagala and Roberto Velosa, to Transnet, for the amount representing secret profits received by Msagala from IGS and Sithole.

• The monies recovered in terms of the forfeiture order as well as Msagala’s pension fund preserved in terms of an order granted by Judge Billy Mothle are to be offset against Msagala’s liability to Transnet.

• A punitive cost order was awarded against the defendants, with the exception of Loretta and Bonolo.

• The plaintiffs’ costs shall be paid by the relevant defendants “jointly and severally, the one paying, the other to be absolved, on the attorney and client scale”.

Msagala’s “egregious dishonesty” and his, IGS’s and Sithole’s “dishonest and unlawful conduct” warranted the punitive cost order against the relevant defendants.

Read: Transnet still suffers from state capture’s harmful impact