The Zondo Commission of Inquiry entered 2021 by turning its focus on irregularities and allegations of state capture onto Alexkor, the state-owned diamond miner.
Alexkor owns the marine diamond mining rights stretching from Alexander Bay to Port Nolloth in the Richtersveld, while the Richtersveld Mining Company (RMC), a community mining company, owns the land diamond mining rights.
A successful restitution claim by the Richtersveld community resulted in the formation of a Pooling and Sharing Joint Venture (PSJV), whereby Alexkor has a 51% stake and RMC 49%. The PSJV enters into contracts for marine mining contracts on behalf of Alexkor, and land mining contracts on behalf of RMC.
Accessing the spoils of the Richtersveld diamond mining activities is an obvious target for state capture, as well as the corrupt.
A whistleblower approached the commission alleging the capture of Alexkor, including that:
- A Gupta-linked company had been appointed to market the sale of the rough diamonds. This entity had been irregularly appointed as the sole marketing agency for the sale of diamonds and had extensive powers, including absolute control over the value placed on the rough diamonds.
- Alexkor was going to be redirected from its main mandate of the mining of diamonds to the mining of coal in Gupta-linked coal mines. The intention to supply coal to Eskom to reduce its coal supply risk was first reported in the Alexkor 2013 annual report, when Malusi Gigaba was minister of the Department of Public Enterprises (DPE). As there are no coal deposits in the Alexander Bay area, it was intended that Alexkor would mine coal in Mpumalanga.
- Other irregularities were taking place at Alexkor.
Evidence leader Carol Sibiya informed the commission chair, Deputy Chief Justice Raymond Judge Zondo, that the commission had carried out its own investigation following the whistleblower’s report, and obtained evidence that supported the allegations made by the whistleblower.
Forensic investigation commissioned by the DPE
The DPE commissioned Gobodo Forensic and Investigative Accounting to conduct a forensic investigation into the various irregularities at Alexkor and the PSJV. The forensic report covers the years 2014 to 2019.
Giving evidence on behalf of Gobodo was one of its former executive directors, Albert Torres.
Gobodo’s mandate was to investigate:
- The legality of the decisions taken by the PSJV in the exclusion of the marine miners.
- The cause of the soured relationship between the PSJV and the marine mining contractors.
- The appointment of the sole diamond marketing and sales company, Scarlett Sky Investments.
- The evaluation of diamonds, from mining to the marketing and sale.
- The prices of diamonds realised.
- To establish whether the board and the executives exercised due process in a fair and objective manner in the management of the PSJV.
The diamond marketing and sales company
The PSJV advertised a tender for a rough diamond marketing and sales company in 2014, and seven bids were submitted.
Gamiro Advisory Services was appointed to evaluate the bids.
Torres remarked that Alexkor had the in-house skills to evaluate the seven tenders, and it was not necessary to appoint an external service provider to do this. Torres said that it raised the question, “why specifically this service provider, and why were they asked to shortlist?”.
The tender was awarded to a shelf company, Scarlett Sky Investments 60 (SSI), which didn’t have a diamond licence, a minimum requirement.
A three-year agreement entered into between SSI and the PSJV on March 4, 2015, stipulates the pricing model, that auction sales must be conducted, and how the diamonds should be sold:
- 10% to the State Diamond Trader;
- 5% to Daniel Nathan Trading cc; and
- 85% by Scarlett Sky Investments by way of auction.
In 2016 SSI was awarded the tender for a further five years, and another agreement was entered into.
The company’s name was changed to Alexander Bay Diamonds in 2018.
SSI did not have a diamond licence
Gamiro allocated zero points to SSI in regard to the lack of a diamond licence, but this was ignored by the tender committee, which overlooked the lack of a diamond licence in awarding the tender.
When asked by Zondo if Gobodo had confronted the tender committee to ask why they had ignored the absence of the diamond licence, Torres replied that the tender committee was made up of previous Alexkor board members and it was not possible to contact them.
Zondo remarked that there is a tendency of investigators to not try to get hold of people who are no longer employed.
Zondo told Torres that he should have contacted the tender board and warned that if they did not respond he would make an adverse finding against them.
“It is a pity that you didn’t do that.”
Zondo remarked that if full points were awarded for a licence, but there wasn’t a licence, this is fraudulent. SSI should have been excluded from the process.
According to Torres the tender committee awarded the tender on the basis that PSJV CEO Mervyn Carstens would conduct a due diligence. However, Carstens did not – and misrepresented to the board that he had. But Torres had not managed to get an answer out of Carstens, and relied on the secretary of the PSJV to say that there was not a due diligence.
Zondo said he hoped that the commission’s investigators had closed the gaps in the Gobodo report.
Torres also said the bid committee allowed SSI to amend its bid to change its purchasing method from an outright purchasing method to an auction sale purchasing method. This is also not allowed.
Gobodo found the procurement process to be irregular and constituted an unfair, unequitable and uncompetitive practice, and that the bid evaluation process was manipulated to favour SSI.
Forensic investigation found wanting
On a number of occasions Zondo found the work of Gobodo to be unsatisfactory.
If it could not obtain documents, it did not follow up. It did not ask why certain processes were or were not carried out. Zondo remarked that the forensic investigators did not say “this was your job, why did you not do your job?”.
It also did not follow up in trying to question witnesses, nor did it record meetings when it did.
Zondo said: “Obviously you must probe further, to find out … were they part of an agenda?
“It dilutes the significance of your report if you do not ask questions that should have been asked.”