Joint Submission to the Peoples Tribunal – Paul Holden and Andrew Feinstein final

250 Pages·2017·1.68 MB·English

Joint Submission of

Paul Holden

and

Andrew Feinstein

to

The People’s Tribunal on Economic Crime

November 2017
1

Table of Contents

List of Annexures.......................................................................................................................2

List of Figures............................................................................................................................9

Introduction..............................................................................................................................11

The Seriti Commission of Inquiry and the Implications for Methodology.........................11

A Further Note on Methodology..........................................................................................13

Structure of the Submission.................................................................................................14

Chapter 1: The Irrationality of the Arms Deal.........................................................................16

Introduction..........................................................................................................................17

1.
  Apartheid Era Military Spending and the Regional Military Balance..........................19

2.
  The Political Context: Popular Resistance to Large-Scale Defence Acquisitions........22

3.
  South Africa’s Post Apartheid Military Posture and Threat Assessment.....................28

4.
  The Economic Context and the Potential Economic Cost of the Arms Deal...............31

5.
  The 1998 Defence Review and the Failure of Cabinet to Seek Necessary Parliamentary
Approval for the Arms Deal................................................................................................36

6.
  Lobbying Efforts and the Development of Networks of Enrichment Linked to the
Arms Deal, 1994 to 1999.....................................................................................................38

7.
  Payment of Commissions and Inducements in the Earliest Stages of the Arms
Procurement Process and the Implications for the Probity of the Initiation of the Arms Deal
45

Chapter 2: Irregularities in the Selection Process and Allegations of Corruption...................50

Introduction..........................................................................................................................62

1.1 Irregularities in the selection of the Hawk and Gripen aircraft.....................................64

1.2 The LIFT/ALFA Contracts and the Taint of Corruption...............................................77

2.1 Irregularities in the Selection of the Preferred Bidder in the Corvette Contract.........100

2.2 Irregularities in the Selection of Subcontractors for the Corvette Combat Suite........110

2.3 The Corvette Contract and the Taint of Corruption.....................................................118

3.1 Irregularities in the Selection Process for the Submarine Contract.............................138

3.2 Submarines: the Taint of Corruption...........................................................................148

4. The Selection of the Preferred Contractor in the Light Utility Helicopter Contract and
the Taint of Corruption......................................................................................................160

5.1 Irregularities in the Selection of Turbomeca in the Light Utility Helicopter Contract165

5.2 Irregularities in the Selection of RENK in the Corvette Contract...............................172

6. The Arms Deal and ANC Party Funding.......................................................................177

7. Total Value of Suspicious Direct Payments and Undue Benefits..................................187

8.
  ANC Efforts to Conceal Corruption...........................................................................190

8.
  The Testimony and Statements of Ajay Sooklal and the Implications for Investigations
Into the Arms Deal.............................................................................................................208

9.
  The Constitutionality of the Arms Deal......................................................................211

Chapter 3: The Cost of the Arms Deal...................................................................................217

3.1 Introduction..................................................................................................................218

3.2 The Opportunity Cost of the Arms Deal......................................................................219

3.3 Evaluating the Economic Benefits of the Civilian Offsets Program...........................227

3.4 The Cost of Corruption in the Arms Deal....................................................................247
2

List of Annexures

Annex A

‘Affordability of the Defence Strategic Armaments Packages: An Assessment of Their
Economic, Fiscal and Financial Impacts’, Confidential Report to the Ministers Committee,
August 1999’ including Original Appendices.

Annex B

‘Strategic Defence Packages: Draft Report of the Auditor-General’

Annex C

Testimony of Johan Van Der Walt in The High Court of South Africa (Durban and Coastal
Local Division) in the Matter of the State vs. Schabir Shaik (et al.), Case Number CC27/04,
22 October 2004

Annex D

Testimony of Pierre Moynot in The High Court of South Africa (Durban and Coastal Local
Division) in the Matter of the State vs. Schabir Shaik (et al.), Case Number CC27/04, 11
March 2005

Annex E

Interview with AN Howell, 23 July 2001, K.56.0001, Investigating Directorate of Economic
Offences (Ondersoek na die Geval van: SANDF)

Annex F

‘Chapter 10: Cost to the State and Fiscal Implications of the SDPs’, Strategic Defence
Packages: Draft Report of the Auditor-General, handwritten date of 22 October 2001, pp. 12–
14.

Annex G

‘Draft Executive Summary to the Auditor-General: Strategic Defence Packages’, Annex G

Annex H

2008 Estimates of National Expenditure, Vote 19: Defence’, p 379

Annex I

World Trade Organisation Agreement on Government Procurement, Article XVI

Annex J
3

‘Search Warrant: Section 29(5) of the National Prosecuting Authority Act, No. 32 of 1998,
Residence and/or Office Premises of Fana Hlongwane’, November 2008

Annex K

‘The National Industrial Participation Programme: South Africa, Into the Future’, undated

Annex L

Consolidated Summary of NIPP Obligations and Projects, 2012

Annex M

Ferrostaal: Final Report, Compliance Investigation, Debevoise & Plimpton LLP, 13 April
2011

Annex N

‘Gripen News: Success Story: South Africa’ (Special Edition), September 2006, available for
download from www.gripen.com.

Annex O

‘Report on the Disposal Process Adopted by the Curators and Particulars of the Actual
Transactions Concluded Pursuant Thereto and Certain Litigation Conducted in Relation to
the Fidentia Group’, 10 March 2009

Annex P

Ruling of the ASA Directorate, HIV/TAC/17071,
http://www.asasa.org.za/ResultDetail.aspx?Ruling=5595

Annex Q

Not included

Annex R

“National Industrial Participation (NIP), Defence Summary: Project Description, September
1999.

Annex S

Murphy, G. 2008. Affidavit submitted as Annexure JDP-SW12 in the High Court of South
Africa (Transvaal Provincial Division) in the matter of Ex Parte the National Director of
Public Prosecutions (applicant) in re: an application for issue of search warrants in terms of
Section 29(5) and 29(6) of the National Prosecuting Authority Act, No. 32 of 1998, as
amended
4

Annex T

Fana Hlongwane Business Card

Annex U

MODAC Investigation: Frontispiece showing Fana Hlongwane authorship

Annex V

‘Statement of Offence’ in the Matter of the United States of America v. BAE Systems plc,
Violation: Title 18, United States Code, Section 371 (conspiracy), United States District
Court for the District of Columbia.

Annex W

‘Proposed Charging Letter re: Investigation of BAE Systems plc Regarding Violations of the
Arms Export Control Act and the International Traffic in Arms Regulations’, May 2011

Annex X

‘Result of Saab’s ongoing internal investigation regarding South African consultant contract’,
Press Statement, 20 May 2011

Annex Y

‘Saab completes internal investigation regarding consultant contract in South Africa’, Press
Statement, 16 June 2011

Annex Z

‘Operational transfer agreement’ between Saab Aerospace, SANIP and BAE Systems
(Gripen Overseas), September 2004.

Annex AA1

Annual Financial Statements: SANIP (Proprietary) Limited at 31 December 2002 Available
from www.saabgroup.com

Annex AA2

Annual Financial Statements: SANIP (Proprietary) Limited at 31 December 2003.

Annex BB

In the High Court of South Africa (Durban Coastal and Local Division) in the Matter
Between The State and Schabir Shaik and Others: Summary of Substantial Facts in terms of
Section 144(3)(a) of Act 51 of 1977.

Annex CC
5

‘Memorandum from ThyssenKrupp Executive Confirming Bribe to “Chippy” Shaik, head of
Procurement in the South African National Defence Force’
Annex DD

‘Report by the NPA to Scopa on Arms Deal Investigations’, 23 January 2009

Annex EE

‘In the Matter Between The State and Tony Sithembiso Yengeni (Accused No. 1) and
Michael Joseph Worfel (Accused No. 2), Accused No.1’s Plea of Guilty’, Case No.
14/09193/01, 2003

Annex FF

‘The full list of vehicles supplied by EADS’, Cape Times, 2 July 2001.

Annex GG

National Assembly, Question 246, Written Reply, Internal Question Paper No. 4-2008, 25
February 2008.

Annex HH

Agreement made and entered into Between the Armaments Corporation of South Africa
Limited and the Government of the Republic of South Africa through its Department of
Finance and Industry and Government of the Republic of South Africa through its
Department of Trade and Industry and Blohm + Voss GmbH and Howaldtswerke-Duetsche
Werft AG and Thyssen Rheinstahl Technik GmbH and Thomson-CSF NCS France and
African Defence Systems (Proprietary) Limited, 3 December 1999

Annex II

Intelligence Report: “South Africa: Background to Ferrostaal’s Activities in South Africa and
Involvement in the Arms Deal”, undated.

Annex JJ

Interview with Chippy Shaik by the Directorate Special Operations, C106.168, 28 September
2001

Annex KK

Ferreira, G. 2001. ‘Supporting Affidavit’ in the Application by the Republic of South Africa
for a Commission Rogatoire and Search and Seizure in a Criminal Matter (To The Ministry
of Justice of the French Republic), 8 September. Submitted as evidence in the Matter of The
State Versus Schabir Shaik et al. in the High Court of South Africa (Durban and Local
Coastal Division), Case Number CC27/04

Annex LL
6

McCarthy, L. 2001. Institution of an Investigation in Terms of Section 28(1) (a) of the
National Prosecuting Authority Act, 32 of 1998, As Amended, 24 August. Submitted as
evidence in the Matter of The State Versus Schabir Shaik et al. in the High Court of South
Africa (Durban and Local Coastal Division), Case Number CC27/04 , exhibit number JDP2

Annex MM

www.acscy.com/index.html.

Annex NN

‘Institution of Preparatory Investigation in Terms of Section 28(13) of the National
Prosecuting Authority Act, 32 of 1998’, 24 August 2001, submitted as evidence in The High
Court of South Africa (Durban and Coastal Local Division) in the Matter of the State vs.
Schabir Shaik (et al.), Case Number CC27/04.

Annex OO

Letter from Richard Charter (Osprey Group) to Ms Narissa Ramdhani (ANC Archives), 12
March 1996, Nelson Mandela Papers (BAE Scholarship 1996 – 1997 folder), ANC Archives,
University of Fort Hare.

Annex PP

Letter from Narissa Ramdhani (ANC Archives) to Dr Frene Ginwala, 5 February 1997,
Nelson Mandela Papers (BAE Scholarship 1996 – 1997 folder), ANC Archives, University of
Fort Hare.

Annex QQ

Testimony of Schabir Shaik in the Matter of The State Versus Schabir Shaik et al. in the High
Court of South Africa (Durban and Local Coastal Division), Case Number CC27/04, 21
February 2005.

Annex RR

Letter from Zweli Mkhize to Schabir Shaik, 28 July 1998, submitted as evidence in the
Matter of The State Versus Schabir Shaik et al. in the High Court of South Africa (Durban
and Local Coastal Division), Case Number CC27/04, 21 February 2005

Annex SS

'Nkobi Holdings: Payments to Floryn Investments (Pty) Ltd in Letter from Colin Isaacs
(Nkobi Holdings) to Mendi Msimang, 3 December 1999, submitted as evidence in the Matter
of The State Versus Schabir Shaik et al. in the High Court of South Africa (Durban and Local
Coastal Division), Case Number CC27/04.

Annex TT
7

Testimony of Stephanus Johannes Roelof Van Der Walt in the Matter of The State Versus
Schabir Shaik et al. in the High Court of South Africa (Durban and Local Coastal Division),
Case Number CC27/04, 8 November 2004

Annex UU

Letter from Zweli Mkhize to Schabir Shaik (unsigned), 19 May 1999, submitted as evidence
in the Matter of The State Versus Schabir Shaik et al. in the High Court of South Africa
(Durban and Local Coastal Division), Case Number CC27/04

Annex VV

Fana Hlongwane Consultancy Agreement with SANIP, 10 September 2003. Originally
submitted as appendices to Murphy, G. 2008. Affidavit submitted as Annexure JDP-SW12 in
the High Court of South Africa (Transvaal Provincial Division) in the matter of Ex Parte the
National Director of Public Prosecutions (applicant) in re: an application for issue of search
warrants in terms of Section 29(5) and 29(6) of the National Prosecuting Authority Act, No.
32 of 1998, as amended

Annex WW

Amendment to Consultancy Agreement between BAE Systems and Fana Hlongwane, 9
September 2003. Originally submitted as appendices to Murphy, G. 2008. Affidavit
submitted as Annexure JDP-SW12 in the High Court of South Africa (Transvaal Provincial
Division) in the matter of Ex Parte the National Director of Public Prosecutions (applicant) in
re: an application for issue of search warrants in terms of Section 29(5) and 29(6) of the
National Prosecuting Authority Act, No. 32 of 1998, as amended

Annex XX

Draft Report of the Auditor-General: Strategic Defence Procurement Packages, Chapter 7 –
Selection of Primary Contractors: Submarine. Undated draft, assumed to be written later than
8 October 2001.

Annex YY

Extract from draft version of SFO Affidavit submitted in support of Search and Seizure
warrants to be executed against properties of Fana Hlongwane and John Bredenkamp.

Annex ZZ

Extract from draft version of SFO Affidavit submitted in support of Search and Seizure
warrants to be executed against properties of Fana Hlongwane and John Bredenkamp.

Annex AAA

Mutual Legal Assistance Request from Dusseldorf Public Prosecutor’s Office to The Chief
Senior Public Prosecutor, Switzerland, 19 June 2007 (English translation)
8

Annex BBB

Mutual Legal Assistance Request from Dusseldorf Public Prosecutor’s Office to The Chief
Senior Public Prosecutor, Switzerland, 19 June 2007 (German Original)

Annex CCC

Request for International Assistance in a Criminal Investigation in Terms of Section 2(2) of
Act No. 75 of 1996: Investigation Into the Arms Procurement Process: DSO (Scorpions) to
Attorney General for Guernsey, 8 October 2002

Annex DDD

Documents regarding the financial support of Stella Sigcau’s daughter by BAE Systems

Annex EEE

Marketing Consultant Agreement between Hlongwane Consulting Ptd Ltd and Saab AB, 1
October 2003

Annex FFF

Consultancy Agreement between Saab and Mayekiso Labour & Community Services (Pty)
Ltd.

Annex GGG

Witness statement of Advocate Fana Hlongwane, Seriti Commission of Inquiry, 2014

Annex HHH

The ‘German Police Report’, Report by Lioba Barowski (German Police), Dated 7 November
2007

Annex III

Final figures of the performance of the civilian offsets programme, originally attached to the
witness statement of Sipho Zikode

Annex JJJ

Final Internal Audit Report: NIPP Performance Review: Strategic Defence Package (SDP)
Phase 1, Department of Trade and Industry, October 2012

Annex KKK

Notes made by Advocate Barry Skinner Regarding Offsets Program
9

List of Figures

Table 1 South African defence spending, 1992 - 1996............................................................20

Table 2: Southern African regional military capacity, 1993....................................................20

Table 3: Scenario 1 of purchase of R25bn equipment: offsets fulfilled and low impact on
interest rates.............................................................................................................................33

Table 4: Scenario 2 of purchase of R25bn equipment: offsets not fulfilled and low impact on
interest rates.............................................................................................................................33

Table 5:Scenario 3 of purchase of R25bn equipment: offsets fulfilled but adverse impact on
interest......................................................................................................................................33

Table 6: Scenario 4 of purchase of R25bn equipment: offsets not fulfilled and adverse impact
on interest rates........................................................................................................................34

Table 7: Scores for financial evaluation in corvette contract................................................103

Table 8: Scores for technical evaluation in the corvette contract..........................................103

Table 9: Combined scores for technical and financing evaluations in the corvette contract.103

Table 10: All scores in evaluation of the corvette contract...................................................103

Table 11: Combined NIP and DIP scores in the corvette contract........................................104

Table 12: Recalculated DIP scores according to Auditor-General’s calculations.................104

Table 13: Total DIP offered and final DIP scores in the corvette contract............................105

Table 14: Consolidated offsets scores in the corvette contract..............................................107

Table 15: Remodelled evaluation scores in the corvette contract..........................................108

Table 16: Official SOFCOM scoring of the submarine proposals........................................138

Table 17: Original and revised NIP scores for the submarines.............................................140

Table 18: Original and revised combined NIP and DIP scores for the submarines..............141

Table 19: Comparison of offsets submitted in bid by GSC and offsets committed for.........142

Table 20: Technical evaluation scores in the submarine contract.........................................143

Table 21: Official normalised SOFCOM scores for technical/cost evaluation in the submarine
bid..........................................................................................................................................143

Table 22: Revised figures for submarine technical/cost evaluation as per Auditor-General’s
office......................................................................................................................................144

Table 23: Recalculated scores for financial evaluation in the submarine contract................146

Table 24: Recalculated and corrected scores for the submarine contract as per the Auditor-
General...................................................................................................................................146

Table 25: Official SOFCOM scores in the selection of the Light Utility Helicopter............160

Table 26: Total Payments from Contractors or Affiliates to Individuals or Entities in
Suspected Corruption Related to the Arms Deal...................................................................187

Table 27: Other Undue Benefits Accrued By Individuals and Companies Related to the Arms
Deal........................................................................................................................................188

Table 28: Comparison of Per Unit Price for Submarines, 1998 Bid Offer and Final Contract
Price.......................................................................................................................................213

Table 29 – Comparison of Per Unit Price Industrial Participation for Submarines, 1998 Bid
Offer and Final Contracted IP................................................................................................213

Table 30 – Rand by Rand Comparison: Price Paid to Offsets Offered, 1998 Bid and 1999
Contract..................................................................................................................................214

Table 31: Arms Deal Expenditure Declared as Part of the Defence Budget.........................221

Table 32: Actual and Project Estimated Cost of Financing of the SDPP, 31 March 2014....221

Table 33: Arms Deal expenditure as excess of national budget: base and revised, 1999 prices
................................................................................................................................................224

Table 34: Scenario 1 of purchase of R25bn equipment: offsets fulfilled and low impact on
interest rates...........................................................................................................................227