Senior officials of the labour department and its Unemployment Insurance Fund (UIF) scrambled on a Sunday night and into the early hours of Monday morning last December to nail down an “irregular” deal that would have seen R5bn in UIF funds being channelled towards an untested job-creation initiative.
The department has since pulled the plug on the deal and axed the chair of Productivity SA, Mthunzi Mdwaba, whose hastily established company, Thuja Holdings, was registered just 10 days before the deal was signed.
The scandal was blown wide open in a Sunday Times report last December which revealed that senior officials who devised the scheme admitted it was an “untested thing” designed to create jobs. Today, the Sunday Times can reveal the outcome of a forensic investigation into the matter that shows how the scheme went from rejected to signed in just a few days.
It has also emerged that, were it not for three officials at the UIF and the department of employment & labour (DEL) who pushed back against the scheme, it may well have gone ahead.
E-mails submitted to investigators by officials reveal how DEL director-general Thobile Lamati and UIF commissioner Teboho Maruping were determined to push the deal through by year-end, though it is unclear what the rush was for.
These revelations come as labour and employment minister Thulas Nxesi and the UIF are under pressure from business and labour for the UIF to be placed under administration. This week, Business Unity SA said: “Systemic issues at the UIF have been publicly revealed recently by news [which indicate] that questionable investments have put at risk billions of rand that should be allocated to workers in distress.”
Documents shown to forensic investigators reportedly show that ... [Mdwaba] also pushed back against a request for due diligence by Mpumi Mnconywa, the UIF’s chief director responsible for labour activation programmes
The forensic investigation Nxesi commissioned shows how senior officials were intimidated and even threatened with disciplinary action by Maruping and Lamati to conclude the agreement that Thuja itself had drafted.
Lamati signed it just after midnight on Monday December 19, less than 30 minutes after he received a motivation from Maruping. This was despite the UIF’s own adjudication structures having resolved not to support the scheme. Maruping overruled them, citing the proposal’s uniqueness and potential.
Accompanying the signed agreement was an instruction from Lamati that the first payment of R2bn of UIF money to Thuja be made the very same day.
In his motivation for Lamati’s signature, the investigators determined, Maruping falsely said gaps identified by UIF and DEL legal staff, including a due diligence process into Thuja and a risk assessment, had been done — when they had not.
This is evidenced by an e-mail from DEL’s then chief director for legal services, Prof Vimla Singh, to Lamati and Maruping in which she pointed out that the issues they had raised had not been addressed and “accordingly, the agreement is not legally compliant”.
“Furthermore, I wish to point out once again that no due diligence was conducted on the various issues raised by yourself [Lamati]. Accordingly, this transaction is fraught with irregularities, and I distance myself from it,” she said.
Despite this, Lamati, Maruping and Mdwaba continued to pressure officials to pay R2bn to Thuja to kick-start the company.
Nxesi put a halt to the deal in January after the Sunday Times exposé, and in February ordered a forensic investigation into it.
The investigation’s report, compiled by N Gawula Incorporated, was finalised last month. It found that no due diligence had been conducted into Thuja, and also that:
- the investment aspects of the agreement, where the UIF was to take a 19% stake in Thuja in return for a R1bn cash injection (R1.5bn was to be a loan, and R2.5bn grant funding), was concluded without Treasury permission;
- the agreement was not in line with the terms of reference of the UIF’s labour activation programme, from which the money was supposed to come; and
- Thuja Capital had not formally submitted a bid, but instead had made an unsolicited offer three years earlier, while the actual agreement was signed with Thuja, a company registered only 10 days before.
The forensic report recommends “consequence management” and disciplinary action against implicated officials, new measures to report and manage conflicts of interest, and that DEL obtain legal advice about reviewing the Thuja agreement.
Mdwaba, also the chair of Productivity SA, a state entity under DEL tasked with creating and saving jobs, became the scandal’s first casualty when he was removed from the board two weeks ago, after it was found his directorship of Thuja constituted a conflict of interest. He is fighting his removal and last week attended the Brics Labour and Employment Ministers' Meeting in Durban on Productivity SA’s behalf.
This week he again ignored attempts, via WhatsApp and phone calls, to obtain comment from him. He also refused to speak to investigators.
Thuja addressed an e-mail to investigators in which it said its agreement with the UIF was “entered into validly after a number of thorough and robust consultations and meetings between the parties and the various stakeholders over a four-year period”.
Lamati’s fate lies in the hands of President Cyril Ramaphosa, who hires and fires directors-general. It is unclear what action, if any, Lamati has taken against Maruping, who reports to him.
Both Lamati and Maruping did not respond to WhatsApp messages. However, the app showed the questions were read. Lamati told investigators that with hindsight he believed he had been misled by Maruping, who had told him all issues had been addressed.
He also said his main concern at the time was whether South Africa would benefit from the Thuja project.
Maruping, on the other hand, told investigators he believed he did not mislead Lamati, because the Industrial Development Corporation (IDC) had said the project was feasible. He said he believed the DG had the power to authorise investments and acquire equity in private entities.
Documents shown to forensic investigators reportedly reveal that not only was Mdwaba engaging both Maruping and Lamati separately while their subordinates were adjudicating his proposal, but that he also pushed back against a request for due diligence by Mpumi Mnconywa, the UIF’s chief director responsible for labour activation programmes, in August last year.
In his e-mail to Mnconywa, Mdwaba said: “After consulting with my colleagues, we have sent an e-mail to the DG, also copied, asking for guidance, because we were advised to follow a different process for conducting the due diligence.
“This is actually at its inception, and [we] will wait for the commissioner, who has been involved, also copied, to provide more information, and accordingly [we] await further instructions in this regard. The commissioner had indicated to us that he would be informing the DG and his team of his recommendations and the initiative he had set in motion on behalf of the DG,” he wrote.
The next day, Lamati e-mailed the IDC’s COO, Joanne Bate, confirming there was an agreement for it to conduct the due diligence process. The IDC has previously told the Sunday Times that, while it was asked to conduct a due diligence, it had informed the UIF and DEL that it could not perform such a process on a proposal not meant for it.
Other documents show how on December 14 last year matters became heated as an apparently impatient Mdwaba addressed an e-mail to Lamati (copied to Maruping) in which he informed them that Thuja would not entertain further queries about the agreement. He attached a draft copy of the agreement he had signed. He asked the UIF to countersign it by the next day and pay the initial R2.5bn immediately.
That same day, Maruping sent an e-mail to Singh (copied to Lamati, Mnconywa and UIF legal director adv Lucky Mkhonto) expressing unhappiness over the amount of time it was taking for them to consider the agreement, adding that he sensed insubordination and might have to take corrective steps.
Singh fired back, reminding Maruping that she did not report to him and had never previously been asked to consider the agreement.
The next day, Singh sent a memo, along with the draft agreement showing tracked changes, to Maruping, Lamati, Mnconywa, and Mkhonto, saying she had picked up “many issues” needing to be addressed. She also attached a legal opinion the UIF had sought in September last year advising against the proposal.
On the Saturday before the agreement was signed, Mdwaba sent another e-mail to Lamati (copied to Maruping) in which he confirmed receipt of Singh’s internal memo from Maruping and commented on it. The investigators found that the act of sharing the internal memo with Thuja, at a time when their proposal was being considered, was unlawful.
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