Simelane’s coffee shop ‘loan’ payback does not legitimise the benefit received

9 Oct 2024

Justice Minister Thembi Simelane appears fixated on explaining that she eventually paid back the suspicious VBS-linked coffee shop ‘loan’. In Simelane’s view, the repayment supposedly indicates that her cash boon could not have been unlawful. The argument is a ruse.

The legal test for a corrupt deal under South African anti-corruption legislation hinges on whether both parties had a common understanding about the nature of the unlawful deal.

It means a “loan”, even when it was repaid, can indeed be a corrupt “gratification” as described in the Prevention and Combating of Corrupt Activities Act (Precca), No. 12 of 2004, if all the elements of the offence are present, a seven-page legal opinion to Daily Maverick explains.

In the wake of Justice Minister Thembi Simelane’s account about how it happened that she became the beneficiary of VBS loot in 2016, Daily Maverick asked a group of experienced lawyers to draft an independent legal opinion on how the courts interpret Precca, whether a loan could be a corrupt deal and whether paying back the loan cancels the crime.

The legal opinion analysed three decisions by the Supreme Court of Appeal (SCA) in the cases of former police commissioner Jackie Selebi, businessman Christo Scholtz and former ANC Northern Cape provincial chair John Block as well as former State Security Minister Bongani Bongo.

A “key factor [the courts consider] is whether the loan was initially received with a corrupt purpose”, the legal opinion states.

The SCA in these cases “clearly and unequivocally establishes” that corruption under Precca is committed, firstly, when there is an offer or an agreement to give or take a gratification. There is no need for consensus between the parties on the details.

The offence does not even require a quid pro quo from the person being bribed, courts previously made clear. What the Hawks will probe in the pursuit of their Simelane investigation is whether she and VBS-corruption accused Ralliom Razwinane had a common understanding over the corrupt nature of the deal.

In 2010, the SCA said that former police commissioner Jackie Selebi “must have realised that [businessman and convicted drug dealer Glen] Agliotti’s generosity and the payments he received from him created a dynamic whereby, he, in his post as head of the nation’s police service, would be indebted to him and would have to remain willing to do him favours”. This constituted corruption, irrespective of whether Selebi in fact did provide any quid pro quo.

Daily Maverick approached another two independent lawyers to fact-check the original legal opinion. The three sets of lawyers are representative of the country’s demographics and unaware of who the other parties are. They are frequently involved in government and private cases where the employer initiates processes to cancel an employment contract due to corruption allegations. No compensation for the legal opinion or fact-check was offered, requested or paid.

This came about after Daily Maverick and News 24 revealed that Simelane took a R575,000 loan in 2016 from financial service provider Razwinane to buy a coffee shop in Sandton.

Read more: EXCLUSIVE: Justice minister took half a million rand ‘loan’ from accused VBS investment broker in 2016

Simelane was the mayor of Polokwane Municipality at the time, and Razwinane’s company, Gundo Wealth Solutions, was a service provider to her municipality. We traced the money Razwinane used to pay for the coffee shop directly to unlawful kickbacks Gundo received from VBS Mutual Bank days after Polokwane municipality made large investments totalling R349-million into the bank.

Simelane denied any impropriety. Her exculpatory account centred on mainly three issues: She was forced to take a loan from Gundo because racist banks shy away from giving loans to “a person who looks like me”; she said the loan was “above board” because there is a “loan agreement”; and, in any event, she repaid the loan four years later. She offered no evidence in support of any of these assertions, but said for these three reasons, the inference of a questionable loan has no substance.

But Daily Maverick and News24 recently revealed that the alleged “loan agreement” shows signs of being backdated and that its legitimacy is under question.

Read more: Revealed: Simelane’s VBS-linked coffee shop ‘loan agreement’ likely backdated

In this news analysis, we will further show that Simelane already had loans from two commercial banks by the time she bought the coffee shop. In terms of Precca, Simelane can further not rely on her allegedly paying back the money to erase doubts over the nature of the “loan”.

Interest charged at prime lending rate

Explaining her predicament to Parliament and later to journalist Heidi Giokos on eNCA, Simelane said she took the loan from Gundo Wealth Solutions because the racist banks’ interest rates were too high.

“It is difficult for a person who looks like me to get a loan in the South African economy,” Simelane told Giokos.

Simelane omitted to inform the public she was already the beneficiary of two home loans from two commercial banks between 2007 and 2010. In 2016, she was one of the top four remunerated mayors in Limpopo with a salary package of just more than R700,000 per year after tax, public documents from Treasury show. The figure calculates to around R60,000 per month after tax and bumped her into the second-highest tax bracket of the country.

Paying two home loans, school fees and other living costs, however, would have added up. Simelane offered no proof of her allegation against the banks, but it is conceivable that a commercial bank may have calculated her finances were too stretched and slapped on a high lending rate for a third loan.

If this is true, the fact remains that her lending rate at Gundo’s purported to be at prime – fluctuating around 10.5% in the two years after 2016. Another oddity is that she allegedly started repayment only four years later. The result was a 47% interest repayment on the lending amount, which totalled Simelane’s debt to Gundo at a whopping R849,000.

This caused a stir with parliamentarians, who immediately told Simelane that her business deal made no economic sense – particularly in the light of her allegation about the extortionate rates from racist banks. They were also quick to ask where she got the money from, if she couldn’t pay the original amount in 2016.

More importantly, though, is that Simelane’s attempt at explaining her out of trouble actually dug a deeper hole.

In the context of the very expensive loan she took from Gundo at prime lending rates and lenient repayment terms, it seems Razwinane offered her a deal she could find nowhere else. While she was the mayor of the municipality that was directly responsible for unlawfully enriching his company.

One of the fact-checking lawyers used this simple example: “If a business person gave someone in a position of power a car with the aim of soliciting good will towards their business, the benefit was received and used. The fact that the car was returned four years later, does not change or nullify the fact that they did receive the benefit. If this person in power didn’t actually show any good will, that has no impact. The crime was committed at the beginning when the two parties had a common understanding about the unlawful nature of their deal. Returning the benefit can only impact on the mitigation of guilt, and never on the question of whether corruption was committed in the first place.”

The second fact-checking lawyer opined that Simelane “was given a coffee shop by a service provider to her municipality when she was in a position of power. She received the opportunity to build a profitable business. Repaying the money doesn’t nullify the benefit. According to Precca, the question is whether Simelane and Razwinane had a common, even tacit, understanding that she would use her power for Razwinane’s benefit.”

The three groups of lawyers were emphatic that Section 1 of Precca defines “gratification” very broadly to include “any donation, gift, loan, fee, reward, valuable security, property or interest in property of any description…”

How do courts interpret a ‘gratification’ under Precca

Former police commissioner Jackie Selebi was in 2010 convicted of corruption and sentenced to 15 years in jail. He was found in contravention of Section 4(1)(a) of Precca because Selebi accepted payments and benefits from businessmen Glen Agliotti in exchange for favourable treatment, protection and passing on confidential information.

The SCA dismissed Selebi’s appeal and provided important clarification. Five judges in a unanimous judgment said that Section 4 “does [neither] require an agreement between the corruptor and the corruptee, nor does it require a quid pro quo from the corruptee; it must be plainly understood that the conviction in this case on the evidence that established an agreement and the giving of a quid pro quo is not the low water mark of this section”.

The SCA said a trial court “would have been justified to convict [Selebi] even without a finding that he had provided a quid pro quo”.

The court emphasised that Section 4(1)(a)(ii) reads that “any public officer who … accepts … any gratification from any other person … in order to act … in a manner that amounts to the abuse of a position of authority, a breach of trust or the violation of a legal duty or set of rules, is guilty of the offence of corrupt activities relating to public officers”.

The SCA further said that if a person is charged with an offence under Section 4 (and other specific provisions), “it is not a valid defence for that accused person” to argue that they did not have the power or opportunity to commit the corrupt act, that they accepted the benefit without intending to perform the deed or failed to perform the deed.

The legal opinion explained that the “SCA found that when Agliotti made payments to Selebi, he did so with the intent of inducing Selebi, as the head of the national police, to grant him some favour, which was sufficient for the purposes of the offence under Precca.

The court also held that Selebi must have realised that the payments he received from Agliotti created a dynamic in which he would feel obligated to do favours for Agliotti in the future. This conduct constituted corruption as envisaged under Section 4 of Precca, regardless of whether a specific quid pro quo was given…”

The second case is that of businessman Christo Scholtz, convicted of corruption and sentenced to 15 years in jail in 2018. The case relates to commercial properties Scholtz leased to Northern Cape government departments. The SCA agreed that Scholtz had corrupted the ANC’s John Block, who used his influence to secure the business deals.

The timing of when Block received the gratification became a point of dispute. Block argued the cash paid to his companies was for “consulting fees” and could not have been corrupt money, as he received it months after the leasing deals were concluded. The SCA rubbished the argument, in this case particularly because Scholtz’s companies didn’t have the funds to pay Block. He was paid only after the leases began generating profits.

The SCA further clarified that an explicit agreement is not necessary to prove a corrupt deal – a general common understanding is enough.

The SCA referred to its Selebi judgment, where the court found when Agliotti made the payments, Selebi “had known they were intended to induce him … to afford Mr. Agliotti some favour in one way or another and that this was sufficient for purposes of the offence”.

The third case is the SCA considering allegations that former Minister of State Security Bongani Bongo attempted to bribe Mtutuzeli Vanara, senior manager: legal and constitutional services in the Office of the Speaker of Parliament. Bongo allegedly wanted Vanara to fake illness and take sick leave in order to delay or stop a 2017 inquiry conducted by the parliamentary portfolio committee into wrongdoing at Eskom.

During trial at the Western Cape Division of the High Court, Bongo argued he didn’t commit a crime because the agreement wasn’t finalised and there was no explicit quid pro quo given. Then Judge President John Hlophe ruled in Bongo’s favour because no arrangements were made for the payment of a bribe, no offer was made to the public official and therefore no crime was committed.

The SCA found this reasoning to be erroneous. The court said Precca is clear: An offer of gratification constitutes a crime when it is made in exchange for a prescribed act – like the delay or collapse of a parliamentary inquiry.

The legal opinion emphasised that the SCA ruling “underscores the critical element in corruption under Precca is not the actual exchange or completion of the benefit, but the intent and offer behind it. This broad interpretation directly impacts the Simelane case, suggesting a key factor [the courts will consider] is whether the loan was initially received with a corrupt purpose.”

The lesson from these three SCA cases, the legal opinion explains, is that repayment of any gratification, like a “loan”, does not wipe away the fact that a crime has been committed.

Simelane’s explanation is therefore not legitimate. What she will ultimately have to convince the country and the Hawks of, is that there was no common understanding between her and Razwinane about the nature of the questionable Silvanas Bistro deal. DM

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Interest charged at prime lending rate

How do courts interpret a ‘gratification’ under Precca