SIU investigation conducted into the DoD, DMV and Denel

Meeting report

The Chairperson opened the meeting, and acknowledged the loss of lives in the Democratic Republic of Congo (DRC), officially reported as nine, though higher numbers were discussed. He expressed condolences, wished the injured a speedy recovery, and emphasised the risks faced by the Department of Defence, the South African National Defence Force (SANDF), Navy and Air Force.

He said the Minister of Defence was scheduled to appear before SCOPA on 18 February, after a session with the Auditor-General(AG). The situation in the DRC might affect this, but he urged Members to focus on the agenda. He then handed over to AdvAndy Mothibi,  Head: Special Investigating Unit (SIU),and his team to present the SIU’s findings on the Department of Defence and Military Veterans, and Denel.

Adv Mothibi thanked the Chairperson and introduced his team, including Mr Leonard Lekgetho, Ms Zodwa Xesibe, AdvNtuthuzelo Vanara, Mr Rexon Masinga, Mr Jabu Masilela, and Adv Victoria Mdlalose. He outlined the focus of the presentation, covering investigations under Proclamation R32 of 2019 (Denel) and Proclamations R41 of 2019 and R23 of 2020 (Department of Defence). Most investigations had been completed, with outstanding matters involving responses from implicated parties and finalising referrals.

He summarised findings under Proclamation R41 of 2019 on Microsoft licenses procured between 2016 and 2019. The SIU had examined procurement, employee conduct, and service provider involvement, leading to two civil litigation cases against EOH and Software One, worth R467 million.

EOH had made partial payments, but both cases were opposed by the companies and the Department of Defence, currently under Special Tribunal case management. He said irregularities and systemic issues would be detailed in slide 46, before handing over to Mr Lekgetho and Ms Xesibe to present the findings.


SIU presentation summary
Mr Lekgetho, Chief National Investigations Officer, SIU,  presented the investigation outcomes for the Department of Defence under Proclamation R41 of 2019, and reported that R41.6 million had been recovered after EOH had acknowledged and paid the debt. The investigation led to 41 criminal referrals to the National Prosecuting Authority (NPA), 23 disciplinary referrals, and two civil litigation cases under case management.

Regarding Denel, he said that 14 criminal referrals had been made to the prosecuting authority, including the Asset Forfeiture Unit (AFU), and two disciplinary referrals had been directed to the entity. The SIU had recovered R559 000 and initiated civil proceedings to set aside a R229 million contract with VR Laser. A case was also filed in the Gauteng High Court to rescind a default judgment and suspend execution proceedings. Pending actions included civil proceedings to interdict the United Arab Emirates' (UAE’s) use of South African intellectual property (SAIP) -- valued at R320 million --three prosecutorial referrals, 16 administrative referrals to the Companies and Intellectual Property Commission (CIPC), and two referrals to the Legal Practice Council. A governance failure report on Denel was also being prepared.

For the Department of Defence, under Proclamation R23 of 2020, he detailed personal protective equipment (PPE) procurement findings, which resulted in 33 criminal referrals, 11 disciplinary referrals, and two administrative referrals to the Competition Commission. Pending actions included civil proceedings to set aside five contracts worth R273 million and an application to freeze a former SANDF official’s pension. One referral to the South African Revenue Service (SARS) concerning five suppliers and 135 beneficiaries was in progress, along with six administrative referrals to the Competition Commission.

On the Interferon Alpha-2B drug matter, he said the SIU would seek to set aside a R217 million contract and recover R33.4 million. The investigation had identified 25 officials for disciplinary action, and recommendations for systemic improvements would be issued.

He concluded with Proclamation R239 of 2025, stating that the procurement investigation had just been proclaimed and was in the planning phase. He then handed over to Ms Xesibe for further details on the Denel investigation.

Denel investigation
Ms Xesibe,  Provincial Head: Eastern Cape (SIU), said the investigation originated from 2018 allegations, and an audit leading to SIU referrals under Proclamation R32 of 2019 was later expanded in November 2019. The investigation covered six key areas, focusing on information technology (IT) services, legal procurement, steel fabrication, bursaries, and intellectual property misappropriation.

On IT Assessment Service, she said Denel had violated procurement policies by appointing Transpace for a penetration test without involving the State Security Agency (SSA). An advance payment of R4.6 million breached the Public Finance Management Act (PFMA), and only a PowerPoint presentation had been submitted instead of a full report. Litigation was ongoing, with Denel counterclaiming. The R4.6 million remained unrecovered, and no criminal referrals were made as officials had left Denel.

She said no irregularities were found in appointing a service provider to develop a white paper securing credit guarantees from Armscor for Denel’s salary payments in 2016. Initial allegations were dismissed after reviewing the documentation.

A law firm not on Denel’s legal panel had been irregularly appointed and paid R10 million. Fraud was found, including a R65 000 fraudulent invoice and double billing. The SIU had referred the firm to the Legal Practice Council and made criminal and disciplinary referrals.

The Project Hoefyster contract, valued at R8.3 billion, had been signed in 2007 for Denel to supply 264 armoured vehicles to the SANDF. Armscor had paid R8 billion, but only 21 vehicles were built, and none delivered. Stock for the project was now obsolete, and the investigation was verifying insurance coverage.

VR Laser had been irregularly awarded the Hoefyster vehicle platform contract, sidelining LMT. In 2014, Denel’s former Group Chief Executive Officer (GCEO) appointed VR Laser to manufacture components. By 2015, two agreements had made VR Laser the sole supplier for 10 years, despite supply chain objections. The SIU had taken legal action to void these contracts and pursued civil litigation. Seven former officials faced legal action, with one still employed.

Denel had secured a 2015 order from the Chad government for 12 Casspir vehicles, later expanded to 40 for $18 million. Despite a 40% deposit, Denel had irregularly appointed three service providers, spending R38 million without performance. VR Laser had received R50 million but failed to deliver. A technical adviser was unlawfully hired for R9.7 million, and R13.8 million was advanced for donor trucks from China, which arrived late and in poor condition. The SIU found criminal evidence against seven entities, with forensic lawyers reviewing the case. Two Denel employees remained under investigation. Investigations into pilot licences had recovered R559 000, with R234 000 still in litigation. Disciplinary action had been taken against implicated employees.

Denel had lost missile development IP to UAE’s Tawazun due to an unauthorised shareholder resolution, leading to a R328 million loss. Seven individuals were referred for prosecution, and one Denel official was dismissed. Denel’s RG35 IP remained intact, despite an unauthorised agreement with UAE’s NIMR. Legal action was considered to nullify the deal.

On Saudi-related allegations, no electronic transmission had occurred, but one confidential document was hand-delivered. Lastly, she said that the SIU was reviewing governance failures in Denel’s BAE Systems acquisition, the LMT relationship, and other key decisions.

Adv Mothibi highlighted the serious implications of Denel losing intellectual property to the UAE, emphasising that this case should serve as a precedent for recovering assets lost abroad. He had instructed the legal team to pursue all available avenues, noting that some individuals involved in the scheme had since joined the UAE-based company. The investigation revealed a deliberate plan where Denel employees had taken the IP and later left to work for the same foreign firms. He said the legal process must focus on reclaiming the lost IP, recovering financial losses, and holding those responsible accountable, despite the challenges of extraditing fugitives.

Mr Lekgetho acknowledged the legal complexities, explaining that agreements tied disputes to foreign jurisdictions, requiring litigation in foreign courts. The legal team was exploring options, with arbitration and ceding of rights appearing to be the most viable paths. However, he noted that no definitive approach had been settled on, given the complexity of the matter.

Adv Mothibi underscored the need for systemic improvements to prevent similar occurrences in state-owned entities (SOEs). He stressed the importance of checks and balances to protect high-value contracts and intellectual property, noting that their loss placed the country at risk. He pointed to the United Nations Convention Against Corruption as a possible legal instrument to pursue direct litigation in foreign jurisdictions. He urged the legal team to adopt an innovative approach rather than a narrow legal view, and assured the Committee that updates would be provided as the case progressed.

See attached for full presentation

Discussion
The Chairperson thanked the SIU team for the presentation and said that each Member would have a chance to ask questions and receive immediate answers. This would help Members to decide if they wanted to ask follow-up questions.

Ms N Mente-Nkuna (EFF) raised concerns about disciplinary hearings and criminal cases. She questioned whether the disciplinary actions for certain cases were appropriate, and whether the criminal cases had progressed. She also asked for more details on the procurement white paper, questioning the need for outsourcing at Denel, and whether the process had been handled correctly. She emphasised the importance of understanding whether the white paper had been effective and produced meaningful outcomes, especially given Denel's ongoing financial difficulties.

Ms Xesibe responded, explaining that many disciplinary actions at Denel had been resolved through resignations or settlements. Some individuals had already left the organisation by the time the investigation started. Regarding the white paper, she clarified that Denel had not followed proper processes, such as consulting National Treasury, and had tried to formalise the contract after it was implemented. The White Paper helped unlock funds, mainly to pay salaries, through a loan from the Public Investment Corporation (PIC).

Ms Nkuna expressed confusion over the need for outsourcing the white paper. She questioned whether the cost was justified, and why the Department could not handle such tasks internally. She emphasised that the white paper did not seem to provide long-term solutions, raising doubts about the Department’s ability to manage funds effectively.

The Chairperson instructed the Committee secretary to note the need for a follow-up letter to the Minister regarding specific questions. He raised concerns about the need for a white paper to address Denel’s cash flow and funding issues, suggesting that a proposal to Treasury and Cabinet should suffice. He asked whether the chosen process and the resulting payments were justified.

Adv Mothibi explained that the investigation was based on allegations of improper procurement processes. He emphasised that the SIU’s duty was to assess whether there was value for money. He suggested revisiting the rationale behind Denel’s decision to outsource the white paper process, and whether the cost was justified.

Ms Xesibe clarified that Denel had submitted a business case to unlock funds, and a contingency fee-based contract had been signed for the white paper. The amount paid was in line with the agreed-upon fee structure. She further explained that Denel’s internal procurement process had not followed the required procedures, and certain contracts were formalised after implementation.

Ms C Nontenja (UDM) asked about the impact of long investigations, which had stretched over five years, on the outcome of cases. She questioned whether disciplinary actions had been delayed due to the lengthy investigations, and whether criminal or civil charges were pursued. She also asked if delays affected the ability to freeze officials' pensions.

Ms Xesibe responded that by the time the SIU had become involved, most individuals at Denel had already left. Delays were partly due to missing documents, which were later retrieved during the investigation.

Mr A Beesley (Action SA) questioned the approval of bailouts for Denel despite evidence of corruption, and suggested that Parliament should be held accountable. He proposed creating a register to prevent individuals with disciplinary issues from working in other state entities. He also suggested holding Denel's board accountable for gross negligence and dereliction of duty.

Ms Xesibe acknowledged that the SIU had referred criminal cases against companies involved in corruption, and was working on criminal referrals against Denel’s accounting authority.

Adv Mothibi emphasised the importance of consequence management for boards of directors, and assured the Committee that the SIU was following through with investigations. He explained that while investigations had been ongoing, evidence had led to earlier referrals, and the SIU would provide dates for these referrals. He said that missing documents sometimes caused delays, but the SIU aimed to complete investigations and submit reports promptly.
 
Dr M Burke (DA) commended the structure of the engagements, and raised concerns about missile certification delays at Denel which had prevented the use of Gripen fighter jets in the DRC. He asked whether this issue, or Denel’s certification processes, had been part of the investigation. He also inquired about the impact of procurement failures on equipment available to soldiers in Mozambique and the DRC.

Ms Xesibe said that missile certification had not been part of the investigation. She commented that delays in the Hoefyster contract had affected SANDF vehicles, with only 21 out of 264 units completed but not yet delivered to Armscor.

Mr P Atkinson (DA) argued that many procurement failures stemmed from corruption rather than mismanagement. He highlighted Denel’s links to state capture, particularly contracts awarded to Gupta-linked VR Laser in 2014 and 2015. He criticised the lack of accountability and hoped those responsible, including lawyers who had misused funds, would face consequences.

The Chairperson questioned Denel’s procurement of Microsoft software through third-party suppliers, despite Microsoft having offices in South Africa. He also raised concerns about the referral process, where cases were sent to the NPA instead of directly to the Hawks, causing delays.

An official confirmed this inefficiency, stating that investigations requiring affidavits were often forwarded to the Hawks for reinvestigation, adding unnecessary steps. However, the issue had been flagged, and the anti-corruption council was reviewing possible reforms.

The Chairperson acknowledged the legislative gap left by the disbanding of the Scorpions, which required referrals to the NPA. He suggested engaging the Justice Portfolio Committee to amend the law. He also cautioned against treating corporate governance investigations as criminal cases, as they often lacked procedural elements like witness testimonies.

Ms Nkuna requested details on contract 1 161 (Wooster), specifically how Denel had spent R8.1 billion outside the approved budget, and the actual payments made to the service provider versus expected deliverables.

Department of Defence investigations
Mr Lekgetho presented multiple investigations into procurement irregularities within the Department of Defence (DOD). The first involved three Microsoft licence contracts, valued at R120 million (2016), R131 million (2017), and R257 million (2018). The Department had not followed proper procurement processes, purchased unnecessary licences, and failed to receive all contracted deliveries. This led to the recovery of R4.16 million and the initiation of 41 criminal referrals, 23 disciplinary actions, and civil litigation to cancel contracts worth R467 million.

The second investigation focused on PPE procurement during the state of disaster. Officials had colluded with service providers, resulting in excessive pricing, money laundering, and unauthorised payments. Some officials personally benefited through cash transfers and vehicles. As a result, 33 criminal referrals were sent to the NPA and the AFU, 11 disciplinary cases were opened, and civil proceedings were launched to recover R273 million. The SIU had also moved to freeze a former SANDF official’s R1.5 million pension.

The third investigation examined the procurement of 930 units of Interferon Alpha-2B from Cuba for R217 million. The drugs were acquired without proper authorisation, were not South African Health Products Regulatory Authority (SAHPRA)-approved, and were ultimately returned to Cuba following a court order. Only 15 vials were used, and the R33.4 million spent on the first consignment was classified as fruitless and wasteful expenditure. The SIU aimed to recover the funds, cancel the contract, and hold 25 officials accountable.

Lastly, Mr Lekgetho said a new investigation had been launched on 24 January 2025, focused on inventory verification, asset management, and potential misconduct by officials and service providers. The SIU was in the planning phase of determining the approach for this investigation.

Systemic irregularities
Adv Mothibi outlined systemic issues and irregularities within Denel and the DOD. He emphasised that the board, as the accounting authority, had failed in its financial and governance duties, leading to significant financial mismanagement. Key issues included failing to protect Denel from litigation, improper financial commitments, and poor contract negotiations that omitted restraint of trade clauses, allowing competitors to poach employees. Additionally, weak contract management and inadequate record-keeping had contributed to project failures, including the Hoefyster project. Security lapses have led to the misappropriation of intellectual property.

To address these challenges, the SIU recommended enforcing financial discipline, ensuring that project budgets were strictly used for their intended purposes, and implementing restraint of trade clauses in contracts. They also stressed the need for stronger consequence management, improved compliance with financial regulations, and better record management policies.

In the Department of Defence, the SIU had identified recurring patterns of noncompliance, including the failure to act on referrals, unauthorised budget reallocations, and officials using personal email accounts for official communication. These practices indicated a lack of accountability and security risks. Recommendations included enforcing consequence management, prohibiting the use of private emails for official business, and strengthening budget oversight to prevent fund diversion.

Challenges in investigations were also highlighted, including delays caused by uncooperative personnel, missing records, and difficulty obtaining sufficient evidence. Despite these hurdles, the SIU reported progress in financial recoveries, and said that the value of recovered funds justified their efforts. Denel had made some payments toward SIU fees, but a significant amount was still outstanding.

See attached for full presentation

Discussion
The Chairperson raised concerns about a Supreme Court of Appeal judgment involving Denel and a service provider hired to offer wellness services to military veterans. The Department had awarded the contract despite lacking funds, leading to litigation when they later attempted to cancel it. The Court ruled that government entities could not commit to contracts without the necessary budget and set the contract aside. However, it had also ruled that the service provider must be compensated for completed work. The Chairperson emphasised the need to address procurement failures while ensuring service providers were not unfairly penalised. Additionally, he highlighted cases where terminating irregular contracts could disrupt essential services and called for a broader discussion on balancing legal and practical considerations.

Mr Beesley acknowledged the risks faced by SIU members in combating corruption, and expressed gratitude for their efforts. He inquired about contracts involving foreign entities, specifically asking whether the SIU had set aside a contract with Cuba and how foreign-involved contracts were handled. He also questioned why the DOD had opposed the cancellation of a licence, despite the SIU’s findings. Further, he asked if EOH had been recommended for blacklisting after acknowledging a debt of R47 million, and sought clarity on who was responsible for implementing systemic recommendations.

Mr Lekgetho confirmed that the SIU had recommended EOH for blacklisting, and found it shocking that the DOD had defended the case instead of supporting the SIU’s application. The current Secretary of Defence was reportedly unaware of this and had requested a briefing before taking a position.

Adv Mothibi clarified that systemic recommendations were sent to accounting officers and authorities, with follow-ups on implementation. Regarding the Cuban contract, he explained that a third party, Techno Import, was involved, and such cases were handled under national law through the Special Tribunal or High Court. Similar approaches had been taken with Eskom and ABB contracts.

The Chairperson asked about the limitations in recovering assets outside South Africa and what interventions could assist in the process?

Adv Mothibi explained that the main issue was jurisdiction, as foreign legal systems made it difficult to pursue stolen assets. He mentioned the legal framework, including the UN Convention Against Corruption, which regulates the pursuit of assets and fugitives internationally. He highlighted that mutual legal assistance (MLA) through the Department of Justice was essential, though recovery could be delayed, especially in cases where asset locations were unclear. The IP case, however, had clearer asset identification, and the legal team was exploring litigation in foreign jurisdictions.

Ms H Neale-May (ANC) emphasised that as an SOE in the defence industry, Denel held sensitive intellectual property that, if sold, compromised national security and gave adversaries military advantages. She supported pursuing international legal channels like Interpol and the Mutual Legal Assistance Treaties (MLATs). She also mentioned the importance of engaging international relations to prevent future IP theft, emphasising that this amounted to economic sabotage, particularly as South Africa had prided itself on its defence industry.

Adv Mothibi responded that while they had not yet approached the National Security Council, it was something they would explore. He commented that South Africa was part of international networks under the UN, including the GlobE anti-corruption network, and UAE’s anti-corruption authority had reached out to the SIU for cooperation. He emphasised the need for these international collaborations to aid in asset recovery and information exchange.

Ms T Bila (ANC) raised concerns about individuals in SOEs, like Denel, not performing according to procurement and governance processes. She questioned the qualifications of these individuals and whether they were fit for their positions.

Mr N Maduna (ANC) pointed out that the South African government’s risk management, governance, and internal controls should have detected these issues earlier. He questioned why Denel had been on a disclaimer for four years, but was still receiving bailouts despite poor performance. He criticised the lack of progress in turning around the institution, urging for accountability and better oversight. He also pointed out that Denel’s failure to meet targets (achieving only 3% in the previous financial year) reflected a broader issue of mismanagement. He concluded that the theft of state IP was not just a theft but active sabotage, questioning whether those involved should be considered enemies of the state.

Adv Mothibi addressed the need for reform in the procurement space, particularly to prevent ongoing losses to the government. He highlighted that the Public Procurement Act had been identified as a key tool in addressing these challenges. However, the issues ran deeper, especially with collusion, which touched on the integrity of individuals within the system. He stressed the importance of integrity checks and frameworks, with a need for collaboration with the Department of Public Service and Administration (DPSA) to ensure public service integrity, including in SOEs.

Mr T Kubheka (MK) made a critical point about the weakening of South Africa's defence and military capabilities, citing recent deaths of SANDF members in the DRC. He expressed concern about the deliberate dismantling of key institutions like the Department of Defence, Denel, and Armscor, which produced vital military equipment. He questioned whether government’s actions reflected fear of a coup, or an unwillingness to fully support the military. The shortage of arms and basic necessities for the SANDF personnel in the DRC, coupled with the limited patrolling of the South African coastline, raised alarm about the country’s defence readiness.

The Chairperson stressed the need for the Minister of Defence to address underfunding and systemic failures within the DOD). He said the leadership of the defence forces failed to properly account for the Secretary of Defense, a dysfunction highlighted by the Auditor-General (AG). He emphasised that the Minister, having had sufficient time to review reports and visit departments, now needed to come forward with concrete plans to address these issues, particularly concerning military losses and preparedness.

Mr M Blose (EFF) expressed his concerns about the Minister’s accountability, particularly in light of the growing number of casualties in military operations. He called for comprehensive reports on the issue, including details on military injuries and fatalities. He also praised the work of the SIU but criticised the lack of clarity regarding the working relationship between the SIU, NPA, and Hawks, particularly regarding prosecutorial powers. He suggested that the SIU should be given authority to prosecute criminal cases they investigate for efficiency. He also raised the issue of Denel’s IP theft, questioning whether the same individuals involved in criminal activities related to IP theft were also responsible for past governance failures.

Mr Blose brought up concerns of financial mismanagement, particularly instances where money allocated for specific contracts was redirected to cover salaries instead of procurement needs. He further questioned the procurement of interferons deemed unfit for purpose, and asked about accountability measures for such purchases. He acknowledged that all processes had been followed, yet the procurement had still resulted in wasted funds. This raised questions about how accountability could be maintained when procedural compliance still led to poor outcomes.

Ms Xesibe clarified that individuals facing criminal prosecution for issues related to contracting were not board members, but officials involved in different procurement activities. She mentioned the ongoing process for the board to respond as part of a larger investigation.

Mr Lekgetho addressed concerns regarding the procurement of unsuitable medicine, emphasising the accountability of the individuals responsible and the legal actions being pursued, including civil litigation to recover funds. He also clarified that Techno Import was a Cuban state agency, and not a private company.

Ms Mente-Nkuna expressed concern over a pattern where service providers like EOH, ABB and others, secured government contracts, only to later agree to pay back funds when caught for non-delivery. She emphasised the need for deeper investigation into these companies and recommended blacklisting them to prevent further corrupt practices. She also raised concerns about unnecessary outsourcing of IT services, questioning the role of state entities like Denel in maintaining internal IT capabilities.

Adv Mothibi responded by acknowledging the observed patterns of EOH's conduct, the blacklisting process already underway for certain departments, and the legal steps to blacklist them across government departments. He also addressed the broader issue of outsourcing in IT, specifically questioning the need for intermediaries to procure software like Microsoft, which could be acquired directly. He noted that government had observed instances of collusion in procurement processes.

Ms Mente-Nkuna requested more detailed information from the SIU regarding all companies that had been recommended for blacklisting, particularly in cases where companies continued to secure new contracts despite previous recommendations.

Mr Kubheka raised concerns about VR Laser, and questioned whether the company was facing prosecution for its role in corruption at Denel. He also inquired about the actions taken against Steven Burger, the former Denel Land Systems' CEO, who appointed VR Laser despite clear conflicts of interest.

Mr Maduna asked whether the SIU believed the Department was defending EOH, a service provider, from being blacklisted.

Adv Mothibi responded that, from a litigation perspective, departments were usually expected to co-litigate against companies involved in corruption. However, in this case, the Department had instead become a respondent, effectively defending EOH. He also explained that courts considered various factors when setting aside contracts, including whether the company could retain any profits. In cases where corruption was found, full repayment was typically ordered.

Ms Mente-Nkuna criticised government’s continued reliance on companies implicated in corruption, arguing that there were always alternative service providers. She pointed to ABB’s continued involvement with Eskom, despite findings of corruption, and suggested this was due to entrenched corruption networks rather than actual necessity. She also questioned how the SIU ensured that its recommendations were enforced, rather than being ignored or undermined by state institutions.

The Chairperson acknowledged concerns about blacklisting, but pointed out that removing corrupt companies from the system took years, and replacing them with new providers was a costly and time-consuming process. He said that the Integrated Financial Management System (IFMS), which was supposed to improve procurement oversight, had been in development for nearly 20 years but remained unfinished. He also emphasised the need for Parliament to take financial responsibility for costly reforms, rather than shifting the burden onto struggling state entities.

He thanked the members from the SIU, and adjourned the meeting.