THE AUDITOR-GENERAL, MR S A FAKIE ON THE JOINT INVESTIGATION INTO THE STRATEGIC DEFENCE PROCUREMENT PACKAGES: 15 NOVEMBER 2001

Madam Speaker, Honourable members of Parliament,

1. The Joint Investigating Team comprising of the Public Protector, National Director of Public Prosecutions and I have pleasure to submit to you our joint investigation report into the Strategic Defence Procurement Packages. The joint investigation was unique in that the three organs of state, for the first time, conducted an investigation into alleged irregularities and criminal conduct simultaneously. This was by no means an easy task as all three agencies had to pioneer their way through uncharted and, at times, difficult territory. Due process and consultation has taken place in finalising this report.

I wish to explain and clarify the due process and consultation that has taken place as it is the subject of much controversy and unwarranted scepticism recently:

Yes we have furnished our draft report to the relevant and affected government agencies offering them an opportunity to make inputs/comments on the factual accuracy of the report before it is finalised. This is normal process whether it's an audit or investigation.

Irrespective of what the nature of the audit, investigation or inquiry is - I have to perform my duties in terms of my constitutional mandate and the Auditor-General Act. The same principles apply two my other two colleagues.

The current investigation encompasses accounts established by the Defence Special Account Act and it is therefore evident that the Report on the Arms Investigation falls within the ambit of section 4(6) of the Auditor-General Act, which in no uncertain terms, obligates me to consult with the specified parties.

Furthermore, the joint investigation team tried to adhere to the constitutional principles of legality. It goes without saying that, in adhering to these principles, the investigation team's independence or perceived independence is in no way infringed. Furnishing a draft report to the relevant and affected parties under these circumstances, emanates from the doctrine of legality and affords these persons, as affected parties, an opportunity to present explanatory information regarding certain aspects in the draft report. It is our view that the quality of the final report has been greatly enhanced by following this approach.

The input we received on the draft report was mainly around
- the format and flow of the report
- the lack of details to support the findings (hence the report changed from a 250 page report to a 400 page report)

Throughout this process we have taken all precautions to ensure confidentiality. Regrettably some information has recently been leaked, the source of which we do not know. A copy of the final report was delivered to Madam Speaker a day ago1 and the only other copy available, at the time, was in my possession. Any reports that may have been prematurely leaked, can therefore only be copies of earlier draft versions of the report.

We do apologise for delays in submitting this report - I also wish to explain the delays so that it is understood and put into proper context.

This report changed its status from an interim report to a final report. DSO will continue its criminal investigative work
- Originally we intended to put out an interim report in about July/Aug

Towards the end of June early July we evaluated the progress and situation and decided to rather finalize the work undertaken by the Auditor-General and Public Protector

We had to go through manage and control some 700 000 documents

Setting up interviews with witnesses and their legal representatives was not easy to co-ordinate.

2. We have limited supplies of hard copies of the report - but they are available in electronic format on CD as well as the websites of the Joint Investigative Team. The website addresses are:
Auditor-General: www.agsa.co.za
Public Protector: www.polity.org.za/govt/pubprot/
Director of Public Prosecutions: www.npa.gov.za

3. I will now hand over to the National Director of Public Prosecutions who will make a few comments, thereafter the Public Protector will make an intervention before I take you through the format and layout of the report.

Over to the National Director of Public Prosecutions who will deal with the preface and status of criminal investigation

Over to the Public Protector who will deal with the Public Phase and chapter 13

4. The format of the Report:
- Chapter 1 and 2 provide some background information and the methodology adopted for this investigation

- Chapter 3 deals with the review of the procurement process and policies - rules of the game

- Chapter 4 - 7 explains the four procurement packages i.e. Alfa/Liff, LUH, Submarines and corvettes – background, what happen, how it happened (give the full story) with findings and recommendations at the end of each chapter.

- Chapter 8 - 12 deals with IONT, Cost to State, Selection of sub contractors and conflict of interest, C212 complaints and National Industrial Participation and Defence Industrial Participation

- Chapter 13 deals with drafting of the contracts - which Mr Baqwa already briefed you on

- Chapter 14 is the Final chapter which summarise all the key findings and recommendations from the individual chapters

The report comprises nearly 400 pages and is a joint report incorporating the work of the three investigation agencies where appropriate. Due to the nature of the investigation by NPA sensitive information was not included in the report.

Evidence obtained on a particular issue or topic by the different agencies has been combined and used to support our findings. The report has been formulated in a user friendly and logical matter
Where ever this was possible.

The report is full of abbreviations and terminology which may not be commonly understood - Appendix A explains what the abbreviations stand for and what the terminology means.

Our key findings and recommendations are as follows:
· No evidence was found of any improper or unlawful conduct by the Government. The irregularities and improprieties referred to in our report, point to the conduct of certain officials of the government departments involved and cannot, in our view, be ascribed to the President or the Ministers involved in. their capacity as members of the Ministers' Committee or Cabinet. There are therefore no grounds to suggest that the Government's contracting position is flawed.

· The decision that the evaluation criteria in respect of the Lead-In Fighter Trainer (Hawk) had to be expanded to include a non-costed option and which eventually resulted in a different bidder being selected, was taken by the Ministers' Committee, a subcommittee of Cabinet. This decision was neither unlawful, nor irregular in terms of the procurement process as it evolved during the SDP acquisition. As the ultimate decision-maker, Cabinet was entitled to select the preferred bidder, taking into account the recommendations of the evaluating bodies as well as other factors such as strategic
considerations.

· The Affordability Team and International Offers Negotiation Team took adequate measures under the circumstances to present to the Government a scientifically based and realistic view on these matters. The Ministers' Committee was put in a position by the Affordability Team to apply their minds properly to the financial impact of the procurement.

· There was a conflict of interest with regard to the position held and role played by the Chief of Acquisitions of Department of Defence, Mr S Shaik, by virtue of his brother's interests in the Thomson Group and ADS, which he held through Nkobi Holdings. Mr Shaik in his capacity as Chief of Acquisitions, declared this conflict of interest in December 1998 to the Project Control Board, but continued to participate in the process that led ultimately to the awarding of contracts to the said companies. He did not recuse himself properly.

Amongst the recommendations in our report are the following:
· We recommend that the policy document, developed during the Strategic Defence Packages Procurement process be further refined with specific reference to the lessons learnt from the acquisition process under investigation as reflected in this report. The staff of the Department of Defence and Armscor involved in procurement should be properly trained to ensure that they assimilate and fully understand the policy with a view to its effective implementation.

· The Department of Defence and Armscor should develop specific rules and guidelines to address conflict of interest issues and to ensure that personnel are properly informed in this regard. These rules and guidelines should be developed, taking into account the principles contained in the Code of Conduct of the State Tender Board and the King Report on Corporate Governance, 1994, regarding improved ethics and probity as well as international norms in this regard. Steps should also be taken to ensure that a particular individual irrespective of his/her position is not tasked with incompatible functions in multifaceted procurements. This will prevent a conflict or perceived conflict of interest, which could have a detrimental effect on the overall acquisition process.

Parliament should consider taking urgent steps to ensure that high ranking officials and office bearers, such as Ministers and Deputy Ministers, are not allowed to be involved, whether personally or as part of private enterprise, for a reasonable period of time after they leave public office, in contracts that are concluded with the State.

In conclusion Madam Speaker we feel confident that we have given this investigation our best shot notwithstanding its unique nature and the difficult
territory we had to charter. Our pursuit to conduct a proper and diligent examination we hope will be borne by the contents of the report.

Thank you

ADDRESS BY THE NATIONAL DIRECTOR OF PUBLIC PROSECUTIONS, MR B T NGCUKA, TO PARLIAMENT ON THE JOINT REPORT ON THE INVESTIGATION INTO THE STRATEGIC DEFENCE PACKAGES, 15 NOVEMBER 2001, CAPE TOWN

A. Introductory Remarks
Madam Speaker, Mr. President, Mr. Deputy-President Cabinet Ministers and Members of Parliament, I would like to address you on the role of the National prosecuting Authority and its findings regarding the investigation into the Strategic Defence Packages. Before I do this I wish to say something about how we have viewed the investigation and the fulfilment of our obligations in the process.

Madam Speaker,
Investigations, by their very nature, generate expectations and controversy:
controversy in that an over-zealous investigation might be seen as a witch-hunt or a fishing expedition, whilst a superficial investigation might smack of a cover-up.

The test of commitment lies not in a preference for any of theses extremes, but in a golden mid-way, where a balance is struck between the demands for accuracy, rigorous investigation and the rights of privacy of those affected.

Our pursuit has been deliberate; to conduct a proper and diligent examination that reaffirms the solid foundation and pillars of our legal system and ultimately enhances our democracy.

Because of human nature, news that an investigation is underway tends to create the expectation that something bad will be found. An investigation is expected to either implicate or exculpate. Often that is not the case.

The investigation has essentially been about probity: whether those representing the government have conducted business diligently, properly and in the best interest of the country. Secondly, whether the contracting parties have followed the rules of good faith and fairness.

The issues of procedure, checks and balances, compliance with policy and good business practice have all been an important part of this inquiry. Relating to this has been the question whether crimes have been committed and, more specifically, whether prosecutions could be and ought to be instituted. Our findings, given the purpose of this report, will probably be the subject of considerable debate.

We have at all times endeavoured to act in accordance with the spirit of the Constitution in conducting the investigation with resolute independence, depth of courage and an uncompromising standard of intellectual integrity.

In essence, we are duty-bound to conduct our business in a measured, accountable and objective manner that instils legitimacy and respect for the law. That, we hope, we have done without abuse of power or process.

An investigation of this kind can, of course, never be perfect because the discipline involved is not an exact science and the human element can never be accounted for fully.

The challenge, presented by this investigation, goes to the raison d'etre of the institutions supporting constitutional democracy and those involved in the administration of justice. The impartiality, objectivity and independence of the three institutions involved are issues that have remained in the arena consistently. We hope that we will not be found wanting.

B. The Role of the National Prosecuting Authority
Since the matter was referred to my office, we have pursued the investigation with a view to find evidence to substantiate the suspicion of the commission of the offences of corruption and fraud during the acquisition process. At the commencement of the investigation there were wide-ranging allegations, which called into question the Strategic Defence Packages, the role of the Government and various individuals. This posed an enormous challenge to my office; particularly in view of the perceptions and expectations these allegations have created.

During our investigation we have been able to differentiate those allegations, which have merit from those that are unfounded. This exercise has significantly limited the scope of the investigation to specific areas bearing on single individuals or entities.

C. The Allegations
Madam Speaker, I will deal with the allegations by highlighting those that proved to be without substance; those that have substance and where action has been taken; and those that are currently the subject of ongoing investigation.

Allegations without substance
The allegations that were found to be without substance and therefore required no further investigation are the following:

· that Mr. L Swan, a senior official at Armscor, became a director of British Aerospace, which was one of the prime contractors;

· that the Chief of Acquisition of the SANDF, Mr. S Shaik; Messrs M Sisulu, I\A Scott and N Mashembye received motor vehicles from the prime contractors;

· that there was a link between the arms procurement and the Mpumalanga Parks Board promissory notes; and

· that the former Minister of Defence, Mr. J Modise, paid for shares in Conlog with a bribe received from a successful bidder.

Allegations substantiated and where action has been taken
In respect of our investigation into the allegation that persons including high-ranking officials involved in the overall acquisition process received various gifts from the bidders, we have found substantiation for this in certain instances. Action has been taken against those individuals whom we allege have unduly benefited in a corrupt manner from the acquisition process.

Searches in respect of various business premises and residences in South Africa, France and Mauritius were conducted after search warrants were obtained from a judge in South Africa and the foreign authorities. These searches related to the suspected commission of offences more pertinently in respect of African Defence Systems (Pty) Ltd, as subcontractor for the supply of the Corvette Combat Suite, Futuristic Business Solutions (Pty) Ltd and Thomson-CSF for the supply of an Integrated Logistic Support Services. Although the warrants were obtained on the basis of a reasonable belief that anything connected with the investigation could be found on the premises, it should be pointed out that this does not necessarily mean that the owners of the premises are suspects or have made themselves guilty of any crime.

Allegations that are the subject of ongoing investigation
The allegations that are still the subject of the ongoing investigation with a view to find evidence to support the suspicion of the commission of offences of corruption and/or fraud in specific areas are the following:

· the shareholding of various role players in some of the companies, which benefited from the overall acquisition process;

· the receipt of gifts by role players in the acquisition process (apart from those already charged);

· the undue payments to certain successful subcontractors for the supply of various services and/or programmes; and

· the conflict of interest in respect of various role players in the acquisition process.

D. Conclusion
Madam Speaker, in conclusion I wish to remark on some of the findings and to bring matters into focus.

It is evident from the investigation that the perception of widespread corruption within the Government is without justification. Whilst there may be certain individuals and department officials who used their positions to derive some form of benefit from the acquisition process, which might render them criminally liable, the integrity of the Government and its institutions is unquestionable.

There have been a number of allegations from newspapers and informers, which proved to be baseless. These have been followed-up, but no substantiation for them could be found.

Also, a number of individuals have been linked in some way or the other to some of the allegations. The investigation has shown that the suggested links are without merit and the individuals are being cleared of impropriety and criminal conduct.

The area of conflict of interest of government officials is cause for concern and viewed as extremely serious. There seem to be indications that certain officials have found themselves in incompatible positions, which might have led to the perception that the credibility of the acquisition process has been compromised in specific instances. These instances form the basis of some of the allegations we are pursuing. I wish to add that we will be taking action within the next 24 hours.

The issue of conflict of interest of government officials as displayed during the acquisition process requires in-depth consideration. There is evidently a need for legislative measures to address situations where conflict of interest might amount to a breach of duty and to regulate the post-employment activities of officials.

Madam Speaker, I want to thank the Honourable President, the Minister of Justice and the Minister for Safety and Security for their unrestrained commitment and support for an independent and vigorous investigation, and their moral support in difficult times experienced during the investigation.

I want to thank those who worked tirelessly and most times throughout the night
to ensure that the report is tabled timeously. They have certainly gone beyond
the call of duty.
I thank you.

PRESENTATION TO PARLIAMENT BY THE PUBLIC PROTECTOR, ADV S A M BAQWA SC, ON THE PUBLIC PHASE OF THE JOINT INVESTIGATION INTO THE STRATEGIC DEFENCE PROCUREMENT PACKAGE: 15 NOVEMBER 2001

Madam Speaker
Mr President
Honourable Members of Parliament

Due to the considerable interest in the joint investigation, it was decided that it would be in the public interest that a part of it be conducted in public.

The reasoning behind this decision was as follows.

· Openness and accountability are principles, which not only underpin our constitutional democracy, but also require that matters of national interest be dealt with in a manner that is accessible and comprehensible to the citizens of South Africa and every interested person or institution. However, not every part of the investigation could be bared to public scrutiny because the format of a forensic investigation does not allow for public insight and participation. On the other hand, the Public Protector Act, 1994, makes provision for investigations to be conducted in public where it is deemed appropriate to do so.

· We were further of the view that it was in the interest of the public to be informed of what the acquisition process under investigation was about. Arms procurement is rarely exposed to public view and since there were suggestions of institutional irresponsibility and/or individual mischief, it was necessary for Mr and Mrs Public to know, not only the origin of the Strategic Defence Packages, but also why the procurement was necessary, what was procured, at what cost it was procured and what its effect on the country was going to be.

· Total secrecy or investigation behind closed doors could only exacerbate the atmosphere of distrust and pervasive suspicion, which existed at the beginning of this investigation.

· There is an international tendency towards greater transparency, to the extent practicable, in conventional arms deals. This tendency has led to the establishment of the United Nations Arms Register.

· An outcome of an investigation, which would be totally closed to public scrutiny would be less credible as different parts of the joint investigation involved many of the same role players and key issues. considerable. care was taken to ensure that one part of the investigation did not have a negative impact on any of the other parts. Particular care was taker to ensure that neither the forensic investigation nor possible prosecution would be prejudiced by the public investigation

Caution therefore dictated that the selection of issues to be addressed and witnesses to be called during the public phase be carefully managed.

In order to limit overlaps and possible interference in the other parts of the investigation, it was decided to divide the public phase of the investigation into two stages. The first stage was referred to as the "scene setting stage" and comprised testimony in respect of the requirements of the SANDF and the process and procedure of acquisition. This part of the public phase of the investigation is referred to throughout the report, but is discussed in the main in Chapter 3.

The second stage was referred to as the "specific complaints stage" and it included the evidence of a tenderer who complained of certain alleged improprieties in the acquisition process that caused his company not to be selected from obtaining a specific contract. This part of the public phase of the investigation is dealt with in Chapter 11 of the report.

Some negative comments have been made about the questioning of witnesses during the hearings. There appeared to have been a perception that the questions posed amounted to cross examination similar to what is found in a criminal trial and that some witnesses were treated differently from others in this regard. These perceptions were, however, clearly based on ignorance about the process of a public investigation conducted in terms of the Public Protector Act. The Act provides for questions to clarify matters and not typical cross-examination. Furthermore, the number and length of questions were mostly determined by the legal representatives of the different parties affected by the investigation. So. for, example were Dr Young of C212 exposed to many questions to clarify his detailed and technical evidence, whilst only a few questions were put to the Minister of Defence, clearly because he became involved in the procurement process at a very late stage.

I was, very ably, assisted during the public phase of the investigation by Dr S Ramaite, Director of Public Prosecutions and Mr H van Zyl, Executive Manager of the Office of the Auditor-General.

During the hearings the following aspects of the procurement process were, inter alia, clarified:

· The procurement process began with the Defence White Paper presented to Parliament by the former Minister of Defence in May 1996. It received strong support from all the political parties and was approved by Parliament. The process was taken further through the Defence Review, which involved the widest consultation process regarding arms procurement in the Republic and which was accepted by Parliament in April 1998.

· Consensus was established to transform the SANDF into a leaner and meaner Defence Force, taking into consideration not only the security requirements of the Republic of South Africa, but also the regional security arrangements and peace keeping obligations.

· The actual procurement amounted to the acquisition of less arms than were agreed to in the Defence Review Process.

· South Africa's defence expenditure dropped under the democratic government from more than 4% of the national budget to just under 1,5%. This is on par with international norms.

· There was a conflict of interest with regard to the position held and the role played by the Chief of Acquisitions of the Department of Defence, Mr S Shaik, by virtue of his brother's interests in the Thomson Group and ADS, which he held through Nkobi Holdings.

· The imposition of a risk premium on the MS of C212, the company owned by Dr Young, was not unreasonable. The selection of the Detexis Databus System in preference to the MS of C212, was not unfair, when one takes into account all the circumstances of the selection process.

On the day of the commencement of the public phase of the investigation, the SABC and Midi TV lodged applications for the direct and/or delayed, broadcasting of the proceedings. Counsel for both institutions submitted extensive arguments in this regard. In the subsequent ruling made by the Panel, the applications were denied. However, still photography and videotaping were allowed until the proceedings started and journalists were allowed to be present during the proceedings to take notes. We were accused by the media, and certain individuals of limiting the right to freedom of expression by refusing live broadcast of the proceedings. The SABO and MIDI TV even went to the extent of applying to the High Court (Transvaal Provincial Division) to have the above ruling reviewed. A full bench of the High Court dismissed the application finding that the limitation by the ruling of the right of freedom of expression could not be held to be unjustifiable under the circumstances.

The public phase of the investigation was widely publicised, both in the print and electronic media and I submit, with respect, that it was not only an essential component of the joint investigation, but also served to demonstrate that openness and accountability do not bend or become flexible when they reach the doors of some high placed individuals or institutions. These principles were upheld even with regard to matters, which would have ordinarily been proscribed by the Defence Act.