JOINT STATEMENT BY AUDITOR GENERAL, NATIONAL DIRECTOR OF PUBLIC PROSECUTIONS AND PUBLIC PROTECTOR: 15 NOVEMBER 2001

JOINT INVESTIGATION REPORT INTO THE STRATEGIC DEFENCE PROCUREMENT PACKAGES
Today the joint investigation team headed by myself, Shauket Fakie, Auditor-General, Selby Baqwa, Public Protector and Bulelani Ngcuka, National Director of Public Prosecutions, presented our report into the largest investigation of its kind ever undertaken in South Africa, to Parliament.

BACKGROUND
On 15 September 2000, I, as the Auditor-General, issued the Special Review Report on the Strategic Defence Procurement Packages.

The Special Review was the subject of hearings and deliberations of the Parliamentary Standing Committee on Public Accounts (SCOPA). It was subsequently decided to conduct a joint investigation into the Strategic Defence Procurement Packages.

The investigation agencies received numerous allegations, many of which were of a criminal nature, some relating to mal-administration and others to financial irregularities.

A three-phase approach was adopted:
· The Public Protector conduced public hearings;

· The Office of the Auditor-General conducted the forensic investigation; and

· The National Prosecution Authority (NPA) conducted a criminal investigation.

As the 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.

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.

The joint investigation was conducted in accordance with internationally recognised due process procedures and practices. This included gathering, studying, analysing and interpreting information. One of the many challenges, was to control and manage documents in excess of 700 000 pages, which were obtained from, inter alia, DoD. we furnished our draft report to the relevant and affected government agencies, offering the opportunity to make inputs/comment on the factual accuracy of the report before it was finalised and tabled in Parliament.

However, given the complexity of the criminal investigation it will still be continuing for some time. Thus far, 102 summonses to interview witnesses in the criminal investigation have been issued more than 57 statements have been taken and statutory records of 193 entities and numerous documents have been obtained. Various premises in France, Mauritius and South Africa have been searched and documents seized. In order to avoid disclosure of information sensitive to these investigations it has been decided not to make the details public.

Some of our key findings 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 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 award~-g 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, 19g4, 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, I would like to say that the investigation was initially viewed with a certain amount of scepticism, which was not conducive to an enabling environment. However, as it progressed, confidence grew in the credibility of the process and role players and witnesses cooperated freely.

We thank all the government agencies, individuals, other role players and foreign governments who assisted us with search applications in various countries.

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STATEMENT OF THE SOUTH AFRICAN GOVERNMENT ON THE JOINT INVESTIGATION REPORT INTO THE STRATEGIC DEFENCE PROCUREMENT PACKAGES

1 The South African government welcomes the completion of the joint investigation by the Auditor-General, the Public Protector and the National Director of Public Prosecutions into the Strategic Defence Procurement Process. The Report clarifies issues that have been the subject of public discourse; and we hope that it will lay to rest speculation on these matters. The facts are now on the table.

2 Government wishes to reiterate its confidence 'n the institutions that were delegated to undertake the investigation. We have noted that they undertook their work without fear, favour or prejudice, and in a manner that instils confidence in our democracy.

3 As the report indicates, government co-operated to the fullest extent possible. In many instances we went beyond the call of duty. This is reflected in part in the unusual step to allow classified documents on deliberations of Cabinet and its Committees as well as sensitive matters on the state of our Defence Force to be aired publicly.

4 From the outset, we wish to assert that government accepts the findings of the investigators without reservation; and we will take all the necessary steps to implement their recommendations. It could be that 'we may be uncomfortable with a phrase here or a formulation there. But this is not the time to quibble about detailed turns of phrase. What is fundamental is the issue of principle:
above all, the integrity of our democratic system, its capacity for self-correction and the robustness of our institutions.

Findings on matters of principle
5 The report indicates that the Defence Review Process, detailing the country's security assessment and the ensuing responsibilities of the National Defence Force with regard to security, marine resources, international obligations and so on, formed the basis of the decisions of Cabinet on the acquisition of equipment. This was a process that enjoyed the support of virtually all parties in parliament. Indeed, the increasing demands on the SANDF, the evolution of the situation in Southern Africa as well as the September 11th and subsequent events underline the fact that democracy, freedom and human rights require more than morality and "miracles" to protect.

6 The central thrust of the report is found in the key finding:
"No evidence was found of any improper or unlawful conduct by the Government. The irregularities and improprieties ... point to the conduct of certain officials of the government departments involved and cannot ... be ascribed to the President or the Ministers involved in their capacity as members of the Ministers' Committee or Cabinet. are therefore no grounds to suggest that the Government's contracting position is flawed".

7 This should lay to rest all kinds of allegations that were made against government. We are confident that the same enthusiasm that was shown in making these allegations, now found to lack substance, will manifest itself in ensuring that the public is informed of the actual state of affairs.

8 It is a matter of concern to all of us that, as the report notes, "there may have been individuals and institutions who used or attempted to use their positions improperly ... to obtain undue benefits in relation to these packages". To the extent that there were such individuals and actions, applying, as the report says, in particular to the secondary contracting process, these were acts as much of self-enrichment as they were against the ethos of our government. We have noted that the Directorate of Special Operations is investigating these matters; and we express our full support for this. It is in the interest of the government and the country as a whole that the law must take its course and be seen to do so.

Affordability and rigour of the process
9 The report details procedures in the acquisition process that are in line with international best practice. This ranges from the policy process to the structures that were set up, the assessment of the utility and cost of the packages and the industrial particip2tion programme. Also critical in the assessment is reference to the strategic considerations that Cabinet, on occasion, had to take into account.

10 Much has been said about the cost of the acquisition. Government wishes to reiterate that Cabinet weighed all the trade-offs, and decided that the process was in the best interest of the country. In this regard, the following matters need to be re-emphasised:

10.1 Firstly, the package was systematically managed downwards to ensure its affordability.
10.2 Secondly, a comprehensive analysis was done regarding the long-term implications for the country. As the report says, while there may be differences on the models, Cabinet took a view that was informed by a presentation that was "scientifically based and realistic".

10.3 Thirdly, the report makes the observation that the disadvantages of a weakening Exchange Rate in respect of the acquisition should also be measured against the converse impact on the valuation of the industrial participation packages.

10.4 Fourthly, as we have said before, it is profoundly unhelpful to speculate on the aggregate payments that will be made over a number of years, given the vagaries of factors that need to be taken into account. As with any loan, such as a housing bond, the critical matter is the affordability of the instalments. Critically, as the report says: "What was achieved by the Affordability Team and the International Offers Negotiating Team ... is unprecedented in the international credit market".

10.5 Lastly, while we accept that there are costs involved in such a major acquisition, the fact of the matter is that the Medium-term Budget Policy Statement of government, released some two weeks ago, demonstrates that we are in fact increasing real expenditure on social services.

Subcontracting and conflict of interests
11 On the matter of the sub-contracting process, the report reiterates what government has said all along that, while state structures may have an interest in the reliability of the package as a whole, "the final decision about which subcontractor should be used remains the responsibility and the right of the main contractor". In this regard, a number of allegations have been made, particularly with regard to acquisitions for the Navy.

12 In relation to electronic systems for corvettes and allegations by a particular company, the report notes that the process undertaken was not unreasonable and therefore would not have impacted on the integrity of the decision.

13 Government has noted the matter of conflict of interest as it applies to individual(s) mentioned in the report and the allegations on gifts received by some officials, as well as the findings and recommendations on this matter. Government will co-operate with any further investigations in this regard.

14 It should be emphasised that these investigations do not, and should not be construed to, detract from the Key Findings and Recommendations of the report, about the rigour and integrity of the formal acquisition process involving government. The decisions of the acquisition process stand - there will be no further review.

15 The report explains the reason behind the initialling of the submarine contract by the then Minister of Defence, and that it was a collective decision of Cabinet. Further, it makes observations about retrospective conflict of interests which we accept, and which already constitute a firm decision of Cabinet from its July 2001 Lekgotla.

Industrial Participation programme
16 After making comparisons among a number of countries on industrial participation programmes, the report establishes that we conform to the best in the world. In a number of areas, the negotiated package is well in excess of minimum requirements. We do however accept the finding that this could have been tighter, and the recommendation that further legal opinion needs to be sought to ensure that the contractors meet their obligations.

17 With regard to the observation by the Standing Committee on Public Accounts (SCOPA), that "the contracts contained clumsy language, incorrect references" and so on, the report finds that the contracts were "understandable, well defined and the drafting ... of a high standard".

18 Further, the report found the approach in respect of obligations "to be reasonable", and that the facts in this regard would allay the concerns raised in the Special Review by the Auditor-General as well as the 14th report of SCOPA.

Conclusion
19 These then are the main issues in the report. Government wishes to reiterate that we accept both the findings and the recommendations, which speak to critical lessons for the future.

20 Many South Africans will agree that we have been through a novel experience both in terms of the acquisition process and the debate around it. From government's point of view, we welcome this vindication of government's standpoint on these matters.

21 Now we have the facts. Government hopes that all South Africans, especially those who describe themselves as political leaders, as well as the media, will handle the report's findings and recommendations in the same spirit.

22 For anyone to question the integrity of the report simply because they do not like the findings of a thorough public and forensic audit conducted by the Auditor-General, the Public Protector and the National Director of Public Prosecutions, would smack of opportunism of the worst order.

23 The time has come that all of us stop treating the needs of our National Defence Force as a political football. This Force has a constitutional mandate to fulfil. It is also critical for all of us to desist from making unsubstantiated allegations against government and the investors with whom our country has decided to build strategic relations well into the future.

24 Government will continue with the acquisition process, which, we are convinced, is in the interest of the country.

25 In the light of the damage to our country, caused by unfounded allegations of massive corruption on the part of government and reputable international companies, government will institute its own investigations to ascertain the source of these allegations and the purpose they sought to achieve.

26 We wish to thank the Auditor-General, the Public Protector and the National Director of Public Prosecutions and their teams, for their thorough application to the issues at hand.

[More information on the Strategic Defence Procurement Process can be accessed from www.gov.za]

15 November 2001

Issued by: Government Communications (GCIS)
For further information contact: Joel Netshitenzhe