Publication: Mail and Guardian Issued: Date: 2000-05-26 Reporter: Ivor Powell Editor:

Nepotism in R32bn Arms Deal


Publication  Mail & Guardian
Date 2000-05-26
Reporter Ivor Powell
Web Link


Questions have arisen over the involvement of two companies - African Defence Systems and Futuristic Business Solutions - in South Africa's jobs for arms deals.

Companies with close links to the head of the military's weapons procurement committee have been awarded the lion's share of local contracts in South Africa's controversial R32-billion weapons deal. It has emerged that the head of the defence department's arms procurement committee, Shamin "Chippy" Shaik, has close relations in a company mandated to provide South African partners for the arms deal. A close associate of former defence minister Joe Modise is also a director of the company. 

The way the weapons procurement programme was structured meant foreign suppliers were required to form partnerships with local players in the defence industry and to guarantee investments in the South African economy, thus creating what cabinet estimated at 65 000 new jobs. These spinoffs, government defenders of the package claim, more than justify the outlay of taxpayers' money. 

There are two companies at the centre of the controversy. Firstly, there is African Defence Systems (ADS), which lists Shaik's brother, Shabir, as one of its directors in a seemingly flagrant violation of conflict of interest provisions in legislation governing tender procedures. Chippy Shaik's wife Zarina also works as a senior marketing executive in ADS, which will retain a substantial portion of the R2,6- billion paid into its account. Shaik declined to comment on the probity of his brother's presence on the ADS board, but denied any improper conduct on his own part. "I recused myself from all decisions on South African involvement in the weapons deals, on the basis of conflict of interest," Shaik said. "Those committees were chaired by the chief of staff of the air force and navy." But in the view of Democratic Party defence representative, General Philip Schalkwyk, this amounts to a dereliction of duty. "He should simply not have been in a position in the first place to have to ask to be recused," he said.

Schalkwyk said the selection was in fact done in the bureaucratic phases of the process, with the structuring of partnerships between local and international interests, and in this phase Shaik had indeed been active. Also included in the list of ADS directors, as from earlier this year, is another family team former Umkhonto we Sizwe stalwart, and retired lieutenant general in the South African National Defence Force (SANDF) Lambert Moloi, and his son-in-law engineer Tshepo Molai. Moloi is a close associate of Modise (who oversaw the initial phases of the weapons deals before his retirement in 1999) and also a director of arms manufacturer Denel. 

Meanwhile, both Moloi and Molai are also directors of the other company implicated - Futuristic Business Solutions (FBS). FBS not only was given work on the arms package by ADS, but subsequently became a shareholder itself. Moloi confirmed FBS had acquired a 20% in ADS, and had been associated with ADS since late 1998. The rest of ADS is owned by a French company, Thomson CSF, making a mockery of the company's pretentions to be being a black empowerment venture. All in all FBS stood in line to secure around 70 separate contracts in the weapons procurement deal, many of which had been facilitated by ADS as officially designated integrator of various projects. This was despite the fact that FBS lacks any actual infrastructure or manufacturing capacity and merely functions as a logistics co-ordinator.

In the financial year preceding the defence deals, a source close to the company told the Mail & Guardian, FBS had turned over only about R4-million, almost exclusively moving product on behalf of Armscor. With the new deals, however, the source said, without significantly expanding its operation the company stood to turn over hundreds of millions of rands. Several bidders for the defence contracts confirmed to the M&G that Chippy Shaik had personally communicated that they would have to come to an arrangements with ADS and/or FBS if their bids were to be successful. In several of the deals making up the package as a whole, ADS was appointed to co-ordinate local involvement in the weapons purchases from overseas companies. For its part the specific involvement of FBS was often at the insistence of either Shaik himself or ADS as the company interfacing between South African and foreign interests. 

Deals that were then proposed by both ADS and FBS included the payment of "administration fees" to the value of hundreds of thousands of dollars - just to tie up deals and administer them. In one instance, a North American aeronautics company, bidding for a contract to supply helicopters for use by the SANDF (the  name of the company and details of the proposed deal are known to the M&G) was assured in mid 1998 that it would get the deal if a satisfactory arrangement was made with FBS. However the company baulked at the suggestion when it became clear that FBS lacked the infrastructure to actually deliver on services it would have been contracted to supply.

As one representative of the giant armaments company explained to the M&G, buying into the deal proposed by FBS - which included the payment of a management and administration fee of about $125 000 a month as well as a success fee on delivery of the contract - would have made the company vulnerable to prosecution under United States anti-corruption laws in the Foreign Corrupt Practices Act. Attempts by the American company to create alternative empowerment infrastructures - with companies that it believed were in a position to add value to the project and thus benefit the South African economy - were rejected out of hand, the M&G's source said.

In the event, though earlier assured that it was the frontrunner in bidding for the helicopter contract, the American manufacturer was overlooked in favour of Italian defence company Agusta - at a unit price more than R3-million above the cost of the American product, which is generally considered to be a far superior flying machine. FBS, which had not previously been part of the Agusta package, was included as a partner in the contract secured by Agusta. Defence sources said the choice of Agusta was one which raised eyebrows in the industry, since the basic design of the Agusta helicopter is more than 30 years old, and is widely considered obsolete. Moreover, the Agusta helicopter was given the contract without having been subjected to tests and evaluations to qualifiy it for service in South African conditions. Such qualifications procedures are required in terms of defence acquisition regulations. 

The role played by both ADS and FBS also came into question in the purchase of four MEKO A-200 Class Corvette vessels for the South African navy. In the Corvette deal a local manufacturer -which supplies the same product to the US military - had originally been selected by relevant government committees to provide combat suites for the boats, and directives sent out to all bidders that they would have to include the manufacturer in question in their packages. However, as co-ordinator of the South African involvement in the Corvette deal, ADS apparently shifted the goalposts - after the company had already submitted its budgets for inclusion in the overseas packages. As co-ordinator ADS bizarrely more than doubled the company's pricing, completely off its own bat, from R38-million to R89- million. As an alternative ADS offered the services of FBS at more or less the original budget. Even more bizarrely FBS submitted parts of the other company's documentation as if it was FBS's own. The contract was eventually given to a consortium which included the German manufacturer Thyssen and Thomson CSF, at the time the sole owner of ADS. The M&G understands that no fewer than four top level investigations have been conducted into the arms scandal - by the Heath Special Investigating Unit, the Department of Trade and Industry and the Ministry of Defence respectively. 

A fourth, by the auditor general, which is believed to highlight gross irregularities in the way that government's defence acquisitions committee made the awards, has already been completed and submitted to government. Representative Guy Rich confirmed that the Heath unit was continuing to investigate possible irregularities in the weapons deal, but was awaiting the tabling of the auditor general's report in Parliament before deciding whether to ask the government to implement a full investigation.

What the outcome will be is uncertain, but, according to the Institute for Defence Alternatives' Terry Crawford-Browne, there is plenty of room for concern. "The international experience has been that offsets and job creation deals in weapons sales are nothing more or less than a recipe for corruption - to the extent they are prohibited between the US and Europe under American law," he said. "To make the situation even more disturbing, the taxpayer has still not been told what the offsets actually are and how they will benefit the country."

With acknowledgement to Ivor Powell and the Mail & Guardian.