Shaik trial hears deputy president could not fund lifestyle with his salary as MEC

Did Deputy President Jacob Zuma incur debts with the knowledge that another party would settle them?

Forensic evidence heard at Schabir Shaik's fraud and corruption trial on Thursday suggests that Zuma could not fund his lifestyle with his salary as a KwaZulu-Natal MEC, yet he continued to live beyond his means.

"There were times when not even the first payment due cleared the bank. As a consequence, Zuma's financial position deteriorated over time to such an extent that legal proceedings were instituted for the recovery of such debts," KPMG forensic director Johan van der Walt told the Durban High Court.

He said Shaik, his company the Nkobi group and other parties related to the group, settled debts and other personal expenses for or on behalf of Zuma in excess of R1,2 million.

"The manner in which the transactions were recorded in the accounting records of the entities, as well as in the personal balance sheets of Shaik and Zuma, indicate that none of those treated the payments as loans to Zuma as has been contended. These payments stretch over the period October 1995 to September 2002. We understand that this practice continued after September 2002," he said.

According to financial records, Zuma experienced difficulty from as early as January 1995, when he was issued a letter of demand from his banker as his mortgage was in arrears.

Van der Walt said Shaik, who acted as Zuma's "financial adviser", was aware that at no stage could Zuma afford to pay back loans.

He listed some of Zuma's financial difficulties.

During October 1997, Standard Bank instituted action against Michigan Investment (the close corporation in whose name Zuma's home loan account had been opened) for R443 618,52.

Zuma had a R66 500 overdraft with Nedbank on May 14 1998.

On May 14 1998 he had an outstanding debt with Wesbank in respect of the purchase of a car valued at R291 145,95.

He also owed SA Permanent Bank R75 000 on May 14, 1998.

In September 1998 Zuma's personal overdraft with Standard Bank totalled a further R105 717,61.

In October 1998 Zuma owed AQ Holdings (Pty) Ltd R85 500. AQ Holdings threatened him with an application for sequestration. Shaik settled the debt.

Shaik's trial centres around alleged corrupt and fraudulent financial transactions between Shaik and Zuma. The state claims Shaik paid Zuma at least R1,2 million for his influence in business deals.

The court on Thursday heard that despite Zuma's financial position, in 2000 at about the same time the alleged bribe agreement with Thomson-CSF was discussed, he started to develop his traditional homestead at Nkandla in northern KZN.

Van der Walt said the cost of the development was R2 428 360 (excluding VAT), later lowered to R1 340 000. The estimated time for completion was six months.

The state alleges that the sequence of events regarding certain payments relating to the development was a "scheme to disguise the payment of the money due to Zuma in terms of the agreement to bribe him".

Arrangements were made during the development and after its completion for payments to be made by various third parties on Zuma's behalf.

On August 14, 2000, R100 000 was deposited in the bank account of Eric's Industrial, who had won the tender to develop the village. The R100 000 was made up of R30 000 from Bohlabela Wheels in Middelburg, R60 000 from Bohlabela Wheels in KwaZulu-Natal, and R10 000 from Fakude P.Z.N.

On October 4, 2000, R40 000 was deposited in the bank account of Eric's Industrial with a Bohlabela Wheels cheque. On October 18 another R50 000 was deposited into the same account.

On October 19 Shaik instructed the developer to stop development. However, Zuma told him to carry on, saying he was arranging a bond. Arrangements for a bond were only made two years later, when a R900 000 bond was registered with First National Bank. Zuma's close friend, Durban businessman Vivian Reddy, signed as surety for the payment of the loan and agreed to pay the monthly installments of R12 177,11.

On October 31, 2000, Reddy made a payment of R50 000 to Eric's Industrial. On November 3, 2000, a cheque of R50 000 from Reddy's personal account was paid to Eric's Industrial.

On December 4, 2000, Zuma drew a cheque for R1 million from Development Africa. The Development Africa account was opened for a charitable trust. It has not been registered as a fundraising institution and neither has it been registered for tax purposes. Reddy is the founder of the trust and also a trustee.

By December 4, 2000, Eric's Industrial had only received R290 000 of the R1 050 000 for the Nkandla development.

On December 7, Shaik instructed the bank to stop payment of the cheque to Development Africa. One of the main reasons was that the R1 million donated by former president Nelson Mandela was used by Shaik to pay Nkobi Holdings' and Zuma's loans, and there was not enough money in the account to cover the cheque.

On December 8, 2000, Shaik wrote to Thomson-CSF International Africa regarding the alleged bribe: "Herewith Application Form for the Service Provider agreement as discussed. Kindly expedite our arrangement as soon as possible, as matters are becoming extremely urgent with my client". According to Van der Walt, evidence indicates that the "client" was Zuma.

On February 2001, Thomson-CSF complied with the service provider agreement by depositing R250 000 into Shaik's Kobitech account.

Within eight days, Kobitech paid Development Africa R250 000 "as part of the scheme". At the same time, the Nkobi group issued three post-dated cheques, each also in the amount of R250 000, in favour of Development Africa. On April 19, 2001, Kobitech requested Absa Bank to stop payment on the three cheques.

On September 4, 2001, Shaik received a deposit of R175 000 from Kobitech.

On September 5, 2001, a R125 000 cheque was drawn against Shaik's account in favour of Development Africa.

On September 17, a further cheque of R125 000 was drawn against Shaik's name in favour of Development Africa.

The court also heard that although Shaik maintains he made payments on Zuma's behalf as a friend helping another friend in need, he was not in a financial position to fund such payments.

According to forensic evidence in 2001, Absa bank had originally declined Shaik's application to be a Private Bank client on the grounds that he was "a high risk rating and had 15 unauthorised excesses of the limit in 12 months". Later, his acceptance was regarded as a strategic decision because he was "the financial adviser of Zuma".

Van der Walt is expected to provide conclusions based on his 259-page report today before cross-examination.

With acknowledgements to Nivashni Nair and The Natal Witness.