Two million rands given to Deputy President Jacob Zuma by former president Nelson Mandela for an education trust were used by Schabir Shaik to reduce the overdrafts of his companies and Zuma, the Durban High Court heard yesterday.

The state will argue that this was an attempt to launder the proceeds of a R1 million bribe agreement between Shaik, Zuma and the French arms company, now known as Thint.

But Shaik disputed this in his plea explanation, claiming that everything was above board. He said that even though he had transferred R900 000 to corporate accounts, he had given the money back when he had realised what it was for.

Shaik has pleaded not guilty to two charges of corruption and one of fraud. Both corruption charges relate to his relationship with Zuma.

The revelation of the Mandela money was made yesterday by forensic auditor Johan van der Walt.

Van der Walt said that it was evident from a cash flow analysis of the Nkobi group that the companies "came under pressure during 1999 to 2001".

He said that payments made to and for Zuma had a fundamental effect on the business. As the cash of the Nkobi group decreased, the payments made to and for Zuma increased. Were it not for these payments to Zuma, the group would have remained in the black.

According to Van der Walt's report, the payments to Zuma increased steadily from January 1995, to around R1.2 million by the beginning of 2002.

Van der Walt explained that by March 1999, a note from the auditors of Nkobi, Desai Jadwat, had made it clear that three of the companies in the group were technically insolvent and should not have continued to trade.

In another letter from a group accountant for Nkobi, Shaik was warned to watch his expenses to the ANC.

The state alleges that its investigation into what happened to Mandela's money fell under its probe into its charge against Shaik. It also claims that Shaik solicited a R1 million bribe for Zuma from Thint, and that Shaik then put mechanisms in place to hide the payment of the money.

This was how Van der Walt followed the paper trail of the Mandela money:

On October 2 2000, Mandela endorsed a cheque of R2 million to Zuma. "We don't know the source of Mandela's funding," Van der Walt said.

The money trail

On October 17 2000, Zuma paid the Jacob Zuma Education Trust R1 million. This money went to the KwaZulu-Natal RDP Education Trust, from where it was paid to an unknown beneficiary.

"I assume the money was used for its intended purpose," Van der Walt said.

The next day, Shaik transferred R900 000 from Zuma's account to Floryn Investments, one of the corporates accused in the case.

Between November 3 and November 30 2000, a number of payments to the legal firm Ditz Incorporated and companies in the Nkobi group were made from this money.

On December 4 2000, Zuma wrote a cheque for R1 million to pay for the Nkandla development - a traditional housing estate development for himself and his family in rural KwaZulu-Natal. Shaik stopped the cheque.

Soon afterwards, Shaik started putting a "service agreement" in place to facilitate the payment of the R1 million bribe money to Zuma.

But Shaik had another story, as he explained in his plea explanation:

"These funds were given to Zuma by former president Nelson Mandela.

I transferred R900 000 to Floryn Investments.

"I later established that the R2 million was intended for the Jacob Zuma Education Trust and the Development Africa Trust.

"R1 million was, in fact, paid to the Education Trust. I had no knowledge of the Development Africa Trust, but understood that Dr Zweli Mkhize was a trustee of this trust.

"He explained to me that the money was intended for confidential ANC activities. I made arrangements with Dr Mkhize to repay the funds transferred from Zuma's account to the account of Floryn Investments, to the Development Africa Trust. (According to the state, the trust is not registered as a fundraising institution, nor has it been registered for tax purposes.)

"I have since learnt that the object of the Development Africa Trust was to raise funds for the care and welfare of tribal leaders and the Zulu royal family. It had nothing to do with a scheme to disguise payments from Thomson-CSF International Africa."

The court further heard that when Shaik was confronted by his auditors with the irregular "writing off" of loans in Nkobi's books, he said that the money had been paid to house IFP politician Walter Felgate when he had defected to the ANC in 1999.

The trial continues. Judge Hilary Squires presides.

With acknowledgements to Estelle Ellis and The Mercury.