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

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

The revelation of the Mandela money was made by forensic auditor Johan van der Walt in the Durban High Court yesterday, his fifth day in the witness box.

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

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

On October 17 2000, Zuma paid the Jacob Zuma Education Trust R1-million. This 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 corporate accused in the case.

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

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

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

Shaik, however, denied any wrongdoing in his plea explanation, saying that all was above board. He said that even though he had transferred R900 000 to corporate accounts, he gave the money back when he 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.

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

He said payments made to and for Zuma had a fundamental effect on the business. As the cash of the Nkobi group decreased, the payments made for and to 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, 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 with Mandela's money falls under its probe into a charge against Shaik that he had solicited a R1-million bribe for Zuma from Thint and had then put mechanisms in place to hide the payment of the money.

But Shaik had another story, as he stated 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 and has not been registered for tax purposes.)

"I have since learned 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 form 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, Shaik said the money was paid to house IFP politician Walter Felgate when he defected to the ANC in 1999.

Shaik said he considered it as his company's social obligation to fund the peace process in that "volatile environment".

The trial continues.

The former head of the Heath investigative unit, Willem Heath, is to be a state witness in the trial.

With acknowledgements to Estelle Ellis and The Star.