The Arms Deal Investigation : Accountability Failure

-         A Critique of the JIT Report

by Dr Gavin Woods[1]

February 2002 

Opening Comment 

In October 2000, Parliament referred the Auditor-General’s “Review of the Strategic Defence Package (SDP)” to the Standing Committee on Public Accounts (SCOPA). In terms of the Constitution and the Rules of Parliament, this obliged SCOPA to look into the issues raised in the Review and into any related matters – in representing the interests of the public. To this end, SCOPA, through its 14^th Report, strongly indicated the need for in-depth investigation into key aspects of the SDP. SCOPA proposed that a multi-agency investigation, in addition to its own ongoing investigation, would be necessary - given the magnitude of the SDP and the nature of the initial concerns which had emerged. These proposals were adopted by Parliament. 

Some thirteen months later, the Joint Investigation Team (JIT) completed its work and has submitted its findings to Parliament. SCOPA, through decisions and actions of its majority component, was prevented from undertaking its further investigation and therefore from meeting its obligation to Parliament and to the South African public. 

The purpose of this paper is :

• to restate the research-based questions and concerns laid out in SCOPA’s 14^th Report which provided the basis for the proposed investigative work

• to reappraise the importance and relevance of these questions and concerns

• to establish the extent to which the JIT (as the only investigative response) has dealt with these questions and concerns.

Now that both the Executive and Parliament, to all intent and purposes, have proclaimed the Arms Deal controversies to be behind us, it is important, given the circumstances, to establish whether the more important public interest considerations and its right to know, have been adequately dealt with. 

As this paper will show, the more significant questions and concerns remain largely unanswered in relation to the following issues. 

• Cost of the SDP 

• Offsets/Industrial Participation Projects 

• The Selection of Suppliers/Awarding of Contracts 

• Policies and Procedures Followed 

• Selection of Sub-Contractors 

• Conflicts of Interest 

• Allegations of (Criminal) Wrongdoing 

• Responsibilities of Cabinet/Cabinet Sub-Committee 

Cost of the SDP 

SCOPA’s 14^th Report – Issues/Concerns Raised 

• The concerns at the substantial increase in the overall cost of the arms packages 

• The possibilities of this increasing further and the potentially serious effects thereof.

The Importance of These Concerns 

Given the more serious implications for social spending, the fiscus and the macro-economy that the raising cost of the SDP could hold, the public should as far as possible be informed as to how much they as the taxpayers will ultimately have to pay and in what other negative ways they could be affected (e.g. through the budget). The significance of these tens of billions of rands is undeniably great. 

JIT Investigation 

The JIT, through the Auditor-General, did not address the main concerns expressed by SCOPA. Rather, it spent its time confirming factual situations which SCOPA had already established in its 14^th Report, i.e. : 

• that when announcing the SDP, Cabinet had been in a position to have more fully informed the public of its cost implications and other possibilities; and 

• that the Affordability Study was an essentially sound and comprehensive piece of work.

The JIT’s studious documentation of an historical perspective of these two matters is useful for the record, but does not address the central concerns which SCOPA (and the public) wanted looked into. The lack of public response to the JIT findings bears this out. 

It will be seen that the “Scope of the Investigation” (9.2.1. of the JIT Report) established by the JIT was not relevant to SCOPA’s stated concerns – with the exception of one item (9.2.1.6) which promises investigation into “The full financial and fiscal implications of the SDP”. Strangely, the JIT then fails to undertake this particular investigation. The 6 “findings” from this part of the JIT’s investigation (9.3) simply served to confirm what SCOPA had stated as a matter of fact in its 14^th Report. It makes no reference whatsoever to SCOPA’s main concern regarding the financial and fiscal implications of the SDP.

Comment 

With reference to the above, an investigative exercise along the following lines would have been especially informative : 

It will be seen from the 2002 Budget Review that Treasury’s total cost figure of R52,7 billion omits many of these cost items – including the estimated R20+ billion SDP debt servicing costs. 

Further, the JIT might have been expected to conduct some enquiry as to the implications of the rising cost to the country – even if this was only to have the economists they employed identify and quantify the theoretical consequences; and then to have sought governments thinking on how they might manage such situations should these arise. 

It is clear that Cabinet had to stretch every aspect of the affordability question in order to agree to the original R30 bn cost – so how can the fiscus afford the equivalent of at least double that cost? How will the unanticipated price rise be met? Through curtailed social spending, loans, higher taxes? And what of the inevitable balance of payment effect – which was another concern referred to in SCOPA’s 14^th Report? The 30:110 proportions (Cost:IP Value) which government said were necessary to render the SDP economically neutral is now closer to 60:110 and still closing. Does this already mean a balance of payments problem which will need to be taken care of by discrete sacrifice elsewhere? There will be implications and the public have a right to know what these might be. The reluctance of government and the JIT to admit to these is very problematic. 

All this, together with Cabinet’s misleading public contention that “over the medium and long term the benefits from the DIP and NIP programmes will fully off-set the economic and fiscal costs of the military equipment” (GCIS 2001-01-23 is ignored by the JIT. The important question regarding the extent to which the offsets might counter currency effects of the cost of the deal is just one such aspect that should have been probed and explained. Clearly, the benefits of offsets/industrial participation projects (plus any escalation in their monetary value) overwhelmingly accrue to the wealth of independent business interests and not to the state. Simply put, the State (through public taxation) has to pay more when the cost increases through a weakening Rand – but does not get this back through any respective increase in value of the Industrial Participation (IP) projects. 

These failings to investigate and report on the critical issues related to the cost of the SDP is disappointing. Even more disappointing is the manner in which the JIT tries to excuse itself from undertaking the most important work in this regard. This being seen in the final sentence of the chapter where the JIT contends “Ultimately, the decision as to what the country can and cannot afford is one of political choice”. This seems to be saying to the people of the country that the ultimate price you (as taxpayers or you as receivers of services) will pay is none of your business. This is most regrettable coming from those who should be promoting public accountability - and not dismissing it. This attitude is seen to be characteristic of JIT positions taken in other areas of their report, where short unsubstantiated statements substitute for lack of proper investigation – and coincidently in each case does so to the advantage of the executive government. 

Note: The undertaking by the Portfolio Committee on Finance in their report to Parliament in December 2001 will not address these essential concerns. 

Offsets/Industrial Participation (IP) Projects 

Scopa’s 14^th Report –Issues/Concerns Raised 

The issues/concerns raised by SCOPA were : 

1.      What constitutes the difference in value between the total value of the I.P. projects and their economic value. 

2.      The need to verify the make-up of both these amounts, their credibility and realisability. 

3.      The conflicting statements from government/cabinet as to the purpose of the IP. 

4.      Uncertainties as to the enforcement of the NIP (National Industrial Participation) and attainment of these promised offset projects. 

5.      The experience of developing countries with promised offsets. 

6.      The exceptional high I.P. demands on the suppliers. 

7.      The seemingly low penalties. 

8.      The unconditional release from I.P. obligations once a penalty is paid. 

9.      The weak position of the arms suppliers/the international arms industry at the time of negotiating the offsets. 

10.  The IP’s defiance of business logic. 

11.  The bigger value-for-money aspect of the IP in the overall Arms Deal. 

12.  The need for an effective monitoring system. 

13.  Possibilities for tightening up on the IP arrangements. 

14.  The possible optimistic estimations of jobs. 

15.  The IP contracts and their appearance of not being well prepared. 

Importance of These Concerns 

As the public was led to believe that the decision to proceed with the SDP was contingent on the IP, it is vital that this IP deliver what has been promised. Against this therefore, the great importance of the above issues and concerns is self-evident.

JIT Investigation 

As can be seen, the JIT simply discarded 10 of the 14 concerns SCOPA wanted investigated. And none of the 4 it looked at were satisfactorily addressed. The JIT chose to narrow its scope down to particular aspects of the performance guarantees, their comparability to a selection of countries and government’s plans and ability to monitor the delivery of the IP. In doing this, it spent considerable time on the DIP (Defence Industrial Participation), which as SCOPA pointed out in its 14^th Report, were not a concern as these are required for completion of the armaments - meaning that the supplier could not deliver the armaments and receive payment if the DIP was not met (a SCOPA contention which is proving to be correct). All SCOPA concerns obviously revolved around the NIP which comprised some 86% of the IP.

Comment 

Summary of Approximate IP Commitments 

The JIT’s one-dimensional approach to the IP guarantees is not helpful. Firstly, by failing to make the arithmetic adjustments necessary to compare the South African penalty percentage (which is of contract price) to the penalty percentage (which is of IP value) in the other countries, the JIT finding on the issue is flawed. Secondly, by ignoring the international norm of having a predominant proportion of DIP in relation to NIP (for reasons referred to above, i.e. the assuredness of DIP), the JIT misses the major underlying risk issue in the South African case (international practice in the region of 85% DIP to 15% NIP, the South African mix is approximately 14% DIP and 86% NIP – e.g. see US Congress comparative report). The JIT also missed the strong international tendency to pursue high technology-transfer NIP which is more secured. As is noted in South Africa’s case, government accepted a very wide variety of NIP types across many industries. And then the JIT also missed the concern expressed by SCOPA relating to the 3,5:1 ratio (value of IP to cost of armaments) as was “achieved” by the negotiators of the South African IP. As this is the highest in the world, it should have rung alarm bells as to whether it is sustainable or even possible. If it made any sense, as top economists keep pointing out, many countries would spend huge portions of their budgets on armaments in anticipation of receiving almost 4 times the value in return. The issue of the adequacy of the penalties therefore remains a lesser issue in the face of these big realities and the JIT is very mistaken to claim that their superficial “finding” will “allay the concern raised by SCOPA” (in its 14^th Report) 12.3.2. 

Another international experience is that IP is also impossible to monitor with any accuracy – and for the country to ultimately know if everything promised was received. Given the width and complexity of South Africa’s unique arrangements (see above), it will be interesting therefore to see the methodologies the Auditor-General proposes using to meet his undertaking in this regard. A recent study on the many discrete ways in which to discount export values and inflate imports is informative. There are numerous other ways to produce figures which would suggest whatever is intended. The concern is that progress will prove impossible to record and monitor – especially after the initial (easier) IP has been forthcoming and when the armaments-supplying companies (as profit-driven businesses) get to that IP which offers little or nothing to their bottom lines. Over the decades, business has become extremely inventive when it comes to getting out of deals which do not offer the best return on their investment. It is the rationale most pivotal to their existence. The single issue approach (IP penalties) of the JIT appears altogether unaware of this. 

The system of issuing credits is likely to be very contentious and dependent on subjective assessment. This will be very vulnerable to the tactics of businessmen wishing to escape part of their obligation. 

The likelihood of it all is that much of the promised IP will not turn out as hoped and, given government’s potential embarrassment, it is equally as unlikely that the public will ever know of any serious failings in this regard. 

There has, however, been some acknowledgement of this from the Executive (more so than from the JIT). While a particular Cabinet minister (Minister of Trade and Industry) repeatedly says there is no risk whatsoever concerning the non-delivery of the IP, he was contradicted by his colleagues who have said “government is naturally aware that the risk of the NIP and DIP not materializing fully is intrinsic to the procurement” (GCIS 2001-01-23). This is an important admission and is more than borne out by the large body of international evidence concerning failed and partially fulfilled IP obligations. Indeed, the USA, Canada and the EU have in recent years moved to prohibit the tying of IP and countertrade to their own armaments purchases. If the JIT has had a look at this evidence of failed obligations (where penalty clauses were also in place), it might have added more appropriate scope to its “investigation”. 

The sensible thing for the JIT to have done would have been to closely evaluate the viability of the IP from the business plans suppliers were obliged to submit, rather then to have resigned itself to a “lets wait and see” approach. This is an obvious requirement of SCOPA’s 14^th Report. This could have produced a much more accurate understanding of what is likely and what is not. It might have also provided sufficiently early warning to try and resolve possibly shortcomings. We have already learnt that the business plan of the largest of all the IP plans (Coega) was seriously flawed and unrealistic. The Chairman of SCOPA attempted to call for the IP business plans in order to carry out such an examination, but was blocked by the majority component of the Committee. It was therefore doubly disappointing when receiving the JIT Report and noting the omission of this important exercise, preferring to limit itself to a mechanical compilation of very specific circumstances, rather than rigorous investigation across a fully relevant framework of issues. 

Regarding the quality of the “IP Agreements” which SCOPA referred to in its 14^th Report, it is beyond dispute that the JIT, in attempting to dismiss this concern in its report (Chapter 13), makes the mistake of looking at the “Supplier Contracts” (instead of the IP Contracts). At least 3 references in the chapter prove that,  notwithstanding the Public Protector’s subsequent denial of having erred. Actually, in the case of the IP contracts, the investigation which informed the 14^th Report was carried out on behalf of SCOPA by one of the more senior members of the Auditor-General’s office. The available working papers cite exact pages and paragraphs where the errors exist. For the JIT to completely miss this and produce the comments which they did, is inexcusable.

In concluding this section, it can again be pointed out that almost all of the questions which underlie the public’s interest were not responded to by the JIT.

The Selection of Suppliers/Awarding of Contracts – the Policies and Procedures 

SCOPA’s 14^th Report – Issues/Concerns Raised 

1.      Why the evaluation system for the LIFT (Lead-In Flight Trainer) was changed after the submission of tenders. 

2.      Whether both the costed and non-costed options were submitted to Cabinet. 

3.      The possibility of price-loading in the case of Gripens and Hawks. 

4.      The all-round appropriateness and effectiveness of the policies and procedures used. 

5.      The application of the policies and procedures. 

6.      An evaluation and review of polices and procedures. 

The Importance of These Concerns 

There have been many case studies which show how costly the consequences of poor application of good procedures and practices can be. These experiences across many countries have gradually led to an internationally-developed set of principles and best practices. Regarding the SDP, it is important to establish whether government went to sufficient lengths to put the necessary procedures in place to limit the risk of inappropriate actions and decisions; even more so considering the degree of public opposition to the proposed Arms Deal as the biggest single spending package ever undertaken by government. Weak or flawed policies and procedures can advertently or inadvertently lead to hugely expensive mistakes which produce unintended results. As serious, is the poor or inconsistent application of the policies and procedures. It is therefore an imperative of good practice to ensure that all policies and procedures are firmly in place, with accompanying controls, prior to the transactions taking place. Amongst other things, this would include having researched and established the required product specifications against which tenders will be invited and against which the products offered will be evaluated. This prevents unfairness, dishonest manipulation and ensures the securing of supplies which meet fully one’s considered requirements.

The JIT Investigation 

In this area, the JIT did considerable work which is useful to the evidence-gathering stages of this part of the investigation. The conscientious way in which they sequentially documented the historical process is acknowledged and appreciated. The failing seems to be in the analysis of and deductive reasoning from the facts established. This led the JIT to understate serious actions and in cases to justify the shortcomings found, as can be seen from the somewhat weak “findings” listed by the JIT, which detract from the many serious departures from the laid down rules and procedures.

Comment 

Today, there is vast international agreement over what constitutes procurement/tendering best practice. These best practices apply to any country. Given the collective experience that has gone into the compilation of these and the subsequent proof of their relative effectiveness, the DoD and Armscor should have ensured that these were firmly in place well in advance of the SDP. The decision to “cut and paste” DoD, Armscor and other acquisition procedures in an attempt to cover all SDP bases inevitably left some weaknesses. The JIT points out that changes were introduced to deal with these weaknesses well after the procurement process had begun. The JIT does, however, wish to assure us that this exercise ultimately produced procedures which compared favorably with those used in other countries and, in fact, only mentions one related shortcoming in its findings. 

The establishment of an adequate range of the necessary procedures is an essential requirement. As essential, is the full and proper adherence to these procedures. In this latter regard, it will be noted from the JIT Report (Chapters 4 to 12) that there were well over 50 instances of non-compliance, especially across the selection and awarding processes that led to the 5 prime contracts. Many of these rules which were broken are considered to be fundamental to good practice. 

These many failings go beyond simply being unacceptable. These would, in fact, represent a crisis of credibility for procurement transactions anywhere else and would see those responsible for such flagrant disregard of the rules being the subject of considerable sanction. In the SDP, the officials concerned and indeed the decision-makers appear to have been quite at ease when changing the carefully prepared and internationally-established procedures, criteria and conditions, often for the most dubious of reasons. Even though this invariably led to different results to what the laid down practices and criteria would have otherwise produced, the JIT is relatively unmoved. In select instances and without substantiation, it claims that the changes of rules and formula had no bearing on the resultant outcomes. In no single case did the JIT find it necessary to criticize anyone for having departed from the rules, no matter how serious. Neither does it give details of any exercises it did to support its contentions. 

Far less significant acts of non-compliance in the ordinary course of government business are identified and reported on in strong terms by the Auditor-General. In terms of Public Finance Management Act standards, the Auditor-General would have had to declare most of the five main SDP transactions as unauthorized or irregular expenditure. As a result of this there would have been serious consideration in Parliament as to whether this expenditure should be allowed and whether the responsible decision-makers should be made to answer for their unacceptable actions. But with the SDP, notwithstanding its size, policies, laws, rules and regulations were frequently flaunted with implications for hundreds of millions of Rands; and this is all either rationalized away or quietly stepped over in the “findings” presented by the JIT. 

Even a superficial scanning of the relevant sections of the JIT Report bring into the question the JIT claim that the procedures adopted compared favorably with those used in other countries. It is yet another of the single statement variety the JIT uses throughout its report to dismiss serious concerns without producing the necessary investigative work. Elementary requirements of good policies and procedures concerns the controls and disciplines that are built in - to ensure application. As earlier indicated, the JIT Report itself shows over 50 instances which were apparently possible due to a lack of the control dimension. To imply this to be acceptable, as it is comparable to that in other countries, is hard to accept. It is another case of the JIT’s failure to work according to the bigger picture. 

As mentioned, the established procedures and practices were repeatedly disregarded across the five main transactions. To mention some of the more critical contraventions of accepted practice, one could include the following : 

• serious shortcomings in the application of the evaluation system 

• substantial inconsistencies in the evaluation processes 

• changes to criteria even at advanced stages of the process 

• ignoring of disqualifications 

• unequal treatment of tenders within and between the various transactions 

• missing documents 

• missing records of meetings 

• no working papers 

• unsubstantiated assumptions 

• many irregular incidents in the decision-making process 

The facts show that had the laid down rules and criteria been adhered to, at least three of the five choices of armament suppliers (LIFT, Submarines, Corvettes) are likely to have been different. The JIT argued that in two or three instances the breaches would not have changed specific results along the decision-making line, but did not point out that the final choices were in most cases affected. 

In the cases of the Submarine and LIFT selection processes, the JIT seemed to run out of “reasons” with which to rationalize away the endless succession of departures from the rules and in the case of the latter it ended the chapter seemingly unable to give an investigation finding. So it lamely suggested that the Cabinet, in choosing the Hawk, had the right to do whatever it wanted to do. This is a shocking position to take, especially as it dismisses the need to establish the truth. Its position displays a surprising disregard for the principles of accountability and transparency and leaves the public to speculate as to the actual reasons why Cabinet took a decision which was in stark conflict with the predetermined policies and procedures. In fact, the JIT in its findings, finds it difficult to take issue with any malpractice, no matter how serious. Never once do they even hint at possible irresponsibility or incompetence of the decision-makers, who until recently, vehemently denied any shortcomings in the processes and any possibilities for any human failing. 

The LIFT process is particularly disconcerting; where it took a succession of rule changes to keep the Hawk in the reckoning. When there were no rules left to change and the manipulated process had still not elevated the Hawk to that of leading contender, Cabinet chose it anyway. The JIT suggests this was acceptable and that we just live with the result. In a search, outside of the JIT Report, for the reasons as to the choice of the Hawk, there have been at least three conflicting explanations given, none of which were quantifiable. These came from the Secretary for Defence, the Department of Trade and Industry and the group of four ministers at their press conference in January 2001. The reason hinted at in the body of Chapter 4 of the JIT Report, which is the same as that of DTI, is that BAe’s higher IP secured it the contract. If this were the case, the IP weighting in the overall evaluation and selection process would have had to be pushed up from the predetermined one third to two thirds, with the financing, cost and technical considerations only amounting to one third. The JIT did not consider this remarkable situation to be worth commenting on. Neither did it make an issue of the failure of the decision-makers to comply with the universal tendering practice which is to give the other bidders an opportunity to resubmit their offers, in line with the goal posts which had been moved to dramatically advantage one particular bidder. 

Another unsubstantiated statement made by the JIT which instantly dismissed a major contention, also made by SCOPA in its 14^th Report, is seen in their Finding 4.12.6. This is where the JIT says “No evidence could be found in support of the allegation that South Africa is paying more than the normal basic unit price for the Hawk or Gripen aircraft”. No explanation whatsoever is given as to what work the JIT undertook in coming to that dismissive conclusion. As South Africa is the only country outside Sweden to have bought Gripens, where does the JIT find the “normal” basic unit price to compare against? There just isn’t one. And regarding the Hawk, information is available to easily contradict the JIT’s comparative exercises it claims to have undertaken. It is reasonable to suspect that no such exercise was undertaken. Further, it would have been hoped that the JIT would have completed the exercise which SCOPA was prevented from completing; which was to study the cost breakdown of the two aircraft in order to establish if the profit margins were reasonable and to see if these costs included a loading to cover possible IP penalties, as has happened in other countries. They did not do this either and, all-in-all, the investigation failed to tell the taxpayers if they were overcharged by BAe. Note the statements by the former Secretary for Defence, statements by the chairperson of UCC (Ukhozi Control Council) and even the JIT itself (4.1.14), where it says “in terms of quoted acquisition and life cycle support costs, both aircraft (Hawk and Gripen) were by far the most expensive options in their respective classes”. Does this not contradict their finding which suggests that the costs were comparable to purchases elsewhere? 

Particularly disappointing is the failure of the JIT to give an overall account of the contraventions which would have accurately portrayed the suspect credibility, or otherwise, of the whole process and those responsible for it. From an investigative perspective, it also fails to contemplate possible wider ramifications of the contraventions and from this to extend its investigation. The lateral and rigorous thinking which characterizes good investigation is notably absent. 

Selection of Sub-Contractors 

SCOPA’s 14^th Report – Issues/Concerns Raised 

• the role played by influential parties in the selection of sub-contractors 

• Government having no influence in the appointment of sub-contractors

• the basis for comparison between competing products – concerning a specific sub-contractor 

• the basis upon which the risk for a particular South African product was calculated 

The Importance of These Issues 

To establish whether there was any improper influence from individuals within the SDP process, related to selection of sub-contractors (see also “Conflict of Interests” section) and to understand why a seemingly acceptable South African product was rejected in favor of a more expensive foreign product. 

The wider implications of these two issues should be apparent.

JIT Investigation 

The JIT’s investigation into Government’s involvement in the selection of sub-contractors was sufficiently informative. Its lines of enquiry satisfied the general questions which SCOPA had on the matter. 

Specific questions relating to the C²I² Systems issues were, however, not adequately addressed. 

Note :   The JIT’s investigation and related findings into possible conflicts of interest are responded to in the following section.

Comment 

Notwithstanding denials by the Department of Defence, proof has been forthcoming that Government, on occasions via Armscor, did intervene and even instruct prime contractors regarding the selection of sub-contractors (see 11.5.1.1. (j), (l)). This was done in a way which went beyond the scope allowed for by Armscor policy. For its part, the JIT points out instances of where principles of openness and fairness were not followed and goes on to say, somewhat weakly, that in these instances the process could be criticized. As in other areas of its report, the JIT tends to understate the seriousness of the contraventions of laid down procedures. 

The basis for the risk loading which priced C²I² out of contention is left unexplained as the JIT says it was not feasible to pursue the matter. It is disappointing that the JIT was unwilling to take this matter further as it does have a clear South African interest aspect to it and the associated allegations of underhanded manipulation do have a plausible basis. Yet another case of where the JIT uses a single contention to put an important, unresolved, issue behind it. There is something very wrong if such explanations are just “not feasible to pursue” and it would have been hoped that the JIT would have at least given account of the steps it took to establish the facts from the supplier in question. Could Armscor, with its legal right to demand information relating to the awarding of sub-contracts, not have provided an avenue? 

The JIT does not address the key question concerning the basis used to compare the C²I² and competing products. The validity of the contention made in this regard by DoD/Armscor is fundamental to investigation of this situation. 

Also notwithstanding the many irregularities discovered by the JIT, it strangely fails to make a single recommendation in this regard. It is also apparent that much available evidence was not taken into account by the JIT. 

Conflicts of Interest 

SCOPA’s 14^th Report – Issues/Concerns Raised 

• conflict of interest concerns 

• too great a concentration of influence 

• possibilities of improper influence having been exerted in certain of these selections 

The Importance of These Concerns 

The importance of the above concerns is self-evident insofar as these could question the integrity of the SDP and the opportunities for individual officials to dishonestly benefit at the state’s cost. 

JIT Investigation 

The JIT lists almost all the positions held by DoD’s Chief of Acquisition (CAcq) within the Arms Deal structures. It also lists the businesses in which the CAcq’s brother had a significant business interest. Not mentioned are businesses in which his political and other associates had an interest. The JIT succeeds in establishing further instances of incorrect and dubious actions by the CAcq, but notwithstanding the vast grounds for suspicion and associated allegations, the JIT says its investigation failed to find sufficient incriminating evidence regarding the CAcq. The other concerns raised by SCOPA were ignored by the JIT.

Comment 

The seriousness of the situation and its exploitive possibilities only becomes fully apparent if a bigger picture exercise is carried out, which the JIT failed to do. Such an exercise would include the following : 

• A diagrammatic layout of all the organogramically-established structures, covering the preferred bidder selection stages from tender documents through to Cabinet approval and covering the negotiation stage structures from the preferred bidder through to the Cabinet

• An overlay showing the sequential processes

• An overlay showing the key individuals within the structures,  indicating at wherever these individuals had a role and where they had actual involvement.

• An overlay showing the decision making points and flows across the two sets of structures

• An overlay of the document basis which was used to facilitate decision making- particularly at the higher levels

• An overlay of who prepared this documentation - and under whose instruction/guidance especially the recommendations made at each stage

An over lay of who presented these documents and the recommendations (e.g. power point presentations) – through the key decision-making stages and structures right through to Cabinet. 

The JIT would have found a more lateral exercise f this nature very informative and of much assistance to a more inferential investigative approach as opposed to their approach of trying to make sense of a smattering of incidents and anecdotes – which they admit left them with suspicions but without a way forward. The above exercise as representing a more composite reality, would show that there are a number of officials who had an undesirable degree of influence and the possibility to use this influence in a dishonest way. While allegations have been made concerning certain of these officials, the country is in the dark as to whether the Director of Public Prosecutions will undertake thorough investigation – or if he will investigate them at all. 

The appearance of the Head of Procurement (HoP) across the completed diagrammatical exercise is staggering. His presence and strong influence is seen at virtually every level of the selection process – the actual evaluation of tenders, the SOFCOM, the AASB, the AAC, the Cabinet Sub Committee through to his appearances at all Cabinet decision-making sessions. And similarly through the negotiation stages – the PCB, the technical assessments, the IONT, the Affordability Team and again through to the Cabinet sub-committee and Cabinet itself. And within all this, he was the Secretary for the Cabinet sub-Committee and played a leading role in the presentation of recommendations for final decision-making to the Cabinet Sub-Committee and to Cabinet itself. This remarkable scope of involvements, which altogether escapes the JIT, and its associated influence contravenes the most cardinal of good practices and division of responsibility rules. Cabinet portray an ignorance of this and the JIT apparently felt no need to explore the possibilities this gave rise to. Again a documented concern of SCOPA’s was treated superficially by the JIT. 

This JIT failure to establish a more comprehensive view and therefore its not knowing where to look for more evidence left it unable to attribute blame for who was responsible for the highly irregular state-of-affairs - besides the HoP himself, who simple took the opportunities presented to him. Even where the JIT is able to produce evidence which shows the HoP to have lied about the extent of his potential conflict-of-interests and his claims of disclosure and non-participation, the JIT avoids recommending any sanction. It would appear however that Parliament through SCOPA’s post JIT Report (December 2001) was also prepared to ignore the fact that the HoP lied to it. 

The HoP should have been suspended from active duty as soon the JIT was announced at the end of 2001 – given the allegations and possibilities which were then already public. This is a non-negotiable condition of this type of investigation all over the world, but for some reason the JIT was reluctant to do this. His domineering and intimidatory style was brought to the attention of both Gavin Woods and Andrew Feinstein, who were told by anonymous DoD officials in February 2001 that they wished to offer important evidence regarding the arms deal, but out of fear would not do so while the HoP remained in his position. It is noted in the Mail and Guardian newspaper of 30 November 2001 that the HoP was even able to influence changes (to his advantage) to the Auditor-General’s Review into the SDP in October 2000 - and in fact had personally produced the actual substitute words which were to appear in the Review. It is further noted that he received copies of a draft of the JIT Report and it is alleged that through his lawyers he managed to influence changes on this occasion as well. 

The JIT Report, while doing some good work in cataloguing the conflict of interest and potential conflict of interest situation, as explained above, fails through the poor investigative quality of its work to do deliver answers to the questions of Parliament and the public. 

Allegations of (Criminal) Wrongdoing 

SCOPA’s 14^th Report – Issues/Concerns Raised 

• the need for a comprehensive forensic investigation to look into the many serious allegations put forward

The Importance of These Concerns 

The extensive media coverage given to the arms deal and its possible failings indicates the high degree of public interest in the allegations. This coverage was especially high in respect of allegations of criminal-type wrongdoing. This has a negative bearing on the morale of the public, their respect for government and ultimately also bears negatively on economic sentiment. The need therefore to establish the truth or otherwise of the allegations is crucial, as to leave the allegations unaddressed would compound the negative perceptions of the country and would do little to discourage such criminality in future.

The JIT Report 

The JIT Report did not go much further than to say that the Directorate for Public Prosecutions had had reasons to dismiss many of the allegations and would continue looking into those which it believed to be worthwhile.

Comment 

It is known that many Arms Deal-related allegations of wrongdoing have been sent to the units falling under the Director of National Prosecutions, certainly more than one hundred of these. A considered assessment of those allegations which were in the public domain might suggest that at least 50 of these have substantive credibility in terms of their source, their plausible correlation with actual occurrences and their consistency with facts already known. The JIT fell somewhat short on explaining the scope of its investigation into such allegations. Strangely it singled out 4 particular allegations for public dismissal (see 1.3), but in doing so gave these an incorrect slant which made them easier to dismiss, e.g. in 1.3.1. (a) where a “consultant” becomes a “director”, and in 1.3.1. (b) where “sub-contractors” become “prime contractors”. Also, by dismissing these as lacking substance, the JIT leaves the reader to believe that they have no truth. No detail is given as to the extent of the investigation which brought them to this abrupt conclusion. An example here would be dismissed allegation 1.3.1 (d), which reads “That the former Minister of Defence, Mr Joe Modise, paid for share in Conlog with a bribe received from a successful prime contractor”. It is well known that there were a variety of allegations concerning the nature and the source of the money which Mr Modise used to buy Conlog shares. Why does the JIT in very specific terms only dismiss one of these? Surely the question on the public mind is “How much did Mr Modise pay for his large Conlog shareholding, where did he suddenly get this money from and did he and/or his associates receive any other material benefit, as is alleged?”. Thus the JIT does not answer these obvious questions, leaving some to wonder why not? 

The report then goes on to say that certain allegations do have substance which require extensive investigation and lists only seven as being investigated by its Directorate of Special Operations (1.3.2.1). It is unclear as to whether these are the only seven allegations being investigated and if so what about the many others that were made public, especially those which have not been challenged by those accused of wrongdoing? Will the JIT (via the DoPP) at any stage explain which other allegations he chose not to pursue and why not? Will there be an indication as to the extent of his investigative efforts, or will the public be left in the dark? As has been seen with a number of other cases taken up by the DoPP, these can carry on for many years without the public even knowing if it has been abandoned or the eventual outcome. This gives rise to the questions of how the DoPP is held accountable for his work? 

According to the JIT, this remains the only area of on-going JIT/DoPP work and it seems that only time will tell if it will get closer to exposing more truth than the rest of the JIT’s efforts were able to do. 

Responsibilities of Cabinet/Cabinet Sub-Committee 

Given the known problems with the SDP processes, it is appropriate to question whether the decision-makers acted responsibly and competently. This is especially so given the JIT’s frequent and unsolicited defence of their involvement. The following points should be reflected upon : 

From a basis of fact, SCOPA pointed out in its 14^th Report that Cabinet had been put in a position by the Affordability Team to know and understand the full financing and economic implications of the SDP. The JIT for some unknown reason re-engages the issue and comes up with the same finding, i.e. “The Ministers’ Committee was put in a proper position by the Affordability Team to apply their minds in essence as to the financial impacts of the procurement” (9.3.5); and “The Ministers’ Committee was made fully aware of the (currency) risk ……” (9.1.1.9; see also 9.1.2.5). 

The scope that the Cabinet gave to individuals, including the CAcq and the irregularly-appointed Chief Negotiator, to act within the structures and processes, was repeatedly in conflict with basic good practice. 

The number of serious deviations from good tender practices that went unchallenged or unnoticed by the decision–makers is astounding considering that their very important decisions were reliant on those very practices. 

Given the evidence produced in the detail of the JIT Report, but omitted from its findings, together with the facts highlighted in this paper, the Cabinet and the Cabinet Committee in particular, did not act in a sufficiently responsibly manner when applying their minds to the SDP processes and when making the important decisions. Thus the public has been let down by the way in which this single biggest expenditure of the South African government was decided. 

It is therefore not unreasonable to wonder if it was the members’ of the Cabinet Sub-Committee subsequent awareness of their failings that caused their disapproval and ridicule of SCOPA’s proposed investigation into the SDP. A suspicious mind will wonder about the particular interventions which so inhibited further investigative efforts. (See paper – SCOPA’s Intended Arms Deal Investigations – The Interventionist Causes of its Failure). 

There is, however, a theory which might demonstrate some sympathetic understanding towards the decision-makers and any their shortcomings in this regard. It suggests that, as frequently happens in organizations, those who prepare and present analytic reports and accompanying recommendations are the most influential parties in a decision-making situation. That this is especially likely when the actual decision-makers are very busy people who are not involved in the day-to-day issues and who simply attend the occasional meeting in order to receive a presentation and its recommendations, as well as to ask any questions which come to mind and then to agree or disagree with the recommendations presented. Invariably the recommendations are accepted in such situations as the presenter has pre-empted likely difficult questions which could have threatened his/her personal choice.

Concluding Comment 

The quality of the JIT investigation as documented is generally poor and superficial and, given the secrecy, politics and controversy by which it was surrounded, an inevitable skepticism prevails. For SCOPA, through its majority-produced and majority-voted report, to express gratitude to and confidence in the JIT, especially when the latter ignored almost every issue or concern SCOPA had raised and which parliament had adopted, will remain a blight on the oversight record of SCOPA forever. 

The high recurrence in the JIT Report of shortcomings which are discovered, but than dropped or explained away as having insufficient influence to have led to different decisions, borders on the absurd. The JIT in almost every instance says that despite all that was wrong, there were no seriously negative consequences arising from any of the decisions made. The choices of armaments suppliers, the prices to be paid, the IP to be received, the actions of the officials concerned, etc., have all turned out well, despite the mountain of information to the contrary. The JIT does not point out a single serious failing which was to the disadvantage of the State. No seriously damning or embarrassing findings. Not one shortcoming serious enough to cause sanction or disciplinary action for a single official, or criticism of any politician. It was an exercise which produced findings which conclude that beyond some sloppiness and a degree of inadvertent non-compliance, nothing really was wrong. All this would suggest that South Africa’s SDP amounts to the most perfect international armaments acquisition over the past few decades, with high value-for-money purchases and no impropriety or dishonesty on the part of anyone..

As this paper more than proves, the JIT did a very sub-standard job, whether out of pure incompetence, or for whatever reasons, we will probably never know. It was an exercise of much information-gathering, but with very narrow lines and very shallow depth of investigation. There is virtually no thorough forensic (as defined) investigation in evidence. At best, it looked around the peripheries of some of the SCOPA-raised issues while ignoring all the more important of these. Where it came across poor practices, it suggests that these still somehow produced the right answers, but it never gives proof of this. And wherever it could not produce the more important sought-after answers, it simply closed the door on the problem or question by way of one-off statements such as “it is a political decision”, “the cabinet had a right to change its mind”, “compares favorably with elsewhere in the world”, “there was insufficient evidence available”, etc. 

Thus the JIT has produced a report which finds little wrong with the SDP. This led to celebration by those who might otherwise have been embarrassed and has led to the whole saga now being assumed buried. The Executive warned everyone to put the affair behind them and Parliament reacted smartly by pushing the report through a superficial scrutiny exercise. 

Of one thing we can be certain, with the JIT having taken the positions it did and Parliament, mostly through SCOPA, having abdicated its investigative responsibility, justice has not been done to the public interest. Parliament has failed the people.