VBS. Dewald van Rensburg
was there from day one when it was formed. That is why it pains me so much. I know how it was formed and why we formed it. These people don’t care about the objectives we had when we formed this bank. That was to help the poor people to be able to bank and also to borrow money to build houses where other bank[s] won’t.’ This is what Madambi Muvhulawa, one of the founders of VBS in 1982, told me in 2019.1
It is worth remembering that VBS Mutual Bank had a long and uneventful life before rogue management and a rogue shareholder hijacked it in around 2015. It began as the Venda Building Society and only started operating as a mutual bank in the 1990s – one of three in the country at the time. Mutual banks occupy a lightly regulated corner of the banking industry and are differentiated from commercial banks in that they are not incorporated and cannot provide all the services that commercial banks provide, they require far less capital to get off the ground, and depositors are shareholders with voting rights. The Venda Building Society was created to extend home loans to people living on communal land in the so-called Republic of Venda. Under apartheid, Venda was designated one of several ‘independent’ Bantustans where the black African majority was to be confined. This meant that most of the land was held in trust by tribal authorities, making it difficult for individuals to get mortgages from any of the large commercial banks.
Whatever niche power VBS once had, by the second decade of the twenty-first century it wasn’t making money and probably wouldn’t have survived without an investor to turn it around.
It got its investor, and a bold turnaround strategy along with it – one built on illusions. An otherwise unknown company called Vele Investments seized control of the bank, which became the engine room of its empire-building machine. Vele owned VBS, but was also practically its only customer.
Between 2015 and 2017, the bank went from having R400 million in real and legitimate assets to R2 billion in mostly fake ones. In what amounted to a classic Ponzi scheme, depositors could still withdraw their money as long as a greater number banked new cash. Yet most of the real money deposited in VBS was redistributed to people, including politicians and political appointees, with no claim to it.
Like any Ponzi scheme, this one eventually collapsed. On 11 March 2018, VBS was put under curatorship with no immediate suspicions of foul play – it was just another unfortunate corporate failure. Mere weeks later, I and Sipho Masondo, my ace investigative colleague at City Press, broke the news that the bank had in fact been sunk by an astonishing fraud.2 Court cases and investigations – both official and journalistic – followed thick and fast. New facets of the scheme that destroyed the bank kept emerging for a whole year. And then another. For journalists, VBS is the gift that keeps on giving.
It has been the subject – or partial subject – of three separate investigations. On 13 April 2018, the deputy governor of the South African Reserve Bank (SARB), in his capacity as chief executive officer of the Prudential Authority (PA), appointed Advocate Terry Motau to conduct an investigation into the affairs of VBS. The subsequent forensic report, titled ‘The Great Bank Heist’, was published in early October.3 A week later, on 17 October, President Cyril Ramaphosa formally appointed a commission of inquiry into allegations of impropriety at the Public Investment Corporation (PIC) to be led by Justice Lex Mpati. The commission, which covered the VBS investment as well as several other allegations of corruption, wrapped up in December 2019.4 In the interim, in December 2018 the board of the PIC commissioned a separate forensic investigation into allegations related to the PIC’s investment in VBS. That report was prepared by Nexus Forensic Services and finalised in April 2019.5
The destruction of VBS by a complex interplay of private and public corruption captured the South African public’s imagination in an unprecedented way. The scandal has arguably punched above its weight in terms of how much money was actually stolen – R2.3 billion or so by the last count, compared with the R5.3 billion the Gupta family network skimmed off a single Transnet tender in 2015. The question is why.
The answer could lie in that much of the saga involved outright theft to fuel an almost absurd level of conspicuous consumption, even if the amount of money extracted was miniscule compared to the resources wielded by the truly wealthy and powerful grandees of the country.
At the same time, a large chunk of the money was used in an attempt to conjure a new black-owned conglomerate out of thin air. Vele, via VBS, poured millions into acquiring companies and then running them in the face of massive losses. Was this effort sincere?
Furthermore, there is a fascination with how real deposits were secured via patronage, how the proceeds were used and how the scheme was disguised in the most regulated industry in South Africa. Apart from politicians, VBS involved the corruption of the private economy’s primary checks and balances: auditors and independent directors. It required a mesh of spectacular conflicts of interest that had to be hidden at all costs.
Influential politicians got paid. VBS’s auditor got paid. All the executives of the bank got paid. Even their secretaries and PR people got paid. Representatives of the PIC got paid. The Venda king and several people around him got paid. ‘Commission agents’ who handled further bribery got paid. They in turn paid the municipal functionaries who sent cash to VBS. Money flowed, above all to Vele Investments.
The methods employed are another source of fascination. Vele seized control of VBS and sucked it dry through an incestuous web of real and ghost companies (also called shell companies) that still confounds investigators. This group remains remarkably secretive and one of my major aims has been to pierce this corporate veil.
The fallout of VBS’s collapse also makes it particularly worthy of interrogation among the many corruption stories that fill our newspapers. Its victims were strange bedfellows, drawing together the full spectrum of South African interests. Municipalities saw their budgets gutted. Private companies watched their money disappear. The primary victims, however, were rural depositors. While most of the smallest individual retail depositors eventually got their money back through government intervention, many did not, especially stokvels. Immediately after the bank’s collapse, South Africans were bombarded with images of panicked VBS clients sleeping outside branches in the vain hope of withdrawing cash that was no longer there.
No one will ever account for every rand that went missing. The scheme was simply too convoluted and cash was often king. It is, however, every bit as important to figure out why and how money went where it did, even if the exact figures are never known.
The rise and fall of VBS and Vele Investments weaves together the potent imagery of an ascendant black capitalist class with the murk of the lowest rungs of the South African state and the political patronage networks that operate there. VBS’s fate stemmed from hubristic ambitions as well as a willingness to get hands dirty to achieve them. The bank became the nexus of several overlapping networks – political, ethnic and institutional – and serves as a case study of how they intersect in South Africa.
1
The Accountant, the King and the Venda Elite
‘I would be surprised if I am not arrested,’ Tshifhiwa Matodzi told me when we met in November 2019.1 We were at Lanseria airport, the place where, in the heyday of the VBS saga, he allegedly picked up a suitcase stuffed with R5 million cash meant for bribes. He was wearing an unremarkable golf shirt and flip-flops, an outfit he seemed far more comfortable in than the suits and ties of his former career as chairman of both VBS Mutual Bank and Vele Investments.
Lanseria was an odd choice. It is far from anything – a small, low-traffic airport – but one of few places you can land private jets and helicopters. It has one decent spot to meet: a restaurant that, in the month before Christmas, was churning out countless oversized gingerbread houses and other overpriced holiday fare. Santa Claus was the only witness to our marathon four-hour coffee date.
Matodzi greeted me like an old buddy, though we had never met before. He was eager to talk and was good at it.
By now, the story of VBS was ingrained in the public consciousness. The bank had been looted into the ground – and, by all accounts, Matodzi was the man behind it all. He acknowledges that he was the motive force, but he refuses to accept that he has done