When looking at the panoply of financial crime playing out in SA, we could perhaps consider the cases of tenderpreneur Vusimuzi “Cat” Matlala and former investment broker Mark Kretzschmar. For both of them, the law is fast catching up.
Matlala, already under investigation for graft at Tembisa Hospital, was awarded a R360m police health services tender that was cancelled within a few months due to underperformance. He appeared in court last week with his wife, Tsakane, facing charges of attempted murder after an alleged attempted assassination hit on his former lover.
Matlala is now being cited as being at the centre of the scandal surrounding police minister Senzo Mchunu, whom President Cyril Ramaphosa has placed on special leave.
The tender scandal raised allegations of fraud, fronting and bid rigging and the contract is being criminally probed by the Investigating Directorate Against Corruption. According to News 24, the couple also face charges of money-laundering, with Tsakane being freed on R20,000 bail.
They reportedly lived a Hollywood-style life, flaunting designer fashion and flitting between their mansions in luxury cars. This while the alleged fraudsters’ suppliers went unpaid.
People with psychopathic traits typically exhibit a lack of empathy, remorse or guilt, and behave in manipulative and deceitful ways
— Gareth Newham
Kretzschmar — who is to stand trial on charges of defrauding multiple clients who bought investments from him, including widows, single parents and relatives — was similarly left unmoved by the fallout for his victims. In echoes of Bernie Madoff — though clearly on a much smaller scale as the American’s Ponzi scheme totalled $64bn — Kretzschmar’s clients included friends and family, and he had a close relationship with all of them. Through his company, PCS Holdings, he reportedly gained their trust by portraying himself as a highly successful business person, and entertaining them at lavish seafood braais with expensive whisky. His clients reported devastating losses. One investor lost more than R20m and a relative lost all the money meant for her disabled sister’s care, while a father said he lost his daughter’s entire education savings.
At the time of writing, Kretzschmar was still on the run, leaving us to digest one more case of flagrant fraud in SA. A commission has now been announced to investigate the alleged corruption in the police, but cases like this leave South Africans wondering what drives fraudsters and why the rate of fraud is so high in our new democracy.
Personality factors
Gareth Newham, head of the Justice and Violence Prevention Programme at the Institute for Security Studies in Pretoria, says a range of factors contribute to financial crime and corruption. “These include factors about the personality profiles and value systems of the perpetrators that combine with broader structural and governance factors.”
While, at an individual level, the motive is largely economic gain due to greed, it can also be desperation — “they don’t believe that they have any other way to improve their economic situation” — or other personality-based factors such as being high risk-takers, thrill seekers or having psychopathological issues. People with psychopathic traits typically exhibit a lack of empathy, remorse or guilt, and behave in manipulative and deceitful ways. This is often combined with outward charm, which they use to convince people to like and trust them, allowing fraudsters such as Madoff and, allegedly, Kretzschmar, to fleece their clients. Their risk-taking behaviour is stimulating to them, and one “victory” can lead to a taste for winning at their game.
Many see their criminal activities as an acceptable risk, believing there will be no consequences, or negligible ones: “What convinces them to actually commit fraud or corruption is that they believe that there is a low or tolerable risk of being held accountable (they don’t think that they will get caught or if they do, that they will still be able to avoid serious sanction).”
The failings of the criminal justice system in SA clearly contribute to the problem, but other factors on a personal level lead financial criminals to believe their deeds are victimless. This especially in a country where the levels of other types of crime are high.
“There might be other contributing factors, such as they tend not to see their crimes as that serious compared to other crimes (for example, violent crime) and they don’t think about the victims, or they convince themselves that the victims will not suffer that much harm — particularly if they steal from companies or commit corruption.”
Newham adds that fraudsters are encouraged when they know of other people committing similar crimes and not getting caught, “which leads them to believe that the criminal justice system or other accountability systems or agencies are dysfunctional or disinterested. And … there are very low reporting and conviction rates for such crimes.”
There are various reasons that most financial crimes are not reported. These include reputational damage to the institution that suffered the loss, and embarrassment from victims who may not want to admit being scammed or defrauded.
“With corruption, both the corruptee and corruptor are breaking the law and both benefit, so neither will report the crime,” says Newham. “Even if such crimes are reported, they can be complex in that they are committed online, the funds are moved multiple times and hidden in various ways, making successful investigations difficult as the detective may require specialised skills, resources and knowledge.”
Multipronged solution
Given the complexity of the issue, solutions would have to be multipronged. Newham adds that there should be more investment in prevention initiatives to make it difficult to commit the crimes in the first place, or make it much easier to get caught and held accountable. “Technology can play a useful role, for example, the technology used by banks to make it difficult to access and steal from bank accounts.”
The government should implement more effectively its own strategies, police, laws and regulations (for example, Batho Pele, initiatives to professionalise the public sector, improve transparency and accountability), he says.
Amid calls to reform the National Prosecuting Authority (NPA), Newham notes that the National Anti-Corruption Strategy and the National Anticorruption Advisory Council should start focusing on ridding the criminal justice system of corruption, starting with the police. “When the criminal justice system can act as a deterrent because it is mostly free from corruption, it will be easier to root it out in other departments and prevent it from happening.”
Crime Intelligence has been severely compromised after years of poor appointments and political interference
— Gareth Newham
The recently launched Border and Immigration Anticorruption Forum, which oversees investigations, with criminal and disciplinary action against corrupt officials, is a hopeful development.
“Given the large scale of the problem of corruption in SA, an urgent short- to medium-term priority must be much greater investment into strengthening accountability systems and agencies. For example, doubling the capacity and capability of specialised law enforcement and specialised agencies dealing with serious financial crime and corruption. This would include the SA Revenue Service, the Special Investigating Unit, the Hawks, specialised SAPS commercial crime and corruption investigation units, numbers of specialist anticorruption and commercial crime prosecutors, and the establishment of dedicated courts dealing with serious financial crime and corruption,” he says.
“Critically, the NPA must be made fully independent from the department of justice by ensuring that it has its own CFO, and that it is in full control of its own budget. Currently, it is a programme in the department of justice, which has various ways of undermining the NPA as we saw during the state capture years. The department’s lack of willingness to ensure that the full Zondo commission database is released is evidence of how there is a lack of willingness to ensure that corruption involving senior politicians is effectively tackled. Where evidence emerges of unethical or criminal conduct, priority should always be given to investigating those who hold the most or significant power in the state or society as they have the most influence to commit grand scale fraud and corruption.
“NPA independence should be codified in law through amendments to the NPA Act. Also, ensuring that only the most skilled, experienced and independent people are appointed to head criminal justice and law enforcement agencies by the president [and] only on the recommendation of multisectoral independent panels consisting of experts in the field. This too must be legislated to ensure that we do not re-experience the situation under [former president Jacob] Zuma where unethical or incompetent people were appointed to key positions, which enabled his corrupt network to access public money.”
Overhaul SAPS
The overhaul of the police Crime Intelligence requires urgent attention, says Newham. “This division has been severely compromised after years of poor appointments and political interference. This function should be at the cutting edge of identifying the criminal networks that operate within the state and result in large-scale theft of public funds. However, it appears to be missing in action, given it’s about R4bn budget with its thousands of personnel.”
The extent to which corruption becomes a serious risk to any country is determined by the elites in public and private sectors. “It is therefore crucial to substantially increase the risk to corrupt and powerful people in government and the private sector of being identified, effectively sanctioned and having their wealth seized. This would send out a strong message that no matter who you are, or who you think you are, you can be held accountable. There needs to be an unambiguous message to our society that such crimes do not pay. Not only would this reduce huge losses from the state that run into billions of rand, but also enable the state to recover larger amounts of its money and resources stolen or misdirected.
“The government would then be less reliant on increasing taxes or borrowing such as the unfortunate situation we have found ourselves in. Again, better use of technology would go a long way to prevent fraud and corruption. For example, obtaining ID cards, passports, driver’s licence renewals, and many administrative tasks conducted by the state, including procurement and applying for posts in government departments, should be digitalised to minimise the opportunities for fraud and corruption,” he says.
Down the line there should be widespread audits at government level. “Organisational culture audits [as part of a longer-term initiative should be undertaken] in all key government departments. Those whose culture is characterised by secrecy, a lack of accountability, malicious compliance, poor performance and an inability to achieve their mandates effectively are at high risk of systemic fraud and corruption. Again, the tone is set from the top and where such cultures exist it will be necessary to overhaul the leadership structures.”
What can we all do to help deter crime? For Newham, the solution is predominantly political: “Society can put more pressure on political parties to invest in the above and not vote for parties that show little interest in addressing financial crime and corruption. They can also boycott companies where there is evidence of unethical practices.”
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