She had reason to be suspicious.

A year earlier, Transnet’s chief financial officer, Anoj Singh, had handed her a proposal from Regiments for a R5-billion Nedbank loan and told her to sign it “today”. But when she read it, alarm bells went off.

Instead of a direct loan from Nedbank, the deal was to be channeled through an intermediary company which would collect interest on behalf of Nedbank, a convoluted arrangement that would cost Transnet R750-million more than was necessary.

The proposal was so alarming that she had gone straight to Transnet chief executive Brian Molefe: “I was irate… I explicitly told him that should we approve the structure, we will go to jail for stealing money,” she later told the Zondo commission.

That 2013 deal had disappeared, but Regiments had not. And now, in July 2014, she was again being asked to sign off on a Regiments proposal involving Nedbank that made her deeply uncomfortable because she felt it was so obviously mispriced.

As far as Makgatho could tell, what was fueling the pipeline of questionable deals landing on her desk was the rather too close relationship between Regiments director Eric Wood and Nedbank’s head of credit and international derivatives, Moss Brickman.

AmaBhungane investigations have impact. We won’t stop exposing wrongdoing and holding government and corporate institutions to account. But we cannot do it without your support.

Makgatho told the commission that she was so appalled by Wood and Brickman’s latest gambit that she asked the bank to “lodge a complaint” with Nedbank Capital, the division where Brickman worked.

“I was not happy [with] what … I thought it was an improper relationship… Regiments will come with certain proposals … and at the back of those proposals there was always one common bank and that was Nedbank.”

Makgatho resigned soon after, in early 2015, but she had put her finger on a question amaBhungane had been asking for years: Why was it always Nedbank?

To access all the documents used in this investigation click on the evidence dockets below.

Nedbank: Introduction of Derivative Transactions

Nedbank: Evidence on City of Joburg and City of Tshwane loans and swaps

Nedbank: Evidence on City of Tshwane restructuring

Nedbank: Evidence on Acsa

Nedbank: Evidence on Transnet

In brief: The case against Nedbank

Everywhere we have followed Regiments on its destructive path through state-owned entities and municipalities we kept seeing Nedbank offering loans, complex financial products called interest rate swaps, and millions of rands in hidden commissions.

The case we will outline in the pages that follow is this:

For years, Regiments persuaded its clients – public entities who paid and trusted it for independent advice – to take up financial products, often provided by Nedbank. But Regiments’ advice was tainted by the promise of massive additional fees.

If the client agreed to take up loans or interest rate swaps, Regiments got millions from the bank; if the client did not, Regiments got only its standard advisory fee from the client.

This was initially set out in a “highly confidential” commission agreement which saw Nedbank pay millions in “introduction fees” for each new deal Regiments brought to the bank. Later, Nedbank agreed to act as postman, delivering millions of rands of public money to the controversial firm, with the blessing of Regiments’ public sector clients.

By our calculation, Regiments was able to generate at least R95-million in fees from Nedbank via these two methods, plus another R120-million from a set of Transnet transactions where the fees once again flowed via Nedbank but without, the bank claims, its knowledge.

The additional fees incentivised Regiments to propose deals that were not always in the best interests of its clients – state-owned entities and municipalities.

Nedbank ignored the obvious conflict of interest because Regiments promised that the fees were always disclosed to its clients, but the evidence shows the Nedbank knew or ought to have known this was not true – and that Regiments was abusing its influence with public officials.

Over the years Regiments brought Nedbank deals running into billions, and the promise of additional fees in turn encouraged Regiments to propose a dizzying array of interest rate swaps. But some of these high-risk transactions proved disastrous for the clients, who lost billions.

To understand the scheme – and the troubling partnership between Regiments and Nedbank – we need to go back to 2009, and follow a trail that leads through four Regiments clients: The City of Johannesburg, the City of Tshwane, Airports Company South Africa (Acsa) and, finally, Transnet.

In putting together this story we reviewed hundreds of internal emails, numerous confidential reports and affidavits.

We sent detailed questions to Regiments’ directors. Two ignored us; one declined to comment. Regiments previously defended its actions, saying what it did was “common market practice”.

We also conducted two on-the-record interviews with Nedbank in 2018. As further evidence emerged, both through our own investigations and via testimony at Zondo, Nedbank became far less forthcoming.

When we approached Nedbank again last year, it was no longer willing to provide information it had previously committed to share. We sent a 35-page letter setting out the evidence we had and the conclusions we were likely to draw, but the bank did not respond in detail, instead saying in a statement:

“[W]e have previously met with you with the sole intention of providing you with the correct context and factual scenario and were open and honest in responding to your questions.”

The proposed article “does not contain anything new besides what we believe are unsubstantiated conclusions drawn by you…

“Nedbank has at no time acted unlawfully, or improperly in its dealings with Regiments and the affected counterparties… Nedbank denies any inference or accusation that Nedbank was complicit in any alleged scheme by Regiments to defraud its clients. Nedbank also rejects any suggestion that it ignored ’red flags’ relating to the conduct of Regiments.” (Read Nedbank’s full statement.)

Here is the evidence which, in our view, says otherwise.

The “highly confidential” agreement

The contract was barely five pages long. Signed in May 2009, and dubbed Introduction of Derivative Transactions, it promised Regiments a fee for bringing new business to Nedbank.

The existence of this contract remained a secret for seven years, until 2016 when lawyers for one of Regiments’ clients uncovered millions in undisclosed fees.

In an emailed response, Regiments director Niven Pillay showed the lawyers this “highly confidential” document but warned the contract should not to be shared with anyone “without our express permission”.

“Regiments Advisory [has] been referring business and earning its fees from the banks”, Pillay wrote, assuring the lawyers that this was a “common market practice”.

Absa asks for full disclosure

Regiments wasted no time. As soon as it received a copy of Introduction of Derivative Transactions from Nedbank, it copied it across onto a Regiments letterhead, deleting a few clauses along the way, including the disclosure clause.

Then Regiments sent a copy to Absa, which had also been approached to quote on an interest rate swap at Acsa.

Absa agreed to enter into the introduction fee agreement with Regiments, but added a clause saying that Absa would write a letter to the client “wherein ABSA Capital will disclose that a fee has been paid to Regiments”.

In other words, Absa would not leave it up to Regiments to disclose the fee.

Absa was unwilling to go into detail about the contract but told us: “This is a standard introducer agreement, in terms of which we disclose the fees.” (Emphasis added.)

It appears that this did not suit Regiments, and as far as both we and Absa can tell, Absa did not receive any derivatives business from Regiments after their agreement was signed.

And although the phrase “introduction fee” was changed to “fee” in the final version of the contract, the principle remained the same: if Regiments brought Nedbank new business, it would get a cut.

Introduction fees are not uncommon but they are a rich vein for corruption.

As a result, the Financial Advisory and Intermediary Services Act and its code of conduct are clear that an advisor like Regiments has to disclose “any incentive … commission, fee” it is getting on the side. This is not idle legalese, but a very real protection for clients, who need to know that their interests and not those of third parties are being served.

AmaBhungane was able to access a batch of correspondence between Regiments and Nedbank, including drafts of the Introduction of Derivative Transactions agreement. A close study of the “track changes” shows that Regiments director Eric Wood tried to delete the clause that said Regiments had to tell its clients that it was getting a sweetener from the bank.

The clause was reinserted into the agreement after Brickman, Wood’s contact at the bank, reported that Nedbank’s compliance department “is adamant that a clause relating to the disclosure to the client be included”.

This episode should have set off alarm bells at Nedbank. Regiments’ clients were almost always in the public sector and generally Regiments had been hired (and paid a fee) by them to advise them on complex financial transactions. If Regiments was being offered an extra fee on the side, those public sector clients had a right to know.

When we interviewed Nedbank in 2018, Anél Bosman, then managing executive of corporate and investment banking, tried to downplay Regiments’ reluctance to include a disclosure clause: “[W]hether that clause was included or not was an additional measure that the bank took because we wanted the right to ask for it for our own records. But Regiments at all times, being regulated by the [Financial Services Board], had that responsibility in any way.”

The final agreement, signed in May 2009, confirmed that “Regiments undertakes to disclose to the Client” that Regiments would receive a fee from Nedbank and added that “Regiments will provide Nedbank Capital with written proof of such disclosure when requested.”

In a number of cases, the only written “proof” Regiments provided was a one-line disclaimer added at the bottom of its invoices to Nedbank: “Regiments Capital (Pty) Ltd has informed its client that it is earning a fee for the facilitation of the above transaction.”

But had it?

Naked swaps and hidden commissions

One of the first deals that Regiments brought to Nedbank under the Introduction of Derivative Transactions agreement was an interest rate swap with one of Regiments’ most loyal clients: the City of Johannesburg.

In 2009 the city found itself in trouble. It had entered into a series of interest rate swaps to balance out the risk of various loans. But the loans had been paid off early leaving the city holding “naked” swaps, a speculative position that did not sit well with the auditor general, who instructed the city to get the swaps off its books.

There were several ways the city could do this: the simplest was to unwind the swaps with Standard Bank and RMB, the counterparties who sat on the other side of the swaps.

Instead, Regiments’ Wood and Pillay proposed the city enter into a convoluted, two-step transaction: the city would cede the swaps to its sinking fund which would then pay Nedbank to take over the swaps. The sinking fund (a pool of money set aside for paying long-term debts) was conveniently managed by a subsidiary of Regiments.

The transaction would cost R12-million, the two Regiments directors told city treasurer William Mathamela. The city would have to pay Nedbank R11-million to take over the swaps, which they assured him was the going market rate, plus modest costs of R1-million.

Mathamela approved the proposal on his last day in office. He would resurface a few months later as Regiments’ business partner, but in a written response denied that this played any part in approving the transaction. (Read his detailed response here.)

But, unbeknown to the city, Regiments had struck a backroom deal with Nedbank.

The details are spelled out in emails between Wood, Brickman and another Nedbank employee, Mario Visnenza: The bank would take over the swaps and be paid the going “mid-market” rate of R5.2-million; it would take another R750 000 to cover its costs and R2-million as profit.

These costs would be deducted from the R12-million that the city had blindly agreed to pay; what was left – more than R4-million – Nedbank would pay Regiments as “fee” for bringing it the business.

Technically, there were two divisions of Regiments involved in this scheme: Regiments Capital was advising the city on how to manage the swaps while a subsidiary, Regiments Fund Managers, offered the dubious solution. But both were represented by Wood. And Wood (the advisor) was not about to tell the city that Wood (the fund manager) was lying about the cost of the transaction.

Yet, when Regiments delivered its invoice to Nedbank – issued under the Introduction of Derivative Transactions agreement – it confirmed that “Regiments Capital (Pty) Ltd has informed its client that it is earning a fee for the facilitation of the above transaction”.

That seems unlikely.

Emails show that both city officials and KPMG, which had been appointed by the auditor general, asked Regiments for a breakdown of the R12-million, including “all documentation/justification that you may have received from Nedbank for the costs relating to the unwinding of the COJ swaps”. But Regiments failed to mention that more than R4-million of that figure would go to pay its commission.

KPMG shrugs

KPMG was appointed by the auditor general to conduct a high-level review of the city’s Regiments-managed sinking fund. KPMG’s draft report shows that both it and the city independently reached the conclusion that the mid-market rate should have been just under R5-million, in other words roughly what Nedbank actually charged.

But with no insight into the back-room deal, KPMG shrugged and concluded that the transaction was done at fair value. The R12-million fee the city paid was probably “reasonable”, KPMG wrote in the draft report, because it had been agreed upon between “two knowledgeable, willing parties in an arm’s length transaction”.

KPMG would not say whether it stands by the conclusions in its draft report, but stressed it was “not involved in nor aware of any collusion or significant commission payments made to Regiments”.

Read KPMG’s full response.

A city spokesperson told us: “The City was at no point made aware by Regiments and/or Nedbank of the ‘Introduction of Derivative Transactions’ … and of the fees paid to Regiments.”

Nedbank, of course, knew that Regiments was crawling all over the transaction, creating conflicts at every turn. It also knew that R12-million was excessive and that the fat from the deal would end up in Regiments’ bank account.

Nedbank’s Visnenza even had a copy of the “confidential” proposal where Regiments Fund Managers lied to the city about the mid-market rate. But instead of warning the city that it was being misled, the bank chose to participate in the scheme.

Brickman refused to speak to us. “I have long since retired from Nedbank and have no comment to add,” he said via WhatsApp, his profile picture showing him giving the camera the middle finger.

Visnenza, who still works for Nedbank, asked that we direct all our questions to Nedbank.

Importantly, Nedbank has never tried to distance itself from Brickman or Visnenza’s actions.

During our 2018 interviews, Bosman (who was Brickman’s boss) and Nedbank Corporate and Investment Bank head Brian Kennedy (who was Bosman’s) repeatedly struggled to answer questions or told us that they could not find the relevant emails – all while Brickman and Visnenza sat upstairs.

In its response to our 35-pages of questions last year, Nedbank said: “Nedbank confirms that it was not aware, at the time, of any unlawful or corrupt conduct by Regiments. Nedbank denies that any of its executives were complicit with reference to any unlawful or corrupt conduct that may have been perpetrated by Regiments and others.”

But Nedbank did not need second sight back in 2009 to see the red flags going up all around its new rainmaker.

The gatekeepers

“It is important to see the context,” Nedbank executives told us in 2018, when they were still speaking to us. According to Kennedy, in the mid-2000s the banks were facing an increasingly skeptical public sector, which felt that the industry was not doing enough to develop black-owned financial services firms.

“Regiments had become very active with [state-owned entities] … so we were encouraged to work with these guys… And if you don’t talk to Regiments, the [state-owned entity] swap business … is going to go somewhere else.”

He explained Nedbank’s perspective: “If you don’t deal with Regiments you’re not going to do any business with any of the state-owned entities.”

Instead of raising concerns about this gatekeeping, Nedbank entered what amounted to a pay-for-play agreement with Regiments – via the Introduction of Derivative Transactions contract.

The results were clear.

In the period that followed the Johannesburg deal, the same modus operandi would play out: Regiments would get appointed as advisor, then stretch its mandate to sell its clients loans and interest rate swaps without a competitive bidding process, claiming an additional fee from the client, an introduction fee from the bank, or both.

At the City of Johannesburg and City of Tshwane, Regiments piggy-backed on its position as trusted advisor to be appointed under “emergency” procurement rules to raise short-term finance.

Regiments arranged two short-term facilities from Nedbank – R1-billion for the City of Johannesburg in September 2009 and R700-million for the City of Tshwane the following month – and billed each municipality a capital raising fee (total: R2.7-million).

Then, under Introduction of Derivative Transactions, Regiments quietly extracted another R3.4-million in fees from Nedbank.

When the City of Tshwane refused to pay Regiments’ invoice, it was threatened with legal action. None of the lawyer’s letters we have seen mention that Regiments had already collected a fee from Nedbank.

At the City of Johannesburg, Nedbank’s short-term facility was quickly followed by two long-term loans: R1-billion in March 2010 and R315-million in April 2010.

By now, Regiments had a signed mandate from the city allowing it to claim 35 basis points (0.35%) as a capital raising fee. Emails show that Regiments claimed this fee from the city – R5.2-million in total – then turned around and billed Nedbank another R9.5-million under the secretive agreement.

Despite the standard claim at the bottom of Regiments’ invoice to Nedbank, a city spokesperson again told amaBhungane: “The City was at no point made aware by Regiments and/or Nedbank that Regiments received a fee from Nedbank.”

Damning emails also show that on most of these transactions, Nedbank allowed Regiments to dictate the interest rate offered to the client: “We leave it up to you to negotiate a margin for us to share on the usual 50/50 agreement,” Visnenza told Wood in one of several similar emails.

In short, the higher interest rate charged to the client, the more profit Regiments and Nedbank would make.

This highlights the fundamental conflict of interest that Introduction of Derivative Transactions had formalised: Regiments was expected to provide its clients with independent, sound advice yet it was highly incentivised to sell its clients loans with higher interest rates from the bank that had promised Regiments a fee.

But arranging loans for clients was not where the real money was.

What would exponentially increase Regiments’ fees was if clients could be persuaded to start chopping and changing interest rates, supposedly to take advantage of market conditions or reduce risk.

In practice, these interest rate swaps would be lucrative for Regiments and Nedbank but could be disastrous for Regiments’ clients – as Acsa was about to discover.

The keys to the Acsa vault

The idea of selling clients not just loans but interest rate swaps had been brewing for some time.

A year before Wood added his signature to Introduction of Derivative Transactions, Regiments had been hired to help a troubled client: Acsa was facing a liquidity crunch and appointed Regiments to secure additional funding.

By early 2009, Regiments had raised R3.5-billion for Acsa from Nedbank and two other lenders, but saw an opportunity to do more.

Brainstorming sessions at Regiments and proposals followed, all focused on how to drum up more business from Acsa’s treasury department, led by a soft-spoken and little-known official: Phetolo Ramosebudi.

Ramosebudi will be familiar to amaBhungane readers: In 2018, we exposed how Regiments had made suspicious payments to Ramosebudi’s companies for years.

Starting in early 2009, Regiments advised Ramosebudi and Acsa to enter into a series of interest rate swaps to take advantage of market conditions. This was bread-and-butter work that any experienced treasurer like Ramosebudi should have been able to handle without the help of consultants. But what was more alarming was the dizzying number of swaps that Regiments would ultimately execute.

On just one loan – R1.75-billion from Nedbank – Regiments advised Acsa to swap from a loan linked to the prime lending rate to one linked to Jibar (the average rate at which banks lend each other money); from Jibar to a fixed rate; and from fixed to an agreement linked to the consumer price index (CPI). All this in less than two years.

Even the first swap – from prime to Jibar – was alarming enough for Mfundo Nkuhlu, Nedbank’s then head of corporate banking, to intervene.

Nkuhlu – who is now Nedbank chief operating officer – called a meeting where, according to Nedbank, he warned Acsa that entering into a swap so soon after taking a loan “may not be in their best interests”.

“[Nkuhlu and his team] found it unusual that shortly after we entered into a vanilla loan … that’s linked to prime, that [Acsa will] change it to something that is linked to Jibar… So they weren’t sure that Acsa actually understood … the risks inherent in that,” Gerda Ferreira, Nedbank’s executive in charge of financial crime, told us in 2018.

“[Nkuhlu] actually says that it was quite an acrimonious meeting,” Bosman told us during the same 2018 interview.

Ferreira added: “[Acsa] made it quite clear that they understand what they are doing and Regiments are their advisors and they [are] comfortable that it’s in their best interests.”

If Nedbank was suspicious that Regiments was profiting at its client’s expense, it could have walked away – or put extra checks in place.

Instead, it side-stepped any doubts and agreed to execute the transaction. For its role, Regiments was awarded 8.5 basis points (0.085%), generating an up-front fee of R9-million.

By now, Nedbank had handed Regiments a copy of the Introduction of Derivative Transactions agreement, incentivising Regiments to bring more of this kind of business to the bank.

In October 2009, Nedbank agreed to act as counterparty on a second Jibar-to-fixed swap on the same loan as well as a second smaller swap. On each, it added 10 basis points (0.1%) generating an up-front fee of R13.1-million for Regiments.

Emails show that with these swaps, as with the City of Johannesburg facilities, Nedbank allowed Regiments to dictate the interest rate Acsa would be offered: “We leave it in your good hands to negotiate a margin for us on the usual 50/50 arrangement,” Visnenza told Wood in one email.

Disclosure

By now, Nedbank’s own compliance department had identified this obvious conflict of interest and asked how exactly clients were informed of the commission Regiments received from Nedbank.

“How would you provide written proof of the disclosure… That’s what they looking for – is it minuted in a meeting?” Nedbank’s Brickman asked Wood.

Instead of answering the question, Wood assured him: “In the case where Regiments has proposed a structured solution to a client, Regiments is not part of the [client’s] decision making process.”

But the question of who knew about Regiments’ massive fees is an important one.

When we interviewed Acsa in 2018, a spokesperson told us they could find no record that Regiments had disclosed these fees to any Acsa official aside from Ramosebudi, the treasurer. This is consistent with what Regiments would later tell the banks: that the “person at client informed of Regiments fee” was Ramosebudi who was told about the fee in a phonecall (“telephonic verbal”).

Asked by the Zondo commission if he was aware that Regiments was extracting these massive fees and that Acsa would ultimately pay those fees through a higher interest rate, Ramosebudi said: “I would not have known the quantum but I would have known that Acsa would pay a fee for structuring of the swap.”

Alarmed, the evidence leader asked: “But that fee could have been … R50 million. Would you not have taken steps to find out how much you were committing your organisation to pay back?”

Ramosebudi’s response was that he looked at the all-in rate Nedbank offered. If it looked fair, that was what mattered.

Financial weapons of mass destruction

With hindsight, it is easy to say that a particular swap was a bad idea. Swaps are essentially a gamble on what interest rates will do in future; get it wrong and a few basis points can become what Warren Buffett called “financial weapons of mass destruction”.

Et tu, Standard Bank?

Although Nedbank had the longest and most compromised relationship with Regiments, it was not alone. When Regiments proposed a new kind of CPI-linked swap to Acsa in March 2010, Standard Bank was selected as counterparty, but not before it too signed a copy of the Introduction of Derivative Transactions agreement with Regiments.

“Standard Bank was invited to submit its indicative rate subject to Standard Bank agreeing to pay Regiments Capital an introductory fee… Regiments Capital claimed that it had already entered into such a fee agreement with competitors,” a spokesperson for the bank said in a statement.

This was fundamentally at odds with public procurement rules and only underscored Regiments’ gatekeeper role: Standard Bank was being asked to pay Regiments a fee, according to the spokesperson, for “introducing potential transactions to the Bank, from new or existing Clients”, specifically transactions that were “unknown (not being quoted on by the Bank)”.

But Regiments’ clients were public entities. It had no right to pick and choose who should be invited to quote, much less to monetise that gatekeeping role. The bank denied impropriety, saying that it was “not unusual for advisers on derivative transactions to request that Standard Bank pay an introductory fee or commission provided there was full disclosure to the adviser’s client, in this case Acsa”.

In April 2010, Regiments sent a draft of the agreement to Standard Bank. The text had been copied from the Nedbank agreement bar the disclosure clause which was conspicuously absent.

But once again, the compliance department intervened. “They advised that we are obligated in terms of [the Financial Advisory and Intermediary Services Act] to disclose any fee or commission that we may pay… That said we are happy that either Regiments or [Standard Bank] does the disclosure regarding the fee and amount.”

The final version of the agreement, signed with Standard Bank on 5 May 2010, includes a disclosure clause that was stricter than the Nedbank agreement. But in practice this meant little. Regiments told Standard Bank that it had informed Acsa about the R22.3-million fee it was earning in a phonecall to Ramosebudi on the day the swap was executed.

When the deal was done, Standard Bank thanked Wood “for your assistance in securing this deal”. Standard Bank said that it no longer pays these types of fees.

Read Standard Bank’s full response.

In March 2010, Regiments advised Ramosebudi to enter into a new kind of swap. Acsa was facing what it described as “a very unpredictable economic regulatory environment”; the regulator had turned down its tariff hike and with not enough cash coming in, Acsa faced a liquidity crunch.

The dispute with the regulator was potentially a short-term problem, but Regiments offered up a long-term solution: Acsa could swap two fixed-interest loans to CPI-linked interest rates which would drastically cut quarterly loan payments.

However, the new structure was merely storing up the pain and would saddle Acsa with massive balloon payments every five years until 2024.

What Regiments did not mention in its proposals was that the two swaps would generate R41.8-million in fees for Regiments – R19.5-million from Nedbank paid over the lifetime of the transaction and R22.3-million up-front from Standard Bank, which had just agreed to sign its own version of Introduction of Derivative Transactions.

But by now, the fees were so massive that Nedbank wanted to be sure someone at Acsa knew.

“[I]t was this evolution of us saying that we want to make sure that the SOEs are aware of the fees. We know that Regiments has an obligation to disclose, but we would like to see that as well,” Bosman told us.

“[Y]ou can see that initially we didn’t necessarily ask for it, but there were internal discussions; two people actually went to see Eric [Wood].”

After that meeting, Wood asked Ramosebudi to confirm in an email to Nedbank that he had been told about Regiments’ fees. He obliged, thanking Regiments for its transparency.

That he was only informed about the fees in a telephone call on the day the swaps were traded, or even days later when it was too late to object, did not seem to bother him – or Nedbank.

What the banks did not know was that Ramosebudi had reason to play ball.

Six days after signing off on the second CPI-linked swap, Ramosebudi used his private email account to send seven invoices to Regiments; they included everything from “actuarial and risk management consulting” (R400 000 excl VAT) to “liquor and catering” (R293 313).

These covert invoices would continue to arrive throughout 2010 and 2011, some with cover emails from Ramosebudi that requested Wood’s “review and comment” on research reports that, when opened, turned out to be more invoices.

In total, Regiments paid R5.2-million to Ramosebudi’s companies.

When amaBhungane first exposed the apparent kickbacks to the former treasurer in 2018, he claimed it was unfair to expect him to remember that far back.

When the Zondo commission asked the same questions, he said: “Chairperson … may I reserve my rights not to respond to this one in case I incriminate myself?”

The R1-billion bad bet

Ultimately, Regiments’ gamble went horribly wrong. The “why” strays into technical territory, but basically the CPI-linked swaps failed to meet the criteria for hedge accounting, something which Regiments and Ramosebudi probably should have checked.

This slip-up created “extreme volatility” on Acsa’s income statement and after just one year, Acsa wanted out. But there was a problem: Nedbank informed Acsa that it would cost R856-million to unwind the swaps and undo the damage that Regiments had caused.

This would have been a good time for Nedbank to cut ties with Regiments. The advisors had led Acsa into two ruinous swaps, incentivised by the enormous fees it earned through Introduction of Derivative Transactions. But instead of terminating its agreement, Nedbank chose to keep profiting from Regiments’ influence.

Sensing another opportunity, Nedbank offered to take over the swaps and refinance the Acsa loans a different way. Nedbank offered Regiments an additional 24 basis points fee (R34-million) if Acsa accepted.

Among internal emails we found a memo “prepared by Phetolo Ramosebudi” which provided a long list of advantages that Nedbank’s proposed structure would offer. The metadata of the document and the email it was attached to show the document was actually authored by Regiments’ Wood.

But by this point, Acsa appears to have run out of patience. In its 2012 annual report, it disclosed that it had paid R919-million – R494-million to Nedbank and R425-million to Standard Bank – to unwind the swaps.

In other words, Acsa had paid almost R1-billion to put its interest rate exposure back to where it started two years earlier.

In contrast, Regiments had already received R22.3-million from Standard Bank and would continue to earn fees from the Nedbank leg of the disastrous swaps even after they were unwound.

The version of Introduction of Derivative Transactions that Nedbank had signed, allowed it to claw back the fees paid to Regiments if the swaps were unwound. But for whatever reason, Nedbank declined to ask for its money back. The final portion of Regiments’ R19.5-million fee was scheduled to paid by Nedbank last year.

Acsa told amaBhungane it is “reviewing current litigation, procurement matters, the status of previous forensic reports and other governance-related issues”, including the swaps.

“One objective … is to identify and address issues similar to … those that have plagued state-owned companies over a number of years… Acsa accepts that it is likely that it, too, has been a victim of unethical and possibly illegal conduct.”

But Acsa also told us that it was hamstrung by a lack of information, both from former employees and the banks.

“[I]t appears to us that you, and probably the banks concerned, are in possession of considerably more information than exists in Acsa’s records…

“Acsa engaged Nedbank in 2018 with a view to obtaining additional details of the agreements entered into. The level of detail that has since been shared with amaBhungane was not shared with Acsa.”

The PR crisis over political exposure

The Nedbank-Regiments party almost came to an abrupt end when, in September 2012, amaBhungane started publishing a series of articles about Regiments, its ANC links, its role in the politically-connected Capitec empowerment deal and its contract to manage the City of Johannesburg sinking fund.

Emails show Regiments director Niven Pillay proposed a media “blitzkrieg”, which included hiring people to defend Regiments in the comments section of the Mail & Guardian’s website – although the public relations firm that Regiments hired assured us that this last part was never implemented.

“Overall, if we stage a blitzkrieg, we can kill this issue within a week or two. It requires major prep and then a media saturation over a few days,” Pillay wrote to his Regiments colleagues.

But the articles stirred something inside Nedbank. Emails between Wood and Brickman show that the bank finally started wondering whether it wanted to be in business with Regiments at all.

There is a hint of panic in Wood’s emails from this period as he begged Nedbank not to cut ties with his firm: “Regiments have had a close relationship with the Nedbank group since inception of our company… We have tried wherever possible to steer business towards the Nedbank group,” he wrote in a November 2012 email to Brickman.

“Whilst we understand the reputational risk posed to Nedbank by the recent negative media attention on Regiments, we feel that we have gone above and beyond in the level of transparency shown to the media and yourselves.”

Wood continued, “Please may I request that an unemotional review of the facts take place within Nedbank in order for us to resume our relationship. Regiments have worked hard over the years to foster a relationship of trust and integrity with Nedbank, which we feel that your team continue to place in question notwithstanding the openness with which we have responded.”

Unfortunately, this is where our access to their communications goes dark. We do not know what happened inside Nedbank, but we suspect that Nedbank took the allegations seriously because two weeks later, Brickman got an irate letter from the City of Johannesburg demanding to know why Nedbank had suspended the city’s trading lines “without any consultation”, based on media allegations.

Whatever Regiments and the city did, something worked because by December 2012, Regiments and Nedbank were back in business.

Another R30m from City of Tshwane

Earlier that year, the City of Tshwane had hired Mathamela, the former Johannesburg treasurer we read about above, and his company Pro-Grace to advise on restructuring the city’s long-term debt.

With Regiments’ help, Pro-Grace had come up with an ambitious plan to restructure R5-billion in loans. Their fee would be R524 000. But the real windfall would come from implementing the strategy they created.

The city had been quite clear in its written mandate that implementing the restructuring plan “will not incur any additional fees” beyond the R524 000 it had already paid.

Mathamela told us via his lawyers that it “became clear that Pro-Grace would have to continue … on risk as the [city] remained intent on not remunerating Pro-Grace for this phase as well… The [city’s] position was that Pro-Grace would recover its cost and fees via the savings that would materialise … through the restructuring exercise.”

In other words, if the advisors wanted a fee, they would have to get it from the banks.

As Regiments had done before, it asked Nedbank to add between 9 and 58 basis points to the interest rate on each new loan as “our fee”.

But there was a problem: the Nedbank executive arranging the loans was seemingly unaware of this long-standing arrangement.

“There is a great deal of sensitivity with regards the transparency of intermediary fees and this should remain a discussion between yourselves and the city,” Vusi Mpofu told Mathamela and Wood in a December 2012 email.

Brickman, who was copied on the email, wrote back assuring his colleague that “[t]he city has agreed both to the amount of the fees and to them being recovered in the pricing of the transactions” and that this “has been done in the past with other such transactions”.

But Remo Moyo, another Nedbank executive, agreed with Mpofu: “The fees arrangement between yourselves (the Advisors) and your client is a process outside our involvement… Guided by our internal policies we are unable to pay commissions of which the proposed arrangement would be tantamount to the same.”

Changing the rules of the game

When we interviewed Nedbank in 2018, the bank’s executives characterised the fees paid to Regiments in terms of the Introduction of Derivative Transactions agreement not as an introduction fee, but as an advisory fee that the client had approved and asked Nedbank to include in the all-in rate.

“[W]e were merely facilitating the payment of the fee… [We] see it as an advice fee,” the bank told us.

There is little evidence to support this claim. The wording of the agreement is clear: “If Regiments introduces the Client to Nedbank Capital and provides advice to Clients with the result that Nedbank Capital entered into the Transaction … Regiments will receive a fee”.

And a report from Transnet’s attorneys notes that, when interviewed in 2019, “Nedbank confirmed that it had an agreement with Regiments, in which it would pay Regiments a fee/commission for any business it brings.”

But by the end of 2012, the way that Nedbank paid Regiments its fees was evolving. And there were times when public sector clients consented to Regiments getting a fee from the bank rather than paying Regiments directly from the public purse.

This appears to be the case with the City of Tshwane.

Regiments director Niven Pillay would later tell a client that it is “very common” for advisors’ fees to be wrapped into the all-in rate: “The reason for this is that the client doesn’t need to raise the fees in order to pay it.”

But this method also meant that without going through a competitive bidding process, Regiments was able to turn a modest R524 000 advisory contract into a money-spinner that would quietly siphon millions from the City of Tshwane over a 10-year period.

For restructuring two loans and executing an interest rate swap on a third loan, Nedbank agreed to pay Regiments and Pro-Grace R30.6-million, which would be recovered from the city by increasing the interest rates the city paid. At Nedbank’s request, city officials confirmed they were aware of the arrangement.

“We … confirm that the City will not pay for your fees directly and that your fees will form part of the all in swap rate and paid to you by the executing bank,” city manager Jason Ngobeni wrote in an email to Mathamela.

This was a ham-fisted solution and one that lacked the transparency and fair play that should be present whenever a municipality spends public money. There would be no tender, no line-item in the city’s books disclosing that R30.6-million would be paid in advisory fees to Regiments over the next 10 years.

At Mathamela’s request, Nedbank had agreed to divert the entire fee to Regiments. “[ProGrace] is comfortable that it will collect its share of the fees from Regiments as and when due,” he told Brickman in a January 2013 letter.

This time, when Regiments delivered its invoices to Nedbank, it did not mention the Introduction of Derivative Transactions agreement; instead, under “services rendered” it merely said “margin … as per agreed schedule”.

Nedbank has continued to pay these fees, funded by the City of Tshwane, ever since. The final portion is due to be paid to Regiments in March 2023.

RMB, which Regiments also approached to take over some of the loans, was a different story.

The bank declined to sign a copy of the Introduction of Derivative Transactions agreement but initially agreed to pay Regiments and Pro-Grace a R10.7-million “arranging fee” on Tshwane’s behalf, which would be rolled into the interest rate on two new loans.

But days before the deal was finalised, RMB backed out of paying the fee, citing “administrative and compliance issues”.

Unlike Acsa, the City of Tshwane would profit from the loans and subsequent swaps that Regiments and Pro-Grace put in place.

“In early 2014, there was a spike in long term interest rates … which resulted in some of the swaps going deep in the money creating an opportunity for the city,” a spokesperson said in a statement. In this instance, the city was able to “exploit the market conditions … to generate liquidity for the City”.

Transnet would not be so lucky. As it had already done with Acsa and the City of Tshwane, Regiments would roll the dice on interest rates. The loss could run into billions.

The dream team

This brings us back to where we started this story. Remember Mathane Makgatho, the Transnet treasurer? For two years, she had held off an onslaught from key state capture players. But by 2015, she had had enough.

One of the last things she said to her staff before resigning was: “I arrived here with integrity and I will leave with my integrity intact.”

This provided an opening for Ramosebudi who was quickly appointed to succeed her as Transnet treasurer. It also provided an opportunity for Regiments and Nedbank.

As treasurer, Makgatho had been unwilling to entertain the fanciful proposals from Wood and Brickman. She was told that her complaint to Nedbank Capital had led to Brickman being “reprimanded”. But the bank had taken no steps to keep him away from future Transnet business. And once Makgatho was out of the way, Regiments – assisted by Nedbank – made its play.

A year earlier, in 2014, Transnet had signed historic contracts to acquire 1 064 new locomotives.

To help finance this, Transnet turned to a consortium of banks – Nedbank and its associated financial services firms Old Mutual and Futuregrowth included – for a R12-billion “club loan”.

But before the agreement was even signed, Regiments approached Nedbank to switch the interest rate on the club loan from floating to fixed.

This instant swap went against Transnet’s financial risk management framework which says that, where possible, a loan should be taken with the appropriate interest rate in place: “The preferred option will be to enter into a loan with the fix/floating characteristics as required,” it reads, noting that interest rate risk hedges could be introduced later if “markets or trends have changed”.

Entering into interest rate swaps only days later did not meet this definition.

As we saw earlier, when Regiments had proposed an instant swap at Acsa in 2009, a senior Nedbank executive had tried to intervene, fearing Regiments was taking its client for a ride. The Transnet swap not only featured the same cast – Ramosebudi, Wood and Brickman – but also the same doubtful commercial rationale.

But this time Nedbank would raise no objection.

Nedbank ducked responsibility in its statement to us, saying: “As a general rule, Banks cannot be seen to be interfering with the management of their clients. Given that Nedbank was not an adviser to the clients regarding the derivative transactions referred to, Nedbank was not and is not in a position to challenge the commercial objectives of our clients.”

Financial choreography

Under normal circumstances, Transnet’s world-class treasury team would have approached various banks and asked for competitive rates for the swap, a process that would normally take weeks.

But December 2015, at the height of state capture, was anything but normal. Acting with unexplained urgency, Regiments hand-picked Nedbank to act as counterparty-cum-middleman on a series of swaps for a R4.5-billion tranche of the club loan.

It was an unusual arrangement: Nedbank would act as Transnet’s counterparty, swapping the latter’s existing floating rate for a fixed interest rate of 11.83%; but Nedbank would also enter into a series of mirror swaps with the Transnet Second Defined Benefit Fund, a Transnet pension fund, providing a floating rate in exchange for a fixed rate of 11.65%.

The difference – 18 basis points – would accrue to Nedbank for acting as “credit intermediary”, a role with virtually no risk but that would generate, by our calculation, R74.2-million over the life of the loan.

As far as we can tell, this unusual structure was designed to get around the problems created by Transnet entering into interest rate swaps with a related party, i.e. its own pension fund.

Nedbank’s presence, effectively as cardboard-cutout, would not meaningfully solve the related-party problem, but would paper over it for appearance’s sake.

Nedbank later told Transnet’s attorneys that Regiments – which conveniently was also in charge of managing the pension fund’s investments – had once again dictated the interest rates that each party would pay and receive.

And again Regiments, and specifically Wood, was on both sides of the transaction: as advisor to Transnet and fund manager to the Transnet Second Defined Benefit Fund.

Somehow, none of this seemed to bother Nedbank.

The sleight of hand

Regiments, of course, was not planning on working pro-bono.

Although Transnet had already paid Regiments R189-million for advising on the 1 064 locomotive funding plan and paid another R93.5-million to the Regiments spin-off Trillian for raising the club loan, Ramosebudi proposed that Transnet award Regiments a 20 basis points fee for arranging this series of interest rate swaps, once again without a tender.

Nedbank claims ignorance

Nedbank claims it was kept in the dark about Regiments’ fee.

“[I]n the Transnet transaction … we had no sight of the fees,” Ferreira insisted. Bosman also told us: “We could not find information that we were aware of the fees … determining the fees, paying the fees, or being part of it at all.”

But here is what we can see: Days before the swaps were executed, Nedbank sent Regiments indicative rates for the swaps, as it had done on every other transaction. But by the time the swaps were finalised, the fixed rate Transnet would pay had jumped significantly, meaning that more money was being channeled to the Transnet pension fund.

Considering that Regiments had extracted a fee on every other interest rate swap, it would not have taken much imagination for Nedbank to figure out what was happening.

And if Nedbank had asked for a copy of Regiments’ mandate (signed on 3 December 2015), it would have had confirmation – in black and white – that Regiments’ fee was included in the all-in rate that would pass through Nedbank.

Although this would add just 0.2% to the interest rate that Transnet would pay – a seemingly insignificant amount – it would by our calculation entitle Regiments to R82.5-million over the lifetime of the loans.

But by now, Nedbank had cold feet and no longer wanted to act as postman by delivering the fee to Regiments.

“[I]n the beginning of 2015, there was a decision that we will not pay commissions on behalf of any clients to any advisors. No matter who the advisor was,” Ferreira told us. “In those types of deals … the clients must pay their commission to their own advisors.”

Bosman added: “[O]ver the years … banks became more wary of fees and third parties. So, by 2015, we were not paying Regiments directly at all.”

But, with Nedbank’s connivance or not, how Regiments got paid involved a sleight of hand: No fee was paid by Nedbank to Regiments directly, but Regiments’ 20 basis point fee was included in the interest rate passed on from Transnet, via Nedbank, to the pension fund.

Once the 20 basis points was there, Regiments Fund Managers could transfer the money out using its unrestricted access to the pension fund’s bank account.

The table was now set: Regiments would be on both sides of the deal – as Transnet’s advisors and managers of the Transnet pension fund – and both Regiments and Nedbank would collect a generous fee.

The only people not invited to the feast was the Transnet treasury team.

“I need to sort this out”

It was highly irregular for the dealing room at Transnet’s treasury to be locked out of discussions about how to manage Transnet’s interest rate exposure.

The four-man team had 85 years’ experience dealing in derivatives and helped run one of the most sophisticated treasury functions in the country. Plus, Transnet had a whole host of policies and memos underscoring that treasury work had to be done in-house, where expertise existed.

Yet the dealing room were told to sit aside while Regiments ran the show.

On 2 December 2015, Ramosebudi’s deputy, Danie Smit, almost derailed the transaction when he sent out a memo arguing against the swaps.

Ramosebudi was not pleased.

“I went to Mr Ramosebudi’s office … and he was very upset with me,” Smit would later write in an affidavit.

“Mr Ramosebudi did not look up to me when he was talking… The discussion was short… I can unfortunately not remember any further detail apart from Mr Ramosebudi’s face expression of his dissatisfaction that he was not comfortable with the memorandum I mailed.”

Unbeknownst to Smit, his boss had already forwarded Smit’s memo to Wood with a note that read: “I need to sort this one out.”

Soon, Ramosebudi sent back a revised memo. The table Smit had included to show that interest rates were not forecast to spiral out of control – and therefore did not require an expensive hedge – was now used to reach the opposite conclusion.

Nedbank withdraws from Zondo

Nedbank’s response to Mahomedy’s explosive Zondo testimony was to fight back.

In an as-yet-unpublished affidavit handed to the commission in 2019, Nedbank head of risk Neil McCarthy criticised “factual inaccuracies” and “inaccurate inferences” in Mahomedy’s written statement.

According to McCarthy, the suggestion that Nedbank was party to the use of complex financial instruments “in order to extract undue benefit for Regiments” was problematic, as was the characterisation of the interest rate swaps as “prejudicial”.

“Nedbank wishes to lead evidence, call witnesses on its behalf, and cross-examine Mr Mahomedy,” McCarthy told the commission in a letter.

That request was granted and Nedbank was scheduled to cross-examine Mahomedy on 28 August last year. But just days before, it quietly withdrew its request.

“The short term interest rates are expected to increase over the medium period, the [sic] poses a serious risk to Transnet debt portfolio,” the revised memo read.

The new conclusion: Transnet should enter into the swaps after all. Problem solved.

On 4 December 2015, Regiments committed Transnet to pay a fixed interest rate of 11.83% on the R4.5-billion portion of the club loan until December 2030.

Ignoring a May Day’s parade of red flags, Nedbank executed its side of the deal.

Currently these interest rate swaps are deep in the red for Transnet. The difference between the floating rate Transnet receives and the 11.83% fixed rate it pays is a yawning 5.6%; a loss of almost R200-million over the past year.

Former Transnet chief financial officer Mohammed Mahomedy told the Zondo commission in 2019 that in his view Transnet had been “successfully manipulated” by corrupt executives and complicit consultants who used financial instruments such as interest rate swaps to “siphon” billions of rands out of Transnet.

“The … use of complex financial instruments … hid flows to beneficiaries and created annuity losses for state entities.”

The main beneficiary of this “annuity loss” should be the Transnet pension fund, given that the floating rate it got turned out to be the winning bet.

And of course Regiments, whose margin of 20 basis points would have produced an estimated R82.5-million in fees over the lifetime of the loan, which runs until 2030; although Regiments elected to take a discounted R56.7-million in cash immediately.

“Day one loss of R400-million”

Soon, Transnet – guided by Wood – was in the market for additional interest rate swaps on the remaining R7.5-billion of the club loan and Nedbank was once again tapped for the job.

On 7 March 2016, Nedbank initiated five swaps, planning to saddle Transnet with a fixed interest rate of 12.37%, way above the Jibar-linked floating rate of 9.7% Transnet was paying at that stage.

Regiments’ version

Although Regiments’ directors would not speak to us they have provided a defense under oath.

In March 2016, lawyers for the Transnet Second Defined Benefit Fund noticed with alarm that Regiments had been withdrawing millions in unexplained fees from the pension fund’s bank account.

In response, Pillay handed them copies of Nedbank’s and Standard Bank’s Introduction of Derivative Transactions agreements, insisting that it was a “common market practice” for an advisor’s fee to be rolled into the client’s all-in rate.

The pension fund rejected this argument and in 2017 sued Regiments, demanding that it return R229-million in undisclosed “fees” it had taken on various interest rate swaps, including the Nedbank ones.

In response, Pillay claimed in an affidavit that Regiments Capital and its subsidiary Regiments Fund Managers had acted as two separate legal entities, each negotiating the best deal for their clients, Transnet and the pension fund respectively.

Pillay also said that he was under the impression that the 12.27% fixed rate the fund offered was the most competitive, and laid the blame on Wood for accepting the onerous rate on Transnet’s behalf.

But the fund had a stronger argument: “At no time was there any contract between the fund and Transnet obliging the fund to pay the Transnet transaction fees nor was there any other lawful basis for the Transnet transaction fees to be paid by the fund,” the fund told the court.

Ultimately Regiments capitulated and agreed in a settlement to repay the pension fund the fees it had earned, including the total of R120.6-million extracted via the 20 basis points margin on the two sets of Nedbank swaps.

Nedbank would again stand in the middle with the Transnet Second Defined Benefit Fund on the other side. For its largely risk-free efforts, the bank was to take the 17 basis points difference between the Transnet and Transnet pension fund interest rates.

But this time, Transnet’s neglected treasury team was ready to intervene before the trades could be confirmed.

On 10 March, Transnet’s chief trader, Reon Louw, emailed Ramosebudi drawing his attention to the fact that the Nedbank price was way above what was available in the market: “The mid swap rate as calculated by us indicates a rate of 11.50. Nedbank’s rate [of 12.37%] is 87 bps above mid. The 87bps equates to a negative present value (i.e. day one loss of R400mill, which will impact the income statement)… Are you happy to proceed on the above basis?”

It was unusual for an interest rate swap to be so badly underwater on day one. But Wood, with Nedbank’s help, was about to commit Transnet to paying this obscenely high interest rate for the next 15 years.

A few days later, the treasury team tried again, sending Ramosebudi competitive rates from two other banks, HSBC and Absa. In every category they were cheaper than Nedbank.

But no one was listening.

Ramosebudi forwarded the treasury team’s email to Regiments and when no reply was forthcoming, sent another email saying: “Transnet will confirm the current transaction in spite of the fact we have raised concerns.”

As a minor concession, Regiments reduced Transnet’s fixed interest rate from 12.37% to 12.27%.

Nedbank knew that the rate Transnet would pay was higher than what was available in the market, and that questions might be asked.

In an email to Ramosebudi, Brickman wrote: “[O]ur compliance is requesting a letter that essentially states that Transnet has looked at the transaction and the rates concluded and that Transnet is satisfied with the pricing and value of the transaction.”

To make Ramosebudi’s life easier, he proposed wording to the effect that Transnet was “aware and agree” to paying “over mid-market value”.

Ramosebudi obliged, as he had done at Acsa, copying Brickman’s suggestion word for word.

Nedbank’s 17 basis points fee, for acting as middleman on this second series of swaps, will have generated an estimated R117.1-million by the time they terminate in 2030. Regiments would have received R137.7-million over the same period but, as it had done before, opted to take a smaller up-front fee of R63.9-million.

In total, these lightning-fast swaps in December 2015 and March 2016 will by our calculation generate R191.3-million in fees for Nedbank between 2015 and 2030. Regiments could have walked away with even more – R220.2-million in fees – but opted for the two amounts of cash upfront totalling R120.6-million.

Nedbank backs away

By the time the second Transnet swaps were concluded in March 2016, it was hard to ignore the information emerging about Regiments, the Guptas, then president Jacob Zuma and state capture.

On 9 December 2015, just days after the first Transnet swaps, Zuma fired Nhlanhla Nene as finance minister and replaced him with Des van Rooyen (who brought with him a special advisor, Mohamed Bobat, until then a senior figure at Regiments).

The Van Rooyen appointment spooked the markets and the ANC. Zuma was forced to backtrack and install Pravin Gordhan.

Around the same time, the Guptas pulled off a year-long coup to acquire Optimum coal mine from Glencore. What no one knew was that most of Regiments’ fee from interest rate swaps would immediately be transferred to companies linked to Gupta business partner Salim Essa from where, it is alleged, the money would be used to help pay for Optimum.

This may explain why Regiments opted for the smaller, up-front fee that it could get its hands on immediately. It may also explain why Regiments pushed so relentlessly for the interest rate swaps to go ahead.

While Nedbank was in the dark about Regiments’ links to the Guptas, it had ample evidence that Regiments and Ramosebudi were taking Transnet for a ride.

The interest rates that Transnet had agreed to pay made no commercial sense. And once again, the flurry of swaps seemed designed to generate extra fees for Regiments.

In March 2016, after the swaps on the R12-billion club loan, Regiments offered Nedbank another Transnet swap, but this time the bank declined, explaining that its risk department had “concerns”.

As far as we know, the March 2016 swaps were the last major deal between the two. However, when we interviewed Nedbank in 2018, it confirmed that “contractual payments” on “historical deals” – such as Acsa and City of Tshwane – were still taking place.

Counting the cost

Nedbank said in its statement to us that it considered the fees it will receive from the Transnet swaps – by our calculation R191.3-million – to be “fair, reasonable and appropriate for the risks involved”.

Counting the cost and the profits

Nedbank dispute our calculation of R191.3-million fees. In a recent written response, it said that it would earn R43-million in profit from the Transnet swaps. It would also take R86-million to cover its costs, bringing its total fee to R129-million, substantially less than the figure we reached.

However, in digging into these numbers it became apparent that Nedbank had heavily discounted its figures to reflect the present value of the fees. This is called the time value of money. Think of it like “a bird in the hand is worth two in the bush”: R100 today is worth more than R100 in ten years.

Asked to confirm if its R129-million figure was the discounted, present value, Nedbank would only say: “Nedbank, and other financial institutions, looks at these cashflows on a discounted, present value basis and this also aligns to how the instruments, giving rise to these cashflows, are accounted for in our financial statements.”

It also maintained that it conducted its derivates business in an “ethical and transparent manner” that “strictly adhered” to legislative and governance requirements.

Last year, Transnet hired MNS Attorneys to review the interest rate swaps and calculate the losses incurred through the 11.83% and 12.27% fixed rates it agreed to pay on the R4.5-billion and R7.5-billion portions of the club loan respectively until 2030.

The attorneys’ report calculated that by February 2019, the interest rate swaps that Nedbank facilitated had cost Transnet R1.7-billion in realised and unrealised losses.

To put that into perspective, that is more than Transnet spent on maintenance in its last financial year.

But since then, the floating interest rate on the deal has dropped to 6.3%. And Transnet, which is stuck paying a fixed rate of up to 12.27%, has been forced to fund the difference.

It is difficult to predict how interest rates will move in the future, but if they remain at current levels, Transnet will have paid away R4.5-billion by the time the swaps expire in 2030 – unless it takes action.

The chickens come home to roost

In its 2019 report, MNS Attorneys told Transnet: “The decision to conclude the swaps was irrational and irregular. Transnet should approach a court to have the interest rate swaps reviewed and set aside; and/or refuse to perform and to resist attempts to enforce the interest rate swaps.”

So far Transnet has not done this, choosing instead to negotiate with Nedbank.

But in these negotiations, it is understood Nedbank has insisted that the only way out of the swaps is for Transnet to pay the market value, just like Acsa did in 2012 when it paid Nedbank almost half a billion rand to unwind a bad swap.

Except this time, the loans are much bigger and the interest rates much further apart.

Transnet would not comment on the negotiations, but said in a brief statement: “Transnet … remains intent on stopping and recovering losses. The interest rate swap between Transnet, Regiments and Nedbank forms part of investigations currently underway by law enforcement authorities and the [Zondo] Commission… Out of respect for these processes, Transnet is not in a position to provide any detailed responses until the investigations are concluded.”

Nedbank maintained that it was co-operating with Transnet, the Special Investigating Unit and the Zondo commission: “We reiterate that Nedbank has a zero tolerance for corruption… Nedbank supports and will continue to co-operate with relevant authorities in their quest to bring the purveyors of corruption to book.”

Yet these words do not sit well in the bank’s mouth. In response to one more set of questions from us, Nedbank itself offered a neat summary of the case against it:

“In our view, the substance of your questions can be summarised into the following central issues and allegations:

• That Nedbank was aware, or should have been aware, that Regiments misled its clients in relation to the fees it earned from the transactions in question;
• that Nedbank was complicit in enabling Regiments to extract excessive fees from its clients in that Regiments proposed transactions which were not in its clients’ interests and Nedbank failed to advise the clients of this; and
• that Nedbank incentivised Regiments to propose such transactions by entering into the Introduction of Derivative Transactions agreement.”

In response (in full below) the bank denied it was complicit in any alleged scheme by Regiments to defraud its clients or to extract undue benefit from them.

Nedbank’s defense is essentially that state-owned entities and municipalities are big boys and girls, “sophisticated entities” that can look after themselves.

“[W]e rely on their directors, office bearers and financial control structures to manage their own internal affairs and to ensure that their governance responsibilities are adhered to.”

The bank also argued again that since it was not the advisor to these clients, “Nedbank was not, and is not in a position to challenge the commercial objectives of these clients” and that it was Regiments’ responsibility to tell its client about the extra fees it earned.

This ignores three factors.

One, it ignores the reality that by paying commissions to Regiments – which was the advisor – Nedbank incentivised it to act against the clients’ best interests.

Two, it rarely took any steps to ensure the clients knew of this side arrangement which bled millions from scarce public funds.

And three, even when Nedbank was merely facilitating the payment of the client’s fee, Nedbank had good reason to suspect that rules were being bent and broken for Regiments’ benefit.

By March 2016, when Nedbank received a letter from Ramosebudi confirming “that Transnet is satisfied with the pricing and value” of a transaction that would result in it suffering an immediate R400-million loss in book value, there were already allegations that Transnet had been captured by interests aligned to the Gupta family.

AmaBhungane investigations have impact. We won’t stop exposing wrongdoing and holding government and corporate institutions to account. But we cannot do it without your support.

Further, Nedbank knew from Acsa how unreliable Ramosebudi was as a guarantor of probity and good sense. Yet Nedbank agreed to play a part in the scheme.

What the narrative we have set out demonstrates, in our view, is that Nedbank came to exercise a willful blindness.

*Read more on Regiments here.

Some of its senior employees had first-hand knowledge of Regiments’ duplicity. In other instances, the cumulative evidence of Regiments manipulation of its clients was overwhelming.

For seven years Nedbank reaped the profits of its mutually beneficial relationship with Regiments. Now it may be time for Nedbank to reap the whirlwind.

Nedbank responds

Nedbank asked that we publish this statement in full:

Nedbank has at no time acted unlawfully or improperly in its dealings with Regiments and the affected counterparties; or Regiments clients. Nedbank denies any inference or accusation that it was complicit in any alleged scheme by Regiments to defraud its clients or to extract undue benefit from them.

The Corporate and Investment Banking clients of Nedbank are sophisticated entities and we correctly rely on the legislative framework regulating the banking and financial services sector as well as the financial conduct of public entities. In addition, we rely on their directors, office bearers and financial control structures to manage their own internal affairs and to ensure that their governance responsibilities are adhered to. Given that Nedbank was not an adviser to the affected Regiments clients regarding the transactions referred to, Nedbank was not, and is not in a position to challenge the commercial objectives of these clients.

The Introduction of Derivatives Transactions agreement was concluded on 25 May 2009 between Nedbank Capital (as it then was) and Regiments Capital on the express premise, and documented as such, that:

• Regiments undertook to disclose to its clients that it would receive a fee from Nedbank Capital, which would be included in the pricing agreed between Nedbank Capital and the client; and

• Regiments confirmed that it was not acting as Nedbank Capital’s agent.

There was nothing unlawful or unusual about the agreement which Nedbank had entered into, on the understanding that Regiments would adhere to its terms, coupled with its obligations as a registered Financial Services Provider (‘FSP’). Regiments was obliged to comply with the Financial Advisory and Intermediary Services Act and General Code of Conduct for FSPs which, inter alia, required of it to disclose its fees to its clients and to avoid conflicts of interest.

If Regiments failed in its obligation to make full and proper disclosure to its clients and or otherwise engaged in improper or unlawful conduct, Nedbank cannot be held accountable for this.

Nedbank was not aware at the time of entering into any of the transactions in question of any associated unlawful or corrupt conduct by Regiments. Nedbank denies that it was complicit with reference to any such unlawful or corrupt conduct that may have been perpetrated by Regiments and others.

Nedbank’s activities are conducted in an ethical and transparent manner for the benefit of our clients and stakeholders. All Nedbank’s client relationships are subject to the Financial Intelligence Centre Act, governance and regulatory reporting requirements, to which we strictly adhere.

We reiterate that Nedbank has a zero tolerance for corruption, and we expect all of our stakeholders, including our clients, service providers and staff to conduct themselves in an ethical manner and with corresponding integrity.

Nedbank is supporting, and will continue to support and co-operate with, the relevant authorities.

The post State capture: The case against Nedbank appeared first on AmaBhungane Centre for Investigative Journalism.

For at least six years, Phetolo Ramosebudi was the “inside man” for controversial financial services firm Regiments Capital.

Ramosebudi was group treasurer first at Airports Company South Africa (Acsa), then at South African Airways (SAA) and then at Transnet, where he controlled one of the largest and most sophisticated corporate treasuries in the country.

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New evidence shows that during Ramosebudi’s time at these state-owned entities, he was a Regiments rainmaker: leaking confidential information, allowing the firm to dictate the terms of a tender, and rubber-stamping questionable fees running into hundreds of millions of rands.

Seemingly in exchange for this extraordinary leg-up, Regiments was asked to pay at least R6.3-million to Ramosebudi’s private companies and those of a relative – via 14 invoices delivered to Regiments director Eric Wood.

The invoices were for everything from “advisory” work to supplying liquor and the services of a personal trainer.

Yet amaBhungane has seen no evidence that these services were actually delivered, suggesting the invoices were a cover for undue payments to Ramosebudi.

The most intriguing, but least conclusive, piece of evidence is a quote for a R1.3-million Range Rover Sport.

• Click on the evidence docket to access the information we used for our investigation.

It is attached to an email Ramosebudi sent to Wood in September 2015, though it appears the car was never bought.

We sent Ramosebudi five pages of detailed questions in August, detailing the evidence against him. He responded, saying: “I have noted with a concern your allegations around my integrity and the integrity of procurement processes in the companies I worked for, particularly to ACSA, SAA and Transnet on Treasury related work, which is the cornerstone of my function in the treasury and financial markets space.

“Given that the information you’re referring to is more than 7 years and don’t have recollection of the details it is really unfair to expect me to respond candidly on these query and questions.

“However, I am confident that any procurement processes in those organisations you’re making reference to have sufficient checks and balances to guarantee integrity. These include oversight at various governance levels.” (Read Ramosebudi’s full response here.)

Since August, Transnet chairman Popo Molefe has suspended three Transnet executives for their alleged role in state capture, including chief executive officer Siyabonga Gama who was dismissed this week.

Hours after amaBhungane first published this investigation, Transnet’s attorneys confirmed that Ramosebudi resigned after being issued with a suspension notice, following Transnet’s own investigation.

The R229-million headache

To understand why Ramosebudi was so useful to Regiments, we need to start some six years into his apparent capture, in December 2015, when Transnet was poised to enter into a series of interest rate swaps that would deliver R229-million in fees to Regiments.

But there was a problem.

“I need to sort this one out,” Ramosebudi told Regiments’ Wood, forwarding him an internal Transnet email.

It was 2 December 2015 and the source of Ramosebudi’s headache was Danie Smit, one of his colleagues at Transnet treasury who had taken it upon himself to prepare a “humble opinion” questioning the wisdom of entering into the swaps.

Earlier, in November 2015, Transnet had secured a R12-billion “club loan” to finance the largest purchase of locomotives in South Africa’s history.

Ostensibly to hedge its risk, Transnet decided to enter into a series of complex financial transactions known as an interest rate swaps.

The deal would swap the “club loan’s” volatile floating interest rate for a fixed one. Incidentally, it would also channel enormous fees to Regiments and, it is alleged, onwards to the Guptas.

But now, at the 11^th hour, Smit, a seasoned official, was seemingly not convinced the interest rate swaps were necessary.

Although we have not seen a copy of Smit’s memo, the email trail shows that Transnet’s newly-appointed chief financial officer, Garry Pita, was persuaded.

“It is well-written and I understand the logic. Phetolo, are you in agreement that we don’t enter into the swaps?” Pita replied.

This, Ramosebudi told Wood, was what he needed to “sort out”.

Just 20 minutes after his email alerted Wood to the problem, Ramosebudi swung into action.

“I am sorry that you received a conflicting message from Danie who didn’t consult with me on this,” he wrote in a reply to Pita, leaning heavily on his seniority to Smit.

“As the Head of Treasury I am concern [sic] with exchange rate and inflation expectations and it is prudent to manage risk appropriately. A proper submission is on the way for approval.”

Ramosebudi’s submission recommended that Regiments be appointed to carry out all of Transnet’s interest rate swaps linked to the “club loan”. (The memo was first published here by OCCRP.)

On 4 December, Transnet entered into the first of a series of interest rate swaps, using a Transnet pension fund as the unfortunate counterparty.

The same day Regiments received R56.7-million in fees and quickly transferred R42-million into a Bank of Baroda account.

Who benefitted from those funds remains in dispute – while Regiments maintains the money was for Albatime, a company that acts as a fixer for Regiments, the Public Protector’s State of Capture report identified one of the beneficiaries as Tegeta, the mining company co-owned by the Guptas, Salim Essa and Duduzane Zuma.

Would the head of treasury commit Transnet to an expensive deal it did not need just to channel fees to Transnet’s politically-connected advisors?

Considering how complex forex risk can be, there is no easy answer.

However, this was not the first time Ramosebudi had reached down, opened a valve and allowed millions in questionable fees to flow to Regiments.

In April 2015, he presented Transnet with a memo recommending that Regiments receive a R189-million “success fee” on a separate, Chinese loan, which a recent amaBhungane investigation showed was largely siphoned to the Guptas’ Sahara Computers.

But to understand the symbiotic relationship between Ramosebudi and Regiments one needs to go back to 2009 when Ramosebudi was treasurer of Acsa – and Regiments seemingly began grooming him to serve its interests.

High-flyer

In 2009, Acsa was facing a triple threat: a global recession, R17-billion of debt, and new regulations that precipitated a “cash crunch”. “These conditions made debt difficult to access and/or extremely expensive,” spokesperson Hulisani Rasivhaga explained via email.

To head off a liquidity crisis, Acsa needed to raise R3.5-billion immediately. Regiments was appointed as advisors and was promised a modest capital-raising fee, capped at R2.5-million over five years.

But when Acsa’s treasury department, headed by Ramosebudi, decided to enter into a series of interest rate swaps on these same loans, Regiments saw an opportunity to exploit its position as Acsa’s trusted advisor.

In May 2009 and May 2010 Regiments entered into separate deals with Nedbank and Standard Bank, setting themselves up as intermediaries and asking the banks for an “introduction fee” for any deals it brought them.

If the banks won the business to execute the interest rate swaps, Regiments would get upwards of R10-million per transaction – a cost that would be rolled into the fee charged to Acsa.

“[P]art of the narrative,” Nedbank’s head of corporate and investment banking Brian Kennedy told us, was “if you don’t deal with Regiments you’re not going to do any business with any of the state-owned entities”.

The result? Between October 2009 and May 2010, Regiments extracted R46.3-million in “introduction fees” from Nedbank and Standard Bank, invoices, spreadsheets and emails shows.

While Standard Bank told us it believed Acsa was aware that Regiments was acting as a broker and earning a fee from the banks, Nedbank claimed that Regiments was at all times Acsa’s trusted advisor and the fee was not an “introduction fee” but an advisory fee that the bank merely paid on Acsa’s behalf.

The one thing the two banks do agree on is their claim that the fees they paid Regiments were above-board for the simple reason that Acsa was aware of the fees, and happy to carry the cost.

Yet from Acsa, Standard Bank and Nedbank’s accounts it appears that Ramosebudi was the only person at Acsa who was told about these fees, and normally only over the phone. Nedbank told us it had reason to believe that others at Acsa were informed about the fees, but was unable to present evidence of this and said it was still conducting its own investigation.

Acsa said it could find no record that Regiments or Ramosebudi disclosed these “introduction fees” to any else at Acsa.

“[Acsa] will need to commission a thorough audit to verify the accuracy of allegations… The documents we have reviewed thus far, i.e. swap agreements, do not disclose any fees that Regiments stood to earn from the swap transactions,” Rasivhaga said.

If Ramosebudi was helping Regiments, we wondered, what did he get in return?

Fringe benefits

Had someone been looking over Wood’s shoulder in July 2010 the email from phetolo@riskmaths.co.za would not initially have provoked much suspicion.

“Dear Eric, Please receive a copy of the research, and will appreciate the review and comments as soon as possible for finalisation,” Ramosebudi wrote.

Attached to the email was not a research report, but an invoice payable to Riskmaths Solutions for R456 000 for “Actuarial and Risk management consulting”.

Company records show that Ramosebudi was the sole director of Riskmaths at the time.

Two more emails marked as “research reports” arrived in September and October 2010 from Ramosebudi. Once again there was no sign of any research attached to the email, only invoices for R798 000 and R460 099 respectively.

If the invoices were legitimate, we asked ourselves, why would Ramosebudi disguise them as “research reports”?

There were other invoices too.

A week after Ramosebudi okayed Regiments’ R22.3-million “introduction fee” on the final Acsa swap, seven invoices arrived in Wood’s inbox from Ramosebudi’s Riskmaths email account.

The first two were from Venus Liquor Store, the trading name of Azana Capital Markets, another Ramosebudi company.

Despite Venus’ modest location in a discount mall in Midrand, the company billed Regiments more than R400 000 for alcohol, catering and venue hire for a “Regiments function”.

The remaining five – totaling R2.8-million – were from Riskmaths Consulting.

In October 2010, Ramosebudi sent Regiments another invoice from Azana Capital Markets, not for alcohol but for “19 days” of consulting work at R1 950 an hour, totaling R296 400.

Acsa confirmed that any deals its employees did with suppliers should have been disclosed in terms of the company’s conflict of interest policies, but told us that although Ramosebudi disclosed he was a director of several companies, he did not disclose any payments from Regiments.

A year or so later, when Ramosebudi packed his bags for SAA, Regiments went with him.

SAA’s secrets

By 2013, the cash-strapped national airline was desperate to free up working capital.

And Regiments was poised to profit from its relationship with Ramosebudi, who was now group treasurer and head of corporate finance at SAA.

In October 2013, Ramosebudi forwarded an internal SAA document entitled “Working Capital – Scope of Work” from his official “Flysaa” email address to Rams Capital, a new company he registered shortly before moving to SAA.

He then forwarded the document from his private Rams Capital email address to Wood at Regiments.

The document described what the airline hoped to achieve from a new “working capital optimisation” tender.

Regiments, which planned to bid for the tender alongside global consulting giant McKinsey, now knew exactly what SAA wanted to hear.

Ten days later, Ramosebudi repeated the exercise, forwarding the “evaluation criteria” for the tender to Wood with a request to “please review and comment”.

Over the next three months more emails followed, each time routed via Phetolo@ramscap.co.za before arriving at Ericw@regiments.co.za. There were confidential presentations from rival bidders like KPMG and emails containing the secret bid prices from REL Consultants and Boston Consulting Group.

In February 2014, SAA awarded the Working Capital tender jointly to McKinsey and Regiments. It is not clear from the emails we have seen whether McKinsey knew of the inside information Ramosebudi was drip-feeding to Regiments.

What we can see is that the tender was perfectly suited to the “100% at-risk” model that McKinsey was touting in the market – the same model that would later, controversially, extract R1.5-billion in fees from Eskom.

“McKinsey, and others, were invited to tender for a ‘fees at risk’ project to address severe funding shortfalls, which made it challenging for SAA to hire on a fixed-fee basis that did not link pay to impact,” a McKinsey spokesperson said in a written statement.

Despite the airline’s precarious financial position, the consultants asked to be paid 8% of any potential savings they identified, capped at R120-million. SAA, McKinsey and Regiments eventually settled on 7% capped at R80-million. (Newly-discovered documents show that 20 percent of the total fee was earmarked for Essa, the Gupta partner.)

Several former SAA executives we spoke to said Ramosebudi was central to lobbying for the McKinsey and Regiments contract, despite vociferous objections from then-CFO Wolf Meyer.

Spreadsheets prepared by McKinsey show that the largest projects, where the consultants stood to earn the biggest fees, all fell directly under Ramosebudi.

Ramosebudi’s pharmacy

When Ramosebudi moved to SAA, the payments from Regiments continued flowing.

In October 2013, two invoices arrived in Wood’s inbox from Ramosebudi.

The first was from Ka Ditlou Health Services 202 – trading as Rams Pharmacy – for a wide variety of health products and services, including a dietician and personal trainer. Total: R357 606.

The second was from Rams Capital for “Actuarial and Risk management consulting … work for Transnet”. Total: an identical R357 606.

This was not the first time Wood had received an invoice from Rams Pharmacy. In April 2011, when Ramosebudi was still at Acsa, he had sent an invoice to Regiments for identical services, but that time for an amount of R212 964.

Company records show that the sole director of Rams Pharmacy is Psychology Ramosibudi, a relative of Ramosebudi’s despite the different spelling of their surnames.

We asked what services Rams Pharmacy provided to Regiments but Psychology Ramosibudi told us that since the transactions “took place 5 years ago or more” it would be “unrealistic and unreasonable” to expect him to respond immediately. He added: “I guess [I] cannot at this stage candidly comment about this.” (Read his full statement here.)

SAA spokesperson Tlali Tlali told us that employees “must declare any conflict of interest between the work they do while in the employ of the airline and the work they undertake privately in their personal capacity” and must “seek permission … whether or not they get remuneration from doing such private work”.

Ramosebudi, he said, had disclosed that he was a director of one company, but not in the companies that we identified as issuing invoices to Regiments.

In the end the consultants could not extract their R80-million payday from SAA. Although McKinsey submitted invoices totaling R28.9-million, SAA’s then newly appointed CEO, Nico Bezuidenhout, refused to pay. The consultants eventually settled for a more modest R12.5-million.

But by that point Regiments had its eye on a bigger payday.

In January 2015, Transnet treasurer Mathane Makgatho resigned amid mounting pressure for her to sign off the Chinese loan that would eventually channel the R189-million “success fee” to Regiments. She reportedly told staff: “I arrived here with integrity, and I will leave with my integrity intact.”

Two months later, Wood was posing for photos with then Transnet chief executive Anoj Singh on Beijing’s popular Wangfujing avenue.

Smiling shyly next to them was Ramosebudi, Transnet’s new group treasurer.

The big one: Transnet

The email of 14 September 2015 was amaBhungane’s first clue that a corrupt relationship may exist between Ramosebudi and Regiments.

Attached to the email was a quote for a Range Rover Sport with all the bells and whistles: electric deployable towbar (R23 700), mags (R32 000), panoramic sunroof (R30 200) and adaptive headlamps (R17 200).

Total cost: R1.3-million – although if Ramosebudi traded in his one-year old Mercedes Benz ML250 BlueTech, the cost would come down to R784 000.

Ramosebudi, Regiments and Wood all refused to provide any explanation when the Range Rover email was raised with them.

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However, a former Regiments employee told amaBhungane that Wood had offered to assist Ramosebudi with a discount organised through Regiments chairman Litha Nyhonyha, who owns a stake in Landrover Waterford, the dealership where the Range Rover was on sale.

AmaBhungane has established that Ramosebudi did not buy this particular Range Rover but opted to buy a BMW X6 from a different dealer instead.

We have seen no other evidence that Regiments continued supplementing Ramosebudi’s lifestyle after he moved to Transnet.

What we can see is that he used his private email account to send at least one document to Regiments containing Transnet’s sensitive financial information. We also know that under his watch Regiments extracted hundreds of million from Transnet.

The “political witch hunt”

At Transnet, both the board and its minister, Pravin Gordhan, have been accused by the Economic Freedom Fighters of conducting a “political witch hunt” aimed victimising and removing “African leadership and executives”.

Ramosebudi refused to respond to the allegations against him. We sent Transnet detailed questions but were initially told that they could not be answered as they were “subject to ongoing investigations”.

Transnet’s attorneys have since confirmed that Ramosebudi was issued with a suspension notice, following Transnet’s own investigation, but that he chose to resign instead.

“Transnet reserves its rights to exercise any action against him,” Transnet spokesperson Molatwane Likhethe told us in a separate statement.

Regiments’ two remaining directors, Litha Nyhonyha and Niven Pillay, also refused to comment, while Eric Wood, who left Regiments in 2016 to start Trillian, told us that our four pages of detailed questions had not provided him with “any particularity or context … to respond to what appear to be serious allegations”. (Read Wood’s full response here.)

We offered to provide Wood with the exact dates, company names and amounts from the invoices exchanged between him and Ramosebudi.

More than a month later we are still waiting for him to take us up on our offer.

The post The insider: Booze, bogus invoices and a Range Rover Sport appeared first on AmaBhungane Centre for Investigative Journalism.