Army of fake companies used to defraud the Lottery

Documents and computers seized in raid on Lottery’s East London office as dodgy scheme implicating a former board member is uncovered

By Raymond Joseph

17 November 2022

The deceased former National Lotteries Commission board member Muthuhadini Madzivhandila is implicated in the latest SIU raid on the scandal-ridden organisation’s offices. Illustration: Lisa Nelson

Documents and computers were seized by the Special Investigating Unit (SIU) during a raid on the East London offices of the National Lotteries Commission (NLC) as part of an investigation into dozens of dodgy grants totalling over R14-million, allegedly linked to a former board member.

The SIU began its investigation after a whistleblower provided a list of 40 questionable Lottery-funded projects allegedly linked to Muthuhadini Madzivhandila, who died earlier this year.

The SIU revealed some details of the raid in a series of tweets a few hours after the 8.30 am surprise raid began on Wednesday.

“The SIU received a tip-off from a whistleblower alleging that 40 non-profit organisations were recruited to apply for grant funding,” the SIU’s official Twitter account tweeted. “They received approximately R14-million.”

In another tweet, the SIU said that the money was channelled to a “family member” of a “former NLC board member”.

Earlier this year, a whistleblower sent GroundUp what appears to be a similar list of dodgy projects allegedly linked to Madzivhandila. It contained the names of 40 different non-profit companies, based in small towns and villages in the Eastern Cape, which all received grants from the NLC’s Arts and Culture sector between 2019 and 2021.

The grants were paid to the companies within months – and, in some cases, only weeks – of them being registered with the Companies and Intellectual Property Commission (CIPC). The majority of these are based in the Maluti district in the Eastern Cape, including in Matatiele, Bizana, Mount Fletcher and Mount Ayliff.

People were “specially recruited” to act as directors of the newly-formed companies, which were then used to apply for Lottery funding, according to a source with knowledge of what occurred. The source asked not to be identified as they were not mandated to speak to the media.

Once the NLC paid out the grants, the companies then transferred most of the money to a company owned by a close family member of Madzivhandila. The directors of the companies were each paid “a few thousand rands” for their role in the scam.

Since the companies were all newly-registered, it would have been impossible for them to produce the two years’ worth of genuine financial statements that must be submitted as part of a grant application. This suggests either that forged financials might have been submitted, or the NLC failed to obtain the financials.

It once again raises questions about the due diligence conducted by the NLC at the time.

After the SIU swooped on the NLC’s East London offices, some members of the raiding team immediately began seizing documents related to the dodgy grants. They also seized computers belonging to at least four staff members. Among the computers seized was one belonging to the provincial manager of the NLC and those of staff responsible for overseeing the grants.

At the same time, other SIU officers commandeered the board room where they spent hours questioning staff.

Madzivhandila sued over corruption allegations

In 2021, a row broke out in Parliament’s Trade, Industry and Competition Portfolio Committee after Madzivhandila was shortlisted for the then-vacant post of NLC board chairperson.

Citing a submission by Organisation Undoing Tax Abuse (OUTA) that raised several concerns over Madzivhandila’s suitability for the position of board chairperson, DA MP Dean Macpherson said: “There are very serious questions that have been raised over this gentleman. He has been on the board since it has gone into complete meltdown under an epic corruption scandal that has continued unabated”

Madzivhandila applied for an urgent interdict against the DA and MP Mathew Cuthbert over allegations made against him.

He argued that the DA deliberately tarnished his reputation by painting him as corrupt.

But shortly after lawyers acting for Cuthbert wrote to Madzivhandila’s attorney to say they would oppose the application, it was withdrawn from the urgent court roll and he did not pursue the matter any further.

After he learned of the SIU raid, Cuthbert said: “I feel vindicated by this revelation. At the time of his candidacy to be NLC chairperson I raised serious concerns about his non-disclosure of previous involvement in Lottery funded non-profit organisations and his attempts to conceal this.

“The fact that he withdrew his urgent application to bring a defamation suit against me indicated that he knew he was in serious legal trouble, as the assertions I made about him in public were a statement of fact,” he said. “It is a great pity that he will never have to account for his misdeeds before the criminal justice system.”

NLC spokesperson Ndivhuho Mafela said: “The National Lotteries Commission continues to cooperate with all investigations conducted by the Special Investigating Unit and all other law enforcement agencies.

“The NLC wishes to reiterate its commitment to transparency and clean governance as investigations continue and to forge ahead with previously announced measures to reinstate credibility, restore governance, and to building operational excellence.”