Hamilton Ndlovu Case: A landmark case in combating COVID-19 Procurement Fraud
The case of Thabiso Hamilton Ndlovu, a Johannesburg businessman, stands as a landmark in South Africa’s ongoing fight against corruption. With R158 850 921.13 ordered to be repaid, this case marks one of the largest financial recoveries in the country’s history of anti-corruption efforts and highlights the critical role of institutions like the Special Investigating Unit (SIU) and the Special Tribunal.
Background and context
In early 2020, amidst the COVID-19 pandemic, the National Health Laboratory Service (NHLS) awarded personal protective equipment (PPE) contracts worth R172 million to companies linked to Ndlovu. The SIU’s investigations later revealed that these contracts were unlawfully secured through the abuse of emergency procurement procedures. Shockingly, only R15 million was actually used to procure PPE, while nearly 90% of the funds were diverted for Ndlovu’s personal enrichment.
This misuse of public funds triggered an intense legal battle to recover the misappropriated money. The SIU took legal action to review and set aside the contracts, recover the unlawfully paid funds, and forfeit assets derived from fraudulent transactions.
Key players
1. Special Investigating Unit (SIU) and NHLS:
The SIU, mandated under the Special Investigating Units and Special Tribunals Act (Act 74 of 1996), works to combat fraud, corruption, and maladministration involving public funds. Together with the National Health Laboratory Service (NHLS), the SIU spearheaded legal action against Thabiso Hamilton Ndlovu and his associated entities. The SIU’s investigation uncovered the misuse of emergency procurement procedures during the COVID-19 pandemic, leading to the unlawful awarding of R172 million in contracts. Their collaboration was instrumental in not only exposing the fraudulent activities but also initiating the recovery of significant public funds.
2. Judge Lebogang Modiba:
As the then-President of the Special Tribunal, Judge Modiba played a central role in adjudicating this case. Her leadership ensured that the Tribunal functioned effectively to address the complexities of the proceedings.
Her landmark rulings included:
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- Declaring the PPE contracts unlawful and invalid.
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- Ordering the forfeiture of unlawfully acquired assets.
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- Imposing punitive costs on Ndlovu and his entities.
Her firm stance on compliance with court orders served as a strong deterrent against similar fraudulent practices.
3. Ndlovu’s entities and fronting companies:
Several companies tied to Ndlovu, including Akanni Trading and Zaisan Kaihatsu, were implicated in the fraudulent PPE procurement. These entities acted as vehicles for diverting public funds for Ndlovu’s personal gain. The SIU traced the flow of funds through these companies, revealing that nearly 90% of the proceeds were used for luxury items rather than fulfilling the contracts. These entities faced asset forfeitures and significant financial penalties, with their fraudulent contracts declared unlawful and set aside by the Tribunal.
Key findings of the Special Tribunal
1. Abuse of emergency procurement
In early 2020, the NHLS adopted emergency procurement measures to secure PPE supplies. These procedures, however, were manipulated, leading to the irregular awarding of contracts.
2. The fraudulent scheme
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- Hamilton Ndlovu used a network of fronting companies and his direct entities (such as HamiltonN Holdings) to secure inflated PPE contracts.
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- Contracts were awarded without competitive bidding, and excessive prices were charged for PPE compared to market rates.
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- Some deliveries were fraudulent, with mismatched quantities or non-delivery.
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- The payments received were largely diverted for Ndlovu’s personal benefit, including luxury properties, vehicles, and investments.
3. Corruption indicators
NHLS officials failed to comply with procurement regulations. The Tribunal inferred corruption based on:
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- Irregular approval processes favouring unqualified companies.
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- 90% of the funds being channeled back to Ndlovu, his family, or luxury purchases.
4. Fraudulent fronting
Many respondent companies were either dormant or had no history of supplying PPE. Some company directors admitted to handing over control of their businesses to Hamilton Ndlovu.
Legal and financial consequences
A. Tribunal’s ruling and financial liability
The Special Tribunal declared the contracts unlawful based on non-compliance with Section 217(1) of the Constitution, which mandates that public procurement must be fair, equitable, transparent, competitive, and cost-effective.
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- The Public Finance Management Act (PFMA) and associated Treasury regulations were violated.
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- The Tribunal relied on the principle of unjust enrichment (condictio ob turpem vel iniustam causam) to order repayment.
As a result, Hamilton Ndlovu and his entities were held jointly and severally liable for the repayment of R158,850,921.13 to the NHLS.
B. Asset forfeiture and recovery of State funds
To recover the misappropriated public funds, the Tribunal ruled that assets preserved under interim orders would be forfeited to the State. These included:
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- Luxury Vehicles: A Mercedes-Benz G63 AMG and Scania trucks, representing Ndlovu’s extravagant lifestyle funded by fraudulent means.
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- High-End Watches: A Rolex Oyster Perpetual with gold and silver detailing and a Cartier wristwatch, both emblematic of the ill-gotten gains from the contracts.
These recoveries demonstrated the thoroughness of the SIU’s investigations and the Tribunal’s commitment to ensuring public funds were returned.
C. Sanctions and blacklisting
The NHLS was urged to invoke Section 15 of the Preferential Procurement Policy Framework Act, which mandates the blacklisting of individuals and entities from participating in public procurement.
This ruling effectively bars Ndlovu, his companies, and their directors from trading with the State, acting as a deterrent against future misconduct.
Timeline of events
| Date | Event |
|---|---|
| March – June 2020 | NHLS awards PPE contracts worth R172 million to companies linked to Ndlovu. |
| August 2021 | SIU secures preservation orders to freeze Ndlovu’s assets. |
| June 7, 2022 | Special Tribunal declares PPE contracts unlawful. Ndlovu is ordered to repay R158 million. |
| September 2022 | A Bryanston mansion linked to Ndlovu is auctioned for R7.1 million. |
| November 2024 | Ndlovu is found guilty of contempt for failing to comply with the forfeiture order. Sentenced to 30 days imprisonment (suspended) and fined R500,000. |
Challenges and defiance
Initially, Ndlovu appeared cooperative but later demonstrated deliberate non-compliance and deception. He and his companies sought to overturn the forfeiture orders but were unsuccessful. Judge Modiba highlighted Ndlovu’s bad faith and continued attempts to frustrate the recovery efforts, including concealing or dissipating assets to evade accountability.
Latest developments
The latest development in the Hamilton Ndlovu case is a significant escalation in accountability: the Special Tribunal found Ndlovu guilty of contempt for failing to comply with a forfeiture order issued on 7 June 2022. The Tribunal has sentenced him to 30 days imprisonment, suspended for 30 days to provide him with an opportunity to comply with its orders. Additionally, a R500,000 fine was imposed, suspended for one year on the condition that Ndlovu avoids further contempt during this period.
The contempt ruling stems from Ndlovu’s failure to surrender the following high-value assets as mandated by the forfeiture order:
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- Scania trucks
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- Mercedes-Benz G63 AMG
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- 2020 Cartier gentlemen’s wristwatch
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- 2020 Rolex Oyster Perpetual gentlemen’s wristwatch
While Ndlovu initially cooperated, his subsequent non-compliance and deceptive tactics highlighted a pattern of willful defiance. His attempts to overturn the forfeiture order through entities like Akanni Trading and Projects (Pty) Ltd and Zaisan Kaihatsu (Pty) Ltd were dismissed, with the Tribunal emphasizing the lack of a valid defense and the willful nature of their defaults.
This ruling underscores the Tribunal’s resolve to enforce compliance with its decisions. Ndlovu’s sentence, though suspended, serves as a stern warning against disregarding judicial orders and demonstrates the Tribunal’s commitment to ensuring accountability.
Understanding the powers of the Special Tribunal: Civil remedies, not criminal sanctions
The powers of the Special Tribunal are derived from, and regulated by, the Special Investigating Units and Special Tribunals Act (“SIU Act”). In terms of the SIU Act, the Special Tribunal is authorised to adjudicate civil proceedings – it accordingly does not deal with criminal matters. Furthermore, in relation to the civil proceedings it can adjudicate, the Special Tribunal is not empowered to send anyone to jail, but rather to order financial restitution and ensure the recovery of stolen public funds through monetary relief.
In cases of corruption, criminal charges can be brought against the accused in the Specialised Commercial Crimes Courts, wherein imprisonment can be sought for the misappropriation of public funds. However, it appears that criminal charges were not brought in any Specialised Commercial Crimes Court against Mr Ndlovu in respect of his misappropriation of public funds. It is important to be aware that criminal charges can still be brought and usually are brought soon after the conclusion of the civil proceedings.
It should be noted, however, that in this case, the Special Tribunal found Mr Ndlovu guilty of contempt of court for failing to comply with its prior forfeiture orders. For this, he was sentenced to 30 days’ imprisonment. Notably, the Special Tribunal suspended this sentence for 30 days to allow him a chance to comply with its order. Contempt of court proceedings are thus the only instances in which the Special Tribunal can order imprisonment. In all other cases, it is only empowered to order civil, financial remedies.
Broader implications
1. Reinforcing South Africa’s anti-corruption framework
This case demonstrates the resilience of South Africa’s legal and investigative institutions, proving that:
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- Judicial orders will be enforced.
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- Corruption will carry serious consequences.
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- Public funds can be recovered through effective legal action.
2. Strengthening institutional oversight
The Special Investigating Unit (SIU) plays a pivotal role in uncovering maladministration and fraud. Under the Special Investigating Units and Special Tribunals Act (Act 74 of 1996), it ensures that:
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- Evidence of criminal conduct is referred to the National Prosecuting Authority (NPA).
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- Fraudulent transactions are invalidated and funds are recovered.
3. Sending a strong message
This case reinforces the principle that defying court orders will not be tolerated. The Tribunal’s ruling, including imprisonment for contempt, serves as a stern warning to individuals seeking to evade justice.
Key takeaway
The Hamilton Ndlovu case is a landmark in South Africa’s anti-corruption fight. The case demonstrates the effectiveness of South Africa’s anti-corruption mechanisms in recovering substantial misappropriated funds. It sends a clear message that corruption, particularly in times of crisis, will not go unpunished. The public can take confidence in the work of institutions like the SIU and Special Tribunal in safeguarding public resources and ensuring justice.
The case underscores:
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- The importance of judicial enforcement.
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- The effectiveness of asset forfeiture in recovering state funds.
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- The need for continued vigilance in public procurement.
Conclusion
This case sets a precedent for the accountability of both individuals and corporations in state procurement fraud. By recovering significant public funds and imposing penalties on defaulters, the Tribunal reaffirms South Africa’s commitment to transparency, accountability, and justice.
The public can take confidence in institutions like the SIU and the Special Tribunal in safeguarding public resources and ensuring that corruption is met with consequences.
Read more:
https://www.siu.org.za/wp-content/uploads/2023/02/SIU-vs-Ndlovu-and-others-31-January-2023.pdf