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SUSPECTED CONFLICT OF INTEREST IN ECSPONENT FORENSIC CONSULTANT

22/09/2024 16:40:00 Ntombi Mhlongo

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MBABANE – Was there a conflict of interest?

While the nation awaits in anticipation for Parliament to debate and adopt the forensic report into Ecsponent, concerns that the consultant that conducted the work might have had a conflict of interest have come to the fore. The concerns are that the consultant, has in the past, allegedly been involved in business dealings with a company that is believed to have ties with one that has had vested interests in Ecsponent Eswatini. The consultant is Cliffe Deykker Hofmeyr (CDH), a reputable South African law firm that specialises in providing comprehensive legal support to clients located in Africa or looking to do business across the continent.

According to its website, the law firm provides experienced corporate and commercial legal support and authentic, knowledge-based and cost-effective legal services for clients looking to do business in key markets across Africa.The investigation by this publication is that CDH has in the past, engaged with Get Bucks (Proprietary) Limited, a company believed to have had close links with Get Bucks South Africa. Get Bucks South Africa has been a subject of investigation in the loss of the millions of Emalangeni.

Ever since the issue of the E340 million funds lost, came into the public domain, Get Bucks South Africa has been cited as among subsidiaries where part of the money was invested.
Proof that Get Bucks has done business with CDH is reflected in a copy of a tax invoice slip, which the latter submitted for services rendered. The alleged business dealing raises the question whether CDH did not have a conflict of interest when conducting the forensic audit.

Decision-making

In the world of business and other sectors, a conflict of interest arises when personal interests or relationships may affect professional duties, causing potential bias in decision-making.
To preserve transparency, trust and ethical standards, companies will want to make sure to identify, disclose and manage these conflicts appropriately. Meanwhile, in the forensic report presented by CDH, Get Bucks Ltd is among companies that are cited as relevant entities which are now domiciled in South Africa. The forensic report contains that one of the persons of interests who was interviewed by CDH shared that during his tenure, the relationship between Get Bucks Eswatini, Get Bucks South Africa and Ecsponent South Africa was through loan

Facilities

The person of interest, according to the forensic report, further explained that whenever money was deposited into the Get Bucks Eswatini bank account, he would immediately receive an instruction to transfer same to Get Bucks South Africa. Also contained in the report is that another individual who was interviewed explained that challenges with payment returns began in the latter part of 2019, before Ecsponent Eswatini ceased paying investment dividends completely in December. Also, the individual is said to have said that the issues that were faced by Ecsponent Eswatini were as a result of challenges between Ecsponent South Africa and MyBucks, the holding company of Get Bucks South Africa and its subsidiaries.

According to what is contained in the CDH forensic report in terms or relevant persons and entities, Ecsponent Eswatini operated as an investing company, wherein emaSwati invested sums of monies for return on investments. The company offered two investment products being the Five-year Income Provider and the Five-year Capital Growth Provider. The products offered were preference shares which were further classified in classes from A to F. The CDH said its investigation established that while the company operated in Eswatini, it was wholly owned by Ecsponent SA in South Africa and the executive and operational decisions were made at the South African based entity.

Subsidiaries

In addition, the forensic report said it was established that Ecsponent Eswatini was linked directly and indirectly to the subsidiaries of Ecsponent SA and its related entities. The forensic report has a section that deliberates on the entities that were discovered to be linked either based on being the recipients of the funds that were invested into the company or through the individuals who shared multiple directorship statuses and had executive authority in the same companies. The identified entities are divided into primary and secondary. The primary entities are those that had shareholding in Ecsponent Eswatini, had the authority to influence the operations of the company, and those that entered into direct financial transactions with the company.

The secondary entities refers to those that fall under the controlling companies, share the same directorship statuses with the other subsidiaries and those that were not identified to have directly received funds, but a reasonable inference can be made in that regard. On the list, Get Bucks South Africa is listed as a primary entity. In terms of the findings, the CDH said it was established that Get Bucks South Africa was incorporated for the purposes of exchange monetary control and that the company held 100 per cent of issued share capital of Get Bucks Eswatini. It was also mentioned in the forensic report that Get Bucks South Africa acquired all the assets and liabilities of Ligagu Investments in accordance with an Assets and Liabilities Purchase Agreement that was entered into on May 1, 2018.

Agreement

Additionally, the CDH report states that in May 2019, a facility agreement was entered into between Ecsponent Holdings (lender), Get Bucks Eswatini (borrower) and Get Bucks South Africa (new borrower). It was stated that with effect from the agreement, Get Bucks South Africa agreed to replace Get Bucks Eswatini and have all its obligations ceded to Get Bucks South Africa. “Through the transaction with Ecsponent Holdings which wholly owns Ecsponent Eswatini, Get Bucks South Africa was, therefore, linked to Ecsponent Eswatini,” reads part of the CDH forensic report.

In terms of background, it was in November last year when the CBE announced that it had roped in forensic experts to expose how E340 million was ransacked at Ecsponent Eswatini. When the appointment of CDH was announced, it was said that the law firm was going to work in conjunction with a dedicated internal team from the bank. The Dr Phil Mnisi-governed bank described CDH as an independent, business law firm specialising in legal consulting, forensic accounting and fraud examination. Worth noting is that the appointment of CDH happened after PricewaterhouseCoopers (PwC) South Africa pulled out of the forensic investigation.

The CBE notified the nation and the Ecsponent investors in August about the pulling out of PwC through a media statement. Before that, Mnisi had said that during the probe exercise, PwC became aware of the existence of various entities related or with links to Ecsponent Limited (South Africa), an entity with a vested interest in Ecsponent (Eswatini), to which PwC had previously rendered various audits and professional services.

Professional reasons

“In this regard, PwC has since advised the bank that for professional reasons, they are unable to continue with the probe,” explained the bank.The bank explained that to maintain independence and protect the integrity of the important exercise, it had accepted PwC’s decision to discontinue its involvement in the probe. “The bank is cognisant and fully appreciates the negative impact these developments will have on the progress and traction of this exercise to all affected and pertinent stakeholders,” reads part of the statement.

The scope of work for CDG, as communicated in the request for proposal, included to investigate and establish whether there were any irregularities in the way in which Ecsponent placed investments with its investment managers and its foreign subsidiaries. The forensic was also aimed at investigating and ascertaining whether assets were invested in line with its investment policy and further ascertain whether all Ecsponent assets had been accounted for and appeared in its books. Also, the forensic had to ascertain whether Ecsponent conducted its business affairs, including the operations of any investment schemes in line with the requirements of the Securities Act read together with the Financial Services Regulatory Authority Act 2010.

It also had an aim to ascertain whether Ecsponent’s directors had the necessary authority to act for the company (i.e. Ecsponent) and whether all investment decisions were backed by Board resolutions and effected through authorised signatories in line with the company’s governance manuals and procedures.

Assessments

Furthermore, the forensic had to investigate and ascertain whether Ecsponent’s directors conducted proper due diligence assessments before placing investments. The investigation also had to ascertain the source of Ecsponent’s assets and where they were subsequently invested and the investment method(s) that were utilised. CDH also had to ascertain whether Ecsponent was able to meet its financial obligations in terms of paying the promised returns to investors and further establish the flow of funds from Ecsponent and whether such flow of funds involved possible money laundering or fraudulent activities and transactions. Meanwhile, the forensic report reflects that about E50 million of the monies invested by emaSwati in Ecsponent Eswatini were used to pay for consultants plus operating costs.