South Africa: Dodgy Off-the-Shelf Companies Cash in On Lottery Millions

Lottopreneurs are increasingly switching to buying inexpensive shelf companies to access multi-million rand Lottery grants, an ongoing GroundUp investigation has revealed.

Some of these off-the-shelf, non-profit organisations (NPCs) have then been handed tens of millions of rands for projects where they had no expertise, like in the case of this boxing arena in the Eastern Cape. In many instances they have received grants within months of being bought and new directors appointed.

At one stage Lottopreneurs preferred using borrowed - and in some cases, hijacked - non-profit organisations (NPOs) to apply for funding.

In other instances, NPOs were also used as conduits to funnel multimillion-rand grants to others, like this small school in Limpopo. It is conveniently registered under the same name as a private company and as an NPO, which was used as a conduit for almost R50 million to fund a project to sink 200 boreholes in rural villages all over South Africa, as well as more than R4 million to a music festival.

But after the use of dormant and non-compliant NPOs was exposed, many Lottopreneurs now purchase inexpensive shelf companies to apply for funding.

The sale of shelf companies is a thriving multimillion-rand business in South Africa, with several big players active in the field. Dedicated companies set up and register shelf companies and then get the official paperwork sorted -- including tax numbers and VAT clearance -- before selling them off. The price increases the longer a shelf company has been in existence.

Once a company is sold the founding directors resign and new directors are appointed. The company is now ready to trade, apply for tenders or, as has happened in several instances that we have identified, successfully apply for multimillion grants within months.

Off-the-shelf and then millions pour in

GroundUp has uncovered several examples of shelf NPC's being awarded highly questionable multimillion-rand Lottery grants. These include:

Zibsimanzi NPC received R4.8 million from the Lottery's Sports sector about six months after being bought off-the-shelf and new directors being appointed, one of them being the wife of NLC COO Phillemon Letwaba.

Life for Impact in the 21st Century received R10.1 million from the Lottery's Arts, Culture and National Heritage sector about weeks after being bought off the shelf and new directors appointed. Themba Mabundza, one of the newly-appointed directors, is also a director of Zibsimanzi.

Botho Ubuntu Foundation's new directors were appointed on 9 May 2017, and received R4.8 million just over six months later on November 21, 2017, from the Lottery's Arts, Culture and National Heritage sector.

Mbhonyaponya's new directors were appointed on 26 April 2017, and it received R600,000 on 27 March 2018, from the Lottery's Sports Sector 11 months later.

All had been trading for less than a year and would not have had much of a financial track record when they received Lottery grants. So it is unclear how they met the NLC's requirements which stipulate that two years of financial statements are necessary to be eligible for a grant.

But had the recommendations in a 2014 report to the board of the (then) National Lotteries Board been taken seriously, hundreds of millions of rands in Lottery money would not have been wasted on fraudulent or highly questionable projects.

The report had warned of widespread fraud involving numerous applications by NPOs and NPCs for Lottery funding and recommended steps to take to prevent it.

The National Lotteries Commission (NLC) has routinely refused to answer questions about specific projects. Officials argue that the Lotteries Act prevents them from divulging details of projects. They also claim that they do it to protect the privacy and "safety" of their grantees.

Why use a shelf company?

There are several advantages to purchasing a shelf company, rather than setting up a brand new entity from scratch. These include being able to begin trading almost immediately. As this cut-price sale offer by Company Partners points out, purchasers are able to start trading "within 5 minutes of applying/paying for a shelf company".

"We have sold thousands of shelf companies since 2016" it boasts on its website, which sets out all the "benefits".

"Tender Now" it says. "Some of our Shelf Company options include a Tax Clearance Certificate, VAT Number and COID Registration Number - all which are required for certain Tenders and Contracts," Company Partners tells would-be buyers. Some companies also come with a PAYE number and a "Letter of Good Standing".

There is no suggestion that any of the companies or directors selling shelf companies in South Africa are in any way involved, or even aware, of what companies are used for once they change hands. There are legitimate business reasons for selling and buying shelf companies.

Several non-profit companies purchased from The Shelf Warehouse Company, one of the biggest sellers of off-the-shelf companies in South Africa, have ended up being used to successfully apply for dodgy Lottery grants.

An indication of how active the shelf company market is, is clear from the fact that Christian Gouws of The Shelf Company Warehouse is a registered director of over 40,000 companies between 2012 and 2019. We reiterate that there is no evidence of wrongdoing by Gouws or The Shelf Company Warehouse.

In response to questions sent via email and WhatsApp, NLC head of communications Ndivhuho Mafela replied with a "Lockdown notice", which says: "Reminder! The NLC has suspended all operations during the national lockdown. This includes the call centre. All inquiries (funding, status of applications and media) will be attended to once operations resume. #StayHomeSafe".

The Laundromat is a movie on Netflix starring Meryl Streep, Gary Oldman and Antonio Banderas that looks at how off-the-shelf companies have been used for unsavoury purposes.

GroundUp is being sued after we exposed dodgy Lottery deals involving millions of rands. Please help fund our defence. You can support us via Givengain, Snapscan, EFT, PayPal or PayFast.

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