Judge says there are "reasonable grounds" to believe the property Arthur Mafokate bought was from the proceeds of "unlawful activities"
- Kwaito star Arthur Mafokate tried to overturn a preservation order from the National Prosecuting Authority against a guesthouse believed to have been unlawfully bought with funds from the National Lotteries Commission (NLC).
- Mafokate argued the money from the Lottery was due to him as his company used its own money to pay for the project the Lottery funded.
- But the Judge ruled Mafokate's version of events left the court "with more questions than answers".
Kwaito star Arthur Mafokate has failed in a bid to have a preservation order on his luxury Midrand guesthouse, which the National Prosecuting Authority says was bought with misappropriated lottery funds.
In a judgment delivered on 30 January, the Pretoria High Court also ordered 999 Music - Mafokate's company which owns the guesthouse and brought the application - to pay the costs of the proceedings.
The National Prosecuting Authority (NPA) will now apply for a forfeiture order so that the property, the La Villa Rosa guesthouse in Midrand, can be sold on auction, according to two sources. The proceeds of the auction will be paid to the NLC, which gave the grant.
So far only one seized property bought with misappropriated Lottery funds, a luxury home in Bryanston in Johannesburg belonging to actress Terry Pheto, has been sold on auction.
Mafokate's guesthouse was one of five luxury properties bought with Lottery funds which the NPA's Asset Forfeiture Unit had successfully applied to be frozen in December 2022 in terms of the Prevention of Organised Crime Act.
Most of the preservation orders so far obtained by the Asset Forfeiture Unit (AFU) and the Special Investigating Unit (SIU) on luxury properties and farms are being opposed. The ruling on the preservation order related to Mafokate's guesthouse is the first of these to be decided on by a court.
In his judgment, Justice Motha said that 999 Music, which brought the application to set aside the preservation order, had "not dealt with the money flow nor given a simple explanation about from where it procured the money to purchase the property in question".
Motha laid out how, on 15 April 2013, two years after it was registered - the non-profit South African Arts and Development Association (SAADA), of which Mofokate is a director - applied for R18.6-million in grant funding for a one year project "for purposes of capacitating the youth, especially unemployed youth in the poor and rural areas of the country...".
Just more than a year after the application was submitted, the NLC approved a grant of R9.3-million, which was half of what SAADA had applied for. The grant was paid in two tranches of R4.65-million each. The first tranche was paid on 28 October 2014, and the project began.
At the time the first tranche was paid SAADA had R17,000 in its bank account. A year later, on 13 November 2015, SAADA received the second tranche, topping up the R57,683 it had left in its account. A final project report was submitted to the NLC in April 2016.
"Interestingly, counsel [for 999 Music] did not want to deal with the first tranche of R4.65-million, submitting that the case before them is about the second tranche," Motha said. "As a result, this court is none the wiser about what happened to the first R4.65 million."
GroundUp previously reported how the NLC paid R9.3-million to SAADA for a series of nationwide workshops for budding musicians, a talent search competition, and a music festival, which never took place.
Gregory Amm, 999 Music's advocate, had argued the company had paid money from its own resources to complete the project.
But the NPA's counsel, advocate John Wilson, argued that SAADA "transferred over R7.1-million, which ended up purchasing a [guest]house for Mr. Mafokate, which was against the grant agreement".
"There was just over R1.8-million left", which he said was "enough to cover all the costs of the project".
A lot wrong
Summarising Amm's arguments, Motha wrote: "Stripped to its essentials, [999 Music's] counsel's main submission was that to preserve an asset it should be a proceed of a crime or an unlawful activity." And since the NPA's papers "do not describe a crime or an unlawful activity, it was the end of the matter".
"His (Amm's) rhetorical question was why would the second tranche be the proceeds of a crime or unlawful activities? The job was done for R9.3-million [and] the complaint is you used part of the money to purchase a lodge. 'What is wrong with that?"'
Motha stated the court was "of the opinion that there is a lot wrong with that". "For starters, the money was deposited to an NPO (SAADA) which was prohibited [by the grant agreement] ... from allowing any other organisation to carry out its obligations in terms of the project and or allow any part of the grant be paid to such an organisation."
But, Motha said, SAADA did the opposite by allowing Roadshow Marketing to carry out its obligation. "Secondly, Mr. Mafokate, the self-same person who signed the grant agreement devised a scheme to avoid compliance ... for his benefit."
How the money flowed
In his judgment, Motha charted how the money flowed from the NLC to SAADA, and then to 999 Music, which in turn paid attorneys handling the sale of the guesthouse.
"[T]he grants allocated to SAADA, were not used for its intended purpose but instead used to purchase a property for the benefit of Mafokate," he said.
After receiving the second tranche, SAADA made five transfers totaling R4.5-million to Roadshow Marketing, Wilson told the court
"It is noteworthy that prior to receiving the first transfer, the balance in the account of Roadshow Marketing was R226,522.29," Motha said.
After receiving the transfer from SAADA, Roadshow Marketing made four transfers totaling R4.4-million to a Nedbank home loan. Motha said R4.3-million was then transferred from the home loan account to 999 Music on 21 January 2016.
On 22 January 2016, 999 Music transferred R6.75-million to Cilliers & Reynders Inc, the attorneys handling the purchase of the guesthouse property for R7.5-million
Then less than three months later, on 14 March 2016, Roadshow transferred just over R361,000 to the same attorneys. The property was subsequently registered in the name of 999 Music, which is still the registered owner.
999 Music's case
Motha said 999 Music's counsel had argued that "only" R4.5-million from SAADA was used for the purchase of the guesthouse "and the other money did not come from the NLC".
The judgment contained Amm's argument that SAADA "completed a series of activities during the relevant time period," and that "the grant funding, and more, was utilised for these activities".
Amm argued SAADA "had to rely on service providers who could fund the project pending the receipt of the grant funding". Roadshow Marketing was the only such service provider and it invoiced SAADA for the services provided. SAADA financed the activities associated with the project and was reimbursed for the expenditure on receipt of the grant funding.
To support its case, 999 Music referred to bank statements and invoices from Roadshow Marketing - one invoice for R3.4-million and another for just over R1-million, which it said was for work done.
The R1-million invoice was for the Mahefe Festival in the Free State, which GroundUp previously revealed had been cancelled and never took place. It included R470,000 for a "sound stage", R114,000 for "accommodation, travel and per diems", R57,000 for a "VIP marque" and R114,000 for "TV campaign production".
But Wilson argued that no costs were allocated to Mafokate.
"Clearly, Mr. Mafokate is the central pillar and is infused in all of those costs," Wilson is quoted as arguing in the judgment. "He is the mover and shaker that makes things happen, but there is no individual cost allocated to him."
Motha said he agreed with the NPA that as president of SAADA, sole director of Roadshow Marketing, and sole member of 999 Music (a Closed Corporation), Mafokate, "had his finger in every pie".
Motha pointed out that the grant funding agreement was given to SAADA subject to several conditions, including that it was not allowed to pay "any commission and/or management fee and/or administration fee and/or professional fee".
SAADA was also not allowed to give "any other direct and/or indirect benefit for securing the grant or after the grant has been awarded to any person (juristic or natural) whatsoever, be it a member of the board, a member of any Distribution Agency appointed in terms of the Act, any staff member of the board or any intermediary, or to any person nominated by such an intermediary."
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Motha stated that since Mafokate had claimed that Roadshow Marketing paid money towards the project, he believed that when the second tranche was paid, he was entitled to the money."
This, he said, "begs the question" of where Mafokate got the R3.4-million and R1-million whilst waiting for the second tranche. "Especially, since it is common cause that before the project commenced SAADA had a measly R16,955.18 at most and Roadshow Marketing had R226,522.29."
He said the court was "of the view that some of the money from the first tranche took care of the whole project".
Mothe said that 999 Music's version "leaves this court with more questions than answers. Indeed, this court is left with reasonable grounds to believe that the property was the proceeds of unlawful activities."
"Widespread" fraud and corruption
Motha further stated in his judgment that as a result of allegations of serious maladministration and corruption at the NLC, President Cyril Ramaphosa issued a proclamation authorising the SIU to investigate "certain specified matters" since 2014,.
"Widespread corruption, fraud, theft and contraventions of the Lotteries Act were discovered by the SIU amongst officials of the NLC and certain NPOs who applied for NLC grants and who worked in concert with each other," said Motha.
"The investigation uncovered a vast and intricate network of entities, including trusts, and NPOs and businesses, which were used as conduits to channel the allocated grants in an attempt to hide the provenance of the funds."
Motha said grants paid out by the NLC were used to buy properties benefitting NLC officials and members of the NPOs receiving funding.
He said the SIU's preliminary investigations revealed the NLC has lost almost R344-million through their officials and different NPOs. But SIU spokesperson Kaizer Kganyago has confirmed to GroundUp that the unit is currently investigating grants to about 700 dodgy NLC projects valued at more than R2-billion.
