Corruption

Money laundering

Participation in an organized criminal group

Other Crimes

Details:

Racketeering, Fraud, Theft, Precious Metals Act

 

Project Yield

UNODC No.:
ZAFx003

Fact Summary

The organized criminal group is highly organised and operates transnationally. They are commonly known in South Africa as the “Mountain Boys”.

The syndicate engaged in a range of criminal activities that constitute serious offences under South African law. The offences relate to racketeering activities and related categories of offences including money-laundering offences. The information gathered further indicates that in addition thereto these entities and persons have through their criminal activities committed a range of further serious offences including theft, fraud as well as offences under the provisions of the South African Mining Rights Act as well as the Precious Metals Act. There are five clearly distinguishable levels of activities used by the syndicate to smuggle unwrought precious metals (PGMs). This is illustrated as follows:

As a starting point, PGMs are stolen at source from the mines, often in large quantities. These PGMs are eventually sold through various receivers to exporters.The various levels of the criminal operators in the illicit PGM industry can be explained as follows:

Level 1 “the runners”

The unwrought PGM’s are stolen from the processing plants in South African Mines and is commonly referred to as “theft at the source”. A runner, who is mostly an employee of the mine, will then transport the material from the mine by bag or by other methods and sell it to a middleman. Runners tend to have a wide network of black market contacts, including illicit smelters.

Level 2 “the middleman”

The middleman buys considerable volumes of PGMs from the runners. The middleman crushes the PGMs into smaller pieces and packages it for the national buyers, before delivery.

Level 3 “national buyers”

The national buyers are mostly based in the RSA and they buy the PGM’S from the level 1 and 2’s. These buyers appear to be the link between the runners and more sophisticated syndicates who constitute the next level in the hierarchy of the criminal operators. These buyers are often the agents of the more sophisticated syndicate or they operate as independent couriers for such syndicates. Their task is to buy and transport the material from the middleman to wealthy local syndicate leaders.

Level 4 “the local syndicate leader”

The syndicate leader / buyer use a fronting company, usually a Scrap Metal dealer to export the product from the RSA. The PGM stocks that they have purchased from various sources are processed, containerised or packaged and then sold to local or international contacts. Processing allows for detailed records to be kept by the syndicate leaders from whom the product is bought and samples are also taken

for analysis (assay) to determine value and PGM content. Storage bags/drums are weighed, marked and sealed. Smaller high value PGM parcels are exported using a courier network and bulk tonnage of PGM is containerised and either flown or shipped from the RSA. Misrepresentations are made to customs by undervaluing and falsifying the nature of the consignment. This then successfully overcomes the requirements for prescribed permits and licences to possess transport and deal in the product as required by the Act.

Level 5 “the international buyers”

The international contacts are situated abroad. The international market for unwrought PGM’s appears to be more attractive than the South African market as it is unregulated. Sophisticated networks, consisting of legal persons and entities register to deal in PGMs have been established abroad to deal with the imports and proceeds derived from the sale after being sold to the refiners in Western Europe, United Kingdom and Canada, capable of refining the product for commercial use. It appears that the ultimate destination is inevitably a buyer abroad rather than someone in South Africa.

Note: The current syndicate under discussion were classified as level 3 to 5 operators.

Legal entities involved in the case:

1. Group members and others employed by or associated with the group, procured unwrought precious metals (PGMs), comprising platinum in the main from mines in South Africa, especially the Rustenburg area, where after samples thereof would be assayed by legal entities and/or persons to determine content and value, where after it would be exported to Just Refiners and Technology, UK or to a company styled as an international freight forwarding company, based in Felixstowe, Suffolk, United Kingdom, Canada and elsewhere.

2. Before being dispatched by front companies especially used as part of the concealment of the illicit PGMs, the PGMs would be stored and packed into containers for export purposes in various warehouses in and around Johannesburg. If of large quantity it would then be shipped from Durban and if of smaller quantity from Johannesburg airport.

3. Before being shipped, documentation for export purposes containing false information regarding content, value and/or exporter would be prepared and presented to the authorities.

4. With reference to certain of the charges, Boekhoud would cause the unwrought precious metals to be assayed upon receipt in the United Kingdom at a company based in Sheffield, United Kingdom, and then upon receipt of the correct values of the product prepare or cause to be prepared so – called self – billing invoices and inform the exporters of the true value and content. Boekhoud, would then, having been provided with banking details by V Naidoo or Hoosan, remit the proceeds of sales to accounts as directed.

When acting as they did the accused acted with a common purpose to commit the offences charged with.

5. The Accused and others were a group of individuals associated in fact with one another for purposes of obtaining monetary benefits by means of engaging in illegal procurement and smuggling of unwrought precious metals, and, as such, their association in fact constituted an enterprise as defined in section 1(1) (v) of the Prevention of Organised Crime Act, 121 of 1998.

6. V Naidoo was the leader of the group. He was actively involved in the procurement and dispatch phases of unwrought precious metals and directing where proceeds from sales were to be remitted to.

7. Boekhoud was a director and shareholder of a company styled Just Refiners & Technology Ltd, based in Ramsey, Huntingdon in the United Kingdom (“JRT, UK”). JRT, UK received, refined and disposed of the unwrought precious metals at a profit on behalf of the group. Boekhoud was a member of or associated with the group until the end of 2001.

8. R Naidoo, a younger brother of V Naidoo, assisted in the procurement of unwrought precious metals and in storing such before being exported to the United Kingdom, Canada or elsewhere.

9. R Moonian assisted in the procurement and storing of unwrought precious metals before disposal.

10. Longhow collected and caused to be sampled unwrought precious metals on behalf of the enterprise during the period 2000 to 2001, where after he left the group with Kevin Naidoo (the younger brother of V Naidoo and R Naidoo) and formed a new group involved in the same activities.

11. Y Chetty collected and caused to be sampled unwrought precious metals on behalf of the group.

12. Hoosan procured unwrought precious metals on behalf of the group. He also, on occasion, directly or indirectly, informed accused 1 as to where the proceeds of sales of unwrought precious metals were to be remitted into international bank accounts and also assisted the syndicate to trade with the proceeds of crime in exchange for South African currency (using a havala type informal banking scheme)

13. James procured PGMs and was the accountant for his brother in law, Boekhoud and JRT.

14. There were also other individuals employed by or associated with the group from time to time, who assisted in the procurement, transportation or disposal of unwrought precious metals.

Commentary and Significant Features

The economic and strategic importance of South Africa’s mining industry is beyond dispute and as a result South Africa has become the target for the illicit market of the illegal mining and smuggling of gold and platinum bearing ore.

The country has about 40% of the worlds gold reserves and 90% of platinum group metals (PGM) reserves. South Africa is therefore ranked first in the world in respect of both gold and platinum reserves. South African mines are the world’s primary producers of the platinum group metals (PGM’s): platinum, palladium, rhodium, ruthenium, iridium, and osmium. The impact of platinum mining on the South African economy is growing both in terms of export earnings and as a significant employer of labour. The issues of productivity and profitability have increasingly come under the spotlight. It therefore stands to reason that the theft of precious metals from mines and refineries have been accorded a high priority by the mining industry and Government than in the past.

At the time of assessing the scope and extent of the problem relating to this crime focus area it was apparent from me intelligence that police only concentrate on the foot soldiers as the top structures of syndicates are too difficult to infiltrate.

At the time of deciding on the feasibility of engaging in an investigation of this magnitude, we had to take cognizance of the mandate, mission, and aim of the DSO, in that the DSO focused on crime of national impact that requires integration of intelligence, investigation and prosecution, to eradicate the threat of crime and restore public confidence and to also develop partnerships with local and international law enforcement agencies. This crime focus area was found to be a case of relevance with regard to the criminal justice response to organized crime. In terms of the DSO’s Circular 1, effective date 8 November 2001, the investigation fell within the strategic focus area of the DSO under the heading ‘PRECIOUS METALS SMUGGLING’.

It is also evident that the offences under investigation have and were being committed in an organized fashion as defined in terms of the NPA Act as amended.

The syndicates that have been identified have been involved in the smuggling of illicit PGM’s for years and have always been the principle focus of the SAPS Diamond and Gold Units across the country. The identified syndicate comprise of more than 5 persons, and have set structures. From the facts mentioned, one can gauge the seriousness, scope of the offence, prevalence, quantity of the interests affected, degree of planning, premeditation and harm caused to the victims (Mining Houses) and economy of the country.

Presently, illicit mining is an integral part of a growing international trend, the continued existence of which depends on organised crime, pervasive corruption and developmental inequalities. In constitutes a multibillion rand industry presenting a number of challenges and threats to national security, government authority and socio-economic development.

In particular, it increases South Africa’s vulnerability to international organised crime and possible terrorist networks; the compromising of security organs and pervasive corruption within the state and society; its facilitation of an influx of foreign nationals, and its involvement in human trafficking and the illegal trade in arms and explosives.

The President identified fighting crime as one of five priorities of government in his State of the Nation Address on 11 February 2010. Illicit mining speaks directly to Strategic Priority 6 of the Medium Term Strategic Framework (MTSF) pertaining to the fight against crime and corruption. It also affects Strategic Priority 1 (economic growth); Strategic Priority 2 (social and economic infrastructure); Strategic Priority 7; (cohesive and sustainable communities); Strategic Priority 8 (creation of a better Africa and better world); and Strategic Priority 9 (sustainable resource management and use).

Following a briefing by the Department of Mineral Resources, The Justice, Crime Prevention and Security (JCPS) Cabinet Cluster noted on 9 July 2009 that the extent of illicit mining affected various spheres and clusters of Government and was undermining the authority of the state. It agreed that the Inter-Ministerial Security Committee (IMSC) address the matter in a coordinated manner, including issues such as possible relationships between illicit mining activities in South Africa and Zimbabwe; reflecting on the broader criminal linkages between illicit mining and the smuggling and use of unlicensed firearms and explosives, enhancing investigations into illicit mining, and preventing human trafficking. It reiterated that more emphasis be placed on socio-economic interventions by Government, affected industries and mining houses to ensure that employees losing jobs are re-skilled for the labour market.

The fact that possession and trade in precious group metals and gold ore is not regulated internationally does not make it a crime internationally as in South Africa. This made it very difficult to convince the law enforcement authorities that they actually had a problem. We had to demonstrate how the syndicate was operating and what crimes emanated from their actions in South Africa and the United Kingdom. Once the understanding was evident did agreements and cooperation follow? It is important to recognise that precious metals smuggling is an emerging international organised crime that generates high financial yields and is a vehicle for possible terrorist and organised crime financing once proceeds are paid into international bank accounts. Because the commodity of PGM’s in it unwrought form is reasonably unknown smuggling activities and associated crimes of theft, fraud and money laundering go unnoticed internationally. The reason syndicates are exploiting international markets with impunity.

The case is currently awaiting commencement of the trial. However prosecution is considering appealing a Supreme Court of Appeal judgement on extraterritorial jurisdiction on money laundering brought by Boekhoud. The other accused are also delaying the trial with delaying tactics and interlocutory applications or continuously changing defence team.

Due to the voluminous and complex nature of the case it was considered and agreed with defence counsel to give an electronic case docket to the defence designed in a logical readable format and detail index. However, this caused untold problems as the defence used this fact to their advantage to request remands as they could not prepare their defence using the electronic format and did not want to incur additional cost of printing all the documents. Hard copies were printed and provided which overcome the problem.

The fact that the offence of racketeering is a fairly new Act with little case law to support it, and the fact that prosecutors, defence lawyers and advocates are not familiar with the Act, caused numerous technical problems in understanding the indictments and the manner charges were formulated. This resulted in interlocutory applications such as for example, misjoinder, and special plea on extraterritorial jurisdiction related to Theft, Fraud, Precious Metals Act and Money Laundering Charges. Successful judgment was obtained by the prosecution on the misjoinder application. However the court ruled in favour of the Boekhoud on the extraterritorial jurisdiction on money laundering as it stated that POCA was not clear on this aspect. (judgement to be provided). The prosecution applied for grounds to appeal, however this was refused and the prosecution then applied to petition the court’s refusal to grant the appeal. The matter was heard in the Supreme Court of Appeal. (Judgement to be provided)

The transnational nature of the investigation to obtain evidence against the syndicate bosses in the matter. This approach led to the syndicate bosses being charged and prosecuted as evidence held abroad and discovered, positively connected them to the illicit exports of precious group metals. Previously, only the foot soldiers were arrested who were arrested in possession of stolen PGMs.

Cross Cutting

Liability

... for

• completed offence

... based on

• criminal intention

... as involves

• principal offender(s)

Application of the Convention

Details

• occurred across one (or more) international borders (transnationally)
• involved an organized criminal group (Article 2(a) CTOC)

Involved Countries

South Africa

Canada

United Kingdom of Great Britain and Northern Ireland

Investigation

Involved Agencies

• Directorate of Special Operations (DSO/Scorpions) (Now defunct)
• National Prosecuting Authority (NPA)
• South African Police Service-Organised Crime Unit (SAPS)
• Asset Forfeiture Unit of the NPA (AFU)

Details

• electronic or other forms of surveillance
• undercover operation(s)
Comments:

To counter this problem, a dedicate investigating and prosecuting capacity was established by the then Directorate for Special Operations (DSO) of the National Prosecuting Authority (the NPA) and the South African Police Services (SAPS) under the project code name, Project Yield, and operation Fatcats to deal with the crime focus area.

It would be prudent to allude to the fact that this investigation initially resided with the now defunct Directorate of Special Operations (DSO colloquially known as the “Scorpions”) under the auspices of the NPA. In terms of the provisions of the National Prosecuting Amendment Act, 2008 as well as the South African Police Service Amendment Act, 2008. The DSO seized to exist as of 06 July 2009 (being referred to as the fixed date). However Section 28 of the Act has not been repealed and is thus still in force.

The principle objective of the project was to identify and target syndicates involved in the illicit dealing and export of PGMs. To gather the necessary intelligence against targeted role players, investigate their activities, to prosecute the syndicate’s enterprise and to ensure recovery processes by means of asset forfeiture. This will also include persons who supply the illicit product to the targeted exporters. The process will include the establishing of an assay facility to assist the syndicates with the analysis of stolen PGMs, the buying-up of the illicit PGM product from identified targets in undercover operations, the selling of the illicit PGM product to the principle targets, and eventually acting as transporter of the illicit product for the targeted exporter to foreign destinations to then identify the foreign dealer and to identify the off-shore accounts utilized by the syndicates, for purposes of recovery at a later stage.

To reach set objectives the project was structured into short, medium and long term phases do deal with the delivery and create the necessary impact.

Phase one (short term) consisted of the setting up phase involving:

- gaining an understanding of the operating environment and legislative/regulatory framework where applicable;

- assessing the identified priority areas for investigation;

- obtaining and analysing relevant information and intelligence in order to identify further priority

- areas and targets to include in a motivation for authorisation in terms of section 28 (1)(a) of the NPA Act;

- design the relevant strategy for gathering court directed intelligence, investigation, prosecution and asset recovery;

- assessing our findings to establish whether sufficient information exists to justify the issuing of an authority to investigate;

- drafting a motivation for the necessary authority to investigate;

- Identify relevant resources (Multi Disciplinary), public private partnerships and stake holders

- Finalise governance, oversight and reporting structures

- Establish operational budget

- prepare a report on our findings and recommendations.

Phase 2 (authorised investigation):

During this phase the investigation focussed on:

- conducting the detailed investigation of the identified priority areas as well as priority areas identified for further investigation through infiltration/penetration and undercover process that was initiated during Phase One

- apply infiltration strategy (safe house and undercover agents)

- prepare case files and evidential records

- determining the appropriate remedial action and obtain the necessary authority for arrest, search and seizure;

- finalise indictments

- obtain necessary authorities to execute nationally and internationally (MLA requests)

- execute arrest nationally

- conduct search and seizure nationally and internationally

- freezing and recovery of assets

- reporting on findings and recommendations to Head of DSO.

Phase 3 (remedial action and project close - out):

During this phase the team focussed on:

- prepare case files for prosecution

- prepare additional MLA requests for gathering of information and evidence internationally

- instituted of appropriate legal/criminal action, including the criminal prosecution and  recovery of proceeds of crime, in appropriate instances;

- prepared a final report on our findings and recommendations for presentation to the Head of the DSO;

- preparing a close - out report for submission to Head of the DSO.

Section 252A of the Criminal Procedure Act was applied for from the relevant DPP and granted to undercover agents to indemnify them from the commission of certain crimes during undercover operations.

Section 205 and/or section 28 of the NPA Act summonses were issued to banking institutions and other entities to recover records and data. Search and Seizure warrants were obtained to conduct searches and recover evidence.

Certain persons who were involved in assisting the accused were asked to assist in terms of section 204 of the Criminal Procedure Act. (indemnity provision to testify for the Prosecution).

 

Confiscation & Seizure

Comments:

Assets belonging to the mentioned accused were frozen and seized in the United Kingdom (see attached) EXPLANATORY MEMORANDUM TO THE Criminal Justice Act 1988 (Designated Countries and Territories) (Amendment) Order 2004, No.1981 and in South Africa in terms of the Prevention of Organised Crime Act 121 of 1998 (POCA under the two chapters, viz chapters 5 and 6, providing mechanisms for the forfeiture of assets associated with crimes and other unlawful activities to the State.

 

International Cooperation

Involved Countries

United Kingdom of Great Britain and Northern Ireland

Measures

• Mutual legal assistance
• International cooperation for confiscation/asset recovery
Outline:

The United Kingdom provided undercover operations, investigations and the identification and recovery of assets exhibits and evidence. This was done in conjunction of the legal instrument of Mutual Legal Assistance requests which was sent through the relevant official channels to the Home office in London.

During the discussions for cooperation it was established that the South African government had no authority to request the freezing and recover of assets in the United Kingdom. This resulted in an urgent application being made to the relevant Court in London. The result was that the UK can now apply to court to register South African orders through a relatively simple procedure - previously they had to seek a new order on our evidence. (see attached Statutory Instrument 2004 No. 1981 – The Criminal Justice Act 1988 (Designated Countries and Territories) (Amendment) Order 2004.

MLAs were concluded and dispatched to 17 countries to discover and recover evidential material. To date evidence has been obtained in most of the requests.

 

Procedural Information

Legal System:
Common Law
Latest Court Ruling:
Supreme Court
Type of Proceeding:
Other
 

The charges against Kevin Naidoo and Terrence James were finalised. Both pleaded guilty in terms of section 105 A (plea agreement). Both will be testifying for the prosecution. The trial against the rest to proceed in October 2011.

 
 

Victims / Witnesses Summary

  • Witness Protection:
    Physical protection
  • Further information:

    A number of witnesses who were associated with the accused in one or more activities related to the illicit exports were offered indemnity should they testify for the prosecution in terms of section 204 of the Criminal Procedure Act. Pleas agreements in terms of section 105 A was also entered into with some of the accused who would, as part of the pleas agreement, testify against one or more of the accused.

    The matter against, accused Longhow, was withdrawn after consultation with his legal advisor and elected to testify for the prosecution in terms of section 204 of the Criminal Procedure Act. He agreed if placed in a witness protection facility, which was done.
    Counter measures were employed to ascertain any plots to assassinate witnesses.

     

    Defendants / Respondents in the first instance

    Defendant:
    [A]
    Gender:
    Male
    Nationality:
    South African
    Age:
    48
    Defendant:
    [B]
    Gender:
    Male
    Nationality:
    South African
    Age:
    39
    Defendant:
    [C]
    Gender:
    Male
    Nationality:
    South African
    Age:
    51
    Defendant:
    [D]
    Gender:
    Male
    Nationality:
    South African
    Age:
    31
    Defendant:
    [E]
    Gender:
    Male
    Nationality:
    South African
    Age:
    55
    Defendant:
    [F]
    Gender:
    Male
    Nationality:
    South African
    Age:
    42
    Defendant:
    [G]
    Gender:
    Male
    Nationality:
    South African
    Age:
    52
    Defendant:
    Kevin Naidoo
    Gender:
    Male
    Nationality:
    South African
    Age:
    35
    Defendant:
    [H]
    Gender:
    Male
    Nationality:
    South African
    Age:
    52
    build 295 2018-10-08T09:42:25.530+02:00