FIVE officials from the state-owned Zimbabwe Mining Development Corporation (ZMDC) and a representative of the South Africa-registered Canadile Miners, which formed a partnership with the government to mine diamonds in Marange district, have been arrested over an alleged US$2 billion fraud.
The government says it was duped into believing that the ZMDC was going into partnership with a South African firm, BSGR, which was expected to invest US$2 billion in the mining operation.
The government now believes that BSGR never existed but was a company dreamed up by officials from the ZMDC tasked with finding an investment partner, in collusion with Canadile Miners’ Zimbabwe representative, Lovemore Kurotwi.
By the time a deal was signed, it was not BSGR the ZMDC was in partnership with, on paper, but an amalgamation of two companies -- Core and Mineral Resources (Pvt) Ltd and Marange Resources which formed Canadile Miners.
Kurotwi, who was in police custody on Wednesday night, was the majority shareholder in Core and Mineral Resources.
Police have also arrested ZMDC CEO Dominic Mubaiwa, company secretary Tichaona Muhonde, chairperson Gloria Mawarire and board members Ashton Ndlovu and Mark Tsomondo.
The apparent swindle unraveled after Canadile failed to honour its financial commitments and authorities discovered it had borrowed US$1,5 million from Agribank – which is wholly by the Zimbabwe government.
Police spokesman Wayne Bvudzijena said the investigation was being led by detectives from the CID Border Control and Minerals Unit.
The official Herald newspaper reports that after the Zimbabwe government took over all mining activities in Chiadzwa last year, the ZMDC was tasked with finding partners to invest in the exploration.
The ZMDC identified Mbanda Diamonds, another South African company which is not being investigated, and BSGR.
In August 2009, Mawarire, Ndlovu, Tsomondo, Mubaiwa and Muhonde went to South Africa to review BSGR’s operations to make a determination on its mining investment capacity.
But detectives say they were fully aware the company did not exist.
"They travelled anyway, just to make it look like everything was above board," a police source told the Herald.
"When they came back, they gave the Mines Ministry a report in which they claimed BSGR was fully operational and a suitable investor in the sector.”
After the government okayed the deal with BSGR, based on the advice of ZMDC officials, the state firm mysteriously ended up in a deal with Core and Mineral Resources (Pvt) Ltd and Marange Resources, which had been joined up to form Canadile.
Detectives believe the ZMDC officials in fact have an interest in Canadile.
Canadile’s operations have since been suspended.
The latest scandal follows the suspension of senior managers at the ZMDC in August over financial mismanagement and possible fraud.
Mubaiwa was suspended after it emerged he had invested millions of dollars in the money market while the Corporation’s mines were being closed.
The ZMDC CEO, along with finance manager Christine Mutongi, company secretary Tichaona Muhonde, chief finance officer Robert Karemba and chief operations officer Albert Chitambo are being investigated for investing at least US$9 million on the money market.
Mubaiwa and three other executives are also being investigated over the alleged siphoning of US$40 million in gold and diamond proceeds.
They invested millions of dollars in fixed return securities in banks and asset management companies. Between March and April, Mubaiwa and his team poured money into Premier Bank, Kingdom Bank, BancABC, Interfin, Fidelity Asset Management and Premier Asset Management.
"Proceeds from diamond sales were invested with financial institutions instead of being utilised to capacitate the gold mines," a forensic report which investigated the corruption found.
The report added: "The primary function of the Zimbabwe Mining Development Corporation is to invest in the mining industry in Zimbabwe on behalf of the State and not to invest on the money market."