Lesotho & South Africa: Order Cross-Border Asset Forfeiture in CGM Fraud

• Courts in Lesotho and South Africa ordered the forfeiture of assets worth over M7.5 million, linked to M700 million diverted from Presitex, a major Lesotho garment manufacturer.
• The fraud scheme was uncovered by a whistleblower, leading to a DCEO investigation and criminal charges against former CEO Madhav Vassant Dalvi, his family, and associates.
• The Lesotho Court of Appeal upheld the forfeiture of a Masowe property and cash, while the Free State High Court ordered the forfeiture of three Ladybrand properties.
• Dalvi and family fled, triggering extradition processes in February 2024, though only South Africa has responded to mutual legal assistance requests.
• All forfeited assets remain unrealized due to ongoing appeals, including an application by Presitex to exclude its interest in one of the properties.

Authorities are hailing recent judicial decisions in Lesotho and South Africa as a significant achievement in cross-border asset recovery, despite ongoing appeals.

Authorities are hailing recent judicial decisions in Lesotho and South Africa as a significant achievement in cross-border asset recovery, despite ongoing appeals. These rulings pertain to assets acquired with illicit funds diverted from CGM Group companies and its subsidiary, Presitex, one of Lesotho's largest garment manufacturers. The case involves an estimated M700 million (approximately R700 million) that was siphoned off through a sophisticated scheme.

Within a five-day period in May, courts in both nations issued related judgments. The Lesotho Court of Appeal affirmed the forfeiture of a property in Masowe, valued at approximately M1.6 million, along with M177,000 in cash. Concurrently, the Free State High Court in South Africa mandated the forfeiture of three properties in Ladybrand, with a combined worth of R5.75 million. These judicial actions underscore a concerted effort to trace and recover proceeds of crime across jurisdictional boundaries, particularly in cases of `Lesotho SA cross-border asset forfeiture`.

The extensive fraud came to light following complaints lodged by Eugenia Shi-Chang, a whistleblower and shareholder at Presitex, with Lesotho's Directorate on Corruption and Economic Offences (DCEO). Shi-Chang, who had previously left the company in 2009 and returned in 2023, discovered that the former chief executive, Madhav Vassant Dalvi, and his associates had orchestrated a scheme to divert millions from Presitex and related entities into companies they controlled or established. Presitex, a major employer, has approximately 3,000 staff members.

The `Lesotho DCEO cross-border investigation` led to criminal charges against Dalvi, his wife Sushama, their son Chaitanya, other former employees, and managers, as well as clothing companies including Denimagic and Alchemy Textiles. The charges encompass theft, fraud, money laundering, and abuse of office. While Dalvi, his wife, and son, along with several other accused, fled the country before they could be remanded, the remaining defendants appeared before the Maseru Magistrate’s Court in 2024. Extradition processes were initiated in February 2024, targeting South Africa and the Indian and United Arab Emirates embassies in South Africa. However, the DCEO has indicated that only South Africa has responded to its request for mutual legal assistance, suggesting that extradition proceedings have not yet commenced.

The May judgments focused exclusively on establishing a sufficient link between the properties and unlawful conduct to justify their forfeiture, rather than addressing the ongoing criminal proceedings. On May 25, the Lesotho Court of Appeal upheld a 2025 high court order for the forfeiture of the Masowe house and the M177,000 in cash, which had been seized by the DCEO. The appellate court affirmed the lower court's finding that these assets constituted `proceeds of crime forfeiture Lesotho`.

The DCEO's investigation revealed that the Masowe property was purchased and developed using funds diverted from Presitex. Although registered in the names of Maneo and Clark Poopa, the property was subleased to Denimagic for an 82-year term at a nominal annual rental of M1, while Presitex simultaneously paid Denimagic M24,000 per month to occupy the same premises. Dalvi's son, Chaitanya, resided in the house. The court characterized this arrangement as commercially irrational. Furthermore, Denimagic's assertion that the seized cash originated from legitimate clothing sales was dismissed due to a lack of supporting evidence for these transactions. Separately, the `South Africa NDPP asset freeze` secured the forfeiture of the three Ladybrand properties, which were found to have been acquired using funds diverted from Presitex and its related companies in Lesotho.

Despite these significant forfeiture orders, none of the assets have yet been realized due to appeals lodged by the respondents. The Lesotho Court of Appeal's ruling, for instance, has not been implemented because Presitex has filed an application to exclude its interest in the Masowe property. This highlights the complex and often protracted nature of `Presitex fraud asset recovery` efforts, even after favorable court decisions.

The case underscores the increasing effectiveness and complexity of cross-border asset recovery efforts between South Africa and Lesotho. The involvement of the DCEO and the National Director of Public Prosecutions (NDPP) in South Africa demonstrates a commitment to pursuing `Madhav Dalvi asset forfeiture` and other proceeds of crime. While the appeals introduce delays, the initial rulings represent a crucial step in holding those accountable for multi-jurisdictional fraud schemes.

This case demonstrates the increasing effectiveness and complexity of cross-border asset recovery efforts between South Africa and Lesotho, highlighting the DCEO and NDPP's commitment to pursuing proceeds of crime. Lawyers should advise clients on the growing risk of asset forfeiture in multi-jurisdictional fraud schemes and the importance of robust compliance to prevent such exposures, even in the face of appeals.

Source: Original reporting via Moneyweb