Correctional Services spokesman Manelisi Wolela has denied allegations that student leader Mcebo Dla.
Two officials of the Mpumalanga department of roads and transport were arrested for fraud and corruption related to the sale of false taxi operating permits.
The police arrested and handcuffed the two officials in full view of their colleagues shortly before 1pm yesterday.
The police also confiscated 300 fraudulent taxi operating permits and fake driver's licences worth more than R500000.
The arrests came shortly after the provincial police's commercial branch confiscated 10 computer modems from the department's taxi board during a raid that took place about a week ago.
Police accessed information in the modems and established that false taxi permits had been issued from some of them
Captain Leonard Hlathi of the provincial police's organised crime unit told Sowetan yesterday that the search was followed by a second one in a house in KaNyamazane township near Nelspruit.
The arrested officials, and a third one who was not at work at the time, allegedly sold taxi operating permits for R5000 each to the public.
The police are hunting for the third suspect who is still at large but hope to make an arrest soon.
Hlathi said investigations had taken a number of months after it came to light that certain people who owned old minibuses paid officials to have their minibuses qualify for recapitalisation.
"This would allow the owner of the minibus to qualify for the R50000 scrapping fee paid by government to minibus taxi owners whose vehicles qualify for recapitalisation," Hlathi said.
It is believed that a number of community members connived with government officials to engage in fraud and corruption.