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Long arm of the law: Corruption Watch asks US DoJ to probe McKinsey

JOHANNESBURG — The so-called ‘Gupta Curse’ has already taken down the likes of UK PR firm Bell Pottinger, but could bigger companies start to face the same fate in months and years to come? Amid allegations of serious irregularities, US-headquartered McKinsey & Company has found itself having to answer questions about why and how Gupta linked Trillian benefitted from a lucrative Eskom deal. Local civil society body Corruption Watch has subsequently requested US authorities to investigate alleged graft involving McKinsey stemming from the likes of the Gupta email leaks and the Public Protector’s State of Capture Report. If successful, Corruption Watch could open up a can of worms and send the Zuptas running for cover from the long arm of the US law. David Lewis, the executive director of Corruption Watch, speaks to us in this interview. – Gareth van Zyl

With me on the line from Johannesburg is David Lewis who is the executive director of Corruption Watch. David, a big announcement from you today. You’re asking the US Justice Department to probe McKinsey & Company?

Yes well, we’re drawing up the submission to ask the US Department of Justice to investigate McKinsey.

How does that work and how have you come to this point where you’ve decided to do this?

Well, we think that there is strong prima facie evidence that McKinsey had in its dealings with Trillian and Eskom. They contravened the Foreign Corrupt Practices Act so, we are referring to the authorities responsible for the enforcement of that act. We also don’t have a great deal of confidence in our own criminal justice authorities, although we also think that they have contravened the Prevention and Combating of Corrupt Activities Act in the SA statute as well.

What are the chances of the US Justice Department actually going ahead and investigating this? Have you had any signal from them that they’re open to looking at this?

No, we haven’t approached them yet, but this is what this US legislation is about. It’s about companies that are subject to the jurisdiction of US law and who are committing corrupt and undertaking corrupt conduct outside of the borders of the US. This is what we think they have done. So, if they accept that we have a case for it then I don’t doubt they’ll investigate it. It wouldn’t be the first time that the US Department of Justice has investigated corruption in this country.

You’re going to be showing US authorities prima facie evidence. In what form is that going to take place because there’s been various sources around the whole Trillian scandal? There was first the Geoff Budlender report and then of course, some revelations from the Gupta Leaks as well. Would you be using some of those or other sources?

Yes, we would be using those. We’ll be using the ‘State of Capture’ report. We’ll be using the Budlender report, significant parts of which have been based on information provided by a whistle blower we are familiar with, and much of the argument and the evidence that will go into the report will be stuff that is in the public domain already. This is not going to be strikingly new information. Our task is to present it in the context of the provisions of the Foreign Corruption Practices Act.

David Lewis, Executive Director, Corruption Watch
David Lewis, Executive Director, Corruption Watch.

David, is this the first time that Corruption Watch is approaching the US Justice Department on any issue? Or have you had experience doing this before?

No, this is the first time we’re doing it directly. We’ve had indirect experience with it, when we were involved in the All Pay, Net1, CPS (Cash Paymaster Services) saga and we were friends of the court when the Constitutional Court struck down the agreements to pay social grants, or the contractor to pay social grants. In that case, All Pay referred Net1 to the US Department of Justice and we knew about that, and we observed that because we were looking into the matter but it was principally All Pay that did the referral.

What about the local law enforcement agencies in SA? Have you tried to go through the likes of the Hawks, the NPA? Have they given you any kind of response?

We haven’t yet. We’ve dealt with them often before. We haven’t dealt with them on this issue. If they are to be believed, they recently said they were investigating this. But they don’t have a good record of investigating matters where politically connected persons are at the end of the investigation. They also don’t have a great record of investigating and prosecuting. Nor do the prosecuting authorities have good experience at prosecuting complex economic crimes, but we may approach them. Although, I think that they will either not answer us or they will tell us that they’re investigating it and that will probably be the last that we’ll hear from them.

Anti-corruption inaction figures. More of Zapiro’s brilliant work available at www.zapiro.com.

Do you think that the long arm of the US law could be the killer blow in this instance?

Well, I think that the long arm of the US law could wield a heavy blow and they have done so before. The Foreign Corrupt Practices Act is, without question, the most effective statutory instrument against corruption. The US concentrates the minds of those to whom matters have been referred.

Let’s say the US goes through this whole investigation and they find certain people within McKinsey, Trillian, and possibly even government and Eskom are guilty, would there then be an extradition type setup where people would be extradited to the US?

I’m not certain. You’d have to ask our lawyers that. I think that we have extradition treaties with the US, and I think that their jurisdiction would probably only extend to those subject to US law. That would be, I guess, employees, directors, and the company like McKinsey, that has a nexus with the US law, it’s either listed or its registered there. I’m not sure that they would have, and I speak under correction – I’m not sure that they would have jurisdiction over Eskom employees or Trillian employees.

An electricity pylon stands beyond an Eskom sign at the entrance to the Grootvlei power station, operated by Eskom Holdings SOC Ltd., in Grootvlei, South Africa. Photographer: Dean Hutton/Bloomberg

What about some of these other international companies that also have an American presence. SAP (the business software company) has also been in the news for also adopting a similar fronting type approach. Are you going to also complain about them to the US authorities as well?

Well, we don’t plan to right now. These things take a lot of resources and a lot of time and we can only do what we can do. We would like to think that this will act as some sort of constraint on those who do have a US link and there are very few companies that operate globally that don’t have a US link. All you have to do is transfer money through a US bank account. I think all you have to transact in Dollars to have a US link so, the link does not have to be an enormously strong link. I know that companies watch the US authorities and the US legislation closely, as well they should do. Obviously, sometimes not closely enough.

It’s becoming increasingly clear that some corporates in SA are corruption enablers. What’s gone wrong? Has this always been the case or are we just noticing it more now?

I think it’s always been the case, to some extent. Certainly, during the sanctions busting regime of the apartheid years there were many SA companies, who were complicit in busting or breaking sanctions. Even the ‘Arms Deal’: there’s another case where foreign companies and SA enablers were famously linked. And now there are all the allegations about South China Rail, and SAP, then of course, let’s not forget KPMG. But for the most grand corruption requires enablers, they require law firms and accounting firms and management consultancies. If you want to launder money by buying large houses you require complicit estate agents. These are; classically, enablers of corruption and money laundering. They need to be closely regulated.

Do you think that corruption is out of control in SA? It seems like there’s an unstoppable tidal wave of it at the moment?

I think there are many things that are preventing corruption from being a whole lot worse than they are. We rank about a third of the way down on the most authoritative  indices of corruption on a global scale and we have a good constitution. We have a good judicial system. We have good media. We have a robust civil society. We have a good private and public sector, in particular, to prevent corruption from being a whole lot worse than it is but there are some factors that really militate against successfully combatting corruption. Probably most of the impunity seems to be enjoyed by people, business people, and government people who are well connected and wealthy. Then the state of the criminal justice institutions, which in many ways will affect the institutions to be comprehensively corrupt or captured, as the current term has it.

You’re also looking at the relationship between Net1 and the World Bank. Can you maybe unpack that for us quickly?

There we have laid a complaint with the ombudsperson’s office of the International Finance Corporation, which is the private sector financing arm of the World Bank, which is the largest investor in Net1. We believe that they did not comply with their own ethical and other standards in making a very large investment in Net1, and we want them to look into that and we want to know why and what can be done about it?

Where does it all end? Are we going to see people actually taking responsibility for this and being held accountable or are we going to continue to see people just seemingly getting away with this? I think there’s a lot of South Africans who are getting quite frustrated at the moment.

The US Department of Justice

I think that there’s a good chance that we’ll get people held accountable. The US authorities are not easily put off by power and connection, in the same way that the SA authorities are. There are some signs of life amongst the SA authorities and some signs that the signal or the pressure is great but there are also other sorts of sanctions. We’re on a continual quest as I think I’ve demonstrated to find other ways of sanctioning corrupt conduct that is cognisant of the fact that the SA Criminal Justice Authorities are most likely to act. This afternoon’s event was that of a professional association or a group of professional associations. Now, they could have great power because of their members, as Bell Pottinger have discovered, to their considerable regret. So, there are ways of getting at the sins. Obviously, if I didn’t believe that some of this wouldn’t succeed then we wouldn’t be doing what we were doing.

Just as a final question, do you think that McKinsey, KPMG, and the likes of SAP could become the next Bell Pottinger?

I don’t know about that. I think all of them are firms, they’re considerably larger and more powerful than Bell Pottinger ever was. But I think KPMG; in particular, has done more damage to this country then Bell Pottinger did actually.

David Lewis, it’s been a pleasure talking to you. Thanks for taking the time to chat with me today.

Okay.

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