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EDINBURGH — It’s not only President Jacob Zuma and his friends, including the Gupta family, who are to all intents and purposes immune from prosecution for corruption and crimes related to the abuse of state funds. This largesse apparently extends to the ‘captured’ corporates, which include global software giant SAP and multinational management consultancy McKinsey. Both companies have been exposed for their links to the Gupta-Zuma empire, which has been built on a strategy to tap state coffers for taxpayers’ funds for doing nothing other than acting as a ‘go-between’ in big contracts. SAP and McKinsey have been relatively silent on the role of their employees in questionable financial transactions. Some might say smug. Many South Africans have been pinning their hopes on investigations into the corporate corrupt sparking the downfall of Zupta. But both SAP and McKinsey say they are not speaking to the South African Police Services, or international anti-corruption agencies, about the involvement of individuals in their ranks in financial irregularity. – Jackie Cameron
SAP: Flashback – the Gupta connection in a nutshell
BizNews reports that four SAP employees in SA have been placed on “administrative leave” pending the outcome of an investigation after a #GuptaLeaks exposé by amaBhungane and Scorpio revealed it allegedly paid a Gupta front company R100m in “kickbacks” for state business.
AmaBhungane and Scorpio revealed that in August 2015, SAP signed a “sales commission” agreement with CAD House, what they call “a small Gupta-controlled company that specialises in selling 3D printers”.
In the view of the investigative units, the terms suggest “a thinly-disguised kickback arrangement: If the Gupta company were the ‘effective cause’ of SAP landing a Transnet contract worth R100m or more, it would get 10%”.
SAP ended up paying CAD House R99.9m, which suggests that SAP “used the Gupta influence network to drive sales of a billion rand to Transnet and other state-owned companies”, according to the report.
SAP comment for BizNews 19 July 2017:
SAP can confirm that a team from international law firm Baker McKenzie, assisted by forensic experts from FTI Consulting have arrived in South Africa and have commenced their investigations. We do not yet have any definitive dates for the conclusion of the investigations however, our commitment is to expedite the process while ensuring that these processes are comprehensive.
SAP has committed to sharing the results of the investigations once these processes have been completed. In keeping with SAP’s commitment to transparency, Adaire Fox-Martin will engage with media when there is material information to share.
We have not been approached by the South African Police Services.
McKinsey: Flashback – the Gupta connection in a nutshell
BizNews reports that McKinsey & Company has been named repeatedly in media reports as a beneficiary in the state capture strategy implemented by the Gupta and Zuma families. It has been linked to Transnet deals and Eskom deals.
Vikas Sagar, a McKinsey partner, has been suspended while McKinsey investigates what happened within the bosom of its South African operation. But, so far, it seems the folks over at McKinsey’s global headquarters appear puzzled by the whole business.
After refusing to cooperate with an investigation instituted by leading South African businessman Tokyo Sexwale into the links between the Gupta family, Trillian Capital Partners and Eskom, McKinsey has moved to salvage its reputation by bringing in its public relations officers.
McKinsey issued a brief statement in which it still claims it wasn’t involved in a sham contractual arrangement with Trillian in a deal reportedly worth R1bn/year.
McKinsey comment to BizNews on the questions of whether it has been in touch or under investigation by the South African Police Service or an international law-enforcement agency:
* Exactly who have you suspended in connection with the allegations that McKinsey benefited from corruption in South Africa? Who have you dismissed? What is the status of your internal investigation, if any?
As you will be aware there is an ongoing investigation into this matter, assisted by law firm Norton Rose Fulbright. To allow our investigation to proceed in an open and transparent way, and to allow Vikas Sagar the time to focus on our review, we mutually agreed with Vikas that he take a temporary leave of absence, effective 6 July 2017.
* Have you brought in independent auditors or investigators to investigate?
This issue is being managed at the highest level within our firm, including by our Global Managing Partner, who is personally involved. Our global General Counsel and Chief Risk Officer are supervising the investigation, with input from law firm Norton Rose Fulbright.
* Was the McKinsey global leadership aware of the involvement of McKinsey employees in corruption and state capture?
On the specific point raised by Advocate Budlender regarding the letter from Vikas Sagar: That letter inaccurately characterized McKinsey’s relationship to Trillian and our work with Eskom. Our investigation is reviewing how and why the letter was written. We have notified Eskom that the letter inaccurately characterized Trillian as a subcontractor of McKinsey.
On the broader issue: We considered forming a Supplier Development Partnership with Trillian to support Eskom in delivering its Turnaround Programme. Between Q4 2015 and Q1 2016 we explored what this partnership could look like, including understanding Trillian’s capabilities through McKinsey and Trillian carrying out initial work on the Turnaround Programme at Eskom. There would be no fixed fees or down payments – with all fees linked to delivery of impact. In parallel, our firm’s global risk committee, working closely with leaders of our Johannesburg office, conducted a due diligence review of Trillian and its ownership and credentials.
As a consequence of that due diligence review, we decided not to enter into a Supplier Development Partnership with Trillian, because we had concerns about its ownership. We terminated the potential partnership discussions, and any plans for future work with Trillian and communicated this to Eskom in March 2016. We also terminated our relationship with Regiments at this time.
* If not, why not? Why doesn’t your business structure allow for oversight that includes checks and balances to ensure that your company is not ensnared in corruption?
* How does the McKinsey global leadership view revelations that local McKinsey leaders have lied in public about their relationship with Gupta entities.
We stand firmly against corruption, and are committed to ascertaining the facts and swiftly taking any and all appropriate action.
* Has anyone flown to South Africa to pick up on the allegations? If so, who? If not, why not?
Yes, our Global General Counsel. The investigation is also being overseen by our Chief Risk Officer (Tom Barkin) and Global Managing Partner (Dominic Barton).
* Is it routine for McKinsey to refuse to co-operate with investigations into irregularities?
We take the issues raised in Advocate Budlender’s report into Trillian, and the concerns it has raised, seriously. We stand firmly against corruption, and are committed to ascertaining the facts and swiftly taking any and all appropriate action.
When we were first contacted by Advocate Budlender on 22 March 2017 with questions about Trillian, we provided a short, factual response, that we “did not work on any projects on which Trillian worked as an SDP or sub-contractor to McKinsey”. While it is correct that McKinsey never concluded a partnership or sub-contracting agreement with Trillian, we did work on projects with Trillian at Eskom – on the Corporate Plan and the Turnaround Programme.
In May 2017, when our office leadership became aware of a letter written by one of our Partners (Vikas Sagar) to Eskom, regarding work on Eskom’s Corporate Plan, we initiated an internal investigation, supported by the external law firm, Norton Rose Fulbright. As we have said, the letter inaccurately characterized Trillian as a subcontractor of McKinsey.
In light of our decision to launch our own investigation, it would have been inappropriate for us to comment on Mr Budlender’s questions, while we were ourselves gathering facts.
* What is the policy for dealing with corrupt employees?
When our investigation is complete, we will communicate the findings appropriately. We will act decisively, based on those findings, if there has been any breach of our professional standards.
* Which McKinsey leader/employee is taking responsibility/is ultimately responsible for the involvement of McKinsey in corruption?
We cannot speculate or pre-empt the outcome of the investigation.
* Has the FBI been in touch with McKinsey employees yet in connection with the South African allegations? Has McKinsey co-operated with the FBI?
Our investigation, assisted by Norton Rose Fulbright, continues and
we have not discovered anything that would require us to notify US authorities.
If we discover pertinent facts we will take the appropriate action swiftly.
*Are you speaking to the South African police about the McKinsey involvement in corruption and state capture?
In short – no.