Iraj Abedian: KPMG’s compensation a nano-fraction of damage it caused SA

LONDON — Outspoken economist Iraj Abedian has been one of the strongest critics of multinationals who facilitated Gupta-linked industrial scale corruption in South Africa. He rejects KPMG’s apology and its recanting of the damaging and deeply flawed report issued for SA Revenue Services. In this hard hitting interview, Abedian explains why collateral damage caused to SA by KPMG allowing its brand to be used by the plunderers is exponentially greater than the R70m in fees it received. Abedian says the cost is far greater than the billions which McKinsey crudely stole from SA taxpayers. – Alec Hogg

Well, joining us now on the line from Johannesburg is Iraj Abedian from Pan African. First of all, before we get into the details of what’s transpired today, the whole KPMG report that came out on Friday together with the press release: did they go far enough?

Not at all. In fact, it doesn’t touch the real issues. In my mind (bearing in mind that I’m not an auditor) I’m looking at it from an economic point of view and from a political economy governance point of view. KPMG actually, very carefully, skirts around the issue of the damage that they have caused to the South African economy. Not in the form of how much money they have been given, but the costs of complicity for nearly a decade in discrediting SARS, in literally providing their fame, name and brand through a scheme that has eventuated in the ex-Minister of Finance being implicated. A big question mark in front of his integrity. A whole lot of people who were in high positions institutionally – within SARS – being sacked. I’m not so much talking to the individual damage but damage to the institution. Damage to the credibility of SA and damage to the brand SA, and the investment destination and about the definition to its international credit. KPMG doesn’t even go there. It doesn’t own up to the damage.

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You decided to resign off the board of Munich Re very publicly and then issued a statement or an op-ed to say why, which got a lot of support from the BizNews community but from your perspective, had you had the opportunity with the KPMG people what would you have advised them to say on Friday?

Iraj Abedian

Look, I engaged them. I wasn’t going to do equally unethical things by acting on emotions or without checking the other side of the equation so to speak. Yes, I engaged them. I invited them to the board of Munich Re for cross-questioning and no other than Steve Louw, the ex-CEO was telling us their side of the story. The more I listened the more they confirmed that they have remained wilfully in this type of corporate structuring, tax evasion and improper, basic violation of the rules of audit, and I’m referring specifically to the audit of Linkway, which was the wedding arrangement company. Now, that is really as basic as that. They had no defence except kept saying that, ‘they weren’t involved in it.’ I can’t believe that you do that for 8 years not knowing what you’re doing.

Getting back to the whole story on well, first of all Bell Pottinger, which made millions from the Guptas. Now KPMG made tens of millions from the Guptas but McKinsey, which we’ve heard nothing from, presumably made hundreds of millions so, it’s almost the next scale. Would you be taking a similar strong stance against them?

Absolutely, before we go to McKinsey. The money that KPMG has pocketed (so to speak), through their advisory and audit is a nano fraction of the damage that they’ve caused the SA brand and its investment integrity, and the damage that they’ve caused to the profession of audit in the country, if not globally so, I won’t so quickly brush off KPMG’s damage to say, ‘okay, it was only R60m, as opposed to McKinsey, which is billions of Rands.’ The case of McKinsey is straightforward. They have stolen money. They engaged in bribery. They’ve been highly primitive and crude about it and they’ve pocketed roughly R1.6bn, for so-called professional services that they never rendered and they were going to do another R6 or R7bn. So, that is from the actual direct money extraction. It’s much bigger than KPMG but it’s not as consequential for brand SA.

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Having said that, yes, the CEO of McKinsey has heard my story. They are coming to meet with me on Thursday. They’re coming as a team and my message to them is, in fact I wrote it in an email to them as a precondition for the meeting. It’s that ‘you’ve stolen the money and you have to do 2 things, and let’s discuss those facts.’ One is, ‘how much have you stolen?’ Secondly, ‘how are you going to do remedial actions in giving the money back and convincing us that you are going to have enough measures not to repeat such unethical conduct, going forward?’

Iraj, is David Fine going to be part of the McKinsey group that comes to see you?

No, I haven’t got the full names of people and as we speak, I can check. There’s a gentleman, who is the COO of African operations, he is coming and 2 other colleagues, and George Desvaux, and 2 others, Lohini Moodley, and one other.

I ask this because McKinsey is very big internationally in the private sector but in SA they appear to have made the public sector their particular area of expertise and for years and years, they’ve bailed out various public sector executive teams but, well, if they’re in trouble they call in McKinsey. McKinsey makes a lot of money. Then the executive team has got an opportunity to pass the buck, as it were and we’ve seen this at an area that I know very well, in the broadcasting industry at the SABC. McKinsey are almost a permanent fixture there.

When one talks about the money that they have stolen and that kind of a practice, where they’re enabling executives of public enterprises. You have to wonder how deep it actually goes, and if that’s going to include their remit of looking back at where they’ve been making the mistakes and I mention David Fine because he was very close to the Guptas, (we have lots of evidence on that) and he was the man who is now sitting in London running their entire international public-sector practice. [RIGHT OF REPLY – McKinsey PR manager DJ Carella says “I saw your story today which mentioned David Fine. I want to ensure you David does not know the Guptas. To suggest or imply that David is somehow linked to Gupta entities is also wholly inaccurate.”] 

Yes, that is true. McKinsey identified the gap in the so called SOE top executive lack of capacity and propped them up. Whatever you do, you cannot justify R700 – R800m a month. I don’t care how competent you are and I don’t care what advice you give. It is just complete outright looting of incompetent management but even if they are incompetent, you claim competence, you claim ethics, and you set a boundary for how much you charge. Then on top of it, if they agree to pay a further trillion SBV that has never known or done anything, that’s another ethical issue that nobody can justify.

What would you suggest if they say to you on Thursday, ‘how do we fix this?’

Look, the first thing for me, unless you admit you have no intention of fixing. Much like KPMG, SAP, and McKinsey – they’ve got to come out and say, ‘what we did was wrong.’ It was harmful, it was unethical and we recognise and we’re going to do something within the corporate. That’s up to them to do. That, from a national interest point of view that’s step one. Number two is to say, ‘this unethical conduct over so many years cost the country X-billion, here it is, (with interest),’ and then the penalty that we’re going to add.

As I said, in my view, for what it’s worth, McKinsey’s collateral damage is a fraction of KPMG’s collateral damage. If they pay the money with interest with penalty they have lost enough brand value that nobody is going to touch them and they have to reorganise and reinvent themselves. That’s not up to me and it’s not up to SA and anybody, hence for the years to come, if they touch McKinsey – I would have a question mark around them them.

Getting back to KPMG then. Part of the problem here is there are international regulatory bodies, there’s SAICA, there’s IRBA. Have you had any engagement with them, the SA Chartered Accountant Institute, for instance?

Yes, as I said this morning, I met with the head of SAICA. They are very well aware that KPMG has caused not just corporate damage – it has caused collateral damage, massive collateral damage to the profession, to all the audit players and all the auditors. They are on a fast track to do something to rectify the situation, or damage control.

Do you have any idea what that might be?

I don’t know. They said they have a board meeting this week and they are very well aware that it’s super urgent to do damage control because time is of the essence.

You would have thought at the very least though that certain chartered accountants would be struck off the role. I don’t know if they’re able to do that. Is that a sanction you’d go for?

That’s right, they can, certainly. After they go through certain disciplinary processes that’s pretty much in their domain. IRBA is dealing with a different side. SAICA deals with individual chartered accountants. IRBA deals with the firm, KPMG, and the auditors, and both of them are working on this as a matter of top priority.

We also saw this morning a statement from the SA Revenue Services, and for those who haven’t seen it. In essence, what KPMG said was the report that it put together for SARS, was wrong and it withdraws it. Now, SARS is saying, ‘but you can’t do that – it’s not your property anymore and actually, we’re so angry with you, we’re going to kick you out of the country as well.’ So, it’s almost like KPMG is getting it from both sides but staying with SARS for a minute, did you have a chance to look at or consider the statements that is coming out of that side?

SARS commissioner Tom Moyane

I’ve been in back-to-back meetings. I’ve not read anything. I just heard the Commissioner on the radio, on a sound clip quite furious, and understandably so because the Commission over the years has used KPMG’s name and brand to legitimise his own actions so, understandably he’s angry. If now KPMG comes and says, ‘sorry, this report is fake and we didn’t mean it.’ Then the Commissioner has got no leg to stand on and all his claims and credibility are shattered. So, yes, it’s understandably problematic for the Commissioner.

So, he would say that, wouldn’t he?

He should say it. I would say the same if I were in his shoes because he has remained very categoric and clean about his actions because KPMG has certified it. I must tell you, Alec, up until last week or a few weeks back, I was (as a person) having dealt with them, and say, ‘KPMG wouldn’t issue this if it was all fake and false.’ So, you understandably, give auditors, not a back-door audit of KPMG the benefit of the name and the trust so, yes, he has to say so and I would say the same if I was in his shoes.

That’s the collateral damage you talk about, to the economy?

That’s exactly the collateral damage. The collateral damage to institutions of governance, to SARS, to NPA, to individuals, to brand SA, it is just literally incalculable, it’s not in millions. It’s in 10’s of billions of US Dollars.

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Can they survive that because presumably somebody is going to want to extract or get compensation for that damage?

Yes, Arthur Andersen, if you look back in history, and I don’t know. I’m not a fortune teller and I don’t know how this will pan out but Arthur Andersen didn’t survive it. In full portion to the size of the American economy, Arthur Andersen’s misconduct was a much smaller ratio if you calculate the damage of the ratio of SA GDP. So, if you put it in that context, KPMG should not survive, not just in SA but globally, but we have to see what their business position is. It’s not a legal story but it’s an ethical story. If businesses in SA and everywhere take ethics seriously they would have a really very plain and a 2 minute judgement to say, ‘well we can’t’ associate ourselves with the brand, KPMG, for a long while and that would force the company to die a natural death. That’s how the markets deals with misconducts and it’s not a law but it’s a question of ethics of doing business.

Iraj Abedian from Pan African. Thanks, Iraj, that was brilliant.

It was good talking to you. Bye.

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