Hitachi bribery included Eskom; ANC must come clean or face Brazilian fate

Not sure what is more sickening: The bribe paid by Hitachi or hypocrisy from South Africa’s ruling political party. When the mood took him, then President Thabo Mbeki droned on about how the world’s focus was always on those accepting bribes, rarely on those who paid them. As if that justified anything. Instead of Mbeki’s obfuscation or his contemporary’s outright denial of the obvious, a credible Government would appoint a Commission of Inquiry into the Medupi contracts and, for good measure, the $10m paid to FIFA to win the 2010 World Cup hosting bid. But that’s probably too high minded for them. So at the very least, sensible people within the ANC should point their colleagues to SA’s BRICS ally Brazil, where the nation has become obsessed by a debate on whether or not to impeach President Dilma Rousseff (63% support doing so) for corruption her political party were involved in while she chaired State Oil company Petrobras. In this networked, digital age, truth cannot be hidden for long. As Volkswagen is discovering, it would be far better to come clean than to be found out. As the crooks always are. – Alec Hogg


Cape Town – Startling revelations following investigations by the US Securities and Exchange Commission have lifted the veil of secrecy in the relationship between ANC funding front Chancellor House and Hitachi Power Africa.

The case has also raised questions about possible manipulation of major contracts at government-owned power utility Eskom, with claims of behind-the-scenes manoeuvering to influence tenders.

Hitachi went to great lengths to conceal the controversial “success fee” with ANC funding front Chancellor House, the commission has found.

Hitachi paid Chancellor House about $1m (R13.9m), which was essentially an incentive for Chancellor House to influence tenders for Hitachi.

Hitachi was awarded major contracts for Eskom’s new power stations, Medupi and Kusile.It has emerged that the company tried to keep the “success fee” arrangement under wraps. The efforts to cover tracks is consistent with the secrecy that has shrouded the entire arrangement between Hitachi and Chancellor House.

Previous responses from those closest to the deal ranged from robust denials to reluctant admissions.

Quoting a November 2005 Hitachi email, the commission has claimed that Hitachi moved to remove the “success fee” from the shareholders’ agreement. This was because customers would pick up the clause during BEE audits “and it is felt that such a clause could be interpreted in a way which it is not intended”.

Instead, in an unsigned and separate agreement, Hitachi promised to pay Chancellor House for influencing power station tenders at Eskom.

In terms of the agreement, Hitachi would pay Chancellor House “for active involvement and support” to Hitachi during the tender adjudication phase of a project “and the award of an order to (Hitachi) must be substantially as a result of Chancellor’s efforts within its reasonable sphere of influence”.- Fin24


US Securities and Exchange Commission Release

Washington D.C., Sept. 28, 2015 

The Securities and Exchange Commission today charged Tokyo-based conglomerate Hitachi, Ltd. with violating the Foreign Corrupt Practices Act (FCPA) when it inaccurately recorded improper payments to South Africa’s ruling political party in connection with contracts to build two multi-billion dollar power plants.

Hitachi has agreed to pay $19 million to settle the SEC charges.

The SEC alleges that Hitachi sold a 25-percent stake in a South African subsidiary to a company serving as a front for the African National Congress (ANC).  This arrangement gave the front company and the ANC the ability to share in the profits from any power station contracts that Hitachi secured.  Hitachi was ultimately awarded two contracts to build power stations in South Africa and paid the ANC’s front company approximately $5 million in “dividends” based on profits derived from the contracts.  Through a separate, undisclosed arrangement, Hitachi paid the front company an additional $1 million in “success fees” that were inaccurately booked as consulting fees without appropriate documentation.

“Hitachi’s lax internal control environment enabled its subsidiary to pay millions of dollars to a politically-connected front company for the ANC to win contracts with the South African government,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division.  “Hitachi then unlawfully mischaracterized those payments in its books and records as consulting fees and other legitimate payments.”

According to the SEC’s complaint filed in U.S. District Court for the District of Columbia:

  • Hitachi was aware that Chancellor House Holdings (Pty) Ltd. was a funding vehicle for the ANC during the bidding process.
  • Hitachi nevertheless continued to partner with Chancellor and encourage the company to use its political influence to help obtain government contracts from Eskom Holdings SOC Ltd., a public utility owned and operated by the South African government.
  • Hitachi paid “success fees” to Chancellor for its exertion of influence during the Eskom tender process pursuant to a separate, unsigned side-arrangement.

Hitachi’s misconduct violated the books and records and internal accounting controls provisions of the federal securities laws, specifically Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.

Without admitting or denying the SEC’s allegations, Hitachi agreed to a settlement that would require the company to pay a $19 million penalty, and it would be permanently enjoined from future violations.  The settlement is subject to court approval.

The SEC’s investigation was conducted by Jon Jordan and Thierry Olivier Desmet of the FCPA Unit in Miami with assistance from Kathleen Strandell, David S. Johnson, and Matthew P. Cohen.  The SEC appreciates the assistance of the Justice Department’s Fraud Section, the Federal Bureau of Investigation, the Integrity and Anti-Corruption Department of the African Development Bank, and the South African Financial Services Board.

“We particularly appreciate the assistance we received from the African Development Bank’s Integrity and Anti-Corruption Department and hope this is the first in a series of collaborations,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.

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