The world is changing fast and to keep up you need local knowledge with global context.
EDINBURGH — In a victory for the forces of good fighting against the Gupta-Zuma state capture strategy playing out in South Africa, asset management entrepreneur Magda Wierzycka has fired Big Four accounting firm KPMG for ‘looking the other way’. She revealed this week that she has axed the audit firm for its role in the scandal that has rocked South Africa. Wierzycka is the first leader in the business sector to take a firm stand against the big corporates who have benefited from state capture. Wierzycka said in a recent interview on television that she was prepared to be outspoken, even though this is not the done thing in the corporate sector, as she is fully committed to seeing a better future for South Africa. Meanwhile, KPMG leaders appear to have their proverbial heads in the sand, opting for a “silence is golden” approach to managing their reputation in this crisis. – Jackie Cameron
Sygnia Group CEO Magda Wierzycka on KPMG:
“We have parted ways with KPMG. I have utmost respect for the team that serviced Sygnia. They are dedicated, extremely competent and we are grateful for their help since the listing. However, we must make examples of those who aided and abetted corruption in SA. And those who might have chosen to look the other way. KPMG is investigating and taking this very seriously, but we can not wait for the outcome. The timeline for saving SA from economic implosion is just too short.”
What the M&G says about Sygnia and KPMG
“JSE-listed asset manager Sygnia has fired KPMG over its alleged role in state capture – the first private sector pressure that has been brought to bear on global firms accused of having questionable business relations with the Gupta family.
“A series of leaked emails, called the Gupta Leaks, have exposed KPMG for its role as the auditors of the Guptas’ Linkway Trading – from which cash from the state that was earmarked for the Gupta-linked Estina dairy project in the Free State was diverted to cover the expense of a lavish family wedding.
“KPMG also allowed Linkway to account for the wedding as a business expense, so no tax was paid on the Free State government funding.
“On Thursday morning, Sygnia, with a market value of R1.4-billion, notified KPMG that it would terminate its services as external auditors. This followed a meeting between the parties on Tuesday, in which Sygnia asked hard questions of KPMG about its business with the Gupta family to ascertain how it could have missed “a big money-laundering exercise”.
“The meeting didn’t dispel, in my mind, the perception that adequate oversight was not exercised,” Sygnia chief executive and South Africa’s richest woman Magda Wierzycka told the Mail & Guardian. She stressed, however, that the move was in no way a reflection on the KPMG audit team that had served Sygnia.
KPMG South Africa chief executive Trevor Hoole expressed his disappointment at Sygnia’s decision to end their relationship, reports the M&G.
“Following the meeting, Wierzycka said Sygnia believed there remained many unanswered questions on KPMG’s relationship with the Gupta-related businesses.
“One of these is why, in its audit of Linkway, KPMG did not take a closer look at a R30-million payment used to fund the wedding. The leaked emails indicate that the true source of the money – after being filtered through a number of local and offshore entities – was Free State government funds.
“Sygnia also remained troubled about the manner in which a KPMG audit for the South African Revenue Service (Sars) was conducted. Sars paid KPMG to investigate allegations about the so-called “rogue unit”. The audit was criticised for its limited terms of reference and for making damning findings against former finance minister Pravin Gordhan and others, without including their version of events.
“Wierzycka said she also remained deeply concerned about the manner in which the Gupta-owned Oakbay Resources and Energy listing was handled, which she said has resulted in significant losses to South African taxpayers.
“When listing, there is robust engagement with all parties – sponsors and auditors – and you argue rigorously over the listing of a company and what a fair value might be,” Wierzycka told M&G reporter Lisa Steyn.
“Reports have since emerged suggesting the share price was fixed. This would have prejudiced the Industrial Development Corporation (IDC), which converted part of a loan into equity in the company. Oakbay Resources recently delisted, unable to find a sponsor, and the IDC says it will likely have to write down the debt.
“Although a process against KPMG has been launched by the Independent Regulatory Board for Auditors (Irba), Wierzycka said she did not believe Sygnia could delay a decision until investigations were concluded as the timelines were too open-ended.
“Wierzycka said clients exerting pressure on firms entangled in the Gupta Leaks was one of the few options left in light of a seemingly broken criminal justice system – at least for to bringing those involved in state capture to book. “If the right things were happening in South Africa right now, it wouldn’t be up to me to exert pressure,” she said.”
KPMG reputation management strategy: Silence is golden?
The M&G pressed KPMG International about how it intended to deal with the recent revelations in South Africa, and minimise the reputational harm that could be caused by the allegations, but it referred it back to KPMG South Africa for comment.
KPMG refused to tell BizNews earlier this week whether it had been axed by Sygnia.
The M&G reports that if the Irba found against KPMG, he said, the ultimate sanction could be the suspension of the firm’s executive auditors, and in effect its own licence could be suspended.
KPMG may soon feel pressure from other clients, says the M&G. In South Africa it also audits for the likes of Standard Bank, Nedbank and Investec – whose chief executives are part of the CEO Initiative which has been vocal on the issue of state capture.
Catch up here on KPMG links to the Gupta-Zuma families:
Magda Wierzycka is one of South Africa’s most successful female entrepreneurs, and arguably its most influential in the financial services sector. Wierzycka has also become one of the most outspoken South African CEOs on the subject of corruption and the abuse of the disadvantaged. Earlier this year, her criticism of asset management rival Allan Gray ultimately led to a change in the boardroom of Net1 – a Nasdaq-listed companyaccused of riding on the backs of welfare recipients. Now Wierzycka has taken action against Big Four accounting firm KPMG.
While South Africans react with outrage over the vast and growing body of evidence that multinationals like KPMG and McKinsey have been complicit in the Gupta state capture campaign, the leaders of these companies are sitting pretty it seems. For example, neither the police nor the Financial Intelligence Centreappear to be investigating damning allegations that KPMG was aware of tax evasion and moneylaundering by the Gupta family. What’s more, KPMG CEO Trevor Hoole and team don’t seem to think they owe South African taxpayers a detailed explanation for the involvement of KPMG in Gupta affairs.
Moses Kgosana was about to take the chair at Alexander Forbes Group Holdings when his name emerged in secret emails leaked from the heart of the Gupta family empire. He has been linked to an accounting manoeuvre that facilitated state payment for an extravagant private event. Read more.
Auditing firm KPMG has been thrust into the limelight for its relationship with the Gupta family – Indian immigrants at the centre of a state capture scandal that has engulfed South Africa. KPMG helped the Gupta family divert taxpayers’ funds to pay for an extravagant family wedding at Sun City and went one step further in ripping off taxpayers by helping the family to avoid paying tax on the funds. Read more.