LISTEN: KPMG shows little remorse. No wonder Pravin (and SA) is furious.

LONDON — KPMG might be a shocking auditor and a useless judge of partners, but it is adept at shooting itself in both feet. This recording (and transcript) of Friday’s long-awaited press conference on its Gupta links and the firm’s role in state capture is a powerful if unwitting indictment. Its complicit staff show little remorse for or appreciation of the misery KPMG has facilitated within South Africa. Global heavyweight Andrew Cranston added insult to injury by simply offering to pay back the R23m in fees for a report used by Gupta allies to capture the nation’s Revenue Services – and fire the entire top level of dedicated public servants. KPMG is complicit in helping the Guptas plunder over R100bn in state resources and massively damage the South Africa’s brand. Yet even now the firm simply refuses to “join the dots” and recognise the extent of the damage caused. This is as bad as the original sins. – Alec Hogg

PIERRE JACOBS: I’m Pierre Jacobs. I’m a director at KPMG – an audit partner, but I’m also head of Marketing & Communications. Susan Wells, to my right is from KPMGI (KPGM International) on the legal side.

SUSAN WELLS: Well, I’m just a partner in the OGC office – international.

PIERRE JACOBS: Andrew Cranston, who is also from KPMGI and led the investigation from the international side and he’s a very senior partner. He’s been the Russia lead partner of Head of Country for ten years and he’s also the COO of KPMGI. Nhlamu Dlomu is our new CEO, which has been announced this morning to the group of partners and then Gary Pickering who was the chairman of our special sub-committee of the board who was overseeing the Gupta and SARS matters and the investigation following KPMG South Africa board point of view.

Okay, if you’re going to use my titles, there’s a slight misspeak in that. If you can refer to me as the Global Senior Partner, that would really be the best way to do that. Listen, thank you first of all for coming and listening to us. As we all know, this has been a very difficult period for our firm. We’ve been going through a very robust investigation process around the allegations that have been raised against us. We understand the impatience to hear the results of that. For us though, incredibly important that first we find the facts. We’ve accelerated that as much as we can but to make sure that we’ve done this in a very thorough and very robust way and we’re ready now to start talking about our findings.

Now that we feel that we have done the work we needed, we really want to be as open and transparent as we possibly can be and to respond to each and every concern that’s been raised. So, you will get, I guess by the end of the meeting I hope, our media statement. It’s a pretty long statement. It’s not what I would call a report but it is a summary of the findings that we have. What we’re doing here is balancing the needs to get out and explain our message with the finalisation of what is going to be a very lengthy and a more detailed document.

What I want to say first of all again, is that this has been a very robust and independent review done by KPMGI, of the SA firm, and the review has, I think as you know, covered 2 main things. (1) Everything to do with our work with the Guptas and (2) our work in respects of SARS, and the reports on allegations of irregularities and misconduct so, that’s been the 2 key themes of our work. What I can tell you in terms of headlines, I’m going to take you through both the Guptas and the SARS work.

But what I can tell you, in terms of headlines, is that we found absolutely no evidence of any illegal acts or any corruption on the part of any employees or partners of our firm, and I think that’s an incredibly important headline but what I can also tell you is that we fell short of our own standards in many respects and I’m going to detail those to you.

As a result, and if I get a little bit to the results of all of this, there are some significant leadership changes that are being announced today in KPMG, and not least our new CEO, and Nhlamu will speak later and give you her own thoughts, but the reason that we have a new CEO today and that we have new leadership is part of a series of actions that we are taking as a result of our investigation. We said upfront that we will leave no stone unturned and what we find we’ll be open about and we will take responsibility and we’ll hold those accountable, and that is why we are facing a change in the leadership of the firm.

KPMG Trevor Hoole
Accountability gap: Former KPMG SA CEO Trevor Hoole steered clear of answering tricky questions about KPMG involvement in Gupta affairs.

Our former CEO, Trevor Hoole has tendered his resignation to the board and has stepped down as CEO. Steven Louw, who is our chief operating officer and country risk partner, has also tendered his resignation. They are stepping down as they believe it’s in the bests interests of the firm, as it rebuilds and moves forward. In addition, Ahmed Jaffer, who is the chairman of our board has stepped down. He resigned from the firm today and a number of other partners have resigned from the firm. Mike Oddy, who’s our head of audits and a board member. Muhammad Saloojee, the head of tax and a board member, Herman de Beer, who was the former head of our forensic department and a board member. John Geel, who’s the head of our deal advisory practice, and Mickey Bove, who’s the risk management partner for deal advisory, (and you’ll have a list of these names) but this is a list of people who’ve resigned. In addition to that the SA firm has decided to take disciplinary action, seeking dismissal in relation to Jacques Wessels, who is the lead partner on the audits of the non-listed Gupta entities.

So, in terms of investigation outcomes well, let me go into the two areas to give you some flavour of what our investigation has found. In terms of the SARS Report, let me take that first please. Let me just give you a little bit of background and take you through what happened in this project and what we think our findings are. So, in December 2013, our firm was engaged by SARS to perform a very extensive document review process and this was very much about searching a huge amount of information and collating, and presenting that information in a very factual and logical way. Now, the mandate, as I said, was an extensive document, a review coalition of documentation.

However, what happened was that, and for most of this engagement, this engagement followed our normal procedures and processes. However, at a very late stage in the mandate there was a change initiated by SARS in terms of the scope of the work they wanted us to do and that change required us to provide or asked us to provide not just these factual findings but also to provide conclusions and recommendations, and opinions based on the work that we had done so, the scope of work changed. What we can see is that at that stage our firm should have reassessed the risk of this engagement and considered whether to accept it or how to manage it. What we can see is, is that control did not happen.

Importantly as well, in the process of then preparing these conclusions, recommendations, and opinions we can see that the associated quality controls that should have been in place were not performed to the standard we expect. Specifically, in the case of this final report there should have been a second partner review and that did not happen. So, the result is, is that we have a report, which has some issues and the SARS report that we issued…Let me explain the issues that we have in the report.

The report refers to legal opinions and legal conclusions as if they are opinions. However, that was outside of both the scope of our mandate but it was also outside the expertise of the people who are working on that project. The second thing, and what we acknowledge is that those opinions should have been presented as the recommendations of legal advisors and not formulated in the way they were, to give the impression that they were ours.

Secondly, the language that was used in the final executive summary is unclear, and results in some of the findings that we’ve made, being open to misinterpretation and particular, (and you’ll have the details of the actual sections in the media pack) but it’s very important that within the conclusions or within the findings we made there is a section that suggests that Pravin Gordhan knew or also had known about the establishment of SARS, the SARS Intelligent Unit and contravention of the law that was rogue in nature.

SUSAN WELLS: I just wanted to clarify here that it’s possible to read this section in a manner which suggests what Andrew just said. That’s really important for you to understand, and I also think it’s also really important to make sure and to put on the table that as you’re aware, a version of this report is leaked so, we are talking about information that is in the public.

Yes so, this can be read in that way. What’s clear is that this was not the intended interpretation of the wording and the evidence in the documentation that was provided to us during our work does not support the interpretation that Mr Gordhan knew of the rogue nature of this unit. Again, you’ll have all this.

We absolutely, recognise and regret the impact that has had but we can also be very clear that there was utterly no political motivation or intent to mislead in those words. The partner, as we’ve mentioned in our previous media statement, the partner who actually was responsible for this project no longer works for our firm but given the fact that we did not apply our own risk management and quality controls the part of our report, which refers to the conclusions, recommendations, and legal opinions, should no longer be relied on.

We have contacted SARS and we have, because of this, we have offered to repay the fees we received for the work that we performed. We’ve also offered alternatively, that we would make a donation to charity for that amount. It’s important also, to say that this happened a reasonable time ago and since then, our friends and practice has made a number of changes to the way we operate and these will be detailed in the report as well later. That’s the SARS matter.

In terms of the Guptas what I’m going to do is cover enforce actions. I’m going to talk about the audit work we did. I’m going to talk about tax work we did, advisory work we did, and then I’m going to talk about our overall relationship with the Guptas and why we were associated with them so long.

In terms of audit – we audited a number of entities, as you know, and what is evident from our investigation is that the audit work, (in certain instances), including Linkway, fell well-short of the quality that we expect. That the audit teams, in instances, failed to apply sufficient professional scepticism and fully comply with auditing standards. But to be really clear, despite the deficiencies in the audit work we’ve had absolutely no evidence of dishonesty, unethical behaviour, any knowledge of money laundering. What is also very clear from our work is that during the course of our interactions with the Guptas and their audits that they misled us and responded to team’s enquiries in a way that was not correct.

So, we take a lot of lessons from this and we’re working very actively to understand all of the root causes and to ensure that we take every step to improve audit quality and risk management processes. What I want to be clear of though is that this is not the standard that you can find through our firm. We have a lot of control processes in place that give us significant comfort over the quality of our work through our firm. This was not KPMG. This is not what we expect, and this is not what we accept and that is why there are other consequences here today.

A lot has been said about our wedding attendance and whether this was an independence breach. We fully understand the criticism of our four partners attending the wedding, and we fully accept that our partners should not have attended the wedding but what we can also tell you is that there was no breach of any independence rules in that.

If I move onto tax – one of the main allegations that’s been levelled at KPMG is that it was involved or complicit in tax evasion or corruption by the Guptas and their entities. In particular there’s been a lot of focus on tax advice given to Gupta entities, involving offshore structures. As part of this we’ve done a lot of our own work but we’ve also sought independent advice from Peter Solomon, who’s a respected tax silk here, in SA, and we were very specific to ask whether there was any evidence that we had acted unlawfully or improperly in any respect in giving advice on these offshore structures. There are those quotes from Peter Solomon in the media pack but I can tell you that he said, ‘it is clear KPMG did not act unlawfully or improperly in giving advice. I’ve not seen anything, which constitutes of KPMG advising its clients to partake in any form of tax evasion, or even hinted at this possibility.’

What we do see, in terms of the tax work that we’ve done, is that when you’re giving tax advice…We did tax advice in a number of respects and the way tax advice works is that the client tells you a set of facts and you give advice based on those set of facts. What we can see now, based on the GuptaLeaks, etc, is that some of the facts that they represented to us, (when they asked us for advice), may well have been incorrect. Therefore, to the extent that the fact pattern was incorrect that can also mean that the advice that we gave to them was incorrect.

So, again, the majority of the tax services. I dealt specifically with the offshore work but the majority of the tax services we provided to the Guptas were very routine, tax compliance work. We’re very comfortable that these were of an absolutely normal, professional quality and consistent with our standards and processes.

If I move onto advisory work. There’s two main themes that seem to come up in allegations. The first is around the Oakbay listing and the question as to whether we were responsible for the valuation of the listed entity of Oakbay Resources and Energy Limited. We need to be just incredibly clear here and maybe Gary, you can help me just in terms of what is the role of an auditor and what is the role of a competent person in this case. The bottom line is that our role was never and never would have been to value this entity. Our role was to audit the entity and ensure that the financial statements, included in the listing document are correct.

GARY PICKERING: That’s correct.

We had absolutely no role in the valuation. That is absolutely consistent with normal practice. The second matter that we get questioned a lot on is the Optimum deal and this is about the Guptas looking to buy the Optimum mine from Glencore. What I can tell you is that we did provide limited transaction support to the Guptas, in connection with their interest in buying this mine. These services included approaching Glencore to understand if there was interest and assisting in early negotiations with the business rescue practitioners, who’d been appointed by Glencore.

We also built and helped, in terms of certain financial modelling around the transaction but if we compare our role on this deal, compared with our role as we often work for our clients. Our role here was much more limited, we were much more of a doer. We were not really taken in as a trusted advisor and at the centre of this transaction. We did also do some limited financial and tax due diligence services. As well as some legal assistance, in terms of reviewing share purchase agreements. To be really clear, because it comes up a lot, we did not provide any advice in connection with the raising of funds for this transaction. That was not something we were involved in at all.

As the transaction progressed, as I said, often we would be very central and very much at the heart of the transaction but as the transaction progressed the representatives of the Guptas were increasingly taking commercial decisions in the absence of us. We were not at the heart of this deal. We were not always made aware of the details of these discussions but it is important to note and it an important part of our findings is that during the course of this engagement we did become aware of information, which put into question the integrity of the Guptas and we believe that this information, (it’s a red flag if you like), was not adequately dealt with by senior leaders in the firm and was not taken into account properly in determining whether we should continue to work for this client. But again, I want to be really clear, we did not find any evidence at all in this work or any participation of our partners or staff in illegal activities or corruption.

If we talk more generally about why were we associated with this client for so long, and I think that’s been quite central to a lot of the allegations and concerns. Our firm has a requirement that annually we reassess our clients, as to whether we want to continue working with them. Actually, we do that even more frequently if there’s significant events or matters that come to our attention. What we can say is that in relation to the Guptas over a number of years our processes, in terms of considering whether we should work with this client, lacked the necessary rigour, which presented us from ceasing work from an earlier date. As we look back there were many moments we can see where we could have made a different decision. Our processes lacked the rigour and very unfortunately, we stayed with those clients for far too long and that is something that we deeply regret.

We’re making a lot of changes, as a result of this, to how we accept clients and how we continue with clients to make sure that this can’t happen again. I think the whole firm regrets that we have been associated with this family. To make clear as well, to the extent that we have any reporting obligations because of our work with the Guptas. We can confirm that we have made sure that we have fully complied.

In terms of the Guptas as well, I mentioned earlier that the fee for SARS we will offer back to SARS but in terms of the Guptas, we feel it’s right that we give back the money we earned to society, and Nhlamu will maybe say a little bit more about what we’re going to do there. I’ll maybe stop there. Those are really the main findings of the report. I hope you can see we have taken a pretty rigorous view here. That we have gone to the heart of issues that are very disappointing for us. That we believe that by owning our mistakes and being absolutely honest about what has happened that we can take the steps now to make sure that these things never happen again in our firm.

I mentioned that we have a new CEO but maybe this will be…

GARY PICKERING: Can I, on behalf of the board, just confirm that we fully accepted the recommendation.

Nhlamulo Dlomu has been appointed to succeed Trevor Hoole as KPMG SA CEO.

NHLAMU DLOMU: Thank you, perhaps I should say a few words. Thank you for coming. We recognise the difficulty of being in this situation. Not just as a firm but as SA. KPMG in SA employs around 3,400 people who have felt the impact as citizens, as staff members, and we are actually having to admit to our mistakes, and work out what this new plan is. How to correct those mistakes so, I’m going to talk a little bit about that but before I go there, I just want to confirm and thank our international colleagues for the rigour within which they did this work. I know that a lot of times we have been asked, ‘how far is the process?’ ‘Why aren’t we releasing anything?’

We pride ourselves in seeking facts and we understand that sometimes that can feel like we are not taking responsibility so, we have spent time. I am confident that the results that we’ve gotten out of the investigation are rich and the actions that have been taken are the right actions, and the board supports that as well. Now, given that I’ve had 48 hours (less than that) to digest my new role, I also recognise that there is time required on my side to really reflect on our focus in what we’ll be doing. When I say, ‘time required,’ I’m not talking about months and years. I’m really talking about days and spending time thinking about the new leadership team.

We have already confirmed, and I’m glad to say, Andrew, (sitting on my left) will be our interim COO for 3 – 6 months, until we find somebody internationally, who will be here full-time. We are also talking to our global colleagues and we will be bringing in a chief risk officer from our international network. The reason why we are doing that is we are being supported by international, going forward, and we certainly do need that type of support from the investigative results that we’ve seen.

Just in terms of what we need to be thinking of, and what we invest in time in terms of changes, and I’m going to highlight them. You’ll find a lot of what I’m talking about in the media statement. We’re working on our governance processes and I think it’s important to note that as a firm we do need to follow the generally, accepted practices, such as King IV. We are looking at issues such as separating roles so that we fully give attention to the areas that we found lacking and, in terms of paying back money and what we do with those kinds of issues. We haven’t made the final decision but the board is considering how we actually invest in the courses for ourselves, recognising that we have to stay appropriate for the country that we live in, so we’re debating a number of those opportunities. We have, over time, invested a lot in NGOs, and we’ve got an active Citizenship Program. We will look to that and we will actually, inform you of how that funding would be managed. I think that is all I can say for now, truly, because I still need to digest a lot of the findings and I need a little bit of time to do that.

GARY PICKERING: Just a point of clarity and just the point made around the board. I think we fully accept the findings and recommendations by KPMGI, just to be clear (findings and regulations).

GRAHAM – SUNDAY TIMES: In terms of the board’s and the investigations findings, are people going to be disciplined? Why did it take KPMG so long to do the review after the Public Protector’s report? I mean, it’s more than a year that the Public Protector’s report has been out. The business rescue people or practitioners, they made criminal charges or opened a criminal complaint with the Hawks around the PCCA (Prevention of Combating Corruption Act) – we are now looking at it a year later. Why has it taken KPMG so long to act? Will KPMG be laying criminal charges against its staff who have been found to have been involved in these irregularities with the Hawks?

Let me try and answer what I can of that. The first thing to say is that I think you missed the beginning, where we outlined what changes we are making, in terms of leadership with the firm. I think when you hear those and you understand those, you will see that those are significant changes and those reflect the fact that we’re simply not satisfied with the way things have been handled. The reality is we’ve been too soft and we are admitting that and we’re saying that we’re now taking the action we need to take.

Why no arrests, Hawks? More of Zapiro’s magic available at www.zapiro.com.

That action, will it include discipline against those staff members?

We will take the absolutely appropriate action.

I’ve got three questions. I’m from Business Day. I would like to know, how much did you make in total, from the Gupta’s transactions? In terms of the regulatory filings you alluded to, does that include the Hawks and the NPA? Which authorities are those and is it IRBA as well, because they’ve got an ongoing investigation, and have you been in touch with Mr Gordhan to communicate the misinterpretations of the KPMG report, with regard to SARS?

When you said about the fees did you mean the overall amount?

Yes, because you said you were going to pay back the money that you made from the Gupta’s interactions with KPMG so, how much was it, in totality?

GARY PICKERING: Okay, we’re still confirming the exact amount. You’ll see it in our media statement.

Question two was the regulatory filings that you’ve made, was it to IRBA, is it to the Hawks, NPA?

SUSAN WELLS: We have and will comply with all reporting obligations perhaps required by applicable law in relation, and our professional standards. That will include a range of regulations. We’re not really in a position to tell you what reports we’ve made for various reasons. As you can appreciate, some of the reporting obligations you can’t, as a matter of law, disclose what you’ve reported or the fact that you’ve made a report. But we can confirm that we have and will comply with all reporting obligations that we have as a matter of law, as well as our professional standards. I think we’ll also, and we have said that with IRBA and in particular in relation to the investigations that they are going.

We will be very open with IRBA in terms of what we’ve found in our review of our report.

I think it’s also important, and I think you missed it at the beginning, our investigation did not identify any evidence of illegal behaviour or corruption by KPMG partners or staff.

We’ve had a look at emails and you can see there’s communications between various people, from Jacques Wessels, warnings from internal or your own staff saying that what you are about to do is illegal. Have you seen those emails and have you reviewed those emails, given your own internal staff’s warnings around Linkway, around Sun City, and around various other accounts that there was illegal activity taking place?

Can you show us exactly those and we’ll respond case-by-case?

Those are public emails.

But I think it would be easier if we talk about specific instances because there’s been a lot of things raised with us, which are very easily explainable and are clearly not illegal, and not even remotely. So, I think what would be useful, and we’re more than happy to do it, if you get the list of emails and we’ll go through them with you. We really do want to clear this up but I think to give a general answer to that would probably meaningless.

Do you also believe that once you’ve read the statement you will be able to get some of the detailed information that you won’t get just from that conversation?

Pravin Gordhan, South Africa’s former finance minister. Photographer: Jason Alden/Bloomberg

Okay, and the third question was about Gordhan. Have you been in touch with him to communicate?

No.

Will you making contact with him?

Our report is for the SARS agency and we’ve explained that we’ve gone back to explain the results of our investigation and what that means, in terms of what we think and if that’s the appropriate step.

Sorry to go over this question again. Are you cooperating or have you been in talks, at least, with the business practitioners about their criminal complaint that they opened up with the Hawks, to see if you can possibly assist or provide any assistance, in terms of their complaints?

I think what we can say is, we’ve complied with all of our obligations and stand ready to cooperate in any way we can.

In terms of any of these financial transactions that may have been transnational so, with the USA, with the UK, and in terms of looking at the foreign corruption act in the US, and the various anti-bribery legislation in the UK. Are you cooperating with authorities in different countries?

Again, what I would say is we’re complying with all of our obligations.

With the Oakbay valuation the Guptas often referred to an unqualified audit opinion from KPMG to justify the valuation. Can you just explain to me what that is about?

GARY PICKERING: I can’t comment on that.

Why, because you don’t know about it?

GARY PICKERING: No, just share a bit more…I’m not…Yes.

Revealed! Taxpayers picked up tab for THAT big fat Gupta wedding – guided by KPMG. More magic available at www.zapiro.com.

Well, just from general reports. The Guptas would always say that they received an unqualified audit opinion from KPMG, and that it’s fair that… And that was the explanation.

GARY PICKERING: Yes, look, all I can say is that the work that we did was limited to the audit opinions in respect of the historic information, the reporting incumbents work, which is done.

The valuation of the company is not done by KPMG. It’s done by the competent person. It’s looking at a variety of things. It’s not just looking at financial statements so, the value is placed on the company. It does not come from us.

The corporate advisor and competent person is responsible valuing the company.

This is a mining company. I’m not a huge mining expert but you look way beyond what is in your financial statements and you look at what are the likely cash flows coming from this mine over time so, it’s a very different valuation model. That is not something that we do.

So, I refer you to the pre-listing statement, which is a public document and within that pre-listing statement you’ll find reference and the actual person’s report (valuation report), which is in terms, specifically as a requirement for mineral companies – company listing section 12, listing requirements. That will be in our media statement too.

Okay so, we accept then that there’s no evidence of corruption but then there’s so many instances you found lacking rigour but then you also say that’s not exemplary of KPMG’s work. Those things don’t gel. How is one supposed to think that it only happened in these instances?

To be really clear. The Guptas were not a huge client for KPMG. It’s a relatively small client. There’s a lot of circumstances around that so, this was not reflective in any way of the standards and processes that we have around the rest of the firm. Why am I confident about that? It’s because we have many other review processes that are independently driven. That look at our compliance and look at our quality and those all show us that the behaviours here are very much out of line with everything else we’ve seen. But let me be clear, we got it wrong and let me also be clear that we will be doing more, going forward, in terms of our processes to make sure that even these types of cases cannot be used because bluntly, the whole firm feels terrible about the fact that we did business with this company so long.

Well, then just clarify why was it so out of line with anything else you see?

Because there are… I mean, which aspects? Whether we remained with the company or their audits?

With the Guptas generally, with these clients? Why did you persist in these instances?

I think it’s the fact that this was a relatively small company or a small client for us and the engagement partner did not correctly understand and reflect the risks and this did not get picked up through our other controls at various places. With what we’ve done as part of this is we’re instituting an absolutely full review again, of our whole portfolio. Looking through all of the decisions that we’re making about our clients and again, it gives me comfort that this is not a systematic issue. But for sure, as we take our new lens and we go through our portfolio – I’m very sure there will be other decisions that we’ll be making with that new lens, in terms of our portfolio and who we work with.

Who’s the engagement partner?

Jacques Wessels and, as we’ve said, we have taken action against him.

And in terms of Mr Muhammad Saloojee?

Yes, and that’s not because of any issues with our tax (and we can bring you up to speed).

That has been clear.

SARSCan I just check, in terms of the SARS report? Is the entire report being withdrawn or just a section of it, or just the findings and recommendations?

SUSAN WELLS: It will be clear in our statement. It is the sections, which deal with legal opinions, recommendations, and conclusions. As a result of the failings in our quality and risk management controls we feel that those sections should no longer be relied upon.

Can I just check with regard to Estina, have you audited Estina as well or was it only Linkway?

We have absolutely nothing. No contact at all.

Only on Linkway?

Estina is up here somewhere, and Linkway is down here somewhere.

In terms of?

It is not anything part of the universe that we were auditing.

In terms of money flow, it’s not within the same structure.

Estina was never part of the work that KPMG was involved with.

Remember, it went from the Free State to Estina. From Estina to another company in Dubai. From that Dubai company to Active Investments, also in Dubai, and then into Linkway. So, the only company out of all of those, including Free State Government, that we had anything to do with was Linkway. We didn’t touch any of the other companies.

All our people would ever see is money coming into Linkway, having no idea where that money came from or the fact that money came through Estina.

GARY PICKERING: We were not the appointed auditors of any of those companies. So, we must be very clear on that.

In terms of this, and I’m coming at this from a very novice perspective, but you’re auditing Linkway, right. You see monies coming in – do you or are there any regulations that require you to engage with auditors of other companies, from where the money is coming?

No.

So, you don’t have to speak to another company if there are concerns that have been raised or anything like that by your own auditors?

No, if you think of any company – it’s got money coming in all the time. You audit money coming in by looking at underlying invoices and contracts and bank statements. That’s how you audit it. Of course, if you suspect that there is something untoward with that money then you should ask questions but in the normal course of business you’re not confirming with the auditor of another company about money coming in. That’s just not what you do.

Can I just check on that point?

Yes.

When you say you would audit by looking at invoices, what were the others?

Contracts, enquiry of…

If one looks at the Guptas bank accounts, which obviously over the last few weeks we’ve seen a lot of. I don’t know how anyone could have opened one bank statement for one month for one company in one year, and not spotted a massive problem. I mean, there is money spinning through those accounts that makes no commercial sense.

In which companies again?

In any company that one picks in the Gupta stable. We’ve never even seen things like that. We don’t even know what we’re looking at but it certainly won’t raise a lot of questions to us about whether or not… I mean, sometimes you’ll have a payment, a R10 million payment that cycles through the accounts and lands up back where it started. I wonder when the audit is done are those things being checked because it’s hard to imagine how a payment that gets moved twenty times in one succession, and ends up back where it started and in exactly the same denomination that it started.

Right down to the literal cents.

How that can really have contracts in place and invoices to justify each of those moves?

Well, I think it would be helpful if you could show us what you’re talking about and we can explain because I think there are things within, as we’ve looked through and done an independent review of this. There are transactions where we think there was a lack of professional scepticism. We should have asked more questions, for sure, but that’s not every day. There were some and they were significant, and we believe that our professional scepticism was lacking in those but again, it was not that there was evidence of money laundering but there was just questions about some of the explanations and the commercial substance. But it would be really helpful to clear this up. If you could show us what your concerns are and we can try and explain if that is something that we are aware of and can explain. Or if it’s something that we’ve already got concerns about or if it’s something new that we need to understand. We’d really like to do that.

The logo of KPMG International is displayed during the 21st World Energy Congress in Montreal, Quebec, Canada. Photographer: Andrew Harrer/Bloomberg

Sure, that would be incredibly helpful for us because I think there’s really…It’s hard to understand the commercial logic, with which money spins through these accounts and if KPMG has understood what the reason would be then I think that would really help. If we can sit and show you those.

I think there’s a couple of things that I’ve seen myself. One is that the universe we were exposed to, does not include a huge amount of these entities that are now being mentioned so, it depends a little bit about which companies we’re talking about? Whether these transactions were ones that we actually saw or didn’t see but if you talk about the companies that we did see. This was a group of a lot of companies and they were moving amounts within the group, which if you look at it from one angle, it’s quite difficult to understand but when you look overall, you can understand. So, there’s a whole mixture of things but I really think it would be helpful and we would really appreciate to go through that with you and try and figure it out.

Sure, I’m not sure if KPMG has ever disclosed the list of which companies it is so that, then we can go and pull that information according to the companies that you would have insight to.

Listen, I think we can share that with you. I don’t have a problem with that.

If you can just tell us which ones?

Yes, it’s around 30 or 36 companies.

But look, it’s not accurate. Those are not in our stable at all. Those are not things we saw but really, we would appreciate that chance.

Sure, then just in terms of – you had mentioned ‘red flags’ that had been spotted. Was this about the integrity of the Guptas? Perhaps if you could just elaborate on what that was?

There were various red flags over time I think, and I talk about things like the plane landing to some of these transactions where we could have had more professional scepticism to rumours and thinking should we have done more to follow up on rumours? If we look over the history and of course, you have the benefit of hindsight but as we look and try and put ourselves back in those positions – we really believe we could done more at those points. But in terms of your specific question around the…What was your question around?

You had said that there was specifically a red flag that had been raised during Optimum, I think you were talking about 2015.

Yes, so during that transaction there were certain discussions that were had. Things that we picked up, I would say, that really should have caused us to question the integrity of the Guptas, and those things just did not get dealt with appropriately.

Can you just give us a sense of what that is?

I would love to but I think we are really, limited in terms of what we can say here because of some of the things we’ve said before, about reporting publications, etcetera. These are things that we’ve made sure that we’ve acted responsibly on now but what I can say is that I think at the time these things should have prompted us to think about whether we wanted to be associated with these people.

In terms of the staff that were involved, Jacques Wessels, have they given you an explanation as to (a) why they received and the basis for which the gifts they received and (b) have they given you an explanation as to why they did what they did?

They’ve fully cooperated with us. Again, we have no reason to think that they did anything illegal or corrupt. That they were trying in the spirit and the rule to follow the independence. They were trying to follow all of our rules and processes, in terms of independence. We failed, but I think that, as I say, we lacked, regularly lacked professional scepticism but we were not doing something ‘wrong.’

Are they saying they didn’t set out to do any wrong doing?

Absolutely not.

It just happened to have happened?

Again, let’s be really clear. There’s no evidence that we did something illegal or something corrupt or anything else. There’s absolutely no evidence whatsoever but did we display the right professional scepticism as auditors, in certain cases. Did we apply the right rigour, in terms of thinking, ‘should we be working for them?’ Those are failings of a very different nature, from setting out to aid and abet. We did a lot of work for this company but we were doers. We would provide tax advice, audit this company and whatever. We were not master strategists and involved in helping them do things that we thought were wrong. The mistake, the big mistake we made was being associated with them.

In terms of those who, inadvertently, landed up doing what they did. Have any of them offered to resign?

Again, if you missed the beginning. We have 9 people leaving our firm today and again, we just came from a very emotional meeting with our partners where we explained.

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