JOHANNESBURG — As the local arms of KPMG, McKinsey and SAP to an extent, feel the heat from their global counterparts, and Bell Pottinger freefalls into administration, the Zuptoid appointees who helped facilitate the various forms of State Capture, walk Jakkie Cilliers’ line: ‘The Republic of No Consequences’. The glaring deficiency here, private sector’s internal accountability against the public sector’s lack thereof. And if government’s role is to create the environment in which business operates, then corruption is likely to continue on this downward spiral. Government has the ability to right this wrong, but it will take a monumental effort as the Zuptoid connections run deep. And if one falls the domino effect could see them all fall. So while the National Prosecuting Authority sits on its hands, forensic investigator Paul O’Sullivan says we’ll see the first arrest by Christmas. A move which could see South Africa’s annus horribilis morph into annus mirabilis. – Stuart Lowman
The scandal has revolved around members of the wealthy Gupta family, who are friends of President Jacob Zuma and have been accused of looting billions of rand in taxpayer funds and exerting undue influence over the state. Accountants KPMG LLP, public relations firm Bell Pottinger LLP, consultancy McKinsey & Co. and software company SAP SE are among the companies that have been implicated in facilitating, being party to or turning a blind eye to their deals. Zuma and the Guptas deny wrongdoing.
Eight top executives at KPMG’s South African office have quit, Bell Pottinger has collapsed and McKinsey and SAP have suspended or put staff on leave and initiated internal probes. Yet South African authorities haven’t arrested or prosecuted anyone despite the nation’s graft ombudsman and the local media highlighting numerous allegations of wrongdoing.
The scandal’s most telling damage has been to the reputation of the state, the presidency and the ruling African National Congress. Zuma is challenging a directive issued 10 months ago by the ombudsman for the chief justice to establish a judicial commission to probe the allegations and hasn’t followed through on a pledge to set up his own inquiry. While parliament has told four parliamentary committees to conduct probes, only one has scheduled public hearings that are due to begin next week.
“While there is an elaborate regulatory framework and constitution in place to keep the state in check, in practice we have seen that circumvented and not responded to,” Jay Kruuse, the director of the Public Service Accountability Monitor at Rhodes University in the southern town of Grahamstown, said by phone. “The checks and balances in the state have been progressively weakened. Investigations drag on and on. It’s a consequence of a failure in leadership across the board.”
The Guptas and Zuma have one basic thing in common, they are destructive to anyone they have dealings with.
— GibraltarZA (@GibraltarZA) September 19, 2017
Power struggles and a lack of leadership within the investigative agencies may be contributing to the inaction. The police and its elite anti-corruption police unit known as the Hawks both have acting leaders, while the chief prosecutor has been accused by opposition parties and civil-rights groups of being politically aligned to Zuma and his allies.
The allegations leveled against the Guptas include offering cabinet posts to officials in exchange for business concessions with Zuma’s consent, using their political clout to get allies appointed to the boards of state companies and diverting state funds meant to be used for a dairy farm to fund a family wedding.
Much of the detail of the family’s dealings emerged from thousands of their emails, which were leaked to the amaBhungane Centre for Investigative Journalism and Scorpio, the Daily Maverick news website’s investigative unit. While the family says the mails are fake, several cabinet ministers and other officials who were mentioned in some of the correspondence confirmed their authenticity.
Zuma is attending the United Nations general assembly in New York and his spokesman Bongani Ngqulunga didn’t answer a call to his mobile phone. Gary Naidoo, a spokesman for the Gupta family, didn’t immediately return a message seeking comment.
The National Prosecuting Authority says its investigations into the allegations against the Guptas and politicians and other senior officials are ongoing, and denies there have been undue delays in pressing charges.
“My silence does not mean that no work is being done,” chief prosecutor Shaun Abrahams told lawmakers in Cape Town on Sept. 6.
The Democratic Alliance, the main opposition party, has led calls for companies that dealt with the Guptas to be investigated and penalized. It filed a complaint against public relations firm Bell Pottinger for fostering racial divisions in South Africa with the main industry group in the U.K., which led to its expulsion and forced it into administration.
— Prof Thuli Madonsela (@ThuliMadonsela3) September 9, 2017
The DA has also requested that McKinsey’s domestic and U.S. representatives be called before lawmakers to explain some of the work it did with a Gupta-linked company for state-owned power utility Eskom Holdings SOC Ltd. and plans to request the U.S. Securities and Exchange Commission to investigate its behavior in South Africa. On Tuesday, the party laid charges of fraud, racketeering and collusion against the consultancy at a Cape Town police station.
Like McKinsey and SAP, KPMG ordered an internal inquiry after it was implicated in the leaked mails. The accounting firm’s probe found that the work it did for the Guptas fell “considerably short” of its auditing standards and criticized its role in advising a company controlled by the family on the acquisition of a coal mine from Glencore Plc in a transaction in which Mines Minister Mosebenzi Zwane has been accused of improperly intervening.
It also said four KPMG partners shouldn’t have attended the Gupta family wedding at the gambling resort of Sun City that was alleged to have been funded by taxpayers. KPMG employs 3,400 people in South Africa, according to Business Times newspaper. Barclays Africa Group Ltd. and Investec Plc have said they are considering ending their relationship with the audit firm. Sasfin Holdings Ltd., a financial-services company, said on Tuesday it replaced KPMG with Deloitte & Touche LLP as its independent sponsor and was seeking a new auditor.
Public and corporate governance go hand-in-hand and slippage will negatively affect the South Africa’s ability to attract foreign investment, said Russell Lamberti, a chief strategist at ETM Investment Services in Cape Town.
“If we maintain a corrupt government, it’s not going to be very easy for corporate South Africa to stay clean,” he said. “I don’t see signs of a systemic problem yet, but unless we clean up government then you can see how this starts to suck more people down with it.”