From the Editor’s Desk: Peter Hain, Paul O’Sullivan gunning for fresh UK Zuptoid corruption targets

DUBLIN – As Pravin Gordhan leads the charge against corruption at SOEs, attention is turning to the criminal justice system. Alec Hogg and Felicity Duncan discuss how anti-corruption crusaders Peter Hain and Paul O’Sullivan are gunning for fresh UK targets and how consumers can flex their muscles in the fight against corruption. They catch up on Mandy Wiener’s new book on misbehaviour among the police and ask whether UK accounting firms should be split up to promote competition. – Felicity Duncan

Hello, and welcome to this week’s episode of From the Editor’s Desk. I’m Felicity Duncan, the editor of the Premium Section here at BizNews and with me on the line is Alec Hogg, the editor-in-chief. Alec, you had some interesting discussions last night. Do you want to fill us in a little bit about what we can look forward to in the Rational Perspective coming up?

It was a fascinating interview. If you go back a few months, the two higher profile, I won’t say the highest but they certainly have been very much in the forefront of the attack on state capture in South Africa, Paul O’Sullivan, the forensic investigator, and Lord Peter Hain, who’s been using The House of Lords in the UK and his very esteemed political pedigree to highlight issues like the money laundering through HSBC by the Guptas – the farm at Vrede in the Free State that the Guptas used as a vehicle to steal public money. Paul O’Sullivan has been going hammer and tongs at the Criminal Justice System. But both of them now are focussing on Hogan Lovells.

Paul O’Sullivan

Now, Hogan Lovells is a global legal firm who’ve got a big operation in SA. A little bit like what happened with KPMG and McKinsey, Hogan Lovells is being accused of being the ‘go to’ law firm for the crooks within the South African state. In other words, those who captured the State, that they could use the law to defend themselves and to attack their opponents in the whole process, as we went forward. So, O’Sullivan and Hain are coming at them from different sides and have now combined forces to say, they actually want to put this company out of business in SA and wound it deeply in other parts of the world. In the same way as KPMG and McKinsey, and SAP, and of course, the late but not lamented Bell Pottinger, have been victims of what they did during the whole Zupta-era.

Yes, it’s quite startling really how many British companies… law-firms, and so forth, have actually been involved in the Gupta scandal. I mean, I’ve been surprised at the extent to which they’ve had their fingers in these pies.

It’s a big reputational issue that they did not really regard as too important up until now. We had a situation with a British legal firm called Schindlers, who represented Bell Pottinger and the Guptas, and threatened us at BizNews a few years ago. We took them to the Solicitor’s Regulatory Authority here, in London, and I got a very fobbed-off kind of response from them: in essence, that this was their client and ‘go to hell’ kind of thing. We, as lawyers, will defend any clients we want to.

Paul O’Sullivan of Forensics for Justice meets with the UK’s Lord Peter Hain, to brief him on systemic corruption and State Capture in South Africa, with a particular focus on the links between Dudu Myeni, Jacob Zuma and the Guptas.

Well, that’s the approach that all the legal-firms and many professional firms have had, but Peter Hain is trying to change that and so is Paul O’Sullivan. So, in many ways, it’s a bit of a test case, what goes on with Hogan Lovells. If they do see the reputational damage as relevant, if they do apologise or, at the very least, say that they did act on behalf of people they should have thought twice about – that will give pause for thought for others. If they get away with it scot-free… well, it will be business as usual.

Yes, that’s very interesting. On the one hand, we can, as voters, people can push to replace politicians that are corrupt. Then on the other hand, as you say, through our leverage as consumers, we can push the private sector actors who are involved in corruption to behave better. So, we can kind of come at it in two ways, as citizens.

Yes, reputational risk is a hugely underestimated risk of doing business. When the Tiger Brand’s listeriosis scandal hit, I pulled out their latest annual report and of the ten risks that they listed, and remember this is a food company, number ten on the list as quality of the product, and that’s horrific, and of course, after the listeriosis and at the last count, 191 people died because of what Tiger Brands was giving them to eat, to be only number 10 on your list… Felicity, it was actually appalling because at number seven or six, I think, was a decline in profit from associate companies. Now, how can you put that as a higher risk than your actual product, which people are consuming on the basis that they’re hungry and they trust that it isn’t going to make them sick, let alone kill them? So, there’s a lot of these old industrial-age approaches to businesses that are still ingrained in the system, and slowly those residues are being washed out.

The legal fraternity though is not quite there. Clearly Hogan Lovells, the people there haven’t quite come to terms with this, but here, in the UK, we are seeing the accounting companies getting into very, very hot water now. And the latest thing that’s happened is the Carillion  – the big, £7bn liquidation – where there were four accounting firms that were involved and the MPs in the British Parliament are saying this is a very good example of why they should be broken up and they should be made smaller, because these four are acting as a cartel and they do not do what they’re supposed to be, which is watchdogs for society, and stakeholders, and shareholders. They seem to be quite cosy, too cosy with the companies that they’re dealing with. The pressure here, in the UK, could flow over to other parts of the world and, who knows, in South Africa, it might not be just KPMG that is seeing its business under threat, but the other members of the Big Four as well.

A sign for KPMG sits outside a building in Chicago, Illinois. Photographer: Tannen Maury/Bloomberg News

Yes, the KPMG story, the story of the Big Four in the UK is very interesting. So, today I believe it was the chair of KPMG admitted, yes, this industry is an oligopoly. We do have that type of structure and that’s creating problems and bad incentives. But I think it’s complicated because on the one hand there’re these problems of competition, but then there’s also, separately, problems of conflicts of interests because these accounting firms don’t just do the audits. They are also consultants, and so, they are hesitant to call foul when they see problems if that’s going jeopardise their consulting revenue. So, it’s a very complicated problem.

And we don’t learn from history, do we? When Enron collapsed and Anderson died as a consequence of that, there were all kinds of recriminations, and promises, and changes. But give it a couple of years and those get forgotten and it’s back to business as usual. We’re seeing this happening increasingly now that the pressure is being brought to bear by the public, who are saying it’s too many now – it’s just too much and the system doesn’t work. It is broken, it needs to be fixed. Who knows, perhaps this time round something relevant will happen.

I spoke to the investigative journalist, Mandy Wiener earlier this week. She has a new book out called Ministry of Crime looking at corruption in the criminal justice system and among the police. And one of the things that she said is, as citizens we need to be constantly vigilant. We need to be giving time, giving energy, giving resources to monitoring issues of corruption and to taking action about it, because without our constant vigilance these things are just going to keep happening, and it’s going to be a cycle.

Mandy is so right, isn’t she, Felicity, because as citizens there are other responsibilities that come with living in a civilised society, and often those responsibilities just get abdicated to the organisation or the body that you believe should be looking after this. They can’t, it’s impossible, as Steinhoff showed us. When you have a criminal in the system, unless somebody, somewhere waves the flag or blows the whistle the outsiders, who are supposed to be the policemen, in this case, Deloitte, have no chance of discovering what is really going on. Then shareholders lose and society loses – if each of us doesn’t play that role.

Investigative journalist Mandy Weiner. Photo by Lisa Skinner/SKINNDERELLA

Now, we as journalists have been trained to do this. That’s what we do – that’s our game. We take enormous risks by exposing criminals and sociopaths and, in Mandy’s case, psychopaths, who could, very comfortably and very easily come after her and put her own personal security in danger. But she does it because that’s what drives her.

In society, things are changing so that people or citizens can no longer just abdicate that responsibility to the Mandy Wieners of this world. They also need to get involved. We all need to get involved and that will build a better society.

I think it’s a bit like what Cyril Ramaphosa is trying to instil into South Africans, what Nelson Mandela instilled in South Africans. Send me, he says, citizens tell me – send me. Or, as Mandela said, ‘Let’s build a Rainbow Nation together – let’s all pull in the same direction.’ But when you get an un-cohesive society, nation-building is impossible.

Absolutely, and you mentioned Ramaphosa there. I mean, this week we’ve seen some more action coming out of the new administration. Pravin Gordhan has been taking a bit of a machete to state-owned enterprises in the clean-up efforts. So, it’s encouraging to see that happening.

It is very encouraging. Cyril has got the three priorities that he articulated in Davos. The one is to fix up state-owned enterprises, and there he’s had a pretty free hand and he’s put his bulldog, if you like, in Pravin Gordhan, onto that issue. And the former finance minister, who is now the Minister of Public Enterprises, is doing a fabulous job in addressing exactly that.

Cyril Ramaphosa speaking during the Session “CST South Africa” at the Annual Meeting 2018 of the World Economic Forum in Davos, January 24, 2018. Copyright by World Economic Forum / Greg Beadle

The second one was policy certainty and he’s moved, where he can, as quickly, or in fact, much faster than he might have anticipated, on things like the Mineral and Petroleum Resources Development Act, the MPRDA, where we’ve seen just in this last week Total saying they’re coming back to South Africa. Now, that’s relevant because Total stopped drilling off the East-Coast because of the confusion over the MPRDA.

We are expecting that it won’t be too long before Shell takes a similar reassessment of the huge shale gas reserves that exist in the Karoo, at least the eighth-biggest in the world, which could transform SA’s economy if what is believed to be there is there, but they need policy certainty too. So, two out of three.

The third one that Ramaphosa said in Davos he would be attacking is corruption, and there we have been blocked. There the processes are going through the criminal justice system. The criminal justice system, says Paul O’Sullivan and Peter Hain, is still run but the Zuptoids but the Courts will sort that out in time.

So, to me, two out of three is not bad. Three out of three is needed, though, to really give SA the rocket fuel that it needs to start making the economy grow at a reasonable level, or at least at a level that can start biting into that unemployment.