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17 December 2017 19:33 (South Africa)
South Africa

SARS Wars: KPMG report – the Firm, the Lawyers, the Auditor and the Blame Game

  • Marianne Thamm
    marianne-thamm.jpg
    Marianne Thamm
  • South Africa
Photo by Magnus Brath.

While KPMG SA might have withdrawn the findings and conclusions of a controversial “forensic” report into an alleged covert unit in SARS as well as offered to reimburse the R23-million it was paid to do the work, the saga is far from resolved. Now the man at the centre of the storm, former KPMG auditor Johan van der Walt, has spoken out and announced that he stands by the factual findings and also that rigorous oversight was performed and documented at every stage, contrary to KPMG SA’s claim. Van der Walt has also welcomed the announcement of an independent inquiry. KPMG SA too says it stands by the findings. But why then pay back the money? We try to make sense of it all. By MARIANNE THAMM.

The backdrop

In December 2014, three months after Tom Moyane had been appointed as the new commissioner of SARS by President Jacob Zuma, KPMG SA was appointed to undertake a documentary review of “evidence” and conduct a forensic report into allegations that a “covert unit” had existed within SARS and had spied on President Jacob Zuma and other politically connected individuals and had set up a brothel aimed at “infiltrating” the ANC.

By then the fallout from these allegations – published from August 2014 in a series of articles in the Sunday Times – had been devastating. Much later, in late March 2016, the Sunday Times was forced by the Press Ombud to retract all the articles as well as apologise to those named and implicated.

In September 2014, group executive Johan van Loggerenberg, who headed the High Risk Investigative Unit (HRIU), as it was known, was suspended, followed by Deputy Commissioner Ivan Pillay on 5 December 2014. This decision was later overturned by the Labour Court but Pillay still opted to resign in May 2015.

The suspensions of Pillay and Van Loggerenberg in 2014 were followed shortly afterwards by the exit of SARS strategic planning and risk head, Peter Richer and Pillay’s adviser Yolisa Pikie. Prior to this, spokesman Adrian Lackay had resigned as well as Clifford Collings, head of the anti-corruption unit.

The bloodletting would later continue well into 2015/16 as the Hawks, under the leadership of Major-General Berning Ntlemeza, acting on a vague charge lodged by Moyane in May 2015, would – unsuccessfully, it turned out – relentlessly hound former accidental finance minister Pravin Gordhan as well as Pillay and former SARS Commissioner Oupa Magashula.

That the witch hunt was politically motivated is evidenced by the ever moving target of alleged charges aimed at Gordhan. First it was the now infamous 27 questions sent by Ntlemeza to Gordhan in February 2016 relating to the “rogue unit” and then later charges of fraud relating to the early retirement of Pillay.

All the charges were later withdrawn by NPA head Shaun Abrahams when it became embarrassingly apparent that SARS had not provided, or the Hawks had not sought, an exculpatory memorandum by the hapless SARS lawyer Vlok Symington, who had signed off on Pillay’s legal early retirement.

Before the appointment of KPMG SA Forensic in December 2014, two panels, the Kanyane and the Sikhakhane, had been appointed – in July 2014 and September 2014 – by Pillay and former minister of finance Nhlanhla Nene respectively to initially investigate allegations against Van Loggerenberg that he had disclosed confidential tax information to Pretoria attorney, Belinda Walter, with whom he had had a relationship.

In May 2014, Walter – exposed later as a double agent for the State Security Agency as well as British American Tobacco – had alleged that Van Loggerenberg had revealed confidential tax information to her.

Later, Moyane had extended the mandate of the Sikhakhane panel from investigating these claims against Van Loggerenberg, to also include allegations that a “rogue unit” had existed within SARS.

These allegations had first surfaced in 2008 when former SARS undercover agent, Mike Peega, who had been fired after his arrest on charges of rhino poaching, complied an “intelligence dossier” setting out the core allegations that the unit was “rogue” and had targeted Zuma and his sympathisers in an operation titled “Project Sunday Evenings”.

The investigative unit had originally been established in 2007 (headed then by Andries “Skollie” Janse van Rensburg and later by Van Loggerenberg) and had comprised around 30 individuals who assisted SARS with high-risk tax, customs and counterfeit goods investigations. Those involved in its establishment, including Gordhan and former finance minister Trevor Manuel, have maintained that the investigative unit was legal and never covert in nature.

The Sikhakhane Commission, in its report handed in September 2014 to Moyane, had ultimately recommended a Presidential Commission of Inquiry.

However, “SARS did not follow the route of appointment of a Commission of Inquiry but appointed us to assist with the investigation,” then KPMG auditor Johan van Der Walt wrote as “background” to a draft of the KPMG report dated 3 September 2015 – a draft that was subsequently leaked to the media.

Van der Walt notes in the draft that “the KPMG team consisted of about 30 individuals who worked on the project until mid-January 2015. The team reviewed over 850,000 emails, imaged from 23 computer hard drives and considered in excess of 1.36-million documents including hard copy documents located onsite at SARS, during a search operation performed by us. Such a comprehensive exercise was necessary as the allegations are widespread and cover an extended period.”

The executive mandated by Moyane and SARS to liaise with Van Der Walt and KPMG was led by Jonas Makwakwa (now still on suspension after the FIC flagged suspicious payments amounting to around R1.2-million in cash into his and his girlfriend Kelly-Ann Elskie’s personal bank accounts).

KPMG’s investigation probed the period 2003 to January 2015.

On 26 January 2016, Johan van der Walt signed off the KPMG SARS report and handed it to Moyane with the proviso that it was not prepared for the resolution or disposition of any disputes or controversies thereto and is not to be disclosed, quoted or referenced, in whole or in part”.

[Watch: The SARS Rogue unit 9min explainer video]

The man in the middle – Johan van der Walt

On 15 September, 2017 KPMG International made an unexpected and far-reaching announcement that it was withdrawing the findings and conclusions of the report KPMG SA Forensic had completed for SARS at a cost of R23-million.

The announcement was made following revelations in the #GuptaLeaks of KPMG SA's involvement with several Gupta-linked businesses. Nine senior KPMG SA executives were culled and a new CEO, Nhlamu Dlomu, was appointed.

KPMG International in a statement said that “quality controls associated with the version of the report [SARS] dated 3 September 2015 were not performed to the standard we expect. Specifically, in this instance, our standards require a second partner to review the work done; however, the final deliverable of this work was not subjected to second partner review”.

KPMG International also stated that “the SARS report refers to legal opinions and legal conclusions as if they are opinions of KPMG South Africa. However, providing legal advice and expressing legal opinions was outside the mandate of KPMG South Africa and outside the professional expertise of those working on the engagement.”

Oddly, KPMG International did not conclude that any of the factual findings were incorrect or that Van der Walt, the team leader, or team members had acted in an “improper, inadequate or unprofessional” manner.

Van der Walt is now the man who stands between the fan and whatever it is that is about to hit it, and has spoken out for the first time, telling Daily Maverick that he stands by the factual findings of the SARS report and that he would defend these.

Van der Walt, speaking to Daily Maverick through an intermediary, said he welcomed the announcement by KPMG group chair John Veihmeyer on 22 September that the global auditing giant “would launch a full and independent investigation into the firm's dealings with the Gupta family as well as the SARS report”.

This investigation would be handled, said Veihmeyer, by “a senior South African legal figure who is completely independent of KPMG SA and KPMG International”. The firm was in “active discussions to identify a credible, senior, independent legal figure to lead the investigation”.

Given the significance of the issues involved in this matter to the country of South Africa, and the damage our actions have caused, the public deserves to know the full facts as quickly as possible. That includes not just what, but why they occurred. That is why there will be an independent investigation to provide the full and frank disclosure the South African public deserves,” said Veihmeyer.

Van der Walt, whose name has consistently featured in media reports surrounding the KPMG SARS report, has remained silent throughout. The reason for this, he says, is that he is bound by a confidentiality agreement with SARS with regard to his work on the “rogue unit” report.

But as it has become increasingly clear that he might end up under a bus currently speeding on South Africa’s political highway, Van der Walt is ready to talk, provided SARS releases him from his confidentiality agreement so that he can participate freely in the proposed independent inquiry.

Van der Walt has disputed the KPMG International statement that the SARS report was somehow deficient or had fallen short of standards, stating that rigorous risk oversight was indeed performed at all times and stages and that he has documentary evidence to this effect.

KPMG SA CEO, Nhlamu Dlomu, appointed after the haemorraging of at least nine senior staff members including Trevor Hoole in the aftermath of revelations of the firm’s work for Gupta-linked companies, was putting out raging fires in her first few weeks in the hot seat.

After meetings with and attempting to reassure significant clients including banks and providing media interviews, Dlomu also met with former SARS employees, spokesperson Adrian Lackay, former deputy Commissioner Ivan Pillay, strategic planning and risk group executive, Pete Richer, and former Special Adviser to Deputy Commissioner Pillay, Yolisa Pikie.

Gordhan and his former deputy, Mcebisi Jonas, too met a delegation from KPMG International including international chairperson John Veihmeyer and Dlomu on 22 September.

While Van der Walt had been attempting to arrange a meeting for several days since the KPMGI statement on Thursday 28 September, after a query by Daily Maverick, KPMG SA spokesperson, Nqubeko Sibiya, confirmed that “with reference to Johan van der Walt, I can confirm that he has requested a meeting with KPMG. We are liaising with his team to find a suitable time.”

According to Van der Walt, KPMG Forensic as well as the law firm Mashiane, Moodley and Monama were both mandated by SARS to conduct a documentary review. The law firm, maintains Van der Walt, would have handled the interviewing of witnesses.

In other words, there was a dual mandate.

The purpose of the review and collation of documentary evidence, says Van der Walt, was to place SARS management “in a better position taking decisions on possible disciplinary enquiries against some of its officials”.

Later, the KPMG forensic mandate had been extended to include a probe to establish whether an illegal or covert intelligence unit had been established within SARS and to explore the role of Gordhan, who had been commissioner at the time, and whether he had been aware of the existence of the unit.

Through an intermediary, Van der Walt pointed out that after the commencement of KPMG’s engagement with SARS in December 2014, several SARS officials “resigned and left the employ of SARS, at which point in time there was no KPMG report yet. The report was commissioned after the resignations of various SARS staff members.”

The conclusion then, based on this assertion by Van der Walt, is that none of those officials who left SARS had done so as a result of the KPMG report.

Van der Walt claims that the KPMG Forensic draft report, at the request of SARS, was shared with SARS’ law firm Mashiane Moodley Monama. It was during this process that it had been “leaked by a recipient to the media”.

The fact that the work KPMG forensic was doing for SARS was high profile and contentious, said Van der Walt through the intermediary, resulted in a “rigorous quality and risk management protocol” being followed.

The KPMG investigation had found that there was no direct evidence that Gordhan had knowledge of a covert or “rogue unit” but that “as the accounting officer he was by law deemed to have knowledge or ought to have had knowledge. It was recommended that the commissioner be interviewed and given the opportunity to make input.”

With regard to allegations that a legal opinion from SARS attorneys, Mashiane Moodley and Monama, had been copied and pasted into the report, Van der Walt pointed out that this was not the case.

An email trail between Van der Walt and MMM attorney David Maphakela, who signed off a memorandum to Van der Walt on 21 August 2015, refers specifically to the fact that the findings already existed in the report when it had been sent to the firm.

Van der Walt, through his intermediary, addressed several other allegations, particularly that KPMG had not disclosed that the firm had been appointed as the auditors for British American Tobacco (BAT) which featured in the “rogue unit” allegations through the involvement of Walter – the SSA/NIA BAT spy.

Van der Walt said that when KPMG Forensic had been mandated by SARS in December 2014 (the engagement having been negotiated by Herman de Beer for KPMG with Ivan Pillay of SARS) and when it conducted the investigation, KPMG had not yet been appointed as the auditors of BAT.

It is important also to bear in mind that it was Johan van der Walt and KPMG who, in 2003, prepared, for the NPA, a forensic report into allegations of fraud by President Zuma’s financial adviser Shabir Shaik. This was later extended to include Zuma after Shaik’s conviction in 2005.

Van der Walt’s name will no doubt pop up again if and when President Zuma finally faces the pending 783 charges of fraud and racketeering currently hovering like a Sword of Damocles.

With regard to allegations that Van der Walt’s reputation had been tarnished during that trial, the intermediary pointed out that Judge Hilary Squires in his judgment had remarked that Van der Walt had been “plainly an impartial witness who simply described chapter and verse in extraordinary detail the evidence he culled from the mass of documents… The suggestion in his cross-examination that he might be biased… can be safely dismissed as entirely without merit”.

The judgment was upheld in the High Court appeal and at the Supreme Court of Appeal.

Van der Walt has refuted further allegations that the KPMG SARS report had recommended or resulted in the prosecution of Gordhan as the KPMG Forensic did not recommend that Gordhan be criminally prosecuted.

Mashiane, Moodley and Monama – what’s with the copy-and-paste job?

With regard to the involvement of Mashiane Moodley and Monama, SARS attorneys, David Maphakela confirmed to Daily Maverick that in August 2015, KPMG had completed its report and had submitted a first draft to SARS for comments.

In return, the SARS sent same to our firm. On behalf of the SARS, we did not make any substantive changes to the report. The report had already made findings, conclusions and recommendations. The problem was that the findings, conclusions and recommendations were made haphazardly as same appeared all over the report. In our view, the report would read better if the already made findings, conclusions and recommendations could be structured chronologically and thus in a manner that would make the report read better. Our comments were cosmetic to say the least,” said Maphakela.

Maphakela denied that MMM had instructed KPMG to include recommendations, findings and conclusions to the report.

Further, we deny that there was cut-and-paste of our comments by KPMG in the manner in which it is reported in the media. We concede that there were grammatical and spelling errors in our memorandum due to the unreasonable time frames within which the comments were required. There was barely enough time to make any substantive comments.”

He added that in the firm’s email to KPMG it had stated, “we attach our comments in respect of the report”. In a memorandum to KPMG the firm also stated that “the purpose of this memorandum is to provide KPMG with comments in respect of the SARS report on allegations of irregularity and misconduct”.

Maphakela added that “at all material times” KPMG had been aware that the firm had been “making comments on an already existing report which had findings, conclusions and recommendations”.

At all material times, we were under the impression that KPMG, as a big firm, would do quality control including consulting its own legal representatives both internally and externally, and proof-read the document. Further, it is improbable that KPMG could have conducted the forensic report without engaging its own legal representatives. We have never ever acted as legal representatives of KPMG. It is improbable that a small firm like ours could ever influence KPMG. We are attorneys and thus officers of the court, thus we could never ever do anything unethical, unlawful and inconsistent with the rule of law.”

After the leak of the report “we pulled out of any engagement that involved our firm assisting with work done by KPMG on instructions by the SARS because we considered the leak to be unethical. To this day, we have never ever seen the final draft or final report by KPMG. We have never been part of any presentation by KPMG to the SARS in respect of its report. We have never ever been part of any meeting between KPMG and the SARS in respect of KPMG’s mandate or terms of reference.”

KPMG, said Maphakela, “is solely responsible for the findings, conclusions and recommendations of their report”.

Maphakela said that Mashiane Moodley and Monama had been appointed by SARS in November 2014 to “initiate disciplinary hearings against various SARS’ employees”.

In doing so, the firm had engaged the services of advocates Martin Brassey, Michael van Ass and Nadine Fourie “for legal advice inclusive of legal representation on behalf of the SARS on various issues related to the disciplinary proceedings”.

The team of advocates, said Maphakela, assisted SARS during an urgent application instituted by Pillay and Richer in the Labour Court, a matter Pillay and Richer won.

In preparation for the disciplinary proceedings, we consulted with various employees whom we deemed as potential witnesses. At no point did we interview employees for purposes of any investigation. At no point did we conduct any investigation. To this date, we have never submitted any investigation report to the SARS because we have never been appointed to conduct an investigation.”

Maphakela also said that the firm’s team of advocates “have never ever been involved with KPMG in respect of the SARS’ work. Initially, our firm was not aware about the appointment of KPMG to undertake any work for the SARS. At some point during the preparations for the disciplinary hearings, we were informed by the SARS that KPMG has been appointed to conduct a forensic investigation. It was our understanding that KPMG was contracted to independently produce a report and that the report was meant to advise the SARS with regard to the institution of either criminal or civil proceedings and disciplinary proceedings if it discovered that other employees were involved in any misconduct.”

Van Loggerenberg’s view

Last week former SARS group executive, Johan van Loggerenberg, through his attorney Brett Murison, said he had been attempting to meet with KPMGSA and their attorneys, Norton Rose Fulbright SA, since October 2015 and KPMG International since 14 August 2017.

Murison said Van Loggerenberg believed the retraction by KPMG of the summary, conclusions, findings and recommendations of the SARS report “falls way short of the legal, moral and ethical obligations that rest on KPMG SA to correct the wrongs caused by the report”.

Van Loggerenberg charged that the KPMG report was “tardy, nonsensical and replete with errors, falsities, obfuscations and material misrepresentations” and added that the report presented comments as fact and reflected statements that were contradictory. He also charged that it gave “audience to and accepted unsubstantiated allegations made by third parties”.

KPMG SA tries to explain – not so convincingly

The question begging to be answered then is why would KPMG SA withdraw the findings and conclusions of the report, yet stand by the factual findings, while offering to repaying the R23-million?

As it stands Commissioner Moyane has threatened to sue KPMG, stating the report, bought and paid for by SARS (well, us, actually), belonged to the revenue service to do with as it wished.

The KPMG retraction and offer to repay does appear to be a giant smoke screen whose final intent is to distance the giant from the maelstrom.

KPMG spokesperson, Nqubeko Sibiya, was at pains to point out initially that the entire report had not been withdrawn and referred to an earlier statement which reads “… that part of the report which refers to conclusions, recommendations and legal opinions should no longer be relied upon”. 

This substantial piece of information has, unfortunately, been incorrectly reported by numerous media outlets,” Sibiya told Daily Maverick.

Sibiya said that KPMG had announced “an independent inquiry to provide the full and frank disclosure the South African public deserves. The independent inquiry, which will be led by a senior South African legal figure, will determine whether there were any failings or collusion in the work performed and conduct of KPMG South Africa in relation to the SARS report. Our preference is for the independent inquiry to be completed as quickly as possible. Our media statement of 15 September 2017 still stands.”

When asked why KPMG would return the R23-million as well as offer a further R40-million sweetener, Sibiya replied: “Please note that the R40-million figure is based on the total fees earned from Gupta-related entities to which KPMG South Africa provided services from 2002. On the SARS matter, we have offered to repay the R23-million fee (or to make a donation for the same amount to charity) because we believe it’s the right thing to do – given the failure to appropriately apply our own risk management and quality controls.”

(NB: Van der Walt’s position is opposite to this last sentence.)

Another puzzling issue: Why would KPMG apologise to those implicated in the KPMG SARS report if many of them had resigned before it had been completed?

We have apologised to South Africa because the firm has fallen short of the standards we set for ourselves, and that the public rightly expects from us. We recognise and regret the impact this has had. However, KPMGI’s investigation found no evidence that there was political motivation or intent to mislead.”

No, it doesn’t make any sense to us either.

Endgame

It is not difficult to see that the statements from Van der Walt, MMM and KPMG are sometimes diametrically opposed and that it would take an impossible leap of sophistry to eventually align them. In plain words, someone is lying – and it should not take too long to untangle this web.

What we do know is that SARS has featured as a key component in the State Capture narrative that is still unfolding in South Africa. The role of auditing firms like KPMG, as well as global consulting giants like McKinsey & Company, global software giant SAP and Swiss-based Liebherr International AG, as well as the by now notorious Bell Pottinger in aiding and abetting intercontinental corruption, has been exposed and laid bare.

That KPMG International is seeking to set up its own investigation into the firm’s involvement is an indictment of South Africa’s criminal justice system whose job it is to uphold the law and hold those who violate it – be they the president or multibillion dollar private enterprises – accountable.

When a history of this extraordinary time in the full-frontal attack on South Africa’s young democracy is recorded, the actions of these institutions will be remembered. It will take years for South Africa to recover from the estimated R100-billion in public funds that has been siphoned off from a country reeling from extreme poverty, inequality, horrendous unemployment and a predatory business and political class who acted in cahoots. But, at least, the truth is reachable. We’re almost there. DM

Photo by Magnus Brath via Flickr.

  • Marianne Thamm
    marianne-thamm.jpg
    Marianne Thamm
  • South Africa

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