South Africa

BUSINESS MAVERICK

Business Against Corruption: Fresh calls for State Capture-linked audit, consultancy firms to face harsher sanctions

Professor Wiseman Nkuhlu, the newly appointed chairperson of KPMG, speaking during a panel discussion at the Business Against Corruption event on 27 June 2019 in Hyde Park, Johanesburg. (Photo: Ayanda Mthethwa)

Audit and consultancy firms that have been linked to the corrosive State Capture project have had it too easy. Directors and audit partners of KPMG, Bain & Co and McKinsey & Co have not been arrested for their role in crippling South Africa’s institutions. The consequences they have faced so far are the loss of clients and repayment of money/fees unlawfully earned from state coffers. But there are growing calls for criminal prosecutions or other sanctions.

South Africa’s private sector has not covered itself in glory for its role in the State Capture project, which hollowed out state-owned entities, the South African Revenue Service (SARS) and law enforcement agencies under Jacob Zuma’s nine-year presidency.

High-flying audit, advisory and consultancy firms complicit in State Capture and corruption have crashed back to earth in a spectacular way.

Consultancy firm Bain & Co was found by judge Robert Nugent’s commission of inquiry to have crippled SARS by restructuring its operating model. Consultancy firm McKinsey & Co was forced to pay back nearly R1-billion (with interest) it unlawfully earned from its shoddy turnaround work on bankrupt Eskom.

KPMG South Africa has lost many clients after it missed red flags in its audit of Gupta family-linked entities and compiled a report into a high-risk investigation unit — or so-called “rogue unit” — at SARS, which the firm has partly retracted because of the poor standard of work.

(Disclaimer: Nugent later found that the investigation unit was not established unlawfully.)

KPMG’s report was used to further cripple SARS, which had been revered worldwide because senior and skilled officials including, among others, Ivan Pillay, Peter Richer and Johann Van Loggerenberg, were hounded out of the tax collection agency.

So far, individuals and State Capture architects linked to KPMG, Bain & Co and McKinsey & Co have not been prosecuted. The three firms haven’t faced damaging sanctions as they have either lost clients or have been forced to repay the money earned unlawfully from state coffers. In other words, they have received mild punishment.

This has incensed David Lewis, the executive director of non-profit organisation Corruption Watch. He wants to see State Capture architects and Gupta family bidders to be legally prosecuted and the reputation of KPMG, Bain & Co and McKinsey & Co to be further sullied.

What is this business of corporates causing billions of rands worth of damage and resorting to paying back their fees. Really, bullshit is the only possible polite word to use to describe it,” Lewis said.

You don’t steal a loaf of bread, gouge out the middle, get caught and say ‘sorry, I’ll give you back the crust’. This is what is really happening in this [State Capture] instance. You get punished for theft. In the corporate sector, one remedy that is more effective is destroying their reputations and revealing what kind of institutions they are.”

Lewis was speaking on Thursday at a Business Against Corruption forum hosted by Business Maverick.

Corruption Watch has reported McKinsey & Co to US authorities — where the company is headquartered — for its role in State Capture. Lewis wants US authorities to forge ahead with a criminal investigation and prosecution of McKinsey & Co directors involved in the restructuring of Eskom.

Like Lewis, the nation is hungry for the prosecution of wrongdoers. However, the process to reform and rebuild domestic law enforcement agencies is slow after many years of decimation by Zuma and his lackeys.

Public enterprises minister Pravin Gordhan also questioned why sanctions imposed on the likes of KPMG and Bain & Co weren’t brutal. After all, the weakening of SARS led to it recording a cumulative R100-billion hole in tax revenue collection during the past four years under former SARS boss Tom Moyane. This resulted in a VAT increase in 2018, for the first time since 1994.

The first instinct of these firms was to pay back the fees and that (they believe) absolves them of everything. People want a little bit more than that in terms of consequences for the kind of damage they have actually done. There was a lack of contrition on the part of both firms (KPMG and McKinsey),” said Gordhan.

He estimated that State Capture cost South Africa and its coffers more than R200-billion over the past 10 years.

KPMG, Bain hit back

The tough talk by Lewis and Gordhan didn’t land well with KPMG and Bain & Co. Both firms said they were putting “remedies and safeguards” in place to gain public trust and ensure that they remained above the political fray.

Athol Williams of Bain & Co said the firm’s remedies include introducing a whistleblower programme and the ethical training of staff. It also wants to engage SARS and apologise to the tax collection agency.

Williams doesn’t believe that Bain should lose its right to operate in South Africa, effectively shutting its operations.

We are still in South Africa because we believe that there is a need for our services and there is a commitment from Bain globally to be in South Africa. We are committed to the market and we will make the remedy because South Africa deserves it.”

KPMG chair Prof Wiseman Nkuhlu shared Williams’ views.

The solution is not removing or closing down the firm. We have to deal decisively with measures that caused pain in the country. Those people (KPMG directors) must be punished and then make sure that whatever capital they accumulated wrongly is recouped and used to pay reparations to society.” BM

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