TBH, there are plenty of things on the go right now, so you might have missed this, but it’s seriously important. The National Prosecuting Authority (NPA) has just settled with Swiss/Swedish engineering firm Asea Brown Boveri (ABB), which has agreed to pay R2.5-billion in reparations for corruption.

This is important because it’s over and above the R1.6-billion ABB has already paid back to Eskom. And, there is a third part to the penalty: ABB has agreed to pay the Swiss authorities a fine of about four million Swiss francs, roughly R75-million. The fourth part, which has not been formally announced yet, will reportedly be about $100-million and may be payable to the US authorities. 

This is all good news, I suppose. ABB has come clean and has tied up all the loose ends in exchange for this thumping fine. How thumping? In SA terms, it’s pretty big. This is the largest fine paid for reparations by a long shot and goes to the SA state, since ABB already compensated the victims (Eskom).

It’s also large in respect of the actual contract. ABB was awarded a R2.2-billion control-and-instrumentation contract for Eskom’s Kusile Power Station in 2015. Running in parallel were sub-contracts with ABB for a company called Impulse International, to the tune of R549.6-million. Former Eskom CEO Matshela Koko, Koko’s wife Mosima, and stepdaughter Koketso Choma have been arrested in connection with the alleged bribery. Two former ABB employees, Mohammed Mooidheen and Vernon Pillay, had also received a kickback from Impulse. Clearly, everybody was scratching everybody’s back.

So, net-net, ABB got a contract worth R2.2-billion, from which it made a profit of about R160-million, and will now have to pay fines worth about R5-billion. That is not good business. The total fine is therefore about 30 times the profits the company made from the deal, possibly more. The reparations don’t exempt anyone from criminal charges, and Koko’s trial continues.

It is not very large compared to ABB’s net profit, which was about $4-billion last year. So the total fine, even though it’s pretty large, represents less than 1% of that amount. Yet, it’s still easy to discard this as another slap on the wrist for a company involved in corruption. These kinds of fines are often regarded by companies as just a cost of doing business. But if you want to look at this from a positive point of view, it’s worth noting how the cost of these fines is gradually increasing.

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This will be the third time ABB has had to fork out to the US authorities: the previous times were as a result of corruption in Mexico in 2010, for which it paid a $58-million fine, and in 2004, it paid a $16.4-millon fine for bribery misconduct in Nigeria, Angola and Kazakhstan. So at least, the fines are now running into hundreds of millions rather than tens of millions. That’s what happens if you become a third-time offender.

Will this be enough to wake up the shareholders and executives of ABB? I hope so; this is certainly a step in the right direction. But I don’t think fines will ever really cut it. That may be when executives eventually face the perp walk and start serving actual jail time.

One of the aspects of the current agreement between the US authorities and ABB is that ABB won’t be pleading guilty at parent-company level, according to a report in The Wall Street Journal. Instead, the newspaper reports, ABB’s parent will enter into a US deferred-prosecution agreement, whatever that may be, while two of its subsidiaries would plead guilty to charges related to the US Foreign Corrupt Practices Act.

I think this translates as a way of protecting the company from being barred from future work in the US, which is of course very critical. Likewise in SA, the government has the ability to exclude ABB from future contracts, especially since ABB has acknowledged liability and taken responsibility for the alleged criminal conduct of its employees involving contracts with Eskom. There is no word about this in the NPA announcement, but I assume that paying reparations cleanses ABB sufficiently so it won’t be excluded from future government work in SA.

You can imagine the negotiations that go on behind the scenes here: the company denies corruption until the point where it seems inevitable that it will get caught. At this point, it goes from being resistant to any kind of investigation to being very cooperative, even if that means hanging its former employees out to dry. There is a critical line between those two points and one of management’s jobs is to assess the consequences of each course of action. Many people say the Zondo Commission was inconsequential in the end, but arguably, the commission helped push the company over that critical line and made a big difference in this case.

There are also pressures on the other side. The NPA notes in its statement that the settlement has the immediate benefit of saving costs in what might have been a protracted trial against ABB. At the same time, securing funds upfront will help with the ongoing criminal investigations and “assist in building South Africa’s capacity and resources in its ongoing fight against serious corruption”. The NPA, for one, seems delighted with the agreement, particularly because now it has at least one important first-hand witness on its side of the ledger. 

I do have one gripe with the settlement. What happened, in this case, is that when the allegations were first made, ABB sent out a person from HQ to look at the contracts to see if there was anything untoward. Very sensible. It will come out more explicitly in the trial, but what I think happened is that effectively the person delegated came back, and confirmed that there was a contract with Eskom and a contract with Koko’s relatives, but the delegate said he couldn’t prove there was any link between the two. So then the HQ execs breathed a sigh of relief and went about their business until the Zondo hearings kicked off, after which they went into full panic mode.

My gripe is simply this: what were they smoking? When the relatives of the CEO, or any senior executive, get a very valuable contract, you have to assume there is some fire behind this smoke. Surely? Don’t you? In this case, the ABB HQ execs looked the other way in circumstances where they should have looked closer and a whole lot harder. ABB was once known as “the dancing giant” because of its innovative culture in a global company. Clearly, there are some steps it has failed to master. DM/BM