South Africans (black, white, brown and blue), and even the greater global community, owe a deep debt of gratitude to the Guptas from Saxonwold.
Largely through their dealings with Gupta companies, Bell Pottinger is now history, KPMG South Africa (also known as wedding planners in some circles) is tottering at the edge and the global parent company is taking flak. It is only a matter of time before the heat is turned on the questionable operations of McKinsey, which together with Trillian were paid a whopping R1.6-billion “‘turnaround’ advice given to Eskom”.
In its 2016 International Annual, KPMG reported: “We take our role in building trust seriously, working towards providing the highest quality of work for clients and all of our stakeholders … audit quality as always is at the top of the agenda for our professionals around the world”.
According to KPMG International: “We are open and honest … and constructively manage tough situations with courage and candour … Integrity is a critical characteristic that stakeholders expect and rely on. Therefore, above all we act with integrity and are constantly striving to uphold the highest professional standards, provide sound advice and rigorously maintain our independence”.
However, there were “deficiencies in the audit work” of KPMG SA when dealing with the Gupta companies. Nonetheless, “KPMG International found no evidence of dishonesty or unethical behaviour on the part of the audit partners and audit teams working on the audits for the Gupta group of companies”.
Rather, the problem was that “many Gupta entities responded misleadingly and inadequately to audit teams’ enquiries about the nature of related party relationships and the commercial substance of significant unusual transactions”. However, KPMG International has provided no evidence of the robust interrogation by its SA auditors of the Gupta submissions and that from SARS. The Times revealed that “KPMG’s fingerprints are all over the Gupta empire and its controversial deals dating back to 2008”.
KPMG also withdrew its controversial report on the SARS ‘Rogue’ unit, and apologised for any inappropriate imputation attributed to Pravin Gordhan, and one assumes Ivan Pillay and other innocent parties implicated from the High-Risk Investigation Unit of SARS, who were investigating some serious, sensitive cases of money laundering and tax evasion (e.g. “detecting and combatting the illicit tobacco trade”). Nine KPMG SA executives were forced to resign. No one has been charged, jailed or stripped off their professional recognition. One doubts whether Independent Regulatory Board for Auditors (Irba) or the South African Institute of Chartered Accounts (SAICA) will have the guts to act decisively to stop this cancer of corruption from spreading.
Of course, the story is far more complex, and KPMG has not come clean, an ethical prerequisite for any form of exoneration. Who were the senior government bureaucrats who colluded with KPMG, and who were clearly corrupt? Does KPMG aid and abet corruption? What about the reputational consequences for South Africa and the negative repercussions for the economy, especially the downgrading by international ratings agencies?
A social media comment captured the implications aptly: “It’s not just corporate governance that’s a problem. They provided a fraudulent report to advance a politically corrupt cause and got paid for that! They condoned the embezzlement of state funds to a corrupt family! The relevant people need to go to jail!”
According to Pravin Gordhan “the witting and over-enthusiastic collaboration of senior KPMG personnel and their collusion with nefarious characters in SARS, in fact directly contributed to ‘state capture’ and gave legitimacy to the victimization of good, honest professionals and managers. It should and must be remembered that this was about attacking SARS as an institution with the main intention being to capture it”. He did not mince his words: “KPMG had no basis, except subservience to a malicious SARS management, to malign a number of individuals and facilitate, I repeat, the capture of a vital state institution”.
Gordhan criticised KPMG international for not effecting “its own criticism of KPMG South Africa – that those affected by their alleged findings should be given a hearing. Did they talk or even attempt to contact the senior officials who were victimized at SARS? … This is typical colonial arrogance and KPMG has not done enough”. Beyond the serious personal repercussions, Gordhan warned that the major consequence of KPMG’s irresponsible, unprofessional and unethical actions was the incalculable “damage to our hard won democracy, to our state institutions and ultimately to the South African people for whom we seek a better life”.
KPMG’s international reputation is also tarnished. In April 2013, KPMG was forced to quit as auditor for Skechers and Herbalife after one of its senior partners was implicated in allegations of insider trading allegations. Andrew Stoltmann, Chicago securities attorney identified a repetitive pattern: “In 2003, KPMG agreed to pay $125m to settle a lawsuit stemming from the firm’s audits of the drug chain Rite Aid. In 2004 KPMG agreed to pay $115m to settle lawsuits stemming from the collapse of software company Lernout and Hauspie Speech Products. In 2005 KPMG admitted to criminal wrongdoing in creating fraudulent tax shelters to help wealthy clients avoid $2.5bn in taxes and agreed to pay $456m in penalties in exchange for a deferred prosecution with federal prosecutors.”
In January 2014 the Securities and Exchange Commission in the USA charged “KPMG with violating rules that require auditors to remain independent from the public companies they are auditing to ensure they maintain their objectivity and impartiality … KPMG compromised its role as an independent audit firm by providing prohibited non-audit services to companies that it was supposed to be auditing without any potential conflicts”. (Sounds familiar?).
In April 2016, the Canadians for Tax Fairness (C4TF), a tax watchdog, called on the government to prosecute “KPMG Canada with facilitating tax evasion”. In May 2013, the Financial Reporting Council in Britain investigated KPMG for alleged violation of ethical professional standards, breaches that may also be more widespread “at British audit firms”.
It is pleasing to note that several major companies in SA were reviewing their business links with KPMG, including Barclay’s Africa (ABSA), Board of the Institute of Directors in Southern Africa, and Sygnia CEO, Magda Wierzycka, who has taken the lead in this matter. This crusade must be escalated so that all SA companies committed to business with integrity must cut ties with KPMG immediately, so that it will be ultimately forced to close shop. Off course this campaign can be intensified internationally against KPMG, and Pravin Gordhan has the experience, integrity and tenacity to lead this initiative.
In the ruthless pursuit of profits at any cost, professional ethics and integrity are violated with impunity by companies like KPMG, in a global racket called consultancy (without responsibility or accountability). DM
Brij Maharaj is a geography professor at UKZN. He writes in his personal capacity.