Anyone who has even a passing knowledge of the applicable law, knew long ago the claim that the establishment of the special investigative unit by the South African Revenue Service (SARS) was unlawful (and was thus a “rogue” unit) is false. If KPMG included this false finding in its report because it was asked to do so by Commissioner Tom Moyane or SARS legal representatives (and was then paid extra by SARS for this work), the conduct of KPMG and SARS may amount to a breach of the Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004).
When auditing firm KPMG finally (and somewhat half-heartedly) acknowledged on Friday that its SARS report mistakenly made findings about the establishment of a so called “rogue intelligence unit” within SARS, it probably thought that its limited admission of wrongdoing would help to repair the company’s tarnished reputation.
However, the admission of wrongdoing has had the opposite effect, largely because the lengthy statement issued by KPMG failed to address many of the pressing questions raised by the fiasco.
Moreover, KPMG’s client (in the form of Commissioner Moyane) yesterday lambasted KPMG for retracting parts of its report on the “rogue unit”, calling this move “aberrant and unethical”. In other words, Moyane called KPMG “aberrant and unethical” for admitting to wrong-doing.
KPMG deserves harsh criticism for its actions. It provided its alleged integrity and auditing skills to endorse (and give credibility to) legal “findings” it had not investigated, had no skills to assess, and had no way of knowing whether they were correct. Like many other South African companies, it decided to please its powerful client with deep pockets, instead of acting in an ethical and legally appropriate manner. Greed trumped any sense of right and wrong.
It would have been entirely appropriate for Commissioner Moyane to lambaste KPMG for their scandalous behaviour during the drafting of the SARS report. But it is, to say the least, odd, that this is not what he did. Instead he lambasted KPMG for not falsely continuing to pretend that everything in its SARS report is true and above board.
I leave it to readers to decide what this may say about Commissioner Moyane’s ethical compass and his love for the truth.
The KPMG report claimed that SARS had established a “covert and rogue” intelligence unit “in contravention of the rule of law was established in SARS”. This finding was similar to a finding in the Sikhakhane report that the establishment of the unit was unlawful.
However, the Sikhakane report made this “finding” without mentioning (let alone analysing) the relevant sections of the National Strategic Intelligence Act (sections 1 and 3) on which these findings were purportedly based. As I have explained in detail before, these sections do not prohibit a government entity such as SARS from gathering intelligence. Nor does it prohibit SARS from covertly gathering intelligence on taxpayers and on crime syndicates. This means the National Strategic Intelligence Act could not possibly have outlawed the establishment of the SARS investigative unit.
Not only was the KPMG report partly based on legal “findings” that were clearly wrong, the report has subsequently also been revealed to have been seriously compromised by the inclusion of at least 16 points in its recommendations and findings copied and pasted (spelling mistakes and all) from recommendations made by SARS’ own legal representatives Mashiane, Moodley and Monama.
This means KPMG got paid a hefty R23-million to produce a report which contained false findings, some of which SARS lawyers persuaded KPMG to include in its report. KPMG has now admitted that it was not authorised to include such findings in its report stating 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. KPMG South Africa acknowledges that such opinions should have been caveated as recommendations of legal advisers and not formulated in the manner contained in the report.”
This raises the question whether SARS and KPMG might be guilty of corruption (there is no question that the parties acted in an unethical manner). Section 3 of the Prevention and Combating of Corrupt Activities Act prohibits any person from offering or receiving any financial benefit for a corrupt purpose.
A person would be acting with a corrupt purpose if that person were expected to act in an “illegal, dishonest, unauthorised, incomplete, or biased” manner which would amount to “the abuse of a position of authority; a breach of trust; the violation of a legal duty or a set of rules; designed to achieve an unjustified result; or that amounts to any other unauthorised or improper inducement to do or not to do anything”.
KPMG itself has now admitted that it acted in an unauthorised manner. It abused its position of trust as an auditor to make findings it was not authorised to make. If one gives KPMG and the employees involved in the drafting of the SARS report the benefit of the doubt and assumes that they did not make unauthorised findings because they were bribed, one should ask what might have motivated them to act in this manner.
The most obvious explanation is that KPMG acted to protect their profits. KPMG wanted to ensure that SARS got what it wanted – in return for a R23 million fee. KPMG knew that what SARS wanted was for the company to make certain findings because this is what SARS lawyers told KPMG to tell them. If it had failed to do what the SARS lawyers instructed them to do, this would have displeased the client and future business from SARS might have dried up.
It appears that SARS, in turn, promised to pay KPMG a hefty sum of money and made it clear that in return they expected KPMG to make certain findings which could be used in the court of public opinion to discredit various SARS employees as well as the then minister of finance. They also hoped to use the findings to dismiss various SARS employees who were perceived to be unsympathetic to the Guptas and sympathetic to the then minister of finance.
In S v Shaik the High Court (applying the earlier Corruption Act) found the state would be able to prove the commissioning of the offence even if it could not be shown that there was a direct link between the payment of a specific amount of money and the commissioning of a specific corrupt act.
If evidence – taken as a whole – suggest that the relationship between the parties were a mutually beneficial one, in which one party forked over money and the other party did unauthorised favours in return, it would amount to corruption. Judge Squires thus held:
“It would be flying in the face of common sense and ordinary human nature to think that he (Shaik) did not realise the advantages to him of continuing to enjoy Zuma’s goodwill to an even greater extent than before 1997; and even if nothing was ever said between them to establish the mutually beneficial symbiosis that the evidence shows existed, the circumstances of the commencement and the sustained continuation thereafter of these payments, can only have generated a sense of obligation in the recipient.”
My contention is that – based on the publicly available evidence of the relationship between SARS and KPMG – questions will arise about whether such a “mutually beneficial symbiosis” existed between KMPG and SARS.
I am not claiming that there is sufficient evidence to prove beyond reasonable doubt that individuals at SARS intentionally used their financial muscle to get KPMG to do what it was not authorised to do. Neither am I suggesting that that there is sufficient evidence to prove beyond reasonable doubt that individuals at KPMG intentionally acted contrary to their obligations because they were swayed by the lure of filthy lucre.
But at the very least, the behaviour of the parties (both SARS and KPMG) raise serious questions about their motives. It would normally fall on a truly independent and impartial corruption fighting unit to investigate the matter to establish whether any criminal offences were committed. But as the Hawks is neither independent nor fearless, this is not going to happen.
Whatever the legal situation might be, the KPMG saga reminds us that we should all be more critical of the “mutually symbiotic relationships” established between many private companies and their very rich and powerful clients. We should stay alert to the many different and complicated ways in which the relationships between these parties are often tainted by greed and (at the very least) unethical behaviour. DM
Pierre De Vos teaches Constitutional law at the University of Cape Town Law Faculty, where he serves as deputy dean and as the Claude Leon Foundation Chair in Constitutional Governance. He writes a regular blog, entitled 'Constitutionally Speaking', in which he attempts to mix one part righteous anger, one part cold legal reasoning and one part irreverence to help keep South Africans informed about Constitutional and other legal developments related to the democracy.
"Take a chance, won't you? Knock down the fences which divide. Tear apart the walls that imprison you. Reach out. Freedom lies just on the other side." ~ Thurgood Marshall