By opening up the telecommunications and internet sectors to private investors, African governments have given them the upper hand in the lucrative ... data market. If the continent is to regain control of its digital economy, countries need to rethink tax and regulatory policies, analysts argue.
State capture refers to the corruption under former president Jacob Zuma (May 2009-February 2018).
Jean-Christophe Mieszala, McKinsey’s chief risk officer, made the concession in his 10 December testimoney before the Commission of Inquiry into State Capture. Mieszala made the admission in a signed statement submitted prior to his oral testimony.
McKinsey joins the ranks of KPMG, SAP and Bain & Co in being caught in the cross-hairs of state capture and contentious contracts with the state, specifically SOEs. KPMG, SAP and Bain & Co said their mea culpas for either being involved or implicated in acts surrounding state capture. Now, McKinsey is facing the heat.
KPMG served as the long-standing auditors of the Guptas’ Oakbay Investments. The Gupta family of businessman are at the heart of the ‘state capture’ corruption claims.
The auditing firm was also involved in the compilation of a controversial report about the South African Revenue Service (SARS) – which is commonly referred to as the SARS “rogue unit report”.
About three years ago, KPMG instituted a wide-ranging review of its involvement with the Guptas and its activities pertaining to SARS.
In September 2017, KPMG announced it had fired its CEO and other executives and partners, hired a chief risk officer, revamped its board, and committed to donate R40m ($2.7m) earned in fees from the Gupta firm and to pay back R23m earned from compiling the SARS report.
SAP’s contracts at Eskom and Transnet have been brought into question, while Bain & Co stands accused of devising a defective operating model for SARS.
Following the conclusion and outcome in December 2018 of the commission of inquiry into the affairs of SARS, Bain & Co issued a statement, stating: “As a firm, we have been shocked and saddened by our involvement with SARS. We let down our clients, our people, our alumni and our firm. Most of all, we have let down South Africa.”
“Bain does not, however, accept that its representatives knowingly participated in an effort to damage SARS.”
The defensive playbook
McKinsey has adopted a similar posture. Mieszala said: “We have been humbled and shocked by this experience and hope that this testimony, the lessons that we have learnt and the measures we have taken will prove of some assistance to the commission and other organisations.”
In a move reminiscent of KPMG’s 2017 action, McKinsey has offered to repay fees earned from Transnet and SAA contracts. The fees in question amount to R650m.
The article continues below
Get your free PDF: COVID-19. How Africa can navigate the pandemic
Leaders of all stripes are scrambling to contain the fallout.
Complete the form and download, for free, The Africa Report’s COVID-19 How Africa can navigate the pandemic. Get your free PDF by completing the following form
However, in a statement, Transnet spokesperson Ayanda Shezi said: “Transnet wishes to confirm that no final settlement has been reached with McKinsey.”
The state-owned logistics company not only wants R688m in fees repaid, but also wants interest. Transnet estimates that McKinsey owes it roughly R1.2bn.
“[That] is what we continue to insist must be repaid in full. In July 2018, McKinsey agreed to return the fees earned at Eskom plus interest, in similar circumstances,” the Transnet spokesperson pointed out in the statement.
For its part, McKinsey’s Mieszala said: “We will make repayment as soon as an appropriate legal framework is established with the involvement of the SOEs at issue and the support of the relevant authorities.”
Internal clean-up job
In addition to the commitment to repay fees, McKinsey has undertaken an internal investigation with the help of two global law firms for the past three years, according to Mieszala.
McKinsey hired two global law firms, Norton Rose Fulbright and Morrison & Foerster, to lead this effort independently, said Mieszala in his written submission.
“McKinsey and these two firms have conducted an extensive and thorough review of the information available to us. This has informed our public statements and our submissions to numerous authorities,” he revealed.
“This involved numerous attorneys and included the collection of nine million documents, the review of more than one million emails, financial records and other documents, and over 100 interviews of relevant individuals,” he added.
McKinsey has also hired a third-party forensics firm to conduct a review of phone records, devices, financial information, and expense records.
A fine line
“This statement is not the first time we have addressed these events and allegations. We have made a series of public statements over the years, from as far back as 2017,” said Mieszala.
“We have co-operated with reviews looking into these matters including those by Parliament, National Treasury, Eskom and Transnet.”
However, McKinsey has stopped short of admitting involvement in state capture or any acts of corruption. Instead, the consulting firm has characterised the cloud hanging over it as an oversight in due diligence.
“I can say with certainty it deeply troubles our partners and colleagues that our firm is associated with allegations of state capture,” noted Mieszala.
Understand Africa's tomorrow... today
We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.View subscription options