Page 25 - The Economist

The Economist December 9th 2017 Briefing South Africa 25
2 phosa a sizeable lead. But betting against cal firms; and if so, whether Trillian was
Mr Zuma has proved unwise in the past, Sub-Sub-Saharan Africa 2 doing real work. If it was not, its fee looks
and there are many ways in which he GDP per person*, 2009 =100 like a kickback.
could turn things to his advantage. Trillian’s former chairman asked Geoff
He could succeed in tippingthe vote his 120 Budlender, a South African lawyer, to pro-
World
way. He might, perceiving his ex-wife’s un- duce a report on the matter. McKinsey told
115
popularity, change horses. He could cancel Mr Budlender that Trillian was not a sub-
the conference, on the grounds that there 110 contractor. But a (since departed) McKin-
Sub-Saharan
are already several legal challenges to the Africa sey partner wrote in a letter to Eskom’s
legitimacy of ANC members and dele- 105 CEO that “McKinsey has subcontracted a
gates. Or the conference could collapse South Africa 100 portion ofthe servicesto be performed un-
without choosing a successor. Mathews derthe agreement to Trillian.”
Phosa, a member of the ANC executive 95 David Fine, McKinsey’s global head of
who is himself a candidate for the presi- 2009 10 11 12 13 14 15 16 public and social sectors, told a South Afri-
dency, points to the Eastern Cape provin- *Constant 2011$ at can parliamentary committee investigat-
cial ANC conference in September, which Source: World Bank purchasing-power parity ing state capture at Eskom that the letter
degenerated into a chair-throwing fest: “It saying that Trillian was a subcontractor
will be worse than that,” he says. EFF’s 8%. The best way for the next leader wasinaccurate. ButMrBudlenderconclud-
Whatever happens, more drama will to boost the party’s chances in 2019 would ed “that the denial of McKinsey [that Tril-
follow. The ANC’s popularity is sliding. Its be to put Mr Zuma on trial. That raises the lian wasa subcontractor] isfalse. Why they
share of the vote fell from 62% in the na- stakes for the president. To avoid that out- made a false denial is forthem to explain.”
tional election in 2014 to 54% in local elec- come, he needs to do his utmost to make On the question of whether Trillian
tions in 2016, against the DA’s 27% and the sure things go his way next week. 7 was doing any real work or not, a former
CEO of Trillian Management Consulting
(TMC) who turned whistleblower says she
Business in South Africa raised concerns that McKinsey’s people
Global firms and the Gupta connection were not engaging with TMC as the SDP re-
quired. She says she was told by a senior
McKinsey employee that “regardless of
TMC resources allocated to projects, TMC
will still get their30%.”
Corruption Watch, an NGO, will soon
refer the case to America’s Department of
JOHANNESBURG
Big companies are caughtup in “state capture” Justice. Its complaint is that “the act where-
by McKinsey agreed to partner with Tril-
EVERAL global firms have had theirrep- knewabouttheexistenceofa“rogue”unit, lian solelyforpurposesofobtaining the Es-
Sutations damaged in South Africa—and and thatitregretted the impactofits report. kom contract, underwhatwasdisguised as
worse. Bell Pottinger, a British public rela- Mr Gordhan is not mollified. The apology, a development plan, amounts to an act of
tions company, was destroyed by its work he wrote in a newspaper article, did not go corruption under the [Foreign Corrupt
for the Guptas. It had branded attacks on farenough. “The wittingand over-enthusi- Practices] Act (FCPA).” McKinsey rejects
the Guptas as motivated by “white mo- asticcollaboration ofseniorKPMG person- “anyclaimsthat[we] engaged in bribery or
nopoly capital” rather than concern for nel...and their collusion with nefarious corruption related to ourworkat Eskom”.
probity. Abandoned byclients, the firm has characters in SARS, in fact directly contrib- According to Lord Hain, HSBC failed to
gone into administration. uted to ‘state capture’ and gave legitimacy close Gupta-linked accountsalthough staff
According to a speech in the House of to the victimisation ofgood, honestprofes- in South Africa warned of suspicious
Lords by Peter Hain, a British peer, an 84m sionals and managers.” transactions. HSBC says that it “has closed
rand ($8m) grant from the Free State, desig- As a result of this debacle, the chair- the accounts of Gupta-associated front
nated for investment in a dairy farm, was man, chief executive and chief operating companies wherever [it has] found them”.
transferred into the Standard Chartered officer in South Africa and five partners The issue has particular salience in Ameri-
account of a Gulf-based Gupta firm called have left the firm; KPMG is repayingits 23m ca, where a five-year deferred-prosecution
Gateway, then into the account of another rand fee for the SARS report, and donating deal resulting from accusations that it
Gulf-based Gupta company called Accu- 40m rand, all the money it says it has failed to prevent money-laundering and
rate Investments(both accountshave since earned from Gupta-connected firms, to sanctions-busting runs out this month; if it
been closed); $2.6m of the money went education and anti-corruption NGOs. It had broken American law again, it would
back to South Africa, into a firm called has lost several clients in South Africa. face a renewed threat ofprosecution.
Linkway Trading which used it to pay for a McKinsey got a contract to provide Es- Afterrevelations in #Guptaleaks, SAP, a
Gupta wedding. The money was written kom, the state power utility, with consul- German software firm, launched an inter-
off as a business expense. Linkway’s audi- tancyservices, alongwith Trillian, a firm at nal inquiry and found that it had paid
tor was KPMG. The firm has since said its the time majority-owned by Salim Essa, a $6.6m in commissions to Gupta-linked
audit work in the Linkway case “fell well business associate of the Guptas. The deal companies for contracts with state-owned
short ofthe quality expected”. fell apart after six months, after which Es- enterprises. It reported itself to America’s
A report by KPMG also gave credence to kom paid McKinsey 1bn rand and Trillian Department of Justice and the Securities
claims that the research-and-investiga- 564m rand. McKinsey says its work justi- and Exchange Commission for possible
tions unit of the South African Revenue fied the fees; but the main question is not breachesofthe FCPA, hasdisciplined three
Service (SARS) had “gone rogue”, which whetherit should have been paid so much employees, and will no longer pay com-
led to charges being laid against Pravin money, but whether or not Trillian was a missions to employees who secure con-
Gordhan, a formerfinance minister. KPMG subcontractor for McKinsey under the tracts in countries that score badly on
has since said that the evidence did not “supplier development programme” (SDP) Transparency International’s Corruption
support the conclusion that Mr Gordhan which requiresbigcompaniesto engage lo- Perceptions Index. 7