Days after Boston-based consulting agency Bain & Co was banned from tendering for public work for 10 years by National Treasury, fellow world consulting agency McKinsey confronted its personal reckoning with justice over state capture allegations.
For Bain, the general public sector ban was punishment for the destruction it wrought on the South African Revenue Service (Sars) through the tenure of disgraced former commissioner Tom Moyane.
On Friday, it was McKinsey’s flip, with the National Prosecuting Authority (NPA) Investigating Directorate charging former director Vikas Sagar and present worker Goitseone Mangope with fraud, theft and corruption associated to state capture at Transnet. Sagar has since relocated overseas.
Read:
McKinsey, ex-partner added to SA state capture case
SA joins the UK in banning Bain, citing fraud
Both Bain and McKinsey admitted previous errors and apologised, however neither are prone to settle for their punishment with no battle.
The function of consultants featured prominently in the Zondo Commission stories into state capture. It’s not exhausting to see how they grew to become so entwined in the state capture story.
As trusted counsellors, they absolve senior executives of accountability and insinuate themselves into important decision-making processes, comparable to finance and operations. Think of them as your ‘organisational gynaecologist’. It doesn’t get way more intimate than this.
1 064 locomotives contract
The newest prices relate to a suspicious tender awarded to McKinsey greater than a decade in the past to advise Transnet in its buy of 1 064 locomotives, which escalated in value from R38.6 billion to R54.5 billion. An escalation of this magnitude ought to have raised purple flags, however was waved by way of the approvals course of with obvious ease.
Investigations by regulation agency Mncedisi Ndlovu & Sedumedi Attorneys discovered Transnet had deviated from correct bidding and analysis processes, and located lapses in the company governance framework established for the transaction.
Read:
Bain ‘regrets mistakes’ however disagrees with the implications
Bain, Zuma and Moyane colluded to grab and restructure Sars
Sagar and Mangope are the most recent in a protracted line of indicted suspects, together with former Transnet CEOs Brian Molefe and Siyabonga Gama, the corporate’s former finance chiefs Anoj Singh and Garry Pita, and its former group treasurer Phetolo Ramosebudi.
Their non-public sector companions from Regiments Capital – Eric Wood, Niven Pillay and Litha Nyhonyha – are additionally in the dock, as are Daniel Roy of Trillian Asset Management, and alleged Gupta fixer Kuben Moodley.
Last 12 months Transnet and the Special Investigating Unit (SIU) utilized to the courts to assessment and put aside the 4 contracts that made up the notorious 1 064 locomotives deal. Slightly greater than half the locomotives have been subsequently delivered.
Responding to the NPA’s prices, McKinsey issued a press release saying that it had returned all charges, plus curiosity, earned from these tasks, and that because it realized concerning the state capture mission, it acted towards these concerned.
The agency says it cooperated totally with the NPA and had three senior companions testify earlier than the Zondo Commission. It repaid R650 million to Transnet and SAA, and R1 billion to Eskom in 2018.
Read:
McKinsey agrees to pay again Transnet R688m, plus over R200m in curiosity
McKinsey does the appropriate factor
McKinsey warned Eskom of dangers at Gupta-linked Trillian Capital
“We remain deeply remorseful that our firm has in any way been associated with the dark era of state capture. We publicly apologised and chose to take accountable action where we made mistakes,” says McKinsey over the most recent prices.
“After 4 years of exhaustive proof, the [Zondo] Commission didn’t make any suggestions for additional motion towards McKinsey and praised our ‘responsible corporate citizenship’.
“Given no new information has been presented since the commission, we believe pursuing McKinsey does not have merit and we will defend ourselves against any claims,” provides the consulting large.
“The commission did reveal evidence that would suggest Mr Sagar had been untruthful with us and also found that McKinsey had no knowledge of this. Where we found issues of concern regarding Mr Sagar’s conduct, we reported them to the appropriate law enforcement authorities, including the NPA, for which he will have to account.”
McKinsey fired Sagar for breach of skilled conduct and reported him to the authorities when issues of his alleged wrongdoing got here to gentle.
Read:
Court victory for Sars whistleblower
State capture scorecard: R500bn looted, zero property recovered
The closing Zondo report suggests Sagar was essential to the state capture mission. He was apparently a preferred accomplice at McKinsey, which initially stood behind their man, earlier than slicing him adrift when the extent of the Transnet wreckage grew to become plain, and it was apparent that Sagar was positioned someplace in the centre of it.
Sagar’s friendship with Gupta level man Salim Essa was explored in some element in the Zondo Commission hearings, as was the truth that he had tried to accomplice in a number of different offers associated to state-owned enterprises (SOEs).
This was again in 2014, when former president Jacob Zuma was on the political helm and SOEs have been magnets for well-groomed carpetbaggers with a superb story to inform. State enterprises have been ripe for the selecting.
The Transnet locomotive deal was the primary money cow that bankrolled a lot else the Guptas have been concerned in. Evidence heard on the Zondo enquiry exhibits how McKinsey agreed to nominate Regiments as its provider improvement accomplice, topic to Regiments agreeing to share 30% (later elevated to 50%) of all earnings acquired from Transnet.
Read: How ‘turnaround’ and ‘change’ grew to become the keys to the looting of the state
More than R1 billion was laundered by way of varied shell corporations nominated by Essa and his affiliate, Kuben Moodley. There have been no actual enterprise actions behind these shells.
Whistleblower and former CEO of Trillian, Bianca Goodson, advised parliament that McKinsey by no means anticipated Trillian to truly do any work to receives a commission.
Wood is alleged to have established the precedent of invoicing SOEs with out correct agreements being in place and for work not executed.
McKinsey selected Trillian to be its BEE accomplice, simply because it had partnered with Regiments Capital for his or her work at Transnet.
Though Trillian had no contract with Eskom, it was paid R700 million from Eskom alone.
It was then that Trillian chair Tokyo Sexwale, alarmed by allegations of impropriety on the firm, introduced in Advocate Geoff Budlender to analyze contracts involving Trillian, McKinsey and Eskom.
As outlined in the Open Secrets report The Enablers, McKinsey initially denied any relationship with Trillian, regardless of appreciable proof on the contrary.
Budlender issued his closing report with these phrases: “I’ve to say that I discover this inexplicable, notably having regard to the truth that McKinsey presents itself as a global chief in administration consulting, and given the widespread public curiosity in this matter.
“It is tough to keep away from the conclusion that the final word McKinsey response was an try to keep away from coping with a state of affairs which seems to be embarrassing to the corporate.
“In my opinion, a refusal to provide the truth ought to be even more embarrassing [than] the manner in which hundreds of millions of rands were siphoned from the state-owned rail, ports and logistics company.”
Read: Zero convictions, 9 years after the Gupta Waterkloof touchdown
The closing Zondo report implicates McKinsey’s Sagar in corrupt actions at each Transnet and Eskom. He supplied ‘research support’ and ‘supplemented course work using company resources’ whereas former Transnet CEO Gama was enrolled in the Trium world government MBA programme. That help price McKinsey R100 000 on behalf of Gama.
In April 2014, Sagar addressed a letter to then Transnet CFO Anoj Singh, informing him that McKinsey had ceded its rights and delegated its obligations below the advisory providers contract between the two corporations to an outdoor agency by the title of Regiments.
Zondo discovered that McKinsey had no rights to cede to Regiments, which now grew to become the principal contractor on a big locomotive financing tender with out being topic to any verification, analysis or correct evaluation.
Investigating Directorate spokesperson Sindisiwe Seboka final week reiterated that Regiments Capital was irregularly onboarded and ended up benefitting from the irregular appointment by Transnet in respect of the locomotive contract.
The worth of the Transnet contract and scope of providers required from Trillian was escalated, finally ending up at R305 million. This was the payment for sourcing roughly R30 billion in finance from China Development Bank and different sources.
Quite other than the reputational injury to Bain and McKinsey, the costs towards these two giants of worldwide consulting have executed immeasurable hurt to consultants not implicated in any wrongdoing.
It is a protracted climb again to respectability from right here.
