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State capture: McKinsey faces charges, KPMG heads to Parliament

2017-09-18 17:34

The walls seem to be crashing down on those involved in “politically motivated immoral and unethical conduct” – KPMG will be called to account to Parliament on its conduct regarding the South African Revenue Service “rogue unit” report and the Democratic Alliance is planning to lay charges against global consultancy firm McKinsey tomorrow.

Parliament’s standing committee on public accounts said today that it would call KPMG to explain itself.

Scopa’s ANC study group whip Mnyamezeli Booi said “KPMG must account on its involvement in what appears to be politically motivated immoral and unethical conduct”. KPMG said on Friday that it had retracted its findings, recommendations and conclusions of its report in the investigative unit.

It also made it clear that there was no evidence suggesting former finance minister Pravin Gordhan knew about the unit and offered to repay the R23 million that the revenue service paid for the report.

However, Sars commissioner Tom Moyane said KPMG had no right to retract the report as it belonged to the tax collector. He announced numerous measures against KPMG, including possible legal action regarding its “unethical, immoral, unlawful and illegal behaviour”.

Moyane said he would report KPMG to Finance Minister Malusi Gigaba “to consider stopping all work currently performed by KPMG” and to blacklist the auditor.

He also said Sars would report KPMG to Parliament through Scopa and the standing committee on finance “to investigate the immoral conduct and determine the appropriate action”.

Booi said they were concerned about the possible existence of similar actions of other departments and entities.

“The withdrawal of some aspects of the Sars so-called ‘rogue unit’ report calls into question the integrity of KPMG as an auditing firm entrusted to do business with the state.”

Gordhan has also stated that he is considering taking legal action against KPMG.

“The witting and over-enthusiastic collaboration of senior KPMG personnel [whether in current employment at KPMG or not] and their collusion with nefarious characters in Sars, in fact directly contributed to ‘state capture’ and gave legitimacy to the victimisation of good, honest professionals and managers,” he said.

“It should and must be remembered that this was about attacking Sars as an institution with the main intention being to capture it.”

Gordhan said the research and investigative unit created in Sars was legal, a claim Moyane disputed today.

Moyane said there was prima facia evidence that suggested otherwise, but said an investigation into the matter will determine the full scope of this.

However, Gordhan said its activities in detecting and combatting the illicit tobacco trade and other efforts aimed at bringing an end to tax evasion, were within the law. “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,” said Gordhan.

Tomorrow, the DA’s public enterprises spokesperson Natasha Mazzone, will lay charges of fraud, racketeering and collusion against McKinsey, in terms of Section 21 of the Prevention and Combatting of Corrupt Activities Act.

“The allegations that McKinsey ignored warnings from senior South African staff, as far back as the beginning of 2013, of possible dodgy deals with Trillian, Eskom and other Gupta-linked companies must be fully investigated,” she said.

“Criminal charges are the first step in ensuring that if any wrongdoing has taken place, those responsible can be brought to book.”

In October 2013, state-owned enterprise Transnet appointed consultants McKinsey & Company to advise on deal structures and funding for a R50-billion locomotive tender.

READ: How the capture cancer spread

McKinsey agreed to subcontract part of the work to Regiments. Thereafter, the original fixed contract for R35 million ballooned to nearly R100 million, with Brian Molefe – who was heading up Transnet – and Anoj Singh – yet another Gupta associate – signing off.

Then, in February 2014, things got more interesting. One month before the tender was awarded to four train builders, Iqbal Sharma, a Gupta business partner and department of trade and industry official (who adjudicated the tender process) and his business partners acquired a stake in VR Laser Services (ostensibly via VR Laser Property), an engineering firm that is positioned to benefit from the Transnet locomotive tender through the supply chain process. His partners were Rajesh Gupta and Duduzane Zuma, the president’s son.

After the R50-billion locomotive tender to four train builders was awarded, the Guptas moved on Regiments, seemingly in a bid get their hands on the consulting contract.

When they failed, they bought into advisory firm Trillian, after which a material portion of Regiments’ work was redirected to them.

Trillian was paid about R170 million for unexplained consulting work, while it also received tens of millions for the same pieces of consulting work that Regiments had done.

Evidence has also emerged of how the proceeds of these contracts have been spirited out of the country through various Gupta-linked shell companies. – Additional reporting by Fin24

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November 18 2018