South Africa could have been milked billions of rand in what appears to be a collusion between the infamous Gupta family and; leading private and state-owned companies, which is now widely referred to as State-capture. Although details are still emerging, a number of international companies and state-owned entities, have been fingered in what appears to be the worst ever scandal in post independent South Africa. This, coming hot on the heels of the recent downgrading of South Africa by global credit rating agencies to the “junk status” following a number of policy decisions, could lead the country’s economy on a perilous path.

Rights groups are pressing for those implicated in the Gupta scandal to be prosecuted both in South Africa and in their home countries, with calls for those found to have transgressed to return the ill-gotten loot to South Africa.


In this special report, we focus on some of the deals that have come under spotlight in recent weeks, we also look at the quantum of the loot.

International companies linked to the deals


ABB (approx value of contract: R1,5 Billion)


In April 2015, Eskom announced the termination of about R1-billion control and instrumentation (C&I) works contract placed with Alstom in 2011 for its 4,800 MW Kusile power station, which was under construction near eMalahleni, Mpumalanga. Shortly thereafter, Eskom announced that it had appointed leading technology group ABB South Africa instead.

The ABB contract was valued at about US $160 million (approx. R1,5 billion), and it is understood that ABB essentially started the C&I Works at Kusile from scratch.

In addition to payment for work already completed, Eskom had to pay a cancellation fee of some R40 million to Alstom to achieve a consensual termination agreement on a “co-operative walk-away basis”. The cancellation delayed the Kusile project by about a year.

ABB and Siemens submitted tenders for the new C&I contract.  While ABB’s tender is believed to have been 25% higher than that of Siemens’s ABB was selected ahead of Siemens after it undertook to complete the project earlier than the former.





EOH - R300-million (according to disclosure by Dlamini  in Parliament in March 2017)


EOH is a South African business and the largest technology services organization in Africa. The JSE-listed group has strong empowerment credentials and  12,500-strong workforce.

EOH - has the highest broad-based black economic empowerment rating and has grown exponentially over the past decade, mostly by gobbling up smaller companies. It earned R12.7-billion last year. EOH is one of several bidders that have already made proposals to Sassa for a proprietary payment system. One of the firms it bought was owned by father and son Danny and Jehan Mackay. Danny was given a seat on EOH’s board and Jehan was appointed as an EOH executive. They took a 5% stake in EOH


Key points:

  • Dlamini has pushed for a proprietary system, which would appear to favour private technology firms like EOH

  • Early this year, EOH responded to Sassa’s “request for information” from companies that wanted to distribute social grants for Sassa in future

  • Lunga Ncwane - The middleman who believed to be the connector of Social Development Minister Bathabile Dlamini to grants contractor Cash Paymaster Services (CPS) has been living in a R65-million mansion courtesy of two directors from JSE-listed group EOH. At time of reporting Ncwana has since vacated the house to occupy  his multi million house.



SAP (R100 Million)

SAP is the world’s largest business software company - founded in 1972 and headquartered in Walldorf, Germany. The software giant provides software systems to multinational corporations and governments.To clinch Transnet (state owned company) business, business software giant SAP agreed to pay 10% “sales commission” to a company controlled by the Guptas. Reports suggests the company – a little-known outpost of the Gupta empire – was deliberately interposed to obscure Gupta involvement and to launder the proceeds to them.  The world’s third largest software company in August 2015 signed a “sales commission agreement” with a small Gupta-controlled company that specialises in selling 3D printers.

The terms suggest a thinly disguised kickback arrangement: If the Gupta company were the “effective cause” of SAP landing a Transnet contract worth R100-million or more, it would get 10%. In the year to follow, SAP paid the company, CAD House, a whopping R99.9-million, suggesting SAP used the Gupta influence network to drive sales of a billion rand to Transnet and other state-owned companies. SAP denies it paid kickbacks or was party to laundering the payments, arguing that CAD House had “the necessary skills in terms of positioning our solution” and was paid a sales commission for acting as “an extension of the sales force”.

This week SAP suspended its management staff in South Africa in reaction to the corruption allegations. The software company has also launched an internal review and indicated that it will make the results of the investigation public once it has been concluded.




DENEL


Denel is another state owned entity that has been implicated in the Gupta corruption scandal. The Gupta family set themselves up to sell state arms manufacturer Denel’s weapons to India in a deal involving a shady Indian fixer and a powerful tycoon close to prime minister Narendra Modi. The Guptas arranged to sideline Denel and take the biggest share for themselves even though it was Denel’s proprietary technology that was to be sold.

These details are revealed in the recent reports by Amabhungane, a trove of electronic data sourced from the heart of the Guptas’ business empire by the Investigative centre.

According to the reports in January 2016, Denel announced the formation of Denel Asia, a Hong Kong-based joint venture that it controlled, holding 51%. The rest belonged to a company registered to Gupta lieutenant Salim Essa. Defending themselves against criticism at the time, Denel and the Guptas claimed that the Gupta family had no interest in the Essa company, VR Laser Asia, and by implication in Denel Asia. Recent reports indicated that they were misleading South Africans.

According to information shared by Amabhungane, Denel officials knew the overriding purpose of setting up Denel Asia was to sell arms to India – targeting more than US$8-billion in deals there – via a second joint venture called Denel India. In Denel India, Denel’s participation was watered down to just 25%. The Guptas, who brought little to the table besides their political connectivity in South Africa and India, planned to wield a controlling 42% stake – exercised via Essa and their brother-in-law, Anil Gupta.


KPMG

KPMG is a global network of independent member firms offering audit, tax and advisory services. Their member firms’ clients include business corporations, governments, public sector agencies and not-for-profit organisations. KPMG is trusted for a consistent standard of service based on high order professional capabilities, industry insight and local knowledge. Lately the respected global auditing firm has not lived up to its standard if the recent reports are anything to go by. KPMG is no stranger to controversy. Its report was used to pursue Pravin Gordhan during his tenure as Finance Minister.

This report was later disputed and dismissed as irrelevant because it was a draft report. KPMG is in the news again, due to its links with the Guptas. This time around for the matter that relates to them not raising concerns about payment for wedding expenses.

According to an investigation conducted by amaBhungane, Linkway, a Gupta company, “paid” for the wedding expenses; and was “reimbursed” by the supposedly unrelated Accurate Investments.

KPMG offered no explanation in Linkway’s audited financials why a supposedly unrelated third party in Dubai would pick up the Guptas’ R30million wedding bill - or why a wedding was a bona fide business expense. The net effect of this accounting sleight-of-hand is that not only was the wedding effectively paid for from funds diverted from the Free State government’s coffers, but the Guptas paid no income tax on this windfall.

This income was offset against Linkway’s expenses, resulting in Linkway’s receiving zero taxable income from its Free State windfall.

 

McKinsey

McKinsey is a worldwide management consulting firm that conducts qualitative and quantitative analyses in order to evaluate management decisions across the public and private sectors.

This “trusted” consulting firm has also been embroiled in a scandal related to the

Guptas. It was hired by Eskom for R1billion to improve efficiencies and cut wasteful expenditure. Instead the deal McKinsey struck with Trillian Capital Partners mocked Eskom’s problems by handing at least R266million of Eskom’s money to a company that in the words of McKinsey’s own executives’ was merely there to receive 30percent of the contract “in return for not much work”.

In the past few days advocate Geoff Budlender released his report into allegations of state capture carried out by Trillian, the company majority-owned by Gupta associate Salim Essa.The report details how McKinsey agreed to subcontract 30percent of their Eskom work to Trillian under the guise of “supplier development”, a programme intended to up-skill small, black-owned businesses.

Instead documents from Budlender’s report as well as in the #GuptaLeaks show that Trillian planned to siphon huge chunks of the money it received to a company part-owned by the Guptas and another company in Dubai.

This information has been presented to highlight even more the extent to which the corporate sector contributes to corruption. It is hoped that this information can assist in the process of alleviating corruption in South Africa. Local businesses with capability to carry out some of the contracts highlighted in this report lose out due to corruption.

As part of transforming the economy it is important to highlight the contributors to lack of local economic development.

The Corporate Corruption Report will be updated over time to add more similar companies that are negatively impacting on the South African economic well-being.