Guptas: things fall apart
New front opens in graft scandal as global firms act against executive behind family deals
A top US consultancy has moved against one of its South Africa directors as part of a widening probe involving Eskom contracts that netted a Gupta-linked entity a share of a R10-billion bonanza.
The development capped a week of bad news for the Guptas, prompting speculation that their empire in South Africa may be crumbling.
This has been reinforced by the growing possibility of charges being filed in US courts, despite the inaction shown by South African authorities.
McKinsey South Africa director Vikas Sagar has been suspended after it emerged that he misrepresented the company in a transaction involving Gupta-linked company Trillian Capital Partners and Eskom. In other developments: UK PR firm Bell Pottinger issued an apology that laid bare embarrassing details of the “white monopoly capital” Twitter campaign at the heart of a clandestine propaganda drive targeting former finance minister Pravin Gordhan. The firm revealed it had severed ties with its lead partner and suspended two senior employees who worked on the account of the family’s investment firm, Oakbay;
The ANC policy conference rejected the notion of “white monopoly capital” and discussed a resolution urging the government to curtail dealings with the family; and
More damning details emerged about the family’s takeover of Air Force Base Waterkloof in connivance with state officials.
Sagar, an Indian national with links to the family, led discussions in 2015 for top US consultancy McKinsey to partner with Trillian on Eskom mandates.
The Sunday Times has seen a spreadsheet that was discussed by Sagar and another McKinsey director, Alexander Weiss, with Trillian’s Eric Wood in December 2015, four days after the firing of former finance minister Nhlanhle Nene.
It identifies 11 key Eskom projects — including some worth more than R1.5-billion each from the generation, procurement and primary energy divisions — that would net R9.4-billion over a four-year period.
Politically exposed person
In May this year McKinsey discovered that two months after the December meeting, in February 2016, Sagar authorised Eskom to pay Trillian fees as a subcontractor to McKinsey. This was despite no contract being in place.
In all, Trillian, which still does not have a contract with Eskom, would receive close to R500-million from the power utility.
McKinsey spokesman Steve John confirmed that Sagar and the company had agreed to a temporary leave of absence while an internal investigation continues. He said the matter had not been reported to law enforcement in the US.
“Our investigation, assisted by Norton Rose Fulbright, has not discovered anything that would require us to notify US authorities. If we discover pertinent facts we will take appropriate action,” he said.
John said, however, that the matter was viewed in such a serious light that McKinsey’s global legal counsel, Jean Molino, and global risk officer, Tom Barkin, were last week deployed to South Africa to oversee the investigation. They have been joined by global MD Dominic Barton.
“We take these issues very seriously. We are committed to ascertaining facts and swiftly taking any and all appropriate action,” John said.
Two days before a meeting in December 2015 to discuss the spreadsheet, Sagar sent Wood an e-mail detailing plans of how McKinsey would help Trillian grow on the back of Eskom’s turnaround programme.
John confirmed the discussion, but said the two companies had worked together only on one Eskom mandate.
In March 2016, the plan was dealt a blow when McKinsey’s global risk committee rejected the proposed tie-up, after its due diligence identified Trillian majority shareholder and Gupta ally Salim Essa as a “politically exposed person”.
“We explored what the partnership could look like, including understanding Trillian’s capabilities . . . As a consequence of our review, we decided not to enter into a supplier development partnership with Trillian.”
A politically exposed person presents a higher risk for potential involvement in bribery and corruption by virtue of proximity to politicians and the influence they may wield. The risk associated with Essa led Trillian to cut ties with the businessman, the company said yesterday.
No contract, lots of cash
Almost R300-million of the Eskom payments to Trillian were made between April and August 2016 — in the months right after McKinsey informed Eskom of the risk committee’s decision.
A timeline of events suggests the relationship between McKinsey and Trillian came about as a result of the Gupta family’s failed attempt to purchase a controlling stake in local boutique financial advisory firm Regiments Capital.
The December meeting came less than six months after Wood’s former partner at Regiments Capital, Niven Pillay, rejected the Gupta family’s offer. Pillay this week told how Wood took him to a meeting at the Guptas’ Saxonwold compound, where one of the Gupta brothers, Tony, offered to make him a dollar billionaire if he remained as CEO when the deal went through.
Advocate Geoff Budlender SC, who was appointed by Trillian chairman Tokyo Sexwale to investigate allegations that the company was party to state capture — including having prior knowledge of the removal of Nene as finance minister — found that Eskom paid R266-million to Trillian without contracts between April and August 2016. Eskom then paid a further R152million in management fees in December of that year. None of the invoices have a contract number.
Eskom this week defended the contract, which it said had been terminated earlier this year. It said its board approved a mandate to negotiate with McKinsey and its subcontractors for a “risk-based” contract in June 2015, two months before Anoj Singh joined Eskom as chief financial officer.
“After review of the contract that included queries to the contractor, Mr Singh suggested cancellation of the contract to the
Sagar this week referred all queries to McKinsey.
An executive with intimate knowledge of the deal questioned how Trillian could have worked on Eskom mandates at the start of 2016, when the company only officially existed after March of that year.
An analyst who investigates multinational corruption in Africa said: “If it could be established that McKinsey were party to, and benefited from, corrupt deals in South Africa, they would indeed be liable for prosecution in the US under the Foreign Corrupt Practices Act. But that would depend on the circumstances.
“Keep in mind that the FCPA deals with bribery, in the broader sense, rather than conflict of interest, which appears more likely to be the transgression here. If the case could be made that McKinsey got deals by benefiting [President Jacob] Zuma or any of his ministers or children, then that would constitute bribery.”
Corruption Watch executive director David Lewis said on Wednesday that the watchdog was still consulting with lawyers about how to proceed to lodge a complaint with the US Department of Justice and request an investigation into McKinsey’s actions.
Such an application was an intricate process and the application could take weeks before it was ready.
He said the organisation had considered reporting McKinsey to South African authorities too, but “it’s more likely the US authorities will take this seriously”.
On Tuesday Corruption Watch described the Budlender report as a “scathing indictment of . . . McKinsey’s complicity”.
It said: “McKinsey’s unwillingness to co-operate with the Budlender investigation resonates loudly.”
Wyn Hornbuckle, a deputy director in the US Department of Justice, said: “As a matter of general policy, the Department of Justice will neither confirm nor deny the existence of an ongoing investigation.” At the centre of these two transactions are two executives: Eskom chief financial officer Singh and former Transnet and Eskom CEO Brian Molefe.
Molefe was behind the appointment of McKinsey at Transnet via a closed process. In mid-2015, Molefe moved to Eskom, and the appointment of McKinsey, also via a closed tender process, followed.
Both Eskom and McKinsey have defended the appointment of McKinsey, saying appointments via a closed tender process were allowed in law.
Both Molefe and Singh feature prominently in former public protector Thuli Madonsela’s investigation into the Gupta family’s alleged involvement in state capture. Molefe made a tearful exit from Eskom after the report was published last year, returned after a brief stint in parliament, and was removed by Public Enterprises Minister Lynne Brown after pressure from both the ANC and civil society.
Singh and another Eskom executive, Matshela Koko, are among several senior government figures who have been exposed for receiving undeclared holidays in Dubai paid for by the Gupta family.
Leaked Gupta e-mails show that Sagar, Essa and Tony Gupta were interacting as far back as 2013, when Sagar had a colleague at McKinsey put together a document on the valuation of a uranium/gold mine.
Sagar, using an anonymous Gmail address, forwarded the advice to Essa and Tony Gupta. ➜From Page 1 board during the first half of 2016,” Eskom said.
“Payments to McKinsey and the subcontractor [were] made in compliance with the applicable terms and conditions of the contract concluded between the parties. All payments associated with this contract [were] subjected to an external review by Oliver Wyman. The report concluded that all payments due to the contractor [were] based on prudent costs incurred and value created.”
Trillian defended its work at Eskom, saying it was all approved by Eskom’s board. “Documentation proves that McKinsey were aware of Trillian’s continued work. In fact, on May 25 2016 McKinsey wrote to Trillian congratulating the Trillian team for amazing turnaround and step change by the client in a short amount of time,” said Trevor Neethling, an external spokesman for Trillian.
An Eskom insider, after seeing the spreadsheet, said the information in it showed that the two parties had access to the parastatal’s sensitive commercial information.
“I am certain the board would have had reservations if it knew the company had such sensitive information. It definitely is concerning.”
The Sunday Times was able to confirm the payments were in relation to three mandates highlighted in the spreadsheet: a project management office (R99-million); assisting with the drafting of a corporate plan (R30-million); and financing and funding (R107-million).
McKinsey said the only work for which Sagar authorised payment for Trillian was the corporate plan.
Trillian’s Eskom coup followed an earlier audacious plan to capture a R52-billion Transnet contract to supply 1 064 locomotives to the parastatal, and which netted the Guptas R5.3-billion in fees. Scathing indictment Highlighted by Madonsela