Tech giant SAP sued over Zim sanctions ruse

Software giant ‘set up shelf company and used code names’

German software giant SAP is accused by its former Zimbabwean partner of using code names and setting up a shelf company in Botswana to circumvent EU sanctions imposed on the Harare government in 2002.

Zimbabwe-based Twenty Third Century Systems (TTCS), which was a license-andresell partner of SAP, is claiming in the Supreme Court of Appeal in Bloemfontein about R1bn from the German company for loss of revenue due to SAP terminating their agreements in 2019.

In 2021, TTCS wrote to the US Stock Exchange claiming that SAP Africa had been involved in an elaborate scheme to violate and circumvent the EU sanctions by continuing to do business with that country’s government, its entities and other companies in the country.

In the complaint, TTCS managing executive Ernest Zvinavashe said that during 2012, an SAP representative, Tarne de Beer, met their then-executive Cleopas Manyika and advised that SAP wanted to continue doing business in Zimbabwe, but through an entity to be registered by TTCS in Botswana.

“This was a clear effort on the part of SAP to avoid having to comply with the various sanctions and to continue doing business in Zimbabwe despite the sanctions ... At all relevant times SAP knew the identity of the end-user of its products, and the fact that these were Zimbabwean rather than Botswana entities ... To date TTCS Global does not have a single Botswana customer. Its sole purpose was to contract with SAP to supply SAP software solutions to Zimbabwean customers, through TTCS.

“Marketing funds were made available by SAP to fund user group activities and a committee of the user groups formed, of which the current chairman is employed by Zimbabwe Electricity Supply Authority (Zesa),” said Zvinavashe in the complaint.

He said to ensure the scheme was successful TTCS acquired a shelf company called Ibex Hill Software which was renamed TTCS Global and was then used as an agent of TTCS. This meant that TTCS would continue to work in Zimbabwe but would procure SAP software for Zimbabwean customers through TTCS Global. As a result, TTCS Global entered into a “value-added reseller agreement with SAP” in 2012.

SAP, which this year was fined by US authorities for alleged corrupt dealings in countries such as South Africa, Zimbabwe, Tanzania, Kenya, Malawi and others, agreed to pay back more than $220m (R4.14bn) in disgorgement and criminal conduct penalties.

According to Zvinavashe’s complaint, after the establishment of TTCS Global, SAP acquired new customers in Zimbabwe which included Zesa, Zesa pension fund, Zimbabwe Consolidated Diamond Company (ZCDC), Mbada Diamonds and others.

“The names of the customers listed above were “disguised” by SAP on its systems. This was done by SAP requesting that TTCS register a new company in Botswana to correspond with each of the Zimbabwean customers. These Botswana entities are nothing more than shell companies, but it is the names of these companies that SAP included on its invoices and statements of account that it provided to TTCS through TTCS Global,” said Zvinavashe.

He said entities such as Zesa were given code names and reflected on SAP’s books as Brainbox Botswana. Zesa pension fund was referred to as Xylaphone, ZCDC as Silicium and Mbada as Frogden. Zvinavashe said after the EU relaxed sanctions in 2014 and SAP wanted to deal with its Zimbabwean customers directly in 2018 it requested TTCS Global to help it correct its records to reflect the correct names of its customers rather than the code names.

SAP deputy head for global public relations Marcus Winkler told the Sunday Times that they could not answer all the detailed questions but that the company was “fully transparent and co-operative” with law enforcement.

“On January 10 2024, SAP entered into a global resolution to resolve all matters before the US Securities & Exchange Commission, the US department of justice and other authorities ... SAP maintains a strong commitment to ethics and compliance, including compliance with all applicable economic sanctions and export control laws, including those of the EU, Germany and the US,” said Winkler.

He said SAP had terminated its partnership status with TTCS in 2019 after a comprehensive investigation.

“SAP is currently in litigation with TTCS over SAP’s decision to terminate them. We do not comment on pending litigation,” he said.

In July 2019, SAP terminated its partnership with TTCS, saying it had found “significant corruption allegations” against TTCS which constituted breaches.

This was subsequent to allegations which emerged in the media that TTCS and SAP had allegedly bribed officials at the Tanzania Ports Authority to win a $6.6m enterprise resource planning software tender.

However TTCS, which lost its R1bn lawsuit against SAP in the Johannesburg high court in February 2022, was granted leave to appeal by the Supreme Court which will hear the case this year. In the court case, TTCS claims SAP factually and incorrectly sent a letter which led SAP Africa to unlawfully and incorrectly advise TTCS’s customers that they were not accredited to sell, service or maintain SAP software.

TTCS claims that this and the termination led it to losing customers and money amounting to R1bn in SAP licences which were ordered but could not be used, maintenance fees, implementation fees, support services and business opportunities.

But SAP argues that it was within its rights to terminate the agreements as TTCS was in breach because of the corruption allegations and had refused an internal audit request for it to supply data that was necessary for SAP to verify TTCS’s business activities which involved its licences.

The EU said it was unable to comment on individual cases which would need to be investigated by EU member states that are ultimately responsible for the enforcement of EU sanctions.

“In general terms, the EU measures in place in view of the situation in Zimbabwe consist of an embargo on arms and equipment which might be used for internal repression, and a targeted assets freeze against one entity, Zimbabwe Defence Industries. So there is no horizontal ban on business in general.

“The competent authorities in the member states have to assess whether there has been a breach of the legislation and to take adequate steps in line with national legislation,” said the EU in a statement.