S. Africa scandal snares big firms
Ruling party’s graft case seen as threat to global companies
JOHANNESBURG — South Africa’s biggest corruption case since the end of apartheid has entangled not only the president and ruling party but also some major international companies, including two U.S. companies, McKinsey and KPMG.
The scandal has weakened the ruling African National Congress, which meets this week to choose a new party leader who likely will become the country’s next president in 2019.
The web of allegations that has threatened to take down President Jacob Zuma and briefly sent the country into recession this year includes illicit dealings with state-owned companies and other multinational firms, including German software giant SAP and British public relations company Bell Pottinger.
The sprawling scandal centers on Zuma’s close associates, the Gupta family of Indian immigrant businessmen, who are under investigation by a parliamentary committee for influencing Cabinet appointments and leveraging their friendship with the president to land government contracts worth hundreds of millions of dollars.
The extent of the Guptas’ interests were revealed in thousands of emails apparently leaked from a Gupta company server and verified
by a team of South African investigative journalists. One allegation is that the Guptas raided a fund for rural dairies to pay $2 million for a lavish wedding. Another, detailed by South Africa’s independent ombudsman in a 2016 report, is that Ajay Gupta offered the job of finance minister and $45 million to Mcebisi Jonas, who has testified that he refused.
In a rare response to questions, Atul Gupta told The Associated Press that the allegations against his family are “nonsense” and part of a “twisted narrative being peddled by powerful forces with powerful vested interests.”
Despite mounting evidence, there have been no arrests or charges. The head of the state prosecuting authority, the police and an elite crime intelligence unit called the Hawks were appointed by Zuma and are unlikely to take action against the president.
Frustrated, civil-society groups and the main opposition party, the Democratic Alliance, have pressed for action outside South Africa, which has been damaging for international companies that did business with the Gupta family. British authorities are looking into whether British banks
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SAP admitted it paid kickbacks of $6.4 million to a Gupta-owned company to win government contracts. Because SAP is listed on the New York Stock Exchange, the company reported its South African dealings to the Securities and Exchange Commission and Department of Justice.
Management consultancy McKinsey was found by its own investigation to have committed “errors of judgment and process” in its contracts with South Africa’s power utility. Two of South Africa’s biggest
banks have ended their contracts with the firm. And the nonprofit Corruption Watch said it is preparing to ask the U.S. Department of Justice to investigate McKinsey’s work with Eskom for violations of the Foreign Corrupt Practices Act.
Brothers Atul, Ajay and Rajesh Gupta, who moved from India beginning in 1993, rose in prominence as South Africa transitioned from apartheid to democracy and a new political order took power. They built a computer hardware business into a conglomerate with stakes in media, mining and technology, relying heavily on contracts with state-owned companies.
Atul Gupta was ranked the seventh-richest South African in 2016 with personal wealth estimated at $735 million, based on the disclosed holdings of companies on the Johannesburg Stock Exchange.
The Guptas deny that state contracts are a main part of their operations. “We have been successful because we entered an uncompetitive economy 20 years ago and were able to undercut the competition,” Atul Gupta told AP. Running companies employing tens of thousands of people, “we of course came into contact regularly with politicians” including Zuma, he said in an email.
The Guptas became Zuma’s
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The civic organization Save South Africa is calling for other global companies that had business dealings with the Guptas to come clean.
“The public storm is not over,” it said. “Multinationals must realize that while South Africa is open for business, it is not open for business that tears apart our political and social fabric, loots our national assets and undermines the rule of law.”