Inside the SAP bribery scandal
● A City of Johannesburg official and an employee of German software giant SAP discussed a R2.2m bribe, and how to cover it up, in an exchange of text messages laid bare for the first time in a US court.
The exchange, which notes the bribe was being paid into the bank account of a political party in South Africa, came to light in US department of justice documents obtained by the Sunday Times.
The new details give forensic insight into how the multinational greased the palms of officials at the Joburg metro and parastatals such as Transnet and Eskom.
Though much of the information had already come to light or been hinted at by the Zondo commission of inquiry into state capture, questions are now being asked as to why bribed local officials have not yet been punished.
Documents in the US court for the eastern district of Virginia revealed that an unnamed former Gauteng Gambling Board executive, referred to as “Gauteng Official 1”, but known to the authorities, received millions of rands in kickbacks from the R9m in bribes SAP paid to a company referred to as “Intermediary 3”.
The bribes were paid by SAP between November 2013 and September 2014 after it had partnered with Intermediary 3 to score multimillion-rand contracts with the City of Tshwane and other government agencies.
SAP’s modus operandi in the elaborate scheme was to appoint business development partners, such as Gupta family companies, as intermediaries to disburse bribes for the benefit of government or state-owned enterprise officials. As a result the company made more than R1bn in profit.
These details are contained in a statement of facts attached to the deferred prosecution agreement, in which SAP agreed to pay back more than $220m (R4.14bn) in disgorgement and criminal conduct penalties after admitting to corrupt activities involving bribing government officials in South Africa and other countries.
The court documents state that in August 2016 an SAP employee referred to as “Employee 2” and City of Johannesburg “CoJ Official 1” exchanged text messages to discuss a bribe to secure a R246m contract for a licence consolidation tender in the city.
“[CoJ Official 1 asked] should I give [SAP Employee 2] the bank account or you’ll give me cash,” read the court papers. “On or about August 1 2016, in response to the mes
sage ... SAP Employee 2 responded, requesting account information, and CoJ Official 1 transmitted account details for a political party’s bank account,” US authorities said in the court papers.
On August 26 2016 “SAP Employee 2” paid about R2.2m to “Intermediary 1” and this was “falsely recorded in SAP SA’s books and records as a sales commission”.
“On or about August 29 2015, Intermediary 1 transferred approximately 2,200,000 South African rand to an entity understood by the managing director of Intermediary 1 and SAP Employee 2 to be associated with a CoJ official,” say the court papers.
This was over and above CoJ officials being taken on a golf jaunt to New York in May and September 2015 after being wined and dined by SAP.
US authorities said the 2015/16 contract with the city led to SAP’s revenue being five times more than the previous contracts it had entered into with the city.
The Zondo commission report contained evidence submitted to the commission alleging that the late former Johannesburg mayor Geoff Makhubo; his associate Patrick Makhubedu, a business development executive at IT services company EOH; and Jehan McKay, a then EOH executive director “conspired corruptly” to appoint SAP.
“The first was a contract awarded to SAP without any competitive procurement process on the basis of an unsolicited proposal for the upgrading of the city’s network and security infrastructure. The second was the contract awarded to SAP under tender COJ A647, a SAP upgrade contract for the period June 2016 to June 2019,” said Zondo in his report.
McKay and Makhubedu told the Sunday Times they had never had anything to do with the SAP contract.
“Our client categorically denies any knowledge of, or involvement in, allegations concerning SAP’s appointment at COJ or any bribery activities by SAP towards COJ officials,” said Quentin Olivier, responding on behalf of Makhubedu. “Importantly, our client has no past or present affiliation or connection with SAP.”
Mackay denied involvement, saying he was never called to the Zondo commission to testify. “We had no involvement, that was a deal directly done between SAP and City of Johannesburg. I was never called by the commission to clarify any of those facts. We had an SAP support tender which was awarded to EOH which was the one that they highlighted, we had no dealings with the provisioning of licensing,” he said.
City of Johannesburg spokesperson Nthatisi Modingoane said he had no knowledge of an SAP-sponsored trip to the US. “However, in the wake of these revelations the group forensic and investigation services will institute an investigation and present a report to council for decision,” he said.
Zondo’s report detailed how between 2008 and 2018, when Makhubo was Johannesburg finance MMC and ANC regional treasurer, he allegedly influenced tenders in favour of suppliers including EOH in exchange for millions in kickbacks to the party and his associated company, Molelwane.
US authorities said SAP started co-operating with the US fraud section department after 2017 media reports alleging corruption in the company’s dealings with South African government officials.
“The company withheld bonuses totalling $109,141 [more than R2m] during the course of its internal investigation from employees who engaged in suspected wrongdoing ... SAP engaged in a scheme to bribe South African officials and to falsify SAP’s books, records, and accounts, all with a goal of obtaining improper advantages ... In furtherance of this conspiracy, SAP relied, in part, on third-party intermediaries to facilitate payments to South African officials and other parties with no legitimate business purpose,” read the court papers.
Authorities also found that SAP scored a multimillion-rand contract at the department of water & sanitation by paying a R3m bribe to an unnamed official there. While the bribery scandal only blew up this week, SAP had been ordered by the Special Tribunal two years ago to pay the department R81m for an irregular software licence contract.
Department of water & sanitation spokesperson Wisane Mavasa said she had no knowledge of the alleged bribe of an official by SAP but said Zandile Makhathini-Neer, who was deputy director-general for national water resource infrastructure, was dismissed for misconduct and dereliction of her duties over the SAP contract. “She was the end-user who initiated the project,” said Mavasa.
The National Prosecuting Authority (NPA) said through co-operation with the US department of justice, SAP had agreed to pay R2.2bn to South Africa.
“Over and above these restitution payments, SAP will pay an amount of R750m into South Africa’s criminal assets recovery account as punitive reparation payments, in recognition of the social and economic harm caused by its conduct in South Africa. This R750m punitive payment will be credited against a total fine of $118.8m [R2.218bn at current exchange rates] to be paid by SAP in the US under the co-ordinated US Resolution,” the NPA said.