Ann Crotty Writer-at-large
Legal opinion: KPMG SA received R23m from the South African Revenue Service for a controversial report. The Companies and Intellectual Property Commission said KPMG SA knowingly failed to apply its own risk-management and quality controls. Picture: THE TIMES
Legal opinion: KPMG SA received R23m from the South African Revenue Service for a controversial report. The Companies and Intellectual Property Commission said KPMG SA knowingly failed to apply its own risk-management and quality controls. Picture: THE TIMES

The Companies and Intellectual Property Commission (CIPC) has laid criminal complaint with the police against audit firm KPMG, consulting firm McKinsey and software giant SAP in a move that is set to cause the three global service providers considerable reputational damage.

In 2017, the CIPC was instrumental in Dudu Myeni’s removal as SAA chairwoman after the CIPC’s decision to challenge her for contravening sections of the Companies Act.

The move by the CIPC, which regulates the Companies Act, is the first criminal complaint laid by a regulator against the three companies as a result of their Gupta-related activities.

In the case of KPMG and McKinsey, many of whose wealthy clients have suspended ties until the outcome of various investigations, the move represents a major blow to hopes of a speedy resolution.

On Tuesday, the CIPC confirmed that after an investigation into the contents of the leaked Gupta e-mails that it launched in July 2017, it decided in November to open a criminal case with the South African Police Service against each of the companies.

McKinsey contravened the Companies Act when it informed Eskom that Trillian was acting as its subcontractor although McKinsey had never entered into a formal subcontract with Trillian

In each case the criminal complaint was based on a contravention of section 214(1)(c) of the Companies Act, which related to making false statements, reckless conduct and non-compliance with the act.

KPMG SA’s alleged criminal activity related to the R23m it received from the South African Revenue Service for the controversial report it wrote on the tax agency. The CIPC said that in the report KPMG SA referred to legal opinions and legal conclusions as if they were opinions of KPMG SA.

"This was done despite KPMG SA knowing that providing legal advice and expressing legal opinions was outside the mandate of KPMG SA and outside the professional expertise of those working on the report," said the CIPC. It said KPMG SA knowingly failed to apply its own risk management and quality controls.

KPMG SA communications manager Nqubeko Sibiya said that the legal team dealing with the issue was not available for comment.

The Independent Regulatory Board for Auditors, which is conducting its own investigation into KPMG, welcomed the move by the CIPC.

CEO Bernard Agulhas said the board’s own efforts to strengthen oversight could not root out corruption where it was systemic.

The CIPC said McKinsey contravened the Companies Act when it informed Eskom that Trillian was acting as its subcontractor although McKinsey had never entered into a formal subcontract with Trillian. On the basis of this statement by McKinsey Eskom made a R400m payment directly to Trillian. News of the criminal charge by the South African authorities comes as the US department of justice continues to investigate McKinsey’s ties with Eskom.

On Tuesday, Corruption Watch executive director David Lewis said the freezing of assets should be followed by criminal proceedings against McKinsey, Trillian and Eskom executives and board members implicated in looting of public resources.

McKinsey spokeswoman Bonita Dordel said the firm was not involved in bribery or corruption related to Eskom.

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