Why NGOs are seeking a Net1 funding probe
Corruption Watch, Black Sash and Equal Education call for a review of the IFC’s decision to invest $107m despite ethical lapse
Corruption Watch, Black Sash and Equal Education want a formal investigation into the International Finance Corporation’s (IFC’s) decision to invest $107m million in Net1 UEPS despite the existence of overwhelming evidence of unlawful and unethical practices involving Net1.
The three NGOs nongovernment organisations (NGOs) are hoping to persuade the IFC’s compliance advisoradviser/ombudsman (CAO) that it should conduct a compliance appraisal and investigation into the IFC’s Net1 investment, which was made in April 2016.
The NGOs’ concerns relate to Net1’s involvement, through its subsidiary Cash Paymaster Services, in the distribution of social grants.
"It is clear that evidence of unethical and potentially unlawful conduct by CPS [Cash Paymaster Services] existed at the time at which the IFC, a member of the World Bank Group, made its investment and that the lack of due diligence in respect of the investment is in breach of several provisions of the IFC policy on environment and social sustainability," said Leanne Govindsamy of Corruption Watch.
"We have also submitted that the IFC has not taken sufficient steps to supervise and monitor the conduct of Net1 and its subsidiaries or to put measures in place to address and rectify impugned conduct."
The NGOs, which have worked closely with social grant recipients for a number of years, are hoping an investigation will help the IFC and World Bank to understand the "multitude of issues" involved in providing finance in developing countries.
"We’re hoping they will put in mechanisms or oversight capacity that would ensure their investment activity is in line with their social and ethical policy," said Govindsamy.
In an announcement issued on Thursday the NGOs referred to unauthorised and fraudulent deductions from the social grants to the benefit of Net1 subsidiaries as well as unlawful and unethical use of beneficiary information.
It also referred to findings by the Constitutional Court implicating Net1 subsidiaries in unethical business practices.
A spokesman for IFC said it was aware that a complaint had been sent to the CAO compliance office regarding its investment in Net1.
"IFC respects the integrity and independence of the CAO [compliance adviser/ombudsman] to consider the issues raised and determine whether to accept this case."
The CAO compliance office has 15 days to decide if the NGOs’ complaint meets the eligibility criteria. If it accepts the complaint it has 120 days to investigate probe the matter.
Although the IFC has 135 investments in SASouth Africa, making it the country the fifth most important investment destination for the institution, there has been limited engagement with the compliance office. In the aftermath of the Marikana shootings in August 2012 the vice-president of the CAO office initiated a compliance appraisal of the IFC’s $150m million commitment to Lonmin, which was made in 2006.
The appraisal considered how the IFC reviewed, intera-cted with and advised its client on matters related to labour conflict, and how the IFC assured itself of the implementation of relevant IFC policy provisions. The appraisal report raised concerns about the adequacy of the IFC’s performance.
However because there was no complaint from affected workers the CAO office concluded that a link with the tragic outcomes was not sufficiently established and closed the case.
A second Lonmin-related compliance appraisal was initiated in June 2015 by local community members.
The This second complaint related to the environmental degradation caused by Lonmin and the negative impact effect on living conditions in the area.