STUART THEOBALD: Jooste's deeds exact a heavy toll on corporate SA

There are few who will mourn Markus Jooste but many who will mourn his actions, which severely damaged SA’s reputation as a trustworthy investment destination. In 2016, the year before the Steinhoff debacle emerged, SA was ranked first in the world for the “strength of auditing and reporting standards” in the World Economic Forum’s global competitiveness index. By the 2018 edition, it had plummeted to 55th.

Steinhoff was an international behemoth with 11,000 stores, but perhaps best described as both South African and German. Technically its official residence was the Netherlands, which afforded it tax advantages. But in the minds of global investors it was very much a creature of the southern tip of Africa, helped by the fact that its executive leadership consisted almost entirely of SA nationals.

At its peak it was worth more than R330bn and a proud member of the JSE’s top 40 index as a home-grown global titan vying to share that status with Anglo American, SAB and Naspers. Then the fateful day in December 2017 arrived and Steinhoff’s auditor withdrew its opinion on the group’s financial statements. That and the ultimately unsuccessful five-year effort to resuscitate the business cost investors billions of rand.

It severely damaged SA’s standing as the most sophisticated emerging market, where company numbers could be relied on by investors, a differentiator from otherwise competitive markets such as Russia, Brazil and Turkey. The collapse of Germany’s home-grown listed tech champion, Wirecard, in a similar mess of fraud and fictitious accounting in 2020 compounded matters. You might have thought investors would have concluded from the collapse of the two German-listed giants that fraud happens anywhere. But SA was forever to be the place that created Steinhoff, while Wirecard was simply one of those things that happens to investors, a risk that is managed through diverse portfolios.

SA remains unforgiven for Steinhoff, largely because of our failure to bring to book those who were responsible. German investigators have done far more to deliver justice than their SA counterparts. An arrest warrant for Jooste was issued in June 2023. The two non-SA executives who worked closest with Jooste, Dirk Schreiber and Siegmar Schmidt, were successfully prosecuted in Germany last year. Schreiber was sentenced to three-and-a-half years in jail with one year suspended, while Schmidt was given a two-year suspended sentence. The Germans had been working on an extradition request for Jooste.

Even though the Germans have done more to bring people to book over Steinhoff, it has been slow by their standards. Wirecard CEO Markus Braun was charged within two years of that collapse and languishes in jail, though the trial continues. Singaporean authorities were swifter in the case of Wirecard, jailing the two senior Asian executives, where much of the fraud took place, in mid-2023.

Swift investigation

That doesn’t top the Americans, who charged Sam Bankman-Fried with fraud only a month after the collapse of FTX, the cryptocurrency firm, and had him incarcerated before his trial. He was found guilty less than a year after the collapse of FTX, and several other trials on further charges continue.

Global confidence in SA as an investment destination is severely damaged by the lack of successful criminal consequences for those who defraud investors. Investing is about risk, and there is always some risk that a criminal conspiracy is under way to mislead you. But that risk is diminished in markets where investigation is swift and prosecutions competent. That Jooste was living in luxury in a Hermanus mansion almost seven years after the scandal broke is an embarrassment.

The chickens were, though, on their way home. The day before his death the Financial Services Conduct Authority had fined Jooste a record R475m for publishing false and misleading financial statements in a decision that pinned the blame for the collapse very much on him.

Perhaps more damaging to his lifestyle was the move by the SA Reserve Bank in October 2022 to freeze his assets for foreign exchange control violations, which was the first real consequence Jooste faced. These are well and good, but a proper criminal prosecution was needed. That looked set to finally get into gear with Jooste and with his former legal head, Stephanus Grobler, due to hand themselves to the Hawks on Friday. The special police unit had been helped in their investigation by a 2019 report by PwC that had thoroughly investigated the collapse of Steinhoff, along with the FSCA’s investigation and findings. Jooste’s death the day before meant he avoided that spectacle.

The investigation and prosecution of all those linked to the Steinhoff fraud must obviously continue. It is essential to restoring SA’s reputation as a trusted place for investors. Jooste’s legacy cannot be allowed to become the death of SA’s investment reputation.

• Theobald is chair of research-led consultancy Krutham.