EDITORIAL: SAP tripped up by dirty linen
The extent of corporate corruption coming to light through the Gupta saga is alarming
How disappointing that global software giant SAP reacted with a flat denial and a threat to take action against the media to reports alleging that it had paid kickbacks to a Gupta-owned company to secure a Transnet contract.
While we no longer have any expectation that SA’s law-enforcement agencies will investigate either corporate or public corruption, especially where powerful people such as the Guptas and Duduzane Zuma are involved, the same will not be true in Germany and the US, where SAP is listed.
Japanese firm Hitachi, which paid a $1m "success fee" to an ANC-owned company prior to securing the contract to build the boilers at Eskom’s Medupi plant, was fined $19m by US authorities. It was also banned from accessing further loans from the African Development Bank.
SAP can, therefore, expect to be thoroughly investigated. And with more and more big corporations becoming caught up in the state-capture web, a degree of caution and an immediate internal investigation would have been the better advised route to go.
McKinsey, on the other hand, responded with more vigour and has an independent internal investigation under way. Here the pattern is similar: by teaming up with Gupta-associated company Trillian, McKinsey was able to secure lucrative consulting contracts from state-owned entities. Trillian took a large slice of the revenue (30%), which advocate Geoff Budlender said did not appear to be linked to any work actually done by the firm.
THERE ARE OTHER NEGATIVE DEVELOPMENTAL CONSEQUENCES OF THE KICKBACK BUSINESS MODEL.
It should be noted, though, that while McKinsey’s global parent put a stop to the relationship with Trillian in midstream after it failed due-diligence tests, it sprang into action against local management only after the corruption allegations appeared in the media.
Other firms had also better take a lot more care if they are not to spoil their reputation. KPMG is in trouble for being too close to the Guptas, attending and facilitating the famous taxpayer-funded wedding by turning a blind eye to the diversion of R30m from a government development project.
The best incentive for any social actor to behave well is to be at risk of discovery. For some time, there appeared to be no consequences for corruption in SA, either public or private, and during this period, corporate malfeasance has blossomed. In recent months that has begun to change as whistle-blowers, hackers and journalists drag all sorts of dirty laundry into the open. With thousands of leaked e-mails still to be trawled through and the Gupta-Zuma bloc under siege politically, the torrent of corruption allegations will continue for some time.
Apart from the obvious problem that corporate malfeasance contributes to the degeneration of our society, there are other negative developmental consequences of the kickback business model. Prices for consulting contracts and procurements are massively inflated as the parties factor in the millions needed for the kickback.
A particularly shocking example is Transnet’s locomotive procurement programme, in which the kickback to the Guptas was a considerable R5.3bn out of a total contract value of R18bn. This meant that for every R50m locomotive that Transnet bought from China South Rail, R10m was diverted to an offshore company controlled by a Gupta associate.
Similarly, Eskom will pay an astonishing R1bn extra to Chinese company Dongfang to replace the boiler at the Duvha power station. This is 50% more than the R3bn price offered by the short-listed candidates, General Electric and Murray & Roberts, which were kicked out of the running after Eskom changed the tender procedure inexplicably.
The extent of corporate corruption coming to light through the Gupta saga is alarming.