No free pass for McKinsey
A draft forensic report commissioned by the National Treasury casts doubt on McKinsey’s assertion that it did not engage in corruption
A Treasury-commissioned investigation into the Gupta network’s alleged five-year looting spree at Transnet and Eskom sheds light on potentially shady dealings hitherto hidden from public view — including by global consultancy McKinsey.
The firm was paid R1bn for six months’ work with questionable benefits for Eskom, and with an invalid contract that allowed Gupta-linked financial advisory firm Trillian to pocket another R600m. McKinsey has since paid back the money — without an estimated R350m in interest — and committed to beefing up its due diligence on local partners.
In July, Kevin Sneader, McKinsey’s new global managing partner, flew to SA to deliver a grovelling apology. He said he was deeply sorry his firm had implicated itself in state capture through Trillian, and expressed deep regret that McKinsey had overcharged Eskom at a time when the utility stood on a "financial cliff edge".
One thing he was adamant about, though, based on a thorough investigation by two law firms, was that McKinsey was not implicated in corruption. "We went a lot further than a desktop analysis," Sneader told the FM. "We went into personal financial statements, text messages, the works. I believe, based on what I’ve seen, and the reviews we have done, that at this point there is no evidence of corruption that was engaged in by my firm."
However, a draft report for the Treasury by Fundudzi Forensic Services, obtained by the FM, casts some doubt on these claims. The report suggests Anoj Singh, former CFO at Transnet and Eskom, received travel benefits from McKinsey before the firm was awarded lucrative consulting deals at both entities.
It provides details of the consultancy’s involvement in Singh’s travel arrangements to attend its CFO Forum in London in June 2012. McKinsey also acted as a sponsor for Singh’s visa application for his stopover in Dubai, and made his hotel bookings at the Langham Hotel in London and the Sheraton at Frankfurt airport.
The draft Treasury report suggests Anoj Singh received travel benefits from McKinsey shortly before the firm was awarded lucrative consulting deals at Transnet and Eskom
In June 2013, McKinsey again booked Singh into the Langham for the annual forum. From there he travelled to Germany, Dubai and Russia. McKinsey arranged his flight to Moscow, booked him into the Ritz-Carlton and provided him with a tourist voucher.
One of the McKinsey partners who supplied Singh with his electronic tickets and accommodation vouchers was Vikas Sagar. He later quit the firm midway through a disciplinary hearing for playing a key role in the Trillian/McKinsey scandal.
The draft Treasury report points out that McKinsey was subsequently awarded five contracts worth a total of R1bn at Transnet over two years, before being awarded the Eskom contract with Trillian. The investigators conclude that between 2005 and 2017 Transnet paid R3.1bn to McKinsey and its partners, Regiments and Trillian.
Documents released by whistleblowers and testimony during the parliamentary inquiry into state enterprises later suggested that from 2013, a large portion of Regiments’ fees as McKinsey’s partner went to Gupta lieutenant Salim Essa, in return for opening the Transnet money taps.
The same model was apparently replicated at Eskom, which Regiments and Trillian whistleblower Mosilo Mothepu told parliament had been identified as "the next cash cow".
Internal discussion documents and e-mail correspondence show that in December 2015 Sagar took part in a meeting with Trillian CEO Eric Wood at McKinsey’s Joburg offices about carving up an expected R9.4bn in Eskom fees over four years. R5bn was to go to McKinsey and R4.4bn to Trillian, though in the end only R1.6bn was paid as the contract was cancelled after six months.
The revelation that Sagar helped with Singh’s travel arrangements is significant, given the McKinsey partner’s subsequent actions at Eskom. In February 2016 Sagar wrote to Eskom, authorising it to pay Trillian directly for its work with McKinsey, even though Trillian had no contract with either McKinsey or Eskom. Sagar’s letter resulted in Trillian being paid R595m as McKinsey’s partner at the power utility.
What it means
Travel arrangements for Anoj Singh raise new questions about dealings between Eskom and McKinsey
McKinsey insists it has done nothing wrong. It tells the FM that the Treasury-appointed investigators got the wrong end of the stick when they concluded that McKinsey had "sponsored [Singh’s] visit to London, Germany, Dubai and Russia".
"Based on an extensive review encompassing interviews, e-mail records and expense documents, our understanding is that McKinsey did not pay for Mr Singh’s airfare and hotel lodgings" for any of the trips, the company says.
It also says there is no connection between the company inviting Singh to its CFO Forum and helping arrange his travels, and the work the consultancy scored at Transnet and Eskom under his watch. "Any suggestion that Mr Singh was inappropriately singled out for an invitation or that the event did not have a legitimate business purpose is simply not accurate … Furthermore, the timing of the annual CFO Forum is set far in advance and was unconnected to any events related to Transnet."
It is "established practice" for McKinsey to provide meals to delegates during these events, but not to pay for flights or accommodation. "Our policies prohibit us from giving, paying, promising, offering or authorising the payment of anything of value (such as money, gifts, travel, entertainment) directly or indirectly to any party, including any government official."
However, McKinsey’s assistance extended beyond meals. On one occasion it picked up the tab for a train trip Singh took between Frankfurt and Stuttgart. Asked if this conflicted with its policy, the company says: "The train travel was for a legitimate business purpose and was well within the bounds of a reasonable expense for such transportation."
McKinsey also says the Treasury report is "only a draft" and that it had not been given the chance "to review these draft ‘findings’ until after they appeared in media reports".