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Corruption Watch to ask US to probe McKinsey's Eskom deals

Sep 11 2017 15:48
Lameez Omarjee

Johannesburg – Corruption Watch will soon ask the US Justice Department to probe US consultancy firm McKinsey & Company's Eskom dealings.

This was according to Corruption Watch executive director David Lewis, who was speaking on Monday at the release of the Ethical Practices Survey 2017 compiled by the Anti-intimidation and Ethical Practices Forum.

He said his organisation would target unethical behaviour at Eskom, McKinsey and the International Finance Corporation.  

Back in July, Corruption Watch said it would consult lawyers to assess whether McKinsey's business dealings with Eskom should be referred to the criminal justice authorities of both South Africa and the US. This came after Advocate Geoff Budlender released a report in June which implicated the consultancy in corruption at South Africa's power utility.

Corruption Watch said Budlender's scathing finding that McKinsey agreed to sub-contract 30% of its Eskom work to the Gupta-linked firm Trillian under the guise of ‘supplier development’ was damning.

“This is in spite of their denial of having worked on any projects on which Trillian worked as a sub-contractor to Eskom.”

On Monday Lewis explained that his body is taking on a number of efforts to stop corruption, including targeting McKinsey's questionable activities at Eskom. This included preparing court papers to have certain directors at Eskom declared delinquent, which would prevent them from serving on other boards as directors.

Lewis told Fin24 the executives in question could not yet be revealed. There is a group of which they have a “strong case” and the body is still deciding if it will take a case against another group. The papers should be finalised within the next three to four weeks, he said. 

He said Corruption Watch is preparing a submission for the US justice system to investigate McKinsey’s conduct in South Africa, “conduct which in our reading is in gross contravention of the US foreign corrupt practices act”. This is due to allegations that McKinsey engaged in bribery of a foreign entity in order to get the Eskom contract. "They paid Trillian a large amount of money for doing absolutely nothing other than getting them the contract."

“These are things our own authorities should be acting on, it is regrettable that we should have to find civil action and go to foreign jurisdictions, but that is the reality,” he said. 

Robust standards

“Our own criminal justice authorities are unlikely to act, which is why professional bodies are important, they have threatening powers of sanction, we would like to see being used more often," he said. 

He explained that professional bodies need to apply their standards robustly. They have the power to enact far-reaching sanctions, such as removing licences to practise. “You do not have to be in prison to be considered unfit to practise in your profession."

He pointed out that professional bodies' failure to act makes them facilitators of unethical behaviour, such as money laundering. They should not act when the law fails, as their remit is wider than the law, he said. “Some things are not vulnerable to a guilty finding in a criminal court.”

Professional bodies need to act against unethical behaviour, they should not be seen to only act as a substitute of the criminal justice system or a composite to it. "They have a wider set of concerns and they need to act on that.”

Lewis said that although some private sector players like KPMG and Bell Pottinger can still operate, they must be aware that there is a social licence which can be withdrawn in the “court of public opinion”.

Here the standard of proof is lower and the expectation of “minimum acceptable conduct” is higher than that of criminal courts.

He poked holes at the saying "innocent until proven guilty", adding that "the danger of this is that justice is often delayed". It suggested the only bar to holding high office in the public and private sector is being found guilty in a criminal court. "And even then huge leniency could be given."

Lewis explained that the Anti-intimidation and Ethical Practices Forum survey is important in highlighting that it is not about being found guilty in a criminal court, it is about knowing what is right and what is wrong and adhering to it.

Budlender's scathing report

In June Budlender's scathing report stated that Eskom had acquired the advisory services of McKinsey in September 2015 to the value of R1bn per year, and McKinsey subsequently subcontracted 30% of the services to Trillian. 

The subcontracting of the services was done in terms of the so-called supplier development programme which requires that international firms enter into an agreement with a local service provider, who in turn is supposed to gain experience and develop the necessary skills and benefit from part of the contract. 

Budlender suggested in his report that McKinsey had made misleading statements and stopped cooperating when confronted with evidence that it had made false statements. When Budlender during the course of his inquiry asked McKinsey’s Benedict Phiri to elaborate on the subcontract with Trillian, he denied that the consulting firm had done any work with Trillian. 

More evidence from Budlender’s report showed that McKinsey’s managers regarded the supplier development programme it was supposed to enter into with Trillian as a mere necessity, concluding that they viewed it as a sham. 

After the Budlender report was released McKinsey launched its own probe, reviewing hundreds of thousands of documents related to Eskom. The investigation “involves a detailed review of our client interactions and work at Eskom since 2012” and interactions with supply-development partners over the past three years, McKinsey told Bloomberg. Law firm Norton Rose Fulbright is helping with the probe and the outcome is yet to be released

IFC probe

Corruption Watch also submitted a complaint to the ombudsman’s office of the International Finance Corporation, the private sector financing arm of the World Bank, which Corruption Watch believes has failed to comply with its own standards by investing in Net1, Lewis said.

He added that Corruption Watch will also be following the outcomes of an investigation into auditing firm KPMG and its conduct with its clients, the Guptas. 

“The greatest single obstacle to conquering corruption, is the lack of consequence for engaging in it,” said Lewis.

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mckinsey  |  eskom  |  corruption

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