By Peter O’Brien

Cases of corruption are so common that you need a good excuse to write about another one. So how do we justify commenting on the South African scandals involving the Gupta family, at least one of the country’ most significant state-owned enterprises (SOE), a slew of well-known international firms, prominent local law offices, the uses of public law and actions of key monitoring and regulatory bodies –and ultimately the chronic misuse of political power for private gain? The justification is that what has been happening in RSA reveals in the clearest and richest form the way corruption behavior and patterns evolve across the globe. The Gupta model allows us to spell out exactly what to expect elsewhere. In a word, Gupta is generic, it is the DNA for the species.

Where should we start among the several streams that form part of the big river that is Gupta?  Let’s take a wedding as entry point. In 2013, four partners of KPMG South Africa attended a wedding, held in Sun City and spread over four days, of a prominent Gupta family member. The reported bill for the event was around R30mn. That cost was put down in the 2014 accounts, audited by KPMG South Africa, as a business expense of an RSA registered company, Linkway Trading, controlled by the Gupta family.  Linkway had received funds, to the tune of more than $8mn, from another Gupta controlled entity called Estina, which is a dairy producing enterprise in the Orange Free State. Estina itself was at that time receiving substantial subsidies (reported by 2014 to amount to some R210mn) from the Orange Free State government.

Examination of emails obtained from KPMG showed that, from 2008 onwards, the firm had helped the Gupta group to establish at least 36 entities, mostly shell companies set up in Dubai. It appears that Linkway had received the money for the wedding from one such firm – after transferring at least part of the Estina subsidy cash to Dubai. In short: Orange Free State government money intended to help the dairy industry in that State was being spent to pay for a wedding in the Gupta family, that expenditure was then made tax deductible for a Gupta owned firm audited by KPMG South Africa, and partners of KPMG were invited to the wedding financed by the subsidy money (at which wedding it seems likely that more than the bride and groom were being toasted). Who was being milked in the whole process? Answer: the tax payers in RSA.

The Independent Regulatory Board for Auditors (IRBA) in South Africa was already uneasy about KPMG/Gupta group relations in 2014, and began enquiries in that year. In 2015 KPMG itself was also clearly feeling jittery, so it terminated its 15 year relationship with Linkway. While IRBA work was going on, KPMG involvement in another serious matter, the so-called SARS (South Africa Revenue Service) case, was under scrutiny and the firm claims that it terminated that relationship as well in March 2016. By the following month, April 2016, the Head of KPMG in RSA decided to terminate services to Gupta related firms, citing “association risk” to other KPMG business. Furthermore, the Companies and Intellectual Property Commission (CIPC), the official body responsible for compliance with the RSA Companies Act, began to check behavior of three KPMG Directors to discover whether that was compliant with legal stipulations. As of now (late September 2017), even the Institute of Directors of Southern Africa has suspended all “cobranding activities” with KPMG, to limit possible image damage to other firms stemming from association with that entity. Corporate corruption is clearly a transmissible disease. Once a virulent strain is identified, everyone seeks to protect themselves.

The second major process concerns McKinsey, Eskom (a major, perhaps the major, SOE), and Trillian Capital Partners (a private RSA financial advisory firm linked with the Gupta family). Here the corruption chain centers around public tenders and the allocation of monies related to them. Some three years ago McKinsey was awarded contracts by Eskom worth around one half of McKinsey’s total revenue in the country. In 2015-2016, approximately 30% of this contract money was paid to Trillian, allegedly because Trillian was a company subcontracted by McKinsey to help fulfil the undertakings with ESKOM. The investigative work surrounding these transactions, work which includes the Budlender Report delivered on 29 June 2017 to the current non-executive President of Trillian, Tokyo Sexwale, indicates very strongly that Trillian has not performed any substantive work in return for the very large amounts of money it has received (based on accounts data, paid invoices and similar information, ESKOM has paid approximately R1.6bn to McKinsey and Trillian).

McKinsey must have realized at a relatively early stage that the whole process was dubious. In March 2016 it ended its relationship with Trillian, and in June 2016 did the same with ESKOM. When, at the beginning of 2017, Budlender was asked to investigate Trillian dealings, the issues he was requested to examine included (but were not confined to) the politically exceptionally delicate matter of the dismissal, in 2014, of the then RSA Finance Minister Nene and his replacement by Minister Van Rooyen. Specifically, Budlender was asked to determine whether the CEO of Trillian had prior knowledge of the dismissal; if so, whether Trillian had used such information for commercial purposes; whether Trillian had provided the Special advisor to the new Finance Minister and that this person would arrange for public tenders from the National Treasury and SOEs to be directed (at least in part) towards Trillian; and whether Trillian had subsequently invoiced some SOE for work which had not been done.

Budlender’s report, of 29 June 2017, lists a veritable litany of instances where Trillian totally failed to cooperate with an enquiry which had been launched by the firm itself. The mechanisms through which it stonewalled, employing the services of a well- known RSA law firm to do this, are set out in the report. Given non-cooperation, definitive proof of the various illegalities alleged to have been committed by Trilian, ESKOM officials, McKinsey and possibly others, has so far proved impossible to obtain. It is for that reason that Budlender concludes, inter alia, that an official enquiry is required which would thus allow persons and documents to be sub-paened.

This month, September 2017, Corruption Watch South Africa has laid Corruption and Bribery Charges against McKinsey in front of the US Justice Department. On the basis of the material summarized here, plus additional information, McKinsey is being accused under the Foreign Corruption Practices Act. Corruption Watch has noted that a number of McKinsey staff had not been in favor of the linkages with Trillian but that their misgivings had apparently been ignored by senior management.

The third issue concerns a very well- known public relations firm called Bell Pottinger. In January 2016 it was hired by a private South African firm, Oakbay Investments Productivity Limited. Oakbay also has significant links with the Gupta family. Bell Pottinger was asked to work on two things: corporate communications, and a campaign to promote “economic emancipation”. This fine sounding phrase was a front for an effort to shift the investment field in  favor of certain groups in the population. Both the aim of the campaign, and the specific way it was carried out, led to Bell Pottinger being accused of fueling racial tensions in RSA.

Bell Pottinger has claimed that it only took on these “high risk clients” and “high risk mandates” after much discussion at top level. It seems safe to say that the heads of the company figured that the prospective rewards justified the risks. The work continued until April 2017, by which time there was so much adverse publicity hitting this public relations firm that it called a halt. It asked an RSA law firm, Herbert Smith Freekills LLP, to look into possible failings of its decision making and monitoring procedures. The brief summary of that report which is publicly available concludes that there was indeed poor management and poor monitoring. Bell Pottinger has responded by saying that it will “develop an ethics committee”, “develop and train staff on social media policy”, and “reissue corporate policy in a new employee handbook”. This verbiage carries as much conviction as the English Prime Minister (still, as I write) Theresa May, claiming she wants a “strong and special relationship with the EU”.

The Democratic Alliance of South Africa, noting what had happened, accused Bell Pottinger of “exploiting racial tensions on behalf of the Gupta family”, and took its complaint to the Public Relations and Communications Association (PRCA). This an international professional body comprising some 20,000 members in 55 countries. It seeks to create, maintain and monitor the highest professional standards in this ever more delicate field. PRCA began its investigation on 5 July, and both the Democratic Alliance and Bell Pottinger presented written and oral evidence. The Professional Practices Committee of PRCA delivered its verdict on 18 August. Bell Pottinger appealed the verdict but the Board of PRCA confirmed the verdict on 4 September.

The conclusions are damning. Bell Pottinger was found to have breached four very important clauses of the PRCA code of conduct. The behavior of the firm was held to have been faulty at every level and to have brought the reputation of the industry into disrepute. Bell Pottinger has been expelled as a member of the PRCA. This is the most severe penalty ever imposed in the near 50 year existence of PRCA.

The three cases allow us to describe the key features of the anatomy of corruption.

First, public and private entities, and their governing bodies/principal officials, are always tempted to sail very close to the wind. Enough prospective rewards will induce almost every group to take major risks.

Second, where there is political protection from the top of the State, the chains involving Ministries, SOE, Private firms and sometimes legal entities can divert and misuse public monies.

Third, the costs suffered by an economy/society will usually come in various forms. These include direct theft of funds; excess costs of investments and operations financed by public funds; loss of confidence in public institutions; and international damage to the reputation of the country.

Fourth, the reactions of private firms implicated in the gathering storms are too little, too late and too timid. This is true for major international groups as well as national firms.

Fifth, it follows that self-regulation and self-correction are non-starters. Without sharp sanctions from external bodies, that could in some instances be industry related, the patterns will continue.

Sixth, it is paradoxical that greed (or hubris) may often be the best hope to stem the corruption. As those practicing dishonesty become more successful, so they become over confident. It is when over stretch occurs that there is the best chance for crippling the corruption.

Seventh, public actions, usually channeled through active organizations and NGOs, can be effective. Still more, they can also succeed in securing international penalties for actions carried out in a specific country. International firms will have to pay greater attention to that kind of “collateral damage”. Their ability to engage in internal monitoring of their whole networks must be improved – “no affiliate is an island”.

This analysis has used three examples from RSA where a common theme has been the influence exerted by a powerful family, the Guptas, and their linkage with the political pinnacle of the State. But, alas, there are countless similar examples, in countries across the world and at every level of economic development. Evidence seems to suggest that the incidence of this behavior is increasing, despite the vigilance and activism of so many people and organizations.

How can we improve capacities to prevent and correct corruption? In the past, efforts centered around four things – the moral, the economic, the political, and the legal. The moral focused on the ethics of behavior. Individuals were supposed to have sufficient personal and professional principles such that their behavior would reject corrupt practices. The economic focused on market morphology. Companies would be kept at “arms -length” from each other, so that competition would prevent carve-ups. Still today, competition law exists primarily to preserve that kind of corporate distance. The political focused on the separateness of private from public decision making, and on the separation of the executive, legislative and judicial arms of government. Finally, the legal focused on assessing cases where corruption was thought to have occurred, determining appropriate penalties, and ultimately feeding back findings so that law making could be improved.

Across the globe, those four areas have come under ever greater siege. There are no reliable “barriers to corruption” under any of those headings. Seemingly infinite drafting of codes of voluntary conduct, regulations, national laws, and international agreements, seems to have provided precious little protection. The odd case might be prevented, the odd penalty might frighten people for a while. Yet that’s about the sum total. RSA itself will, as of 2023, introduce mandatory audit firm rotation every 10 years (thereby echoing a similar step taken in the EU earlier this decade). But this is a very timid move, and nobody seriously expects it will make much difference (either in RSA or the EU).

Perhaps it is time to long at the problem from a different angle. Which one? Corruption comes when groups, institutions and individuals that should be operating independently decide to collude for mutual benefit. So would it be smart for actors on the other side to collaborate a lot better? Put it this way. Suppose official legal bodies started to work much more closely with private associations and the media (the latter including activist organizations) to prevent malpractice, expose it where it does occur, and devise fresh ways of retribution on those responsible for corruption. Of course there is a certain degree of collaboration already (even including international collaboration, where the RSA examples here are revealing). But it seems the scope for it is considerable. It won’t take us to any ideal situation – the risk/reward  link will always be a major temptation. Still, things might improve a bit, and that is what we must strive for.


Peter O’Brien, Bratislava, 24 September 2017





Kenya’s New Bribery Bill: It Takes Two to Tango

By AAT Senior Contributor, Michael-James Currie

Corruption has long been recognised as one of the biggest challenges which entities wanting to do business in Kenya must contend with.

The frequent demands for bribes by public officials has led to increased business costs, particularly for foreign investors. According to figures published by GAN Integrity Solutions in their GAN anti-corruption Portal, one third of all firms reportedly experienced extortion regularly and were required to make facilitation payments and give gifts to carry out basic business operations such as obtaining operating licences, construction permits and utility connections.

Accordingly, the approval and adoption of Kenya’s new Bribery Bill by Cabinet in December 2016, which aims at facilitating an effective coordination and accountability framework for the prevention, investigation and prosecution of acts of bribery, shows an overwhelmingly positive intent by the Kenyan authorities to turn the tide against corruption.

Corruption has generally been viewed as a ‘public sector’ crime in Kenya. In other words, public officials ‘demanding’ bribes from private entities. Prior to the amendments, it was the ‘demand’ side of corrupt practices which was targeted by legislative prohibitions.

The Bribery Bill, however, recognises that both parties to a corrupt transaction ought to be held accountable and, therefore, the Bribery Bill’s predominant focus appears to be the extension of the fight against bribery directly to the private sector via the introduction of various obligations together with onerous sanctions including criminal sanctions targeted at the private sector or the “supply side”.

In essence, the Bribery Bill focuses on both the offer and the acceptance of a bribe by both local and foreign individuals. The Bribery Bill, however, places further obligations on private entities which include:

  • imposing a positive duty on every person to report to the Ethics and Anti-Corruption Commission any instance of bribery within twenty four hours of becoming aware or suspecting an instance of bribery; and
  • introducing obligations on firms to “have in place procedures appropriate to their size and nature of operations for the prevention of bribery“.

These provisions effectively mandate firms to take positive steps in order to comply with the Bribery Bill such as implementing internal rules that will preclude employees from paying or receiving bribes.

Importantly, the Bribery Bill also imposes strict liability on a private entities when an employee or person closely associate with that entity is involved in a case of bribery which has the effect or intention of obtaining or retaining business or any other advantage for that private entity.

The Bribery Bill further introduces substantial liability for non-compliance. In this regard, falling foul of the Bribery Bill could result:

  • in a hefty penalty of up to KES 1 million and or imprisonment for a period not exceeding 10 years imposed on individuals who are found to be in contravention of the Bill;
  • directors, partners or senior officers of private entities facing jail time of up to 12 months if the entity does not comply with the mandatory obligations; or
  • in individuals being barred from serving as a director of a company or a partner of a firm in Kenya for a minimum of 10 years, whilst firms may receive a ten year ban from transacting with the National or County Government.

John Oxenham, a legal practitioner with Pr1merio Ltd., admonishes that “[t]here can be little doubt that the proposed bill will have a significant impact on entities looking to conduct business in Kenya. It remains to be seen, however, whether the dual approach to targeting parties involved in instances of bribery will effectively curtail the ‘demand side’.”  In this regard, as with most anti-bribery or anti-corruption pieces of legislation, the success of curbing such practices depends largely on the effective enforcement efforts of the relevant agencies. Accordingly, in order to meaningfully combat corruption, a collective effort is required by all enforcement agencies as many individuals who engage in corrupt activities, are not deterred by the knowledge of engaging in unlawful conduct, but rather by the risk of getting caught and successfully prosecuted.

French Authorities Investigate Top Political Advisor in Gabon

According to recent reports, French authorities are investigating one of Gabon President Ali Bongo’s closest political advisors, Maixent Accrombessi, in relation to an alleged bribe which Accrombessi accepted from French firm Marck.

It is alleged that Marck’s chairman, Philippi Belin, who has been placed under formal investigation, paid Accrombessi a bribe in relation to Gabon’s awarding of a contract in 2005.

Marck is principally involved in the manufacture of military uniforms.

The investigation brings the ‘la Francafrique’ arrangement between France and Gabon into the spotlight. In terms of this arrangement, France offered Gabon (amongst other former French colonies) military and political support, in exchange for commercial support and favours. However, this investigation comes at a time when France is already investigating President Bongo’s family assets and is sure to raise some tension between the two nations as the Gabon presidency has already stated that the investigation into Accrombessi is an attempt to humiliate Accrombessi. To date, however, Accrombessi has not publicly denied the allegations, but only that he is willing to cooperate with the French officials, provided Gabon’s sovereignty and his own rights are protected.

South African Government implicated in allegedly bribing FIFA for 2010 World Cup

It has recently been reported that the South African Government bribed FIFA officials to secure the 2010 World Cup.

Following the arrest of seven FIFA officials in Switzerland recently, the US DOJ has alleged that the South African Government was directly involved in bribing FIFA officials to secure the 2010 World Cup.

The Zuma administration in South Africa is repeatedly criticised for failing to curb corruption this is particularly so since, President Zuma has been found, by a local High Court, to have had corrupt relations with known fraudsters.

From an African Anti Fraud perspective it is of significant concern that the issue has only been addressed due to the efforts of the United States Department of Justice.  As has previously been reported, the South African Government’s, particularly under the auspices of President Zuma, dismantling of key enforcement agencies especially the National Prosecution Services (in order to ensure that the President does not face prosecution for corporate activities) has effectively prevented proactive enforcement of corrupt activities.

UK Targeting Oil, Gas & Logging: Great Britain implements EU Directive earlier than required

African “natural resource-rich countries” to be in particular focus of Directive

The government of the United Kingdom has announced earlier implementation of, inter alia, the anti-bribery provisions in the EU Accounting Directive than mandated by the European Commission (end of 2014, in lieu of the prescribed July 2015 deadline).  The Directive requires Member States to pass legislation compelling, among other things, oil, gas, mining and logging companies to issue detailed accounts of international payments made to foreign governments (incl. taxes, royalties and licence fees).

Paragraphs 44-45 of the Directive’s preamble provide as follows.

44. In order to provide for enhanced transparency of payments made to governments, large undertakings and public-interest entities which are active in the extractive industry or logging of primary forests (9) should disclose material payments made to governments in the countries in which they operate in a separate report, on an annual basis. Such undertakings are active in countries rich in natural resources, in particular minerals, oil, natural gas and primary forests. The report should include types of payments comparable to those disclosed by an undertaking participating in the Extractive Industries Transparency Initiative (EITI). The initiative is also complementary to the Forest Law Enforcement, Governance and Trade Action Plan of the European Union (EU FLEGT) and the provisions of Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market (10), which require traders of timber products to exercise due diligence in order to prevent illegal wood from entering the Union market.

45. The report should serve to help governments of resource-rich countries to implement the EITI principles and criteria and account to their citizens for payments such governments receive from undertakings active in the extractive industry or loggers of primary forests operating within their jurisdiction. The report should incorporate disclosures on a country and project basis. A project should be defined as the operational activities that are governed by a single contract, license, lease, concession or similar legal agreements and form the basis for payment liabilities to a government. Nonetheless, if multiple such agreements are substantially interconnected, this should be considered a project. ‧Substantially interconnected‧ legal agreements should be understood as a set of operationally and geographically integrated contracts, licenses, leases or concessions or related agreements with substantially similar terms that are signed with a government, giving rise to payment liabilities. Such agreements can be governed by a single contract, joint venture, production sharing agreement, or other overarching legal agreement.

An official EU FAQ on the Directive can be found here.

In its press release “warmly welcom[ing]” the UK regulations, Global Witness states:

“Global Witness commends the UK Department for Business for swiftly producing a strong set of payment reporting regulations. The UK regulations clearly require companies to report at the project level, whilst wholly rejecting calls to include exemptions which would allow firms to keep payments secret in certain countries,” said Simon Taylor, director of Global Witness.

“This will deter companies from making illicit payments and empower citizens in resource-rich countries to follow the money generated by natural resources and hold their governments to account for how these public revenues are used,” Taylor added. 

The regulations will be looked at closely by policymakers in the United States and Canada where similar reporting regimes are being developed. “The UK’s announcement highlights the need for other countries to introduce matching rules that will create a level playing field for industry, and to stand firm against the small number of oil companies that are lobbying to weaken these reporting requirements,” said Taylor.

The UK regulations compel large UK extractive companies to publicly disclose payments of £86,000 and above on a company-by-company and project-by-project basis in all countries with no exceptions. Companies that fail to report fully, truthfully and accurately will face criminal penalties.

However, the regulations include clauses that would empower the UK Business Secretary to veto criminal prosecutions for non-compliance. Civil society groups in the UK Publish What You Pay coalition including Global Witness, Christian Aid and Cafod are calling for these clauses to be removed.

The regulations are due to be laid before the UK Parliament this autumn and to come into force on December 1st 2014, with covered companies required to report in 2016 on the payments they make in 2015.

Project-level payment reporting is supported by a diverse range of interests including a group of investors with over US$6.4 trillion in assets under management. [2] Statoil endorses a mandatory global reporting standard that matches the EU Accounting Directive, [3] and in March 2014 the UK oil company Tullow voluntarily disclosed project-level payments for all countries of operation. [4] G8 leaders agreed at the 2013 Lough Erne summit to work towards a common global reporting standard for project-level reporting, [5] and more recently the UK Prime Minister David Cameron urged the United States to finalise a rule to implement Section 1504 of the Dodd-Frank Act, which requires U.S.-listed oil, gas and mining companies to disclose payments at the project level. [6]

FT investigative exposé shows hidden economic China-Africa ties

In the shadows of official state-level Sino-African “cooperation” lies a vast swath of hidden quasi-official dealings, with multi-million bribes in the offing

The Financial Times report by Tom Burgis on the dealings of Sam Pa (one of his 7+ pseudonyms) is highly instructive and recommended to AAF’s readership.  Link to “China in Africa: how Sam Pa became the middleman” here.

For a decade, Sam Pa has opened doors for Beijing in Africa. But his story reveals a troubling side to China’s ambitions.  On his way home from Nelson Mandela’s memorial service in December, Ernest Bai Koroma, the president of Sierra Leone, stopped off in Angola to discuss an investment in his war-scarred nation. Fellow guests in the dining room of a golden skyscraper in the centre of Luanda, one of the towering edifices that an oil boom has raised above the slums of Angola’s capital, observed Koroma in rapt conversation with the Chinese man seated to his right.

The short 56-year-old had a receding hairline and a neat goatee beard. He wore a black suit, a red tie and rectangular spectacles. He goes by at least seven names and keeps a lower profile than the Chinese dignitaries who have visited African capitals to trumpet Beijing’s burgeoning alliance with a continent whose oil and minerals have helped feed China’s phenomenal economic growth. Most commonly, he is known as Sam Pa. …”

Read on at