Did U.S. Meddle with Zuma Corruption Investigation? There’s a new Sheriff in Town

Ex-Public Protector Criticised for Accepting American & German Funds in Effort to Stamp out Government Fraud

Ms. Thuli Madonsela, her immediate predecessor, has denied the claims: “It’s a lie that we used consultants. It’s a blatant lie that we used USAID money, ever.”  The American government, however, acknowledged quite freely its financial support of the Public Protector’s work.  In the USAID’s own words (PDF):

USAID support was designed in collaboration with GIZ, the Department of Justice, and the Public Protector of South Africa (PPSA), to provide technical assistance to specific areas of the PPSA’s five-year strategic plan, and, through it, assistance to the African Ombudsman and Mediator’s Association (AOMA). The assistance was designed to build the capacity of the PPSA to use its own resources more effectively as it faces the challenges associated with an increase in the number and complexity of complaints investigated by the office. It supports the PPSA with training needs for investigators, specifically in investigation skills, anticorruption and fraud, alternative dispute resolution and report writing, all of which will increase their effectiveness and help to standardize practices across the PPSA. The PPSA has also highlighted a need for training in human resources, and also, assistance with outreach activities to reach rural and marginalized people will be supported to enhance accessibility. Assistance to the AOMA would be beneficial to the stature and respect accorded to the office and will contribute to strengthening good governance and democratic principles around the continent.

Andreas Stargard, an attorney with Pr1merio Africa advisors, points out the glaring questions that arise from the facts known thus far:

The independence of the OPP is at the heart of the agency’s mission.  Foreign funding can be quite innocuous, or it can indeed present a thinly disguised opportunity for another nation to meddle in domestic affairs.

Here, the discrepancy between Ms. Madonsela’s denial and the official USAID release is a bit hard to swallow.  Apparently, PriceWaterhouseCoopers were retained by the Office to help compile the Report on President Zuma’s entanglement with the Gupta family within the narrow 30-day window of time that was available to the Public Protector.  It is not clear to us whether U.S. funding was actually used, but there are good arguments on both sides.

Even more interestingly, the $500,000 total in foreign funding claimed by the media needs to be unpacked in greater detail: the half-million dollar amount was “identified” by USAID in 2015 “in reprogrammed funding to commit to democracy and governance programming.”  Yet, it was (1) made jointly with the German government‘s equivalent of the USAID (GIZ); (2) committed at only the 50% level until now (the final $250,000 tranche was to follow, supposedly, in “mid-2017”); and (3) signed merely on August 19, 2016, purportedly after “several months of program design involving all project stakeholders.”

The new Sheriff in town

The new Sheriff in town

A U.S. embassy spokesperson was quoted by media to say that the money thus far donated via the GIZ collaboration had been widely discussed within government circles.  The former Public Protector’s detractors, however, claim that the U.S.-backed funding renders her office’s independence doubtful, according to one of her critics, the Umkhonto weSizwe Military Veterans Association: “America cannot fund you without putting their interests first.”

Ms. Madonsela’s final Report, has not been released publicly, as both President Jacob Zuma and Cooperative Governance Minister Des van Rooyen applied for and obtained judicial intervention, preliminarily enjoining publication of the so-called #stateCapture Report‚ which was to be released last Friday.  The Gupta family ties certainly may have played a role in the officials’ expressed desire for privacy.

Former public protector Thuli Madonsela says no government institution has received foreign funding directly. (Delwyn Verasamy, M&G)
Former public protector Thuli Madonsela (Delwyn Verasamy, M&G)

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“Apartheid stole the past, corruption steals our future” – South Africa protests graft

Wake-up call for Zuma government?  Unlikely as ANC battles crises on many fronts

On September 30, 2015, several major South African cities saw a significant turnout of the Republic’s denizens taking to the streets, protesting rampant perceived corruption in their country: demonstrations took place, inter alia, in Pretoria, Cape Town, Polokwane, and Durban.  They numbered in the tens of thousands, signifying for the first time in years a substantive expression of unhappiness with the ruling African National Congress‘s politics and handling of graft.

Of note here is not merely the protest against problems of purely domestic or otherwise internal corruption (case in point, President Zuma’s infamous $22m+ renovation of his personal Nkandla country homestead), but the broader picture of governmental fraud, waste and abuse — notably including those involving foreign entities.

As The Economist poignantly observed in its current edition, “[t]housands marched in South Africa against corruption. The protest coincidentally took place soon after Hitachi, a Japanese engineering firm, agreed to pay $19m to settle charges brought by American regulators over payments made to the African National Congress, South Africa’s ruling party, in connection with contracts to build power stations.

The Hitachi investigation, spearheaded by the U.S. Securities and Exchange Commission (not the Department of Justice in this instance), is a fascinating one, and hits South Africans in a particularly hurtful spot: electricity has been scarce for years, and its availability has reached a new nadir in 2015.  For this particular industry to be affected by proven corruption is (if that is possible) “worse” for South Africans than the run-of-the-mill scandal: virtually every citizen has experienced dark nights, marred by rolling black-outs, which have necessitated the need for expensive household generators.

A “success fee” to the “Chancellor”…

The SEC’s settlement and complaint (read here) allege truly scandalous, yet entirely classic, corrupt conduct.  They read, in relevant part:

In 2005, Hitachi created a subsidiary in South Africa for the purpose of establishing a local presence in that country to pursue lucrative public and private contracts, including government contracts to build two new major power stations.

Hitachi sold 25% of the stock in the newly created subsidiary to Chancellor House Holdings (Pty) Ltd. (“Chancellor”), a local South African company that was a front for the African National Congress (“ANC”), South Africa’s ruling political party. Hitachi’s arrangement gave Chancellor- and by proxy the ANC- the ability to share in the profits from any power station contracts secured by Hitachi. Hitachi also entered into an undisclosed “success fee” arrangement with Chancellor, wherein Chancellor would be entitled to “success fees” in the event that the contract awards were “substantially as a result” of Chancellor’s efforts.

During the bidding process, Hitachi was aware that Chancellor was a funding vehicle for the ANC. Hitachi nevertheless continued to partner with Chancellor and encourage Chancellor’s use of its political influence to help obtain the government contracts.

As a result, Hitachi was awarded power station contracts in South Africa worth approximately $5.6 billion. In April and July 2008, Hitachi paid the ANC- through Chancellor- “success fees” totaling approximately $1 million.

Hitachi’s South African subsidiary inaccurately recorded its “success fee” payments to Chancellor as “consulting fees” in its books and records for the year ended December 31, 2008. The inaccurate books and records of Hitachi’s subsidiary were consolidated into Hitachi’s financial statements for the fiscal year ended March 31, 2009, which were filed with the Commission.

In 2010, Hitachi’s South African subsidiary also inaccurately recorded a dividend worth over a million dollars to be paid to Chancellor, its 25% shareholder. The journal entry recorded this dividend as “Dividends Declared” in the subsidiary’s books and records for the year ended December 31, 2010. The books and records did not reflect that the dividend was, in fact, an amount due for payment to a foreign political party in exchange for its political influence in assisting Hitachi land two government contracts. The subsidiary’s inaccurate books and records were consolidated into Hitachi’s financial statements for the fiscal year ended March 31, 2011, which were filed with the Commission.

Andreas Stargard, an attorney with Africa-based consultancy firm Pr1merio, observes that:

“Hitachi’s corporate tag line reads ‘inspire the next…’ — one can only hope that the inspiration resulting from this particular corruption scandal, is not one of imitation by others, but rather avoidance of the same mistakes.  On the local South African (government) front, we view it as  unlikely that these protests, well-intentioned as they may be, will have much of an impact on actual politics in Pretoria.  President Zuma is battling too many fires to focus on this particular issue in any different manner than what he has done thus far, which is simply firing those responsible for, and competent at, uncovering graft.”

Nota bene, the Hitachi electricity-generating scandal is not all that has rocked South African corruption news lately — just over a week ago, the opposition party Democratic Alliance launched corruption allegations over Danny Jordaan’s involvement with the FIFA mega-scandal (he was the head of the country’s 2010 football World Cup).

Stay tuned for more…

“Just a math issue”: Anti-Corruption Efforts in Kenya take Center-Stage for Obama

File Jul 25, 11 51 17 AM

Anti-Corruption Efforts will Require some “Visible Prosecutions”

President Obama opined that it was “absolutely the right thing to do for President Kenyatta [to] emphasize” the Kenyan government’s stepped-up anti-corruption efforts.  He called public corruption potentially “the biggest impediment to Kenya growing even faster.”

“Just a math issue”

Business efforts being “constantly sapped” was a real risk to foreign direct investment, as Obama pointed out: “International businesses are concerned if the price of investing in Kenya is 5-10% going to some place that doesn’t have anything to do with the project.  It’s just a math issue.”

Acknowledging that corruption is not only an African problem (noting that even the U.S. and his hometown of Chicago had faced significant public fraud & bribery problems), the President highlighted what AAF has often stated: anti-corruption efforts imply serious cultural changes and necessary at both the top as well as the grassroots levels.  They will “require some change in habits,” and most notably “require some visible prosecutions,” according to Obama.

It is not hard to predict that President Kenyatta’s cabinet will see more shake-ups as a result of the promised stepped-up anti-corruption efforts.

The Ethics and Anti-Corruption Commission offices in Nairobi

As we noted in “Increased anti-corruption enforcement across Africa?“:

“You will read about record-breaking fines imposed; and you will hear about ever-longer jail sentences for violators.  African nations are no different in this regard than the U.S., where the DOJ has an annual tradition, almost invariably touting record-setting numbers resulting from its various enforcement divisions.  Even a quarter billion dollars of cumulative fines in South Africa are insufficient evidence of true deterrence, however — what is needed going forward is a culture of anti-corruption compliance, which goes deeper and spreads its roots more widely throughout the business & governmental community than any single record fine or jail sentence can ever accomplish,” says Andreas Stargard, an attorney with Primerio, an Africa-focused law firm and boutique business consultancy, advising on anti-corruption and competition & regulatory matters across the continent.