McKinsey Targeted in S. Africa Action Over Eskom Contracts

• Public Enterprises Minister Lynne Brown initiates legal steps
• Trillian, Koko, Singh may also face action, spokesman says 
  
   South African Public Enterprises Minister Lynne Brown has instructed Eskom Holdings SOC Ltd. to begin legal action against companies including McKinsey & Co. over their involvement in disputed contracts at the country’s state-owned electricity company.
  
  Brown ordered Eskom to start taking legal steps against consultancy firms McKinsey and Trillian Capital Partners Ltd., as well as suspended acting Chief Executive Officer Matshela Koko and Chief Financial Officer Anoj Singh, who is on special leave, her spokesman, Colin Cruywagen, said by phone Thursday. Three other senior managers may also face misconduct charges, Business Day reported Friday, without citing its sources.
  
  McKinsey in July said it’s reviewing documents related to work done for Eskom. An interim report by Eskom and G9 Forensic found McKinsey and Trillian, a company linked to the politically connected Gupta family, made 1.6 billion rand ($120 million) in fees and expected to make another 7.8 billion rand, according to amaBhungane and Scorpio, two investigative journalism groups. The U.S. firm hasn’t engaged in corruption or paid bribes, it said in an emailed response to questions.
  
  Singh was placed on leave in July after he was linked to a series of questionable deals involving the Gupta family, who are friends with President Jacob Zuma. Koko was suspended pending an investigation into contracts awarded to a company where his stepdaughter was a director. He had denied wrongdoing.
  
  Eskom is spending tens of billions of dollars on new power plants that are years behind schedule and is at the center of allegations that the Guptas, who are in business with Zuma’s son, used their relationship with the president to win state business. The company disclosed 3 billion rand of irregular expenditure in its financial results on July 20, a figure which its auditors said they couldn’t independently confirm. Zuma and the Guptas have denied wrongdoing.
  

  KPMG, McKinsey S. Africa Woes May Deter Investors: Lamberti

  • Political scandal fallout is far reaching: Imperial’s CEO
  • Greatest impact could come if U.S. DoJ starts investigation
     The fall out from a South African corruption scandal that’s implicated global companies may be a “big wake-up call” to those considering an investment in the country, according to Imperial Holdings Ltd. Chief Executive Officer Mark Lamberti.
    
    KPMG LLP and McKinsey & Co are among those who have done work for the Gupta family or companies associated with them. The Guptas are friends with President Jacob Zuma and have been accused of exerting influence over lawmakers to win state contracts. Accountancy firm KPMG said last week that eight top executives quit following an internal probe into auditing done for the family, while McKinsey has suspended or put staff on leave pending its own investigation into work for state power utility Eskom Holdings SOC Ltd.
    How the U.S. Department of Justice reacts to the findings may have a knock-on effect on foreign investment, Lamberti said in an interview on Tuesday. Corruption Watch said last week it plans to approach the DoJ to probe McKinsey, while South African Public Enterprises Minister Lynne Brown has told Eskom to pursue legal action against the company. The U.S. firm hasn’t engaged in corruption or paid bribes, it said in an emailed response to questions.
    
    “If the DoJ starts to come at McKinsey for foreign corrupt practices act stuff, that’s going to be a very big wake-up call for a whole bunch of people doing business in this country,” Lamberti said. “And they are going to ask, is it worth the trouble?”
    KPMG, McKinsey Feel the Heat Over South Africa Graft Scandal
    Imperial is South African’s eighth-largest company in terms of sales, and runs car dealerships and logistics operations around the world. Lamberti, 67, has been CEO since 2014, having made his name as the founder and former head of Massmart Holdings Ltd., the South African retailer now majority owned by Wal-Mart Stores Inc. He’s also a director of the Business Leadership South Africa association.
    
    
    

    KPMG’s admission that auditing work for the Guptas had fallen “considerably” short of required standards has led to clients dropping the firm. Sasfin Holdings Ltd., a financial-services company, said on Tuesday it replaced KPMG as its independent sponsor and is seeking a new auditor, while lenders including Barclays Africa Group Ltd. and Investec Ltd. said they are reviewing their relationship with the audit firm.
    A widespread distancing from KPMG will cause problems for companies as South Africa doesn’t have a big pool of large accounting firms and the country’s rules require a change of auditor every seven years, Lamberti said.
    “The demise of KPMG in South Africa is not good for anyone,” the CEO said.
    Moses Kgosana, the former CEO of KPMG’s South African unit, resigned as chairman of Imperial’s audit committee two weeks ago.
    
    The Democratic Alliance, the main opposition party, has led calls for companies that dealt with the Guptas to be investigated and penalized. It filed a complaint against public relations firm Bell Pottinger for fostering racial division in South Africa with the main industry group in the U.K., which led to its expulsion and forced it into administration. Zuma and the Guptas deny wrongdoing.
    

    Imperial CEO Sees Split at Risk From South African Turmoil

    “I do think there are bigger implications for the country,” Lamberti said at the company’s Johannesburg headquarters. “We’re at the point that unless these issues are ventilated and put behind us quite soon, whatever glory that is left from the Mandela years will be gone. This is very serious.”