Bain Removes South Africa Head Amid Probe of Tax Agency Work

(Bloomberg) -- Bain & Co. removed the head of its South African business and started an independent probe into work for the country’s tax service after being caught up in allegations of mis-management and corruption during the tenure of former President Jacob Zuma.

The U.S. consultancy will also repay the 164 million rand ($10.8 million) plus interest it earned from the South African Revenue Service when it was run by Tom Moyane, who has since been suspended by new President Cyril Ramaphosa. Bain advised on an overhaul of SARS to boost revenue collection, but the agency has missed its tax target every year since the implementation of the new structure in 2015.

A new investigation by law firm Baker McKenzie will focus on “understanding the facts relating to people, processes, and governance that resulted in us getting and accepting the work,” Bain said on the website of its South African unit. “Our engagement with SARS did not meet our standards.”

Bain is among a number of international companies including KPMG LLP, McKinsey & Co. and SAP SE to be implicated in so-called state capture, a local term for the looting of government-owned entities by outside interests. An ongoing commission of inquiry, headed by retired judge Robert Nugent, heard testimony that Bain’s work for SARS weakened what was once an efficient organization.

Click here to read more about Bain’s work for tax body

McKinsey earlier this year agreed to repay South African power utility Eskom Holdings SOC Ltd. about 1 billion rand it earned in consultancy fees after the state-owned electricity producer failed to follow procurement laws. German IT services giant SAP went further, saying it paid 128.6 million rand to firms linked to South Africa’s Gupta family to win contracts with state companies.

The Guptas are accused of using their friendship with Zuma to defraud government-owned entities and are at the center of the ongoing inquiry.

KPMG was one of the first international firms to be caught up in the series of scandals. It said a year ago that work for the Guptas fell short of acceptable standards and withdrew the findings of a report on SARS that was used as evidence in a police probe against former Finance Minister Pravin Gordhan. The consequences for the so-called ‘Big Four’ auditor have included the loss of major clients including Barclays Africa Group Ltd., now known as Absa Group Ltd.

“We do not want to benefit from work that was used to further a different agenda than was intended,” Bain said. Local head Vittorio Massone has been ordered to devote his time to co-operating with the commission, with Bain partner Tiaan Moolman taking over the day-to-day operations.

Gordhan has estimated that more than 100 billion rand may have been plundered during Zuma’s almost nine-year tenure. Zuma and the Guptas have denied wrongdoing.

The money to be returned by Bain should be used as directed by the state capture commission or “for the benefit of South Africa,” the firm said.

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