Jacob Zuma, South Africa’s president, speaks during a visit to the headquarters (Photographer: Waldo Swiegers/Bloomberg)

S. Africa Moves to Tackle Corruption as Zuma Loses Influence

(Bloomberg) -- South African prosecutors moved to freeze the assets of suspected allies of the politically connected Gupta family more than a year after the nation’s top graft ombudsman outlined the depth of state looting in the country.

The National Prosecuting Authority is targeting U.S.-based consultancy McKinsey & Co. and South African financial services firm Trillian Capital Partners Pty Ltd. for what it says was unlawful work for the state power utility. It’s expected to be the first of many moves to tackle corruption more broadly. Trillian used to be majority-owned by an ally of the Guptas, who were accused by former Public Prosecutor Thuli Madonsela of wielding undue influence over the government to make money.

The three Gupta brothers, who are friends with President Jacob Zuma and in business with one of his sons, are alleged to have used those relationships to win contracts from state companies and influence government appointments. They and the Zumas have denied wrongdoing.

The NPA’s move “is good news, because people were becoming despondent as nothing was being done about corruption in the country,” Madonsela said by phone on Wednesday. “I hope that the bad guys will be taken to task and that people will start thinking twice before engaging in corrupt activities.”

‘State Capture’

The court filing by the NPA was made just two days before South Africa’s ruling African National Congress elected Cyril Ramaphosa as its new leader, picking him over Zuma’s preferred candidate and ex-wife Nkosazana Dlamini-Zuma. Ramaphosa, 65, is now on track to become the country’s next leader and has promised to fight corruption as one of his main priorities, helping the rand rally by almost 7 percent against the dollar since his victory. The currency strengthened 0.3 percent to 12.2642 per dollar by 12:29 p.m. in Johannesburg on Thursday.

Ramaphosa’s “point of departure is rooting out corruption and purging the malicious agents of state capture,” Adrian Saville, chief executive officer of Johannesburg-based Cannon Asset Managers, said on Wednesday. “The steps taken by the NPA are pivotal to restoring the institutional credibility that has been decimated under Zuma’s presidency.”

McKinsey and Trillian were paid by utility Eskom Holdings SOC Ltd. for work on projects including a turnaround plan. The U.S. firm received more than 1 billion rand ($81 million) in 2016, while Trillian, according to Eskom, was paid 595 million rand even though it didn’t have a contract with the utility.

Invalid Contracts

Without valid contracts in place, Eskom unlawfully transferred a total of almost 1.6 billion rand to McKinsey and Trillian, Knorx Molelle, the acting Special Director of Public Prosecutions, said in legal documents filed with the Pretoria High Court on Dec. 14. They were supported by an affidavit from Samson John Schalkwyk, an investigator for the NPA’s Asset Forfeiture Unit. The work that Eskom paid for wasn’t done and McKinsey persuaded the power utility to pay Trillian, they said.

“Both McKinsey and Eskom knew very well that Trillian had not rendered any services to Eskom,” they said in the documents.

McKinsey said it “categorically rejects the notion that our firm was involved in any acts of bribery or corruption related to our work at Eskom and our interaction with” Trillian. The company is trying to return fees earned on the turnaround project and has no interest in being party to an unlawful contract, it said in a Wednesday statement.

Eskom is “in negotiations with Trillian and McKinsey” about the companies paying back the fees, said Dikatso Mothae, a spokeswoman for the utility. A spokesman for Trillian said the company couldn’t immediately respond to a request for comment.

Seventeen Cases

It’s not just McKinsey and Trillian in the spotlight. The Asset Forfeiture Unit told broadcaster eNCA on Tuesday it’s pursuing 17 cases targeting assets of more than 50 billion rand. So far little is known about the other investigations, but a series of leaked emails last year suggested the Guptas were involved in alleged corrupt activities, including having advanced knowledge of the firing of Finance Minister Nhlanhla Nene in 2015.

Ramaphosa urged prosecutors to act quickly to deal with allegations of corruption.

“We welcome the actions they’re beginning to take and we want them to act with urgency, to increase the tempo of the actions that need to be taken,” he told reporters in Johannesburg Thursday. “We want to see much more following of the actions that they should have taken some time ago.”

McKinsey said last year it had flagged concerns about Trillian’s transparency to Eskom in March 2016. The U.S. firm highlighted a lack of detail given by Trillian about its shareholders and potential conflicts of interest, letters seen by Bloomberg showed. In October, McKinsey said it had made “several errors of judgment” while working for Eskom and pledged to review its practices in South Africa.

The fallout from the graft allegations has tainted other global companies including KPMG LLP, which audited once-listed Gupta company Oakbay Resources and Energy Ltd., and German technology giant SAP SE, which is being investigated by the U.S. Department of Justice. U.K. public relations firm Bell Pottinger LLP collapsed after it was found to have helped Gupta-linked companies blame criticism of the family on “white monopoly capital,” a phrase adopted by Zuma and some other lawmakers.

“I am encouraged by what is taking place at the moment, even though it has actually taken far too long,” Madonsela said. “Even just with the work that we did in the report, I am confident that there was enough to successfully prosecute with.”

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