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Finally, police move in on McKinsey! NPA probes Gupta R4bn BEE deal

BIZNEWS / 19 SEPTEMBER 2017 / Thulisizwe Sithole

EDINBURGH — As was the case for KPMG, the wheels of justice have been turning slowly for McKinsey. Until now. McKinsey has been in the spotlight in connection with its links to Gupta entities. Like KPMG, McKinsey has been at the front of the queue for lucrative business from state-owned entities. Although the country’s black economic empowerment laws make provision for local – previously disadvantaged – suppliers to reap benefits from state contracts, the main beneficiaries appear to be large corporates like KPMG and McKinsey and the Gupta and Zuma families. Local management consultant Katiso Thamae of Deep Dynamics has taken a stand against corporate goliath McKinsey. He estimates McKinsey has had the power to award a very conservative R4bn in work to a local company and wonders why the global beast is so secretive about its preferred supplier. His company was promised the work and then inexplicably dropped in favour of a mystery supplier. It looks like the National Prosecuting Authority is set to solve the puzzle in a sign that South Africa’s law enforcement agencies are finally moving to act against global corporations in connection with graft. – Jackie Cameron


After not far off two years of standing back as evidence of irregularity mounts against McKinsey in South Africa’s Gupta-linked state capture scandal, South Africa’s law enforcement agencies are finally moving in to investigate the global consultancy.

The National Prosecuting Authority is probing allegations that Gupta-linked McKinsey has diverted billions of rands away from a genuine black economic empowerment company not tainted by state capture.

National Director of Public Prosecutions Shaun Abrahams speaks during a media briefing in Pretoria. REUTERS/Siphiwe Sibeko

The media spotlight has been on McKinsey over its role in facilitating the flow of Eskom funds to Gupta-linked entity Trillian in a contract that appears to be a sham. The McKinsey name has emerged elsewhere, including Transnet, in connection with siphoning funds from state-owned entities.

Insiders say that McKinsey did little more for its money than rubber-stamp ideas generated from internal management teams while benefiting enormously from state contracts. McKinsey has denied links to the Gupta family or any involvement in corruption, although its senior employee David Fine was on the Gupta Sun City wedding invitation list. Fine is a specialist in public sector work and is now based in London following his success in South Africa.

ANC veteran Tokyo Sexwale lifted the lid on McKinsey after he instituted an investigation into links between Trillian, which he chaired, and the Gupta family. McKinsey refused to co-operate with lawyers and claimed that their employee Vikas Sagar acted without authority.

Later, a South African black economic empowerment consultancy came forward with information alleging that McKinsey had deceived his company into believing his business was chosen as its partner. Katiso Thamae, chief executive officer of South African management consulting firm Deep Dynamics, is puzzled about McKinsey’s secrecy over which company was awarded the work.

Thamae reported the details to police. After the police failed to respond, he contacted BizNews – which ran the story about how his firm was shortlisted for BEE work and then dumped without explanation.

The South African management consultant estimates the work is worth R4bn in state funds over five years, yet McKinsey has refused to divulge which entity was awarded the contract. This week, it emerged that the National Prosecuting Authority is now pressing ahead with an investigation into Thamae’s complaint. It will seek statements from key McKinsey personnel over the next few weeks.

McKinsey has denied its involvement in Gupta-linked corruption and graft. It is running an internal investigation to probe the involvement of its South African staff with Gupta entities. It has suspended Sagar, who shared information directly with Gupta henchman Salim Essa.

Thamae has asked police to investigate McKinsey in connection with possible fraud. Earlier this year, he laid charges with the SA Police Service and supplied detailed affadavits (shown to McKinsey) in which he accuses McKinsey of ‘deceiving’ his organisation in a costly tender process.

Companies like McKinsey are required to spend a percentage of their profits on local supplier development and must use “empowering suppliers”.

Thamae says in November, McKinsey verbally appointed his firm as a local empowerment partner that would help the global consultancy rapidly grow its South African business – but then inexplicably backtracked this year.

He would like to know which empowerment entity got the business, which he estimates is worth a very conservative R4bn over the next five years.

McKinsey has refused to tell Thamae which company has been appointed as its local empowerment partner. It also did not respond to this question, when BizNews contacted McKinsey global headquarters. McKinsey referred only to a “panel of suppliers”.

Deep Dynamics was shortlisted to provide consultancy support “to serve clients across a range of sectors”, said Thamae.

“They appointed us on the 30th Nov 2016 but later declined. We spent lots of funds in preparation for this partnership,” he said.

Thamae estimates that “the forgone benefits, taking a very conservative approach” are a minimum of R4bn. “We are at liberty to accommodate a more accurate calculation of this opportunity cost which, we know, will far outpace R4 billion,” he added.

DJ Carella, Deputy Head of Media Relations at McKinsey & Company, Washington, DC, told BizNews: “To be clear, Deep Dynamics were never promised work and so we did not ‘change our minds’ about working with them.

However, Carella did not explain why McKinsey shortlisted Thamae’s company and subsequently invited him to have detailed discussions with several senior McKinsey employees if it did not meet the required criteria. In addition, he did not confirm whether McKinsey was including this contract in its probe of McKinsey irregularities in South Africa.

LINK - http://www.biznews.com/sa-investing/2017/09/19/mckinsey-npa-gupta-bee-deal/

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