Corruption Cloud SAP embroiled in South African corruption allegations

German software group SAP and consultants KPMG and McKinsey face accusations of exerting undue influence to secure government contracts in South Africa.
No corrupt software, just questionable business.

Germany’s SAP, the world’s largest maker of business management software, is in trouble with South African authorities, after its business dealings with friends of President Jacob Zuma triggered criminal complaints.

And they are not the only ones. Auditor KPMG and management consultancy group McKinsey are also in hot water as the country’s Companies and Intellectual Property Commission (CIPC) look into complaints submitted to police in late 2017, after leaked emails came to light.

But it remains unclear whether the complaints have triggered a formal criminal investigation or will lead to one.

The accusation is that SAP paid bribes in the form of distribution fees to a company belonging to the Gupta family, an Indian family that has been accused of using its connections to Mr. Zuma and other government ministers to win government contracts and profit from state business, according to South African media reports.

The distribution fees, or alleged bribes, were meant to ensure SAP secured a contract from rail company Transnet and other state-owned companies worth the equivalent of €66 million ($81 million), the report continues. And in recent years, SAP has obtained contracts from Transnet and state utility Eskom.

In response to the charges, SAP said it has been cooperating with the South African authorities for months and pulled the US Department of Justice and the Securities and Exchange Commission (SEC) into the mix: The two organizations are also investigating alongside the CIPC. KPMG declined to comment and McKinsey could not immediately be reached.

The Guptas deny wrongdoing and say they are victims of a politically-motivated witch hunt.

McKinsey offered to pay back $81 million it earned in 2016 from business it carried out for Eskom, a South African state-utility company.

Before the complaints were filed, SAP said in October that it had implemented measures to help fight corruption, including a ban on paying commission in public contracts in countries with a high-corruption risk, like South Africa, Russia, Brazil and China. The company also said it had tightened up its in-house supervision of sales activities.

McKinsey and KPMG, which have also been accused of exerting undue influence in the awarding of government contracts, responded by making changes: KPMG replaced its management in South Africa and McKinsey offered to pay back $81 million it earned in 2016 from business it carried out for Eskom.

South Africa's 75-year-old president has, more than once, been confronted with corruption allegations since taking office in 2009, even surviving several no-confidence votes in parliament. But last week, President Zuma was ordered to establish an inquiry commission to examine state corruption by a High Court ruling that upheld the country's corruption-fighting institution, the Public Protector.

Mr. Zuma’s term does not officially end until 2019, but there is talk he could be removed early through a motion of no confidence or by his party if corruption scandals, like the one with SAP, continue to plague his presidency.

Handelsblatt Global editors Christine Coester and David Crossland worked on this article. To contact the author: [email protected]