Louis Proyect: The Unrepentant Marxist

December 25, 2018

How KPMG and McKinsey ripped off South Africa

Filed under: Africa,capitalist pig — louisproyect @ 7:59 pm

Within the den of corruption known as the African National Congress, there have been two enablers that are marquee names in the world of management consulting and auditing. The first is McKinsey & Company that was founded in 1926 and considered by Vault.com and Consulting.com as the most prestigious in the world. The founder James McKinsey was an accountant by trade who went on to teach at Columbia University. His major work was “Budgetary Control” that conceivably could have been used by the McKinsey consultants in South Africa as toilet paper as they were juggling the books to help Jacob Zuma rip off the nation’s largely Black working class.

McKinsey’s partner-in-crime was KPMG, which stands for Klynveld, Peat, Marwick and Goerdeler. It is one of the big four accounting firms that used to number five until Arthur Anderson was put out of business for juggling Enron’s books. Years ago I was offered a job in their software development group but I received a better offer from another crook: Goldman-Sachs. Like McKinsey, KPMG is the recipient of many awards, including being named best firm in 2017 by the Asia Tax jury in Singapore. In a September 17, 2015 “report on the KPMG website titled “Anti-Bribery and Corruption: Rising to the challenge in the age of globalization”, Roy Muller, the director of KPMG operations in South Africa, stated:

Companies need to take a risk-based approach to the ABC due diligence of vendors. Even where companies indicate that ABC risk is considered, there is often no audit trail or a very poor one to identify high-risk third parties and no clear ranking of them according to the level of risk. Knowing your supplier is often a big challenge in Africa. In certain African countries electronic records are not maintained or are not easily accessible necessitating physical verification of company records.

If KPMG was hired to help South Africa crack down on tax evaders, there should have been another firm to investigate them since most of the work revolved around helping Zuma and his ANC cronies avoid paying taxes. After receiving a lucrative contract, their watchdogs went to sleep. Once considered the nation’s pride, the tax collection agency was left a smoldering wreck.

Not satisfied with the fees it earned for helping Zuma carve out the tax agency’s innards, KPMG also provided audits to the various companies owned by the Gupta brothers who fled South Africa recently to avoid arrest. To give you a sense of how filthy this marquee accounting firm had become, it diverted millions of dollars from a dairy farm project under the auspices of the Department of Agriculture to the pockets of the Gupta family who spent it instead on wedding written off as a “business expense” vetted by KPMG’s auditor.

The wedding that KPMG kickbacks made possible

The South African Times reported on some of the costs in the 30 million Rand wedding (a 1000 Rands is equal to $68, the total spent on the wedding was $2 million):

Beverages seem to have racked up the most costs for South Africans‚ coming in at a staggering R473‚370.41 followed by other general groceries‚ some bought at Makro‚ which cost roughly R190‚000.

It seems that the main dishes the Guptas presented to their guests were vegetables‚ which cost R169‚652.

When it came to fun in the pool‚ four hours of pool noodle and water ball hiring costs totalled R6‚555.09.

The ultimate spoil for the bride and groom and their wedding guests‚ however‚ appears to have been the fireworks display coming in at a cool R310‚801.52.

Two million dollars on a wedding when the average yearly wage in South Africa is $10,800. Meanwhile, KPMG helped keep taxes low for the nouveaux riche who had little interest apparently on what it takes to live on that kind of wage.

Meanwhile, the pot keeps boiling over with KPMG criminality. Just two months ago it revealed that it was instrumental in the collapse of the VBS Bank in South Africa that got a clean bill of health from their auditors in 2017. An official from the nation’s central bank described what happened as “The Great Bank Heist”, with $137 million being siphoned out and into the pockets of various con artists including Sipho Malaba, KPMG’s auditor.

Let’s turn back to the McKinsey group and survey the damage they made in a country I and many on the left viewed as in the vanguard of revolutionary change in the 21st Century.

They were hired to provide management consulting services to Eskom, the state-owned power utility in 2015 worth a cool $700 million. Eskom, which was on the edge of insolvency, had a failing infrastructure including a boiler that blew up and threatened the national power grid.

As was the case with KPMG, the deal involved the Gupta brothers who had cultivated ties with Jacob Zuma, who was the country’s version of Robert Mugabe. This turned out to be an illegal no-bid contract that provided a hefty pay-out to one of the Gupta family’s henchmen. In keeping with corporate norms of “diversity”, McKinsey made sure to staff its Johannesburg office of 250 workers with 60 percent Black South Africans.

McKinsey understood that big bucks could be made in South Africa by selling its services to government agencies that were filled with opportunist ANC members looking for a fast buck. In fact, Eskom was not the first crooked deal that the firm made there.

In 2011, Transnet, the state-owned rail and port agency, was like Eskom looking to modernize. In lining up funding for such an effort, naturally much of the loot could be diverted into the pockets of crooked ANC officials.

One of them was the new head of Transnet, a guy named Brian Molefe, who had been running the country’s public pension fund beforehand. And guess what? Molefe was connected to the Guptas. McKinsey and Molefe decided to buy 1,064 new locomotives, which would be the biggest government purchase in South African history. The NY Times reported that the winning bid came from a Chinese SOE that paid more than $100 million to shell companies tied to a Gupta associate, Salim Essa. So considering the transaction as one made between two of the BRICS anti-imperialist stalwarts, who can complain?

Fresh from this very lucrative deal, Molefe took a new job running Transnet in 2015. McKinsey’s top man assigned to the Eskom account was “a popular partner, Vikas Sagar, a stylish, Porsche-driving fitness buff in his 40s, known for hugging colleagues when the spirit moved him and fiercely charting his own course.”

Meanwhile, McKinsey had a junior partner in the deal, an outfit called Trillian Management Consulting that was a subsidiary of Trillian Capital, rumored to be connected—once again—to the Guptas. Trillian, which was a split-off from Regiments, the aforementioned Gupta firm involved with buying locomotives for Eskom, refused to divulge its ownership to McKinsey. Showing a certain degree of uncertainty about their junior partner, the firm assigned someone to sit down at a computer and do some searching for who was in charge. They learned it was none other than Salim Essa, the Gupta operative. Instead of a clean break that might have jeopardized their deal, they no longer used Trillian as a subcontractor but as an independent partner. As if this was supposed to sanctify a deal that would have functioned as an episode on “The Sopranos”.

The deal fell through after only 8 months but with $100 million being paid out to the two consulting firms—Trillian landed 40 percent of the fees. In a country where the average wage is $10,000 the sight of a McKinsey partner driving to work each day in a Porsche did not sit very well.

Back in 1990, I went to Zambia with a group of Tecnica activists to meet with Thabo Mbeki who would become President succeeding Nelson Mandela in 1999. In the ANC’s exile camp in Lusaka, we had discussions with junior leaders, most of whom appeared to be Communist Party members. In a million years, I never would have dreamed that the ANC would end up as typical African strongmen robbing the country blind in alliances with Western corporations in the habit of describing themselves as dedicated to progress and social justice, just like the bastards at Goldman-Sachs.

In KPMG’s “Global Code of Conduct” handbook, they make it sound like they are Greenpeace or something:

  • We act as responsible corporate citizens, playing an active role in global initiatives relating to climate change, sustainability and international development.
  • We aspire to the ten principles of the UN Global Compact.
  • We encourage good corporate citizenship.
  • We enhance the role of the accounting profession and build trust in the global capital markets. We contribute to a better functioning market economy.
  • We manage our environmental impacts so as to limit them.
  • We work with other businesses, governments and charitable organizations to create stronger communities.

As for McKinsey, they publish a quarterly magazine that promotes the corporate party line. In the most recent issue, they have a focus on their penetration of Africa including an article titled “How to Win in Africa”, appropriate enough considering how South Africa’s poor ended up with the shitty end of the stick.

Structured as a panel discussion, Georges Desvaux, the McKinsey partner who was in charge of business in Africa and who continued to do business with Eskom even after the Gupta ties were revealed, mused on the possibilities. Unlike KPMG, McKinsey partners don’t waste time talking about serving the poor and protecting the environment. Desvaux simply looks at Africa as the next China, where capitalism can create wealth and happiness. He puts it this way:

You also have to look at it and say, this is a long-term play. This is a 20-, 30-years play. It’s the same as China was 30 years ago, India was 15 years ago. Africa is going to be the next pillar of growth because of demographics, because of the natural resources, because of urbanization. And so what you need to do is you need to build the resilience that enables you to manage the risks that are inherent to those three different types of countries that Acha was talking about in order to make sure you are able to go through and weather the storms at some point.

This is straight out of Thomas Friedman’s playbook and about as credible. Considering what McKinsey did in South Africa, the only storm worth talking about was the shit-storm that McKinsey and KPMG created that left millions worse off and the comprador bourgeoisie in control. This is how Africa has been ruled for over a century, so much so that Walter Rodney wrote a book about it titled “How Europe Underdeveloped Africa” that might be retitled at this point “How Europe and America Underdeveloped Africa”. (Read Rodney’s book here: http://abahlali.org/files/3295358-walter-rodney.pdf)



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