McKinsey's R1.1-billion settlement a strategic victory for South Africa's fight against corruption

6 Dec 2024

The agreement brings to a conclusion investigations by the Department of Justice and the NPA into McKinsey South Africa’s work for state-owned enterprises Eskom and Transnet from 2012 to 2016.

While many have lamented the slow wheels of justice when it comes to the prosecution of State Capture corruption cases, the National Prosecuting Authority (NPA) has just clawed back R1.1-billion from multinational company McKinsey and its subsidiary, McKinsey South Africa through a Corporate Alternative Dispute Resolution process.

The resolution is the product of international co-operation between the NPA and the United States Department of Justice, and was co-ordinated with US criminal justice processes that resulted in a settlement agreement confirmed on Thursday, 5 December 2024, by a US Federal Court.

The agreement brings to a conclusion investigations by the Department of Justice and the NPA into McKinsey South Africa’s work for state-owned enterprises Eskom and Transnet from 2012 to 2016.

Intentional NPA strategy

National Director of Public Prosecutions, Shamila Batohi, said there were two aspects to accountability — prosecutions and paying back.

“This is part of a very intentional NPA strategy. We have the added benefit of getting an upfront payment of more than R1-billion in punitive reparations that can be used to enhance the capacity of the justice system,” she said.

Batohi noted that the impact of resolutions such as this one, pointing out that about R2.2-billion from the Criminal Asset Recovery Account, primarily from the ABB Ltd resolution, had been utilised to fund the government’s response to address illegal mining.

“Only the Asset Forfeiture Unit of the NPA puts money into the Criminal Asset Recovery Account. This demonstrates the importance of the corporate alternate dispute resolution approach that the NPA has adopted,” she told Daily Maverick on Thursday night.

The NPA’s Asset Forfeiture Unit Head, Deputy National Director of Public Prosecutions, Ouma Rabaji-Rasethaba, agreed, saying the resolution was yet another significant step that took South Africa forward in fighting crime.

“The NPA remains committed not only to prosecuting criminals, but also to contributing to the economic recovery of the country through restitution. Corporate alternative dispute resolutions address both of these mandates of the NPA in a cost-effective, impactful way. Such resolutions are a globally recognised and proven crime fighting method. This strategy is to be embraced as South Africa recovers from the effects of State Capture.”

The background

Under the agreement reached this week, McKinsey will pay approximately R1.1-billion into South Africa’s Criminal Assets Recovery Account, in recognition of the social and economic harm caused by the conduct of a former employee in South Africa.

The company has also agreed to assist the Investigating Directorate Against Corruption in its criminal investigations by continuing to hand over information and material in its possession.

Approached for comment on Thursday night, McKinsey responded that it had conducted an extensive investigation into the corrupt conduct of a former partner, Vikas Sagar, “who concealed his unlawful conduct from the company and his colleagues and then sought to cover up his conduct”.

As my colleague Ferial Haffajee has previously reported, Sagar had colluded with Gupta family lieutenant and State Capture strategist Salim Essa to sign a supplier development contract between McKinsey and Regiments, and later with Trillian management consultants.

This contract was the conduit for Essa and the Guptas to extract and launder multimillions of rand in kickbacks from Transnet, Eskom and South African Airways.

As a result of Sagar’s corrupt actions, McKinsey was awarded contracts with Transnet and Eskom amounting to nearly R2-billion.

In 2020, Matthew Chaskalson told Daily Maverick that McKinsey was the only company that had repaid earnings from State Capture, that it had cooperated fully with the commission and that it had terminated its contracts with Regiments and Trillian on probity grounds.

Zero tolerance

Although the company terminated his employment more than seven years ago, and publicly apologised in 2018, choosing to take accountable action including responsibility for Sagar’s conduct, it reiterated a “zero tolerance” policy for employees who do not strictly adhere to the company’s compliance policies, procedures, and professional standards.

“Our significant remediation efforts and investment in our risk control functions and processes, extensive investigation, full cooperation with the authorities in the United States and South Africa, and full repayment of the fees to the state-owned enterprises years ago led to the full resolution of these matters. McKinsey will continue to cooperate with authorities in both South Africa and the United States in their ongoing investigations,” the international company said.

McKinsey South Africa said it welcomed the resolution of these matters and the closure of this regretful situation.

“McKinsey is a very different firm today than when these matters first took place. We fired Mr Sagar soon after learning of these issues, returned our fees with interest, cooperated with the authorities, and made significant upgrades to our risk, legal, and compliance controls to ensure McKinsey sets the standard across our profession. As McKinsey South Africa begins to look towards the future, we want to reiterate our commitment to the people of South Africa and to regaining their trust,” the company told Daily Maverick.

Commitments going forward

The resolution obliges McKinsey to continue investing in its extensive local and international corporate compliance anti-corruption programme to prevent and detect future corrupt practices. The programme is modelled on the US Department of Justice’s robust compliance requirements that include adoption of risk-based controls and data analytics, investing more resources in compliance, and compliance in internal assessment-based training, messaging, and company policies

Other obligations include:

Anti-corruption requirements when contracting with third parties such as supplier development partners.

Significant due diligence must be carried out before the conclusion of such deals.

Compliance is to be monitored and audited on an ongoing basis.

The NPA has the right to reopen its investigation concerning McKinsey if the company fails to meet the obligations outlined in the resolution, fails to provide the necessary cooperation with the ongoing South African investigations into the relevant conduct referred to in the resolution, or in the event that it provides materially false, incomplete or misleading information to the NPA.

South Africa joins a growing list of countries that employ alternative dispute resolution mechanisms to combat foreign bribery and corruption. These include the United States, United Kingdom, Germany, France, Brazil, Kenya, Malaysia, Singapore, Mexico and Canada.

These mechanisms are considered a vital instrument in combatting corruption; are recommended by the United Nations Convention Against Corruption, and are endorsed by the Organisation for Economic Development.

NPA spokesperson Mthunzi Mhaga said these mechanisms were essential for resolving international corruption cases with foreign authorities.

“They enable the NPA to have a seat at the negotiating table and a share of the financial reparations. One of the key recommendations of the Zondo Commission of Inquiry into State Capture was that a framework for such non-trial resolutions be enacted in South Africa. To this end, the South African Law Reform Commission is reviewing the Criminal Procedure Act to include such legislative reform,” he said. DM

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Business Maverick

Intentional NPA strategy

The background

Zero tolerance

Commitments going forward