Private sector corruption endemic in SA before Zuma State Capture years — financial analyst

Protesters gather under the banner of FutureSA, a coalition of civil society groups, to demonstrate outside the Johannesburg offices of international consultancy firm McKinsey. (Photo: Ihsaan Haffejee)

By Ihsaan Haffejee

5 Oct 2022

South Africa’s private sector had mastered the art of corruption long before the Zuma years of State Capture. That’s according to Khaya Sithole, a chartered accountant at Corusca who was speaking during a recent conference on the State Capture Commission facilitated by the Public Affairs Research Institute and the Council for the Advancement of the South African Constitution.

Khaya Sithole, a chartered accountant at Corusca, cautioned against viewing private sector corruption as something that happened only during the State Capture years, citing the example of how South Africa’s largest construction firms colluded to secure lucrative contracts to build stadiums and infrastructure for the 2010 World Cup. These corrupt practices added approximately R14-billion to the construction costs borne by municipalities.

“The private sector has predated the model of State Capture,” said Sithole. “They mastered the model long before we saw these other clumsy idiots appearing at the Zondo Commission.”

See Part One of this two-part series from the conference here: “Plight of whistle-blowers — SA needs a culture shift and proper legislation”

Over the course of the State Capture Commission, a variety of local and international companies were exposed for their active role in the looting of state resources. This brazen corruption by big business buried the manufactured myth that private capital operates ethically and that corruption is solely a public sector phenomenon. Private capital together with the public sector were the two main protagonists in the tragic story of State Capture.

Extent of public and private sector corruption

Michael Marchant, the head of investigations at Open Secrets, warned of the way that public and private sector corruption are framed. “We say that there was greed at the procurement level by the public sector, but when it comes to the private sector we say that they were just playing the game,” said Marchant. “Firms were saying if we don’t do it then someone else will and we will lose business.”

The framing of big business as innocent bystanders was not useful, according to Marchant, who insisted the private sector was an active and willing participant in the State Capture project.

“The firms that played a role in State Capture in South Africa didn’t need those contracts for survival. In most cases, they willingly took those contracts just to extract huge profits. And I don’t know what we call that if it isn’t greed.”

The CEO of Business Unity South Africa (Busa), Cas Coovadia, acknowledged the role that the private sector played in State Capture and supported the recommendation in Chief Justice Raymond Zondo’s final report that private sector actors be prosecuted for their roles in corruption.

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“The Zondo report creates an opportunity for the private sector, particularly through organised business formations, to reflect and to introspect,” said Coovadia. He said the focus of organised business should be on how best to combat corruption within its own ranks. According to Coovadia, business formations like Busa are looking into developing some sort of “code of practice” that would make it incumbent on members to conduct themselves ethically. But he conceded that the implementation would only be useful if ethically compromised businesses would face sanctions, a challenging process as membership into organisations like Busa is voluntary.

“Part of the problem is that being part of Busa or BLSA is still a voluntary exercise. There is still a very weak accountability mechanism in relation to holding private sector players accountable,” said Sithole, who questioned whether organisations like Busa and BLSA have the courage to hold their own members to account.

The rot of Bain & Company

Sithole raised the issue of how consultancy firm Bain was embraced back into the fold by Business Leadership South Africa (BLSA). Bain was originally suspended in 2018 after its role in the destruction of Sars was exposed but was re-admitted as a member of BLSA after it paid back the money it earned. BLSA leadership then vehemently defended its decision to re-admit Bain. Whistleblower and former Bain partner Athol Williams said that BLSA keeping Bain was a “middle finger” to South Africans. Only after sustained public pressure did Bain voluntarily quit BLSA.

private sector corruption Protesters gather under the banner of FutureSA, a coalition of civil society groups, to demonstrate outside the Johannesburg offices of international consultancy firm McKinsey. (Photo: Ihsaan Haffejee)

“Bain walked away. It wasn’t business leadership which held Bain to account. It was business leadership that wanted to embrace Bain in spite of the fact that the rest of us were still asking questions,” said Sithole.

Marchant and his team at Open Secrets, who have spent years exposing private sector malfeasance, described the Zondo Commission’s treatment of the private sector as ‘inconsistent.’ While the earlier reports made mention of specific private sector actors involved in State Capture, the Commission neglected to highlight the systemic corruption plaguing private sector industries.

Accounting and auditing malfeasance

“In the first report we had strong findings of PWC’s role in SAA, but later there was no real attempt to discuss the role of Deloitte at Eskom or the role of KPMG at a range of institutions,” said Marchant. This was a missed opportunity to highlight systemic problems within the auditing sector instead of just focusing on the corruption at individual firms. The same could be said of systemic issues in the banking and consultancy industries.

Despite the difficulties of holding corrupt private sector actors accountable, developments in recent weeks have offered some slivers of hope. The National Treasury has banned Bain & Co from tendering for public sector contracts for 10 years and the National Prosecuting Authority (NPA) has indicted McKinsey South Africa on charges of fraud, theft and corruption related to state capture at Transnet. These developments are welcomed, but much more needs to be done to strengthen law enforcement and prosecuting authorities so that they can hold the private sector accountable for their actions during State Capture. The CEOs of implicated businesses need to be standing trial next to the implicated politicians who facilitated State Capture.

The post-apartheid dispensation has been very generous to big business in South Africa. They have raked in massive profits without actively participating in creating an environment that bends towards social justice. Their sole focus on the pursuit of maximum profits by any means necessary has come at a huge social cost to the ordinary citizens of this country.

Unfortunately, history teaches us that private capital is unlikely to deviate from its narrow thinking. Many years ago the Truth and Reconciliation Commission (TRC) brought to light the role of private business in propping up the apartheid regime: “Certain businesses, were involved in helping to design and implement apartheid policies. Other businesses benefited from cooperating with the security structures of the former state. Most businesses benefited from operating in a racially structured context,” read a conclusion from the commission. This was over 25 years ago.

Today, with their insatiable hunger for profits, big business seems to be actively involved in the destruction of our democratic project. DM

Ihsaan Haffejee is a freelance writer commissioned by Pari to attend the State Capture Conference.

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South Africa

Extent of public and private sector corruption

The rot of Bain & Company

Accounting and auditing malfeasance