T-Systems: German IT giant and State Capture profiteer

10 Oct 2022

German IT giant T-Systems scored one of the biggest Gupta-linked State Capture contracts in South Africa, with links to both Transnet and Eskom. Despite glaring evidence available in the public domain, the findings of the Zondo Commission and a fresh criminal investigation in Germany, South African authorities seem uninterested in holding T-Systems to account for its corrupt billions earned at the expense of the public.

State Capture in South Africa has undermined institutions and siphoned away crucial public resources needed to face the country’s challenges. While millions of people in South Africa have borne the brunt of State Capture, a host of private corporations, both in the country and around the world, have profited handsomely from corrupt contracts.

Evidence laid bare by the Zondo Commission reveals that T-Systems raked in more than R12.3-billion, making it the second-biggest corporate winner from Gupta-linked contracts. The only companies that received more, were China South Rail and China North Rail (now the China Railway Rolling Stock Corporation), which received over R26-billion in contracts linked to Transnet. T-Systems won contracts from both Transnet and Eskom, two South African SOEs at the very heart of State Capture.

From around 2011 onwards, SOEs and government departments were targets of capture by the Gupta Enterprise. This led to a wide range of contracts being awarded, where billions of rands were paid to entities controlled by, or linked to, the Gupta Enterprise. The term “Gupta Enterprise” refers to the Gupta family and the companies under their control.

The Gupta Enterprise had a crude and simultaneously sophisticated modus operandi which entailed working with various officials and individuals using networks to obtain public contracts, and then divert commissions and kickbacks to benefit the Gupta Enterprise.

T-Systems is an example of this modus operandi. Its contracts with SOEs and service providers not only benefited the IT company itself, but went on to benefit the Gupta Enterprise and its associates.

T-Systems rakes in big profits in South Africa

T-Systems is a huge multinational, partly owned by the German government and a subsidiary of German corporate giant, Deutsche Telekom. T-Systems generated profits of four billion euros in 2021 and is self-proclaimed to offer “integrated end-to-end IT solutions, driving the digital transformation of companies in all industries and the public sector”.

T-Systems established a South African operation in 1997 and, over the next two decades, the SA company was one of the biggest generators of profits outside Europe. It soon developed a footprint of offices across South Africa, including its Midrand HQ in Gauteng.

However, after being implicated in major corruption and State Capture, the South African subsidiary was quickly put on the market and sold for an undisclosed amount to a local IT company called Gijima in October 2017.

Gijima was founded by politically connected businessperson, Robert Gumede, who is renowned for developing an IT empire through South African public sector tenders. Prior to this significant acquisition, Gijima and T-Systems had been competitors. Notably, Gijima was a losing competitor to T-Systems in a 2017 contract with Transnet, despite Gijima submitting a better bid at a lower cost.

T-Systems and Transnet — endless extensions bag billions

Evidence by Paul Holden of Shadow World Investigations (SWI), an expert on illicit State Capture money flows — which was presented to the Zondo Commission — revealed a staggering R57-billion in South African state contracts tainted by corruption linked specifically to the Gupta family.

One of the corporations that profited handsomely was T-Systems. It earned R12.3-billion from contracts called Master Service Agreements (MSAs) to provide Transnet and Eskom with IT services and equipment. Much of the material below is drawn from detailed submissions made by Paul Holden and SWI to the Zondo Commission.

The findings of the Zondo Commission concluded that “T-Systems appears to have used Gupta Enterprise connections to secure its position at Transnet and to more than double the term and value of its MSA contract”. In December 2009, T-Systems signed a contract with Transnet to provide the SOE with IT services and equipment — the contract commenced in January 2010 and was set to run for a five-year period.

Following the awarding of the original contract, a new procurement process was initiated by Transnet to replace the MSA. While this protracted procurement process dragged on, successive short-term extensions ensured that T-Systems’ MSA continued to do business with Transnet for a number of years. Significantly inflated values accompanied the series of extensions and saw to it that T-Systems brought in billions, profiting handsomely at the expense of the public purse.

T-Systems received more than a thousand payments from Transnet over the life of the MSA. During the duration of the original five-year MSA, from 2010 to 2014, T-Systems’ bank statements reveal that it received payments from Transnet amounting to just over R1.3-billion.

Following the initial agreement, Transnet extended T-Systems’ MSA for two years, through 2015 and 2016. This was the first of a series of MSA extensions in this case. This initial extension earned T-Systems over R1.5-billion, a little under three times the amount T-Systems earned annually under the original MSA. This pattern continued as the extensions of the MSA continued.

From the end of 2016 to the end of 2018, the MSA with T-Systems was extended a further four times. These extensions resulted in additional payments to T-Systems of R610-million, R521-million, R203-million and R343-million.

Ultimately, T-Systems was paid around R4.5-billion by Transnet in just under a decade.

Shady friends in high places

When T-Systems was reappointed by Transnet in 2017, local IT company Gijima had submitted a higher-ranked bid at a significantly lower price than T-Systems. The appointment of T-Systems bypassed all of Transnet’s internal processes without any explanation, and went against advice given by Transnet officials who worked on the tender.

The decision was made by the now notorious Board Acquisitions and Disposals Committee (BADC) that was, at the time, chaired by Stanley Shane, a known Gupta associate. Shane, as investigations have found, received payments of over R10-million from Gupta-related companies. Evidence presented to the Zondo Commission reveals that, despite the superior ranking of competitors such as Gijima, Shane motivated strongly for the new contract to be kept with T-Systems.

Another member of the BADC at this time was Zainul Nagdee. Evidence presented to the Zondo Commission revealed that Zainul Nagdee used his own company, Lechabile Technologies, to “expatriate more than R5-million in proceeds of kickbacks paid to the Gupta Enterprise in respect of corruptly procured public sector contracts”.

T-Systems was able to procure its contract with the assistance of Gupta-linked associate Salim Essa, who, as the Zondo Commission found, acted as a backroom negotiator for the corrupt contract dealings between Transnet and T-Systems.

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Investigative reports by News24 first reported that sources from within Transnet, with first-hand knowledge of the deal, confirmed that Essa attended the meetings in which Transnet was taking the decision to extend its contract with T-Systems, as a “negotiator” representing T-Systems and played an intermediary role.

In 2017, following the reappointment of T-Systems, Gijima challenged the decision by Transnet’s board to award the IT data services contract to T-Systems despite Gijima scoring better. National Treasury supported Gijima’s challenge, and, following this pressure, Transnet made an application to the North Gauteng High Court in October 2017 to set aside the decision to award T-Systems the contract.

The Transnet CEO at the time, Siyabonga Gama, came forward, claiming that he had not realised that the Transnet board had made a mistake in awarding the contract to T-Systems. Gama was arrested earlier in 2022 in relation to other corruption allegations at Transnet.

The evidence presented at the application to set aside the contract included minutes of Transnet meetings in which Shane was revealed to have pushed for the appointment of T-Systems.

While T-Systems initially opposed the application, it withdrew this in 2018. Judge R Keightley of the North Gauteng High Court concluded that the awarding of the contract to T-Systems was unlawful and irregular, stating that “to permit such a tainted decision to stand, would be inimical to the constitutional requirement that tender processes should be fair, equitable, transparent, competitive and cost-effective”.

The contract was subsequently awarded to Gijima. However, this was only after T-Systems had benefited from the profits it earned from the continued contract extensions and its ties with Transnet over a period of 10 years.

T-Systems’ tango with the Guptas

T-Systems was not the only entity that profited from the series of extensions of the MSA with Transnet. Money flows evidence presented to the Zondo Commission by Paul Holden revealed that T-Systems subcontracted the rental and equipment sales parts of the MSA to Zestilor — a company known to be one of the Gupta Enterprise’s money laundering entities.

From August 2012 to mid-July 2015, T-Systems made payments to Zestilor amounting to more than R3-million. Zestilor is owned by Zeenat Osmany — who is married to Gupta associate Salim Essa.

According to evidence at the Commission, the payments to Zestilor by T-Systems were made in regular monthly instalments of R81,830.91. During this period, T-Systems’ monthly payments to Zestilor made up the lion’s share of Zestilor’s total income. Further, a number of large payments were made by Zestilor to other money laundering Gupta Enterprise entities, including Sahara Computers.

A review of bank statements revealed that the payments by T-Systems to Zestilor funded monthly payments made regularly by Zestilor to Salim Essa. Essa received just over R500,000 from Zestilor between 2012 and July 2015.

At the time when T-Systems was receiving income derived from the contract extensions with Transnet, it not only sub-contracted the rental and sales aspects of the business to Zestilor, but it also enabled the diversion of Transnet funds to the Gupta Enterprise via other avenues. It did this through its supplier development partner, Sechaba.

Between February 2015 and December 2017, T-Systems transferred more than R320-million to Sechaba’s Nedbank account. SWI’s review of the bank records of Sechaba revealed that, during this period, the entity made a number of onward payments to various Gupta money laundering entities, which include the likes of Homix, Albatime and Fortime Consultants.

Records made available through #Guptaleaks reveal that the Gupta Enterprise gained control of Sechaba in the middle of 2015, through Zestilor. Evidence contained in email correspondence shows that, in June 2015, Santosh Choubhey, an employee of known Gupta Enterprise entity, Sahara Systems, wrote an email to Tony Gupta with an attachment titled “Sales of Shares Zestilor — Sechaba.doc”. This unsigned document was a record of an agreement through which Zestilor would buy 51% of Sechaba’s shares.

Eskom — T-Systems does it again

Transnet was not the only SOE that T-Systems profited from through dodgy dealings. Findings of the Zondo Commission note that, “at Eskom, T-Systems exploited its relationship with the Gupta Enterprise to even greater effect. Events at Eskom followed a pattern strikingly similar to those at Transnet”.

The similarities are indeed striking: the MSA between T-Systems and Eskom was concluded in 2009 and originally set to run from January 2010 to December 2014. This MSA was also irregularly extended for a further five years until 2019 with a series of contract modifications, mirroring what transpired at Transnet.

Minutes from a November 2009 Eskom Board Tender Committee meeting reveal that the original MSA that was set for a five-year period was for an amount of around R2.9-billion. But evidence presented to the Zondo Commission reveal that the T-Systems and Eskom MSA extensions and modifications ultimately earned T-Systems more than R7.8-billion.

The modifications and extensions were extraordinary and transpired despite the fact that Eskom had repeatedly taken the decision not to extend the MSA with T-Systems beyond the five-year period.

Letters from Eskom to T-Systems reveal that Eskom had twice notified T-Systems of this decision. The letters, the first dated 26 August 2013 and the second dated 29 September 2014, note that Eskom would not be extending the MSA with T-Systems, and that the power utility would be putting the services out to tender. However, over the course of five years, between 2014 and 2019, Eskom continuously cancelled the request for proposals that it had issued to replace T-Systems’ MSA, and the contract with T-Systems was renewed five times.

Salim Essa — never far from the action

Another similarity to the Transnet case is the role of Salim Essa. An internal T-Systems compliance report, dated 24 June 2015, reveals that T-Systems skirted its own rules in order to informally engage with Salim Essa, a known Gupta associate. Remarkably, the report acknowledged that formally engaging with Salim Essa would be too great a risk for the IT company, and suggested an informal route that enabled T-Systems to benefit from Essa’s powerful network.

In the compliance report, the company recognised that Essa had a “strong network to Eskom officials and its stakeholders”. The same internal T-Systems compliance report also noted that Salim Essa introduced T-Systems decision-makers to “several local and start-up companies” and he requested that T-Systems “provide these companies with the opportunity to be included in the value chain where possible”.

Essa’s networks bore fruit for T-Systems; the company benefited enormously from the multibillion-rand contracts with Transnet and Eskom that Essa had helped T-Systems extend for almost double the original period. Despite this, T-Systems “failed to disclose to the public the role that Salim Essa had played in their contracts at Eskom and Transnet”.

Auf Wiedersehen SüdAfrika? Not so fast, T-Systems

As media reports continued to come forward of T-Systems’ corrupt conduct and complicity in State Capture, Deutsche Telekom, T-Systems’ parent company — despite all the evidence to the contrary — vehemently denied any involvement in irregular dealings with Transnet or Eskom. It also denied involvement in irregular activity to secure public sector contracts with Gupta-linked companies and individuals. Despite this, it was quick to sell off its South African subsidiary.

In early September 2022, it was confirmed that the German public prosecutor’s office in Frankfurt is undertaking a criminal investigation into T-System’s contracts and conduct in relation to State Capture in South Africa.

This is welcome news as Germany has a legal responsibility to hold powerful German corporations to account for their conduct abroad, which, in the case of T-Systems, means holding the IT company to account for the harm suffered by the people of South Africa as a result of State Capture.

Open Secrets reached out to T-Systems, asking the IT company to respond to questions regarding its corrupt conduct in South Africa, but T-Systems did not respond.

What about South African justice?

The South African public have a right to know why South African law enforcement agencies — particularly the Hawks and the NPA — have been slow to act in this case.

It is paramount that local authorities take steps to investigate T-Systems’ conduct in South Africa. It should also be open with the German authorities to assist investigations in both jurisdictions. If the intention of South African authorities is to abdicate the function of law to foreign jurisdictions, we are in deep trouble. The top management of T-Systems and all their networks should be investigated and charged speedily so that they can have their day in South Africa’s courts.

Today millions of people in South Africa are grappling with the grim reality of strained spending on public services and rolling blackouts. It is clear that State Capture and corruption at Transnet and Eskom, part of which T-Systems played an important role, resulted in dire consequences for the public.

With the lights turned off, do these corrupt networks really think the public hasn’t noticed that they remain unaccountable? Justice cannot be left only to Germany. The time for South African authorities to act against T-Systems and its State Capture allies is now.

Unaccountable, we have not forgotten. DM

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