McKinsey faces legal action over Gupta-linked Eskom saga

Johannesburg - The Democratic Alliance announced on Monday that it would lay fraud, racketeering and collusion charges against McKinsey after the US global consultancy firm was implicated in the Eskom corruption scandal. 

McKinsey, along with UK PR firm Bell Pottinger, international audit firm KPMG and Germany's SAP, have been drawn into the Gupta saga and allegations of state capture as information continues to emerge that show  unethical behaviour in work done for businesses linked to the Guptas. 

The consultancy stands accused of having subcontracted 30% of its business with Eskom to the Gupta-linked Trillian firm, in what critics say essentially amounted to a bribe to secure the contract for McKinsey.

Reports suggest the contract was lucrative for McKinsey, making up more than half of McKinsey’s Africa  revenue.

DA MP and public enterprises spokesperson Natasha Mazzone said allegations that McKinsey ignored warnings from senior South African staff as far back as the beginning of 2013 of possible dodgy deals with Trillian, Eskom and other Gupta-linked companies must be fully investigated.

"Criminal charges are the first step in ensuring that if any wrongdoing has taken place, those responsible can be brought to book," she said, adding that the DA would not stand by as people in positions of power abuse state institutions for their own selfish gain.

US justice charges

Corruption Watch also last week announced that it would approach the US justice system to probe McKinsey.

Executive director David Lewis said Corruption Watch was preparing a submission for the US justice system to investigate the firm’s conduct in South Africa. “In our reading it is in gross contravention of the US foreign corrupt practices act.

"McKinsey paid Trillian a large amount of money for doing absolutely nothing other than getting them the contract," he said.

Last week Reuters reported that McKinsey had ignored suspicions raised over several years by local senior staff over Eskom’s suitability as a business partner.  

According to two former employees Reuters spoke to, McKinsey had ignored warning signs on Eskom checks as far back as 2013, and knowingly allowed Eskom to divert funds to Trillian as a way of securing a multi-million rand contract to advise Eskom on a new "Corporate Plan and Turnaround Programme".

McKinsey is one of a number of global firms that have been accused of unethical behaviour regarding the Gupta-family and state tenders. On Friday KPMG, who audited several of the controversial family’s businesses, cleaned house by announcing its CEO and a number of other high-ranking officials had resigned.

Also Bell Pottinger filed for administration this week after it lost clients and staff over its controversial work for the Gupta family. Software firm SAP has also been implicated and so far four South African managers have been placed on special leave. 

Budlender report

McKinsey’s links to Trillian emerged when Advocate Geoff Budlender released a report in June which implicated the consultancy in corruption at South Africa's power utility. His scathing report stated that Eskom had acquired the advisory services of McKinsey in September 2015 to the value of R1bn per year, and McKinsey subsequently subcontracted 30% of the services to Trillian, under the guise of "supplier development’"

After the Budlender report was released McKinsey launched its own probe, reviewing hundreds of thousands of documents related to Eskom. The investigation “involves a detailed review of our client interactions and work at Eskom since 2012” and interactions with supply-development partners over the past three years, McKinsey told Bloomberg. Law firm Norton Rose Fulbright is helping with the probe and the outcome is yet to be released.

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