Make state capture-linked companies pay reparations for damaging SA's economy - Iraj Abedian

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Dr. Iraj Abedian. Photo: Elvira Wood
Dr. Iraj Abedian. Photo: Elvira Wood
Dr. Iraj Abedian. Photo: Elvira Wood

  • Economist Dr Iraj Abedian has proposed that companies that were caught up in or helped enable state capture pay "reparations" for economic damage to South Africa.
  • Abedian says the practice of companies "volunteering" to pay back money without additional oversight is cause for concern, and their contracts should be inspected by an independent panel.  
  • US consultancy McKinsey this week announced that it would pay back the R650 million in fees it earned from Transnet and SAA from working alongside Gupta-linked firm Regiments, saying it had decided to repay contracts that may "even indirectly" have been related to state capture.

Companies that may have enabled state capture should not only pay back the fees they earned from suspect contracts plus interest, but should also have to pay "reparations" for the damage they caused to SA's economy, according to economist Dr Iraj Abedian, the founder and chief executive of Pan-African Investment and Research Services.

Abedian, a former professor of economics at the University of Cape Town and ex-chief economist for the Standard Bank group, says that private sector groups that got entangled in the state capture project get off too easily when they volunteer to pay back fees.

For Abedian the knock-on effects of state capture – including credit rating downgrades, failing state-owned entities, a weaker rand, and more must be taken into account.

And Abedian has a proposal to better calculate the true cumulative damage. An independent panel of experts should assess primary documentation to work out not just what should be paid back from shady contracts and tenders - including interest of course, but also the question of whether broader "reparations" were needed.

On Wednesday, US-headquartered global consultancy McKinsey announced it had voluntary decided to pay back the "entirety of the fees" it earned for work it did for Transnet and SAA that involved Gupta-linked company Regiments Capital. According to McKinsey, this will likely come to around R650 million, although Transnet has said the true amount is higher.  

The announcement comes almost three years after McKinsey said it would be returning consulting fees it earned formulating in turnaround plan for Eskom, where it worked alongside another Gupta-linked company, Trillian. Both companies have links to Salim Essa, a close business associate of the Guptas.

At the time McKinsey denied any wrongdoing, saying that an internal probe had found it had "never made payments directly or indirectly to secure contracts, nor have we aided others in doing so".

A number of other companies have volunteered to pay or already paid back fees from suspect contacts or work with state-owned companies, including ABB South AfricaKPMG, Bain and Deloitte

Tainted contracts 

McKinsey's Chief Risk Officer, Jean-Christophe Mieszala, said in a statement this week that the group had "no wish to benefit from potentially tainted contracts" related to work done alongside Regiments for SAA and Transnet.

And while McKinsey stands by the "value of our work" at Transnet and SAA it said it had decided to "return fees for projects that – even indirectly – may have been related to state capture".

"That is not something our firm is willing to accept," he said.

The reason for its decision to pay back the R650 million in fees now – which would take the total it has voluntarily returned without conceding any wrongdoing to R1.65 billion  - was it had been shown "documents and information regarding Regiments" by the judicial commission of inquiry into state capture, that had previously been "unavailable to our review".

The commission, led by Deputy Chief Justice Raymond Zondo, has since August 2018 been investigating allegations of state capture, corruption and fraud at state entities.

In a statement this week it commended McKinsey for agreeing to pay back the money, saying it was conducted itself as a "responsible corporate citizen" and called other companies to "assist in the fight against corruption".

But for Abedian, the practice of volunteering to pay back fees from irregular contracts without further action or oversight is cause for concern.

In 2017, he said, when McKinsey first volunteered to pay back its consulting fees from Eskom, there should have been a push by state agencies to more fully uncover what happened.

"Where did the billion come from? Who decided? What was the excess from overchanging, looting, extraction, whatever terminology you chose?

"They have unliterally decided it was a billion rand."

"Ever since they have been playing this arrogant term, where 'we will decide what we volunteer to pay'.

'Violators, thieves'

"We'll you can't if you break into my house and you steal my laptop … you can’t later tell me what you have stolen. I must tell you what you have stolen," he said. This, according to Abedian, should be assessed by an independent panel.

"You can't tell me what damage you have caused. An assessor, [someone] independent must come and say you stole the laptop you broke the front door, caused trauma, loss of income. Someone independently assesses what those you have violently stolen must [pay].

"Reparations are never assessed and valued by the violators, by thieves."

Approached for comment on Abedian's argument that McKinsey had taken on the roles of both the transgressor and assessor, a spokesperson for McKinsey referred to a previous statement and testimony by McKinsey executives before the judicial commission of inquiry into state capture. 

In the statement, McKinsey notes that its decisions to pay back Eskom in 2017 and SAA and Transnet this year were both voluntary. And in its interactions with the Zondo commission since 2018, the commission has "confirmed there is no information that implicates any current personnel of McKinsey in any corruption or impropriety".

In a separate statement to the commission by Mieszala, the chief risk officer again underlines that the new information shown to it by the commission shows no evidence of wrongdoing.

"While this information does not demonstrate McKinsey was itself involved in corrupt activities, it does corroborate previous allegations that Regiments engaged in a pattern of misconduct."

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