Thu, Sep 14, 2017 - Page 6 News List

McKinsey ignored staff warnings in S Africa Gupta scandal: ex-employees

‘STATE OF CAPTURE’:A watchdog group has accused the government of guiding hundreds of millions of US dollars in state contracts toward Gupta-controlled firms


Global consultancy McKinsey & Co, facing parliamentary hearings in South Africa over payments to a firm controlled by a billionaire family, ignored suspicions raised over several years by local senior staff that companies it worked with were set up to steer state contracts, two former employees said.

Since July, when new information emerged about McKinsey’s flagship South African contract, the consultancy has been under increasing scrutiny in a widening corruption scandal over the influence of the Gupta family, businessman friends of South African President Jacob Zuma.

The South African Committee on Public Enterprises is investigating whether McKinsey knowingly let funds from state utility Eskom Co be diverted to a Gupta company as a way of securing a US$78 million contract to advise Eskom.

McKinsey denies wrongdoing and says it intends to cooperate with the authorities if evidence of any impropriety emerges.

“We hold ourselves to the highest professional standards wherever we work and stand firmly against corruption. We are committed to ascertaining the facts and swiftly taking any and all appropriate action,” spokesman Steve John said.

McKinsey has hired law firm Norton Rose Fullbright to assist in an internal investigation, which said it would not comment while its probe is under way.

The accounts by the two former employees, who spoke separately on condition of anonymity because their present jobs do not permit them to speak to the media, could provide fodder for lawmakers who say they have questions about the time line McKinsey has given of when it learned of potential problems.

McKinsey said it carried out a due diligence review on its partner in the Eskom deal beginning in January last year and cut all ties with the local firm two months later after it concluded the company was unfit.

“We carry out checks on suppliers and partners when we work with them and address issues and concerns when they arise. When concerns were raised we undertook due diligence,” John said in a written response to questions.

However, the former employees said they had attended meetings in Johannesburg where problems with that firm and a precursor company employing the same principal staff had been discussed much earlier: as far back as 2013.

The former employees said they would have expected such concerns to have been escalated to managers outside South Africa, although they did not know if that had happened.

Ultimately, McKinsey accepted the Eskom account in spite of the warnings, the sources said.

“We turned a blind eye,” one said.

John said he could not comment on meetings that might have taken place without knowing the names of the participants.

South African Shadow Minster of Public Enterprises Natasha Mazzone said the committee would be looking at what McKinsey knew, and when, about the intentions of its local partners.

“If McKinsey is found to have been deliberately misleading South Africa and assisting in state capture, they will certainly be held to account and recommendations will be made to the portfolio committee,” she said.

McKinsey’s Eskom contract was huge for the consultancy, accounting for more than half of its South African revenue, according to the two former employees.

The deal coalesced even as a number of other business services firms were curtailing their work for South African state firms in the wake of an anti-corruption watchdog’s report into the Guptas.

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