The South African scandal engulfing President Jacob Zuma and the billionaire Gupta family spread deeper into the global professional services sector on Friday when eight senior executives were dismissed from KPMG’s division in the country.
The biggest political scandal to face South Africa since the apartheid era has already triggered the collapse of British PR firm Bell Pottinger and forced McKinsey, the consultancy firm, to launch an investigation into its work in the country. Public outrage about the Guptas’ role in South African politics intensified in June when leaked emails fuelled fears the family was exploiting its friendship with Mr Zuma to win state contracts and manipulate political appointments. The family and Mr Zuma deny the allegations.
The departures at KPMG came after an internal investigation found the accounting firm had missed red flags in its auditing of companies owned by the Gupta family. The auditor said on Friday that KPMG’s South Africa division – the firm’s largest business in Africa – had received warnings “regarding the integrity and ethics of the Guptas” that were not acted upon, and which should have led to it cutting ties with the family sooner.
South Africa is arguably KPMG’s most important market in Africa, as it boasts the continent’s most industrialised economy, its biggest companies and its largest stock market. KPMG audited companies linked to the Guptas for 15 years but ended its relationship with them in March 2016 as the political scandal over the family’s links to Mr Zuma deepened.
Trevor Hoole, the KPMG South Africa chief executive who resigned on Friday, admitted last month that the group “should have stopped working for the Gupta companies sooner than we did”.
Opposition parties and civil society groups, who have repeatedly accused Mr Zuma of running a state system riddled with corruption and cronyism, have turned their focus on global companies tainted by the controversy. Save South Africa, a civil society group, has accused KPMG and Bell Pottinger of playing a “central role in facilitating state capture”. The campaign group has urged KPMG and McKinsey clients to drop the firms over the issue.
Sygnia, the South Africa-listed asset manager, dropped KPMG as its auditor in July because of its work with the Guptas while Barclays Africa Group is reviewing its relationship with the auditor. Growthpoint Properties, one of South Africa’s largest real estate companies, said it was monitoring the outcome of the local regulator’s investigation of KPMG’s work in the country before deciding whether to stay with the firm.
The UK PR industry body’s decision to expel Bell Pottinger after its role was exposed following a complaint by the Democratic Alliance, the main opposition, was hailed as a huge victory for South Africans angered by the lack of action taken in their own country against those implicated. Many South Africans have little faith in the independence of state security agencies and the national prosecution authority.
Mr Zuma, who has 783 counts of graft, fraud and money laundering hanging over him, is a ruthless political survivor who has shrugged off a string of scandals since taking office in 2009. KPMG has become central to the scandal over the Gupta family since the leaked emails showed its South African office allowed a Gupta-owned company, Linkway Trading, to treat spending on a 2013 Gupta family wedding as a business expense.
Moses Kgosana, a KPMG executive, referred to the wedding in the emails as the “event of the millennium” and four KPMG partners attended. On Friday KPMG also disavowed its work on a 2015 report used by state investigators to try to discredit Pravin Gordhan, a former finance minister among the strongest critics of the Guptas. Mr Gordhan, who alleged corruption at state-owned companies, was fired by Mr Zuma this year.
KPMG said it would pay the R40m ($3m) it had earned from auditing Gupta-owned companies since 2002 to anti-corruption charities. It will also pay back R23m rand earned from writing the 2015 report used to support claims that Mr Gordhan set up a rogue tax spying unit, when he headed the revenue service. KPMG said the report should “no longer be relied upon”.
The internal investigation was conducted by KPMG International – the big four accounting firm’s global arm – with the assistance of a South African expert on tax laws.
“Despite the deficiencies in the audit work, KPMG International found no evidence of dishonesty or unethical behaviour” by partners working on Gupta company audits, KPMG South Africa said.
The auditing firm added that managers of the Gupta-linked companies had responded “misleadingly and inadequately” to KPMG’s inquiries “about the nature of related party relationships and the commercial substance of significant unusual transactions”.
Karthik Ramanna, professor of business and public policy at the University of Oxford’s Blavatnik School of Government, pointed out that KPMG had ethics issues before, including a 2005 settlement with the US government over fraudulent tax shelters.
“But times are different today. There’s a deep level of populist disenchantment with business and government leaders across the world,” he warned. “KPMG may find that it has gotten caught with its hand in the cookie jar just as the lights have been turned on.”
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