Protesters stand outside the house of the Gupta family as they protest against the Gupta’s businesses and South African President Jacob Zuma, in Johannesburg, South Africa on April 3, 2017.KIM LUDBROOK
The widening scandal over the Gupta family's powerful political role in South Africa, which has already inflicted heavy damage on public relations agency Bell Pottinger and accounting firm KPMG, is now entangling another big global corporation: the consulting firm McKinsey & Co.
New revelations by a whistle-blower, who has offered to testify at a South African parliamentary inquiry, have raised questions about McKinsey's $78-million (U.S.) contract with South Africa's electricity monopoly, Eskom, and its mysterious relationship with a Gupta-linked company, Trillian Capital, which obtained a large slice of Eskom's payments to McKinsey.
Eskom has been "lying" about its financial relationship with McKinsey and Trillian, and this is "an assault on our democracy," Public Enterprises Minister Lynne Brown told the South African parliament on Wednesday.
She said she has asked the government's Special Investigating Unit, which investigates corruption, to accelerate its probe into the contracts between Eskom, McKinsey and Trillian.
McKinsey said it is conducting its own investigation of the Eskom contract, including a review of hundreds of thousands of documents, e-mails, invoices, payments, telephone calls and financial records. It denies having any formal contracts with the Guptas or any Gupta-linked companies.
McKinsey's global managing director, Dominic Barton, is a Canadian who currently serves as chair of a council of economic advisers to Finance Minister Bill Morneau.
The Gupta brothers, who have a sprawling financial empire and a business partnership with the son of South African President Jacob Zuma, have wielded extraordinary influence over the Zuma government and its state-owned companies, including Eskom.
An investigation by a South African ombudsman found evidence that the Guptas were so powerful, they controlled appointments in Mr. Zuma's cabinet. The investigation described this as "state capture" – the capture of the government by a private business.
While nobody has been arrested or charged in the scandal in South Africa, activists and opposition parties have increasingly targeted the global companies that helped facilitate the rise of the Guptas. The pressure has triggered a series of investigations, leading to apologies and admissions of wrongdoing by some of the companies.
Bell Pottinger, hired by the Guptas and Mr. Zuma's son, Duduzane Zuma, for a racially divisive campaign against white-owned businesses, lost many of its clients and was placed into administration – a form of creditor protection – in Britain last month after a backlash against its tactics. It was expelled from a public-relations industry association for "inflaming racial discord" in South Africa.
KPMG, meanwhile, was the long-time auditor of the Gupta companies, giving them a sheen of global approval. But last month, KPMG dismissed eight senior executives in its South African division after admitting that it had ignored warnings about the "integrity and ethics" of the Guptas. Leaked e-mails showed that KPMG had allowed a Gupta-linked company to treat a lavish Gupta family wedding as a business expense.
KPMG, which had received about $3-million for auditing the Gupta companies since 2002, promised last month that it would donate the money to anti-corruption organizations. But it, too, has lost many of its clients over its role in the Gupta scandal.
McKinsey has now become the latest global company to suffer damage to its reputation from the same scandal. It has faced a storm of protests and social-media attacks in South Africa since its role became known. An opposition party, the Democratic Alliance, and an independent group, Corruption Watch, have announced they will ask U.S. and British authorities to investigate McKinsey for alleged corruption, and the DA is seeking to bring McKinsey in front of a parliamentary inquiry into the Eskom contracts.
In addition to its unusually large $78-million contract with Eskom in 2015, at a time when the Guptas exercised strong influence over the electricity monopoly, McKinsey also worked with Trillian, a company controlled by a close associate of the Guptas, which billed Eskom for similar "consulting" and "advisory" services, according to documents provided by Trillian's former chief executive, Bianca Goodson.
The documents, which Ms. Goodson prepared for the expected parliamentary inquiry, quoted a McKinsey executive suggesting that Trillian was in partnership with McKinsey "purely to receive revenue in return for not much work."
Ms. Goodson, who quit Trillian in March, 2016, after three months as chief executive, said her company had a "supplier-development partnership" with McKinsey, under which Trillian would get 30 per cent of McKinsey's revenue from Eskom. She said a senior McKinsey executive told her that supplier development did not matter, "as long as you get your percentage" of the revenue.
In February, 2016, a McKinsey director in South Africa sent a letter to Eskom, asking it to pay Trillian as a subcontractor on the McKinsey contract. McKinsey says the director's letter to Eskom was incorrect in its description of the relationship. It has placed him on leave while its investigation continues.
"Eskom paid McKinsey and Trillian separately," McKinsey spokesman DJ Carella told The Globe and Mail. "We stand behind our work at Eskom and the impact we delivered."