Business Insider Edition

The biggest South African business scandals over the past decade

Business Insider SA
 Jan 11, 2020, 08:01 AM
  • Allegations of private sector corruption have rocked South Africa over the past decade. 
  • From Steinhoff, to the Gupta-family and Sasol, South Africans saw a lack of good governance.  
  • Business Insider South Africa looked at some of the top South African business scandals of the past decade. 
  • For more, go to Business Insider SA.

The past decade has been marred by a series of scandals in South Africa’s private sector, each demonstrating a clear lack of ethics, each fraudulent in their own special way.  

Here are some of the biggest instances of business wrongdoing that rocked South Africa:  

Steinhoff 

We still don't know exactly who did what at Steinhoff - the company refuses to release the full PricewaterhouseCoopers report into wrongdoing. But this much we do know: the company inflated its profits and assets by R250 billion.

Steinhoff did deals with companies that were secretly linked to former CEO Markus Jooste and his cronies. It also used many accounting tricks (and forged documents) to boost its value. Steinhoff cooked up fake income to boost some of its underperforming companies.Also - Jooste granted himself an undeclared bonus and a loan from Steinhoff and Steinhoff execs received ‘golden visas’ in a property transaction related to the company.

Read: 8 things we learned from the new Steinhoff report – including its suspect dealings with secretive companies

Things came to a head in December 2017, when Steinhoff’s share price plunged by 98% after auditing firm Deloitte discovered “accounting irregularities” and refused to sign-off on the company’s books. Jooste resigned days later. 

It is still uncertain whether the once-proud South African company, which was a key sponsor in university rugby, will be able to recover as it sells key assets to repay its €8.8 billion (R150 billion) debt burden.


Tongaat Hulett

Earlier this year, South Africa’s biggest sugar producer, the 127-year old Tongaat Hulett, admitted that “certain past practices” do not reflect the company's business performance accurately.

The company said equity (the value of the business after liabilities) in its 2018 financial results has been overstated by between R3.5 billion to R4.5 billion. Analysts believe its property portfolio, in particular, was inflated. An external report has blamed ten former executives, including ex-CEO Peter Staude, who was paid more than R170m in a decade.

Its shares remain suspended on the Johannesburg Stock Exchange (JSE) and in London.


Gupta-owned companies

The Gupta family owned over 12 companies in South Africa - across various sectors, including Oakbay Investments, Sahara Computers and mining group Tegeta Exploration and Resources. 

In 2017, a database of leaked emails between the infamous Gupta family, and several key South African state officials, which became known as the Gupta Leaks, revealed the depth of influence the family had on the state’s affairs, and how it was able to sway officials and key appointments to achieve their agenda. 

The family were, among others, accused of having a hand in ministerial appointments, using its influence to get key contracts from state-owned enterprises, and running a propaganda campaign in the country. 

In the Estina Diary matter, the #GuptaLeaks revealed how at least R30 million paid to the Guptas via the farm ended up funding the family's lavish Sun City wedding in 2013.

The Estina company was gifted a free 99-year lease to a 4 400-hectare farm outside Vrede by the Free State government, and the provincial government promised an additional R114 million a year for three years to set up a farming operation to empower locals and boost provincial agriculture, News24 reported.

Estina’s sole director was an IT salesman with no farming experience, and used the same address as other Gupta companies. 

Financial records in the #GuptaLeaks show that over a six-week period between August and September 2013, Estina had transferred US $8,348,700 (R84 million at the time) to the Dubai bank account of a Gupta-controlled United Arab Emirates (UAE) shell company, Gateway Limited.

The money soon bounced back to South Africa where, among others, it helped to pay for the lavish Gupta wedding at Sun City in May 2013. 


VBS Bank 

In 2018, advocate Terry Motau released his report, titled The Great Bank Heist, into fraud and corruption at the bank, compiled with Werksmans Attorneys for the South African Reserve Bank which estimated that nearly R2 billion was looted from the bank.

More than 50 people are believed to have benefit, and Motau recommended that criminal proceedings be instituted. 

Executives for many years looted the organisation by among others, creating fictional deposits and convincing municipalities to invest in the bank, Motau said.   

Motau also found that KPMG audit partner Sipho Malaba, had committed fraud in signing off on the banks 2017 financial statements and on its regulatory reports to SARB.

EFF leader Julius Malema, and deputy leader Floyd Shivambu are believed to have benefited from the bank through fraudulent home loans and payments from the bank.


KPMG

KPMG has been in a struggle for survival over the past three years amid an exodus of clients, including Absa, Sasfin and DRDGold. This was in reaction to the revelations about its association with Gupta companies, its involvement in a discredited report into a so-called rogue unit at the SA Revenue Service and the allegations of corruption at VBS, which it audited.

KPMG was allegedly aware of suspect flows from Gupta business accounts, and also restated cost related to a family wedding as an unspecified tax-deductible.

Also, KPMG was forced to withdraw a report it compiled in 2015 that found that SARS had a "rogue spy unit" - and that former finance minister Pravin Gordhan knew about it. This put immense pressure on Gordhan, who was eventually sacked.   

The reports detailed allegations that Sars was running an apparent illegal unit, which was accused of running a brothel and spying on President Jacob Zuma, among other things.

former president Jacob Zuma fired Gordhan, but KPMG retracted the report in 2017 after KPMG International launched an investigation into its South African unit. 

The firm said it will also pay back the R23 million it received from SARS, and donate R40 million it earned in fees from Gupta-related entities to education and anti-corruption NGOs.


McKinsey & Company

The US consultancy McKinsey & Company worked alongside Gupta-linked firm Trillian Capital Partners on an Eskom contract.

McKinsey said last year it had made “several errors of judgement” while working for Eskom and repaid almost R1 billion in fees to Eskom.

It, however, said it stood by the work it did for Eskom, while the circumstances surrounding the awarding of the contract have been called into question.


SAP  

German software giant SAP admitted in 2018 that it paid R128.6 million to companies linked to the Gupta family to get contracts with state-owned Eskom and Transnet.

The company vehemently denied the allegations in 2017, but a leaked internal SAP memo in 2018 showed that the company acknowledged its global practice of paying “business development partners” to secure deals was fraught with the risk of corruption.

In fact, amaBhungane reported that after SAP’s South African compliance team alerted SAP global compliance about the Gupta family’s involvement, it paid the family’s companies another R73 million to secure new deals at Transnet and Eskom in 2016.After SAP launched an internal investigation in 2017, it found irregularities in the management of these third-party transactions and adherence to internal company processes. 


Eskom

The utility has plunged the country into the darkness since 2007 when it first instituted loadshedding as a way to avoid a total collapse of the grid. 

Aside from allegation for overpaying for coal, and receiving poor quality coal - linked to a contract with the formerly Gupta-own Tegeta mine - sub-contractors have also been accused of corruption during the construction of the Kusile and Medupi power stations. 

Kusile is a coal-fired Eskom power plant under construction in Mpumalanga. Together with its sister plant Medupi, it is billions of rands over budget and years behind schedule.


Sharemax

In 2008, Sharemax promoted itself as the largest unlisted property investment company in Africa. 

An estimated 40,000 people, mostly retirees heeded the call to invest in the property syndication company - pouring in about R5 billion into Sharemax's schemes.

Sharemax investors believed they were buying shares in new shopping centres. In reality, though, the group dealt in somewhat exotic debt instruments well removed from ownership, described as “an unsecured subordinated interest rate acknowledgement of debt linked to a share”. 

These were supposed to offer huge returns that, in a manner reminiscent of a Ponzi scheme, were sometimes paid before those shopping centres were actually built, apparently drawing from investments made by other people.

Sharemax collapsed in 2010 after a registrar of banks investigation found that Sharemax’s funding model had contravened the Bank Act.


EOH

A whistleblower filed a complaint with the US Securities & Exchange Commission in 2018 against EOH in relation to alleged corruption in an R120 million department of defence software deal, TechCentral reported.

The whistleblower accused Microsoft of being “complicit” in allowing JSE-listed EOH to engage in a “corrupt” licensing transaction with the department to gain access to Microsoft services. Microsoft terminated longstanding partner agreements with EOH, one of the largest IT service providers in Africa, in March. 

EOH soon tasked law firm ENS to investigate R1.2 billion in suspect transactions, primarily in EOH’s dealings with the public sector.

This has led to large write-offs, in part due to the fraud, which contributed to EOH’s net asset value falling almost 70% to R1.957bn in the past year.

EOH said a small group of individuals in the public sector team were responsible for the fraud. The ENS investigation also identified various opportunistic incidents of theft from EOH, and a number of individuals have been dismissed. 


Construction companies

The Competition Commission launched an investigation into widespread collusion in the construction sector in relation to the construction of 2010 World Cup stadiums in 2011. 

The collusion on these stadium projects is estimated to have added R14-billion to the construction costs borne predominantly by municipalities.

In June 2013, altogether 15 construction companies agreed to pay fines totalling R1.4bn for collusive tendering, including WBHO, Aveng, Murray & Roberts, Group Five, Basil Read, Raubex and Stefanutti Stocks. 

In terms of this process, companies were encouraged to make full and truthful disclosure of bid-rigging, in return for penalties lower than what the Competition Commission would have sought if the cases were prosecuted.


Bosasa

African Global Operations, known as Bosasa, was established in 1995 and is accused of widespread corruption and undue influence with the state, and is estimated to have received government tenders to the value of R12 billion between 2003 and 2018.

The Mail and Guardian reported that the company overcharged close to 40 national and provincial government departments such as forcing the state to pay R161 for security gate remote controls.

It used its connections with state employees to be granted tenders running into the millions. 

At the Zondo commission in February 2019, Bosasa’s former chief operations officer, Angelo Agrizzi, revealed how they had influenced state tenders by bribing officials. 

African Global Operation’s former chief financial officer, Andries van Tonder, also told the commission that he had collected between R4 million and R6 million every month from Bosasa’s vault to bribe people.

The company announced in February that it would be going into voluntary liquidation after their banks announced that they would be closing all BOSASA related accounts.

The Bosasa board, however, filed an urgent application in the Gauteng High Court in Johannesburg in March and were successful in having the liquidation set aside.

Liquidators filed an appeal with the Supreme court of appeals. 

Former Bosasa CEO Gavin Watson died in a car accident in August. 


Gold Fields

A New York law firm, commissioned by Gold Fields, found that the local company had hugely increased ANC Chairperson Baleka Mbete's cut in a contentious empowerment deal in response to an alleged threat by her representative. 

Mbete is believed to receive R25 million in shares from the deal. 

The deal resolves around Gold Fields's struggle in 2010 to secure a new-order licence for its South Deep mine and the department of mineral resources’ requirement that the company find an empowerment partner.

According to investigators, one of Mbete’s representative threatened to sink the deal unless she was given a bigger cut. Mbete claimed that she was invited to join the empowerment group in 2010 and was not aware of any impropriety relating to the deal. The Hawks launched an investigation into the deal in 2013. 

In 2018, she said she has not received “a cent” from the deal, despite declaring shares in the company valued at R27 million in 2014.


Sasol 

Sasol’s share price lost a third of its value in 2019 as the full scale of the investors react to the delays and cost overruns at Sasol’s Lake Charles Chemicals Project (LCCP) in the US.

An independent investigation into the LCCP found inappropriate conduct and incompetence in the LCCP project management team.

It also found "an improper tone at the top of the LCCP", and that managers didn't provide accurate cost and schedule estimation to executives. Sasol's joint CEOs, Bongani Nqwababa and Stephen Cornell agreed to resign 

It is now expected that the project will cost between $12.6 billion and  $12.9 billion (R180 billion at current exchange rates) – almost double the original budgeted amount.

Worth more than R410 billion in 2014, Sasol is a shadow of its former self: its market capitalisation is currently only R152 billion.


ANN7, Multichoice, SABC and The New Age 

The #GuptaLeaks emails revealed that MultiChoice made questionable payments to discontinued news channel ANN7.

News24 reported that a payment of R25 million was made to the then Gupta-owned ANN7 channel by MultiChoice, which owns DStv and M-Net. These annual payments were increased to ANN7 from R50 million to R141 million from 2015 to 2017.

At the time, the Gupta family seemingly helped then communications minister Faith Muthambi to get President Jacob Zuma to transfer certain broadcasting powers to her.

Following the transfer of powers, Muthambi controversially pushed through a decision in favour of unencrypted set-top boxes, which benefited MultiChoice.

MultiChoice disputed the accusations, but removed ANN7 from its DStv offering. 

in 2017, SABC was also involved in a series of questionable transactions with the Gupta-owned The New Age newspaper, ANN7 and Multichoice.  

The SABC paid the Gupta owned The New Age newspaper R20 million for a series of breakfast briefings it broadcasted on SABC channels.

In addition, former SABC CEO Lulama Mokhobo testified at the State Capture enquiry that the broadcaster paid The New Age R900,000 for its newspapers to be distributed at the broadcaster.

Meanwhile, the SABC sold also its entire archive to the Gupta-owned ANN7, and Multichoice

In a series of deals with Multichoice which included the sale of its archive, under the leadership of its former head of corporate affairs, Hlaudi Motsoeneng, the broadcaster also paid Multichoice-owned DStv R553 million, over five years, for two new channels on the satellite broadcaster.


MMM Global 

MMM collapsed in 2016 when users failed to feed the bottom of the pyramid with points collected from cash donations from members.

The Hawks launched an investigation into the pyramid scheme, but because it is operated from Russia it is difficult to apprehend the alleged suspects.

Victims lost as much as R100,000 in the scheme, Fin24 reported at the time. 

The pyramid schemed is suspected of on a principle that people buy into it, and get points for promoting it on social media and getting others to donate. The more points you gather, the higher the interest you earn. 

However, when there aren’t enough new entrants buying into the scheme, it fails to make the payments to the first members and the scheme collapses. 

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