South Africa: The KPMG scandal and the hypocrisy of big business

Over the recent period sections of South African big business have been very vocal against corruption and have promised to “fight against” it.

But all of this hue and cry is merely a cover for an ongoing clash between different wings of the ruling class. These are primarily between the traditional big business section and the upstart wing of the Gupta family, which has close ties with president Jacob Zuma and a big section of the ANC government.

The big business media have launched a big campaign against the Guptas. Hardly a day goes by without the “revelation” of some big scandal involving the looting of state owned enterprises by the Guptas. In this process, some big companies have been implicated. German based SAP, the world’s third largest software company, have suspended four senior managers in South Africa after leaked emails revealed a R100 million “kickback” scandal involving a company linked to the Guptas. Another scandal that has been exposed in the “Gupta Leaks” scandal involves the big US consultancy firm Mckinsey.

But the biggest scandal involves the large auditing company, KPMG. The Guptas gained notoriety in April 2013 when they flew in family and friends from India to a lavish wedding in Sun City, illegally using the Waterkloof Airforce Base, a sensitive military base which is meant only for use by the air force and to receive heads of state. At the time it caused a huge scandal because President Zuma and other high ranking government officials who gave the clearance for the landing, absolved themselves from responsibility and put the blame on officials at the airbase. Now the “Gupta leaks” have revealed that the scandal went much further than this. It has emerged that the wedding was actually paid for by the Free State provincial government!

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In 2013, the Free State government issued a 99-year lease to Estina, an unknown dairy farm company whose sole director, Kamal Vasram, was a former IT salesmen with no experience in farming. The link between Vasram and the Guptas was later established when it transpired that he uses the same address as Linkway Trading one of the Gupta companies. In addition to the lease, the provincial government committed to pay Estina R114-million every year for a period of three years to set up a dairy farming operation with the supposed aim of helping local small farmers. The leaked email correspondence has subsequently showed how the money, which was supposedly earmarked for the the dairy farm project, was diverted by Estina. Between August and September 2013 Estina transferred the money from the dairy project to the Standard Chartered Bank account of Gateway Limited in Dubai, a Gupta-owned shell company. In an elaborating money laundering scheme the financial records show that the money was further transferred, in tranches to other shell companies in Dubai. The money was then transferred to Accurate Investments Ltd, another shell company in Dubai. In the meantime Linkway Trading had invoiced Accurate Investments Ltd for the Sun City wedding expenses. In this way public money which was supposedly earmarked for the “empowerment” of poor people was laundered to pay for the extravagant wedding. KPMG, who were the auditors of the Linkway Trading Ltd, played a key role by clearing its accounts. It also helped Linkway write off this scam as a “business expense”, which also meant that Linkway did not pay a cent in taxes. As part of their reward four KPMG executives joined President Zuma, and other government officials as guests at the lavish Sun City wedding. Moses Kgosana who was the CEO of KPMG at the time glowingly described the wedding as the “event of the millennium.” He was later forced out as a director of Alexander Forbes when the extent of his involvement in this scandal was exposed.

KPMG’s involvement in the Gordhan saga

But KPMG did not only limit itself to facilitating the naked corruption of the Guptas. It also got involved in the ongoing war between the Zuma-Gupta wing and the big business wing. This was at a time when Zuma was looking for ammunition to remove Pravin Gordhan, the former Minister of Finance. The Zuma faction had been fighting to replace Gordhan with a more pliant Finance Minister. As the economy slowed to a grinding halt and revenue came under pressure, Gordhan, which is fighting for the interests of big business, was starting to cut back on government spending on big projects. This went against the interest of the junior wing of the ruling class like the Guptas, who live off defrauding the government tender system. The National Treasury was now a major obstacle to the Zuma faction by blocking major deals that involve the Zuma wing. This explains the assault on Treasury by the Guptas at the time. In a period of two years the Minister of Finance was fired four times as a major clash erupted between the two bourgeois wings for the control of Treasury.

The “Gupta leaks” has now revealed how KPMG helped the Zuma in their war against Gordhan. KPMG received a R23-million contract by the South African Revenue Service (SARS) to investigate a report of “misconduct” by senior officials of SARS. Part of the allegations was that the former Minister of Finance, Pravin Gordhan, when he was the Commissioner of SARS, knew about a “rogue unit” in SARS which was used to illegally spy on Zuma and other people of the opposing faction. The unpublished report was then used to purge senior SARS officials. The report was also used by Zuma to justify removing Gordhan as Finance Minister.

But based on the information contained in the “Gupta leaks” KPMG has now withdrawn its report after an investigation by the international arm. The investigation found that the conclusions in the final report were word-for-word identical to the brief which was given by the lawyers of SARS to KPMG. This meant that SARS directed the “investigation” and instructed KPMG to come up with a report that implicated Gordhan.

The hypocrisy of big business

There is no doubt that the Gupta family and the Zuma faction in the ANC is corrupt to the core, as the “Gupta leaks” have shown. What this whole saga conveniently ignores is the rampant corruption that occurs on a vastly greater scale in the big business wing of the ruling class. Every day the big business media “reveals” new and ever more damning evidence of corruption committed by the Guptas. On the other hand, the big business media portrays the banks and big businesses as moral crusaders against corruption.

KMPG/Paul Wilkinson

When the whole money laundering scam of the Guptas became evident, the big business media heaped praise on the banks for freezing the accounts of the Gupta companies and their “business partner” Duduzane Zuma, the son of the president on the ground that they were putting a stop to money laundering.

What they conveniently cover up is that the same banks are part of a cartel of 17 banks that is being prosecuted by the Competition Tribunal for currency manipulation. This includes all the major local banks ABSA, NEDBANK, FNB, Standard Bank as well as multinational conglomerates like Merrill Lynch, BNP Paribas, JP Morgan Chase, Standard New York Securities Inc, HSBC Bank , Standard Chartered Bank, Credit Suisse; Commerzbank AG and Australia and New Zealand Banking Group.

The big banks have treated the prosecution with disdain partly because even if they are successfully prosecuted the maximum sanction they face is an administrative penalty equal to 10% of their annual turnover.

Equally corrupt

The rest of big business is equally corrupt. According to Parliament’s Standing Committee on Finance and the Financial Intelligence Centre, between 2002 and 2012 a staggering 122 billion US Dollars flowed out of the country illegally. The real figure is much higher. These money flows involve practises such as tax evasion, money laundering and bribery. The majority of these outflows stem from the mining industry.

The business press also glossed over the massive corruption which was uncovered by the South African Food Sovereignty Campaign which showed how all the major companies in the food industry, including Foodcorp, Pioneer Foods, Premier Foods and Tiger Brands industry have colluded to push up the bread in the country. Tiger Brands admitted to this giant swindle but was was fined R99 million by the competition authority which represents 5.7% of its bread sales i3n one year. This is a slap on the wrist for this multi-billion Rand company.

Then there is the corruption in the construction industry. In the period before the 2010 FIFA World Cup, seven of the country’s biggest construction and engineering conglomerates met in secret to allocate tenders among themselves and pushed for a 17.5% profit margin. When the scandal broke, these companies agreed to a collective fine of R1.5 billion with the Competition Commision. Considering that the Cape Town Stadium alone costed R4.5 billion it is clear that this fine does not even amount to a slap on the wrist.

The fact is that the old traditional wing of the capitalists is not opposed to corruption, as these few examples show. In fact, South African capitalism was founded on the robbing and super exploitation of the South African masses; mainly through the mining industry which to this day channels hundreds of billions of dollars into the pockets of a tiny group of parasitic elements. The real reason why big business is now so hostile to the upstart capitalists like the Guptas has a political basis. The truth is that the Guptas represents the most ignorant and backward section of the ruling class. They are the most shortsighted and reckless wing of looters and thieves. Like all overnight millionaires they like to flaunt their newfound wealth, power and status. This is very dangerous in a country with 9 million people who are unemployed and a working class people who can see the open looting going on in front of them. In this process the Guptas are undermining the whole ruling class. It is the political consequences of this which the big capitalists are afraid of.

For the last 25 years the traditional wing of the capitalists has worked to stabilize the country after the revolutionary events before 1994. Together with the leadership of the ANC they have managed to stabilize the situation for a period. But the very mechanisms they have used to achieve this objective have now turned against them. The basis for the negotiated settlement was a guarantee in the constitution to defend the right to private property. This secured the continued domination of the traditional white bourgeoisie over the economy. The result was that all the profitable sectors of the economy were kept in the hands of big business. In “return”, they granted full bourgeois democratic rights to the black majority with universal suffrage and a bill of rights.

This power sharing agreement also contained the seeds to the development of new faultlines within the ruling class. The economic position of the vast majority of the masses changed very little, but a thin layer at the top of the liberation movement was now able to become capitalist itself. While the most profitable industries of the economy were in the hands of the traditional white bourgeoisie, the new black elite developed through its access to their government positions and jobs in state owned companies.

Cyril Ramaphosa/Wiki Commons

This became the basis of these two factions of the ruling class with one being based around the traditional industries and the stock-market, while the other was basing its power on its access to the state apparatus and state owned entities. The big bourgeoisie tied the ANC leaders to themselves by making room for leading party members in the boardrooms. Through mechanisms such as Black Economic Empowerment (BEE), people like Cyril Ramaphosa and Tokyo Sexwale left political office, amassed fortunes and became some of richest men in the country. Meanwhile, the major decisions in the economy remained in the hands of big capital.

The small layer of BEE elite like Ramaphosa became tied at the hip to big business, while for those who could not reach the high fruits of the BEE elite, the only option left was to use their political positions as a means to enrich themselves through the looting of state resources. Of course, as long as the economy was growing there was room for both factions within the system. But after the 2008 world economic crisis the competition increased between the two factions, which were now fighting for a smaller pie.The rising class struggle and the resulting political instability added to this process of sharpening conflict at the top. All of this is a reflection of the crisis of the capitalist system itself, the very system which governs the country. There is no difference between the different wings of the capitalist class. The entire capitalist system breeds corruption. For the workers and poor there is no solution on a capitalist basis.