Economy

McKinsey charged over role in South Africa’s ‘state capture’ scandal

McKinsey has been criminally charged in South Africa over its role in the country’s biggest post-apartheid corruption scandal, as the fallout continues for global consultancies that were embroiled in the saga.

McKinsey said South Africa’s national prosecuting authority had on Friday indicted the firm on unspecified charges, in a case relating to the alleged looting of state freight rail monopoly Transnet during the presidency of Jacob Zuma.

Prosecutors added the firm and Vikas Sagar, a former McKinsey partner in South Africa, to one of the highest-profile cases to have been brought over the alleged systematic pilfering of public contracts, known locally as “state capture,” before Zuma’s exit from power in 2018.

Former Transnet executives have been charged with fraud and breaking a public finance law relating to a $3bn tender to procure freight locomotives in 2012.

This year, an official commission of inquiry concluded that the Gupta business dynasty had used influence with Zuma to operate a “racketeering enterprise” at Transnet by receiving contracts that favoured their interests or those of associates. The Guptas and Zuma deny any wrongdoing.

The inquiry said McKinsey had been wrongly hired by Transnet to work on the train procurement alongside a Gupta associate, and that Transnet “irregularly made” payments to the firm. McKinsey co-operated with the commission.

The prosecuting authority did not respond to a request for comment on the charges against McKinsey. Sagar could not be reached for comment. The former Transnet executives have denied wrongdoing.

The charges have blindsided McKinsey, which repaid millions of dollars in fees on the Transnet contract and other work tainted by allegations of state capture at Eskom, the state power monopoly, as part of amends to South Africa.

“We remain deeply remorseful that our firm has in any way been associated with the dark era of state capture. We publicly apologised and chose to take accountable action where we made mistakes,” said McKinsey.

“Given no new information has been presented since the commission, we believe pursuing McKinsey does not have merit and we will defend ourselves against any claims,” it added.

It added that where it had found issues of concern regarding an individual’s conduct it had reported them to the appropriate law enforcement authorities.

South Africa this week barred Bain for 10 years from public sector contracts in Africa’s most industrial economy, for what the country’s National Treasury alleged was “corrupt and fraudulent” behaviour involving the country’s revenue service.

This year’s state capture inquiry said Bain had helped undermine the revenue service through advisory work that aided Zuma’s allies in taking over the agency and then orchestrating a purge of skilled personnel.

“We disagree with the ban and are considering our options in response,” said Bain. The firm has denied involvement in state capture.

Bain is meanwhile launching legal action to overturn a three-year ban on tendering for UK government contracts that was imposed over “grave professional misconduct” in the South African scandal.

Additional reporting by Kate Beioley

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