KPMG Involved In Massive South Africa Scandal That Saw UK’s Bell Pottinger Disintegrate

17th September 2017 / Global
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KPMG Involved In Massive South Africa Scandal That Saw UK's Bell Pottinger Disintegrate

By TruePublica: One wealthy family through generations has been a pillar of the British establishment, and at the same time responsible for an astonishing amount of harm. Their history is quite breathtaking. In recent years, Bell Pottinger, the British PR firm took $500m from the Pentagon to produce and distribute fake terrorist videos and the scandal in South Africa, where it has been found to have deliberately exacerbated racial tension in collusion with corrupt billionaires, is only the latest episode.

One should not overlook the other facilitators in corporate criminality. Along with Bell Pottinger, was audit firm KPMG who are now facing accusations of corruption and fraud charges against its executives, including those who stood to benefit from its adverse findings into the so-called South African Revenue Service (Sars) rogue unit, now linked to the wider and escalating South African corruption scandal.  This KPMG scandal is also an indication of a wider private sector involvement in corruption.

As an aside note, BizNews reports just last month that KPMG was involved in another scandal involving KPMG’s “unqualified” thumbs up to the 2011 audit of Miller Energy in the US The since bankrupt oil and gas company told investors Alaskan wells bought for $5m were worth 100 times that much. The US Securities and Exchanges Commission fined KPMG for its ‘blunder’ and demanded the firm repaid all fees it had received in audit fees.

 

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The FT reports that: “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. 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.”

Opposition parties and civil society groups, who have repeatedly accused South Africa’s President 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 FT continues to state that 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.

 

You don’t have to dig very far to see more connections with KPMG’s activities that are causing havoc. Local news outlet in South Africa, IOL, reports that “Audit firm KPMG must realise the extent of the damage that their report on the so-called “rogue unit” at the South African Revenue Service (Sars) has caused the country, Future South Africa said on Saturday. Future SA had previously called for the business community to sever their ties with KPMG SA for their role in aiding and abetting the wealthy, politically connected Gupta family to “loot public coffers“, the organisation said in a statement.

“While we welcome the results of the review and the resignations of a number of senior KPMG officials as a result of the review, this is only a good start and not the end of the matter. KPMG must realise the extent of the damage that their work caused South Africa.

“Their report on the so-called ‘rogue unit’ at Sars lent credence to fallacious stories about one of the most effective investigative units in South Africa and contributed to the capture of Sars. Sars is now a shadow of its former self,” Future SA said.

It was worth noting that Sars had been mired in controversy since the “rogue unit” allegations were presented as fact in news coverage. This included the tax ombudsman recently releasing a report indicating how the current management at Sars were unduly withholding refunds from taxpayers and Finance Minister Malusi Gigaba releasing a report showing that Sars had under-collected by R13 billion in the first quarter of the 2017 tax year.

Further, Sars commissioner Tom Moyane stood accused of lying under oath in proceedings against senior Sars employee Vlok Symington, “whom he is persecuting for having written a legal opinion that vindicated the former minister of finance Pravin Gordhan”, and led the National Prosecuting Authority (NPA) to withdraw charges against Gordhan and his former colleagues.

This week also saw the conclusion of the Commission for Conciliation, Mediation, and Arbitration (CCMA) case involving Adrian Lackay, a former Sars spokesman, who had to resign from Sars because he would not perpetuate the fallacies about the existence of a Sars “rogue unit”, Future SA said.

“Over time, the full measure of the damage caused to Sars arising from the KPMG report has manifested itself in a tarnished reputation for the institution, questionable independence, and lower levels of compliance with tax and customs law. The ‘rogue unit’ narrative was a great disservice to public interest. One error would be understandable but the persistent lies and distortions, and the pattern by which allegations were reported lead to one conclusion – the KPMG report was not motivated by public interest,” Future SA said.

 

Future SA therefore called on the South African business community to continue to review their relationship with KPMG and related activities in money laundering and tax evasion; encourage their auditors, other than KPMG, to avoid the sort of advice and activities that KPMG involved itself in; and call for an independent and public inquiry into KPMG’s activities in South Africa.

 

Future SA further called on KPMG to report all instances of money laundering, tax evasion, and infringements of South African law and regulations they had discovered in their review to law enforcement authorities and regulatory bodies as required under the law, especially the Prevention and Combatting of Corruption Act (PRECCA), the Financial Intelligence Centre Act (FICA), and the Public Finance Management Act (PFMA) and make the reports of their review public.

On Friday, Gordhan welcomed the withdrawal of the KPMG Sars report on the work the audit firm did for Sars and on behalf of the Gupta family. Gordhan said he was surprised by the “scant regard” shown by the firm for their role in the “capture” of the revenue service and the “huge damage that it has done to the livelihoods and reputations of a very professional, honest, and loyal group of public servants”.

 

“It is unfortunate that a company with the stature of KPMG, with a responsibility and obligation to be objective, has been found to be wanting. This is exacerbated by their collaboration with the Gupta family.

 

“So let me categorically state that which KPMG ought to have had the integrity and honesty to state: the research and investigative unit created in the South African Revenue Service (Sars) was legal; its activities in detecting and combating the illicit tobacco trade and other efforts aimed at bringing an end to tax evasion were within the law; [and] KPMG had no basis, except subservience to a malicious Sars management, to malign a number of individuals and facilitate, I repeat, the capture of a vital state institution,” Gordhan said.

In December 2014, KPMG SA was commissioned by Sars to perform an extensive document investigative review which resulted in the “Report on Allegations of Irregularities and Misconduct”.

Gordhan was investigated by the Hawks over the alleged unit, but was eventually charged with an administrative issue over the rehiring of former deputy commissioner Ivan Pillay and his pension package.

“To South Africans, I say take strength in your collective action to hold accountable all those responsible for the demise of the quality of our democracy and the decimation of state institutions,” Gordhan said.

KPMG SA CEO Trevor Hoole as well as chief operating officer and country risk manager Steven Louw resigned on Friday, along with a five other senior executives.

 

 

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