McKinsey’s $122mn bribery settlement in South Africa sparks outrage

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South African politicians and campaigners have slammed a $122mn deal with McKinsey to settle a bribery scandal as insufficient, arguing that the country needs to take tougher action over endemic corruption.

The consulting company reached the deal with US and South African authorities last week after bribing officials at two state-owned South African enterprises to win millions of dollars of consulting work between 2012 and 2016. The settlement will be split between US and South African authorities.

Both companies, energy producer Eskom and rail freight monopoly Transnet, nearly collapsed during this time amid the systematic abuse of public contracts — a practice known locally as “state capture” — under the presidency of Jacob Zuma, which ended in 2018.

Glynnis Breytenbach, a member of parliament and justice spokesperson for the Democratic Alliance, South Africa’s second-largest party and part of the ruling coalition, called the settlement a “token” gesture.

“It will take 20 years to repair the damage done by McKinsey to South Africa, and these consultancy firms shouldn’t be allowed to buy their way out of criminal sanction with money,” she told the Financial Times. “This is a token payment, and not one which would strike fear into the hearts of the corrupt.”

The US Department of Justice used a guilty plea from McKinsey’s former South African partner Vikas Sagar, who admitted to infringing the Foreign Corrupt Practices Act in 2022, to build its case. It said McKinsey entities earned profits of about $85mn as a result of the bribery.

Breytenbach said Sagar and any other McKinsey executives involved ought to have been extradited to South Africa to face criminal charges, even if their co-operation would have allowed for a lesser sentence.

“This suggests that none of those involved will pay a proper price for state capture,” she said, adding that South Africans “continue to live with dysfunctional state-owned companies as a result”.

McKinsey said the deal amounted to “closure of this regretful situation”. It said it fired Sagar seven years ago, after it learnt what had happened, adding he “concealed his unlawful conduct” from the company.

The consultancy said it had paid R4.1bn ($227mn) to settle the matter. In addition to the latest R2.23bn fine, it has returned fees and interest to Eskom, Transnet and South African Airways.

This is still less than the R9bn it stood to make in performance fees on its single most lucrative Eskom contract, however.

Peter Hain, a member of the UK House of Lords who grew up in South Africa and was a leader of the anti-apartheid movement, said the deal “confirms the terrible complicity of global corporate brands like McKinsey in the near bankruptcy of South Africa as they profited from corrupt politicians looting the country”.

Hain had lobbied for a shortlived ban from public UK contracts of Bain & Company over “grave professional misconduct” in South Africa in connection to the “state capture” scandal.

“I still believe the only way these global consultancies will be held accountable is when governments from London, to Washington DC, to Delhi and Beijing, bar them from public sector work until they clean up their act,” said Hain.

Authorities in South Africa have struggled to prosecute corruption allegations. The trial has yet to begin for a criminal case lodged in 2022 against Sagar, a former Transnet chief executive and 16 others over a contract awarded to a McKinsey-led consortium to advise on the purchase of locomotives.

The National Prosecuting Authority, however, lauded the settlement as a “significant step” in fighting crime and said McKinsey would continue to assist it in its criminal investigations.

Open Secrets, a Cape Town-based non-profit, argued that the settlement attempted to shift blame to Sagar.

“The settlement agreement is worded to suggest that only one McKinsey employee, Sagar, was to blame,” said Michael Marchant, Open Secrets investigations head. “This lets the firm off the hook for a systemic issue.”