Zwelinzima Vavi, SAFTU General Secretary, remarks on the Just Transition to the School of Labour and Urban StudiesSeptember 30, 2019
SAFTU Demands inclusion to NEDLACOctober 14, 2019
Karl Marx who was a revolutionary
economist and a philosopher viewed the system of capitalism as immoral because it is a system in which workers
are exploited by capitalists, who unjustly extracted surplus value for their
“Monopoly is exactly the opposite of
free competition; but we have seen the latter being transformed into monopoly
before our very eyes, creating large scale industry and eliminating small
industry, replacing large-scale industry by still larger-scale industry,
finally leading to such a concentration of production and capital that monopoly
has been and is the result”
Corruption in the private
sector is much more rife and bigger
- SAFTU must do more to confront the pillaging of the
economy by corporations which are hardly made to account for much bigger sins.
As we have highlighted, inevitably corruption in the private sector is steadily
getting more focus than before.
evidence is now emerging to support the view of the South African Federation of
Trade Unions that the epidemic of corruption and fraud which has spread
throughout the country involves far more, and far bigger, players than former
President Zuma, the Gupta family and the CEOs of some state-owned enterprises
condemns the appalling levels of corruption in the public sector but believes
that it is just as rampant in the private sector where it is an inherent
feature of a monopolised capitalist system.
the Gupta brothers and their cohorts have been linked to big multinational
corporations – KPMG, McKinsey, SAP and Bell Pottinger. All have been shown to
assist in corrupt deals. Steinhoff has been hit by unrelated but equally
serious scandals, and other big companies are getting drawn into the whirlpool.
VBS, KPMG and PwC
latest company to be drawn into the net is the Venda Building Society Mutual
Bank (VBS), which was placed into curatorship in March 2018.
is far smaller than the other firms involved in corruption but it has been
closely associated with some of them, and with former President Zuma.
first VBS appeared to be a runaway success. Its financial report for 2017
revealed a big growth in total assets. From just R337m In 2015, they almost trebled
to R1bn in 2016 and from there doubled to R2bn in 2017. Net profit rose from
R1m in 2015 to R5.9m in 2017 while operating profit increased to R87m in 2017
from R28m in 2015.
on 11 March VBS was suddenly placed into curatorship after it experienced a
severe liquidity crisis. It is suspected of engaging in fraudulent transactions
that benefited certain key individuals and companies connected to the bank and
arranging loans to its own directors and shareholders, a serious malpractice in
suspicious loan in 2016 was a R8.5m bond to former President Jacob Zuma to
enable him to pay for upgrades at his Nkandla homestead. It was the bank’s
largest single loan and almost twice the size of its annual profit.
- According to the curator who
has taken over the company, Anoosh Rooplal, details have emerged pointing to
far greater problems at the bank – including R900-million, which cannot
properly be accounted for.
- Rooplal also announced he was
withdrawing VBS’s most recent financial statements for the year ending 31 March
2017 because, he says, “they contain material misstatements and are no longer
considered to be reliable. Users of these financial statements are requested
not to place reliance on these financial statements”.
- He adds, that much of VBS’s
loan book is rotten to the core, with a much higher proportion of
non-performing loans than the bank ever disclosed in its monthly returns to the
- Clearly there will be a lot
more to be revealed behind this story. But the most interesting question is why
those who audited this bank’s 2017 financial statements failed to raise any red
flags when they examined a report which is “no longer considered to be
reliable” and deals like the Zuma loan.
- Unlike VBS they auditors were
not small firms. The internal auditor was PwC and the external auditor KPMG,
the same firm, which has already admitted its failure to question the firm,
which channelled R30m of taxpayers’ money to fund the Guptas’ infamous 2013 Sun
- The Gupta leaked emails, which
revealed that KPMG provided services to the family and at least 36 linked companies
and was also responsible for a flawed report about the ‘rogue unit’ at SARS,
which it retracted in part in September 2017.
- Now it stands accused of
ignoring or suppressing evidence of “fraudulent transactions” at VBS
and allegations that the bank had been “severely mismanaged”.
- After both the Gupta wedding
case and now the VBS debacle KPMG apologized, accepted the resignation of eight
and two senior partners respectively, and promised to “clean up” its act, with
“integrity checks” of all senior partners and an audit of its own
- But KPMG has now admitted that
Sipho Malaba, who was auditing VBS, has resigned rather than face disciplinary
proceedings on charges of not disclosing financial interests related to the VBS
bank. It has been reported that VBS negotiated a loan for him from the Bank of
Namibia, in contravention of KPMG company policy, and that neither disclosed these
loans to KPMG.
- The wider significance of
KPMG’s failure to detect or report on these serious irregularities at VBS, is
that its clients include Barclays Africa, Nedbank and Standard Bank. If its
auditors have overlooked, failed to notice or even deliberately concealed
blatant irregularities in a small bank like VBS, what confidence can anyone
have that they are not doing the same in their audits of these much bigger
- The Auditor-General, Kimi
Makwetu, is terminating its auditing contracts with KPMG, and Nedbank is
reported to be doing the same. The scandal is reaching deeper into the heart of
the monopoly capitalist system. Carol Paton, Deputy Editor of the very pro
capitalist Business Day concedes that “No matter how they try to do the right
thing, the system just won’t let them”. [Our emphasis]
- At least KPMG have admitted
its guilt, pleaded for time to reform themselves, and launch an
“unprecedented” review of all its work done by partners in the last
18 months, in a desperate bid to regain public trust.
- Yet VBS’s internal auditors,
PwC, another of the ‘big four’ auditing firms, has said nothing. Yet they are
surely as guilty of the same failure to raise any red flags over the bank’s
dodgy deals, and are just as responsible as KPMG. They must be compelled to
explain their silence. They are now the latest big private company to join the
list of those suspected of collusion with clients involved in corruption.
- Under the Auditing Profession
Act, auditors must report any irregular transactions to the Independent
Regulatory Board for Auditors (IRBA), but PwC has declined to comment on why
the never reported any of VBS’s irregular practices to the IRBA.
- As Iraj Abedian and Simon
Mantell wrote in Business Day: ”If PwC had ever raised material concerns with
respect to internal audit and financial controls at VBS, it would have been
extremely difficult for KPMG not to have reported these concerns, which leads
one to the conclusion that PwC gave VBS the big green tick of approval”.
- The VBS case also raises big
questions about the role of the IRBA, which is supposed to look into
irregularities such as those uncovered at VBS, yet seems to have done nothing.
It said it only received notice of a reportable irregularity on 11 April 2018.
- If investigative journalists
can expose all these issues, why is a regulatory body blaming its inertia on
the ‘complexity’ of identifying fraud and other crimes? Its job is surely to
unravel these complexities and get to the truth.
- The ruling class is hoping to
make it look as if KPMG is a rogue element in an otherwise reputable industry.
The evidence point to the opposite – a deliberate attempt by auditing firms to
cover up the inbuilt corruption in the monopoly capitalism system.
- Another Gupta crony
capitalist, McKinsey, is also getting into deeper trouble. Since October, it
says it has tried to pay back the R900m it received for nine months’ work at
Eskom, in a corrupt partnership arrangement that saw the Gupta-related Trillian
make R500m for its section of the contract.
- Eskom told McKinsey it had
Treasury approval for the contract, but this later turned out to be untrue.
Eskom and McKinsey now agree that the money should be returned to Eskom, but
this cannot happen until the contract is set aside by a court.
- Meanwhile the Assets Forfeiture
Unit (AFU) – a division of the National Prosecuting Authority charged with the
power to seize assets from – served a preservation order to recover the money
paid by Eskom to McKinsey and Trillian as the proceeds of crime.
- Should the AFU go ahead, McKinsey
will either have to pay back the R900m twice, once to Eskom and again to the
Asset Forfeiture Unit and its financial statements would then have to reflect
that R900m in fee income was seized by the South African government as the
proceeds of crime.
- In the other on going business
scandal, unrelated to the Guptas, the Dutch Investors’ Association (VEB), a
non-profit organisation, has launched a class action against Steinhoff to
recover money lost by shareholders in the retail group’s collapse in December.
- Many of the shareholders were
public servants pension funds, which lost 95% of their share value when the
- Steinhoff has been accused of
earnings manipulations, uncontrolled acquisitions, tax frauds, and an even
older but equally abhorrent trick, now known as a Ponzi scheme.
- VEB is accusing Steinhoff of
misleading shareholders by giving them a prospectus, based on a financial
report, which was later withdrawn, and shareholders were told the information
could not be relied on.
- The organization has also
given notice to three banks – Absa, Barclays and Commerzbank – that they could
be sued for damages in the Steinhoff affair, as they were responsible for
producing the false prospectuses given to prospective shareholders in 2015 when
Steinhoff listed on the Frankfurt Stock Exchange.
- VEB said the prospectuses
issued by the banks ahead of the listing were misleading. “VEB questions
whether the prospectuses properly represented Steinhoff’s financial position at
the time. We believe the banks acted wrongfully in respect of Steinhoff
shareholders. Those who produced it and vouched for it were liable”.
- These cases illustrate just a
few cases of corruption and fraud in the private sector and the role of
auditors aiding abetting these crimes, and just the ones we know about.
- They have to be seen in the
context of the overall level of economic crime in South Africa.
Illicit cash outflows,
mispricing and illicit trade transfers
- Every year big business, mostly transnational corporations illicitly
park hundreds of billions of dollars out of the reach of tax and other
regulators. This is what is referred to as illicit financial flight. It is
estimated that 80% of illicit financial outflows is composed of the proceeds of
tax evasion and laundered corporate transactions and not drug trading,
racketeering, counterfeiting, contraband, and terrorist financing. The most
important component of illicit outflows is trade mispricing that is the
mis-invoicing of international trade transactions with the ultimate purpose of
diverting financial resources.
- South Africa is heavily affected by illicit financial outflows,
according to data released by Global Financial Integrity. Between 2002 and
2011, South Africa lost a cumulative 1,007 billion rands to illicit outflows,
i.e. more than a trillion rand. In 2007 a comrade we have had a long
association with, Professor Ben Fine at SOAS University, working with other
radical economists, estimated that there was the equivalent of 23% of GDP that
was illicitly transferred out of South Africa. In 2012, the year of the
Marikana massacre, SA lost R300 billion in illicit financial flows.
- Yet, this is not all. Corporations use aggressive tax planning and
profit shifting, known as Base Erosion and Profit Shifting (BEPS) to dodge tax.
The Davies Tax Committee estimated that this cost the country a further R50
billion a year. The AIDC provided vivid research on this practice when they
exposed how Lonmin was transferring R400 – R500 million a year to their
subsidiaries located in tax havens. What their research showed is much more
serious and consequently even more relevant for SAFTU: corporations like Lonmin are not just
evading tax but are involved in systematic wage evasion. Because it should be
obvious when a company illegally moves, for example R100 million to a tax
haven, SARS loses R28 million because the tax rate for corporations is supposed
to be 28%. But for us as workers the bigger loss is the remaining R72 million
(R100 million minus R28 million = R72 million) which has effectively been taken
off the wage bargaining table.
- This is extremely relevant for the debate on the minimum wage and
the argument that the corporate friendly government of Ramaphosa uses, namely
that the companies cannot afford to pay a living wage. In the Lonmin case, AIDC
was able to show that had Lonmin not shifted R400 / R500 million to tax havens
they would have been able to meet the rock drillers demand of R12 500.
- SAFTU must play a leading role in fighting the scourge of wage and
tax evasion that is being perpetrated by capital. I had proposed to SAFTU that
we should invite a presentation on the phenomena of illicit financial flight
and BEPS and that affiliates select their most capable and reliable worker
leaders to avail themselves for training on the issue.
- As SAFTU we will oversee the organisation of a series of
provincial trainings on these issues as the preparatory first steps to launch a
major campaign to put a stop to the erosion of wages and living conditions of
workers. Imagine if our government and SARS took this issue seriously, there
would never have been a reason for a VAT increase. Equally, there would be
state revenue for socially necessary investments, such as National Health
Insurance, construction of decent housing, upgrading of services, land reform
- SAFTU have a major opportunity for shifting the terms of the
debate in this country. Let’s continue to put SAFTU on the map as a militant,
independent worker-controlled movement.