SAFTU condemns private-sector corruption

More 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.

SAFTU 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.

Already the Gupta brothers and their cohorts have been linked to big multinational corporations – KPMG, McKinsey, SAP and Bell Pottinger. All have been shown to have assisted in corrupt deals. Steinhoff has been hit by unrelated but equally serious scandals, and other big companies are getting drawn into the whirlpool

The latest company to be drawn into the net is the Venda Building Society Mutual Bank (VBS), which was placed into curatorship in March 2018.
It 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.

At 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 profits rose from R1m in 2015 to R5.9m in 2017 while operating profit increased to R87m in 2017 from R28m in 2015.

Yet on11 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 banking.

One 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 banking regulator.

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 with issues 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 City wedding.

The Gupta leaked emails 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 auditors.

But KPMG has now admitted that Sipho Malaba, their ‘partner’ 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 he failed to disclose this loan 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 banks?

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 [KPMG] try to do the right thing, the system just won’t let them”. [Our emphasis]

At least KPMG, in a desperate bid to regain public trust, have admitted its guilt, pleaded for time to reform themselves, and launched an “unprecedented” review of all the work done by its partners in the last 18 months.

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 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 crisis erupted.

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 they are just the ones we know about.

They have to be seen in the context of the overall level of economic crime in South Africa.

The evidence of this can be found, ironically, in PwC’s biennial Global Economic Crime Survey, which makes the shocking revelation that “Criminality is rife in South Africa across all forms of economic crime… Overall‚ South African organisations continue to report the highest instances of economic crime in the world with economic crime reaching its highest level over the past decade…

“The number of South African organisations that have experienced economic crime, it says, is now at a “staggering” 77%‚ well above the global average rate of 49%. Asset misappropriation continues to remain the most prevalent form of economic crime reported by 45% of respondents globally and 49% of South African respondents.”

Further evidence is the nearly R60 billion which left South Africa illicitly in the 2015-2016 financial year, and the cases of price-fixing and collusion in the food, dairy, construction, media, finance and pharmaceutical sectors.

While SAFTU is adamantly opposed to corruption in the public sector, it is just as bad when committed in the private, sector, or in collusion between public and private entities. What makes it even worse in private companies is that is systemic, built into a capitalist system, which is based on the theft of the wealth created by the workers.

It is not a free market system but a monopoly system in which a super-rich elite swindle and cheat in order to dominate markets, maximize their profits and crush rival capitalists, all at the expense of their workers, consumers and the people of South Africa.

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