Many PR firms have a sleazy, spin-doctoring side to them. Some even enjoy the perverse challenge of giving some ghastly figure a makeover. I heard one South African PR executive (who can remain nameless here) say casually in a radio interview with our national broadcaster that if Adolf Hitler came to him, he would be sorely tested to turn the work down. Such is their cynicism. And so it was with the London-based reputation management company Bell Pottinger.
It was Bell Pottinger who coined the phrase “white monopoly capital” as a smokescreen to deflect attention from its dodgy client, the Gupta family, and their close connection to President Zuma. What a stroke of evil genius. The phrase, invented in a London boardroom, has stuck and is now being bandied about unquestioningly in public discourse in South Africa and beyond. Playing that race card has strained the threadbare fabric of South African society. It has been used to justify naked racism and it has become a ruse to hide rampant corruption.
But in doing so, Bell Pottinger angered clients with pockets far deeper than the Guptas – the Rupert family, among others. This, and not its reprehensible strategies, was its unmaking.
The rot spreads
Now KPMG International, a global network of professional firms providing audit, tax and advisory services, has found itself mortally threatened by a rotten limb in South Africa. KPMG South Africa has been infected through years of working for the gangrenous Gupta cabal. When the smell became unbearable, KPMG dumped them as clients, but far too late.
The KPMG South Africa scandal is not the same as the inadequate audit that KPMG did of an energy company in the United States (for which it was fined USD6,2 million in August by the authorities), or its firing of five of its partners in the US for getting tip-offs on regulatory inspections, or its resignation last year as the auditors for one of the dodgiest organisations in the world: Fifa. It is not even comparable to the Arthur Andersen and Enron scandal.
This time, for a R2 3 million fee, KPMG produced its own Bell Pottinger smokescreen by lending the credibility of its name to a ludicrous report about a so-called rogue unit at SARS, South Africa’s tax authority. KPMG imported – typos and all – what it was instructed to include in the report in order to further a corrupt political project at the heart of the South African state. It willingly participated in what became a dirty tricks campaign.
The report was leaked soon after to tarnish the reputations and destroy people who were trying to defend the integrity of the state. Known as the “SARS Five”, these people were never even afforded the opportunity to respond to the allegations in the report. KPMG knowingly did wrong, even if it did not fully appreciate the repercussions for a democratic South Africa. We know, through the Gupta leaked e-mails, that KPMG silenced junior auditors who raised the alarm.
KPMG’s actions contributed to South Africa being downgraded to junk status.
In the end, KPMG’s actions gave the Gupta-Zuma state capture project the faux legitimacy and the ammunition it needed to replace a credible Minister of Finance (Pravin Gordhan) with a Gupta appointee, to wrest control of the South African Revenue Service (SARS) and then the Treasury, delivering the state coffers into the hands of looting compradors. It contributed to the country being downgraded to junk status.
The erosion of trust
Money, banks, marriage – they are all only as good as the trust on which they are built. KPMG has broken that trust, its raison d’être. Actions such as those of KPMG are the reason the Guptas were able to get away with their looting for so long. The audit firm must go to the wall. It has discredited South Africa’s financial sector – almost the last sector of the economy which the public (even if misguidedly) trusted and the international community still respected. KPMG is auditor for Nedbank and Old Mutual.
Some in government are viscerally outraged at what KPMG has done, others are pretending to be. Dozens of South African companies are now cancelling KPMG’s services, going out to tender for auditors or reviewing their relationship with the firm.
Any international company with KPMG as its auditor which does business in South Africa may well follow suit. The professional and watchdog bodies to which KPMG belongs are also taking action. Then there will be legal proceedings against it and civil lawsuits.
As more and more companies abandon KPMG, a question mark will materialise over those who stay: Is there some cushy arrangement or accommodation the company has with KPMG that it does not want to risk being unmasked by a new auditor? The fact is, if your books are not believable, you do not have a company, whatever your market value.
Questions are now arising over previous KPMG reports and also its audits for various Gupta companies over the past seven to 15 years. There may even be consequences for the State’s corruption case against Zuma, given that KPMG was involved in that too.
Nothing short of full disclosure by KPMG is required. Not in order to save the company, as many commentators have recommended, or to prove that this was an isolated incident, but because that is what KPMG owes South Africa – the truth.
So far it has not come clean. KPMG executives have resigned, after “ducking and diving” as Pravin Gordhan put it. It has also tried to make a scapegoat of a junior figure. In terms of retraction and apology, it has been woefully inadequate and KPMG has to date only done this to the extent that they have been forced to. It said it would pay the fee for the report – such a sop is insulting given the scale of the damage it has caused.
An overhaul of the system is required
Two further steps are now urgently required. The auditing system has to be overhauled. It cannot be that auditors are picked and paid directly by the people they are meant to monitor. If auditors came across just such a conflict of interest in a company they were auditing, they’d raise an eyebrow.
It cannot be that auditors are picked and paid directly by the people they are meant to monitor.
Secondly, auditors should not be consultants – in the same way that commercial banks should never have been allowed to be merchant banks. What were the connections between KPMG being the auditors for the Guptas – with billions leaving the country – and then being appointed to the SARS job?
Meanwhile, in a comic sideshow, SARS commissioner and Gupta appointee Tom Moyane has taken the opposite tack and is castigating the firm for retracting its report – an admission of guilt if ever there was one. Moyane has gone on to make all kinds of desperate and ludicrous threats, even invoking copyright infringement.
The cases of Bell Pottinger and KPMG reveal another sad reality – in the absence of any credible oversight bodies or regulators, the only repercussions for wrongdoing in South Africa appear to be when the very rich are offended and decide to pull the plug. Everyone else is toothless.