The scandal that was Zuma’s downfall
South Africa’s President Jacob Zuma appears to be losing his grip on power this week, after he missed the annual state of the nation address to parliament, and leaders of his African National Congress (ANC) party met to discuss his political future. Months-long revelations from the #GuptaLeaks scandal, South Africa’s worst ever case of corruption, have continued to damage the South African president since the leaks first emerged last year.
The leaks – over 100,000 emails directly implicating the controversial Gupta family and its business empire in South Africa in massive corruption under President Jacob Zuma – have rocked southern Africa’s most advanced economy, whilst implicating a swathe of transnational corporations, including accountancy giant KPMG, German software corporation SAP SE (SAP), and US based management consulting firm McKinsey & Co., directly in the dubious goings-on of the Guptas and their business and political associates.
‘Corruption on the scale occurring in South Africa generates huge returns for the perpetrators. Hiding vast amounts of illegally acquired cash and, in particular, [placing] it in secrecy banking jurisdictions, inevitably requires the complicity of auditors, lawyers, banks and management advisory consultants,’ says David Lewis, Executive Director of the South African NGO Corruption Watch. ‘This immediately brings these transactions and the global companies who facilitate them within the jurisdiction of robust enforcement agencies in the US and Europe.
‘This is proving a boon to those institutions, like our own, who are attempting to hold perpetrators to account. But it does also serve to outline the inaction of our own enforcement and prosecutorial agencies whose political capture is arguably the most significant impediment to combating corruption in South Africa.’
US anti-bribery and anti-money laundering laws, and the fact that an American listed firm has been implicated in the wider scandal, means that members of the alleged conspiracy to defraud the South African government could be exposed to the jurisdiction of American courts; similar tactics were used to tackle corruption in global football.
The Guptas themselves deny any wrongdoing, as do President Zuma and his family, but the number of investigations is now climbing, with seven cases against the Gupta family said to be at an advanced stage in South Africa this January. Last month, South Africa's companies regulator also announced it was pursuing criminal charges against McKinsey & Co., SAP SE (SAP) and KPMG.
At least four of the cases of potential criminal behaviour related to alleged corruption at the state-owned transport and infrastructure company Transnet are now being investigated by police. With annual revenues of over 60bn South African Rand, Transnet has emerged as ‘ground-zero for Gupta capture’, according to investigative not-for-profit outfit amaBhungane.
State-owned Transnet has been plagued by scandal for years but the #GuptaLeaks have provided journalists with a wealth of corroborating evidence that shows just how many schemes were afoot to loot the company of its funds. Ironically, if the resulting discoveries cause the fall of President Zuma this week, then the scandal will have ended up costing the Gupta family the political protection it had relied upon to run its dubious business empire in the first place.
According to one line of investigation pursued by the Organized Crime & Corruption Reporting Project (OCCRP) into the activities of Gupta associates working with Transnet, ‘In partnership with Nedbank, one of South Africa’s largest banks, companies controlled by or connected to the wealthy and politically-connected Gupta family via its lieutenants extracted more than 1 billion rand (US$ 67.2 million) from Transnet’.
The OCCRP report alleges that two private-sector businesses both manipulated the state-owned transport and infrastructure company’s internal management in order to carry out complex financial operations that generated the pair of private companies lucrative consulting fees.
Other allegations of fiscal misconduct at Transnet have also emerged, over news that Transnet bought cranes at inflated prices from overseas suppliers, but the OCCRP’s investigation into the consultancy fee manipulation scam neatly captures the levels of collusion between different actors that enabled corrupt patterns of behaviour to flourish there.
Susan Comrie, an investigative journalist at the AmaBhungane Centre for Investigative Journalism, isn’t surprised at the news coming out of multiple law enforcement investigations into Transnet, already the subject of ‘state capture’ claims regarding its strange behaviour in other deals such as a fraud scandal involving it and energy utility Eskom.
Speaking to New Internationalist about the latest developments in South Africa, Comrie says: ‘the Gupta family have reacted to the #GuptaLeaks by labelling every allegation as fake news and the journalists as paid agents of “white monopoly capital”. This narrative appears to have been endorsed by some within the [ruling African National Congress] but many others recognize that the Guptas have not only stolen from the state but also caused immense damage to the party...
‘The [Transnet scandal] is no different in that neither the Guptas nor the authorities have reacted and are unlikely to even acknowledge the story since it comes after… months of similarly damning allegations of state capture. What matters at this stage is the reaction from the companies implicated and their regulators both inside and outside South Africa. These regulators have a crucial role to play in holding the private sector to account for enabling the rampant capture of the state and profiting from our collapse in governance.’
South Africa’s government has talked a good game about fighting corruption in recent years, even as its place on Transparency International’s Corruption Perception Index has remained more or less static.
On a scale of 0 to 100, where 0-9 registers as highly corrupt and 90-100 registers as very clean, South Africa’s score was 43 in 2012 and 45 in 2016. The country was still ranked a lowly 64/176 countries in terms of the NGO's Corruption Perceptions Index 2016, the latest year for which rankings are available.
That put South Africa in the same company as autocratic Gulf monarchy Oman, the tiny South American state of Suriname, and West African state Senegal, whose economy is a fraction of the size of southern Africa’s regional giant. Thea Fourie, Senior Economist for Sub-Saharan Africa at IHS Markit Economics says: ‘The South African economy is [now] at a crossroads, with a low growth environment translating into a loss in per capita income growth, sticky high unemployment and a widening gap in income disparity’. She argues corruption scandals like those at Transnet have damaged South Africa’s economic prospects.