Bain barred from UK state contracts over ‘grave misconduct’ in S Africa

Source: Financial Times

Britain becomes first western country to impose penalties on consultant for role in Zuma scandal

George Parker and Michael O’Dwyer in London, and Joseph Cotterill in Johannesburg

 AN HOUR AGO

Bain & Co, the Boston-based global management consultant, was on Tuesday hit with a three-year ban from tendering for British government contracts because of its “grave professional misconduct” in a major corruption scandal in South Africa.

Jacob Rees-Mogg, Cabinet Office minister, told Bain that the affair had rendered the company’s integrity “questionable” and that he was not convinced that it had taken its role in the scandal “sufficiently seriously”.

Britain is the first western country to impose such penalties on Bain for its role in the “state capture” scandal in South Africa and there is already pressure on the US to follow suit.

In a letter seen by the Financial Times, Rees-Mogg told James Hadley, Bain’s UK managing partner, that the three-year ban would apply retrospectively from January 4 2022. “I trust that after three years have elapsed Bain & Co will have restored its reputation,” he wrote.

Rees-Mogg’s intervention came after pressure from Lord Peter Hain, the veteran anti-apartheid campaigner, who had urged Boris Johnson’s government to punish Bain for its “despicable” behaviour.

Initially, Cabinet Office officials advised that no action against the company was necessary but Rees-Mogg sought further advice, including from an external QC.

He told Hadley that the company would be banned from Cabinet Office contracts under 2015 legislation on the basis that “Bain & Co is guilty of grave professional misconduct which renders its integrity questionable”.

Rees-Mogg, who will advise all government departments to apply the same three-year ban, said he was particularly concerned at the way Bain’s South African division “colluded” with the regime of former president Jacob Zuma to undermine the country’s revenue service.

The consultancy has been awarded UK public sector contracts worth up to £63mn since 2018, including £40mn-worth of Brexit consulting work for the Cabinet Office, but the damage to the company will be mainly reputational.

In a letter in February to Hain, the then Cabinet Office minister Steve Barclay wrote that the firm was “not a strategic supplier to the government and is not currently undertaking any substantial work for the government”. 

Hain said: “I’m very pleased. This sets down a marker for all companies which behave in an unlawful, unethical and unprofessional way that they won’t be able to tender for government contracts.

“I commend Jacob Rees-Mogg for doing this and I want the US government to do the same thing.”

Bain said: “We were disappointed and surprised by the minister’s decision . . . We will be responding to express our concern about the process and its outcome and to address inaccuracies in his letter.

“If necessary, we will then consider other options for review of the decision. In the meantime, we will continue to work with the Cabinet Office to ensure that we do what is required to restore our standing with the UK government.”

Earlier this year an inquiry into South Africa’s biggest post-apartheid corruption scandal found that Bain had helped to undermine the country’s revenue service through advisory work that aided Zuma’s allies.

Bain’s work on a restructuring of the South African revenue service was “a clear example of how the private sector colluded” with the breakdown of public institutions, said the inquiry.

It added that Bain sought to use a relationship with Zuma to acquire further government business.

Bain has previously admitted failings in its work in South Africa and repaid fees, but said that the inquiry’s findings mischaracterised its activities. Zuma has denied any involvement in corruption.

Bain & Co, tax and Jacob Zuma: a tale of ‘state capture’ in South Africa

Other international consulting firms have been embroiled in corruption scandals in South Africa.

McKinsey agreed in 2020 to repay about R650m ($39mn) over irregularities in contracts it had entered into with a local partner at government-owned companies.

Auditor KPMG apologised in 2017 for “mistakes” in work for businesses linked to the Gupta family, accused of serious corruption through ties to Zuma.

UK public relations firm Bell Pottinger was brought down by its work for the Guptas, which led to accusations that it had stoked racial tensions in South Africa.

Banning a company from bidding for public sector contracts is rare. Security group G4S was temporarily barred in 2013 after overcharging the government for the electronic tagging of criminals, some of whom were dead or still in prison.

Consultancy Deloitte stopped pitching for public work for six months in 2016 after a note was leaked in which its consultants criticised the government’s Brexit strategy.

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Bain & Co, tax and Jacob Zuma: a tale of ‘state capture’ in South Africa

Judicial report shines light on nexus between management consultant and politics in post-apartheid state

Joseph Cotterill in Johannesburg

 5 HOURS AGO

As the fiscal bulwark of a young democracy, South Africa’s revenue service was renowned as one of the continent’s most effective tax gatherers.

Yet after several meetings with then-president Jacob Zuma, management consultant Bain & Co won major work to restructure it from the ground up. As a result, it has this month been criticised in a judicial report as a corporate enabler of graft in South Africa.

With Bain’s knowledge, Zuma in 2014 appointed Tom Moyane, a close ally, as head of the revenue service, known as Sars. Moyane sacked key officials, substantially weakening the agency and crippling its ability to carry out investigations of tax evaders. Bain later secured a contract to advise Sars.

Bain’s work shines a light on the nexus between business and politics in South Africa and follows criticism of peers such as McKinsey and KPMG.

Raymond Zondo, the deputy chief justice, found that the Boston-based firm’s consultants helped Zuma undermine the post-apartheid nation through so-called “state capture” — the manipulation of public resources for private gain. Zondo has called for all Bain’s work in the South African public sector to be re-examined.

The purge of Sars was both “one of the few instances where President Zuma was himself directly and personally involved in the activities and plans to take over a government entity” and “a clear example of how the private sector colluded” on state capture, Zondo said.

“I don’t think that anyone [from Bain] was sent to South Africa with ill intent,” Athol Williams, a Bain whistleblower, told the Financial Times in an interview after last week’s report. But as the opportunity to take advantage of weak institutions became clear, “it was just greed run amok . . . things that Bain did in South Africa, they would never do in the UK or the US.”

The weakening of Sars had huge economic implications in a highly unequal country of about 60m. Zuma, who was jailed last year for defying an order to attend the inquiry and was replaced in 2018 by Cyril Ramaphosa, denies wrongdoing.

The allegations of wrongdoing triggered an earlier judicial inquiry. In 2018 Bain admitted “serious failure” at Sars and repaid its fees. Bain has said this latest report “mischararacterises” its work in South Africa. In a statement to the FT, it said it “became an unwitting participant in a process that inflicted serious damage on Sars, for which we apologise,” but “we did not in any way wilfully or knowingly support state capture at Sars or elsewhere”.

Over the past decade, Bain has worked closely with state companies and the private sector in South Africa. Vittorio Massone, the firm’s former South African managing partner, forged a close relationship with Zuma, meeting him on average every six weeks between 2012 and 2014, according to the report. An event management company owned by a soap-opera producer close to Zuma became Bain’s second-highest paid local adviser around the world, the report said.

Bain told the inquiry that its repeated closed-door meetings with the head of state were marketing meetings and that its work with Moyane long before his hiring at Sars was executive coaching. Bain told the FT that none of the meetings “resulted in any additional work or contracts being awarded to Bain” or payments being made. The firm said that “no one else at Bain was aware of the extent” of the meetings with Zuma before an internal investigation. Massone left the firm after “not being fully transparent,” Bain added. Massone did not respond to the FT’s request for comment.

In a sign of the close ties between Bain and the president, the consultancy knew of the appointment of Moyane to lead the agency before the public did. Moyane led a purge of Sars, defenestrating veteran officials with such gusto that one Bain executive called him “scary,” according to an email seen by the inquiry. Moyane has denied wrongdoing to the inquiry.

“Bain did not limit its plans just to Sars”, Zondo said. It also sought to parlay influence with Zuma into a role at the top of South Africa’s government.

Between 2012 and 2015, Bain laid plans “to restructure entire sectors of the South African economy” and centralise state procurement, the report said. “Central procurement agency: he loves it, wants an implementation plan,” Massone said in one email that the inquiry said referred to Zuma.

“In the light of the critical role that procurement abuse has played in state capture . . . this focus takes on an extra significance,” the report added. Much of the inquiry’s investigations focused on the abuse of procurement contracts to favour the Guptas, a business family with close links to Zuma. The Guptas have always denied wrongdoing.

“In cozying up to [Zuma], I think they [Bain] saw even more money to be made” and Massone was not a rogue actor, Williams told the FT. “In management consulting in particular, it is impossible to work in a vacuum. The [intellectual property] that Bain developed . . . Massone would have drawn on.” Zondo has praised Williams for his testimony, noting that he “rejected numerous attempts from Bain & Co to give him large sums of money in return for his silence”. Bain said his testimony was based on speculation.

Bain’s quest for influence even extended to Massone attending meetings to discuss the manifesto of the ruling African National Congress, according to the report. Yet beneath these grand ambitions, “across Africa Bain had no tax authority experience” and “knew that they did not have the necessary expertise”, the report said.

For now, South Africa’s business community is backing Bain. Last year the firm was readmitted to Business Leadership South Africa, an industry group. Busi Mavuso, BLSA’s chief executive, said this week that “the work the firm undertook to redeem itself ultimately satisfied the board that it qualified to be readmitted”.

“It doesn’t send the right message,” said Karam Singh, executive director of Corruption Watch, a South African NGO. “Anybody and everybody can speak anti-corruption,” but extracting real accountability from companies over state capture had proven hard, he said.

“We have made amends for this episode and continue to work to regain the trust of South Africa,” Bain said. After 2018, the firm took “comprehensive action to ensure that we do not repeat our past mistakes”, it added.

Bain’s future in South Africa may depend on decisions made by individual clients. “If you’re in the public sector, I think it’s impossible — they are radioactive,” said one business leader, who declined to be named. In the private sector, boards have to weigh up the reputational risk of working with Bain against the benefits of its consulting.

In the absence of government protection for whistleblowers — one from a provincial department of health was murdered last year — Williams is in hiding and spent this Christmas away from close family. He struggled to find work after he blew the whistle on Bain, which “fully trashed my reputation in the business community”.

“The business community is saying, let’s look to the future, let’s not look back,” he said. But he concluded: “Bain has made no amends for the damage it caused.”