McKinsey drawn into South Africa’s Gupta business scandal

McKinsey has been drawn into the scandal around South Africa’s powerful Gupta business family after revealing that a partner who allegedly misrepresented the consultancy in a deal with a Gupta-linked investment company would temporarily stand down.

The firm said that Vikas Sagar, a director in its South African office, would take a leave of absence to allow an internal investigation to proceed after he “inaccurately characterised” Mckinsey’s ties with Trillian Capital, a company owned by Salim Essa, a close business associate of the Guptas.

The move demonstrates how international companies have become entangled in the fallout from allegations that the Guptas used their friendship with President Jacob Zuma to obtain lucrative state contracts and sway public appointments — referred to locally as state capture — to bolster their mining-to-media business empire.

The long-running Gupta scandal has cast a shadow over the Zuma presidency and fuelled tensions within the ruling African National Congress, which will choose Mr Zuma’s successor in December.

McKinsey acted after evidence emerged that Mr Sagar wrote to Eskom, South Africa’s state-owned power monopoly, last year stating that the firm had subcontracted certain services to Trillian.

The consultancy said that managers in its South African office had been “surprised to learn” of Mr Sagar’s letter to Eskom, which was revealed in an investigation into Trillian’s alleged involvement in state capture. The consultancy said it had “carried out work with Trillian at Eskom, but did not have a formal subcontract with them” and did not hire Trillian as a local supplier.

Both the Guptas and Mr Zuma have denied the accusations of corruption, which have been fuelled by recent email leaks that exposed an alleged complex web of influence from the Guptas to the heart of the ANC.

Last week Bell Pottinger, the British public relations adviser, apologised for work it had done for a company owned by the Guptas, saying its management had been misled over “inappropriate and offensive” social-media campaigning linked to the contract. Bell Pottinger was widely accused in South Africa of inciting racial tension to divert criticism of the family.

The Trillian investigation was launched last year by Tokyo Sexwale, the company’s outgoing chairperson and a senior member of the ANC. Mr Sexwale called for the probe following allegations that executives at Trillian were aware that Nhlanhla Nene would be sacked as finance minister weeks before it was announced in late 2015.

Mr Sexwale, a former supporter of Mr Zuma, wants the investigation’s report to be included in a judicial inquiry into state capture.

Geoff Budlender, the lawyer who led the Trillian investigation, said in the report last month that the apparent relationship between McKinsey and Trillian “served little purpose other than to provide a substantial financial benefit to Trillian and its shareholders — and presumably to induce Eskom to award the contract to McKinsey”.

The consultancy said it did not accept Mr Budlender’s conclusion and would not enter into supplier contracts “simply to provide financial benefit for a partner firm.” The group has brought in the law firm Norton Rose Fulbright to investigate Mr Budlender’s findings.

McKinsey managers decided not to partner with Trillian as a supplier last year following concerns over the firm’s ownership, people familiar with the matter said.

FT