Two of South Africa's largest banks have terminated their contracts with the disgraced US consulting company that has been implicated in state capture.
On Friday Standard Bank and Barclays Africa confirmed to Business Times that they had decided to end their relationship with McKinsey & Co as the consulting firm was embroiled in a legal dispute over R1.6-billion it had been irregularly paid by Eskom.
Standard Bank "has notified it accordingly", said Ross Linstrom, spokesman for the largest bank by clients. The bank had previously said it "would not rush to judgment" on its supplier relationships with McKinsey, auditing firm KPMG and information technology provider SAP.
Fees put in trust account
Barclays Africa had taken a decision not to contract any new work with McKinsey, said spokesman Songezo Zibi.
The group "is going through a process of winding down existing work", he said.
McKinsey was advising the group on strategy and management.
McKinsey said earlier this month that it would put all the fees it had received from Eskom last year in a trust account until a court determines the validity of its contract with Eskom. This was for its work on a programme to develop internal consulting capacity and to help the corruption-ridden utility maximise internal savings.
Irregularly, Eskom agreed to pay McKinsey a share of the purported savings, instead of sticking to the National Treasury's guidelines on the remuneration of consultants.
For six months of work, the bill ballooned to R2.84-billion, but the parties settled on R1.6-billion, which was shared between McKinsey and the Gupta-linked Trillian consulting firm. McKinsey later distanced itself from Trillian after the latter failed a due diligence test due to its political connections.
Earlier this month, Eskom issued a demand for the cash to be paid back, which McKinsey said it would do if a court found the contract to be irregular. Trillian was at the time majority owned by Salim Essa, an associate of the Gupta family.
Independent inquiry
Barclays said it was also reviewing its relationship with KPMG, which last month offered to pay back fees it had earned auditing Gupta family entities over 15 years. KPMG also offered to return the R23-million it was paid by the South African Revenue Service for its role in the "rogue unit" report.
It retracted and withdrew parts of the report as incorrect.
The report was used, in part, by President Jacob Zuma to fire Pravin Gordhan as finance minister.
KPMG is one of the internal auditors to Standard Bank, which repeated on Friday that it was "concerned by the acknowledgement of misconduct by KPMG South Africa". The bank said it was also "concerned to prevent systemic risks to the stability of the financial system that might arise from replacing a large financial services group's auditors without a carefully planned transition".
KPMG said it would conduct an independent inquiry into what had led to the breaches, which resulted in the departures of eight executives.
Standard Bank "therefore believes that it is both ethically right and commercially appropriate to allow KPMG to complete the independent investigation and to give us the information we need to assess whether or not to continue our relationship with KPMG".
On yet another of its suppliers accused of corruption in the state capture project, Standard Bank said it noted that SAP "has undertaken to provide an update by the end of this month, and has committed in advance to take all necessary remedial action".
The bank will make a decision on its relationship with the German supplier of IT and software services "based on our assessment of the findings of the investigation and of the adequacy of their remedial action and bearing in mind the imperative to maintain the stability of our IT systems".
SAP admitted this week that it had paid "commissions" to Gupta companies for facilitating contracts with Transnet and Eskom.
It referred the evidence to US law-enforcement authorities. The company said it was taking disciplinary action against three employees.
mantshantshas@fm.co.za
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