SAP corruption probe: Indication of misconduct in South African public sector deals

Millions coughed up in commissions

Dollar in pocket, photo via Shutterstock

German ERP giant SAP has admitted irregularities and indications of misconduct in its South African business following a major corruption probe related to public sector deals worth almost $50m.

The investigation, led by law firm Baker McKenzie, kicked off in July 2017 after public allegations that SAP's subsidiary used shell companies to buy help to win government tech contracts.

It centred on the relationship between SAP and Gupta-related businesses – the Gupta family is known to have strong links to South African ex-president Jacob Zuma – and focused on six contracts SAP won from state-run railway and electric firms Transnet and Eskom.

The probe confirmed that SAP made payments to Gupta-linked companies, along with indications of misconduct in the management of Gupta-related third parties, and "irregularities" in the South African biz's adherence to SAP's compliance processes.

There was no evidence that SAP had direct contact with anyone in the Gupta or Zuma families – rather, the main concern was the Gupta intermediary Santosh Choubey.

Choubey became the principal contact for two firms – Global Software Solutions (GSS) and CAD House – that were value-added resellers and sales commission agents for SAP.

Between December 2014 and June 2017, these firms acted as intermediaries in two contracts SAP won with Transnet and four with Eskom – and were paid some $8m in commission for the deals.

Of the six deals, five had agreed commission rates of 14.9 per cent – just under the 15 per cent rate that would have triggered a review from the SAP exec board. The other had a commission rate of 10 per cent.

Overall, SAP received $47.79m for four of the deals, and was due to pull in another $4.8m, but these payments have not been made.

In return, SAP was found to have paid out $607,000 (including VAT) to GSS as commission on one deal, and $7.02m to CAD House for three.

The investigation also revealed that SAP had paid another Gupta-related entity, Lejara Global Solutions, some $1.7m as a subcontractor to "assist" with provision of consulting services to Eskom as part of one deal.

However, the probe found no evidence SAP had made or attempted to make payments to any South African government official, or any employee of the state-owned businesses.

Neither was there evidence that the integrity and value of the software and services provided to Eskom and Transnet were "undermined in any way" by the use of these intermediaries, SAP said.

The software developer is now focusing on winning back trust in both the nation and the wider world.

SAP had already removed the managing director and chief financial officer in the territory, flying in senior execs to take control of the situation as soon as the scandal hit, and is due to announce a new permanent MD next week.

A ban on commission on all public sector deals in "high-risk" countries – those scoring less than 50 on Transparency International's Corruptions Perceptions Index ranking - is another lever SAP has pulled.

The German outfit also said it was boosting legal compliance staff in the South African region, as well as introducing more checks and balances – including audits – on sales agents and value-added resellers globally.

"This journey has taught us profound lessons and provided us with reasons to reflect on our business, our processes and our responsibility towards our employees, customers, partners and the South African public," said EMEA and China business leader Adaire Fox-Martin, who was brought in to deal with the situation.

"While we cannot turn back the clock, we can promise to do better. To this end, we would like to reiterate the apology we made last year to our stakeholders in South Africa. We remain committed to this country and the rest of the continent, and to growing our business and investment here." ®

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