KPMG Slammed by South Africa's Pravin Gordhan on Tax Report

  • Auditing firm contributed to ‘state capture,’ Gordhan says
  • Revenue service has become a political project, he says

Pravin Gordhan in Pretoria, South Africa, on March 31, 2017.

Photographer: Waldo Swiegers/Bloomberg

Pravin Gordhan, who was ousted from his post as South Africa’s finance minister in March, slammed KPMG LLP after it withdrew the findings of a report on the country’s tax agency that was used as evidence in a police probe against him and led to the removal of senior staff.

The auditing firm said on Friday that its conclusions and recommendations in a report for the South African Revenue Service about a unit that allegedly spied on politicians should no longer be relied on. It said the evidence provided to KPMG doesn’t support the interpretation that Gordhan knew, or ought to have known, that the unit was established and operating unlawfully.

“Very good people were severely intimidated due to the KPMG report,” Gordhan said by phone on Sunday. “The withdrawal of the report does not even begin to make amends for that and the pain they have gone through. It is high time that business, and especially professional firms such as KPMG, learn how to apologize properly and tell the whole truth. I shall be meeting with my lawyers in two days to consider our next step.”

KPMG also said on Friday that its South African chief executive officer, chairman and six other senior managers quit after an internal probe criticized the company’s conduct in auditing companies controlled by the Gupta family, who are friends of South African President Jacob Zuma.

Bell Pottinger, McKinsey

KPMG is the latest international company to come under fire for becoming embroiled in the nation’s politics. British public-relations firm Bell Pottinger LLP applied for administration on Sept. 12 after being expelled from a U.K. public-relations body for stoking racial tensions in South Africa while working for the Guptas. South African anti-corruption groups are targeting U.S. consultancy McKinsey & Co. for doing work for businesses tied to the family.

KPMG said it has offered to repay the 23 million-rand ($1.7 million) fee it received for the work on the report to SARS, or make a donation to a charity. KPMG spokesman Nqubeko Sibiya asked for queries to be sent by email when contacted for comment on her mobile phones on Sunday and didn’t immediately responded to the email.

The auditing firm said on Friday that the errors in the report hadn’t been intentional and its actions weren’t politically motivated.

Gordhan, who led the revenue service from 1999 until 2009, wasn’t the only victim of the report. He was investigated by police for his role in the setup of the investigative unit, although no charges were ever brought. Former acting Commissioner Ivan Pillay, Johann van Loggerenberg, a group executive for tax and customs and spokesman Adrian Lackay all resigned from SARS in 2015 as the agency was probing the allegedly covert unit.

“The witting and overenthusiastic collaboration of senior KPMG personnel and their collusion with nefarious characters in SARS, in fact directly contributed to ‘state capture,’” Gordhan said in a statement sent by text message on Friday, using a local term for influence over government appointments and the award of state contracts. “It should and must be remembered that this was about attacking SARS as an institution with the main intention being to capture it.”

Political Project

The tax agency has been rocked by resignations of several senior executives since Tom Moyane was appointed as commissioner in 2014. Moyane clashed with Gordhan when he halted a restructuring plan at SARS during his time as finance minister. The nation’s revenue shortfall for the first quarter was 13.1 billion rand.

It’s part of “the whole conspiracy theory of replacing good people with bad to facilitate state capture,” Gordhan said by phone. “SARS became a political project and it is now run by people who have no idea how to manage a tax-administration system. They don’t know what skills are needed and how to use them.”

SARS has the necessary capability and skills to do its job, Moyane told reporters in Pretoria on Monday.

Last month, the Hawks, a special police unit, told former Finance Minister Trevor Manuel and his one-time deputy, Jabu Moleketi, to provide affidavits so that it could finalize the investigation. Gordhan said at the time he expected to be charged.

Prosecutors and police “leaned heavily on the KPMG report, with the credibility that KPMG had, so they could say it’s an independent report,” Piet Croucamp, a lecturer in political science at North-West University’s Mahikeng campus, said by phone. “Now that independent report has been withdrawn, and I think they are likely to quit this investigation.”

While SARS didn’t base disciplinary action against employees on KPMG’s work, the report isn’t flawed and confirmed wrongdoing at the tax agency, Moyane said.

“That’s why the Hawks requested a copy of the report from us, which we provided, and that’s why the investigation is continuing,” he said Monday.

The Hawks will complete its investigation and let the National Prosecuting Authority decide whether to take the case forward, Hawks spokesman Hangwani Mulaudzi said by text message.

Barclays Group Africa Ltd. said it’s considering ending its relationship with KPMG. Standard Bank Group Ltd., Nedbank Group Ltd. are reviewing their relationship with the auditors, they said. Investec Ltd. was also relooking at its links, Johannesburg-based Business Times newspaper reported.

KPMG employs 3,400 people in South Africa, according to the newspaper.

— With assistance by Ana Monteiro, and Arabile Gumede

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