Management consulting firm McKinsey & Co will repay ZAR650 million (USD43 million) for tainted contracts it had with South African Airways (SA, Johannesburg O.R. Tambo) and state logistics company Transnet SOC Ltd as it seeks to clear its name in that country’s ongoing graft investigation.

The consultancy firm’s Chief Risk Officer, Jean-Christophe Mieszala, on December 10 testified via video link before the Judicial Commission of Inquiry into Allegations of State Capture, also known as the Zondo Commission of Inquiry, that is investigating allegations of state capture, corruption, and fraud in the public sector under the administration of former State President Jacob Zuma.

Mieszala, in his submission to the Commission, declared that neither McKinsey’s own investigations, nor those of the Commission, had “uncovered evidence that our firm secured business through corruption or bribery at (state-power supplier) Eskom, Transnet, or SAA”. “Our own investigation has identified no suspicious payments to individuals or companies made or directed by McKinsey or any of its personnel. We are not aware of any external investigation that has found any such confirmed payments either.”

This, he said, followed more than three years of independent investigations by two global law firms, Norton Rose Fulbright and Morrison & Foerster, involving 65 full-time attorneys, who had researched nine million documents, reviewed more than one million emails, financial records, and had conducted 115 interviews. McKinsey also hired a third-party forensics firm to conduct a forensic review of phone records, devices, financial information, and expense records, he said.

However, he acknowledged problematic behaviour by a former partner at the firm, Vikas Sagar, which lead to him being sacked in October 2017. Sagar had allegedly helped coordinate research and draft coursework for the MBA studies of Transnet’s then Chief Executive Officer Siyabonga Gama in late 2015 and early 2016. In a letter in 2016, Sagar had also inaccurately referred to black empowerment firm Trillian as a subcontractor of McKinsey's. Forensic analysis conducted on Sagar’s computer and phone after his dismissal had shown that he had wiped the memory on his work laptop.

This may have included an email linking him to corruption accused businessman Salim Essa. State capture commission evidence leader Matthew Chaskalson SC told the Commission a letter written to Sagar and copied to Trillian owner Eric Wood and Essa was sent to Sagar's private e-mail address on November 16, 2016. In that e-mail, the executive director of Integrated Capital Management, Clive Angel had informed Sagar that “we are still waiting for the financial spreadsheet re the proposed aggregate 50-50 fee split and timelines as mentioned last week. Salim needs this in advance of setting up a meeting for you and Alex with Brian”. Chaskalson said it was clear that "Alex" was McKinsey partner Dr. Alex Weiss and "Brian" was Brian Molefe, former Chief Executive Officer of Eskom.

Meanwhile, Mieszala acknowledged that McKinsey had worked with Regiments Capital, a black empowerment company, on a project to unlock working capital for SAA. Regiments Capital is associated with the notorious Gupta family, a wealthy Indian-born family with close links to Zuma, some of whom have refused to return to South Africa from Dubai to face graft charges.

“We now understand from the Commission that Regiments appears to have had an inappropriate relationship with an SAA executive. The Commission has furnished evidence that this individual provided Regiments — not McKinsey — with insider information regarding the proposal phase of the project in exchange for bribes.” He added: “While the Commission has now presented evidence related to concerning behaviour by Regiments, we have not found evidence that anyone at McKinsey knew of this activity at the time it was occurring. I leave open here the possible exception of Mr. Sagar,” he said. “McKinsey notified Transnet of its decision to stop working with Regiments on February 23, 2016, and the separation was made final in March 2016, long before such evidence was made public.”

Mieszala said McKinsey had voluntarily committed to repaying the entirety of the fees it had earned on projects with Regiments Capital at both Transnet and SAA “out of principle rather than a legal obligation”. Of the ten affected contracts, nine were with Transnet and one with SAA. Transnet plans to seek more than ZAR1.2 billion (USD79 million) from McKinsey including interest payments, according to News24. McKinsey has already repaid ZAR1 billion (USD 66 million) to Eskom.

Meanwhile, the South African government has announced an interim Board for SAA that is light on hands-on airline operational experience.

They are:

  • Chairman Geoff Qhena, a Chartered Account and a former Chief Executive Officer of the Industrial Development Corporation;
  • Peter Tshisevhe, director and partner at TGR Attorneys, a commercial law firm in Johannesburg; and a part-time lecturer at Wits University Law School. He is retained from the previous board to provide continuity;
  • June Crawford, Head of the Aviation Working Group of the South African Business Council; retired Chief Execvutive Officer of the Board of Airlines Representatives of South Africa; director at the Air Traffic and Navigation Services; and Deputy Chairperson of the Tourism Business Council of South Africa;
  • Bembe Zwane, a former executive at Imperial Logistics and Equity Aviation; part-owner in an aviation training solutions provider, a car rental business, and an aviation logistics business;
  • Edna van Harte, former Dean of the Faculty of Military Science at the South African National Defence Force's military academy at Saldanha Bay and former Chairperson of the Defence Service Commission;
  • Nick Fadugba, Chief Executive Officer at African Aviation Services Limited; Former Secretary-General of the African Airlines Association (AFRAA); Chairman of the African Business Aviation Association (AfBAA); consultant on aviation development in Africa.

It has been confirmed to ch-aviation that SAA's Chief Commercial Officer, Philip Saunders, will be leaving the airline at the end of December when his contract expires. Saunders was named months ago by the government as the interim Chief Executive Officer of SAA, but it appears that his position was never formalised. It is understood it would be up to the new Board to appoint the executive team. The Board would not be dealing with any legacy issues affecting the airline and therefore there would be no duplication of functions with the airline's administrators, ch-aviation was told.