In a first of its kind enforcement, the UK becomes the first western country to impose penalties on a consultancy for its role in the South Africa/Zuma corruption scandal.
Boston- based consultancy Bain & Company has been hit with a 3 year ban from tendering for UK government contracts over “its grave professional misconduct” facilitating the capture of the South African Revenue Service (SARS), the Cabinet Office said.
Lord Peter Hain, a former UK Cabinet minister with links to South Africa, recently claimed Bain was employing staff in its London office who “colluded” with former president Jacob Zuma, and asked the UK government to ban it.
“Global corporates like them have to feel the pain for the consequences of their corrupt and unlawful behaviour in South Africa’s state capture and corruption scandal under former President Zuma. Otherwise other corporates will be tempted to do the same.” Hain said.
The results of the “State Capture” investigation produced some astonishing findings. Several multinationals were found to have contracted with State-owned entities via the Gupta brothers (who were recently arrested in Dubai, and are currently fighting their extradition to South Africa), who in turn, used their friendships with former President Zuma to manipulate and control state-owned enterprises for personal gain. State capture contributed to the severe economic hardship of the South African people.
In this prior article, from December 2020, we covered how several multinational companies were, as a result of this investigation, ordered to repay the South African State after being found to have entered into contracts with these State-owned entities tainted by graft & corruption.
Bain was one of several US companies, including McKinsey and KPMG, that were found to have facilitated that corruption, according to the “Zondo report“. The first part of the report covered Bain’s misconduct at SARS.
The “Big Three” of Consultancy
Bain’s misconduct is hardly surprising however, Bain has earned, since the 1980s, the moniker of “KGB of consulting” due to its rather opaque modus operandi.
Bain’s business model is built on “relationship consulting” which relies on developing close ties with powerful clients that include the world’s top corporations, state-owned enterprises and governments.
The very same approach was used by the firm at SARS and left as a result the South Africa’s tax agency on its knees. Bain reportedly made approximately R164-million (approx. USD 9.7 million) from the SARS State Capture. Bain previously acknowledged its “mistakes” in South Africa and repaid the fees it earned for its work at SARS with interest in 2018. It maintains it did not act illegally in the country, and acted in full compliance with applicable procurement laws.
Founded in 1973, Bain is part of the so-called “Big Three” consultancy firms, which include McKinsey (itself deeply involved in the South African State Capture) and Boston Consulting Group ( reportedly involved in other African State Captures).
Pressure on the US to follow suit?
With so many US consultancies mentioned in corruption scandals, one ought to wonder why the US is not getting more pressure to punish its advisers enabling state capture abroad?
In its Strategy on Countering Corruption, issued by the White House in December 2021, the US defines State Capture as the act of “private entities improperly and corruptly influencing a country’s decision-making process for their own benefit.”
The US certainly disposes of several tools to hold those consultancies accountable.
In the same Strategy document, the US pledges that US departments and agencies would continue to utilize their regulatory authorities to remove corrupt individuals, companies, and other entities from the Federal marketplace and the Federal supply chain by excluding (suspending or debarring) such actors from US Government contracts, subcontracts, grants and related business opportunities.
It remains to be seen whether the US has the appetite to turn these words into action.