The South African imbroglio involving the Gupta family and their relationship to the current President of the country continues to be a sinkhole of reputational kryptonite. First was the implosion of the U.K. PR firm Bell Pottinger; now both KPMG, which had botched audits of Gupta family holdings, and McKinsey, allegedly involved in improper conduct, find themselves in hot water for their actions in the country.
McKinsey produced a restructuring plan for a South African state owned utility, Eskom. The next step was to be implementation of the plan for which McKinsey was to be paid up to $370MM over four years. This amount was characterized in one McKinsey report as “exorbitant.” It was, however, not price gouging that impacted the FCPA. It was McKinsey’s work with a business partner on the implementation, Trillian. Eskom allegedly pointed McKinsey to partner with Trillian as a part of the requirement to work with a black empowerment partner. It turned out that Trillian was associated with the Gupta family. Six months after beginning work, McKinsey had not inked a contract with Trillian and Eskom pulled the implementation contract, after McKinsey “only” billed $76M.
McKinsey has said that it has not uncovered any illegal payments under the FCPA. The FCPA, however, also prohibits the corrupt “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to” a foreign official. Over-paying for a contract and having some of the over-payment rebated to foreign officials is a well-known bribery scheme. It would be easy to envision a bribery scheme where there is an “exorbitant” amount paid to the prime contractor, which then hires a sub-contractor who receives a very high fee for bringing very little to the project.
McKinsey has said it has done nothing which would require it to self-report to the Justice Department. John Gapper, writing in the Financial Times, said “This seems to be setting the reputational bar rather low.” His thoughts may not be the final word on the subject.