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A monopoly on corruption

‘The Guptas wanted everything’.

If you look anywhere in the developing world, corruption will be found. Whether it’s in Russia, Malaysia, Brazil or South Korea, emerging economies face this challenge.

However, it is a particular kind of corruption that has come to be given the name ‘state capture’ here in South Africa. Speaking at the launch of a new booklet that details how South Africa’s largest state-owned enterprise, Eskom, has become central to state capture, Professor Haroon Bhorat of the State Capacity Research Project said that we are still coming to an understanding of the economics of it.

“One model that we have is that the market for corruption has become monopolistic,” he said. “If you have a large number of people that have small gains in the system, its a stable form of corruption. But if one player dominates the market for corruption, perhaps it becomes unstable.”

What has allegedly taken place at Eskom supports this idea.

Re-purposing the state

The State Capacity Research Project is a collective of academics that have analysed how structured and methodical the system of corruption has become in South Africa. Earlier this year it produced the report entitled Betrayal of the Promise that analysed how it all works.

“I think the value of that report is that it showed conclusively that we are not dealing with random acts of corruption, but a systematic political project to re-purpose the state to facilitate the concentration of rent seeking and corruption,” said Professor Anton Eberhard of the University of Cape Town’s Graduate School of Business.

Eberhard and Catrina Godinho have now produced a follow up to the Betrayal of the Promise study that looks specifically at Eskom. It pulls together all the information that has emerged on what has taken place at the energy utility to create an overall picture of how its governance has allegedly been systematically destabilised since Jacob Zuma became president, and how this allowed for corruption to take hold.

It began with the sacking of Barbara Hogan as Minister of Public Enterprises in November 2010, which Eberhard argues was due to her refusal to allow Zuma to interfere in board appointments. She was replaced by Malusi Gigaba, who overhauled the board the following year and effectively set in motion the series of events that culminated in the appointment of Brian Molefe and Anoj Singh as CEO and CFO respectively in 2015.

While Eskom had already signed questionable coal contracts with the Gupta-owned Brakfontein mine prior to this, Eberhard says it was only after the two former Transet executives came on board that the takeover of Optimum Coal Holdings became possible, giving the Guptas what they were truly after.

“With the governance of Eskom thus captured and re-purposed, the next period witnessed the scaling up of grand corruption, with the Guptas now managing the complex enterprise of brokering, money laundering and concentrating rent seeking,” said Eberhard. “And the chutzpah of the Guptas since has been astounding. When they came into a new enterprise, they effectively wanted everything.”

Professional failure

Former Minister of Finance, Pravin Gordhan, also spoke at the launch of the booklet and noted that it’s important to consider who has been facilitating this process.

“The booklet is a very important piece of work to start unmasking, to start unfolding, to start exposing the actual mechanics of state capture and what is essentially a grand scheme of corruption that is undertaken by professionals in many of these institutions,” said Gordhan. “These are people who have passed all their exams at university, registered with professional bodies, carry one or other letter or letters after their names, like CA. They are people who are supposed to be ethical in the way in which they conduct themselves, but whose professions have been caught flat footed in terms of how to deal with the collaborators in corruption and state capture.”

This of course does not just refer to the implicated people within Eskom and other state-owned enterprises, but the auditors and other service providers who have allegedly been complicit, if not by aiding what was going on at least by over-looking it. How is it, Eberhard asked, that Eskom only received a qualified audit for the first time in 2017 when there have been issues going back to at least 2011?

Gordhan argued that nobody should be allowed to pretend neutrality in this.

“There is no middle ground left any more,” Gordhan argued. “We can’t sit on the fence and watch this show go by because there are serious consequences. Either one is going to passively approve of state capture and corruption and the consequences that flow from it, or increasingly we need to get more and more of us directly or indirectly involved in fighting state capture, understanding state capture and mobilising communities, as we have done many times throughout our history, in order to oppose it.”

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That, as the article makes clear, these “advisors” carry tags such as CA, makes the professionalism, integrity and enforcing the rules by bodies such as SAICA (South African Institute of Chartered Accountants) so vital.

And why the present serious drop in ethical behaviour of such as KPMG is so serious. Why has SAICA not spoken up yet?

Is being a CA no longer considered to amount to anything?

YES it is worthless as an indication of integrity and competence. It has been like this for 15 to 20 years. A tragic downward spiral.

IMHO: It is due to SAICA and it’s fawning top management pushing CASA as the ONLY professional accounting qualification of consequence. It has over many years attempted to undermine other accounting qualifications to retain sole right to audit. (Thankfully this is no longer true). It even managed to wreck one e of it’s own spawn, the General Accountant.

In the early 2000’s it published in it’s awful monthly mag a statement roughly: “Defend the CA qualification AT ALL COSTS)” — now that cost is being paid.

What is tragic about the demise of the CASA is that it attracts some very bright students who in effect become corrupted to a degree through believing that they are the best. Very successful propaganda that most swallow hook, line and sinker.

Thought Leadership indeed.

As a CA and former auditor of the “old school”, I have long been appalled by the fall in auditing standards that has occurred over the last twenty years or more. In my day we had to verify assets on the balance sheet by inspecting documents such as title deeds, share certificates and vehicle registration certificates; attend stock taking; cicularise debtors to confirm balances, and so on. Nowadays I’m not sure what passes for an audit – how, for example, did PwC manage to give Randgold a clean audit year after year when Brett Kebble was systematically stealing the company’s major investment in Randgold Resources? What was done, if anything, to verify this huge asset? I believe the independence and objectivity of auditors have been severely compromised by the proliferation of other services – tax advice, consultancy etc. – offered by audit firms.

“If you look anywhere in the developing world, corruption will be found. Whether it’s in Russia, Malaysia, Brazil or South Korea, emerging economies face this challenge.”

Come on, Patrick. You forgot about Canada (Trudeau), USA (Bush, Bush, Clinton, etc.), UK (Cameron’s Panama Papers), Europe (Balladur, De Villepen, Berlusconi, Rajoy, etc…). It should be abundantly clear that corruption is also everywhere you look in the “developed” world, and that developed economies also face this challenge.

And lets not forget the ministers’ expenses scandal in the UK.

That’s true but in the developed world the corruption is infinitesimal compared to the size of the economies.

Compared to SA where the ANC/Zuptas are reported to have stolen a sum equivalent to >20% of GDP in just 10 years. Individual ANC/Zupta scams probably exceed all annual corruption in most developed countries.

“EU fines Microsoft $732mn for breaking anti-monopoly rules”

“E.U. Fines Facebook $122 Million Over Disclosures in WhatsApp Deal”

“Berlusconi”…….

I don’t think so.

??!

Neither of those is Zupta-type corruption where individuals are stealing esp from the state.

Then those are fines imposed by an authority, not amounts that were stolen.

Finally those amounts are still nothing compared to the GDP of the US or EU.

And the irony is that they are using state monopolies like Eskom to carry out their dastardly deeds. If these entities were privately run and listed on the stock exchange, this could never have happened. Not without consequences anyway…

rent seeking is a documented process over the entire world. There are studies that ask why the bribe is only a fraction of the overall gain – because surely they should reach close to parity at some point? The only reason that there is a damper on corruption is whether exposure of the crime leads to politicians being fired or not – therefore the problem is with the voters.

Bill Pottinger RIP. Why can we not do the same to OAKBAY and related companies? Why can we not bring charges against Duduzane and the Guptas? Can we not organize peaceful Sunday family picnic protests?.

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