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Bain’s role in dismantling Sars

Consulting firm ‘drafted the rules of the game’ for the revenue service.
It is apparent that Bain met with former president Jacob Zuma and was given assurance that it would be doing work for Sars once the new commissioner was in place. Image: Mike Hutchings, Reuters

The Zondo Commission of Inquiry into Allegations of State Capture commenced with testimony related to the South African Revenue Service (Sars) on Tuesday March 23, with Athol Williams, a former partner of global management consulting firm Bain & Company, as the first witness.

This article summarises the main issues arising over two days of testimony.

Bain applies for permission to publish affidavit to counter Williams’s testimony

Bain’s legal representative, Alfred Cockrell SC, requested that commission chair Deputy Chief Justics Raymond Zondo grant permission for Bain to publish its affidavit, or a summary thereof, to coincide with Athol Williams’s testimony.

Bain was concerned that Williams’s testimony would include “serious inflammatory material”.

Bain had applied to cross-examine Williams, but this was still being considered by Zondo. Cockrell argued that if Bain is not allowed to cross-examine him it would be terribly unfair and Bain “will never be allowed to give its version in the public domain”.

He intimated that Bain might be “muzzled in perpetuity”.

However, Bain hasn’t applied for leave to testify to the commission. Zondo noted that had Bain done so, then its version could have been articulated by its own witness.

Zondo opined that any perceived unfairness to Bain in not being allowed to publish its affidavit while Williams is giving evidence would be mitigated by the fact that its version will be put to Williams by the evidence leader.

Bain was not granted permission to publish its affidavit.

Restructure and dismantling of Sars

Evidence leader Alistair Franklin SC briefed the commission that the evidence to be led over the course of the week will cover the institutional dismantling of Sars, that it was weakened and repurposed for state capture.

In introducing Williams, the commission was informed that he holds five master degrees from notable institutions including Harvard and Oxford, and is reading for a Doctor of Philosophy from Oxford. Williams deposed an affidavit to the commission in August 2020.

Williams left Bain in 2010, after Vittorio Massone was appointed managing partner. Williams was concerned about the way Massone interacted with clients and other people, and contacted the London office with his concern that Massone was not appropriate. Williams doubted Massone’s ethics, whether he was honest, and whether one could trust what he was saying.

Bain nonetheless kept Massone in that position – thereby, in Willams’s opinion, endorsing him.

Williams was retained by Bain, effective September 2018, to give independent oversight into the investigation of Bain’s work at Sars. The agreement provided for Williams to cooperate with the Nugent Commission of Inquiry into Tax Administration and Governance by Sars.

The agreement provided that if Williams’s concerns were not properly addressed he could take them to an independent third party outside of Bain, and would not be in breach of any confidentiality if he did so.

Bain had also engaged Baker McKenzie to conduct an external investigation.

Williams was to be given full access to the interim and final investigation reports of Baker McKenzie. It transpired that Williams was never given access to these reports. He could thus “make no findings as to the truthfulness of it”.

Williams resigned from his engagement with Bain in August 2019. 

Bain had prior knowledge of Moyane’s appointment

In December 2013 Bain had information that Tom Moyane would be appointed commissioner of Sars. Moyane was appointed to this position, in September 2014.

From emails written by various senior Bain officials, it is apparent that Bain had attended meetings with former president Jacob Zuma and that it was given assurance that when Moyane was appointed Sars commissioner, Bain would be doing work for Sars.

A schedule of meetings held between Zuma and Bain was also presented.

Read:

Jonas Makwakwa – the deep throat

It turns out that Bain was able to give specific advice on Sars to Moyane because it was being given inside information on Sars by Jonas Makwakwa, a Sars executive member.

Fabrice Franzen, a senior partner at Bain, reported to the Bain legal division that in 2014 Massone had multiple meetings with Makwakwa on ‘Bait’ (business and individual tax, the largest unit at Sars in terms of tax collection).

According to Franzen: “Makwakwa was acting as deep throat, relaying information on Sars to Bain and feeding into Moyane.”

Williams’s affidavit included evidence that Franzen had confirmed in his interview with Baker McKenzie that he had drafted the RFP (request for proposal) that Sars would issue to call for proposals from service providers.

The RFP describes a comprehensive organisation and strategy review on operational performance and infrastructure. It is mainly drafted in question form, such as ‘Is the IT system adequate?’.

Williams commented that this is something one would expect Sars to draft, not Bain.

The RFP drafted by Bain provided the reason for appointing an external firm to assist the commissioner in framing Sars’s transformational agenda.

The RFP set out the scope of work and deliverables, and the selection criteria in appointing a service provider. It was a so-called “closed tender” which was only sent to a “select group of consulting firms”.

Williams voiced his concern: “Bain drafted the ‘rules of the game’ for a public institution.”

Zondo has seen this before, noting that Bosasa, in dealing with the Department of Correctional Services, had drafted the RFP to ‘select’ Bosasa as the service provider.

Sars issued the RFP for a six-week contract in December 2014. Bain was awarded the contract in January 2015.

Williams alleges that Bain, with the assistance of Makwakwa and Moyane, managed to extend the period to 27 months – without going back to the market to tender.

Read:

Evidence leader Franklin read from Bain’s submission: “We accept that through various lapses in leadership and governance, Bain South Africa became an unwitting participant in [a] process that inflicted serious damage on Sars.”

According to Williams, based on the evidence he has seen: “Bain did not arrive as unwitting participants; they had a restructuring agenda.”

Williams emphasised that he has merely given his interpretation on a set of documents that he had received from Baker McKenzie.

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SARS has just spent R3 billion on software to hunt every undeclared cent, but cannot use CCTV footage of their No. 2 stuffing hundreds of thousands of rands into ATMs to nail him.

That sums up the mission statement of the revenue “service”: one set of rules for the plebs and no rules for the connected elite.

I no longer buy the “state capture” narrative, it is simply the strategy by the so-called honourable ANC to gain control of all resources.

SARS just spent R3 billion on software to hunt down every undeclared cent, but cannot use CCTV footage of their No. 2 stuffing hundreds of thousands of rands into ATMs to nail him.

That is the mission statement of the revenue “service”: a set of rules for the plebs and no rules whatsoever for the connected elite.

I no longer buy the “state capture” narrative, it is simply the strategy of the so-called honourable ANC to gain control of all resources.

Where have we seen these tactics before? Bain don’t want to testify themselves but would rather cross-examine the witness. They then claim unfairness when Zondo will not accept an affidavit. One would expect toilet paper to be worth more than any affidavit from Bain.

To think that the Zondo commission hasn’t been influenced by these tactics…. scares me.

Seems like every company has unethical values behind their “mission/value statement” portrayed to the public. Makes me sick.

Check this out.

https://www.vittoriomassone.com/about-me/

Seems all good from their point of view. Maybe some other bloggers can help me out here as I have never been in position to work with companies such as Bain or for that matter Mckinsey. From my POV whenever these guys are involved it seems to stink so why the hell are companies hiring these “oracles” (besides the obvious fringe benefits) and they also seem to get an audience with the top whenever they want.

Bain and their ilk are asset stripping parasites. They especially like companies with juicy pension funds. This is how they work.
PE firm XYZ buys company ABC through a leveraged buyout, which typically consists of a mixture of securities and bank loans. Once the buyout is complete, ABC stops being an independent company: it merely becomes a part (or subsidiary, or division, or whatever according to jurisdiction) of XYZ.
At this point ABC is effectively at the mercy of the new owners, who either call all the shots themselves or, more often, stuff the board of directors with their own people. Their first action is invariably to transfer the debt incurred in the buyout to ABC’s books, followed by writing themselves a series of checks for special dividends, fees and sundry other expenses. Technically speaking there’s nothing illegal with this, as long as proper procedures are followed.
Shortly afterwards the “synergies” begin, invariably followed by hiring “company doctors” (or “turnaround specialists” as Americans like to call them) at extravagant rates, and in a few years you read about poor old ABC companies on these pages.
Again: if XYZ calls all the shot at ABC there’s nothing that can be done about it.

Why do lenders allow this? This is where things become complicated.
Generally speaking the large investment banks arranging the deal know their fees will be paid in full and soon and senior creditors know they are sacred and untouchable: in the event of a bankruptcy they are the first in line and generally recoup a large part or even all their losses.
In short these two categories don’t care one tiny bit because they just know they’ll get their money one way or the other.

But LBO’s need another category to get rolling: junior (unsecured) creditors. These creditors are attracted by the relatively generous coupons on junior bonds: just to give an example those issued by Toys ‘R’ Us (Bain) and maturing in 2019 yielded? a juicy 7.25%, really tempting in our financially repressed world.
But junior creditors are at the very back of the queue in case of a bankruptcy. Usually only vendors fare worse than them. And these junior creditors aren’t happy.
When Payless filed for Chapter 11 in June 2017, a group of junior creditors sued Blum Capital and Golden Gate Capital (the PE firms behind the LBO drama) for “siphoning approximately $400 million in 2013 and 2014” to pay for “illegal dividends” and “fraudulent conveyance”.
Blum and Golden Gate were sufficiently worried to strike a deal with angry Payless junior creditors: they will stop their lawsuit in return for $25 million, all cash, to be paid during the bankruptcy reorganization.

Like the part on “synergies”

The Government should blacklist Bain and McKinsey from any Government or Parastatal work for ten years. Both have admitted to overcharging by returning substantial fees.

End of comments.

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