September 18, 2017 / 9:51 AM / a month ago

KPMG South Africa under fire for withdrawing tax agency report

PRETORIA (Reuters) - South Africa’s tax agency on Monday accused KPMG of “unethical” and “unlawful” behavior in withdrawing a report that suggested the former finance minister ran a rogue unit to spy on political leaders.

The global auditor is the latest international firm to become embroiled in factional battles within South Africa’s political establishment. KPMG cleared out its South African leadership en masse on Friday after a damning internal investigation into work the firm did for businessmen friends of President Jacob Zuma.

In particular, it acknowledged “flaws” in a report for the tax service, completed last year, which implied that former finance minister Pravin Gordhan had helped set up the rogue unit in the service. Zuma sacked Gordhan in March.

On Monday, however, South African Revenue Services (SARS) commissioner Tom Moyane defended KPMG’s original report and accused the firm of “abhorrent, unethical, and unprofessional conduct” in withdrawing it.

“I want to say the report by KPMG is not flawed. In fact the report from KPMG confirms conclusively, deeply so, that there is prima facie evidence of wrongdoing in this organization (SARS),” he told a news conference.

He said KPMG’s withdrawal left the tax agency with no option but to consider legal proceedings against it. SARS would also cut all ties with KPMG and assess work the auditor had performed in the last 10 years.

Moyane said SARS would report KPMG to Finance Minister Malusi Gigaba with a view to blacklisting the auditor for its “unethical” and “unlawful” behavior. It would also ask parliament to investigate the firm.

KPMG said last week its internal investigation into its work for the Gupta business family, accused by a public watchdog of improperly influencing government contracts, “fell considerably short of KPMG’s standards”.

KPMG said on Monday it was considering Moyane’s statement and was unable to comment further.

KPMG has become the third global firm to be damaged by work carried out for the Indian-born Gupta brothers, after the business consultancy McKinsey and the public relations agency Bell Pottinger, whose British business collapsed this week.

FILE PHOTO: The KPMG logo is seen at the company's head offices in Parktown, Johannesburg, South Africa, September 15, 2017. REUTERS/Siphiwe Sibeko/File Photo

Zuma and the Guptas deny wrongdoing and say they are victims of a politically motivated witch-hunt.

“SQUEEZED FROM BOTH SIDES”

The nation’s main opposition party, the Democratic Alliance, said on Monday it would lay a criminal complaint against McKinsey for “fraud, racketeering and collusion” on Tuesday.

Reuters reported last week that McKinsey had ignored suspicions raised over several years that companies it worked with had been set up to steer state contracts.

“The allegations that McKinsey ignored warnings from senior South African staff, as far back as the beginning of 2013, of possible dodgy deals with Trillian, Eskom and other Gupta-linked companies must be fully investigated,” the Democratic Alliance said.

Former Minister Gordhan, in an open letter on Friday rejecting KPMG’s apology, said the audit firm’s report implicating him had damaged South Africa’s young democracy, and that he was considering legal steps.

“KPMG is being squeezed from people both sides of this issue,” said political analyst Daniel Silke.

“For SARS, KPMG’s apology was incredibly embarrassing. SARS were thrown to the wolves. Elements in SARS that were previously aligned with KPMG and its report have been embarrassed and now have to fight back.”

Moyane said KPMG had no right to make information in the report public or to withdraw parts of the document without consulting SARS.

“SARS sees KPMG’s conduct as nothing else but a dismal attempt to portray SARS, its leadership, and in particular (the) SARS Commissioner as incompetent, corrupt, inefficient and involved in a witch-hunt,” he said.

The ruling African National Congress said in a statement on Monday parliament’s Standing Committee on Public Accounts would ask KPMG to appear before it and account for its conduct on the SARS report.

Additional reporting by Joe Brock and Tiisetso Motsoeneng; Writing by Olivia Kumwenda-Mtambo; Editing by Andrew Roche

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