McKinsey Africa to pay over $122m over South African bribes

Edward James and Deirdré Simaan of Pinsent Masons in Johannesburg were commenting after McKinsey Africa reached settlements with both the NPA and the US Department of Justice (DOJ) over bribes paid relating to the award of lucrative consulting contracts from state-owned companies in South Africa between 2012 and 2016. McKinsey Africa is a subsidiary of US-headquartered global consultancy firm McKinsey and Company Inc.

The DOJ said McKinsey and McKinsey Africa earned profits of approximately $85 million arising from the bribery scheme, which was coordinated by a former McKinsey partner, Vikas Sagar, for the benefit of the company. Sagar previously pleaded guilty to one count of conspiracy to violate the US’ Foreign Corrupt Practices Act (FCPA). McKinsey Africa has entered into a deferred prosecution agreement (DPA) with the DOJ to settle a charge it faced under the FCPA.

Simaan said: “As part of the coordinated resolution, McKinsey Africa agreed to a DPA with the DOJ, where it admitted and accepted liability for its criminal transgressions in South Africa. McKinsey Africa will pay a criminal penalty of $122.85 million, with 50% of this penalty credited to South African authorities.”

In addition to the DPA, McKinsey Africa has reached an agreement with the NPA in line with South Africa’s corporate-alternative dispute resolution (C-ADR) policy, which outlines a process that formalises the state’s position on resolving corruption cases with companies without having to go through protracted criminal trials.

Under the policy, the NPA can hold a corporation to account for multi-jurisdictional criminal transgressions outside of the formal criminal justice system. It allows companies to come clean about corruption and pay appropriate restitution in exchange for avoiding criminal prosecution. The state benefits by saving on resourcing and litigation costs typically associated with corruption cases.

The C-ADR agreement in this case includes provisions for McKinsey Africa to pay a criminal penalty of R1.1 billion (c.$61.6m) to South African authorities, which will be deposited into the criminal asset recovery account.

Simaan said: “By implementing the C-ADR policy, the NPA has demonstrated its commitment to aligning with international best practices in holding cooperative multinationals accountable through efficient and effective justice. This policy promotes corporate accountability by requiring companies to admit and accept liability for their actions. It also mandates the implementation of remediation measures, including enhanced compliance measures and financial reparations, which serve as a form of punishment and deterrence, given that a company itself cannot be incarcerated.”

James added: “The heightened collaboration between the DOJ and NPA has several significant benefits. It enhances the enforcement of anti-corruption laws across borders, facilitates the sharing of resources and information, and leads to more effective investigations. This collaboration also sends a strong message to multinational companies about the serious consequences of engaging in corrupt practices and helps in setting and maintaining high global standards for corporate conduct.”

In a statement, McKinsey said: “McKinsey conducted an extensive investigation into the corrupt conduct of a former partner, Vikas Sagar, who concealed his unlawful conduct from the company and his colleagues and then sought to cover up his conduct. McKinsey terminated his employment more than seven years ago. McKinsey has zero tolerance for employees who do not strictly adhere to the company’s compliance policies, procedures, and professional standards.”

“McKinsey is deeply remorseful that an employee of our firm engaged in corrupt conduct. We publicly apologised in 2018 and chose to take accountable action, including taking responsibility for Sagar’s conduct. Our significant remediation efforts and investment in our risk control functions and processes, extensive investigation, full cooperation with the authorities in the United States and South Africa, and full repayment of the fees to the state-owned enterprises years ago led to the full resolution of these matters. McKinsey will continue to cooperate with authorities in both South Africa and the United States in their ongoing investigations,” it added.