ABB, a Swedish company and a supplier in the $50 billion (R875bn) electric power industry, found some "useful fools" in our largest state-owned enterprise (SOE).
In South Africa, ABB’s head office, logistics and manufacturing centre are located at Longmeadow, in Johannesburg. This is where several manufacturing operations are conducted, including medium voltage switchgear, rectifiers and robotics programming.
The company received a contract from Eskom worth R2.2bn, made a profit of about R160 million thereon, and now must pay fines of about R5bn. Eventually they have lost out on this one.
The ABB web page displays the following heading: “Are our values part of your story? Our values are the cornerstone of our culture. They shape everything we do, guide our behaviour and interactions with our colleagues, customers, partners and society as a whole, and help us realise our purpose. By living our four ABB values, we lead by example in how we do business and behave. They are, Courage, Care, Curiosity and Collaboration.”
The company web site describes the ABB Way as follows: "The ABB Way is the glue that unites our Group and comprises a select number of common processes covering our business model, our people and culture, the ABB brand, and our governance framework. It facilitates accountability, transparency, and speed in ABB."
In stark contrast, ABB’s criminal history includes a lengthy list of misconduct, starting with a guilty plea in 2001 for bid-rigging involving a contract in Egypt; a guilty plea in 2004 for Foreign Corrupt Practices Act (FCPA) bribery violations in Nigeria; a 2010 undeterred prosecution agreement and US subsidiary guilty pleas for Fcpa violations in Mexico and Iraq; and, administrative resolutions with European and Brazilian competition authorities in 2013 and 2014, respectively.
According to Swiss officials, between 2014 and 2017, ABB paid bribes to a single, high-ranking Eskom official to obtain business advantages in the award of multiple contracts.
Two former ABB employees, Mohammed Mooidheen and Vernon Pillay, had also received a kickback from Impulse International.
To this end, ABB engaged multiple subcontractors who were linked to the South African government official, and made payments to those subcontractors that were part bribery payments intended for the government official.
As part of the scheme, ABB conducted sham negotiations to obtain contracts at inflated prices that ABB had pre-arranged with the South African government official, with the condition that ABB employ a particular subcontractor linked to the government official.
Two ABB subsidiaries, one in South Africa and the other in Switzerland, each separately agreed to enter a guilty plea to FCPA conspiracy for violation of the bribery provisions.
The US Department of Justice agreed to credit up to half of the $315m for ABB’s payment of penalties to South African authorities. The South African authorities simultaneously announced a settlement with ABB under which ABB would pay $142 million to the South African government.
The following statements was issued in Switzerland by the Office of the Attorney General of Switzerland.
Bern, 02.12.2022 – “The Office of the Attorney General of Switzerland (OAG) resolves the criminal investigation against ABB. Namely, it issues a penalty order for an offense against the Art. 102 Par. 2 Swiss Criminal Code (SCC) in connection with Art. 322septies SCC and sentences the company to a fine of 4 million Swiss francs. Simultaneously, the Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) are expected to resolve with ABB in the same context. The South African law enforcement authorities imposed a fine as of yesterday.
“Therefore, the OAG sentences ABB Management Services Ltd to a fine of 4 million Swiss francs. The maximal legal possible fine in Switzerland for this kind of criminal offence is 5 million Swiss francs. The cooperation of ABB was considered to reduce the penalty. No replacement claim is requested due to the compensation payment already made in South Africa for 104 million dollars.”
Here in South Africa, the National Prosecuting Authority has acknowledged capacity constraints to prosecute. However, the Investigating Directorate (ID) has secured Mutual Legal Assistance from the Swiss and from Germany.
The ID was set up by President Cyril Ramaphosa in 2019 to investigate serious, high-profile, complex corruption and financial crimes.
This department started pursuing former Eskom acting chief executive Matshela Koko following revelations that he had promised ABB contracts worth R6bn if the company subcontracted some of the work to Impulse International.
Koko's stepdaughter, Koketso Choma, became a shareholder of Impulse International after ABB subcontracted the company. (Koko, Koko’s wife Mosima, and stepdaughter Koketso Choma have been arrested in connection with the alleged bribery. Koko said that the ANC deployment committee did not recommend him.
ABB switched auditors to KPMG from Ernst & Young in 2016, in line with international good governance practices. This followed a fraud scandal for ABB in South Korea, which exposed a failure to maintain effective financial controls. EY, ABB’s sole external auditor since 2001, concluded ABB had not maintained effective internal control over financial reporting.
Regarding money recouped, National Treasury advises: “The money will be paid to the Criminal Assets Recovery Account. This is an account within the National Revenue Fund and any decision around its usage would be made during the budget process."
Regarding Eskom, Siyakhula Vilakazi, a partner at SNG Grant Thorton, said record keeping at the parastatal was so weak that auditors could not reliably test compliance with tender rules, or certify the internal finding that irregular expenditure had dropped to R11.7bn in the past fiscal year as correct.
Corruption was so entrenched that in 2019, law firm Bowmans – appointed to unravel the tangle of criminal activities at Kusile – identified more than R178bn in dodgy contracts over the past decade involving major contractors, international companies and senior Eskom officials.
How are these things possible? What about the regulators? What are the consequences for the auditors? Why does the Independent Regulatory Board for Auditors remain silent?
Can the banks express themselves on the reputational risk issue? Who banks companies like ABB and Eskom? And last of all, why are government ministers not held to account for lack of oversight.
Ultimately, as South Africa endures unprecedented load shedding, ABB is just one example of the skeletons in Eskom’s deep closet.
At the end of the day it is the South African consumers who must now pay exorbitant electricity bills. This while Eskom’s rotating guard of fools lead the country into darkness.
Corrie Kruger is an independent analyst
BUSINESS REPORT