SAP shocks with R100m disclosure

Top South African companies were left reeling this week after German software multinational SAP admitted that it paid more than R100million to Gupta-owned entities to secure contracts with Transnet and Eskom for tenders worth R660m. The companies said they were conducting investigations into their contracts to determine future relations with the software giant. However, a software analyst warned that it would be difficult for the companies to get out of the contracts as replacing SAP could prove difficult. “It’s not as easy as finding a replacement tomorrow because these guys (SAP) have a near complete monopoly in software technology,” the analyst told Business Report on condition of anonymity. “So for now it will be a wait-and-see game.”

SAP provides software solutions to the country’s top banks, businesses, state-owned entities and companies. Among its clients are Standard Bank, Nedbank, Pick * Pay and the Development Bank of Southern Africa (DBSA). This week, SAP said it had initiated voluntary disclosure to the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) on information it had assembled on the Transnet and Eskom contracts. “Following a data analytics search of 8.4million documents, the law firm has completed a first-level review of 131609 documents, and a second-level review of 52985 documents. Baker McKenzie has conducted numerous interviews,” the company said. Nedbank said it noted the SAP admission to the US Department of Justice (DOJ) and the SEC.

Nedbank group chief financial officer Raisibe Morathi said: ”We are reviewing the details in the announcement and engaging with the SAP leadership. We will continue to follow our robust governance processes, including board and risk committee meetings as and when required.” The SEC has dished out multimillion-dollar fines to companies found to have flouted the US Foreign Corrupt Practices Act. In the past two years alone, the SEC fined 29 companies more than $3.5 billion (R49.5bn) for contravening the act. The single largest fine was a mammoth $957m it dished out to Braskem SA - the Brazilian-based petrochemical manufacturer - for concealing millions of dollars in illicit bribes paid to Brazilian government officials to win business.

Just last week, the SEC charged mining company Rio Tinto and two former top executives with fraud for inflating the value of coal assets acquired for $3.7bn and sold a few years later for $50m. Early this year reports emerged that SAP paid a 10percent sales commission to a Gupta-controlled firm called CAD House - which specialises in selling 3D printers - to clinch the deal it secured with state rail firm Transnet. This will not be the first time that SAP has found itself in the SEC’s cross-hairs. The group last year agreed to give up $3.7m in sales profits to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) when procuring business in Panama. At the heart of the matter were allegations that SAP had conjured with a bribery scheme that involved providing large discounts of up to 82percent to SAP’s Panamanian partner, who used the excessive discounts to create a slush fund out of which to pay bribes to Panamanian officials so SAP could sell software. However, the company settled the matter without admitting or denying the findings to the SEC.

Disgraced former Panama president Ricardo Martinelli was fingered as one of several alleged conspirators in the SAP scheme, while SAP was accused by the SEC of having deficient internal controls to curb bribery payments. The DBSA’s Sebolelo Matsoso said: “The DBSA has noted the admissions made by SAP and the action it has taken to suspend its top management in South Africa, and the apology by the global chairman of SAP to the people of South Africa. "DBSA regularly reviews its relationships with suppliers to ensure that the services provided are in line with the contract and with our values and ethics.”