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By Martin Kenney
First published on Biznews.com
The story of how electronics giant Hitachi bought political influence in order to win a $5.6-billion power station contract, calls into question not only the integrity of a massive company with a global reputation, but also the very integrity of the South African government.
Moreover, a $19-million fine for a company of Hitachi’s size, is laughable and certainly does not help with law enforcement efforts to stamp out corruption.
It is also a case with enormous ramifications: electricity shortages linked to the whole debacle have already fed into a 1.3% depression of economic growth in the second quarter of this year.
From our perspective as ‘global fraud hunters’ – we travel the world chasing money launderers and those who squirrel away stolen assets – the whole case is not only shameful, it sends exactly the wrong message to the outside world: that in order to do business in Africa’s most powerful nation, one has to so crudely bribe one’s way ahead.
There are no winners in such scenarios: Hitachi has sullied its own commercial standing, whilst the South African government has put itself in a position where companies which have previously submitted tenders will now be questioning the veracity of their own tendering processes; it also raises fears over the legitimacy of future bidding processes.
Not only that, but the $19-million fine meted out to Hitachi by the Securities and Exchange Commission in the US (because the company was listed on the New York Stock Exchange), is nothing short of derisory. Regulators must step up to the mark and be prepared to hold this sort of rogue action accountable: what with Volkswagen’s actions over cheating emissions tests on its diesel vehicles worldwide, and much discussion over evasion of corporate taxes, public trust is being eroded at a rapid rate in both the corporate as well as political worlds.
Brazen corruption
The corruption in this case was brazen. Hitachi sold a 25% stake in its South African operations to Chancellor House Holdings, allowing the company and the ANC to share profits. Hitachi paid Chancellor House, which it knew was a front for the ruling party, $5-million from the contracts and another $1-million in “success fees”.
This is a case with enormous ramifications. Hitachi Power Africa won huge contracts off the back of this sordid arrangement: R38.5-billion ($2.8-billion) of contracts from state electricity utility Eskom Holdings SOC, to install boilers at the Medupi and Kusile coal-fired power plant projects. Yet the completion of the 4 788-megawatt Medupi plant has been delayed by about four years as work hasn’t been completed on time. This has contributed to power cuts which have disrupted business operations and slowed economic growth.
“This continues to devastate our economy,” Mmusi Maimane, leader of the main opposition Democratic Alliance party, has said in a statement. “The Hitachi tender has cost South Africa dearly.”
Going after the untouchables
This is sleaze on a massive scale, at both corporate and political ends of the spectrum. As lawyers and investigators specialising in asset retrieval cases, we spend our lives chasing ‘bad guys’ who fleece both individuals and corporations of millions of dollars. What do you do when the ruling elite of a country is the bad guy, though?
Detectives know before they even start the enquiry, that those with the power will do everything they can to frustrate the investigation.
Politicians can sometimes view themselves as untouchable and beyond reproach; the sad fact is that some individuals simply cannot help themselves. Although they are elected by the people to look after the best interests of the nation and the communities they represent they can become full of their own self-importance. They should not see their appointment as a meal ticket and a means of swelling their personal bank balance for the duration of their political tenure. But some do.
Unfortunately, even when caught red-handed, they often cannot bring themselves to admit that they have acted dishonestly. A lot of corruption cases flounder when the police are unable to prove the dishonest intent to the criminal threshold. This is why I now find civil litigation so compelling in terms of asset recovery: it is important that the bad guys don’t get to keep their ill-gotten gains.
Massive companies such as Hitachi will view their actions as simple commercial navigation towards the sought after contract. Their perspective may be that if they hadn’t entered into this arrangement, then one of their competitors would. The UK brought in the Bribery Act in 2010 to try and combat such shenanigans, and to attempt to instil foreign confidence in the UK business community, in order to attract foreign investors
Herein lies the problem; for anti-corruption laws to work, everybody has to play by the same rules. If not, then the dishonest companies will ‘buy’ up the contracts, leaving those who are playing with a straight bat to lose out. In turn these lost contracts lead to job losses, and damage that country’s economy.
Corruption is a despicable crime – and the people of South Africa will rightly expect much more of their government before the country is dragged into another such scandal.
Martin Kenney is managing partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset retrieval practice focused on multi-jurisdictional fraud cases.
