How Not to Fight State Capture
Transnet and the SIU must do a U-turn on their outrageous settlement with Liebherr
by Open Secrets
First published in Business Live
In January this year, the Special Investigating Unit (SIU) and Transnet issued a joint statement. The statement confirmed that they had entered into a preliminary settlement agreement with the Swiss multinational firm Liebherr on the final day of 2022. The settlement is an outrage and lets a key corporate participant and beneficiary from state capture off the hook. It must be rejected.
Liebherr was one of the companies that benefited from the extraordinary corruption at Transnet at the height of the Gupta-led State Capture period. Liebherr’s South African subsidiary was awarded a contract to supply 18 rubber gantry cranes to Transnet at a cost of R841m in 2014. The value of an earlier contract, awarded in 2013, has not been made public.
The #Guptaleaks revealed that Liebherr won its business with Transnet with the assistance of the Guptas, which Liebherr belatedly admitted. The #Guptaleaks showed that Liebherr paid the Guptas’ Dubai based shell company, Accurate Investments, a total of $3,232,430.88 between July 2013 and May 2014. Evidence presented by civil society organisation Shadow World Investigations (SWI) at the Zondo Commission showed that a good deal of this money was ultimately laundered back into the accounts of Gupta companies in South Africa.
The Zondo Commission made damning findings on Liebherr and Accurate Investments. It confirmed that ‘the Gupta-leaks and Dubai ledgers in particular show that Accurate Investments was beneficially owned and controlled by the Gupta enterprise, and its function was to act primarily as a vehicle through which kickbacks could be laundered.’ The Commission additionally found that ‘it is difficult to conceive of any legitimate payments that could have been made by Liebherr to a “sales agent” in respect of a cranes contract that ought to have been awarded by a fair, competitive and transparent process.’
“It is difficult to conceive of any legitimate payments that could have been made by Liebherr to a ‘sales agent’ in respect of a cranes contract that ought to have been awarded by a fair, competitive and transparent process“
Commission of inquiry into state capture
The Commission concluded that, despite being made aware of the allegations, Liebherr failed to answer them before the Commission: ‘If there was any legitimate reason for these payments to Accurate Investments as a “sales agent”, Liebherr could have been expected to place evidence before the Commission but it declined to do so.’
According to the joint Transnet-SIU press statement, Liebherr will pay a fine of R54m in settlement of any claim against Liebherr by both parties. This is equal to the amount that Liebherr paid Accurate Investments. The Transnet-SIU press statement claimed that despite all parties agreeing that the award of the contract was irregular, ‘the SIU did not find that the payments [to Accurate] were corrupt or fraudulent.’ The settlement still has to gain the consent of either the High Court or Special Tribunal.
Frankly, this settlement is an outrage, for a number of reasons.
First, the amount to be paid by Liebherr is a joke. Liebherr is an enormous Swiss multinational company owned by a super-rich family in Switzerland. Its annual turnover last year was over €11.5 billion (R222 billion). The settlement Liebherr is paying in South Africa is equal to approximately €2.8 million – a handful of coins thrown at the South African public like an insult. Liebherr no doubt spends more money annually on fancy loo paper at its lush Swiss headquarters.
Second, the amount paid by Liebherr is so small that not only will it not be a deterrent, but the company also will likely still end up making a profit on its dodgy contracts. Indeed, the Transnet-SIU statement confirms that the Liebherr cranes will continue to be operated by Transnet. The result is that, over the life-time of the cranes, Transnet will pay Liebherr substantial sums to maintain and service them. So, Liebherr can still expect to make a profit on a deal they got by paying off the Guptas.
Third, it is deeply disturbing that the SIU and Transnet are saying that, despite the contracts being irregular, it found no corruption. Clearly, considering the Zondo Commission findings, neither the SIU nor Transnet could have tried particularly hard to find it.
Why would the SIU and Transnet choose to ignore #Guptaleaks evidence that emerged at the Zondo Commission? This evidence showed that confidential Transnet procurement documents related to the contracts won by Liebherr were being shared and distributed by the Gupta enterprise. One confidential internal memo was even shared with an employee of the Indian money laundering group that the Guptas used to launder billions of rands in kickbacks on the 95, 100 and 1064 locomotive contracts at Transnet.
It is an insult to South Africans to tell us that Liebherr have now admitted “irregularities”, paid Transnet the exact amount they paid the Guptas, and yet continue to maintain their innocence and will continue to benefit from the contract. It is a farce.
Fourth, Liebherr has not shown an ounce of contrition for its behaviour. In response to the allegations from the #Guptaleaks, Liebherr put out a press statement in 2017 claiming it had conducted an internal investigation and found the payments to Accurate to be ‘legally sound.’ So why is it paying back the money now?
In 2020, in response to a query from SWI, Liebherr loftily explained that it had already investigated itself, cleared itself of wrongdoing, and that, as a result, ‘we consider the case to be concluded for us. We’d ask for your understanding in this regard.’ Even the normally sober Judge Zondo chuckled when this statement was read out to him.
WHAT IT MEANS:
The R54m settlement with Liebherr may send the message to multinationals operating in South Africa that questionable dealings can pay off
Fifth, this statement could have a material impact on criminal investigations into Liebherr in South Africa and abroad. If the NPA now wants to investigate and bring charges, it will have to explain to a court why it came to such a different conclusion to the SIU. But most importantly, Liebherr can now present this half-baked and ill-considered statement to law enforcement in Switzerland and other jurisdictions to halt investigations there.
This last fact is extremely important. The only thing that Liebherr will truly fear is a criminal investigation and conviction for corruption in South Africa or Switzerland. Liebherr have repeatedly stated that they employ ‘sales agents’ like Accurate Investments around the world. If their offices were raided in Switzerland, how many other questionable payments would be found that mirrors their engagement with the Gupta enterprise?
And if they were convicted, Liebherr could face debarment from contracts in the EU and other countries. This could cost Liebherr tens of billions of euros. Arguably, considering their conduct, this is exactly the sort of punishment that Liebherr deserves – and fears the most.
Finally, this sort of settlement is not just a snub in the face of South Africans: it sends a powerful message to the many multinational companies operating in South Africa that paying bribes works. Moreover, it confirms that, even if these multinationals are caught, they can simply negotiate a sweetheart deal that avoids accountability, kills investigations abroad, and guarantees long-term excessive profits.
Transnet and the SIU still have to go to High Court or Special Tribunal to get this deal officially approved. They must not do so, and instead should scrap this capitulation. However, if they decide to continue down this path, any settlement must achieve two things, at a minimum.
First, the settlement must ensure that Liebherr cannot make anything approaching a profit on its contracts in the long-term, or even be allowed to break even. Indeed, it is more appropriate for Liebherr to pay a substantive fine that properly quantifies the horrific damage caused to South Africa’s social, political and economic fabric through its indulgence of the Guptas. Money cannot undo social damage – but it is a start.
Second, the settlement must also withdraw any claims about not finding corruption or fraud – this is simply a get-out-of-jail free card that protects Liebherr from criminal sanction, and a statement that the SIU and Transnet must know cannot stand up to any real scrutiny. Corporations like Liebherr are not the publics allies in stopping state capture – they are the architects of corruption and will happily continue to make corrupt unless we stop them.
South Africans must send a clear message to multinational companies around the world: you can no longer bribe your way to contracts, enable corrupt political elites, kill off domestic competitors and destroy our institutions. You will be rewarded for such crimes with meaningful accountability and prosecution.
We’ll make sure you get away with it.
