German-based software giant SAP has announced it will initiate disciplinary action against three of the four members of its South African executive team who were placed on administrative leave earlier this year.
This following allegations in July that the South African subsidiary of the international company paid a Gupta front R100 million in "kickbacks" for it to access lucrative state contracts.
The company refused at the time and still has not explicitly named the four employees involved, who were placed on administrative leave at the beginning of the investigation.
SAP appointed Claas Kuehnemann as acting MD for Africa, while the investigation takes place, and an interim management team.
So far, the investigation has not revealed any evidence of a payment to a South African government official, including Transnet and Eskom employees. It has, however, uncovered indications of misconduct in issues relating to the management of Gupta-related third parties.
To this end, SAP has instituted formal disciplinary proceedings, in accordance with South African labour law, against three employees. The company says it has been clear from the outset that it will not tolerate misconduct or wrongdoing.
The investigation also found the fourth employee placed on administrative leave had no material involvement with Gupta-related parties. This employee will return to work.
"As a global company with a commitment to integrity and compliance, the past three months have been humbling for us," says Adaire Fox-Martin, member of the executive board of SAP SE, who leads SAP's business in Europe, the Middle East, Africa and Greater China.
"The allegations of wrongdoing in our South African business have had a profound impact on our employees, customers and partners, and on the South African public - and we apologise wholeheartedly for this."
Fox-Martin said SAP had initiated its voluntary disclosure on 13 July 2017, and that SAP has committed to full and complete cooperation with the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC). She confirmed the investigation continues: "We cannot emphasise enough how seriously the SAP executive board takes these allegations, or how committed we are to managing this process in a transparent, ethical and responsible way."
In light of what happened here, the SAP executive board has decided to eliminate sales commissions on all public sector deals in countries with a Corruption Perceptions Index (according to Transparency International) below 50, effective immediately. South Africa's rating is 45.
The SAP executive board has initiated, on a global basis, extensive additional controls and due diligence into relationships with sales agents and value-added resellers, including additional audit functions.
SAP will also allocate additional legal compliance staff to the SAP Africa market unit. They will be based in South Africa and report into SAP's Global Compliance organisation. SAP will further strengthen its Compliance Committee in the SAP Africa region, consisting of local management, compliance and other corporate functions, to ensure individual deal sanity and integrity, and promote compliance generally.
The company says it still intends to release complete findings of the Baker McKenzie investigation once it is completed, as it promised in July.
Baker McKenzie initially focused its investigation on SAP's contracts with Transnet and Eskom, and this part of the investigation will conclude by the end of 2017. Following a data analytics search of 8.4 million documents, the law firm has completed a first-level review of 131 609 documents, and a second level review of 52 985 documents.
The firm has conducted numerous interviews. SAP has also invoked its third-party audit rights with entities understood to be Gupta-related - and these audits are in the early stages. Baker McKenzie has been contracted by SAP to continue to investigate the public-sector business in South Africa going back to 2010.
To date, the investigation has determined that, between December 2014 and November 2016, SAP concluded two contracts for the sale of software to Transnet and two contracts for the sale of software to Eskom, each with the assistance of an entity currently understood to have been Gupta-related.
In connection with these four contracts, SAP provided software and received revenue totalling approximately R660 million, and paid commissions to entities currently understood to be Gupta-related totalling approximately R94 million. The amounts actually paid to the third parties totalled approximately R107 million because, by contract, each commission payment included an amount of VAT for taxes due on the receipt of the funds.
In December 2016 and June 2017, SAP concluded two additional contracts to provide software and services to Eskom with the assistance of an entity currently understood to have been Gupta-related. No revenue has been received or commissions paid in connection therewith.
After SAP's initial voluntary disclosure, Baker McKenzie has spoken on SAP's behalf with prosecutors at both the DOJ and SEC, and has started the process of sharing documents and information.
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