Tech Firm SAP Paid Millions to Gupta-linked Firms

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Adaire Fox-Martin, member of the Executive Board of SAP SE, who leads SAP’s business in Middle and Eastern Europe (MEE), Europe, the Middle East, and Africa (EMEA), and Greater China
Adaire Fox-Martin, member of the Executive Board of SAP SE, who leads SAP’s business in Middle and Eastern Europe (MEE), Europe, the Middle East, and Africa (EMEA), and Greater China

SAP, German-based software giant, said on Thursday that investigation into its dealings with the Guptas found that payments were made to Gupta-linked companies.

The investigation concluded that about R128.6 million were paid to businesses linked to the Gupta-linked firms to win contacts with state owned enties in South Africa.

In July 2017, SAP contracted Baker McKenzie to conduct an investigation into its public sector contracts in South Africa.

Since the investigation began, the law firm has conducted a data analytics search of over 29.6 million documents, followed by a first level review of 202,599 documents, and a second level review of 64,786 documents.

It also conducted numerous interviews of SAP employees, former employees and external third parties.

Baker McKenzie has finalized its investigation of SAP’s business interactions with Gupta-related entities in connection with Transnet and Eskom.

To date, the investigation has found no evidence of any payment to any government official or to any employee of an SOE, including any employee of Transnet or Eskom. However, the investigation has uncovered indications of misconduct in issues relating to the management of Gupta-related third parties.

The findings of the investigation have led SAP’s executive board to institute significant changes to its global compliance processes. These include:

Eliminating, effective immediately, all sales commissions on all public sector deals in countries with a Corruption Perceptions Index (according to Transparency International) below 50, which includes South Africa since it has a rating of 45;

Initiating on a global basis extensive additional controls and due diligence into relationships with sales agents and value-added resellers, including additional audit functions;

Allocating to the SAP South Africa market unit additional legal compliance staff who are based in South Africa; and

Strengthening SAP’s Compliance Committee in the SAP Africa region.

SAP logo
SAP logo (Photo Credit: www.shutterstock.com)

The contracts in question:

In December 2014, SAP concluded a contract for the sale of software to Transnet with GSS serving as a sales commission agent. SAP provided software and received revenue in the amount of approximately ZAR 65 million (approximately USD 5.6 million), and paid a commission to GSS in the amount of approximately ZAR 6.5 million (approximately USD 535,000). Including VAT, SAP paid the third party approximately ZAR 7.4 million (approximately USD 607,000). This represents a 10% commission.

In September 2015, SAP concluded a contract for the sale of software to Transnet. CAD House acted as a sales commission agent. SAP provided software and received revenue in the amount of approximately ZAR 100 million (approximately $7.25 million), and paid a commission to CAD House in the amount of approximately R14.9 million (approximately $1 million). Including VAT, SAP paid the third party approximately R17 million (approximately $1.13 million). This represents a 14.9% commission.

In March 2016, SAP concluded a contract for the sale of software to Eskom with CAD House acting as a sales commission agent. SAP provided software and received revenue in the amount of approximately ZAR 61.5 million (approximately $4.2 million), and paid a commission to CAD House in the amount of approximately R7.6 million (approximately $518,000). Including VAT, SAP paid the third party approximately R8.6 million (approximately $592,000). This represents a 14.9% commission.

In November 2016, SAP concluded a contract for the sale of software and services to Eskom with CAD House acting as a sales commission agent. SAP provided software and services and received revenue in the amount of approximately R434 million (approximately $30.75 million), and paid a commission to CAD House in the amount of approximately R64.6 million (approximately $4.7 million). Including VAT, SAP paid the third party approximately R73.7 million (approximately $5.3 million). This represents a 14.9% commission.
The R434 million paid by Eskom to SAP included an allocation for consulting services to be provided in the future. In March 2017, SAP concluded a subcontract with Lejara Global Solutions, a Gupta-related entity, to assist SAP in providing these services to Eskom.  In June 2017, SAP paid Lejara Global Solutions approximately R19.1 million (approximately $1.49 million), which including VAT totaled R21.9 million (approximately $1.7 million). The subcontract between SAP and Lejara Global Solutions called for SAP to pay Lejara approximately R17.7 million (approximately $1.36 million) at the conclusion of the consulting project, which was finished in late July 2017.  However, SAP declined to make any additional payments to the subcontractor. The investigation confirmed that SAP provided the full deliverables to Eskom as promised.

In December 2016, SAP concluded a contract for the sale of cloud services to Eskom with CAD House acting as a sales commission agent. The value of the contract was approximately R21 million (approximately $1.5 million). Eskom has not made any payment on this contract, and SAP has not paid any commission to CAD House.

In June 2017, SAP concluded a contract for the sale of software to Eskom with CAD House acting as a sales commission agent. The value of the contract was approximately R42.15 million (approximately $3.3 million). Eskom has not made any payment on this contract, and SAP has not paid any commission to CAD House.

Additional actions:

On 8 November 2017, SAP notified the National Head of the Directorate for Priority Crime Investigation (the Hawks) of SAP’s willingness to cooperate with any investigation they might undertake.

SAP continues to cooperate with the investigations being conducted by the US Department of Justice (DoJ) and the US Securities and Exchange Commission (SEC).  These investigations came as a result of SAP’s voluntary disclosure on 13 July 2017.  Baker McKenzie is in regular communication with these authorities on SAP’s behalf, and has provided more than 100,000 pages of documents to the authorities.  SAP has committed to full cooperation with the DOJ and SEC.

On 30 November 2017, the Companies and Intellectual Property Commission (“CIPC”) notified SAP that it had laid charges with the South African Police Service for SAP’s alleged contravention of section 214(1)(c) of the Companies Act of 2008 and section 12(1)(b)(i)(a) of the Prevention and Combating of Corrupt Activities Act of 2004.  SAP has advised the investigating officer that the company is willing to cooperate with any investigation they might undertake.

 

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