Boston Firm Admits ‘Massive Failure’ in Plan to Help South Africa Tax Agency
CAPE TOWN &mdash The Boston consulting firm Bain and Organization, which typically gets leading dollar for its meticulously researched guidance, charged $11 million on a contract in 2015 to advise South Africa&rsquos tax agency on an ambitious restructuring plan.
Now, the firm has acknowledged that its function on a &ldquodiagnostic report&rdquo on the agency was shoddy. It did not meet with senior officials involved in the tax agency&rsquos modernization. It was ignorant of standard details about the institution. And it did not even ask why the agency necessary restructuring in the first location.
Bain admitted interviewing just 33 of the agency&rsquos employees &mdash which includes a single senior official for less than 15 minutes. All had been selected by the agency&rsquos leader, a compromised ally of Jacob Zuma, then the president, raising inquiries of undue influence.
In an even a lot more embarrassing turn, Bain admitted that it may possibly have been a pawn in local political wrangling created to help Mr. Zuma keep away from scrutiny into his own taxes. The tax agency was amongst a lot of government organizations gutted by corruption in the course of his presidency. Just before Mr. Zuma&rsquos intervention, the national tax office had been an extraordinary triumph and was regarded crucial to collecting income the government necessary to function at its most standard level.
&ldquoYou can see how we may possibly have been utilized,&rdquo Vittorio Massone, a managing partner at Bain South Africa, stated, adding that the firm&rsquos intention had been to increase South Africa&rsquos tax agency, &ldquonot to destroy it.&rdquo
&ldquoOur enterprise relies on good results stories,&rdquo Mr. Massone mentioned. &ldquoFor us, this is already a enormous failure.&rdquo
Bain stands accused of facilitating improper conduct by allies of Mr. Zuma. In component due to the fact of the firm&rsquos consulting operate, critics say, South Africa&rsquos tax agency, as soon as respected internationally for its fast advances since apartheid, lost hundreds of essential personnel and became an enfeebled institution, unable to pursue tax dodgers. In turn, the public has lost faith in an agency that now faces crippling tax shortfalls &mdash a lot more than $six billion in the previous two years alone.
This has spurred the government to raise the worth-added tax on items for the very first time since apartheid ended &mdash a move anticipated to disproportionately hurt poor men and women, the standard support base of the African National Congress.
The revelations came last week as element of a government inquiry into corruption at the tax agency beneath the administration of Mr. Zuma, who resigned as president in February. Attempting to make great on promises to tackle endemic corruption in the governing A.N.C., Mr. Zuma&rsquos successor, Cyril Ramaphosa, has also commissioned a wide-ranging inquiry into &ldquostate capture&rdquo &mdash a type of corruption in which private businesses manipulate official policy to their benefit.
The state capture inquiry, which is expected to final years, will allow South Africa to learn from the errors of the Zuma era, supporters say. But critics say the investigation, like a lot of other people in South Africa&rsquos post-apartheid history, is merely an A.N.C. distraction ahead of national elections subsequent year.
What ever the government&rsquos motives, the testimony from Bain officials provided an uncommon appear at corruption in South Africa in current years and the role played by globally prestigious businesses like Bain, KPMG and McKinsey.
In 2015, for instance, the consulting firm KPMG made a report repeating claims, later located to be false, that criminal investigators at the tax agency had been illegally operating a &ldquorogue unit.&rdquo These claims have been employed to justify purges of senior staff members. Gartner, yet another American consulting firm, received an $11 million contract to review the tax agency&rsquos info systems.
&ldquoThere is a complete set of conflicts of interest and unhealthy relationships among governments and companies willing to rubber stamp them,&rdquo said Alex Cobham, chief executive of the Tax Justice Network, a British organization.
&ldquoSometimes you&rsquore delivering cover for a choice that&rsquos currently been taken.&rdquo
Facing withering criticism of their conduct in South Africa, some consulting firms have provided to return their multimillion-dollar charges. But Bain indicated on Sunday that it had no plans to do so.
Testifying at the government inquiry on Thursday, Mr. Massone acknowledged that Bain &ldquomight have been used&rdquo by the tax agency&rsquos leader, Tom Moyane, a longtime Zuma ally who was embroiled in a fierce political fight to seize control of the agency and purge veteran civil servants.
But critics say that Bain was a prepared participant, handing Mr. Moyane the suggestions, and political cover, that he necessary.
&ldquoAt the very least, Bain seems guilty of seeing a cash cow, milking it for all it was worth and charging an huge sum of cash,&rdquo stated David Lewis, the executive director of Corruption Watch, a nonprofit organization primarily based in Johannesburg. &ldquoAt worst, they knew specifically what they were undertaking and what they had to produce.&rdquo
Marlynie Moodly, a spokeswoman for Bain, rejected accusations of complicity but acknowledged that &ldquoin hindsight, there were warning signs that we must have flagged earlier and escalated accordingly.&rdquo
&ldquoIn our eagerness, we had been blind to the prospective of person agendas that might have been at play,&rdquo she added in an e-mail.
Acting on Bain&rsquos suggestions, the agency closed a huge enterprise center formed to increase tax compliance by South Africa&rsquos wealthiest firms. Bain&rsquos recommendations also affected other units important to the agency&rsquos operation, current and former employees stated.
Sunita Manik, the former head of the business center, said in a phone interview that Bain&rsquos suggestions had a devastating effect on the tax agency.
&ldquoWhen you nurture something and you create one thing, it tends to make you heartsore to see it broken,&rdquo said Ms. Manik, who worked at the tax agency for 23 years.
Mr. Ramaphosa&rsquos pledge to root out corruption has been difficult by factional splits in his celebration, and he depends on tainted senior officials for political support. Yet, with national elections looming subsequent year, it is vital that the president be seen as taking action to fight mismanagement: The A.N.C. has been hemorrhaging votes in current years, a decline analysts attribute to the governing elite&rsquos brazen self-enrichment.
Possibly nowhere have the effects been felt a lot more keenly than at the tax agency, which just a handful of years ago was praised by the International Monetary Fund and the Internal Revenue Service.
That abruptly changed in 2014, when Mr. Zuma replaced the national tax commissioner with Mr. Moyane, allegedly to safeguard himself and his allies from scrutiny. Mr. Moyane &mdash who had no expertise in tax affairs and was previously in charge of the nation&rsquos prisons &mdash right away started a purge of the agency, disbanding crucial units and precipitating the departure of much more than 1,000 technical workers.
Mr. Massone suggested in his testimony final week that Bain had started a connection with Mr. Moyane even just before he joined the tax agency. In 2013, although he oversaw the prisons, Mr. Moyane approached Bain for free tips, Mr. Massone stated, adding, &ldquoHis ambition was to turn out to be the commissioner.&rdquo
Bain later won the contract to provide a report on restructuring the tax agency, bidding much less than $250,000 &mdash a discount of 50 % that the firm stated was designed to cultivate more business in South Africa. Without having starting a new tender method, the tax agency provided Bain a contract to commence the program.
The fee ballooned to more than $11 million &mdash an agreement that a leader in the inquiry described as &ldquohighly irregular.&rdquo
In Could, Mr. Ramaphosa suspended Mr. Moyane, who is now facing a disciplinary hearing. He has threatened to fight his dismissal in court, and could not be reached for comment.
Published at Sun, 02 Sep 2018 21:26:16 +0000