Cape Town threatens to scrap contracts over state capture report

Cape Town has threatened to scrap contracts with companies including EY, PwC, EOH Holdings Ltd. and Nedbank Group Ltd. after the firms were named in a judicial probe on alleged graft relating to business done with the national government.

In a letter to the companies, seen by Bloomberg, the city asked them to explain why the contracts should not be cancelled after they were mentioned in reports compiled by the Judicial Commission of Inquiry Into Allegations of State Capture.

The investigation probed corruption involving the government during former President Jacob Zuma’s administration that the state estimates cost the country R500 billion ($33 billion).

The City of Cape Town, which is run by the opposition Democratic Alliance “urgently requires your response to those” allegations, the letter said.

“On receipt of your response the city will consider whether or not it should” cancel the contract, it said.

The inquiry by a panel overseen by Acting Chief Justice Raymond Zondo is a key plank of President Cyril Ramaphosa’s plan to implement his pledge to crackdown on corruption.

Ramaphosa has until the end of June to respond to the panel’s findings and say what action will be taken.

EY, PwC and Nedbank denied malfeasance. News24, a website that reported on the letter earlier, said that it was also sent to companies, including a unit of Bidvest Group Ltd.

The city sent “letters seeking clarification from its current service providers whose names are mentioned in the said report,” Greg Wagner, media manager for the mayor’s office, said by email.

“It is incumbent on the city to carry out its own due diligences and reputational assessments.”

Company denials

The “letter from the City makes incorrect statements about EY in that the Zondo report makes no findings of any malfeasance and/or corruption on the part of EY,” the company said in a response to questions.

Nedbank said it was engaging with the city, and “no adverse findings” had been made against the bank.

The inquiry said that some transactions between Nedbank and the state-owned Airports Company South Africa were “disturbing.”

PwC said it’s considering whether to reply to the municipality.

Earlier, the company said it was “disappointed to be criticized in the report.”

The accountancy firm conducted audits for South African Airways, the national carrier that went bankrupt amid allegations of graft, between 2012 and 2016.

The lender worked on those transactions with Regiments Capital, a company linked to the Gupta family, whose members are alleged to have leveraged their relationship with Zuma to win deals with state companies.

The Guptas and Zuma have denied wrongdoing.

EOH has “exited” employees implicated in wrongdoing and has made voluntary disclosures to the commission and law enforcement agencies and believes “that EOH’s contracts with the City of Cape Town should not be at risk,” Fatima Newman, group chief risk officer at the company, said by email.

KPMG, McKinsey

Bidvest didn’t respond to requests for comment.

KPMG and McKinsey & Co. saw their South African units lose business after they were linked to questionable contracts or practices with state companies and bodies. Both companies apologised and returned money.


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Cape Town threatens to scrap contracts over state capture report