December 10, 2024 – McKinsey Africa, a subsidiary of the global management consulting firm McKinsey & Company, has been charged with violations of the Foreign Corrupt Practices Act (FCPA), following allegations that it orchestrated a bribery scheme aimed at securing multimillion-dollar consulting contracts in South Africa. According to court documents, from 2012 through 2016, McKinsey Africa and a senior consultant, conspired with South African officials and intermediary companies to bribe government officials in exchange for lucrative business from state-owned enterprises Transnet and Eskom.
The Bribery Scheme Uncovered
The scheme reportedly began in 2012, when McKinsey Africa sought to secure consulting contracts with Transnet, a South African state-owned freight logistics company. At the heart of the bribery operation was a board member at Transnet, who, according to the charges, was enlisted by McKinsey Africa to help influence the awarding of contracts.
Vikas Sagar, a senior McKinsey Africa Partner, allegedly facilitated meetings between the foreign official and a South African business that McKinsey Africa chose as its partner under the Broad-based Black Economic Empowerment (BEE) program. In accordance with BEE regulations, McKinsey Africa was required to partner with local companies for government contracts. However, in exchange for assistance in securing these contracts, Sagar and others involved in the scheme agreed to pay bribes to the foreign official who acted as a conduit for confidential information.
The bribery operation continued over several years, with McKinsey Africa allegedly receiving inside information about competitors for Transnet contracts, and securing multiple consulting engagements without a competitive bidding process. In one notable example, McKinsey Africa allegedly obtained information regarding the award of a contract related to Transnet’s acquisition of locomotives, which it used to gain an unfair advantage over its competitors. Throughout this period, McKinsey Africa reportedly submitted proposals for large consulting contracts, knowing that a significant portion of the consulting fees would be diverted to the foreign official and others involved in the scheme.
Expansion of the Scheme to Eskom
In 2015, as several former Transnet executives transitioned to leadership positions at Eskom, another state-owned enterprise responsible for South Africa’s electricity supply, McKinsey Africa sought to expand its operations there. The charges suggest that McKinsey Africa continued its bribery scheme at Eskom with the help of a new South African company spun off by one of the intermediaries.
Once again, Sagar worked to arrange a fee split agreement, reportedly 50/50, for consulting work between McKinsey Africa and its new BEE partner. This scheme was purportedly intended to ensure that McKinsey Africa’s contracts were awarded without competition and that bribes continued to flow to Eskom’s officials.
Evidence presented in court documents reveals that McKinsey Africa’s involvement with Eskom mirrored its previous operations with Transnet. In particular, Sagar allegedly received confidential internal documents and email communications, including a detailed breakdown of projected fees from Eskom projects, which he shared with companies. The bribes, according to the charges, were intended to secure contracts and ensure that McKinsey Africa would continue to receive business from Eskom, despite failing to complete the requisite due diligence on its BEE partner.
In December 2015, Eskom awarded McKinsey Africa a high-value contract, which was later marred by allegations of corruption, leading to the eventual termination of the partnership in 2016. Despite this, McKinsey Africa continued to work with the company involved on certain Eskom projects, even as suspicions around the partnership grew.
Financial Impact and Investigations
Through these schemes, McKinsey Africa and its partners are estimated to have earned approximately $85 million in profits. To cover up their activities, Sagar and his co-conspirators reportedly avoided written communications and met in private locations to discuss sensitive business matters. Evidence collected during the investigation includes email exchanges, personal communications, and potentially testimony from insiders who witnessed the mechanisms of the bribery operation.
Legal and Business Implications
The charges against McKinsey Africa have been settled with an agreement that McKinsey Africa will pay pay over $122 million in fines, disgorgement and pre-judgement interest. The Justice Department reached this resolution with McKinsey Africa based on a number of factors, including, among others, the nature and seriousness of the offense. McKinsey Africa received credit for its cooperation with the department’s investigation which is reflected by a 35% reduction in the recommended fine.
