Guest Post: Will the Biden Administration Help South Africa Escape Capture?

Today’s Guest Post is by Nicole Fritz, a South African public interest lawyer and executive director the Helen Suzman Foundation, a non-partisan think-tank dedicated to promoting liberal, democratic values and human rights in post-apartheid South Africa.

President Biden’s meeting Friday with South African President Cyril Ramaphosa offers a prime opportunity to show the Administration is serious about its new global anticorruption policy. Issued last December, the Administration promises a raft of new initiatives to not only crackdown on corruption at home but to help democratic, reform-minded regimes root out corruption that they cannot do on their own. President Ramaphosa’s government qualifies on all counts. Where it could best use assistance is in unraveling an American company’s role in the efforts of Ramaphosa’s predecessor, Jacob Zuma, to rob the country blind. 

During his nine-year rule, Zuma sought to “capture the state,” to remake South Africa’s fledgling young democratic government into a machine to enrich himself, his family, and his friends. No sooner did he take office in 2009 then he began stacking key government-owned enterprises with cronies and accomplices and purging the public service of professional, independently-minded civil servants.  He was finally forced from office after widespread public protest and coordinated efforts of civil society, those few remaining independent state agencies, and reformers within his own party.

In one of his last desperate bids to quell discontent and remain in office, Zuma established the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector. That Commission has defined the Ramaphosa presidency and the Commission’s several-thousand-page report, completed in June, reveals in astonishing detail just how far Zuma and accomplices extended their reach into the inner-workings of the government in pursuit of personal riches.

An especially damning chapter (here) recounts the role of the Boston management consulting firm Bain & Company in the state capture scheme.

The company is alleged to have bought its way into Zuma’s inner-circle by paying large “consulting fees” to a mysterious company with close ties to him. To cozy up to the then president, it furnished Zuma plans for “reorganizing” the government, what critics say was in fact a way for him to wield unchecked power over key government agencies. What Bain apparently got in return was a $9.5 million fee to “restructure” the country’s tax agency, which as implemented gave agency leaders control over who had to pay, and more importantly, who did not have to pay their taxes.

Before Bain laid hands on it, the South African Revenue Service, or SARS, was Africa’s most highly regarded tax agency. Not only was its ability to ensure compliance with the tax law the envy of other African states, its expertise in combatting financial crime, the Commission explained, “presented a hurdle. . . to organized crime and was therefore a target for those engaged in state capture.” Bain’s restructuring plan not only hobbled the agency’s ability to collect taxes but paved the way for Zuma and allies to capture the state. As the plan went into effect, tax revenues fell, its elite investigative units dismantled, and 200 plus senior tax experts let go.  

When Bain’s wrongdoing was exposed, it apologized to South Africans, refunding the $9.5 million fee and admitting its involvement had “inflicted serious damage on SARS” (updated letter here). But it disclaimed any liability for the resulting damage to citizens or the government, claiming it had been “an unwitting participant” in the scheme.

The State Capture Commission Report found it was anything but. Its evidence shows Bain cooked up the SARS restructuring plan with a Zuma crony to “neutralize” the agency after which Zuma signed off on it plan and appointed the crony to head the agency. That crony then violated any number of procurement laws to get Bain hired to execute it.

President Ramaphosa faces many obstacles in holding Zuma and accomplices to account for the harm wreaked on South Africans and their government. Even before Bain appeared on the scene, Zuma went about weakening the Directorate for Priority Crime Investigation, the elite unit responsible for high-level corruption crimes by elevating loyalty to him over merit. Eleven years of patronage hiring have left the agency bereft of staff with the expertise needed to investigate the likes of a Bain. South Africa’s National Prosecution Authority was similarly targeted. And thanks to Bain’s own handiwork, SARS, the only other place in government where staff with the capacity to run such an investigation might have been found, has lost its seasoned financial crime investigators.

The evidence on the public record suggests Bain violated not only numerous South African laws but the Foreign Corrupt Practices Act, the U.S. law against bribing officials of a foreign government. In its global anticorruption policy, the Administration pledges “where appropriate,” to partner with countries in joint investigations and prosecutions” to help them build local enforcement agencies capacity.

What could be more “appropriate” than a partnership with South African authorities to investigate holding Bain accountable for the damage it has wreaked on South Africa’s government and its citizens under both U.S. and South African law? It would not only demonstrate to the rest of Africa and indeed the world that the Administration means business when it says it is prepared to help democratic, reform minded government fight corruption, but it would redress a terrible wrong an American company seems to have helped perpetrate.

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