Consultants and economic service providers
Like Russian dolls, business consultants and economic service providers (ESPs) are found within financial and other business transactions, themselves part of larger corporate capture schemes. While they might be the smallest “doll” of the bunch and hidden within, these influential insiders have unique access and vast resources to be able to move the machinery of corporate capture forward. These accountants, bankers, consultants, and lawyers operate at the center of the global financial system.
The role of ESPs in South Africa’s experience with State capture is noteworthy. In their chapter “How professionals enabled state capture” from the book State capture in South Africa. How and why it happened, the authors Cherese Thakur and Devi Pillay adeptly explain how ESPs deployed capture upon the State.
At the outset, State capture requires the involvement of individuals with specific attributes, such as skills, knowledge, and a presumed level of integrity. Professional facilitators, including lawyers, auditors, and consultants, play a significant role in this process.In South Africa, the “Big Four” auditing companies — KPMG, PricewaterhouseCoopers (PwC), Deloitte, and Ernst & Young — were all involved. “The state capture saga has made clear just how intimately involved private companies are with the core work of the state. (…) Evidence before the Zondo Commission has shown that state-owned entities time and again have paid millions for unnecessary advisory services — services for which there was sufficient internal expertise and capacity.”
The most prominent legal services company involved in unethical activities was Hogan Lovells, which issued a report for theSouth African Revenue Service(SARS) to clear the name of Jonas Makwakwa, the former head of business and individual taxes at SARS, who was accused of money laundering, and reinstate him to his position. McKinsey & Company,a consulting firm, was implicated in misconduct regarding contracts signed with the State-owned enterprises (SOEs) EskomandTransnet,both linked to theGupta family.In the financial sector,Nedbank,HSBC,andBank of Barodawere accused of not detecting suspicious transactions related to State capture and their potential direct involvement in fraud and money laundering.
According to David Lewis from Corruption Watch, “The middlemen were influencing policies, but the whole thrust of the issue was facilitated by McKinsey, Bain, and other consulting firms that were very effective in furthering State capture by legitimizing it. Consulting groups and the creation of intermediaries is a common form of State capture. Although we had reduced the State capture, the problem had proven difficult to overcome. They had people at all levels of government.”
The Zondo Commission did not look at the role of banks in facilitating transactions nor at the consulting firms involved.There were no criminal consequences for banks or other ESPs.
Economic service providers are not a challenge unique to South Africa. There are several instances of how ESPs have infiltrated the State and facilitated capture worldwide. The European Union, for example, is no exception.
“The European Commission has hired consultants who work for some of the biggest monopolies in the world to evaluate its merger enforcement policies. Enquiries made by Corporate Europe Observatory and LobbyControl show that the European Commission has barely explored if there is a conflict of interest in such an appointment, ignoring the EU Ombudsman’s recommendations. (...)
This is not a new phenomenon. For many years the European Commission has hired consultancy firms to undertake investigations and analysis in policy areas that they have a direct or indirect financial stake in. Just a few years ago, the Commission hired BlackRock, the biggest asset manager in the world, which has major investments in fossil fuel companies, to advise on policies on sustainable investments. This prompted the European Ombudsman to demand a revision of the Commission’s conflict of interests rules when issuing tenders. Our research shows however that the European Commission has not amended its internal procedures.”