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- A former executive says he warned SAP that commissions paid to “business development partners” could be corruption.
- Despite allegedly receiving five warnings over five years, SAP refused to end the practice.
- The former executive claims that SAP threatened to bankrupt him if he fought his dismissal.
The global software giant SAP was warned five times over five years that paying commissions to help secure public sector contracts in South Africa was an invitation to corruption.
But for the most part, these warnings were ignored, former SAP Africa CFO Deena Pillay told the Special Investigation Unit (SIU).
Pillay is one of three executives who resigned from SAP after our #GuptaLeaks investigations revealed that SAP had paid more than R100 million in commissions to Gupta-controlled companies to help secure software deals at Transnet and Eskom.
So far, Pillay has declined to speak about her role in the scandal. But in July, the SIU and the water and sanitation department brought a civil case against SAP to the Special Court, the court created to expedite state capture cases. Included was a 20-page Pillay affidavit and nearly 200 pages of internal emails and SAP documents.
The SIU and the department want SAP to reimburse R413 million for software licenses that they allege the department improperly acquired and were never used.
Pillay claims in her affidavit that she became concerned about the practice of paying commissions to “business development partners” shortly after joining SAP in 2012. Business development partners are outside companies that are rewarded with commissions for bringing new business to SAP or for being what SAP documents are described as the “effective cause” of concluding new contracts.
Pillay told the SIU that he brought his concerns to a senior executive in SAP’s Europe, Middle East and Africa (EMEA) region.
“[H]He said that if he knew that money is paid as a bribe, we should not use [business development partners]. I told him that I would never know if bribes were being paid and that all I could do was trust [business development partner] signature of an anti-corruption questionnaire ”and rudimentary due diligence reports.
Pillay said she raised her concerns again in 2013 at a conference in Germany, but was told by a senior member of SAP’s global compliance team that the practice of paying business development partners was “global policy.”
Pillay told the SIU that by 2016 “SAP Africa had the highest cost in the world for the use of [business development partners]. “He claims he reached out to Peter David, SAP’s new chief financial officer for the EMEA region, to warn him that commissions paid to business development partners were getting out of hand.
“Said [David] that all public sector agreements were concluded with a [business development partner] and that the cost was affecting both the local subsidiary and EMEA’s spending budget. “
At the time, SAP had just agreed to pay 29.8% of the water department’s software deal to two business development partners. This would have amounted to R134 million in commission in a single operation, although ultimately only R86 million were paid.
“He suggested that we limit the percentage that is paid, it did not resolve my concern about whether bribes were being paid. Therefore, I asked him to discuss the matter with [SAP global chief financial officer] Luka Mucic … to request the cancellation of this program … but there was no feedback whatsoever to this request, ”Pillay states in her affidavit.
It was only after the allegations were first made in February 2017 that SAP paid bribes to secure the deal with the water department that Pillay had the opportunity to speak with Mucic at another conference in Germany. “I raised my concerns with him one more time… and asked if SAP was still going to continue with the program. His answer was, yes, applied correctly it could add value. “
Three months later, the #GuptaLeaks scandal broke out, exposing evidence that SAP had paid more than 100 million rand in “commissions” that looked like bribes to the Gupta-controlled front companies for helping to secure contracts at Transnet and Eskom.
Pillay, whose signature was on some of the commission’s agreements, was suspended along with three other executives. While two of his teammates resigned, Pillay struggled to keep his job.
In his affidavit to the SIU, he alleges that, on the day of his disciplinary hearing in February 2018, he was harassed by a senior SAP executive. “He said [me] that if I continue to defend the matter, even if I were successful in defending myself, SAP would contest the outcome and prolong the process until I was financially bankrupt.
“I could never compete with the resources of a multinational giant like SAP, I gave in to the threat and quit.”
How deep does the rot go?
However, Pillay cannot completely reformulate herself as a whistleblower; An email included in his affidavit shows that he motivated SAP to make advance payments to two business development partners ostensibly to secure the deal with the water department:
“Due to the size of the deal, the partners are requesting an advance of € 600,000 (€ 300,000 each) to cover the expenses they have already incurred. As a principle, we do not pay upfront commissions on [business development partner] led deals: As a result of this request, I have received an exception from the compliance team subject to their approval, “Pillay told David in a June 27, 2016 email marked” Confidential. “
“If you agree to this advance payment, tomorrow we will get the contract signed by the customer (DWS).”
David agreed, provided the department “irrevocably signed” the contract first.
Instead, Pillay’s goal in cooperating with the SIU appears to be to show that corruption is an ever-present risk considering how SAP did business around the world, and not, as SAP has suggested, an infringement of some rogue executives in South Africa.
Pillay declined to speak to us, but at this point, you have a backup of SAP’s own documents – the standard sales commission agreement has many clauses that ask new business development partners to promise not to participate in acts of corruption, but few explain which business development partners will do to earn their fees.
From the water contract we know that one of the tasks that SAP established was to “meet informally with the Minister” to sell the deal, although the ministers do not have a legitimate role in the procurement.
The then Minister Nomvula Mokonyane insists that these meetings did not take place, but the business development partner was paid 86 million rand nonetheless.
New business development partners were also required to undergo due diligence to ensure, according to the SAP manual, that they were “a duly registered / licensed legitimate business” and “not simply a shell company … recently created with the purpose of channeling payments ”.
While this approach seems prudent, it also raises the question: Did SAP expect corruption all the time because often the reason for paying millions to business development partners was otherwise very slim?
As SAP admitted in a leaked 2016 memo: “Fees are the highest risk method of engaging with partners in large part because the partner’s role in the deal is generally not transparent. The customer may not even know that the partner was involved, which would make it unlikely that the partner will provide legitimate value-added services. “
As a result, business development partners “could be completely hidden behind the scenes, without competitors or the end customer being involved in the deal. Therefore, this model is subject to abuse and is often at the center of corruption cases that you can read about around the world. “
But what SAP admits internally is different from what it is willing to say in the public domain.
SAP goes dark
In March 2018, SAP gathered a handful of South African journalists for a press conference and announced that its investigation had found “irregularities” and “question marks” in deals secured with the help of companies linked to Gupta.
“For us at SAP, this has been a deeply humiliating and humiliating process. There is no doubt that we have considered this an extremely serious incident in our business… We understand that many of our partners and customers have been disappointed and disappointed in SAP, ”said Adaire Fox-Martin, a member of the SAP global board, adding that SAP was “absolutely committed” to uncovering wrongdoing.
At this point, SAP had already self-reported possible violations of the Foreign Corrupt Practices Act to the US Department of Justice.
In an accompanying press release, the company said: “SAP has continued to investigate the public sector business in South Africa since 2010. If SAP identifies other issues of concern, it will address them with the same care and strength as Transnet and Eskom Investigations.”
When asked why SAP apparently had not investigated the water deal when the allegations first surfaced in February 2017, Chief Compliance Officer Philipp Klarmann said: “An audit was conducted … The audit [had] It wasn’t finished until July, and then the new story broke out. So [it] still under investigation … We gave priority to Transnet and Eskom, but we continued with water [investigation] as part of this general public sector review. “
During the press conference, Fox-Martin promised to provide a list of all commissions paid for public sector contracts as soon as the SAP investigation is complete, which SAP says should take about six months.
But when amaBhungane followed up in November 2018, SAP said the investigation was “still ongoing.”
In May 2019, we sent more detailed questions about the water treatment to SAP. But at this point, President Cyril Ramaphosa had signed a proclamation ordering the SIU to investigate the deal.
“SAP’s investigation related to the enforcement of all public sector contracts in the region, as of 2010, is still ongoing,” a SAP spokesperson told us, adding: “We recognize that the investigation is taking longer than anticipated. … SAP is unable to comment further, until government-led investigations are completed. “
Since then, both SAP’s local and global offices have refused to answer questions about the water treatment, instead recycling the same statement first provided in November 2018:
“SAP Africa will follow due process of law and will continue to cooperate with the South African and US authorities in their ongoing investigations. SAP remains committed to the highest standards of business ethics. Our policy is, and always will be, to carry out all the activities of the company in accordance with the letter and spirit of the applicable laws in the more than 180 countries in which we operate ”.
None of the current SAP employees that Pillay named in her affidavit responded to a request for comment sent through her employer. Instead, SAP issued a statement: “Our commitment is to continue to cooperate fully with the relevant authorities and their investigations. SAP cannot respond further until these government-led inquiries are completed. “
* The Beetles Center for Investigative Journalism, an independent non-profit organization, produced this story. Like? Bean AmaB supporter to help us do more. Register in our Newsletter to get more
