Software giant admits to 'indications of misconduct' in deals with Gupta entities

Multinational software company SAP is collaborating with American authorities responsible for enforcing the U.S. Foreign Corrupt Practices Act after being "humbled" by an investigation into its South African business.

"To date‚ the investigation has ... uncovered indications of misconduct in issues relating to the management of Gupta-related third parties‚" SAP said in a statement on Thursday.

Apart from its voluntary disclosure to US authorities‚ the company has announced it is removing commissions on public sector deals in higher-risk countries including South Africa‚ and has initiated disciplinary procedures against three employees. It is also beefing up its legal team in South Africa - with staff who will report to bosses abroad.

“As a global company with a commitment to integrity and compliance‚ the past three months have been humbling for us‚” Adaire Fox-Martin‚ member of the Executive Board of SAP SE‚ who leads SAP’s business in Middle and Eastern Europe‚ Europe‚ the Middle East‚ and Africa‚ and Greater China‚ said in the statement.

“The allegations of wrongdoing in our South African business have had a profound impact on our employees‚ customers and partners‚ and on the South African public — and we apologise wholeheartedly for this.”

Fox-Martin said SAP has committed to full and complete co-operation with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC).

A law firm contracted by the software giant‚ Baker McKenzie‚ initially focused its investigation on SAP’s contracts with Transnet and Eskom‚ SAP said.

"This part of the investigation will conclude by the end of 2017.

"SAP has also invoked its third-party audit rights with entities understood to be Gupta-related – and these audits are in the early stages."

The investigation has so far determined that:

• Between December 2014 and November 2016‚ SAP concluded two contracts for the sale of software to Transnet and two contracts for the sale of software to Eskom‚ each with the assistance of an entity currently understood to have been Gupta-related.
• In connection with these four contracts‚ SAP provided software and received revenue totaling approximately R660 million (approximately $48 million)‚ and paid commissions to entities currently understood to be Gupta-related totalling approximately R94 million (approximately $6.8 million).
• The amounts actually paid to the third parties totalled approximately R107 million (approximately $7.7 million) because‚ by contract‚ each commission payment included an amount of VAT for taxes due on the receipt of the funds.
• In December 2016 and June 2017‚ SAP concluded two additional contracts to provide software and services to Eskom with the assistance of an entity currently understood to have been Gupta-related. No revenue has been received or commissions paid in this instance.

Going forward‚ SAP said it has instituted formal disciplinary proceedings‚ in accordance with South African labour law‚ against three employees who were placed on administrative leave at the beginning of the investigation in the middle of this year. "SAP has been clear from the outset that it will not tolerate misconduct or wrongdoing."

The SAP Executive Board has also decided to eliminate sales commissions on all public sector deals in countries with a Corruption Perceptions Index (according to Transparency International) below 50‚ effective immediately. South Africa’s rating is 45.

In addition‚ SAP will allocate additional legal compliance staff to the SAP Africa market unit. They will be based in South Africa and report into SAP’s Global Compliance organisation.

Furthermore‚ SAP announced it would strengthen its Compliance Committee in the SAP Africa region‚ "consisting of local management‚ compliance and other corporate functions‚ to ensure individual deal sanity and integrity‚ and promote compliance generally".

“We cannot emphasize enough how seriously the SAP Executive Board takes these allegations‚ or how committed we are to managing this process in a transparent‚ ethical and responsible way‚” Fox-Martin said.

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