TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, September 6, 2018

NY Times: Bain Admits ‘Massive Failure’ In $11 Million Contract To Restructure South Africa's Tax Agency That Shielded Former President Zuma's Taxes From Scrutiny

Following up on my previous post, New York Times, Corruption Gutted South Africa’s Tax Agency. Now The Nation Is Paying The Price.:  New York Times, Boston Firm Admits ‘Massive Failure’ in Plan to Aid South Africa Tax Agency:

The Boston consulting firm Bain and Company, which usually gets top dollar for its meticulously researched advice, charged $11 million on a contract in 2015 to advise South Africa’s tax agency on an ambitious restructuring plan.

Now, the firm has acknowledged that its work on a “diagnostic report” on the agency had been shoddy. It did not meet with senior officials involved in the tax agency’s modernization. It was ignorant of basic facts about the institution. And it did not even ask why the agency needed restructuring in the first place.

Bain admitted interviewing just 33 of the agency’s employees — including one senior official for less than 15 minutes. All had been chosen by the agency’s leader, a compromised ally of Jacob Zuma, then the president, raising questions of undue influence.

In an even more embarrassing turn, Bain admitted that it might have been a pawn in local political wrangling designed to help Mr. Zuma avoid scrutiny into his own taxes. The tax agency was among many government organizations gutted by corruption during his presidency. Before Mr. Zuma’s intervention, the national tax office had been an extraordinary triumph and was considered critical to collecting money the government needed to function at its most basic level. ...

Bain stands accused of facilitating improper conduct by allies of Mr. Zuma. In part because of the firm’s consulting work, critics say, South Africa’s tax agency, once respected internationally for its rapid advances since apartheid, lost hundreds of key employees and became an enfeebled institution, unable to pursue tax dodgers. In turn, the public has lost faith in an agency that now faces crippling tax shortfalls — more than $6 billion in the past two years alone. ...

The revelations came last week as part of a government inquiry into corruption at the tax agency under the administration of Mr. Zuma, who resigned as president in February. Attempting to make good on promises to tackle endemic corruption in the governing African National Congress, Mr. Zuma’s successor, Cyril Ramaphosa, has also commissioned a wide-ranging inquiry into “state capture” — a form of corruption in which private businesses manipulate official policy to their advantage. ...

Whatever the government’s motives, the testimony from Bain officials provided an unusual look at corruption in South Africa in recent years and the role played by globally prestigious companies like Bain, KPMG and McKinsey. ...

Facing withering criticism of their conduct in South Africa, some consulting firms have offered to return their multimillion-dollar fees. But Bain indicated on Sunday that it had no plans to do so.

Testifying at the government inquiry on Thursday, Mr. Massone acknowledged that Bain “might have been used” by the tax agency’s leader, Tom Moyane, a longtime Zuma ally who was embroiled in a fierce political fight to seize control of the agency and purge veteran civil servants.

But critics say that Bain was a willing participant, handing Mr. Moyane the recommendations, and political cover, that he needed.

“At the very least, Bain seems guilty of seeing a cash cow, milking it for all it was worth and charging an enormous sum of money,” said David Lewis, the executive director of Corruption Watch, a nonprofit organization based in Johannesburg. “At worst, they knew exactly what they were doing and what they had to produce.”

https://taxprof.typepad.com/taxprof_blog/2018/09/ny-times-bain-admits-massive-failure-in-11-million-contract-to-restructure-south-africas-tax-agency--1.html

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Comments

From the industry that brought us Monitor Group and Libya...

Posted by: Unemployed Northeastern | Sep 6, 2018 3:03:13 PM

What, no snide shots at Romney?

Posted by: MM | Sep 10, 2018 8:17:51 PM

@MM,

Romney never led Bain & Company; Bain Capital was a spin-off. If I were going to take a snide shot at Romney on Taxprof, I would, say, note his unwillingness to release his tax return for the year that UBS gave up all of its American accounts in a tax evasion case, or how his *blind trust* was run by his personal attorney and friend of three decades and invested heavily in his son's fledgling hedge fund.

Posted by: Unemployed Northeastern | Sep 12, 2018 9:19:27 AM

Unemployed: "If I were going to take a snide shot at Romney on Taxprof, I would, say, note his unwillingness to release his tax return."

You're right, that is snide. No one has an obligation to release his of her tax returns. IRS regulations guarantee a right to privacy.

Posted by: MM | Sep 13, 2018 1:15:10 PM

And of course your initial mention of Romney was a red herring; my first post was just a nod to the well known deficit of ethics among management consulting companies.

Posted by: Unemployed Northeastern | Sep 13, 2018 3:21:07 PM

Unemployed: My mention of Romney was in reference to the article itself, incidentally.

You're not that important. Nor are your voluminous comments valuable enough to wade through. "Red herring" is pretty rich, given the few times we've crossed swords. You couldn't even answer a simple question about private sector predatory student loans.

One strike like that, and you're out...

Posted by: MM | Sep 13, 2018 6:51:35 PM

"You're not that important" he writes in his second response to me today.

Posted by: Unemployed Northeastern | Sep 13, 2018 10:22:28 PM

...And of course Romney is not mentioned in the Taxprof excerpts; I do not care enough to check the links. Can I take it buy your silence regarding my initial comment you were cool with the Monitor Group's efforts to prop up the Libyan regime's legitimacy and, if memory serves, ghostwrite Ghaddafi's son's master's thesis at LSE?

Posted by: Unemployed Northeastern | Sep 13, 2018 10:24:30 PM