In a historic agreement, a McKinsey & Company subsidiary—McKinsey South Africa—is going to pay $122 million as it reached a settlement against it on claims that the consultancy had engaged in a corrupt scheme of bribery of South African officials. On Thursday, the Department of Justice in the United States announced the settlement, marking the rare case of holding companies accountable for their roles in an international bribery and corruption scandal.
The Bribery Scheme and Its Scope
US prosecutors accused McKinsey’s South African subsidiary and other individuals and companies of providing South African officials with bribes with the aim of gaining outsize government contracts. As the probe found out, McKinsey was fully aware of the fact that a number of millions of dollars were to be paid out in bribes to secure specific state contracts, including some concerning Eskom, the South African state power company.
The settlement pertains to charges of foreign corruption and bribery under the FCPA, which bars U.S. companies and their subsidiaries from exerting bribery overseas. At the heart of the scandal is McKinsey’s relationship as the consultant for Eskom, which was accused of assisting Eskom in making unlawful payments to the officials.
The case is in a large anti-corruption inquiry into state-owned enterprises in South Africa; corruption is now a significant political and legal concern in the country. Although the bribery scandal known as “State Capture” has been a wake-up call for South Africans; people have lost confidence in the country’s political leadership and institutions.
McKinsey Served Arbitration Papers and now decided to Settle
Regarding the charges leveled against it, McKinsey has admitted to the fact that he was involved in the bribery scam and regretted the involvement. The company will pay $122 million as part of the settlement in a bid to put to an end the legal cases filed by both the U.S. and the South African government.
The firm has also agreed to set a series of measures that will ensure no future occurrences of the same—compliance measures that came with improved internal controls and supervision. Hitt and Hoskin summarized that McKinsey stated that the settlement is the right step forward towards correcting the previous wrongs and proving that the company is against wrong business practices.
Impact on McKinsey and the Consulting Industry
This procedure has particular importance for McKinsey, the company of great historical significance for the consulting industry on the international level. The bribery scandal involving the company in South Africa has led to public debate on whether multinational companies are taking an active part in fuelling corrupt practices in other nations.
The settlement comes at a period when corporate governance around the world is under increased probe, especially from the consulting and investment industries. Many U.S. regulators, together with governments of the entire world, have sought to prosecute companies that accept to engage in unethical or illegal activities beyond the country’s jurisdiction with the aim of eradicating the effects of corruption and malpractices that are within corporate companies.
This is not the first time McKinsey has faced allegations of improper conduct. The company has faced controversies in the past; it worked for Purdue Pharma, the OxyContin developer, during the opioid epidemic. But this latest legal action, which in itself has involved a direct breach of anti-bribery laws, has upped the stakes for that company and could be costly in the future.
Legal aspects and Political aspects
The $122 million civil penalty that was recovered has a clear message on the issue of international corruption and the chances of the U.S. government in fighting foreign bribery. In this case, the U.S. seeks to protect international business integrity by taking into account the actions both of multinational corporations and officials in matters of global corruption.
The case also illustrates the challenges companies face when conducting their business in countries characterized by rather high levels of corruption, especially in emergent markets. Companies thus need to ensure that extra measures are taken while carrying out due diligence on businesses or ensuring their deals comply with the strictest levels of the law to not become a part of such a scandal.
Future Compliance and Monitoring
As part of the agreement, McKinsey has also agreed to a series of compliance and monitoring measures, including the appointment of an independent monitor to watch over the company’s compliance with U.S. anti-corruption laws, and the implementation of internal controls to detect and prevent illegality.
The company has also pledged to cooperate with authorities in South Africa and make restitution for the damages from the bribery scheme. The settlement takes care of the immediate legal issues, but McKinsey will likely face ongoing scrutiny as it works to rebuild its reputation and make sure similar incidents do not happen again.
