McKinsey Africa to Pay $122 Million FCPA Settlement

McKinsey and Company Africa (Pty) Ltd, which operates in South Africa as a wholly owned and controlled subsidiary of international consulting firm McKinsey & Company Inc.  will pay over $122 million to resolve an investigation by the Justice Department into a scheme to pay bribes to government officials in South Africa between 2012 and 2016.

The guilty plea of a former McKinsey senior partner who participated in the bribery scheme was also unsealed. The Justice Department’s resolution is coordinated with prosecutorial authorities in South Africa.

McKinsey Africa entered into a three-year deferred prosecution agreement (DPA) with the department in connection with a criminal information filed in the Southern District of New York charging the company with one count of conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA).

Vikas Sagar, a former senior partner of McKinsey who worked in McKinsey Africa’s South Africa office, previously pleaded guilty to one count of conspiracy to violate the FCPA.

According to court documents and admissions, McKinsey Africa, acting through a senior partner and for the benefit of McKinsey, agreed to pay bribes to then-officials at Transnet SOC Ltd., South Africa’s state-owned and state-controlled custodian of ports, rails, and pipelines, and at Eskom Holdings SOC Ltd.  South Africa’s state-owned and state-controlled energy company.

The FCPA investigation was prompted by reporting by South Africa-based Corruption Watch.

Between at least 2012 and 2016, McKinsey Africa obtained sensitive confidential and non-public information from Transnet and Eskom regarding the award of lucrative consulting contracts and submitted proposals for multimillion-dollar consulting engagements, while knowing that South African consulting firms with which McKinsey Africa had partnered would pay a portion of their fees as bribes to officials at Transnet and Eskom.

As a result of the bribery scheme, McKinsey and McKinsey Africa earned profits of approximately $85,000,000.

“McKinsey Africa bribed South African officials in order to obtain lucrative consulting business that generated tens of millions of dollars in profits,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division. “As a consequence, McKinsey Africa has agreed to pay a criminal penalty of more than $122 million.

"The resolution announced today — the department’s third coordinated resolution with South African authorities in only two years — is evidence that our International Corporate Anti-Bribery (ICAB) initiative, which we announced in November 2023, is bearing fruit, she continued.  "Through the ICAB, the Criminal Division remains committed to strengthening its international partnerships, including in South Africa, to combat corruption.”

Pursuant to the DPA, McKinsey Africa has agreed to pay a criminal penalty of $122,850,000. The Justice Department has agreed to credit up to one-half of the criminal penalty against amounts McKinsey pays to authorities in South Africa in related proceedings.

In addition, both McKinsey and McKinsey Africa have agreed to, among other things, continue cooperating with the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of New York in any ongoing or future criminal investigation arising during the term of the DPA. McKinsey and McKinsey Africa have also agreed to enhance their compliance program where necessary and appropriate and to report to the government regarding remediation and implementation of their enhanced compliance program.

The Justice Department reached this resolution with McKinsey Africa based on a number of factors, including, among others, the nature and seriousness of the offense.

1. Mitigating Factors:

McKinsey Africa received credit for its cooperation with the department’s investigation, which included

1. immediately and proactively cooperating from the inception of the department’s investigation;
2. making numerous factual presentations to the department over the course of its investigation, derived from information obtained through the company’s internal investigation;
3. collecting, reviewing, and producing voluminous records, including those located abroad, in response to requests from the department;
4. promptly reporting the discovery of document-deletion efforts by the McKinsey partner involved in the conduct found during its internal investigation, taking additional investigative steps to uncover information and evidence regarding those efforts, and producing such information and evidence to the department;
5. reporting, in real time, newly discovered information and documents that allowed the department to preserve and obtain evidence as part of its independent investigation;
6.  tracing complex internal accounting money-flows and currency exchange-information in response to requests from the department;
7.  preserving, collecting, and producing to the department documents located abroad, and engaging a third-party forensics consultant to analyze key electronic devices and providing to the department the results of that analysis;
8.  collecting and producing to the department personal email and bank account information of the McKinsey partner involved in the conduct relevant to the department’s investigation;
9. engaging with the department in response to a deconfliction request to preserve the integrity of the department’s investigation; and
10.  making company officers and employees available for interviews.

Remedial Measures

McKinsey and McKinsey Africa also engaged in timely remedial measures, including:

1. putting the McKinsey partner involved in the criminal scheme on leave when it learned of the partner’s role in the scheme, subsequently separating that partner from McKinsey after discovering his deletion activity, and requiring that partner’s continued cooperation post-separation;
2. conducting additional anti-corruption training for employees in South Africa and elsewhere in Africa, and ceasing work with all state-owned enterprises (SOEs) for a period of time while it conducted its internal investigation;
3.  enhancing due diligence processes for third-party partners, including instituting controls to ensure that due diligence is completed before work begins on an engagement and imposing a more rigorous risk-review for public sector clients;
4.  carrying out an enhanced review process for all sole-source work that requires advance-approval before the engagement can begin; and
5. voluntarily repaying, in 2018 and 2021, all revenues that McKinsey and McKinsey Africa received from potentially tainted contracts to the SOEs in South Africa from which they received contracts as a result of the criminal scheme.

In light of these considerations as well as McKinsey’s prior history, the criminal penalty calculated under the U.S. Sentencing Guidelines reflects a 35% reduction off the fifth percentile of the otherwise applicable guidelines fine range.

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