McKinsey Subsidiary to Pay Over $122 Million to Resolve Investigation into South African Bribery Scheme
A subsidiary of McKinsey & Company will pay more than $122 million to resolve an investigation into a scheme to bribe South African government officials between 2012 and 2016, the U.S. Department of Justice (DOJ) announced Thursday.
“McKinsey Africa participated in a yearslong scheme to bribe government officials in South Africa and unlawfully obtained a series of highly lucrative consulting engagements that netted McKinsey Africa and its parent entity McKinsey & Company approximately $85 million in profits,” said U.S. Attorney Damian Williams for the Southern District of New York in a statement. “The scheme was carried out by a senior partner at McKinsey and allowed McKinsey Africa to repeatedly get awarded consulting contracts through corruption and bribes at two different state-owned entities in South Africa.”
Vikas Sagar, a senior partner at McKinsey Africa—acting for the benefit of McKinsey—agreed to pay bribes to officials at Transnet SOC Ltd., South Africa’s state-owned and state-controlled custodian of ports, rails, and pipelines, and to officials at Eskom Holdings SOC Ltd, South Africa’s state-owned and state-controlled energy company, the DOJ investigation found.
In Thursday’s announcement, the DOJ unsealed that Sagar had pled guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) in connection with this investigation.
Sagar’s activity was originally discovered due to an internal investigation at McKinsey, which was then turned over to law enforcement. When asked for comment on the investigation's resolution, a spokesperson for McKinsey directed Security Management to a statement the firm released on Thursday about the deal with the DOJ.
“As noted in the resolutions, McKinsey conducted an extensive investigation into the corrupt conduct of a former partner, Vikas Sagar, who concealed his unlawful conduct from the company and his colleagues and then sought to cover up his conduct,” the statement said. “McKinsey terminated his employment more than seven years ago.”
The DOJ also found that between 2012 and 2016, McKinsey Africa obtained sensitive confidential and non-public information from Transnet and Eskom about lucrative consulting contracts and submitted proposals for multimillion-dollar consulting engagements. This activity occurred while McKinsey Africa was aware that South African consulting firms it worked with would pay a portion of their fees as bribes to officials at Transnet and Eskom.
The DOJ charged McKinsey Africa with one count of conspiracy to violate the anti-bribery provisions of the FCPA for the activity described above. McKinsey Africa has entered into a three-year deferred prosecution agreement (DPA) with the DOJ to end the investigation.
As part of that agreement, McKinsey Africa will pay a criminal penalty of $122,850,000. McKinsey Africa and McKinsey are also obligated to continue cooperating with DOJ investigations into ongoing or future criminal activity that arises during the DPA’s term.
Both entities will also enhance their compliance programs—“where necessary and appropriate”—and report to the government about remediation and implementation of the enhanced program, according to the DOJ.
“McKinsey welcomes the resolution of these matters and the closure of this regretful situation,” McKinsey South Africa said in the statement released by McKinsey. “McKinsey is a very different firm today than when these matters first took place. We fired Mr. Sagar soon after learning of these issues, returned our fees with interested, cooperated with the authorities, and made significant upgrades to our risk, legal, and compliance controls to ensure McKinsey sets the standard across our profession.”
McKinsey Africa did receive credit from the DOJ for cooperating with its investigation, including reporting the discovery of documents that were deleted by Sagar during an internal investigation. McKinsey Africa took additional steps to uncover information and evidence about those efforts, and provided that data and evidence to the DOJ.
McKinsey and McKinsey Africa were also credited for taking timely remedial measures that included putting Sagar on leave after learning of the partner’s role in the scheme, separating him from the company after discovering he had deleted documents related to the activity, and requiring Sagar’s cooperation with the investigation post-separation.
Because of these, and additional measures, the DOJ reduced the criminal penalty for McKinsey by 35 percent off the fifth percentile of the U.S. Sentencing Guidelines.
South Africa’s Special Investigative Unit (SIU) has been looking into alleged corruption at six state-owned businesses, including Transnet and Eskom, that totals more than $7 billion. The DOJ has partnered with South African authorities to help further this work.
“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,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the DOJ’s Criminal Division, in a statement. “Throught the ICAB, the Criminal Division remains committed to strengthening its international partnerships, including in South Africa, to combat corruption.”
McKinsey was founded in 1926 and does business in 130 cities across 65 countries. The firm generated approximately $16 billion in revenue in 2023.
