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Professional Conduct regarding Provision of Professional Services |
2002-05-08
The Chief Executive Officer
PricewaterhouseCoopers Inc
2 Eglin Road
Sunninghill
Johannesburg
South Africa
Attention : Mr Colin Beggs
Dear Mr Beggs
Professional Conduct regarding Provision of Professional Services
I acknowledge your brief letter to me dated 2002-04-22.
However, I do not consider your response adequate or appropriate in terms of Clause B.29(q) of the By-Laws of the South African Institute of Chartered Accountants.
I advise you that mine is a legitimate enquiry regarding the conduct of your firm in a matter in which I am involved, both as an individual and as the managing director of my company. Even if I didn't have such direct interests, I believe that have equally legitimate interests and rights as a South African citizen.
In this regard, I take the opportunity of referring you to the following extract from the Code of Professional Conduct of the South African Institute of Chartered Accountants, issued January 1998 (The Code) :
"A profession is distinguished by certain characteristics including:.....(b) Acceptance of duties to society as a whole in addition to duties to the client or employer" [my bold emphasis].
I take note from your letter that you :
"do not wish to become embroiled in a hypothetical debate with you about the application of the Code of Professional Conduct of the South African Institute of Chartered Accountants"
I can assure you that I do not intend to conduct any hypothetical debate with you on this matter, nor am I inviting you to do so with me. I am merely providing you with an opportunity of responding to a quite legitimate enquiry regarding the conduct of your firm, before I come to unilateral conclusions in this regard.
But, noting your response to me, I commence by bringing to your attention the following extracts from The Code :
Note : Extracts from The Code are in italics.
"Joint and Vicarious Liability
Part A - Applicable to All Members, Associates and Students
Section 1 - Joint and Vicarious Liability
A member, associate or student may be held responsible for a breach of, or failure to comply with, this Code on the part of all persons who are -
(a) his employees; or
(b) under his supervision; or
(c) his partners; or
(d) fellow shareholders in, or directors or employees of, a company controlled by the member"
"A member, associate or student may not, under the guise or through the medium of a partnership, company, close corporation or any other entity, do anything or allow anything to be done which he would not be permitted to do as an individual."
"A member, associate or student may not permit others to carry out on his behalf, either with or without remuneration, acts which, if carried out by himself, would constitute a contravention of this Code."
Further, I repeat what I believe to be other relevant extracts of The Code as follows :
"Objectives
The Code recognises that the objectives of the accountancy profession are to work to the highest standards of professionalism, to attain the highest levels of performance and generally to meet the public interest requirement set out above.
These objectives require four basic needs to be met :
(a) Credibility
In the whole of society there is a need for credibility in information and information systems.
(b) Professionalism
There is a need for individuals who can be clearly identified by clients, employers and other interested parties as professional persons in the accountancy field.
(c) Quality of Services
There is a need for assurance that all services obtained from a member, associate or student are carried out to the highest standards of performance.
(d) Confidence
Users of the services of members, associates or students should be able to feel confident that there exists a framework of professional ethics which governs the provision of those services."
"Fundamental Principles
In order to achieve the objectives of the accountancy profession, members, associates and students have to observe a number of prerequisites or fundamental principles.
The fundamental principles are :
(a) Integrity (see Section 2)
Integrity is essentially an attitude of mind. Adherence to certain standards of conduct and moral behaviour consistently practised will ensure integrity.
A member or associate should be straightforward and honest in performing professional services.
(b) Objectivity (see Sections 2 and 3)
Objectivity is essentially the quality of being able to maintain an impartial attitude. It requires a member or associate to be fair and not to allow prejudice or bias or influence of others to override objectivity."
"Integrity and Objectivity
The principles of integrity and objectivity impose the obligation on all members, associates and students to be fair, honest and free of conflicts of interest, prejudice and bias."
"Conflicts of Interest
A member, associate or student should be and appear to be free of any influence, interest or relationship, whether direct or indirect which might be regarded, whatever its actual effect, as being incompatible with integrity, objectivity and, in the case of a member or associate in public practice, independence.
A member, associate or student should be constantly alert to the possibility of a conflict of interest.
Where a member, associate or student has reason to believe that his or his employee's involvement in an assignment would possibly cause a conflict of interest, he should immediately disclose this fact.
Where it is clear that a material conflict of interest exists, a member, associate or student should decline to act."
Having been subject to the services of your employees, including a recent somewhat unfriendly questioning by your Adv van Tonder (in the presence of your Adv de Chermont), as well as having noted the highly unsatisfactory and inaccurate contents of Chapter 11 of the Joint Report into the SDPs, I need to establish the facts concerning of your employees acting, in the name of PwC, on behalf of the OAG as an independent contractor.
I know that your employees were acting in the name of PwC because they gave me their business cards indicting as such.
I know that your employees were acting on behalf of the OAG as an independent contractor because they advised me as such in response to my specific enquiry in this regard, prior to the commencement of the questioning.
Regarding the actions of your employees, I first needed to establish the codes of professional conduct to which these non-accountancy professional partners and employees adhere - hence my enquiry to you as their ultimate line manager.
However, in the absence of an appropriate response from you regarding the conduct of your non-accountancy partners and/or employees, I can only but address this matter for your attention as the chief executive officer (CEO) of PricewaterhouseCoopers Inc (South Africa) (PwC).
As PwC advertises itself as a world-wide partnership, I am copying this letter to your CEOs in the USA and UK, as well as the other relevant parties in this instance.
Conflict of Interests
A cursory inspection of the matter involving the provision of professional services to the Office of the Auditor-General (OAG) in respect of the Joint Investigation into the Strategic Defence packages (SDPs), reveals a number of prima facie conflicts of interest involving PwC.
I have detailed these in Appendix A - Prima Facie Conflicts of Interest, appended to this letter.
These are not allegations; they are propositions of fact gleaned from open sources such as PwC's own website, corporate audit reports, company searches, the Press, the Joint Report into the SDPs. In certain instances, some facts are derived from my own personal knowledge.
I am inviting you to review and respond to these propositions of fact. Should you dispute any of the propositions that I have made and can credibly justify that these are false, I will accept the same. However, I reserve the right to follow-up and investigate further.
I have further and to the best of my ability established that the OAG specifically brought to the attention of the auditing companies to whom they directed requests for proposal concerning the investigation into the SDPs that "any conflicts of interest must be disclosed".
Regarding conflicts of interest concerning the Strategic Defence Procurement Process, the following statement was formally issued by the Government Communications Information Service (GCIS) on 15th November 2001 :
"The Department of Defence and Armscor should develop specific rules and guidelines to address conflict of interest issues and to ensure that personnel are properly informed in this regard. These rules and guidelines should be developed, taking into account the principles contained in the Code of Conduct of the State Tender Board and the King Report on Corporate Governance, 19g4, regarding improved ethics and probity as well as international norms in this regard. Steps should also be taken to ensure that a particular individual, irrespective of his/her position, is not tasked with incompatible functions in multifaceted procurements. This will prevent a conflict or perceived conflict of interest, which could have a detrimental effect on the overall acquisition process.
Parliament should consider taking urgent steps to ensure that high ranking officials and office bearers, such as Ministers and Deputy Ministers, are not allowed to be involved, whether personally or as part of private enterprise, for a reasonable period of time after they leave public office, in contracts that are concluded with the State."
Almost identical statements were made to the National Assembly at the same time by the Auditor-General, the National Director of Public Prosecutions and the Public Protector in respect of the SDPs.
In fact, the National Director of Public Prosecutions, Mr B.T. Ngcuka, included the following observation in his statement to Parliament :
"The area of conflict of interest of government officials is cause for concern and viewed as extremely serious. There seem to be indications that certain officials have found themselves in incompatible positions, which might have led to the perception that the credibility of the acquisition process has been compromised in specific instances. These instances form the basis of some of the allegations we are pursuing. I wish to add that we will be taking action within the next 24 hours.
The issue of conflict of interest of government officials as displayed during the acquisition process requires in-depth consideration. There is evidently a need for legislative measures to address situations where conflict of interest might amount to a breach of duty and to regulate the post-employment activities of officials."
I personally see no or little difference between conflicts of interest on behalf of government officials and those of persons or firms paid with public funds to investigate conflicts of interest on the part of government officials. In fact, it is perhaps worse considering that the codes of conduct, as well as the requirement of disclosure, were known to these latter persons a priori.
I would therefore like to ascertain from you the following regarding PwC's involvement in the Joint Investigation into SDPs :
Tests - what conflict of interest tests were required to be performed by PwC?
Instances - what conflicts of interest were found by PwC?
Disclosure - what conflicts of interest were disclosed by PwC and to whom?
Finally, I believe it appropriate to conclude with the following relevant extract from The Code :
"Confidentiality
This does not apply to disclosure of such information in order properly to discharge the member's, associate's or student's responsibility according to the profession's standards, or when required by law.
The following should be considered in determining the extent to which confidential information may be disclosed.
(b) When disclosure is required by law.
Examples of when a member, associate or student is required by law to disclose confidential information are :
(i) to produce documents or to give evidence in the course of legal proceedings; and
(ii) to disclose to the appropriate authorities infringements of the law which come to light.
(c) When there is a professional duty or right to disclose:
(i) to comply with technical standards and ethics requirements - such disclosure is not contrary to this section;"
I personally believe Sub-Clause (c)(i) above to be especially appropriate in this set of circumstances which involves such vast degrees of public finances in the SDPs themselves and subsequently, in the outsourcing of significant portions of the Joint Investigation into the SDPs to private companies such as PwC. This is especially so when there were already in existence perfectly qualified and independent investigative agencies such as the Special Investigation Unit (SIU) which had been established by statute precisely to investigate matters such as the SDPs and had both the necessary resources and legal mandates, let alone the independence.
Especially in the case of the Joint Report, it is disheartening to see such little return on expenditure, which was meant to be an investment into our democracy.
If you should wonder why I should be disheartened by the quality of the Joint Report into the SDPs, I think one only needs to consider the following:
In his paper, The Arms Deal Investigation - Accountability Failure : A Critique of the JIT Report (dated February 2002), Dr Gavin Woods, then Chairman of SCOPA, the parliamentary committee which initiated the joint investigation (albeit with the inclusion of the SIU), stated the following :
"There is virtually no thorough "forensic" (as defined) investigation in evidence."
Having been closer than most to the investigation, I believe that there was a more-or-less thorough forensic investigation, at least in certain areas of the SDPs; I do, however agree with Dr Woods that this is not at all in evidence in the Joint Report.
The Special Review by the Auditor-General (published by Authority on 2000-09-15) stated the following :
"Of the Selection Process of Strategic Defence Packages for the Acquisition of Armaments At the Department of Defence
3.6.1 Frigates (corvettes)
A local company that was at that stage performing certain technological work on behalf of the SANDF, which was funded from a previous technology retention project, was not selected for one of the subsystems of the corvette namely the Integrated Management System (IMS). Although the SA Navy preferred the technical potential offered by the local company, this was outweighed by prohibitive risk-driven cost implications as determined by the prime contractor. The prime contractor, who had to accept unlimited risk for delivery, added a risk premium of approximately R40 million to the local product, which resulted in the acceptance of the French product.
As a complaint was lodged with the Office on this matter and the basis of determining the risk premiums did not fall within the scope of the audit, a forensic audit of the matter should be considered."
Subsequently, Chapter 11 of the Strategic Defence Packages Joint Report (dated 2001-11-16) concluded as follows :
"Allegations/Complaints by C²I² Systems (Pty) Ltd
11.11.9 The Validity of the R40 Million Risk Premium Added to the Price of C²I² for the IMS
11.11.9.1 The imposition of a risk premium was not unreasonable.
11.11.9.2 The calculation of the risk premium cannot be evaluated without evidence from the GFC and the assistance of an expert witness. From a cost and time point of view it was not considered feasible to pursue this matter."
While the "finding" of Para. 11.11.9.1 was repeated in the National Assembly by the Auditor-General, the National Director of Public Prosecutions and the Public Protector, as well as by the GCIS, it is a non-sequitur fallacy of logic in respect of the main body of Chapter 11. There is simply nothing in Chapter 11 that provides any foundation for such a finding; in fact, with certain of the relevant evidence in this regard publicly known and therefore obviously available to the JIT, only an opposite finding could be made.
Para. 11.11.9.2 indicates that the Joint Report in no way completed the investigation, at least in this area, according to the very mandate that was given in the first place, i.e. by the Special Review.
The OAG undertook to complete the Joint Investigation and is on record in January 2001 as stating that the resources of the SIU was not required, but yet the OAG outsourced a very large portion of the investigation to PwC, with your Adv van Tonder as project leader and chief author/editor of the final Joint Report.
I'm sure that most people would agree that it is difficult to reconcile that which I've outlined above with the principles of Credibility, Professionalism, Quality of Services, Confidence, Integrity and Objectivity so clearly laid out in the Code of Professional Practice.
As I am currently reviewing this matter and as I believe it reasonable that PwC should have all this information readily at hand, I further believe it reasonable to request that you provide me with a response by the close of business on Friday 2002-05-17. Again I bring to your attention Clause B.29(q) of the By-Laws of the South African Institute of Chartered Accountants about providing an appropriate and timely response.
Failing to elicit from you either a reply at all, or an appropriate response, I shall have no option but to bring this matter to the attention of the Public Accountants' and Auditors' Board, the South African Institute of Chartered Accountants and the International Federation of Accountants for their attention and investigation.
Yours sincerely
R.M. Young
Managing Director
Copy :
CEO, PricewaterhouseCoopers Inc, United Kingdom
CEO, PricewaterhouseCoopers Inc, United States of America
Chairperson of Audit Commission, Dr Pallo Jordan
Speaker of the National Assembly, Dr Frene Ginwala
Chairperson of Standing Committee on Public Accounts, Mr Francois Beukman
Chairperson of Parliamentary Joint Committee on Defence, Ms Thandi Modise
Chairperson of Parliamentary Finance Committee
Chairperson of Parliamentary Justice Committee
Chairperson of Parliamentary Public Service and Administration Committee
Chairperson of Parliamentary Trade and Industry Committee
Chairperson of Parliamentary Public Enterprises Committee
Chairperson of Parliamentary Joint Committee on Ethics and Members' Interests
Appendix A - Prima Facie Conflicts of Interest
1. Introduction - PwC and the Office of the Auditor-General
1.1 PricewaterhouseCoopers (PwC) is an international auditing firm with offices and subsidiaries throughput the world, including South Africa.
1.2 PricewaterhouseCoopers Inc (PwC) is a incorporated partnership in South Africa registered with the Registrar of Companies.
1.3 PricewaterhouseCoopers Inc was derived from a merger of auditing firms PriceWaterhouse of the United States and Coopers & Lybrand of the United Kingdom.
1.4 In South Africa, PricewaterhouseCoopers Inc (PwC) has a subsidiary company called PricewaterhouseCoopers Forensic Services (Pty) Ltd (PwC Forensic Services) registered with the Registrar of Companies.
1.5 The registered auditors of PricewaterhouseCoopers Forensic Services (Pty) Ltd are PricewaterhouseCoopers Inc.
1.6 Adv Lionel van Tonder is registered with the Registrar of Companies as a director of PwC Forensic Services (Pty) Ltd and is Manager of PwC's Forensic Investigation Division.]
1.7 Adv van Tonder was seconded to the Office of the Auditor-General (OAG) and in this capacity was the Project Leader of the recently completed Joint Investigation by the Joint Investigation Team (JIT) into the Strategic Defence Packages (SDPs) acquisition.
1.8 Adv van Tonder was the chief author or editor of the JIT's final Joint Report.
1.9 Adv Jan Swanepoel is registered with the Registrar of Companies as a director of PwC Forensic Services (Pty) Ltd.
1.10 Adv Swanepoel was a primary investigator on the JIT.
1.11 Adv Charles de Chermont is a senior manager of PwC and/or PwC Forensic Services.
1.12 Adv de Chermont was a primary investigator on the JIT.
1.13 When the investigation commenced, Adv de Chermont was an employee of the OAG.
1.14 A few months into the investigation Adv de Chermont left the employ of the OAG and joined the employ of PwC.
1.15 PwC hired out the services of Adv de Chermont as an independent contractor to the OAG for the balance of the Joint Investigation, i.e. for approximately 6 months).
1.16 Adv Swanepoel and Adv de Chermont were the joint authors of the AG's original report into the SDPs, parts of which was incorporated as Chapters 7, 10 and 11 of the JIT's final Joint Report.
2. PwC and Companies Directly Benefiting from DIP in the SDPs
2.1 In March 2000, another independent contractor to the OAG wrote to a number of companies who were recipients of Direct Industrial Participation (DIP) in the SDPs, asking for details of shareholders, directors and auditors.
2.2 Replies received indicated that Coopers & Lybrand were the auditors of the following companies :
2.2.1 Advanced Technologies and Engineering (Pty) Ltd (ATE).
2.2.2 Atomic Energy Corporation Trading as Fabritech.
2.2.3 Denel Trading as Kentron.
2.2.4 Denel Trading as Eloptro.
2.2.5 Denel Trading as Somchem.
2.2.6 Denel Trading as LIW.
2.2.7 Denel Trading as Denel Aviation.
2.3 PwC are also the registered auditors of the following company :
2.3.1 Prime Empowerment Group (Primegro).
2.4 These PwC auditees were direct DIP beneficiaries on the indicated programmes :
2.4.1 ATE
SDP DIP beneficiaries on LIFT, ALFA and LUH programmes.
2.4.2 AEC
Fabritech SDP DIP beneficiary on Submarine programme.
2.4.3 Denel Kentron
SDP DIP beneficiary on Corvette programme.
2.4.4 Denel LIW
SDP DIP beneficiary on Corvette programme.
2.4.5 Denel Eloptro
SDP DIP beneficiary on Submarine programme.
2.4.6 Denel Aviation
SDP DIP beneficiary on LIFT, ALFA and LUH programmes.
2.4.7 Primegro
SDP DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes (through Tellumat and Cybicom (Africa) Technologies.
2.5 The following Denel divisions were also SDP DIP beneficiaries :
2.5.1 Denel Somchem.
2.5.2 Denel Cumulus.
2.5.3 Denel Overberg Test Range.
2.6 In South Africa, Coopers and Lybrand are the predecessors in title of PricewaterhouseCoopers Inc.
3. PwC, Gobodo and Armscor
3.1 Gobodo Inc are the present auditors of Armscor and have been so since at least 1998.
3.2 PwC and Gobodo announced on 2001-11-01, before the publication of the Joint Report into the SDPs on 2001-11-16, that they were to merge with PwC as PwC Gobodo Inc.
3.3 It is logical to assume that discussions concerning the merger between PwC and Gobodo had been in progress for a number of months, if not years, before such formal announcement.
3.4 Mr R.F. Haywood is the immediate past chairman and previously chief executive officer of Armscor Ltd whose directorship spanned the SDP acquisition period, i.e. 1997 to 2001; Mr Haywood is also a director and shareholder of Dynamic Cables RSA (Pty) Ltd, a successor in title to Conlog.
3.5 Mr L.R. Swan is the immediate past chief executive officer of Armscor Ltd whose directorship spanned the SDP acquisition period, i.e. 1998 to 2000.
3.6 Gen S. Nyanda is director of Armscor Ltd whose directorship spanned the SDP acquisition period, i.e. 1998 to 2001.
3.7 Dr Diliza Mji is a recent director of Armscor Ltd whose directorship spanned the SDP acquisition period, i.e. 1997 to 2001.
3.8 Mr Seth Palatse is a recent director of Armscor Ltd whose directorship spanned the SDP acquisition period, i.e. 1997 to 2001.
3.9 Ms M.S. Mabaso is a recent director of Armscor Ltd whose directorship spanned the SDP acquisition period, i.e. 1997 to 2001.
3.10 Messrs Haywood, Swan and Gen Nyanda were investigated by the JIT for receiving considerations from a potential supplier in the SDPs.
3.11 Dr Mji, Mr Palatse and Ms Mabaso also all represent companies who were recipients of DIP contacts under the SDPs.
3.12 The Forensic Auditing Department of PwC's predecessor, i.e. Coopers and Lybrand, act as auditors for Armscor from time to time.
3.13 Armscor Ltd, through their Board of Directors, act in accordance with the Armscor Act as the statutory State Tender Board for armaments acquisitions.
4. PwC and Companies Directly Benefiting from NIP in the SDPs
4.1 PwC are also the auditors to :
4.1.1 Coega Development Corporation.
4.2 Coega is one of the main National Industrial Participation (NIP) counter-trade deals arising out of the SDPs.
4.3 One of BAE Systems's/Saab NIP proposals concerned the attraction and funding of projects within the Coega Industrial Development Zone (IDZ).
5. PwC, ATE and BAE Systems
5.1 ATE are a recipient of a very significant (> R880 million at present value) DIP sub-contract from BAE Systems involving the Hawk, Gripen and Light Utility Helicopter (LUH) programmes under the SDPs.
5.2 BAE Systems owns 20% of ATE.
5.3 Coopers & Lybrand were the previous auditors of ATE.
5.4 PwC are the present auditors of ATE.
5.5 Richard Charter, Diliza Mji and Stuart McIntyre are or were at some time directors of ATE.
5.6 Richard Charter is the immediate past Chairman of BAE Systems South Africa, formerly British Aerospace South Africa.
5.7 Diliza Mji is the present Chairman of BAE Systems South Africa.
5.8 Stuart McIntyre is presently the chief executive officer of BAE Systems (South Africa) as well as a senior manager or director of its parent, BAE Systems Plc of the United Kingdom.
6. PwC and Marvol Management SA
6.1 PwC are the auditors of the company Marvol Management SA (Pty) Ltd.
6.2 One of the directors of Marvol was former Minister of Defence, the late Joe Modise.
6.3 Another one of the directors of Marvol was former Minister of Foreign Affairs, the late Alfred Nzo.
6.4 One of the present directors or consultants of Marvol is the former Chief Executive Officer of Armscor, Llew Swan.
6.5 Llew Swan was a member of International Offers Negotiating Team (IONT), Strategic Offers Committee (SOFCOM), and both Project Control Boards (PCBs), i.e. for the SA Air Force programmes and the SA Navy programmes.
6.6 Messrs Modise and Swan were both investigated during the Joint Investigation.
6.7 Mr Modise made the following statement concerning his interest in Marvol and its business relationships with Armscor, Denel and ATE, Aerosud and Xcel (all direct beneficiaries of the SDPs) :
"Former South African defence minister and current Marvotech chairman, Joe Modise, says Russian-South African co-operation, as typified by his company, will make local products more sellable. Marvotech was formed to promote and develop Russian-South African defence-related systems and solutions. Marvotech, part of the Marvol Group, has consultancy agreements with Russia's PromExport and with South Africa's Armscor. Through the latter, Marvotech has access to Mig MAPO, Klimov, and the Vympel Design Bureau in Russia and Denel, Aerosud, ATE and Xcel in South Africa."
7. PwC and BAE Systems
8. PwC has an international Aerospace and Defence Group.
8.1 Lord Roger Freeman is the chairman of PwC's Aerospace and Defence Group.
8.2 PwC has an advisory board to support the growth of its corporate finance business. The board consists of nine advisers, each with specific industrial sector knowledge gained at CEO or main board level, who work with industry teams within PwC Corporate Finance, providing advice on new business targeting, on how to approach target companies and on relationship building.
8.3 The Advisory Board is chaired by Lord Freeman.
8.4 Lord Freeman was Under-Secretary of State for the Armed Forces at the Ministry of Defence from 1986 to 1988.
8.5 Lord Freeman was Minister of State for Public Transport from 1990 to 1994.
8.6 Lord Freeman was Minister of State for Defence Procurement from 1994 to 1995.
8.7 Lord Freeman was Minister for Public Service until leaving Parliament in 1997.
8.8 The SA Air Force's LIFT (Hawk) and ALFA (Gripen) acquisition programmes are a government-to-government package deal (equipment supply, DIP and NIP) between the South African and British Governments signed on 1999-12-03, but initiated in 1995.
8.9 Since December 1997, Lord Freeman has been a partner and is now a director and/or consultant to PwC.
8.10 Lord Freeman has interests in a wide range of organisations, including the Society of British Aerospace Companies.
8.11 Lord Freeman is on record (published of PwC's website) as follows :
"Over the last three years PricewaterhouseCoopers Corporate Finance has achieved much, virtually doubling its average deal size and deepening its industry knowledge and international network. The advisory board are all senior business people with hands-on sector expertise, who will assist the corporate finance partners and teams with new business and relationship building, and further enhance their effectiveness in advising company boards."
8.12 Mr Tony McGarry is a member of PwC's Advisory Board.
8.13 Mr McGarry, whose background is in defence/aerospace, was formerly a Director of Business Development at BAE Systems, formerly British Aerospace.
8.14 Mr McGarry was a director of BAE Systems at the time that the South African SDPs were being negotiated.
8.15 Mr McGarry works alongside PwC's Corporate Finance Aerospace and Defence Group led by Richard Hooke. In this role, he offers advice on defining the issues affecting businesses in the sector, relating these to the needs of clients and developing the relationships that will enable clients to benefit fully from PwC's technical and strategic capabilities worldwide.
8.16 Mr McGarry's career at BAE Systems, GEC Marconi, British Aerospace and the UK MoD covered business development and marketing directorships in the marine, armaments and civil and military aerospace sectors in Europe, the Middle East and South Africa.
8.17 British Aerospace and GEC Marconi merged in 1999/2000 to form BAE Systems.
8.18 Over the last few years, PwC Corporate Finance has advised on various aerospace and defence deals, working with clients such as Thales, BAE Systems, Rolls-Royce, Boeing and Saab.
8.19 Saab of Sweden, team with BAE Systems of the UK, are the primary supplier of the Gripen ALFA to the SA Air Force under the SDPs.
8.20 One of BAE Systems's/Saab DIP proposals concerned the manufacture of aircraft components by Denel for Rolls-Royce.
8.21 PwC is an external auditor of Denel.
8.22 One of BAE Systems's/Saab NIP proposals concerned a joint venture with Conlog.
8.23 Joe Modise was a shareholder and chairman of Conlog immediately after the SDPs; Mr Modise was also a director and shareholder of Dynamic Cables RSA (Pty) Ltd, a successor in title to Conlog.
8.24 Conlog and Logtek announced a merger during the SDPs in order to leverage the possibility of doing logistics work under the SDPs.
8.25 Logtek together with FBS planned a merger as Applied Logistics Engineering (ALE) during the SDPs in order to further leverage the possibility of doing logistics work under the SDPs.
8.26 Modise, Conlog and Logtek were subject to investigation by the JIT for conflicts of interest as well as other charges such as insider trading.
8.27 One of BAE Systems/Saab NIP proposals concerned the MK Veterans' Association (MKVA).
8.28 There was an allegation made to the JIT that BAE Systems had irregularly paid a large sum of money to the MKVA.
9. PwC and Thales International
9.1 Lord Freeman was elected as the chairman of the board of Thales Plc March 1999.
9.2 Thales Plc has wide ranging business operations within the British defence, aerospace, and electronics industries.
9.3 Thales Plc is a wholly-owned subsidiary of Thales International, formerly Thomson-CSF.
9.4 Over the last few years, PwC Corporate Finance has advised on various aerospace and defence deals, working with clients such as Thales, BAE Systems, Rolls-Royce, Boeing and Saab.
9.5 Rolls-Royce, as owners of the company MTU, are a major beneficiary of numerous sub-contracts within the SDPs, including the Corvette programme.
9.6 Thales International is the prime contractor for the Combat Suite for SA Navy's Corvette programme under the SDPs.
9.7 Thales International is the majority owner of Thomson-CSF (Southern Africa) (Pty) Ltd.
9.8 Another major shareholder of Thomson-CSF (Southern Africa) (Pty) Ltd is Nkobi Holdings (Pty) Ltd, whose own majority shareholder is Schabir Shaikh, brother of Shamin Shaikh, Chief of Acquisitions in the Department of Defence and primarily responsible for the SDPs.
9.9 Thomson-CSF (Southern Africa) (Pty) Ltd and Nkobi Holdings (Pty) Ltd, together with Futuristic Business Solutions (Pty) Ltd (FBS), own African Defence Systems (Pty) Ltd (ADS).
9.10 FBS's shareholders are :
9.10.1 Lambert Moloi, brother-in-law of Joe Modise, Minister of Defence responsible at the time for the SDPs.
9.10.2 Tsepo Molai, son-in-law of Lambert Moloi.
9.10.3 Yusuf Mahomed, friend of Shamin Shaikh.
9.10.4 Ian Pierce, accountant of Shamin Shaikh's own companies.
9.11 Schabir Shaikh, Lambert Moloi and Tsepo Molai are all directors of ADS.
9.12 Thales International, ADS, FBS and Ian Pierce were all subjects of the Joint Investigation into the SDPs, specifically the attentions of the Directorate of Special Operations of the National Directorate of Public Prosecutions.
10. PwC and Individuals and Companies in the SDPs
10.1 Prior to PwC accepting its appointment to the OAG and its part in the JIT, a list of allegations was made concerning the SDPs.
10.2 The list of allegations was made available prior to the commencement of the Joint Investigation to the OAG.
10.3 PwC would have had access to this list of allegations very early on in the investigation.
10.4 PwC was in any case given this list of allegations a few months into the investigation.
10.5 Also, among the allegations are those against the following companies with whom PwC has an interest as auditor or as advisor:
10.5.1 British Aerospace.
10.5.2 BAE Systems/Saab.
10.5.3 Thales International.
10.5.4 ATE.
10.5.5 Denel.
10.6 Among the allegations are those against the following individuals representing companies with whom PwC has a direct interest as auditor :
10.6.1 Richard Charter
Director of ATE, also ex-chairman of BAE Systems (SA) and shareholder of Osprey Aerospace (DIP beneficiary through BAE Systems to supply parachute landing systems for the Hawk LIFT and Gripen ALFA).
10.6.2 Allan McDonald
Director of BAE Systems (UK), also head of British Aerospace's International Marketing and Sales Organisation (IMSO) (prime contractor for Hawk LIFT and Gripen ALFA).
10.6.3 Joe Modise
Minister of Defence; also chairman of Conlog and/or Logtek (DIP beneficiary on Corvette and Submarine programmes) and Vuwani Projects (DIP beneficiary on LIFT and/or ALFA programmes), chairman and shareholder of Marvol Management (SA) and beneficiary or trustee of Modiba Trust; Mr Modise is/was also a director and/or shareholder of Dynamic Cables RSA (Pty) Ltd, a successor in title to Conlog.
10.6.4 Lambert Moloi
Director of Denel (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes); also chairman of ADS (DIP beneficiary on Corvette programme) and director and shareholder of FBS (DIP beneficiary on Corvette and Submarine programmes as well as 25% shareholder of ADS); also shareholder of ADS and director and shareholder of Vuwani Projects (DIP beneficiary on LIFT and/or ALFA programmes).
10.6.5 Ian Deetlefs
Chairman of Denel (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes); also director of Logtek (DIP beneficiary on Corvette and Submarine programmes) and/or Conlog (NIP beneficiary on LIFT and ALFA programmes); Mr Deetlefs is or was also a director and shareholder (through a trust) of Dynamic Cables RSA (Pty) Ltd, a successor in title to Conlog.
10.6.6 Fana Hlongwane
Director of Denel (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes); also advisor to Joe Modise. Mr Hlongwane was also alleged to be linked to Vuwani Projects.
10.7 Among the allegations are those against companies represented by the following individuals and where PwC has an interest as auditor in a company where the individual is also a director :
10.7.1 Diliza Mji
Director of ATE (DIP beneficiary on LIFT and ALFA programmes); also of Armscor and chairman of BAE Systems (SA), shareholder of Vickers Gear Ratio and DGD Technologies (direct beneficiary through GFC on Corvette programme; maybe also of aircraft gearbox DIP projects).
10.7.2 Zodwa Mana
Director of Denel (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes); also director of Logtek and/or Conlog (NIP beneficiary on LIFT and ALFA programmes); also a director and shareholder of Dynamic Cables RSA (Pty) Ltd, a successor in title to Conlog.
10.7.3 Ismael Randeree
Director of ADS (DIP beneficiary on Corvette programme); also of Denel (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes).
10.7.4 Sibusiso Sibisi
Director of Denel (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes); also of Tellumat (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes) and SA Nuclear Energy Corporation (DIP beneficiary on Submarine programme).
10.8 PwC has a direct interest as auditor in the companies represented by the following individuals :
10.8.1 Danisa Baloyi
Director of Denel (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes); also of Kgorong Investment Holdings, 30% shareholder of Reutech Radar Systems (DIP beneficiary on Corvette programme).
10.8.2 Rasheed Hargey
Director of Denel (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes); also of Prime Empowerment Group, Cybicom (Africa) Technologies (DIP beneficiary Submarine programme) and Tellumat Holdings, 25% shareholder of Tellumat (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes).
10.8.3 Roberto Gonsalves
Director of Prime Empowerment Group, Cybicom (Africa) Technologies (DIP beneficiary Submarine programme) and Tellumat Holdings, 25% shareholder of Tellumat (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes).
10.9 Also, among the allegations are those against the following individuals representing companies with whom Gobodo have a direct interest as auditor and therefore PwC at least an indirect interest :
10.9.1 Diliza Mji
Director of Armscor; also chairman of BAE Systems (SA), shareholder of Vickers Gear Ratio and DGD Technologies (direct DIP beneficiary through GFC on Corvette programme).
10.9.2 Seth Palatse
Director of Armscor; also of BMW (DIP beneficiary through Rolls-Royce and MTU on Hawk, Corvette and Submarine programmes).
10.9.3 Keith Mokoape
Director of Armscor; also executive chairman of Logtek Holdings and/or director of Conlog (direct DIP beneficiary through GFC and GSC on Corvette and Submarine programmes); Mr Mokoape is also a director and/or shareholder of Dynamic Cables RSA (Pty) Ltd, a successor in title to Conlog.
10.9.4 Ms M.S. Mabaso
Director of Armscor; also of Spescom Electronics Ltd which owns AMS (Pty) Ltd (direct DIP beneficiary on LIFT and ALFA programmes through BAE Systems and ATE).
10.9.5 Danisa Baloyi
Director of Kgorong Investment Holdings, 30% shareholder of Reutech Radar Systems (DIP beneficiary on Corvette programme) Denel (DIP beneficiary on LIFT, ALFA, LUH, Corvette and Submarine programmes); also of Denel.