The DOJ has announced that McKinsey and Company Africa (Pty) Ltd (“MCKINSEY AFRICA”),  a wholly owned and wholly controlled subsidiary of McKinsey & Company (an international consulting firm) has resolved a Foreign Corrupt Practices Act enforcement action based on alleged bribery schemes in South Africa. 

The conduct at issue largely focuses on Vikas Sagar (a citizen of India, a lawful permanent resident of the United States, a resident of South Africa) who was a partner and senior partner of McKinsey working in McKinsey’s office in Johannesburg, South Africa, and a stockholder, employee, and agent of McKinsey. In connection with the same conduct alleged in the McKinsey enforcement action, the DOJ also announced the unsealing of a guilty plea in which Sagar pleaded guilty to conspiracy to violate the FCPA’s anti-bribery provisions.

The alleged bribery schemes involved:

  • Transnet SOC Ltd. (“Transnet”) – a South African state-owned and state-controlled company headquartered in Johannesburg, South Africa, that operated as the custodian of South Africa’s ports, rails, and pipelines – along with Foreign Official 1 who was a high-ranking official and board member at Transnet with responsibility over procurement and contracting; and 
  • Eskom Holdings SOC Ltd. (“Eskom”) –  a South African state-owned and state-controlled company headquartered in Sandton, South Africa, that operated as South Africa’s public power utility along with Foreign Official 2, who was a high-ranking official at Eskom with responsibility over procurement and contracting.

Under the heading “Overview of the Bribery Scheme,” the information alleges:

“From at least in or around 2012, up to and including in or around 2016, MCKINSEY AFRICA, the acting through Sagar and for and on behalf of McKinsey, agreed with others to bribe foreign officials in South Africa to obtain and retain business for McKinsey and MCKINSEY AFRICA and partner firms, Company 1 and Company 2 [Company 1 is described as a consulting firm incorporated in South Africa, with its principal place of business in South Africa and an agent of MCKINSEY AFRICA and Company 2 is described as a consulting firm incorporated in South Africa, with its principal place of business in South Africa and an agent of MCKINSEY AFRICA].

In furtherance of the scheme, MCKINSEY AFRICA, together with co-conspirators, among other things: (a) obtained sensitive confidential and non-public information from Transnet and Eskom through CC 1 [a South African national and businessperson who worked in South Africa], CC 2 [a South African national and businessperson who worked in South Africa at Company 1 and Company 2] and others, regarding the award of consulting contracts; and (b) submitted proposals for multimillion-dollar consulting contracts to Transnet and Eskom on behalf of MCKINSEY AFRICA and partner firms, Company 1, and Company 2, knowing that a portion of the proposed consulting fees from the contracts would be used to pay bribes to Foreign Official 1 and Foreign Official 2.

In carrying out the scheme …, McKinsey and MCKINSEY AFRICA, through Sagar, engaged in communications with co-conspirators, relying on email, messaging apps, and other forms of communication that used the means and instrumentalities of interstate commerce, and in total, McKinsey and MCKINSEY AFRICA earned profits of approximately $85,000,000 as a result of the bribery scheme.”

Under the heading “Bribes Involving Transnet,” the information alleges:

“In or around 2011, in an effort to obtain business for MCKINSEY AFRICA … with Transnet, Sagar began meeting with Foreign Official 1, a former acquaintance of Sagar. Sagar knew that Foreign Official 1 was a board member at Transnet with the ability and authority to influence the award of consulting contracts.

McKinsey, MCKINSEY AFRICA, and Sagar were aware that, pursuant to South Africa’s Broad-based Black Economic Empowerment Act of 2003 and the South African government policies implementing it, and other subsequently promulgated policies, including the Supplier Development & Localization Plan (collectively, the “BEE program”), MCKINSEY AFRICA’s ability to obtain contracts with Transnet depended, in part, on MCKINSEY AFRICA’s engagement of certain local South African subcontractors as BEE program partners. Pursuant to the requirements of the BEE program, MCKINSEY AFRICA agreed to split the fees that were payable on contracts for which it partnered with South African companies. Accordingly, MCKINSEY AFRICA’s client would pay a portion to MCKINSEY AFRICA and a portion directly to MCKINSEY AFRICA’s BEE partner.

In or around 2012, Foreign Official 1 suggested to Sagar that MCKINSEY AFRICA engage Company 1 as its BEE program partner for future consulting engagements at Transnet, and Sagar agreed to the request.

In approximately the latter half of 2012, Foreign Official 1 helped arrange a meeting between Sagar and representatives of Company 1 at a restaurant in Sandton, South Africa. Following this meeting, Sagar exercised his influence within MCKINSEY AFRICA, to encourage the selection of Company 1 as MCKINSEY AFRICA’s BEE partner for consulting work at Transnet, and MCKINSEY AFRICA selected Company 1 in or around late 2012.

Also in the latter half of 2012, Foreign Official 1 introduced Sagar to CC 1—an individual with no apparent connection to Transnet—and indicated that CC 1 would serve as Sagar’s intermediary for communications with Foreign Official 1 relating to MCKINSEY AFRICA’s contracts with Transnet moving forward.

Following CC 1’s introduction by Foreign Official 1, CC 1 acted as Sagar’s primary point of contact regarding MCKINSEY AFRICA, and Company 1’s efforts to obtain consulting contracts from Transnet, and the division of fees between MCKINSEY AFRICA and Company 1 (a portion of which Sagar understood to continue to be paid to or for the benefit of CC 1 and Foreign Official 1). In return for the bribes, Foreign Official 1 acted as MCKINSEY AFRICA’s “inside man” at Transnet, providing confidential, inside information from Transnet through CC 1 and orchestrating the award of multiple lucrative contracts to MCKINSEY AFRICA over a period of years.

To avoid detection, Sagar and CC 1 conducted meetings at coffee shops, restaurants, and other locations in and around Johannesburg, South Africa, instead of meeting at MCKINSEY AFRICA or Transnet offices. Sagar and CC 1 also limited their use of written communications over the course of the scheme, and when they did correspond via email, they often used private personal email addresses rather than Sagar’s McKinsey email address.

As part of the scheme, MCKINSEY AFRICA, through Sagar, received sensitive non-public information from Transnet, which was transmitted to Sagar by CC 1. Such information included confidential, inside information regarding MCKINSEY AFRICA’s competitors for contracts, and Transnet’s decision-making for such contracts. For example, CC 1 advised Sagar as to the identities of potential competitors for consulting contracts that MCKINSEY AFRICA sought at Transnet and provided advance assurances that MCKINSEY AFRICA would receive the award of a contract focusing on Transnet’s acquisition of certain locomotives. Also in furtherance of the scheme, Sagar shared confidential MCKINSEY AFRICA information and work product with CC 1 regarding the work that MCKINSEY AFRICA sought to conduct at Transnet and its proposed engagement with Company 1. For example, on or about February 10, 2014, Sagar sent an email to CC 1 containing confidential internal MCKINSEY AFRICA information regarding a specific project at Transnet, proposed division of work between MCKINSEY AFRICA and Company 1, and the proposed division of fees between MCKINSEY AFRICA and Company 1 of nearly 50 percent. CC 1 subsequently forwarded the information to CC 2. 

At CC 1’s urging—which Sagar understood to be coming from Foreign Official 1—the fee split between MCKINSEY AFRICA and Company 1 shifted over time, increasing the share of fees that were being paid to Company 1, even though Company 1’s contributions to the work being done for Transnet diminished.

Nevertheless, and repeatedly, MCKINSEY AFRICA, through Sagar, submitted and caused proposals for multimillion-dollar consulting contracts to be submitted to Transnet, understanding that a portion of the consulting fees from the contracts would be used to pay bribes to Foreign Official 1. MCKINSEY AFRICA personnel, including Sagar and others whom Sagar did not advise of the bribery scheme, also participated in the drafting of Transnet and, later, Eskom, Requests for Proposals and internal memoranda that justified the award of contracts to MCKINSEY AFRICA without a public tender process. These efforts were intended to prevent MCKINSEY AFRICA’s competitors from competing fairly for awards of contracts, and they had the effect of ensuring that Transnet and Eskom’s awards of contracts occurred on a sole-source basis.”

Under the heading “Bribes Involving Eskom,” the information alleges:

“In or around 2015, multiple Transnet executives who had worked with MCKINSEY AFRICA, transitioned to leadership positions at Eskom. Around that same time, CC 2 advised Sagar of CC 2’s intent to spin off a new consulting entity, Company 2. 

MCKINSEY AFRICA, was seeking to obtain consulting contracts at Eskom at that time, and Sagar joined MCKINSEY AFRICA’s client service team for Eskom. Between in or around 2015 and continuing until in or around 2016, as MCKINSEY AFRICA sought business with Eskom, Sagar continued to work with CC 1 and CC 2, with the understanding that the bribery scheme at Transnet would continue at Eskom.

At Eskom, MCKINSEY AFRICA’s, bribery scheme proceeded in a very similar manner as it had at Transnet, but with Company 2 ultimately replacing Company 1, and with at least Foreign Official 2 receiving the bribes rather than Foreign Official 1. CC 1 worked on MCKINSEY AFRICA’s behalf to orchestrate the award of contracts to MCKINSEY AFRICA. In exchange for these efforts, CC 1 and Foreign Official 2 would receive a portion of the fees paid to Company 2 as MCKINSEY AFRICA’s BEE partner for Eskom work.

In communications with Sagar, Foreign Official 2 focused heavily on the proposed fee split between MCKINSEY AFRICA, and its BEE partner, insisting that fees be split 50/50. For Eskom engagements, MCKINSEY AFRICA’s BEE partner was initially Company 1, but MCKINSEY AFRICA was in the process of formally retaining Company 2 as its BEE partner after CC 2 spun off the entity. CC 1 and personnel from Company 2 again pressured Sagar to deliver an even split of fees between Company 2 and McKinsey.

On or about November 16, 2015, in connection with the negotiation of a potentially highly lucrative contract with Eskom, personnel from Company 2—copying CC 1 and CC 2— emailed Sagar at his McKinsey business email address, also copying Sagar’s personal email address, (i) requesting proof that fees from the engagement would be subject to a “50/50 fee split” and (ii) noting that CC 1 needed such proof in advance of setting up a meeting with key Eskom executives. 

On or about November 18, 2015, using the means and instrumentalities of interstate commerce, Sagar responded to the email referenced above, using his personal email address, copying CC 1, and attaching a confidential internal spreadsheet by MCKINSEY AFRICA, showing a near-50 percent split for Company 2 from the project: the equivalent of hundreds of millions of U.S. dollars in projected revenue. Sagar understood that a portion of the contract split for Company 2 would be paid to Foreign Official 2 in exchange for Eskom awarding the contract to MCKINSEY AFRICA and its potential BEE partner, Company 2. In or around December 2015, Eskom awarded the contract to MCKINSEY AFRICA.

In or around late 2015 and early 2016, MCKINSEY AFRICA, conducted due diligence on Company 2, but did not complete its due diligence process before beginning work on the Eskom contract with Company 2. In or around March 2016, MCKINSEY AFRICA rejected Company 2 as a BEE partner after Company 2 failed to respond adequately to MCKINSEY AFRICA’s due diligence inquiries. MCKINSEY AFRICA notified Eskom that MCKINSEY AFRICA would not engage Company 2 as its BEE partner, but MCKINSEY AFRICA continued to work alongside Company 2 at Eskom, until Eskom notified MCKINSEY AFRICA in June 2016 that the contract would be terminated. Separately, in or around March 2016, MCKINSEY AFRICA terminated Company 1 as its BEE partner, and provided notice to Transnet, after public reporting regarding the involvement of a recently departed Company 1 executive in a scandal, and linking the Company 1 executive to politically exposed persons.

On October 5, 2016, Sagar traveled to New York City to meet with a senior executive of Eskom and others to discuss MCKINSEY AFRICA’s, work under the contract in furtherance of the bribery scheme. MCKINSEY AFRICA’s work for Eskom ended in or around November 2016.”

Based on the above allegations, the information charges MCKINSEY AFRICA with conspiracy to violate the FCPA’s anti-bribery provisions.

The criminal charge against MCKINSEY AFRICA was resolved through a three year deferred prosecution agreement.

The DPA contains an advisory Sentencing Guidelines fine range of $180 million – $360 million and states that the appropriate criminal penalty is $122.85 million (Total Criminal Penalty).

Pursuant to the DPA, McKinsey agreed to pay a monetary penalty of $61.425 million as the DOJ agreed to credit toward the Total Criminal Penalty the amount paid by McKinsey to authorities in South Africa from violations of South African law related to the same conduct.

In the DOJ release, Principal Deputy Assistant Attorney General Nicole Argentieri stated:

“McKinsey Africa bribed South African officials in order to obtain lucrative consulting business that generated tens of millions of dollars in profits. As a consequence, McKinsey Africa has agreed to pay a criminal penalty of more than $122 million. The resolution […]  — 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. Through the ICAB, the Criminal Division remains committed to strengthening its international partnerships, including in South Africa, to combat corruption.”

U.S. Attorney Damian Williams for the Southern District of New York stated:

“McKinsey Africa participated in a years long 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. 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. This office and our law enforcement partners will continue our fight against American companies that seek to gain an unfair business advantage by supporting corrupt political officials overseas, no matter the industry, no matter the country, and no matter how prominent or profitable those companies may be.”

Assistant Director Chad Yarbrough of the FBI Criminal Investigative Division stated:

“This settlement underscores our unwavering commitment to holding companies accountable that willfully engage in corrupt activities around the world. McKinsey Africa engaged in a serious and long-running bribery scheme to secure contracts by corrupting government officials. This misconduct is a blatant violation of law and a breach of public trust. No matter what country the crime occurs in, the FBI will always work closely with our international partners to root out corruption.”

Inspector in Charge Eric Shen of the U.S. Postal Inspection Service (USPIS) Criminal Investigations Group stated:

“McKinsey Africa will pay over $122 million, a clear indication that corruption comes at a significant cost. The resolution of this case underscores that justice has no borders, and those who engage in bribery and conspire to commit crimes will be held accountable. The Postal Inspection Service is committed to ensuring that government resources and international partnerships serve the public good and are never exploited for personal or corporate gain.”

Morrison & Foerster attorneys Edward Imperatore and Charles Duross (the DOJ’s former FCPA Unit Chief) represented the McKinsey entities.