German software giant SAP and EOH affiliate company Twenty Third Century Systems (TTCS) have been accused of bribery to secure a multimillion dollar software contract in Tanzania.
A whistle blower complaint, lodged with the US Securities and Exchange Commission and the US Department of Justice, alleges that SAP was involved in corruption and fraud in violation of US securities laws, including the Foreign Corrupt Practices Act. SAP is subject to the FCPA as its shares are listed on the New York Stock Exchange as American depository receipts.
The anonymous whistle blower claims through a firm of attorneys that SAP used TTCS to fund officials at the Tanzania Ports Authority (TPA) to win a US $ 6.6 million enterprise resource planning software tender that involved the provision of software licenses and services. Seven companies in the total bid for the tender, with some bidders coming in substantially below TTCS's bid.
SAP has confirmed to TechCentral its receipt of the complaint and said it acted immediately by suspending TTCS as channel partner and appointing law firm – believed to be Paul Hastings – to investigate the facts. It said that no TTCS transactions are currently permitted by SAP "without passing an independent assessment by external counsel", while EOH has "taken full ownership of any future TTCS deals". EOH owns 49% of TTCS. It acquired that stake in 2015 and told TechCentral on Thursday that it was not aware of the allegations at the time of purchase.
News of the alleged bribes comes a year after SAP admitted that it had made payments to Gupta-linked companies in South Africa and uncovered irregularities in the "management of third parties" and adherence to its compliance processes. For EOH, the timing is even more unfortunate given that it is still reeling from allegations surrounding a department of defense contract that prompted Microsoft to cancel two partnership agreements with its subsidiary EOH Mthombo.
Letter to McDermott
The SAP / TTCS whistle blower alleges that the bribes were paid to TPA officials with the "full knowledge" of former SAP Africa CEO Pfungwa Serima, who now leads the JSE-listed document management specialist Metrofile. Serima has strongly refuted the allegations contained in the whistle-blower report (more on this later in the article).
In a September 2018 letter to SAP CEO Bill McDermott and other senior SAP officials, the whistle blower alleges, through his attorneys, that TTCS – a company partially acquired by EOH for three and a half years ago for an undisclosed sum – paid $ 800 000 and bribes to TPA authorities to secure the deal for SAP / TTCS. SAP allegedly provided significant discounts to TTCS so that it would have enough margin to cover the cost of alleged bribes.
The allegations state that a top former TPA official, whose name is known to TechCentral, and a former top TTCS executive, whose name is also known to this publication, colluded on a meeting to create a draft tender document to ensure that only TTCS bid could meet the technical requirements, thereby effectively eliminating competitors. The whistle blower was allegedly present when this meeting took place at the Southern Sun Hotel in Dar es Salaam. (TechCentral has not published the names of the TPA official and the TTSS executive as it has not yet been able to reach them for comment. The TTCS official has since been fired by EOH after it learned about the allegations.)
It was alleged that SAP's bid management and presales team and TTCS's technical team discussed the technical details of the tender extensively before its publication.
The whistle blower was allegedly present at a meeting in Barcelona in early 2015, when the TTCS executive informed SAP's Serima about the $ 800,000 in the moneys allegedly to be paid to TPA officials. In a letter to SAP's McDermott, through his attorneys, he claimed that Serima knew about and approved TTCS's "corrupt actions" in obtaining the TPA tender.
"During the Barcelona meeting with Serima, (the former TTCS executive) noted that TTCS was paying $ 800,000 to Tanzanian officials to win the TPA deal and that he (the former executive) believed that the TPA officials were extremely greedy for requiring such large mits , "The letter said.
The former TTCS executive also allegedly explained to Serima that, in exchange for payments to officials, TPA tender was rigged, as TPA officials had incorporated SAP's own technical specs into the tender and that the officials of TPA would ensure that SAP / TTCS was awarded the deal.
The former top executive allegedly provided this background because he wanted to make sure that it was clear to Serima that TTCS would need a large discount on TPA deal to cover all payments to TPA officials and to explain why TTCS might not be able to fully advance the requested bribes associated with another project that SAP / TTCS worked to obtain from the Kenyan government.
'Cash in his suitcase'
"(The former TTCS executive) noted that he paid $ 100,000 of the $ 800,000 before the tender award. In early 2015, at a restaurant bar in Barcelona, (the former executive) said that he placed cash in his suitcase and traveled from South Africa to Tanzania to pay TPA officials. The remaining $ 700,000 was paid after the tender was awarded, "the letter to McDermott continued.
SAP, the whistle blower said, was "engaged in a large bribery scheme" in Tanzania with TTCS. "Beyond SAP executives and personnel directly involved in corruption, SAP's internal controls failed to detect and prevent illegal payments from being made to Tanzanian officials."
"Furthermore, SAP failed to carry out due due diligence on TTCS and its internal controls failed to detect red flags that should have alerted its employees that these payments, in whole or in part, were part of a large scheme of bribery which was partly committed by Serima and TTCS. "
Serima rubbishes allegations
Serima has rubbished the allegations. Speaking to TechCentral on Thursday, he said it's the first time he's heard about them. "SAP has never contacted me" about the whistle blower report or the investigation by Paul Hastings, he said. "If there was a need to do so, they would have done that."
He said he was not involved in the TPA deal "at all". He denied that he attended a meeting in Barcelona, as alleged. "I never talked to the customer (TPA) in any forum. The customer does not know me. "
EOH and SAP respond
An EOH spokeswoman told TechCentral on Thursday that it was made aware of the SAP investigation in October 2018. "We understand that the investigation relates to matters before the acquisition of a stake in the business by EOH," she said.
"The investigation arose from a whistle blower regarding alleged misconduct in certain SAP-related transactions in Africa before 2015," she added. "EOH and TTCS fully cooperated with SAP and their legal representatives and will continue to do so, if further information is required. We are not aware of the extent to which this matter is being investigated by any regulators. EOH has removed the implicated party within TTCS and has taken over the management of the company as part of the rehabilitation process. "
The SAP spokeswoman, meanwhile, confirmed to TechCentral that it received the allegations regarding "potentially inappropriate conduct involving a formal SAP partner … related to certain 2014 and 2015 TTCS partner transactions with state-owned entities in Kenya and Tanzania".
"At the time, SAP issued an immediate suspension of TTCS and hired a separate law firm to conduct a detailed factual investigation," she said.
"Since then, in addition to management changes, measures have been put in place by SAP and TTCS to further strengthen compliance. SAP also continues to cooperate with investigations conducted by US and local law enforcement, "she added.
"Furthermore, SAP has required EOH, as a parent entity, to certify in writing that all new transactions meet SAP's strict compliance standards. Currently, all financial transactions are blocked pending SAP finance terms. EOH has taken full ownership of any future TTCS deals, "the spokeswoman said.
"Due to the ongoing nature of these investigations, SAP can not provide any further comments at this time."
She added, however, that the software giant "remains committed to the highest standards of business ethics, and we expect the same level of commitment from the partners with whom we choose to do business".
The EOH spokeswoman said the company is "committed to ethical leadership" and "weeding out" corruption where it occurs "in a responsible manner". – © 2011 NewsCentral Media