The global software giant SAP was warned five times over five years that paying commissions for help securing public sector contracts in South Africa was an invitation to corruption. 

But for the most part, these warnings were ignored, former SAP Africa chief financial officer Deena Pillay told the Special Investigating Unit (SIU).

Pillay is one of the three executives who resigned from SAP after our #GuptaLeaks investigations revealed that SAP had paid more than R100-million in commissions to Gupta-controlled companies for help securing software deals at Transnet and Eskom.

So far Pillay has refused to talk about his role in the scandal. But in July, the SIU and the Department of Water and Sanitation filed a civil case against SAP with the Special Tribunal, the court set up to fast-track state capture cases. Included was a 20-page affidavit from Pillay and almost 200 pages of internal emails and SAP documents.

 

The SIU and department want SAP to repay R413-million for software licences they allege the department procured irregularly and were never used.

Pillay states in his affidavit that he became concerned about the practice of paying commissions to “business development partners” soon after he joined SAP in 2012. Business development partners are outside companies that are rewarded with commissions for bringing new business to SAP or for being what SAP documents describe as the “effective cause” of concluding new contracts.

Pillay told the SIU that he took his concerns to a senior executive in SAP’s Europe, Middle East and Africa (EMEA) region.

“[H]e said if I knew monies were being paid as bribes, we should not use [business development partners]. I told him I would never know if bribes were being paid and that all I could do was rely on the [business development partner] signing an anti-corruption questionnaire” and rudimentary due diligence reports.

Pillay said he raised his concerns again in 2013 at a conference in Germany but that a senior member of SAP’s global compliance team told him that the practice of paying business development partners was a “global policy”.

Pillay told the SIU that by 2016 “SAP Africa had the highest cost globally for the use of [business development partners]”. He claims he approached Peter David, SAP’s new chief financial officer for the EMEA region, to warn him that commissions paid to business development partners were getting out of hand. 

“I told [David] that every public sector deal was being concluded with a [business development partner] and that the cost was impacting both the local subsidiary and the EMEA expense budget.”

 

At the time, SAP had just agreed to pay 29.8% of the water department software deal to two business development partners. This would have amounted to R134-million in commission on a single deal, although only R86-million was ultimately paid. 

“He suggested that we limit the percentage being paid, it did not resolve my concern as to whether bribes were being paid. I therefore requested that he discusses the matter with [SAP global chief financial officer] Luka Mucic … to seek cancellation of this programme … but there was no feedback whatsoever to this request,” Pillay claims in his affidavit. 

It was only after allegations were first made in February 2017 that SAP paid kickbacks to secure the water department deal, that Pillay got the opportunity to speak to Mucic at another conference in Germany. 

“I raised my concerns once again … and asked him if SAP was still going to continue with the programme. His response was, yes – applied correctly, it could add value.”

Three months later, the #GuptaLeaks scandal broke, bringing to light evidence that SAP had paid more than R100-million in “commission” that looked like kickbacks to Gupta-controlled front companies for help securing contracts at Transnet and Eskom.

Pillay, whose signature was on some of the commission agreements, was suspended along with three other executives. While two of his colleagues resigned, Pillay fought to keep his position.

In his affidavit to the SIU he alleges that, on the day of his disciplinary hearing in February 2018, he was bullied by a senior SAP executive. “He told [me] that if I continue to defend the matter, even if I was successful in defending myself, SAP would contest the outcome and drag out the process until I was financially bankrupt. 

 

“I could never compete against the resources of a multinational giant like SAP, I gave in to the threat and resigned.”

How deep does the rot go?

Pillay cannot entirely recast himself as a whistle-blower though; an email included in his affidavit shows he motivated for SAP to make advance payments to two business development partners seemingly in order to secure the water department deal:

“Due to the size of the deal the partners are asking for an advance payment of €600k (€300k each) to defray expenses they have already incurred. As a principle, we do not pay commission in advance on [business development partner] led deals – following this request I have received an exception from the compliance team subject to your approval,” Pillay told David in a 27 June 2016 email marked “Confidential”. 

“If you are in agreement to this advance payment we will get the signed contract from the customer (DWS) tomorrow.” 

David agreed, provided the department “irrevocably signed” the contract first.

Instead, Pillay’s goal in cooperating with the SIU seems to be to show that corruption was an ever-present risk considering how SAP did business all over the world, and not – as SAP has suggested – a breach by a few rogue executives in South Africa. 

 

Pillay declined to speak to us, but on this point, he has backup from SAP’s own documents: The standard sales commission agreement has many clauses asking new business development partners to promise that they will not engage in corruption, but few explaining what business development partners will do to earn their fees.

From the water contract, we know that one of the tasks SAP set was to “meet informally with the minister” in order to sell the deal, even though ministers have no legitimate role in procurement.

Then minister, Nomvula Mokonyane is adamant that these meetings did not take place, but the business development partner was nonetheless paid R86-million.

New business development partners were also required to undergo due diligence to ensure, according to the SAP handbook, that they were “a properly licensed/registered, legitimate business” and “not merely a shell company … recently created for the purpose of channelling payments”.

While this approach seems prudent, it also raises the question: Did SAP expect corruption at every turn because often the reason for paying millions to business development partners was otherwise so paper-thin?

As SAP conceded in a leaked 2016 memo: “Commissions are the highest risk method of engaging with partners largely because the partner’s role in the deal is usually not transparent. It is possible the customer may not even know the partner was involved, which would make the likelihood that the partner performed legitimate, value add services unlikely.”

As a result, business development partners “could hide entirely behind the scenes – unknown to competitors or the end customer as having participated in the deal. Therefore, this model is subject to abuse and is most often at the centre of corruption cases you may read about globally”.

But what SAP admits to internally is different to what it is willing to say in the public domain.

SAP goes dark

In March 2018, SAP gathered a handful of South African journalists for a press conference and announced its investigation had found “irregularities” and “question marks” in deals secured with the help of Gupta-linked companies.

“For us at SAP this has been a deeply humbling and humiliating process. There’s no doubt we have considered it to be an extremely serious incident in our business… We understand many of our partners and customers have been disappointed and let down by SAP,” said Adaire Fox-Martin, a member of SAP’s global board, adding that SAP was “absolutely committed” to uncovering wrongdoing.