To clinch Transnet business, business software giant SAP agreed to pay 10% “sales commission” to a company controlled by the Guptas. The evidence suggests the company – a little-known outpost of the Gupta empire – was deliberately interposed to obscure Gupta involvement and to launder the proceeds to them. By AMABHUNGANE & SCORPIO.

With €22-billion (about R330-billion) in revenue last year, German software multinational SAP should have all the expertise it needs to close major deals.

Instead, the #GuptaLeaks and related information show, the world’s third largest software company is not above calling in help from the politically connected, risking contravention of international anti-bribery laws.

AmaBhungane and Scorpio can reveal that in August 2015, SAP signed a “sales commission agreement” with a small Gupta-controlled company that specialises in selling 3D printers.

The terms suggest a thinly disguised kickback arrangement: If the Gupta company were the “effective cause” of SAP landing a Transnet contract worth R100-million or more, it would get 10%.

In the year to follow, SAP paid the company, CAD House, a whopping R99.9-million, suggesting SAP used the Gupta influence network to drive sales of a billion rand to Transnet and other state-owned companies.

SAP denies it paid kickbacks or was party to laundering the payments, arguing that CAD House had “the necessary skills in terms of positioning our solution” and was paid a sales commission for acting as “an extension of the sales force”.

But there are factors suggesting that SAP’s denial does not hold water: There is no evidence that CAD House had any experience marketing or selling SAP software. And CAD House appears to have been used as a front, both to distance the transaction from the Guptas and to launder the proceeds to them.

Neither CAD House nor the Gupta family responded to detailed questions.

Strategic customer

In 2014, Transnet was considered so key to SAP’s business that it was defined as a “strategic customer” – a designation given to just 300 out of 197,000 SAP customers worldwide, according to an SAP presentation found in the #GuptaLeaks.

Despite its special relationship, SAP was seemingly having trouble closing deals with Transnet and turned to the Guptas for help, the trove shows.

CAD House, which specialises in selling 3D printers, is not widely known to be part of the Gupta empire. At the time it was, on paper, half owned by Santosh Choubey, a key Gupta lieutenant employed by their Sahara Systems.

Minutes and other #GuptaLeaks records show, however, that CAD House was managed as a subsidiary of the Sahara group – indicating that beneficial ownership rested with the Guptas themselves.

In an interview, SAP South Africa chief financial officer Deena Pillay claimed that CAD House was no different to other sales agents SAP uses. “They’re small guys who would go out there, identify business and come to SAP with that opportunity. It’s a lever available to SAP to sell its software… We’ve got a sales force that we employ, so these are the agents on the ground… They are an extension of the sales force.”

In SAP’s world, commission agreements are not unusual. Except in this case Transnet was already a client of SAP and the commission agreement with CAD House made it clear SAP was not so much hiring a sales agent to market a product to Transnet as a fixer to clinch the deal.

The commission agreement was signed on 20 August 2015 by Pillay and another senior SAP executive. It promised CAD House 10% if CAD House was the “effective cause” of Transnet signing a R100-million-plus deal with SAP.

CAD House’s “main purpose”, it specified, “is to assist [SAP] in obtaining Customer consent to the Customer Contract and Customer’s requisite signatures to such agreement”.

Due diligence

SAP’s Pillay told us that an “external reputable company” did a “rigorous due diligence” on CAD House before the agreement was signed. Pillay’s colleague Candice Govender, who is SAP South Africa head of legal, confirmed that SAP was aware CAD House was connected to Sahara, but found “no red flags”.

Yet, by the time SAP signed the commission agreement in August 2015, the red flags were in plain sight.

Three weeks earlier, amaBhungane and the Mail & Guardian had revealed how telecoms firm Neotel agreed to pay letterbox company Homix R104-million in what were also termed “commissions” – clearly kickbacks – to land Transnet contracts.

Our exposé at the time showed that a Gupta man was behind Homix. Immediately after the exposé, Neotel’s chief executive and chief financial officers went on “special leave”, ultimately to lose their jobs.

Two possibilities present themselves: Either SAP ignored the obvious red flags about the Guptas’ alleged involvement as fixers at Transnet, or it signed up for exactly the same service.

In a settlement with the US Securities and Exchange Commission last year, SAP agreed to pay a $3.9-million fine after a senior SAP official paid bribes for state business in Panama via a local partner.

The SEC had jurisdiction because of SAP’s secondary listing on the New York Stock Exchange.

The road to closure

Even for questionable commission agreements, 10% appears to be high. One industry insider put the usual “fixer” fee at closer to two or three percent. With the Neotel deals, Homix was to receive roughly 5% of the roughly R2-billion Transnet contract value.

But SAP not only wanted a Transnet deal worth a minimum of R100-million, it wanted it signed within just one month.

In an attached timeline of deliverables, referred to in the commission agreement as the “Road to Closure”, CAD House and Choubey were expected to secure a meeting with Transnet chief financial officer Garry Pita within just three days to “position the financial benefit” of SAP’s proposal.

After that it was not a sales effort, but one simply of getting Pita and Transnet to give the necessary approvals. The timeline provided that Pita would have the required R100-million-plus “budget reallocated for capital approval” only a week later.

By 21 September 2015, a month after SAP signed the commission agreement, CAD House was expected to “fast-track and attempt to obtain contract signature” from Pita and Transnet’s chief information officer – although it had leeway until the end of December still to qualify for the commission.

While there is scant information in the agreement about how CAD House would work such a miracle, the agreement – in common with many commission contracts – contained extensive anti-bribery clauses, making CAD House promise that it would not pay any money in turn to government, state-owned company or party officials.

But the circumstances suggest this was little more than a fig leaf.

Fronting for the Guptas

The evidence suggests that CAD House was interposed as a front to avoid exactly the kind of red flags that the Guptas as politically connected persons would have raised during a due diligence.

For a company with a turnover of less than R20-million and struggling to make any profit at all, the prospect of millions in commission should have been a major development.

Yet, #GuptaLeaks minutes of monthly CAD House meetings straddling the date of the commission agreement make no mention of the expected windfall. The meetings, at Gupta holding company Oakbay Investment’s Sandton offices, were attended by both Sahara and CAD House officials and discussed revenue-generating proposals for the latter.

A CAD House budget signed off in February 2016 – six months after the commission agreement was signed and shortly before SAP’s payments were to start rolling in – made no mention of the income either.

As we shall see, this was with good reason: SAP’s payments were not to stay with CAD House, but flow straight out to other Gupta companies.

Although SAP vehemently defended the decision to hire CAD House, Pillay and Govender seemed unable to explain why a company that sells 3D printers was an ideal partner for a complex software deal.

“We were doing a proof of concept and CAD House was an existing vendor at Transnet and we were looking at doing 3D models for these guys to show them the value and the benefit of using our solution,” Pillay told us.

When pushed for further detail of what SAP product required it to be modeled in 3D, Pillay said: “[The deal] was about Transnet in terms of the rail infrastructure, the way the operations work, the yards, the trains – all of that these guys were able to do the necessary 3D modelling as well as being able to position the SAP solution.”

When we pointed out that CAD House’s speciality is selling printers that make physical 3D models, Govender deflected: “At the end of the day they [CAD House] were vetted internally and externally; SAP was happy that they added value; [Transnet] was happy that they added value… Look, you have the CFO and SAP head of legal in front of you… If you need more technical detail you don’t have the right people in front of you.”

There are compelling reasons to be sceptical of SAP’s explanation:

One, Pillay signed the commission agreement on behalf of SAP and would surely have been privy to why SAP was giving away 10% of a minimum R100-million deal.

Two, If SAP honestly did want plastic models of its software solution it could have bought them at a fraction of the cost.

And three, despite Pillay maintaining that SAP engaged CAD House because of its “existing relationship [and] understanding the processes within Transnet”, Transnet denied it had any relationship with CAD House whatsoever.

Pita, the Transnet chief financial officer and “Road to Closure” target of SAP and CAD House’s lobbying efforts, wrote in reply to our questions: “According to our records, Transnet has not conducted business with CAD House. I have never heard of CAD House or dealt with them, nor have I had any discussions with a Mr Choubey about them.

“I have never been approached by CAD House or Mr Choubey to discuss Transnet’s contract with SAP or SAP’s services and products. I have not met with any third party to discuss contracts between Transnet and SAP.”

All in all, a more plausible explanation for the payments to CAD House may be that SAP willingly entered into a kickback agreement where both parties knew the Guptas, not CAD House, were to receive SAP’s millions and use their politically-derived influence to secure business for SAP. This is supported by what happened in the run-up to the deal.

The start of a beautiful friendship

The #GuptaLeaks show that Lawrence Kandaswami, SAP South Africa’s managing director, was the software multinational’s key contact with the Guptas.

As far back as 2014, when he was still SAP’s account director responsible for Transnet, Kandaswami exchanged emails with Choubey, who used his Sahara Systems email address.

At the time, SAP was trying to close a separate deal with Transnet to buy SAP Hana, a database management product.

A day after meeting with Transnet, Kandaswami forwarded Choubey the SAP presentation marked “strictly confidential”, detailing the proposed deal.

Kandaswami’s message read: “This is to prompt movement on the opportunity.” Choubey immediately forwarded the email to Salim Essa, with a note saying: “Sir – FYI – Supporting for Hana from SAP.”

Essa, a key Gupta lieutenant, has often been the family’s most direct point of contact at Transnet and Eskom.

The #GuptaLeaks do not show what Essa did after receiving Kandaswami’s email but Transnet confirmed that it agreed to go ahead with the proposed SAP Hana deal in late 2014.

By February 2015, Kandaswami had been promoted to SAP South Africa’s head of public sector, according to his LinkedIn profile. Both Transnet and Eskom’s accounts were now under his purview.

There are indications that a similar role was played at Eskom too.

On 17 February 2016, the #GuptaLeaks show, Choubey scheduled a meeting between Sahara and SAP. Two weeks later, on 2 March, Kandaswami emailed Eskom chief financial officer Anoj Singh, head of procurement Edwin Mabelane and head of generation Matshela Koko about an urgent deal for Eskom to acquire SAP Hana.

The offer would expire, he warned, at the end of March unless Eskom seized the opportunity.

In a pattern that has now become familiar, Kandaswami almost immediately forwarded this email to Choubey, who forwarded it to one of the Gupta brothers’ adult children.

Eskom spokesperson Khulu Phasiwe confirmed that Eskom signed two contracts with SAP during 2015 and 2016, but declined to provide any further detail, citing a confidentiality agreement signed with SAP.

Shortly after these exchanges took place, Kandaswami was promoted to managing director for SAP South Africa.

R99.9m payday

Following the signing of the Transnet commission agreement, the money started flowing to CAD House – and straight out again.

The first SAP payment we know about landed in CAD House’s bank account in April 2016. The R17-million did not stay there long; on the same day R2-million was transferred out to Sahara Computers and R2.3-million to an obscure Eastern Cape company whose owner we have been unable to trace.

Within five days another R10-million was transferred out: R9-million to Sahara Computers and a million to Baroda, the Guptas’ bank of choice.

A similar pattern was repeated that July when R9.2-million came in from SAP. Within two days, R7.7-million bounced to Sahara Systems and R1.1-million to the Eastern Cape company.

In December that year, a massive R73.7-million rolled in from SAP. Within a fortnight, R71.1-million had gone out to three companies in the Sahara orbit: Cutting Edge, Futureteq and Sahara Systems.

All in all, we identified R99.9-million in SAP payments of which only R5.7-million did not flow straight out.

The amount appears not to relate only to the R100-million minimum Transnet contract that was the subject of the commission agreement we know about. Pillay and Govender confirmed that SAP paid CAD House in respect of “other customers” too, but refused to give details, citing client confidentiality.

This pattern, of money being cycled through Gupta-controlled accounts at a rate that defies all commercial reason, has become familiar through the #GuptaLeaks.

When we put it to SAP that it may have become party to a money laundering scheme by contracting with CAD House, Govender objected strongly, saying: “We are not aware of any payments being made to Sahara or anybody else. Our contract is with CAD House.”

Pillay added: “What the partner does with their money I have no control over. If you say these guys pass the money up the line, I have no control over that, I have no visibility over that.”

SAP may end up having to explain that to the Securities and Exchange Commission too, which will have SAP on a watch list after last year’s settlement over bribery in Panama. In that matter, the SEC found that SAP “failed to devise and maintain an adequate system of internal accounting controls” to prevent bribery.

Transnet did not respond to questions other than to mirror Pita’s comments, saying it had “never conducted any business with CAD House. The company is not aware of CAD House’s involvement with SAP or Mr Choubey”.

Detailed questions were sent to SAP’s Kandaswami and Sahara’s Choubey, but neither responded.

In a written statement, Govender said: “SAP is dedicated to conducting every aspect of our business responsibly and in accordance with the highest legal standards… With regard to CAD House and SAP SA Business Development Partners in general, please note that any selected SMMEs and/or partners are verified, both in terms of SAP’s rigorous internal forensic procedure as well as by an independent forensic law firm.” DM

Photo: Ajay and Atul Gupta.