A dairy farm turned out to be a classic South African fraud, prosecutors say: Millions of dollars from state coffers, meant to uplift the poor, vanished in a web of bank accounts controlled by politically connected companies and individuals. Joao Silva/The New York Times
VREDE, South Africa — With loudspeakers blaring, city officials drove across the black township’s dirt roads in a pickup truck, summoning residents to the town hall. The main guest was a local figure who had soared up the ranks of the governing African National Congress and come back with an enticing offer.
Over the next few hours, the visiting political boss, Mosebenzi Joseph Zwane, sold them on his latest deal: a government-backed dairy farm that they, as landless black farmers, would control. They would get an ownership stake in the business, just by signing up. They would go to India for training, all expenses paid. To hear him tell it, the dairy would bring jobs to the impoverished, help build a clinic and fix the roads.
“He said he wanted to change our lives,” said Ephraim Dhlamini, who, despite suspicions that the offer was too good to be true, signed up to become a “beneficiary” of the project. “This thing is coming from the government, free of charge. You can’t say you don’t like this thing. You must take it.”
But, sure enough, his instincts were right.
The dairy farm turned out to be a classic South African fraud, prosecutors say: Millions of dollars from state coffers, meant to uplift the poor, vanished in a web of bank accounts controlled by politically connected companies and individuals.
The money from an array of state contracts like this one helped pay for a lavish wedding that a top executive at KPMG, the international accounting firm, described as “an event of the millennium,” according to leaked emails. And Mr. Zwane, continuing his meteoric rise, soon leaped to the national stage to become South Africa’s minister of mineral resources.
Almost nothing trickled down to the township or the scores of would-be beneficiaries after that first meeting in 2012. The only local residents to get a free trip to India were members of a church choir headed by Mr. Zwane.
In the generation since apartheid ended in 1994, tens of billions of dollars in public funds — intended to develop the economy and improve the lives of black South Africans — have been siphoned off by leaders of the A.N.C., the very organization that had promised them a new, equal and just nation.
Corruption has enriched A.N.C. leaders and their business allies — black and white South Africans, as well as foreigners. But the supposed beneficiaries of many government projects, in whose names the money was spent, have been left with little but seething anger and deepening disillusionment with the state of post-apartheid South Africa.
While poverty has declined since the end of apartheid, inequality has risen in a society that was already one of the world’s most unequal, according to a recent report by the World Bank and the South African government.
South Africa has a large, advanced economy, an aggressively free press and a wealth of independent organizations and scholars who keep a close watch on government malfeasance. But even with its vibrant democracy, in which the details of corruption schemes are routinely aired and condemned by the news media and opposition politicians, graft has engulfed the country.
The nation was governed for nine years by the scandal-plagued PresidentJacob Zuma, whose close ties with the Gupta family — three Indian brothers at the helm of a sprawling business empire built on government contracts, including the dairy farm — outraged voters. Their cozy relationship contributed to the A.N.C.’s recent electoral losses and helped lead to Mr. Zuma’s ouster two months ago.
Promising a “new dawn,” Mr. Zuma’s replacement, Cyril Ramaphosa, has said that he would make fighting corruption a priority as the nation’s new president. But he is also a veteran A.N.C. insider, and the early signs have not been encouraging.
Having become party leader by a razor-thin margin, Mr. Ramaphosa has tried to keep together a fractured A.N.C. by moving cautiously. He formed his first cabinet by appointing some well-respected officials, but also included allies — his own and Mr. Zuma’s — who have been accused of corruption by the Public Protector’s office and good governance groups.
Beyond that, politicians who long oversaw provinces rife with public corruption, including the one where the dairy farm is, now sit at the top of the A.N.C.’s hierarchy.
National prosecutors, often criticized for being servile to the sitting president, say they are trying to recover more than $4 billion lost to corruption related to the Gupta family’s undue influence on Mr. Zuma’s administration.
And that is just a small measure of the corruption that has whittled away at virtually every institution in the country, including schools, public housing, the police, the power utility, South African Airways and state enterprises overseeing everything from rail service to the defense industry.
Almost no one comes out of this looking good.
At just under $21 million, the money lost in the Vrede dairy farm may seem small. But it is a big test of whether South Africa’s new government has the power and the will to confront public corruption at its source.
The police have apprehended some low- and midlevel officials involved in the dairy farm, the first arrests related to a high-profile case of public corruption during the Zuma presidency. But notably, they have yet to pursue any A.N.C. officials. Mr. Zwane has not faced any charges. What’s more, the provincial premier who approved the project, Ace Magashule, was recently elected secretary general of the A.N.C., elevating him to the top ranks of the party’s leadership.
The endless scandals have also raised serious questions about the complicity of major Western companies, with multiple investigations scrutinizing the role they may have played in enabling corruption and weakening the country’s institutions.
South African regulators have urged the police to begin a criminal inquiry into McKinsey, the American consulting giant, over its relationship with a Gupta-linked company in a contract involving a state-owned utility. A South African court has frozen the $83 million McKinsey was paid for the contract, and the firm says it will return the fee.
Regulators say they have also pressed the police to investigate KPMG, the Big Four auditing firm based in the Netherlands, for its work for the national revenue service in 2015. KPMG has acknowledged that elements of the work “should no longer be relied upon” and offered to pay back its consulting fees.
SAP, the German software behemoth, is being investigated by the United States Department of Justice and the Securities and Exchange Commission after it disclosed payments to intermediaries on state contracts that may have contravened the Foreign Corrupt Practices Act.
International banks have been ensnared in the scandals, too. HSBC and Standard Chartered have been accused by a British lawmaker of laundering the Guptas’ ill-gotten gains. HSBC says it has closed a number of accounts that belonged to front companies operated by the Gupta family.