SAP faces U.S. probe into South Africa kickback allegations

By Eric Auchard and Joe Brock

LONDON/JOHANNESBURG (Reuters) - SAP, Europe's biggest software company, is making sweeping changes to its sales practices around the world after saying it faces a U.S. corruption probe over sales commissions paid to win South African government contracts.

Adaire Fox-Martin, SAP executive board member in charge of global customer operations, told Reuters on Thursday an ongoing probe by its law firm, Baker McKenzie, had uncovered wrongdoing related to sales commissions paid to entities linked to South Africa's powerful Gupta family to win deals dating back to 2014.

The Gupta family are friends of President Jacob Zuma who have been accused of unduly influencing the awarding of state tenders. The family has denied any wrongdoing and says it is a victim of a politically-driven witch hunt.

SAP said in a statement it paid $7.7 million in commissions to Gupta-related companies between December 2014 and November 2016 in connection with contracts worth $48 million to sell software to South African state firms, Transnet and Eskom.

"We are disappointed SAP has let down South Africa: its communities, our employees, the partners we work with in South Africa and, importantly, our customers here," Fox-Martin said by phone from Johannesburg.

It said preliminary findings from the probe had led SAP to take disciplinary action against three top managers whom it originally put on leave in July after media reports alleged SAP paid kickbacks to win government contracts. The probe found no evidence SAP paid bribes to government officials.

South Africa’s opposition Democratic Alliance (DA) said it had filed a criminal complaint against SAP's local unit for alleged money laundering and corruption.

"Following SAP’s admission today, the police have an obligation to investigate fully and to leave no stone unturned,” the Democratic Alliance's Shadow Minister of Public Enterprises Natasha Mazzone said in a statement.

Mazzone called on SAP to aid the police: "It is high time that those who have been involved in selling our country to the highest bidder are brought to book. SAP must hand over any and all information that may have bearing on the investigation."

U.S. PROBE; SOUTH AFRICA FALLOUT

SAP also said on Thursday the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) had opened a new investigation of the company under the U.S. Foreign Corrupt Practices Act (FCPA) related to South Africa.

The probe began after Baker McKenzie contacted U.S. authorities in July, SAP said, adding it was cooperating with the U.S. investigation.

Fox-Martin said a separate internal probe by the company had found loopholes in its compliance and due diligence controls over how it conducts sales in South Africa and other countries.

SAP operates in more than 180 countries, selling business planning software that many of the world's top multinationals rely on. It is a big supplier of corporate compliance software designed to control sales practices, among its various products.

In response, SAP said it had stopped paying sales commissions on all public sector deals in countries such as Brazil, China, India, Italy, Mexico, Russia and South Africa.

The company said its government sales commission ban would apply to any country rated below 50 in Transparency International's annual Corruption Perceptions Index. There were 122 countries in the activist group's 2016 report with high-risk ratings, though SAP does not necessarily operate in all of them.

The response comes after SAP was hit last year with a $3.9 million fine by the U.S. SEC, which found it failed to maintain internal controls to prevent a bribery scheme by a former sales executive who won lucrative contracts from the Panamanian government. (reut.rs/2vcPOIp)

SAP also said on Thursday it was instituting extensive additional compliance and due diligence controls on the use of third-party sales agents and value-added resellers to win SAP software and services contracts and would conduct stepped-up audits worldwide.

"We hope that the actions we have taken and our responsiveness ... demonstrates how heartfelt this issue is for us (and) how disappointed we are that SAP has been identified with wrong-doing in this way," Fox-Martin said.

In July, SAP put four senior South African managers on leave pending the outcome of the Baker McKenzie probe. One of those employees was found to have no involvement in the disputed government contracts and will return to work, the company said.

The influence-peddling scandal has swept up other multinational companies, including management consultant McKinsey & Co. South Africa's Standard Bank recently said it was reviewing its ties with SAP and McKinsey due to the scandal. (http://reut.rs/2hbgVit)

(Additional reporting by Nqobile Dludla; Editing by Jason Neely and Mark Potter)