Rather than being an independent watchdog, KPMG\u2019s dealings with the Guptas leave the impression that the auditor was the family\u2019s lapdog.<\/p>\n\n\n\n
Regarding the Sun City nuptials, KPMG Africa\u2019s top executive Moses Kgosana gushed to Atul Gupta, \u201cMy wife and I were privileged to attend and enjoyed every moment and every occasion. I have never been to an event like that and probably will not because it was an event of the millennium.\u201d<\/p>\n\n\n
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In response to our enquiries, KPMG stated that it was \u201csatisfied that at no stage was [its] independence impaired.\u201d<\/p>\n\n\n\n
But due to confidentiality constraints, it said, \u201cwe cannot respond to your questions and request that you direct the same to our former client\u201d. It cut ties with the Guptas last year.<\/p>\n\n\n\n
The Guptas did not answer our questions.<\/p>\n\n\n\n
Further email correspondence shows that KPMG, as Linkway\u2019s auditors, were well aware of many of the key details surrounding the \u201cevent of the millennium,\u201d and had been for years. For instance, KPMG possessed the four-page itemised invoice of wedding expenses the Guptas\u2019 Linkway sent to the Guptas\u2019 Accurate Investments in Dubai.<\/p>\n\n\n\n
Despite the fact that both Linkway and Accurate are beneficially owned by the Guptas, Linkway\u2019s financial statements, audited by KPMG, do not consider Accurate to be a related party.<\/p>\n\n\n\n
The importance of a technical accounting term, such as \u201crelated party\u201d, may be unclear to many.<\/p>\n\n\n\n
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- Moses Kgosana’s email to Atul Gupta here<\/a><\/span><\/strong><\/li>\n\n\n\n
- KPMG email chain: Linkway and wedding expenses <\/strong>here<\/a><\/strong><\/span><\/li>\n\n\n\n
- Linkway Financial Statements here<\/span><\/a><\/strong><\/li>\n\n\n\n
- Plus amaBhungane’s\u00a0questions<\/a><\/span> to KPMG, and their response<\/a><\/span><\/strong><\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
Auditors\u2019 heightened scrutiny of related-party transactions is designed to prevent self-dealing on non-market terms \u2013 an effect of which can be to artificially manipulate income to evade taxes.<\/p>\n\n\n\n
For example, to do just that, a company could sell a R1-million Mercedes to its shareholder for R100 000. The R900 000 \u201closs\u201d from this sale could be offset against the company\u2019s income, thereby artificially lowering the company\u2019s taxable income by an equivalent amount.<\/p>\n\n\n\n
If the car sale were to a bona fide<\/em> third party, perhaps the loss could be explained by other factors \u2013 a fire sale driven by a company\u2019s desperation to raise cash, for example.Such a transaction with a related party, however, should raise an auditor\u2019s antennae and invite further examination.<\/p>\n\n\n\n
In the case of Linkway and the wedding expenses, the one Gupta company, Linkway Trading, \u201cpaid\u201d for the wedding expenses; then was \u201creimbursed\u201d by the supposedly unrelated Accurate Investments. KPMG offered no explanation in Linkway\u2019s audited financials why a supposedly unrelated third-party in Dubai would pick up the Guptas\u2019 R30m wedding bill \u2013 or why a wedding was a bona fide<\/em> business expense, for that matter.<\/p>\n\n\n
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The net effect of this accounting sleight-of-hand is that not only was the wedding effectively paid for from funds diverted from the Free State government\u2019s coffers; but the Guptas paid no income tax on this windfall. This income was offset against Linkway\u2019s expenses, resulting in Linkway\u2019s receiving zero taxable income from its Free State windfall.<\/p>\n\n\n\n
It is also unclear why KPMG allowed this income to be offset against Linkway\u2019s wedding-related \u201cbusiness\u201d expenses considering the objections of a junior auditor at KPMG.<\/p>\n\n\n\n
In an email to Jacques Wessels, the KPMG audit partner responsible for Linkway\u2019s financial statements, the junior auditor remarked: \u201cWe are of the opinion that these [wedding-related] costs are most probably not in the production of Linkway\u2019s income.\u201d<\/p>\n\n\n\n
In other words, the junior auditor doubted that the Gupta niece\u2019s wedding had anything to do with Linkway\u2019s ostensible business, thus begging the question why the wedding was accounted for as a business expense in the first place.<\/p>\n\n\n\n
The junior auditor\u2019s objections, however, appear to have fallen on deaf ears.<\/p>\n\n\n\n
Notably, the junior auditor was not among the high-ranking KPMG delegation at the Sun City wedding, which included KPMG\u2019s then-chief executive Kgosana, as well as Wessels.<\/p>\n\n\n\n
Wessels later certified that \u201cthe financial statements present fairly, in all material respects, the financial position of Linkway\u201d.<\/p>\n\n\n\n
Click on the Evidence docket for all the questions, responses and documents we used in this investigation.<\/strong><\/em><\/p>\n\n\n\n
KPMG said this week: \u201cWe stand by our work done and audit opinions issued.\u201d<\/p>\n\n\n\n
KPMG\u2019s position notwithstanding, perhaps South African taxpayers will be the ultimate judges in deciding the fairness of Linkway\u2019s paying only R55 799 in taxes despite receiving R30-million of the Free State government\u2019s cash via Dubai.<\/p>\n\n\n\n
The standard corporate income tax rate assessed by the South African Revenue Service, as noted in Linkway\u2019s financials, is 28%. Hypothetically, a R30-million profit should have attracted R8.4-million in tax.<\/p>\n\n\n\n
One party involved in the wedding cash flows between South Africa and Dubai, Standard Chartered, admitted this week that it terminated its relationship with Gupta front companies shortly after these transfers were made, noting: \u201cWe are not able to comment on the details of client transactions but confirm that these accounts were closed by us by early 2014.\u201d<\/p>\n\n\n\n
Read<\/strong><\/p>\n\n\n\n
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- KPMG’s email to Oakbay’s Ronica Ragavan\u00a0here<\/a><\/span><\/strong><\/li>\n\n\n\n
- AmaBhungane’s follow-up questions to KPMG\u00a0here<\/a><\/span><\/strong><\/li>\n\n\n\n
- KPMG’s second response to amaBhungane\u00a0<\/strong>here<\/a><\/strong><\/span><\/li>\n<\/ul>\n\n\n\n
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The bank continued, \u201cStandard Chartered takes its responsibility to combat financial crime very seriously and is fully committed to doing business in accordance with local and international regulatory and legal requirements.\u201d<\/p>\n\n\n\n
Additional correspondence penned by KPMG\u2019s Kgosana and Wessels raises further questions about KPMG\u2019s relationship with the Guptas long after alarm bells had sounded at Standard Chartered.<\/p>\n\n\n\n
In one such email also copied to Wessels, chief executive Kgosana sought Atul Gupta\u2019s advice on dealing with media \u201cmiscommunication\u201d and took the opportunity to back the Guptas\u2019 denials of wrongdoing.<\/p>\n\n\n\n
- AmaBhungane’s follow-up questions to KPMG\u00a0here<\/a><\/span><\/strong><\/li>\n\n\n\n
- KPMG email chain: Linkway and wedding expenses <\/strong>here<\/a><\/strong><\/span><\/li>\n\n\n\n
- Moses Kgosana’s email to Atul Gupta here<\/a><\/span><\/strong><\/li>\n\n\n\n
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