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South Africa tax service mulls legal proceedings against KPMG

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The South African Revenue Service is considering instituting legal proceedings against KPMG LLP’s local unit for reputational damage after the auditing firm withdrew the conclusions of a report that was used in a police probe against former Finance Minister Pravin Gordhan and led to the removal of senior staff at the agency.

“This abhorrent, unethical, and unprofessional conduct by KPMG has left SARS with no option,” Commissioner Tom Moyane told reporters Monday in the capital, Pretoria.

The auditing firm said on Friday that its conclusions and recommendations in a report for SARS about a unit that allegedly spied on politicians should no longer be relied on. It said the evidence provided to KPMG doesn’t support the interpretation that Gordhan knew, or ought to have known, that the unit was established and operating unlawfully.

KPMG also said on Friday that its South African chief executive officer, chairman and six other senior managers quit after an internal probe criticized the company’s conduct in auditing companies controlled by the Gupta family, who are friends of South African President Jacob Zuma.

The tax agency will report KPMG to Finance Minister Malusi Gigaba with the aim of blacklisting it for its behavior, and wants the minister to consider stopping all work the firm performs for other departments, pending a review of the quality of this work, Moyane said.

Gordhan said he will get legal advice on the firm’s actions because the withdrawal isn’t enough to make up for the resulting damage. Barclays Group Africa Ltd. said it’s considering ending its relationship with KPMG. Standard Bank Group Ltd., Nedbank Group Ltd. are reviewing their relationship with the auditors, they said.

Bloomberg News