JSE- and Nasdaq-listed Net1 UEPS Technologies, which earlier this year won a contested multibillion-rand project to roll out a system for the payment of social grants in South Africa, is now facing investigations by US authorities into whether it made corrupt payments to government officials to secure the contract.
Net1 told shareholders on Tuesday that it had received a letter from the US department of justice’s (DOJ’s) criminal division informing it that both the DOJ and Federal Bureau of Investigation had begun a probe into whether the company, or any of its subsidiaries, including its officers, directors, employees or agents, violated the Foreign Corrupt Practices Act or other US federal criminal laws. The news sent the share price crashing lower by more than 55% in morning trading in New York.
The investigation will focus on whether corrupt payments were made to officials of the South African government in connection with securing a contract from the South African Social Security Agency (Sassa) to provide social welfare and benefits payments. The probe will also consider whether Net1 violated federal security laws in connection with statements made by Net1 in its filing with the US Securities and Exchange Commission (SEC).
In August, a South African high court judge ruled that Sassa’s awarding of the contract to Net1 was “illegal and invalid”. However, judge Elias Matojane did not set it aside because this would disrupt social grant payments. The contract is for the management of R500bn in social grants to 15m people over a five-year period.
The tender was awarded to Cash Paymaster Services (CPS), a division of Net1, in January 2012. But a month later, Absa subsidiary AllPay filed legal papers seeking to have the tender reviewed and set aside, claiming Sassa’s tender process was riddled with inaccuracies. AllPay argued that the terms of the tender were changed shortly before the tender process closed and that its score was lowered to ensure that CPS would win.
Net1 says it has received a letter from the SEC advising it that it is also conducting an investigation into the company. The SEC letter states that the probe is a nonpublic, fact-finding inquiry, Net1 says.
In a statement to shareholders, Net1 says it will “co-operate fully” with the DOJ and SEC investigations.
“Net1 is unable to predict what action, if any, might be taken in the future by either the DOJ or the SEC as a result of the matters that are the subject of these investigations, or what impact, if any, this announcement and the existence of these investigations may have on Net1’s relations with Sassa, the Net1 black economic empowerment transaction, the company’s financial position, results of operations and cash flows, its intended business strategies or Net1’s share price,” it says. — (c) 2012 NewsCentral Media
