THE R10bn South African Social Security Agency (Sassa) contract — which the North Gauteng High Court ruled in August was "illegal and invalid" but the winning bidder Net1 UEPS Technologies could nevertheless keep — is now being investigated by US law enforcement agencies.
Net1’s share price fell 8.02% to R67.10 after it warned shareholders on Tuesday the criminal division of the US justice department and the Federal Bureau of Investigation informed it last Friday that it was under investigation for violating the US’s Foreign Corrupt Practices Act.
The Nasdaq-and JSE-listed company said it had also been informed on Friday by the US Securities and Exchange Commission (SEC) that its division of enforcement was conducting "a non-public, fact-finding inquiry".
In January, Net1 announced its subsidiary Cash Paymaster Services (CPS) was awarded a tender by Sassa to distribute social grants of R500bn to more than 15-million recipients over a five-year period. Absa subsidiary AllPay challenged the decision, alleging widespread corruption and irregularities in the tender process.
The North Gauteng High Court controversially ruled that though it agreed the tender process was invalid and illegal, it could not be set aside as doing so would interrupt social payments to millions of destitute people.
The social grant contract is one of the key contributors to Net1’s earnings. In September, Net1 was granted leave to appeal against the court’s ruling.
The company said the US authorities have begun an investigation into whether Net 1, and its subsidiaries, including its directors, employees, agents and other persons and entities possibly affiliated with Net1, violated provisions of the Foreign Corrupt Practices Act and other US federal criminal laws by "engaging in a scheme to make corrupt payments" to government officials in connection with securing the social grant contract.
The authorities were probing whether Net1 "engaged in violations of the federal securities laws" in connection with statements made by the company in its SEC filings regarding this contract.
Net1 said in Tuesday’s statement that it intended to co-operate fully with the justice department and the SEC regarding these investigations.
The company said it was "unable to predict what action, if any," might be taken in the future by either the department or the SEC as a result of the matters that were the subject of these investigations or "what impact, if any," this announcement and investigations might have on Net1’s relations with Sassa, on the Net1’s black economic empowerment option transaction and on the company’s overall financial position.
Last month, Net1 said during the first quarter of financial year 2013 it incurred direct implementation expenses of $14.1m.
It expects its total Sassa-related capital expenditure to be $35m.