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Compass Group uncovered 'suspected fraud' at Kazakhstan joint venture Compass Group uncovered 'suspected fraud' at Kazakhstan joint venture
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The British catering multinational Compass Group uncovered a “suspected fraud” in one of its joint ventures in Kazakhstan, documents seen by the Guardian reveal – after a subsidiary was shown to have paid bribes to government officials in the former Soviet state. The British catering multinational Compass Group, which was shown on Monday to have paid bribes to government officials in Kazakhstan, has also uncovered a “suspected fraud” in one of its joint ventures in the former Soviet state, documents seen by the Guardian reveal.
The papers show a supplier linked to an employee of the business pocketed £160,000 after overcharging the joint venture for produce. The cache of documents also details another case in which a string of Compass managers raised concerns that a supplier was overcharging the same company by around £400,000 a year.The papers show a supplier linked to an employee of the business pocketed £160,000 after overcharging the joint venture for produce. The cache of documents also details another case in which a string of Compass managers raised concerns that a supplier was overcharging the same company by around £400,000 a year.
Related: Compass Group subsidiary 'paid bribes to Kazakhstan customs officials'Related: Compass Group subsidiary 'paid bribes to Kazakhstan customs officials'
The latest allegations are contained within a batch of papers relating to an ongoing employment tribunal claim brought by Karim Pabani, a former finance director of a Compass subsidiary in Kazakhstan who claims he was sacked after blowing the whistle on corruption. On Sunday, the Guardian revealed how those internal documents showed the catering group admitting a subsidiary made “facilitation payments” to the country’s customs officials – a practice the company says was eradicated in 2011. The latest allegations are contained within a batch of papers relating to an ongoing employment tribunal claim brought by Karim Pabani, a former finance director of a Compass subsidiary in Kazakhstan who claims he was sacked after blowing the whistle on corruption. On Sunday, the Guardian revealed how those internal documents showed the catering group admitting a subsidiary made “facilitation payments” to the country’s customs officials – a practice the company says it discovered and eradicated in 2011.
The claims about overcharging relate to KazMunayGas-Service Compass (KMGSC), which Compass owns with a state-owned oil group in Kazakhstan. The public portion of Pabani’s witness statement further alleges that he was asked to falsify company records in order to cover up shortfalls in KMGSC’s accounts, as well as claims that the joint venture’s then boss Timur Kurenbekov – son of Amantay Kurenbekov, now head of the state security service – “was removing money from the business through the use of their suppliers”. Timur Kurenbekov is also alleged by Pabani to have been the key to KMGSC attracting major contracts in Kazakhstan.The claims about overcharging relate to KazMunayGas-Service Compass (KMGSC), which Compass owns with a state-owned oil group in Kazakhstan. The public portion of Pabani’s witness statement further alleges that he was asked to falsify company records in order to cover up shortfalls in KMGSC’s accounts, as well as claims that the joint venture’s then boss Timur Kurenbekov – son of Amantay Kurenbekov, now head of the state security service – “was removing money from the business through the use of their suppliers”. Timur Kurenbekov is also alleged by Pabani to have been the key to KMGSC attracting major contracts in Kazakhstan.
Compass has yet to respond in detail to Pabani’s employment tribunal claims. A spokesman said: “Compass is vigorously defending these allegations [in the tribunal] but as the matter is subject to ongoing legal proceedings we are not able to comment further at this time.” KMGSC did not comment. The Guardian was unable to contact Kurenbekov.Compass has yet to respond in detail to Pabani’s employment tribunal claims. A spokesman said: “Compass is vigorously defending these allegations [in the tribunal] but as the matter is subject to ongoing legal proceedings we are not able to comment further at this time.” KMGSC did not comment. The Guardian was unable to contact Kurenbekov.
The latest batch of documents contains a Compass internal audit report into KMGSC from 2012, which states that: “KZT37.5m (£159,000) of the stock difference above appears to be the result of a potential fraud regarding [a contract to supply catering to a Kazakhstan oil field] whereby a supplier linked to an employee (a manager working at the location) overcharged the business by overstating invoices, and also was granted more favourable payment terms than usual.”The latest batch of documents contains a Compass internal audit report into KMGSC from 2012, which states that: “KZT37.5m (£159,000) of the stock difference above appears to be the result of a potential fraud regarding [a contract to supply catering to a Kazakhstan oil field] whereby a supplier linked to an employee (a manager working at the location) overcharged the business by overstating invoices, and also was granted more favourable payment terms than usual.”
Compass says that it was a victim of fraud in this case.Compass says that it was a victim of fraud in this case.
Meanwhile, further internal emails show how several Compass employees recommended switching food suppliers on another KMGSC contract, as they believed the joint venture was frequently being overcharged and being supplied with substandard produce. Their analysis is supported by a spreadsheet produced by a Compass employee, which compared prices paid by the joint venture to those of another supplier in the region, which appears to show KMGSC was being overcharged by almost $600,000 (£400,000) a year on foodstuffs ranging from chicken fillets and beef shoulder to bananas and dumplings.Meanwhile, further internal emails show how several Compass employees recommended switching food suppliers on another KMGSC contract, as they believed the joint venture was frequently being overcharged and being supplied with substandard produce. Their analysis is supported by a spreadsheet produced by a Compass employee, which compared prices paid by the joint venture to those of another supplier in the region, which appears to show KMGSC was being overcharged by almost $600,000 (£400,000) a year on foodstuffs ranging from chicken fillets and beef shoulder to bananas and dumplings.
In one email exchange, a Compass subsidiary employee comments on the reluctance of KMGSC bosses to switch suppliers. He wrote: “We did this analasys [sic] to find out how mutch [sic] we could save. they [KMGSC] just want to work with there [sic] own supplyers [sic], i am sure You can also guess why ... I understand. it is normal if sombody s [sic] pocket is toutched [sic].”In one email exchange, a Compass subsidiary employee comments on the reluctance of KMGSC bosses to switch suppliers. He wrote: “We did this analasys [sic] to find out how mutch [sic] we could save. they [KMGSC] just want to work with there [sic] own supplyers [sic], i am sure You can also guess why ... I understand. it is normal if sombody s [sic] pocket is toutched [sic].”
Compass, which supplies more than 1,500 UK primary schools and 30 NHS Trusts, repeatedly declined to comment to the Guardian on whether it had evidence that it was being routinely overcharged by suppliers, or express a view on the email or spreadsheet.Compass, which supplies more than 1,500 UK primary schools and 30 NHS Trusts, repeatedly declined to comment to the Guardian on whether it had evidence that it was being routinely overcharged by suppliers, or express a view on the email or spreadsheet.
In the company’s letter to Pabani explaining his sacking, a section entitled “Overpayment of suppliers by [Compass’s] joint venture partner”, stated: “[Pabani] was right to have brought his concerns to light but there seems to be no evidence that there was an organised plan to overpay suppliers for the gain of any party.”In the company’s letter to Pabani explaining his sacking, a section entitled “Overpayment of suppliers by [Compass’s] joint venture partner”, stated: “[Pabani] was right to have brought his concerns to light but there seems to be no evidence that there was an organised plan to overpay suppliers for the gain of any party.”
Compass also did not comment on the due diligence it conducted before entering the joint venture, in a country which is viewed by corporate lawyers as a jurisdiction where firms need to be extra vigilant about the possibilities of corruption.Compass also did not comment on the due diligence it conducted before entering the joint venture, in a country which is viewed by corporate lawyers as a jurisdiction where firms need to be extra vigilant about the possibilities of corruption.
Robert Barrington, executive director of anti-corruption campaign group Transparency International UK, said: “This is a high-risk country, a high-risk sector and a high-risk business model, with a joint venture involving a politically exposed individual. The question is: what’s your risk appetite? And why you have taken a decision to operate in a high-risk part of the world with a high-risk partner? Links to a politically exposed person usually require an extra layer of due diligence.”Robert Barrington, executive director of anti-corruption campaign group Transparency International UK, said: “This is a high-risk country, a high-risk sector and a high-risk business model, with a joint venture involving a politically exposed individual. The question is: what’s your risk appetite? And why you have taken a decision to operate in a high-risk part of the world with a high-risk partner? Links to a politically exposed person usually require an extra layer of due diligence.”
The company said: “Compass is committed to setting the highest standards for responsible business practice which is underpinned by a global framework of policies and measures and is supported by comprehensive communications and training.”The company said: “Compass is committed to setting the highest standards for responsible business practice which is underpinned by a global framework of policies and measures and is supported by comprehensive communications and training.”