South Africa: South Africa Introduces Aggressive New Anti-Corruption Measures

Corruption in South Africa has reached staggering proportions. Daily newspapers are rife with reports of widespread corruption in both the public and private sectors. The arms deals scandal, coupled with prison sentences for the former Commissioner of Police Jackie Selebi and the recent termination of his replacement Bheki Cele who was embroiled in a R1.8 billion overspend on police accommodation, has done little to bolster confidence in public sector integrity. These and many other instances of grand corruption, often exposed by the Office of the Public Protector, have seen South Africa slide down the Transparency International Corruption Index by more than 20 positions in the last five years. South Africa currently occupies 64th position out of the 189 countries that participated in the Transparency International Corruption Index.

Fortunately, measures are being taken to stem the tide of corruption which threatens to squeeze South Africa's fledgling economy. The government is to be commended for its brave step in the battle against corruption by introducing a requirement for companies in South Africa to adopt the Organisation for Economic Cooperation and Development (OECD) recommendations on reducing corruption. This recent innovation is expected to have a significant impact on the high levels of corruption in the private sector, as well as in respect of tenders and procurement in the public sector, where a new breed of ruthless capitalists - often described as 'tenderpreneurs' - have won lucrative government tenders simply by bribing procurement or adjudication of tender officials.

The OECD recommendations are onerous and require companies to introduce and implement a wide range of anti-corruption measures and procedures, designed to reduce the scope for corrupt activity.

The Companies Act regulations apply to:

• every state-owned company;
• every listed public company; and
• any other company that has in two of the previous five years scored more than 500 points in relation to Regulation 26(2). The score is determined by:
  • one point per average employee number;
  • one point per every R1 million in third-party liability;
  • one point for every R1 million in turnover;
  • one point for every person with direct/indirect beneficial interest in issued securities; and
  • for non-profit organisations, one point per member or per association that is a member.

Anti-corruption campaigners and activists have been urging the South African authorities to consider the adoption of similar legislation to the UK Bribery Act 2010, which via its innovative, new corporate offence - "the failure by a commercial organisation to prevent bribery" - has been compelling companies that are associated with the United Kingdom to take robust anti-corruption measures. The UK Bribery Act is similar to the US Foreign Corrupt Practices Act. Like the US legislation it makes provision for extra-territorial jurisdiction by the UK regulators, in respect of acts of corruption committed by corporate entities associated with the United Kingdom, irrespective of whether the act of corruption took place in the United Kingdom or elsewhere, and irrespective of where the entity is registered or located, anywhere in the world.

In order to ensure a defence against the corporate failure to prevent bribery, companies need to adopt the following anti-bribery/corruption measures, which were carefully set out by the Ministry of Justice in the United Kingdom. In order to escape liability in respect of the failure by a commercial organisation to prevent bribery offences, companies must demonstrate implementation and adherence to the following principles:

• Proportionate procedures - "Companies need to have anti-bribery policies in place for both internal and external stakeholders."
• Top-level commitment - "Management tone is critical and the top-level management of a company (be it the board of directors, the owners or any other equivalent body or person) should be committed to preventing bribery."
• Risk assessment - "Companies need to actively assess the nature and potential for bribery risk."
• Due diligence - "Companies need to do their homework and ensure that they don't use corrupt suppliers, as well as inform agents and affiliates of the company's antibribery policies and procedures."
• Communication (including training) - "The company needs to ensure that its bribery prevention policies and procedures are embedded and understood throughout the company via internal and external communications, including training."
• Monitoring and review - "The company needs to continually monitor and review its procedures designed to prevent acts of bribery, as well as make improvements, where necessary. Site visits are also crucial for companies with affiliate offices in other territories."

If companies adhere to these guidelines, they will have the so-called 'adequate procedures' defence against a prosecution for the failure to prevent bribery. Conversely, failure to implement these principles can result in multimillion-pound penalties. If the UK authorities are as aggressive as their US counterparts when it comes to enforcing the penal provisions of the robust anti-corruption legislation, then companies that are associated with the United Kingdom need to tread carefully to ensure compliance - not only in the head office environment, but particularly in respect of subsidiaries in remote regions in territories where corruption levels are high.

The UK Bribery Act is not only more aggressive, but also has more far-reaching consequences for South African companies than the Foreign Corrupt Practices Act, as it allows regulators radical powers to impose fines in respect of the failure to prevent bribery. In addition, unlike the Foreign Corrupt Practices Act, the UK Bribery Act applies to both public and private sector corruption and has also criminalised facilitation payments, which is endemic in most parts of Africa.

Facilitation payments have always been illegal in South Africa. In terms of the Prevention and Combating of Corrupt Activities Act (12/2004), it is a criminal offence to provide any form of "gratification" to an official if it is not lawfully due. The act of bribery is also regulated by this act, which defines 'corruption' as follows:

"any person who directly or indirectly gives or accepts or agrees or offers to give or accept any gratification from another person with the purpose of acting personally or influencing another person to act in a manner that amounts to an illegal, dishonest, or unauthorized action or an abuse of authority, a breach of trust, or a violation of a legal duty, is guilty of an act of corruption."

In addition to the general offence of corruption, the South African Corruption Act sets out a whole series of different corrupt activities, including the corruption of public officials as well as foreign government officials. The act also addresses corruption related to, among other things, tenders, contracts, agents, members of the legislature, members of the judiciary, sporting events and games of chance. Lengthy periods of imprisonment are often imposed on individual offenders convicted of corrupt activities. What the South African authorities fail to do is impose substantial financial penalties on companies implicated in the payment of bribes.

In this regard, it is clear that the Foreign Corrupt Practices Act is a major driver of ethical corporate behaviour on the part of companies registered in or associated in the United States, where the fear of the combined efforts of the Securities Exchange Commission and the Department of Justice, compels big business to take drastic measures to prevent bribery in the conduct of their business activities or face substantial penalties. The culture of compliance has become so entrenched in the United States that many of the companies self report in order to secure deferred prosecution agreements.

It is unlikely that the South African government will go quite as far as the UK authorities have in terms of the Bribery Act, which has made it an offence for companies which fail to prevent bribery. However, South Africa has recently introduced a strong anticorruption compliance regime that is very similar to the six principles set out in the guidance notes from the Ministry of Justice regarding the 'adequate procedures' defence.

South African companies must comply with the anti-corruption provisions of the Companies Act, ((71/2008) and the regulations thereto, promulgated in 2011), as well as other local anti-corruption laws, which include the Prevention of Combating of Corrupt Activities Act (12/2004) and the Financial Intelligence Centre Act (38/ 2001).

Section 43 of the Companies Act regulations incorporates a range of anti-corruption measures and requires a company's social and ethics committee to perform a range of activities - including monitoring the organisation's anti-corruption processes and procedures.

In terms of the regulations, the social and ethics committee must perform the following roles:

• monitor the company's activities with regard to any relevant legislation, other legal requirements or prevailing codes of best practice, with regard to matters relating to:
• social and economic development, including the company's standing in terms of the goals and purposes of:
  • the 10 principles set out in the United Nation's Global Compact principles. Principle 10 stipulates that businesses should work against corruption in all its forms, including extortion and bribery; the OECD recommendations regarding corruption; the Employment Equity Act; and the Broad Based Black Economic Empowerment Act;
• good corporate citizenship, including the company's:
  • promotion of equality, prevention of unfair discrimination and reduction of corruption;
  • contribution to development of communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed; and
  • record of sponsorship, donations and charitable giving;
• the environment and health and public safety, including the impact of the company's activities and of its products or services;
• consumer relationships, including the company's advertising, public relations and compliance with consumer protection laws; and
• labour and employment, including:
  • the company's standing in terms of the International Labour Organisation Protocol on decent work and working conditions; and
  • the company's employment relationships and its contribution toward the educational development of its employees;
• to draw matters within its mandate to the attention of the board as the occasion requires; and
• to report, through one of its members, to the shareholders at the company's annual general meeting on the matters within its mandate.

The OECD Recommendations on Combating Bribery, Bribe Solicitation and Extortion (2011) require that enterprises not, directly or indirectly, offer, promise, give or demand a bribe or other undue advantage to obtain or retain business or other improper advantage. Enterprises should also resist the solicitation of bribes and extortion. In particular, enterprises should:

• not offer, promise or give undue pecuniary or other advantage to public officials or the employees of business partners. Likewise, enterprises should not request, agree to or accept undue pecuniary or other advantage from public officials or the employees of business partners. Enterprises should not use third parties, such as agents and other intermediaries, consultants, representatives, distributors, consortia, contractors and suppliers and joint venture partners for channelling undue pecuniary or other advantages to public officials, or to employees of their business partners or to their relatives or business associates;
• develop and adopt adequate internal controls, ethics and compliance programmes or measures for preventing and detecting bribery, developed on the basis of a risk assessment addressing the individual circumstances of an enterprise - in particular the bribery risks facing the enterprise (such as its geographical and industrial sector of operation). These internal controls, ethics and compliance programmes or measures should include a system of financial and accounting procedures, including a system of internal controls, reasonably designed to ensure the maintenance of fair and accurate books, records and accounts, to ensure that they cannot be used for the purpose of bribing or hiding bribery. Such individual circumstances and bribery risks should be regularly monitored and re-assessed as necessary to ensure the enterprise's internal controls, ethics and compliance programme or measures are adapted and continue to be effective, and to mitigate the risk of enterprises becoming complicit in bribery, bribe solicitation and extortion;
• prohibit or discourage in internal company controls, ethics and compliance programmes or measures, the use of small facilitation payments - which are generally illegal in the countries where they are made - and when such payments are made, accurately record these in books and financial records;
• ensure, taking into account the particular bribery risks facing the enterprise, properly documented due diligence pertaining to the hiring, as well as the appropriate and regular oversight of agents, and that remuneration of agents is appropriate and for legitimate services only. Where relevant, a list of agents engaged in connection with transactions with public bodies and state-owned enterprises should be kept and made available to competent authorities, in accordance with applicable public disclosure requirements;
• enhance the transparency of their activities in the fight against bribery, bribe solicitation and extortion. Measures could include making public commitments against bribery, bribe solicitation and extortion, and disclosing the management systems and the internal controls, ethics and compliance programmes or measures adopted by enterprises in order to honour these commitments. Enterprises should also foster openness and dialogue with the public so as to promote its awareness of and cooperation with the fight against bribery, bribe solicitation and extortion;
• promote employee awareness of and compliance with company policies and internal controls, ethics and compliance programmes or measures against bribery, bribe solicitation and extortion through appropriate dissemination of such policies, programmes or measures and through training programmes and disciplinary procedures; and
• not make illegal contributions to candidates for public office or to political parties or to other political organisations. Political contributions should fully comply with public disclosure requirements and should be reported to senior management.

These obligations are not dissimilar to the six guidelines to create an adequate procedures defence against a UK Bribery Act prosecution. It is accordingly important for South African businesses to initiate a robust anti-corruption programme in order to comply with and avoid UK Bribery Act and Foreign Corrupt Practices Act prosecution. However, it is clear that South African companies should be doing this in any event, to ensure compliance with the Companies Act.

Originally published in ILO, August 20 2012.

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