South Africa: Key Considerations And Compliance Challenges As South Africa Nears Implementation Of Groundbreaking "Failure To Prevent Corrupt Activities Offence"

Arguably one of the most far-reaching recommendations of the State Capture Commission, the introduction of a failure to prevent corruption offence, is on the cusp of being introduced in South Africa. The Judicial Matters Amendment Bill (the "Bill") which is due to be considered by the National Council of Provinces on 29 November 2023, includes a proposed amendment to South Africa's primary anti-corruption legislation, the Prevention and Combating of Corrupt Activities Act, 2004 ("PRECCA") in the form of a new clause 34A to PRECCA, creating a failure to prevent corrupt activities offence.

The wording of the proposed new offence is closely aligned with the version proposed in the State Capture Report and draws inspiration from the failure to prevent bribery offences contained in section 7 of the United Kingdom Bribery Act, 2010 (the "Bribery Act"). In terms of the proposed section 34A, an entity will be guilty of an offence if a person associated with that entity gives or agrees, or offers to give any gratification to another person (as currently prohibited in terms of Chapter 2 of PRECCA) intending to obtain or retain business or an advantage for that entity.

While there are many aspects of the proposed new offence which require careful consideration, below are a few key takeaways:

• As with the Bribery Act offence, section 34A is a strict liability offence. In other words, the prosecution will not be required to prove that the entity itself knew of, or intended to commit the relevant corrupt act. This creates a significant new legal compliance challenge for entities that will essentially bear the burden of preventing corrupt activities from taking place within the organisation.
• The concept of "association" for purposes of the offence is broadly framed, and refers to persons who "perform services for or on behalf of that [entity], irrespective of the capacity in which such person performs services for or on behalf of that [entity]". The current wording casts the net of association incredibly broadly and would seemingly include not only employees but also independent contractors and potentially other third parties providing services to the entity.
• No offence will be committed in terms of section 34A if the entity can prove that it had in place "adequate procedures" designed to prevent associated persons from committing corrupt activities. What will constitute adequate procedures is unclear as, unlike the Bribery Act, there is no requirement to publish an accompanying guidance in this regard. In the UK, the Ministry of Justice has issued guidance on what constitutes "adequate procedures" to prevent bribery and it is hoped that the authorities in South Africa will issue similar guidance. The UK guidelines set out six non-prescriptive fundamental principles that commercial organisations should consider when adopting "adequate procedures" to prevent bribery being committed on their behalf, commonly referred to as the "Six Principles". In the absence of further clarity, it would be advisable for South African entities to adopt an approach to adequate procedures which mirrors the "Six Principles" approach.
• The draft wording does not specify the penalty on conviction of the offence, though it is likely that the same approach would be followed as with Chapter 2 offences.
• Unlike the UK, South Africa does not have a prosecutorial regime which allows for entities to enter into deferred prosecution agreements ("DPAs"). DPAs have been successfully used in both the US and the UK as a mechanism to encourage organisations to self-report wrongdoing in exchange for the imposition of a reduced fine and avoiding prosecution.

The introduction of DPAs is not addressed in the proposed PRECCA amendment, but it is worth noting that this is a further recommendation proposed by the State Capture Commission, designed to encourage companies who identify wrongdoing within their own organisations to come forward and self-report identified wrongdoing. It would seem that the introduction of the above new offence, in the absence of the introduction of a DPA regime in South Africa, may pose a challenge to the National Prosecuting Authority (and law enforcement and investigative bodies) as organisations suspected of breaching the failure to prevent offence may have little incentive to self-report and/or co-operate with the authorities. President Ramaphosa previously confirmed that the South African Law Reform Commission is considering DPAs as part of its review of the criminal justice system, and it is submitted that it would be helpful for these reforms to be introduced as soon as possible to align with the introduction of the new offence.

It is argued, however, that even in the absence of DPAs being introduced in South Africa, the proposed failure to prevent corrupt activities offence is likely to bolster anti-corruption compliance initiatives in South Africa, as it will place an onus on organisations to put in place strong policies and control mechanisms to mitigate bribery and corruption risks to demonstrate that they have adequate procedures to prevent corruption.

The introduction of a new failure to prevent corrupt activities offence will constitute a significant change to South Africa's anti-corruption legal landscape and would pose a substantial compliance challenge for organisations. The proposed amendment will also address valid concerns that the government has been slow to implement the State Capture Commission recommendations and should provide further impetus to the concerted efforts currently under way to persuade the Financial Task Force to remove South Africa from the 'Grey List'.

In light of current developments, it is crucial for organisations to establish strong anti-corruption compliance programmes. The ENS Forensics team provides support to enhance these programmes and to align them with the Six Principles approach to "adequate procedures" from the Bribery Act guidance. This positions us well to assist organisations in preparing for the forthcoming introduction of a similar offence in South Africa.

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