The Fight Against Corruption

Robust Legislation & Global Regulators

As it got underway, the much anticipated Commission of Inquiry into State Capture was

welcomed by South Africans. To most, it would prove that State Capture was not a myth as

was previously suggested and would lead to those exposed in the scourge of corruption being

held accountable. However, critical to holding those involved in corrupt activities accountable is

the process of exposing them. Vital to the overall success of the Commission is full disclosure

of all corrupt activities at all levels. Therefore, the Commission relies heavily on Whistle-Blowers,

who must be protected in line with The Protection of Disclosures Act.

Almost immediately, Whistle-Blowers began exposing the scourge of corruption

across all sectors of business and Government. Unfortunately, until the findings

of the commission are published, it is business as usual for many of those

implicated. Sure, there have been the ‘fall guys’, but for most no immediate

consequences.

However, what many did not see coming were the consequences for

organisations implicated in State Capture, as the banking fraternity essentially

took away their ability to trade by revoking their banking services. In short, banks

have strict trading guidelines and legal obligations with regards to anti-corruption

compliance that must be adhered to. The decision to close such accounts was

undoubtedly the result of compliance and risk decisions to protect the various

banks.

To the surprise of many, on the face of it, South Africa has a robust legal

framework to address corruption. Relevant legislative enactments include the

Prevention and Combating of Corrupt Activities Act; the South African Companies

Act; the Financial Intelligence Centre Act (FICA) and the Accreditation for

Conformity Assessment, Calibration and Good Laboratory Practice Act, to name

but a few. Moreover, there are dedicated and competent officials mandated to

identify and appropriately deal with corruption, including the Public Protector and

the National Prosecuting Authority

Transparency International Corruption Index

South Africa did not perform well in the 2017 Transparency International Corruption Index, where it occupied

position 71, a regression from the 2015 index where it held position 612

.

Sub-Saharan Africa, globally, is the worst performing region as a whole; however, several countries

consistently push back against corruption with notable progress. The key ingredient that the top performing

African countries have in common is political leadership that is consistently committed to driving

anti-corruption. While the majority of countries already have anti-corruption laws and institutions in place,

these leading countries go a step further to ensure implementation. Three examples are President Paul

Kagame’s strict enforcement of compliance with the leadership code in Rwanda and President Jorge

Fonseca’s open promotion of institutional transparency in Cabo Verde – both hold position 48 on the index.

The innovative approach of President Ian Khama to mainstream anti-corruption across Botswana ranked

them in position 34. Each of these countries has identified what works best in their country and pursued

tactics to address corruption with vigour and commitment.

There are various frameworks in place, both voluntary and mandatory,

national and international, designed to drive good corporate governance

in South Africa. However, what is evident from the disclosures stemming

from the Commission of Inquiry into State Capture is that there has

been a dire shortfall in enforcement and consequences for the corrupt.

In other words, the South African authorities presently do not impose

the substantial penalties in line with legislation on organisations or

government officials implicated in corruption.

Today, as the tide on corruption is turning, many organisations are

beginning to address it by putting remedial measures and controls in

place. However, government intervention is paramount in reducing

the scourge of bribery, extortion and/or bribe solicitation. South Africa

can learn from the measures adopted by global regulators against

organisations that bribe.

There are various mechanisms in place for driving Good Corporate

Governance and neutralising corruption.

Organization for Economic Cooperation and

Development (OECD) recommendations

Since 2007 South Africa has been a voluntary signatory to the OECD.

One positive step in 2010 was the introduction of requirements

that oblige South African organisations to adopt the OECD

recommendations on Combating Bribery, Bribe Solicitation and

Extortion (2011), which must be implemented in terms of regulation 43

of the South African Companies Act, (71 of 2008), as amended. These

recommendations require organisations to:

> not pay or demand bribes;

> have an anti-bribery/corruption policy;

> develop internal processes and controls to mitigate the risk of

bribery;

> keep fair and accurate books and records;

> perform an anti-bribery risk assessment to identify bribery risks in the

organisation;

> perform due diligence on agents, intermediaries and consultants, to

ensure that they do not pay bribes on behalf of an organisation;

> educate employees and agents on anti-bribery processes and

publicise their anti-bribery initiatives; and

> avoid unlawful political contributions.

Across all sectors, South African organisations are beginning to come to

grips with implementing robust anti-bribery and corruption programmes

to comply with these recommendations, which in effect should see a

gradual, organic reduction in corrupt activities in society at large. The

principal objective of the OECD anti-corruption obligations imposed

on organisations is to neutralise the ability of the private sector to pay

bribes. In doing this, it aims to reduce corruption levels in respect of

public sector corruption, as corrupt organisations invariably pay bribes.

South African organisations should regard the OECD recommendations

as normal business practice, as they amount to good corporate

governance and commitment to doing business ethically, and spell out

necessary procedures required to mitigate bribery risks.

The South African Companies Act

Failure to comply with the Companies Act requirement to implement

the OECD requirements may result in an organisation being issued a

directive to comply. However, if that compliance order is flouted, an

organisation could face a fine of up to R1m. A revision of the South

African National Anti-Corruption Strategy to dramatically increase

penalties for non-compliance is in process.

Serious contemplation must be given to increase penalties for

corruption. They should be similar to the multi-million dollar penalties

imposed by global regulators like the Department of Justice and the

Securities and Exchange Commission in the United States (US) and the

Serious Fraud Office in the United Kingdom (UK), regarding enforcement

actions related to the Foreign Corrupt Practices Act (FCPA) and the UK

Bribery Act (UKBA), respectively.

South African organisations which fall under the jurisdiction of the

Companies Act and are required to adopt the OECD requirements are:

> organs-of-state;

> all public companies;

> any other company that has, in two of the previous five years, scored

more than 500 points outlined in regulation 26(2).

The score is determined by:

> one point per average employee number;

> one point per every R1m in third-party liability;

> one point for every R1m in turnover;

> one point for every person with direct or indirect beneficial interest in

issued securities; and

> one point per member or per association that is a member of

non-profit organisations.

Regulation 43 of the Companies Act introduced a requirement for

organisations to establish a Social and Ethics Committee. Among a

host of duties in promoting good corporate citizenship and ethics,

its responsibility includes reducing corruption by ensuring that an

organisation adopts and implements the OECD recommendations to

reduce corruption. The duties of the Social and Ethics Committee,

based on the OECD recommendations on combating bribery, bribe

solicitation and extortion, are summarised as follows:

> To monitor an organisation’s activities regarding any relevant

legislation, other legal requirements or prevailing codes of best

practice, in matters relating to social and economic development.

This includes an organisation’s standing in terms of its goals and

purposes of:

° the ten principles set out in the United Nations’ Global Compact.

Principle ten stipulates that organisations should work against

corruption in all its forms, which include extortion and bribery;

° the OECD recommendations regarding corruption; and

° the Employment Equity Act.

> To ensure good corporate citizenship, including an organisation’s:

° Promotion of equality, prevention of unfair discrimination, and

reduction of corruption;

° Contribution to the development of communities in which its

activities are predominantly conducted, or within which its

products or services are predominantly marketed;

° Recording of sponsorship, donations and charitable giving;

° Overseeing issues relating to the environment, health and public

safety, as well as the impact of an organisation’s activities,

products or services;

° Tracking consumer relationships;

° Monitoring advertising, public relations and compliance, in line with

consumer protection laws

> Labour and employment issues:

° To evaluate the organisation’s standing in terms of the International

Labour Organization Protocol on decent work and working

conditions. This incorporates appraising an organisation’s

employment relationship and contributions towards the educational

development of its employees.

° To draw matters within its mandate to the attention of the board,

as the occasion requires.

° To report, via one of its members, to the shareholders at the

organisation’s annual general meeting on the matters within its

mandate.

Financial Intelligence Centre Act

The Financial Intelligence Centre Act (38 of 2001) (the FIC Act) came

into effect on 1st July 2003. The FIC Act was introduced to fight financial

crime, such as money laundering, tax evasion, and terrorist financing

activities. The FIC Act brings South Africa in line with similar legislation

in other countries designed to reveal the movement of monies derived

from unlawful activities to curb money laundering and other criminal

activities.

Prevention and Combating of Corrupt

Activities Act

Facilitation payments have always been illegal in South Africa. In terms

of the Prevention and Combating of Corrupt Activities Act (12 of 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 further regulated by this Act,

which states that:

“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

unauthorised 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 terms, of the general offence of corruption, the Act sets out an

entire series of ‘corrupt activities’, which include the corruption of

public officials, as well as foreign government officials. The Act

addresses corruption related to, among others, tenders, contracts,

agents, members of the legislature, members of the judiciary, sporting

events and games of chance. Globally, lengthy periods of imprisonment

are often imposed on individual offenders convicted of corrupt

activities. The mandatory minimum sentence for corruption in terms

of the South African sentencing guidelines, is direct imprisonment for

a period of 15 years.

“Whistle-Blowers must be protected in line with The Protection of Disclosures Act.”

What is clear in South Africa, is that it has an excellent legislative framework in place for tackling corruption, which

is making minor inroads into the number of offenders, but as mentioned, concerns have been raised about the

enforcement thereof.

Global Regulators

As many organisations and individuals fly under the radar of culpability within the South African business arena, the

global playing field, in terms of accountability, has changed drastically in recent years.

For some time, anti-corruption campaigners and activists have been urging South African authorities to consider the

adoption of legislation similar to that of the UKBA, which came into effect in July 2011. Through its innovation, a new

corporate offence, “the failure by a commercial organisation to prevent bribery,” has been compelling organisations

associated with the UK to take robust anti-corruption measures.

The UKBA is similar to the FCPA and, like US legislation, it makes provision for extra-territorial jurisdiction by the UK

regulators in respect of acts of corruption committed by organisations associated with the UK. This is irrespective of

whether the act of corruption took place in the UK or elsewhere and regardless of where the organisation in question

is registered or located in the world. The UKBA is not only aggressive, but it has more far-reaching consequences

for South African organisations than the FCPA, as it gives the Serious Fraud Office the power to impose fines for the

failure to prevent bribery. Unlike the FCPA, the UKBA applies to both public and private sector corruption, and it has

further criminalised facilitation payments.

The US remains the most robust global enforcer of corruption violations. A critical factor for South African

organisations is that the US Department of Justice adopts an extensive approach to jurisdiction and has cautioned

it will find jurisdiction in respect of bribes paid to foreign government officials. One way to do this is if payments are

routed through US dollar accounts or e-mails, which are merely transmitted through US-based servers. Accordingly,

South African organisations, which may not ordinarily regard themselves as subject to the FCPA, may inadvertently

become subject to the extra-territorial jurisdictional reach of the FCPA. For example, in the event of a bribe being paid

to a foreign government official by an employee of a subsidiary in Africa, the prosecution thereof could take place in

South Africa. However, the perpetrators could further face prosecution in the US.

It is only a question of time before the South African government implements and follows through with drastic

measures against corruption, similar to those in the UK and the US. It is, therefore, imperative that South African

organisations initiate robust anti-corruption programmes to comply with UKBA and FCPA guidelines to avoid their

prosecution and, of course, as part of their good governance, conform to the South African Companies Act.

In today’s current global and local anti-corruption compliance environment, it would be reckless for any board of an

organisation not to pay serious attention to creating an anti-bribery culture within their organisation. Non-compliance

with anti-corruption requirements has far-reaching consequences for organisations, which could result in banks

revoking their banking services, a risk that has to be appropriately managed, given the seriousness of global regulators

targeting corruption.

In conclusion, some see corruption as a victimless crime. However, the truth is in vast contrast. In South Africa,

over the past decade, it is estimated that trillions have been lost to corruption, trillions that could have housed and

educated South Africans. The reality is, corruption has robbed a generation of South Africans of opportunities and

ravished the economy.