Corporate South Africa, starting with JSE listed companies, should play a decisive role in addressing the scourge of corruption that is strangling our democracy.
Steven Powell
January 12, 2012
It is imperative that business, the public at large and the government initiate anti-graft measures.
In addition to the widely publicised arms deal scandal, there has been a dramatic escalation in incidents of white collar crime and corruption in recent years. South Africa was at position 64 on the Transparency International Corruption Index for 2011 and a recent survey by TNS South Africa indicates that most urban South Africans feel corruption has become a way of life.
Corruption is notoriously difficult to detect and, not surprisingly, there have been few successful corruption prosecutions in terms of the prevailing anti-corruption legislative infrastructure in South Africa.
While the Office of the Director of Public Prosecutions can be commended for prioritising the prosecution of corruption cases, it has not done enough to address rampant corruption, which has been escalating at alarming levels. To ensure successful prosecutions, the Department of Justice has put procedures in place in terms of which all corruption cases are tracked and monitored by experts within the Office of the Director of Public Prosecutions in each of the provinces. Most corruption cases are heard in the specialised commercial crime courts, which were created several years ago in each of the major provinces. They are staffed by dedicated white collar crime specialists who are well equipped to address the complexities of matters of this nature. This has improved conviction rates for corruption across the board in South Africa.
The improved prosecution and conviction statistics, however, remain a cause for concern as the bulk of the corruption cases that take place in our country are not prosecuted. The key reason for this is that a large proportion of corruption matters are undetected. Additionally, many corruption cases that are detected are not reported to the authorities. Among the rationalisations cited for not reporting corruption – notwithstanding the fact that it is a criminal offence not to report such matters in terms of Section 34 of the Prevention and Combating of Corrupt Activities Act – include; inter alia, lack of confidence in the criminal justice system; the negative stigma attached to admitting that an employee has paid a bribe; or the fear of victimisation on the part of companies, should they report an official for soliciting a bribe.
Under-detection and under-reporting make it difficult to measure the true extent of corruption in South Africa. The few cases that are reported to the authorities are often hampered by insufficient investigative capacity and inadequate resources in the police, which results in poor quality investigations, which often lead to acquittals or even worse, cases where the Public Prosecutor declines to prosecute. Clearly, the Prevention and Combating of Corrupt Activities Act (Act 12 of 2004), coupled with inadequate investigative resources, has not achieved the success required to de-incentivise bribe-payers and bribe-takers, who are acting with impunity to enrich themselves. As long as the risk of detection and conviction remains low, corruption will continue to flourish.
The existing anti-corruption legislative infrastructure as well as the commercial crime investigation units require a complete overhaul if the system is to discourage would-be bribe-payers or bribe-takers. The authorities would do well to look at the far-reaching provisions of the United Kingdom’s recently promulgated anti-bribery act when considering a revamp of our corruption legislation.
Corporate South Africa’s anti-graft role
Fighting corruption cannot, however, be the sole and exclusive responsibility of the government. If companies in South Africa merely sit back and wait for legislative interventions without taking action themselves, the future of the economy may be at serious risk.
Listed entities have an opportunity to become role models to the rest of corporate South Africa in creating an anti-bribery corporate environment. In this regard, the JSE – the Johannesburg stock exchange – should consider implementing a new requirement that every listed company should put appropriate anti-bribery policies and processes in place, to restrict and address instances of bribes paid by that entity or by agents or intermediaries on behalf of such entities.
A number of multinational corporates, such as BHP Billiton and the Anglo American group, have already implemented rigorous anti-bribery measures, but most businesses in South Africa have devoted little or no attention to bribery, either within their own organisation or within those of agents and intermediaries who represent them and who may pay bribes on their behalf, sometimes even without their direct knowledge.
However, as a result of rampant employee fraud over the past decade, most companies have created policies and strategies to prevent and detect fraud in their business. These strategies now have to be revisited and revised to ensure that they incorporate an anti-bribery focus, as opposed to merely addressing the fraud risk to the business. If all companies adhere to ethical and sound business practices in winning business, and make it their policy to refuse to pay bribes, then the corporate world will have created an economic landscape that is not conducive to corruption.
A framework for requiring companies and listed entities in particular to adopt appropriate anti-bribery processes in their businesses can be found in Britain’s anti-bribery act.
On 1 July 2011, the United Kingdom’s Bribery Act (UKBA) came into effect, with far-reaching anti-graft provisions for entities that are listed in, linked to, or have business relations or associations with the United Kingdom. The Act, which is even more far-reaching than the United States’ Foreign Corrupt Practices Act (FCPA), has many aspects to it that the South Africa authorities should draw on to bolster their anti-bribery initiatives.
The corporate offence of “failing to prevent bribery”
The most dramatic initiative in the UKBA is the introduction of the corporate offence of “failing to prevent bribery”. This compels businesses to self-regulate against corruption, by having a robust anti-corruption policy; management commitment to anti-corruption practices; risk assessments; anti-corruption due diligence on vendors, agents and intermediaries; anti-corruption training for staff; communication and continuous monitoring for corrupt activity.
It is unlikely that, in the near future, the South African authorities will contemplate adopting similar legislation to the UKBA; however, the private sector, often the payer of bribes to officials, has a unique opportunity to play a more meaningful role in anti-graft initiatives. If it is able to effectively neutralise the corruptors, it will already have made a meaningful stride in anti-corruption measures. The JSE is the ideal body to place preventing bribery on corporate agendas in boardrooms across South Africa.
For its part, the government will be missing an ideal opportunity to bolster state revenues through the penal provisions of anti-bribery if it fails to emulate the UKBA, under which failure to prevent corruption results in severe penalties, not only on the part of the business entity itself, but also as a result of the activities of agents and intermediaries who act on its behalf.
The US has successfully de-incentivised companies from using corruption to win business. In terms of FCPA violations, statistics show that during 2010, more than $1,8-billion (about R14,5-billion) was paid in fines to its Department of Justice and Securities Exchange Commission; 22 companies resolved their investigations and 53 people were convicted and sentenced. The first successful bribery prosecution in respect of the UKBA has already taken place and the authorities look set to use this rigorous legislation, which goes so far as to criminalise the payment of facilitation payments, which are endemic in most parts of Africa, to impose substantial penalties on non-compliant companies. The cost of non-compliance with anti-bribery legislation must be sufficiently high to deter companies from looking to win contracts by means of nefarious means.
The State should impose rigorous penalties against companies that pay bribes, expanding on the example set by the Competition Commission, which has made serious inroads against price fixing cartels via severe penalties and disgorgement of illicit profits. If it can identify, prosecute and penalise rogue entities that rely on bribery for success, it will send a powerful deterrent message to business South Africa.
In the United Kingdom, the Serious Fraud Office has a successful track record; however, the authorities are in the process of establishing a new and powerful specialised anti-graft unit. South Africa has created a temporary anti-graft unit comprised of part timers, seconded from different criminal justice bodies, but more needs to be done to address our anti-corruption needs. We need to look to establishing a dedicated corruption busting unit, which, like the now defunct Scorpions, is driven by a combination of specialist prosecutors and investigators. The demise of the Scorpions has put the war against corruption into reverse gear.
Failing to prevent bribery
The UKBA has created a new corporate offence of failing to prevent bribery. To avoid liability for this offence, companies have to show that they have a robust anti-bribery policy in place that is actively enforced. Herein lies the self-regulation aspect of the British legislation, which South African authorities are strongly urged to consider implementing in South Africa.
The anti-bribery self-regulation component is found in the guidelines regarding the implementation of the UKBA which were issued by the Ministry of Justice in the United Kingdom. The legislation recognises that even companies committed to ethical business practices may occasionally suffer lapses as a result of rogue employees who pay bribes, despite having policies and processes that prohibit such practices. It has accordingly made provision for a defence against prosecution if a company can show that it has put robust, appropriate anti-corruption procedures in place and has adhered to the following six, non-prescriptive fundamental principles that are designed to prevent bribery being committed on its behalf:
- Appropriate procedures – the commercial organisation’s procedures to prevent bribery by persons associated with it should be proportionate to the bribery risks it faces having due regard to the nature, scale and complexity of the commercial organisation’s activities.
- Top-level commitment – top-level management of a commercial organisation must demonstrate commitment to preventing bribery by persons associated with it.
- Risk assessment – the commercial organisation should assess the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it.
- Due diligence – the commercial organisation should apply due diligence procedures, taking a proportionate and risk-based approach in respect of persons who perform or will perform services for or on its behalf, in order to mitigate potential bribery risks.
- Communication (including training) – the commercial organisation should ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation via internal and external communication, including training, that is proportionate to the risks it faces.
- Monitoring and review – the commercial organisation should monitor and review procedures designed to prevent bribery by persons associated with it and should make improvements where necessary.
There is a compelling argument that the authorities in South Africa should seriously consider adopting procedures of a similar nature to those contained in the UKBA.
Corporate South Africa should seize the opportunity to become anti-bribery role models. The guidelines to the UKBA are useful corporate governance guidelines that no ethical business should have difficulty adopting. If the JSE takes the initiative by compelling listed companies to take similar anti-bribery steps, it will have reduced the scope for bribery within the top companies in South Africa.
■ Steven Powell is an executive at leading law firm ENS and has more than 20 years’ experience as an advocate, specialist white collar crime prosecutor and forensic lawyer
