South African firms are now accountable for the actions of the companies they contract to when it comes to corruption and are prohibited from funding political parties, according to new regulations for the Company Act, issued quietly last year.
Read the guidelines to ensure regulations compliance here.
Local companies are also bound by Organisation for Economic Cooperation and Development (OECD) rules relating to graft, whether they are listed or not.
Steven Powell, a forensic executive at law firm Edward Nathan Sonnenbergs, said most companies, particularly unlisted ones, are unaware of the “far-reaching and onerous” new requirements when it comes to a company’s responsibility to prevent corruption.
Powell recently held nationwide seminars to make companies aware of the regulations and was alarmed at the lack of knowledge about the new regulations, which will impact on how companies do business.
The regulations introduce a social and ethics committee which, he said, will be required to oversee compliance with the OECD Convention of Combating Bribery of Foreign Public Officials in International Business Transactions, to which South Africa is a signatory. This applies whether they are state-owned companies, listed and large unlisted companies.
Unlisted firms beware
Powell said from his experience, large unlisted companies generally have no idea that they are now bound by the same rules at listed companies with regard to corruption.
“I must say I was very taken aback when I saw the new regulations and the extent to which they increased accountability,” he said. “Companies invited to business breakfasts by political parties where they pay large amounts for tables will have to turn them down now, in terms of the regulations.”
Companies which contract out to other companies will also have to become more vigilant.
“Companies, for example, which outsource to bulk freight companies, have to ensure that those freight companies are not bribing custom officials or regulators while doing business on their behalf, as the original company could be held liable.
“They need to show that they have taken steps, which could be an agreement, to show they would not condone this behavior.”
A case in point, said Powell, involved Panalpina World Transport, a Switzerland-based freight company whose contractors were found to have paid US$27-million in bribes to officials in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan.
In 2010, Panalpina agreed to pay a fine of more than US$70-million for the transgressions.
Ignorance no longer an excuse
“Ignorance can no longer be used as a defence. Companies will have to show they have taken all measures to ensure they are not linked or engaging in corruption, either directly or indirectly,” he said.
“South African-based mining companies, who use a number of transporters, will have to ensure their subcontractors are up to date with the legislation and introduce clauses in their contracts forbidding bribery or corruption of officials.”
As a result of these regulations, companies may have to think long and hard before embarking on business in other African countries, said Powell.
“They may have to think twice if they cannot get jobs without bribing officials.”
South Africa is also not immune to regulations in other countries, as the case against local cellphone company MTN has revealed.
No double jeopardy protection
As Powell points out, when it comes to corruption and bribery, there is no double jeopardy protection. “Companies can be prosecuted in different countries for the same offence. So they could be prosecuted in South Africa and in the US, or the US and Germany.”
The US appears to impose the strongest penalties with over US$1.8-billion in fines imposed on companies in 2010 in terms of that country’s Foreign Corrupt Practices Act.
In 2011, companies paid US$508.6-billion, largely for offences involving bribery of officials, and these were generally committed by subsidiaries.
According to Powell, Siemens in 2010 paid out combined fines of R1.6-billion to the US and Germany.
“In the Siemens case, there was found to be systemic corruption, and that it was entrenched in their business processes. A lot has since been done to change that, with Siemens overhauling its culture, moving out the old guard and stepping up compliance,” he said.
Powell said new requirements in local legislation, bringing it in line with the OECD, are not far removed from the UK’s Bribery Act legislation, which came into effect in 1 July 2011. The UK legislation was considered by most forensic and corruption experts as radical.
“For most South African companies, following company guidelines let out by the UK Justice ministry for compliance with their Bribery Act, would make them compliant with the OECD requirements,” said Powell.
Over 143 countries are signatories to the OECD agreement.
The US is also overhauling its whistleblower legislation to ensure more protection. The US Security Exchange created compensation for whistleblowers, which generally lose their jobs, of up to 25% of the money they recover.
In South Africa, the Open Centre for Democracy has been involved in reviewing the Protection of Disclosures Act, and Powell said he is hopeful that changes to this may be imminent.
Whistleblowing working in US
So effective is whistleblowing in the US and so onerous are the penalties, that many companies operating in that country now approach authorities themselves to declare what they have uncovered.
A German parent company Lufthansa Technik was recently reported to US authorities and paid a fine of US$11.8-million for bribery of Mexican and Panama officials by its subsidiary BizJet, an Oklahoma-based company that supplies aircraft maintenance services.
Lufthansa Technik uncovered the bribes which were paid between 2004 and 2009.
“Companies need to take note of the new regulations and ensure that they are compliant, and not just when it comes to setting up a social and ethics committee. Unlisted companies also need to ensure that they are compliant if they are large companies,” he said.
