Category Fraud/Crime

Are your managers aware that by turning a blind eye to corruption they could end up in jail?

06 May 2009 Trevor White, director of Forensic Services for PricewaterhouseCoopers

South African courts are currently riddled with cases related to corruption and fraudulent activity in businesses throughout the country. Individuals electing to turn a blind eye to corruption could end up paying a hefty fine or even subjected to a ten-year prison sentence.

In terms of South African common law there isn’t a general obligation on citizens to report crimes unless the felony is related to treason. However, since April 2004 a certain change to the law sets the responsibility to report fraudulent activity to authorities, squarely on the shoulders of management.

Trevor White, director of Forensic Services for PricewaterhouseCoopers says “In terms of Section 34 of the Prevention and Combating of Corrupt Activities Act of 2004, the duty to report crimes related to fraud and corruption is placed squarely on the shoulders of a person in a position of authority in business.”

This duty arises when a person holding a senior position suspects or is in possession of hard evidence proving that someone committed corrupt transactions. The person in the senior position is required by law to report the suspicion or evidence to the correct authorities. The authorities must supply the person reporting the crime with acknowledgment of the report.

The Act defines corrupt transactions as theft, fraud, extortion, forgery or uttering, involving an amount in excess of R100000.

Any manager or senior staff member who neglects to report transactions of a questionable nature could be found guilty of an offense in court and may be sentenced to pay a fine or even to a jail term.

The Act describes a person who holds a position of authority as:

  1. the Director-General or head, or equivalent officer, of a national or provincial department;
  2. in the case of a municipality, the municipal manager;
  3. any public officer in the Senior Management Service of a public body;
  4. any head, rector or principal of a tertiary institution;
  5. the manager, secretary or a director of a company as defined in the Companies Act, 61 of 1973, and includes a member of a close corporation as defined in the Close Corporations Act, 69 of 1984;
  6. the executive manager of any bank or other financial institution;
  7. any partner in a partnership;
  8. any person who has been appointed as chief executive officer or an equivalent officer of any agency, authority, board, commission, committee, corporation, council, department, entity, financial institution, foundation, fund, institute, service, or any other institution or organisation, whether established by legislation, contract or any other legal means;
  9. any other person who is responsible for the overall management and control of the business of an employer; or
  10. any person acting or in a temporary capacity in any of the above-mentioned positions.

White reports, “One aspect to consider is when the person who holds a position of authority is deemed to have known or suspected that any other person has committed corruption transactions.”

In terms of the Act an individual is regarded as having knowledge of corrupt transactions if:

  • the individual has actual knowledge of the corrupt transactions; or
  • believes that there is a reasonable possibility of the existence of corrupt transactions, but fails to obtain information to confirm the existence of thereof.

An individual will further be deemed to reasonably have known or suspected that corrupt transactions have taken place if a reasonably diligent and vigilant person having both:

  • The general knowledge, skill, training and experience that may reasonably be expected of a person in his or her position; and
  • the general knowledge, skill, training and experience that he or she in fact has.

In conclusion White mentions, “It is clear that there are serious implications for persons in positions of authority when confronted with issues such as corruption, fraud and theft and it is important that management across the spectrum of South African business are made aware of these implications. There is no obligation on companies to investigate if there is a reasonable possibility that a corruption transaction took place in order to confirm the existence thereof before they report it to the police.”

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