Category Legal Affairs

Changes to local and international anti-corruption laws could leave SA corporates in hot water

14 August 2012 ENS (Edward Nathan Sonnenbergs)

There have been dramatic changes to anti-corruption legislation in the past few months – both locally and abroad. However, corporate awareness of this legislation remains very low and could result in millions of Rands worth of fines – and even criminal pr

This was the stern message of Steven Powell, Director of Forensics at ENS (Edward Nathan Sonnenbergs), speaking at a breakfast as part of part of Bloody Book Week, in Johannesburg last week. Powell says SA companies need to start thinking seriously about putting anti-corruption measures in place to manage their risk – especially those that have ties to the UK.

“Failure to comply will result in millions of Rands of fines and potentially devastating consequences for the employees and the organisation,” says Powell.

He refers to the UK Bribery Act (UKBA), which came into effect in 2011. “Although UK legislation, this Act has very important extraterritorial consequences for South African companies that have business in, or business ties to the UK,” he says.

According to Powell, the introduction of a new strict liability corporate offense in the UKBA should be particularly noted by South African executives. Companies without anti-bribery policies and procedures may be targeted in terms of this new corporate offence: “the failure by a commercial organisation to prevent bribery on its behalf”.

“What’s concerning is that many local companies do not even know that they are required to comply with this Act. It is crucial for applicable South African companies to understand that they can now be charged with the offence of failing to prevent bribery on their behalf through their business dealings and links with the UK,” he says.

Furthermore, Powell explains that the Act provides strict liability for “associated persons” who pay bribes on behalf of companies. “This includes employees, agents, subsidiaries, and even subcontractors,” says Powell.

Powell says ENS expects that it is the larger South African companies with ties to the UK that will be the primary targets for this legislation and are most at risk of fines as a result of the UKBA. “The UK bribery Act is brand new but it is modelled on the United States Foreign Corrupt Practices Act 1977 (FCPA) which, over the past four years has resulted in billions of dollars of fines payouts by large US corporates. There is no reason to believe that the situation will be any different with the UKBA,” he says.

Closer to home, Powell says that he is very concerned that few business people are unaware of crucial reporting obligations regarding white collar crime matters in terms of the Prevention & Combating of Corrupt Activities Act (Act 12 of 2004. “This act creates a reporting obligation if you know or suspect acts of corruption, fraud, theft, extortion, forgery and uttering. It also prohibits cross border acts of corruption. This means that if you are convicted of paying a bribe in Nigeria – you can be prosecuted here and in a Nigerian court,” he says.

The reporting obligation is set out in Section 34: “Any person in a position of authority who knows, ought reasonably to have known, or suspects that an act of corruption, fraud, theft, extortion, forgery or uttering has been committed, where value exceeds R100,000.00, has to report to the SA Police Services”.

“Failure to report is a criminal offence and could result in a maximum of 10 years in jail. The concern is that not many people know about this reporting requirement which has not been widely marketed,” says Powell.

However, according to Powell, one of the strongest anti-corruption mechanisms has recently been introduced in South Africa, via Section 43 of the regulations to the Companies Act - which requires South African companies to initiate dramatic and far reaching anti-corruption measures and procedures.

In terms of the Section 43 of the new Companies Act regulations, companies have to establish a “Social and Ethics Committee” which has a host of good corporate citizenship and governance obligations; included amongst those responsibilities are critical Anti-Corruption Compliance obligations. “The Social and Ethics Committee shall monitor the company’s progress and standing regarding the implementation of the OECD recommendations on OECD recommendations on reducing bribery, extortion and bribe solicitation The problem is that most people are not even aware of what these recommendations entail and effectively managing a company’s risk in this regard is therefore very unlikely,” he says.

Powell summarises what companies must do in terms of the OECD recommendations:

1. Companies should not engage in acts of bribery, to obtain or retain business or gain other improper advantage.Companies should develop adequate internal controls, ethics and compliance programmes or measures for preventing and detecting bribery developed on the basis of a risk assessment and appropriate to the nature and scale of the operation. Companies also have to maintain accurate books and records. Regular monitoring of anti-bribery policies and procedures is required to ensure that they continue to be effective.

2. Companies should prohibit or discourage facilitation payments.

  1. Companies must perform properly documented due pertaining to the hiring, as well as the appropriate and regular oversight of agents, and that remuneration of agents is appropriate and for legitimate services only. Where relevant, a list of agents engaged in connection with transactions with public bodies and State-owned enterprises should be kept .
  2. Companies must enhance the transparency of their activities in the fight against bribery, bribe solicitation and extortion. This includes making public commitments against bribery, bribe solicitation and extortion.
  3. Companies should not make illegal contributions to candidates for public office or to political parties or to other political organisations.

The good news for companies, according to Powell is that putting anti-bribery policies is not only ethically and morally the right thing to do, but by implementing the OECD recommendations, companies will also avoid the R1 million South African penalty for non-compliance to Section 43, and at the same time this will provide a compelling defence against a charge by the UK regulators that the company has ‘failed to prevent bribery” in terms of the United Kingdom Bribery Act.

All state owned, listed companies and larger organisations will need to comply with the anti-corruption compliance requirements of the new SA Companies Act. Widespread implementation of anti-corruption procedures in corporate SA will reduce bribery and have a positive effect on our economy.

Powell warns company directors that if preventing bribery isn’t already part and parcel of how you do business in South Africa, you need to get anti-bribery onto your boardroom agenda before the regulator places your organisation on theirs!

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