DO YOU

KNOW YOUR

ABC’S?

namely Anti -Bribery & Corruption

By: Stella Nolan

It is often seen as a victimless crime

for those engaging in bribery and

corruption. However, in reality, it

reduces efficiency and increases

inequality. The truth is that the

cost of corruption is colossal, with

tangible consequences.

According to the World Bank,

the corrupt pay more than

$1 trillion in bribes annually.

The World Economic Forum estimates that the cost of corruption

equates to more than 5% of global GDP, or $2.6 trillion.

Essentially, corruption is one of the core obstacles to sustainable

economic, political and social development in emerging and

developed economies alike.

To clarify, ‘corruption’ is any illegitimate use of office and includes

crimes like nepotism or cronyism and misdirecting funds. ‘Bribery’

is limited to the giving or acceptance of payment for leverage.

South Africa has international commitments and obligations to

curb the scourge of corruption. Furthermore, the Constitution

mandates compliance with international law and requires the

country to comply with its international obligations. South Africa

has ratified several international conventions and treaties and

participates in forums that need the government to implement

measures to prevent and combat corrupt activities, like:

> The United Nations Convention against Corruption (UNCAC),

which promotes the prevention and criminalisation of corruption.

It highlights the need for international cooperation in the fight

against corruption and the return of assets associated with

corrupt activities.

> The African Union’s Convention on Preventing and Combating

Corruption.

> The SADC Protocol Against Corruption.

> The Financial Action Task Force (FATF).

> The Group of 20 (G20) Anti-Corruption Working Group, where

South Africa participates, thus provides an accountability report.

> United Nations Convention Against Corruption (2003).

> The Organisation for Economic Cooperation and Development’s

Convention on Combating Bribery of Foreign Public Officials in

International Business Transactions (1997),

> The United Nations Convention against Transnational Organised

Crime (2000) and its associated protocols.

What is clear is that South Africa is internationally committed

to preventing and combating corruption and has a legislative

framework that paves the way. Each convention and treaty ratified

by South Africa compels action to prevent and combat corruption.

The National Anti-Corruption Strategy (NACS) is

the driving force overseeing compliance in the public and private

sectors. Other significant local anti-corruption laws include the

Prevention and Combating of Corrupt Activities Act

(12 of 2004), The Prevention of Organised Crime Act 121 of 1998

and the Financial Intelligence Centre Act (38 of 2001).

Many organisations address corruption by implementing remedial

measures and controls to identify it. However, without public

and private intervention, the scourge of bribery, extortion and/

or bribe solicitation will continue with impunity. The OECD

Recommendations, The Public Services Act, The Companies

Act and the NACS all address the preventing and combating of

corruption in public and private sectors.

OECD Recommendations

In 2010 there was a positive step forward in the fight against

corruption when the OECD Recommendations on Combating Bribery,

Bribe Solicitation and Extortion (2011) were introduced

in terms of regulation 43 of the South African Companies Act

(71 of 2008) as amended. Hence, South African organisations are

obliged to:

> not pay or demand bribes;

> have an anti-bribery policy;

> develop internal processes and controls to mitigate the

bribery risk;

> keep fair and accurate books and records;

> perform an anti-bribery risk assessment to identify the

risks of bribery;

> 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;

> publicise their anti-bribery initiatives; and

> avoid unlawful political contributions.

To adhere to the OECD Recommendations, organisations

across all sectors must implement robust anti-bribery and

corruption programmes. The recommendations’ core objective

is to neutralise people’s ability to pay bribes in the private sector.

The ripple effect would halt public sector corruption, as those

in the private sector invariably pay bribes. Organisations should

regard the OECD Recommendations as a normal business

practice. They amount to good corporate governance and

commitment to doing ethical business and mitigating the risks

associated with bribery.

Public Sector Legislation

The amendment of the Public Service Act (Act 103 of 1994)

and the Public Service Regulations aim to protect procurement

processes and send a strong message to the ruthless breed

of capitalists intent on keeping corruption thriving. The

amendments include:

> Prohibiting public officials from undertaking other

remunerative work outside their employment. Public

officials performing other remunerative work outside their

employment should seek permission from senior officials.

When participating in additional work and receiving

remuneration, they must obtain a Certificate of Approval,

which must be attached to the public service employee’s

Financial Disclosure Form, allowing for easy verification;

> Prohibiting public officials from conducting business with

any organ of state, whether in their capacity as individuals

or through companies in which they are directors;

> Prohibiting public officials from accepting gifts from any

employee or person in return for performing their duties;

> Compelling designated public officials to disclose their

financial interests, which is essential in managing any

conflict of interest; and

> Establishing an ethics infrastructure, such as ethics

committees, ethics officers or ethics champions in

public organisations.

The Companies Act

Any South African organisation falling under the jurisdiction of

the Companies Act must adopt the OECD Recommendations.

Those falling within the ambit include:

> State-owned enterprises;

> All listed public entities;

> In two of the previous five years, any other company that

scored more than 500 points relevant to regulation 26(2).

Regulation 43 of the Companies Act mandates that an

organisation establishes a social and ethics committee. Among

many duties in promoting sound corporate citizenship and

ethics, the responsibilities include reducing corruption and

ensuring the organisation adopts and implements the OECD

Recommendations.

A summary of the duties of the nominated social and ethics

committee, based on the OECD Recommendations on

combating bribery, bribe solicitation and extortion, is:

> Monitoring an organisation’s activities against relevant legislation,

legal requirements, or prevailing codes of best practice in

social and economic development matters. It includes an

organisation’s standing in terms of its goals and includes:

o the tenth principle set out in the United Nations’ Global

Compact, which stipulates that organisations should

work against corruption in all its forms, including

extortion and bribery5

;

o the OECD Recommendations regarding corruption;

o the Employment Equity Act; and

o the B-BBEE Act.

> Ensuring good corporate citizenship by promoting equality,

preventing unfair discrimination and reducing corruption;

> Contributing to the developing communities in areas where

an organisation operates or where it markets products

or services;

> Maintaining a record 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;

> Ensuring that an organisation's advertising and public

relations align with consumer protection laws;

> Addressing labour and employment issues:

o Evaluating the organisation’s standing in terms of the

International Labour Organization Protocol on decent

work and working conditions;

o Appraising an organisation’s employment relationship

and contributions with regard to the educational

development of its employees;

o Drawing matters within its mandate to the board’s

attention, as the occasion requires; and

o Reporting to shareholders at the organisation’s annual

general meeting on the matters within its mandate.

National Anti-Corruption Strategy 2020-2030

The South African Government developed and published the

NACS, a strategic framework and action plan for the country

which seeks to create a society that

> Reinforces the government’s administrative and procurement

processes to ensure greater monitoring, accountability

and transparency.

> Educates the public about what constitutes corruption, thus

empowering them to respond when or where necessary.

> Encourages support and protection of the public and

whistleblowers who report corruption.

> Holds public officials accountable for providing

inadequate services.

> Creates a culture of zero tolerance toward corruption

in any sector by holding those involved in corrupt

activities accountable.

> Holds organisations and civil society accountable for bribery

and corruption.

The premise of the NACS principle is the emphasis on preventing

corruption through good governance, transparency, integrity and

accountability. An integrated approach to fighting corruption will

help mitigate the risk of costly commissions of inquiry, forensic

investigations and other legal processes.

The government built the strategy on the following six pillars:

1 Promote and encourage active citizenry, whistleblowing,

integrity and transparency in all spheres of society.

2 Enhance employee professionalism to optimise their

contribution towards creating corruption-free workplaces.

3 Enhance governance, oversight and accountability in

organisations across all sectors.

4 Improve the integrity, transparency and credibility of the

public procurement system.

5 Strengthen dedicated anti-corruption agencies to resource

and coordinate transnational cooperation, performance,

accountability and independence.

6 Protect vulnerable sectors most prone to corruption and

unethical practices with effective risk management3

.

Prevention and Combating of

Corrupt Activities Act

This legislation applies to organisations based in South Africa,

including international ones conducting business in the country.

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 regulates

bribery as: “any person who directly or indirectly gives or accepts

or agrees or offers to give or accept any gratification from another

person to act personally or influence 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 the act of corruption.” In addition to the

general offence of corruption, the Act sets out an entire series

of corrupt activities, including the bribery of public and foreign

government officials. It addresses corruption related to, among

others, tenders, contracts, agents, members of the legislature

and judiciary, sporting events and games of chance. On a

global front, the Act imposes lengthy periods of imprisonment

on individual offenders convicted of corrupt activities. The

mandatory minimum sentence for corruption in the South African

sentencing guidelines is direct imprisonment for 15 years.

The Prevention of Organised Crime

Act 121 of 1998

The main objective of this legislation is to provide for the recovery

of the proceeds from unlawful activities. The High Court has

jurisdiction to make a forfeiture order as per section 50(1)(b)

of the Prevention of Organised Crime Act, 1998, in respect

of property situated outside the territory of South Africa and

belonging to persons who are presently resident elsewhere.

An order can be made upon reasonable grounds to believe the

property concerned is an ‘instrumentality of an offence’ referred

to in Schedule 0 (s 38(2)(a)) or is the ‘proceeds of unlawful

activities’ (s 38(2)(b)).

The definitions of the terms ‘instrumentality of an offence’

and ‘proceeds of unlawful acitivies’ feature prominently in the

Act. The former relates to any property concerned with the

commission of an offence, irrespective of where it occurred. The

latter applies to any form of property of direct or indirect benefit

from any unlawful activity.

The legislation aims:

> to combat organised crime, money laundering and criminal

gang activities;

> to prohibit certain activities relating to racketeering activities;

> to provide for the prohibition of money laundering and for an

obligation to report certain information; to criminalise certain

activities associated with gangs;

> to provide for the recovery of the proceeds of

unlawful activity;

> to ensure the civil forfeiture of criminal assets that the

corrupt used to commit an offence or assets that are the

proceeds of illegal activity;

> to provide for the establishment of a Criminal Assets

Recovery Account;

> to amend the Drugs and Drug Trafficking Act, 1992;

> to amend the International Co-operation in Criminal Matters

Act, 1996;

> to repeal the Proceeds of Crime Act, 1996; and

> to incorporate the provisions contained in the Proceeds of

Crime Act, 1996.

The Prevention and Combating of Corrupt Activities Act and

the Prevention of Organised Crime Act are a strong foundation

for addressing corruption, an acceptable overall anti-corruption

legal framework, an independent judiciary, a robust media and

an active, battle-hardened civil society. Essentially these are

the critical ingredients for a relatively corruption-free society, yet

corruption is burgeoning.

Notwithstanding, it is well documented that the decade leading

up to the Zondo Commission of Inquiry robbed taxpayers

of billions of Rands, creating a catastrophic loss to the GDP.

Prodigious looting and money laundering would not have

been possible without the connivance of government officials

or global and national financial institutions, auditors and

management consultants. All of these profited, hid and spent

stolen funds otherwise destined for essential South African

public spending. The result is the depletion of public finances

and infrastructure6

.

But where did the billions go? Today, the corrupt use a global

web of anonymous companies, trusts and other legal entities

across multiple jurisdictions to transfer and hide illicitly sourced

funds. Perpetrators launder their illicit money, making the

funds available to fund lavish lifestyles. However, a darker side

is that the corrupt launder money to finance crime syndicates

or terrorism.

The definition of money laundering is the criminal practice of

making funds from illegal activities appear legitimate. Although

money laundering is a diverse and often complex process,

it generally involves three stages: placement, layering, and/

or integration of the funds. The method of money laundering

is not a lone one, but one that consists of a chain of people

or organisations. As the global fight to eradicate corruption

continues, mandated checks endeavour to uncover the source

of the previously untraceable funds. Another factor is that

the number of people involved in the money laundering chain

substantially increases the risk for all corrupt parties involved.

The core to fighting the corrupt is a regulator that has the

stomach to implement the full force of the law, both globally and

within the South African borders.

The global fight to combat corruption

As many organisations and individuals fly under the radar of

culpability inside South African borders, the global playing field

of accountability for corruption has changed drastically in the

last few years.

For some time, anti-corruption campaigners and activists have

urged South African authorities to consider adopting legislation

similar to the United Kingdom Bribery Act (UKBA) that came

into effect in July 2014. Through its innovation, a new corporate

offence, “the failure by a commercial organisation to prevent

bribery,” has been compelling organisations associated with the

United Kingdom (UK) to take robust anti-corruption measures.

"To clarify, ‘corruption’ is any illegitimate use of

office and includes crimes like nepotism

or cronyism and misdirecting funds.

‘Bribery’ is limited to the giving or

acceptance of payment for leverage."

The UKBA is similar to the Foreign Corrupt Practices Act (FCPA), a

United States (US) statute containing anti-bribery prohibitions and

accounting requirements. Like US legislation, the UKBA provides

extra-territorial jurisdiction to the UK regulators regarding acts of

corruption committed by organisations associated with the UK.

It is irrelevant whether the Act of corruption occurs in the UK or

elsewhere, or where the organisation in question is registered or

located globally. Unique to the UKBA is that it applies to both the

public and private sectors and criminalises facilitation payments.

The legislation is not only aggressive, but it has more far-reaching

consequences for South African organisations, as it gives the

Serious Fraud Office the power to impose fines for failing to prevent

bribery.

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 a comprehensive approach to

jurisdiction and has cautioned that it will find jurisdiction regarding

bribes paid to foreign government officials. It does so if payments

route through US dollar accounts or e-mails, where transmission

happens through US-based servers. Accordingly, South African

organisations that may not ordinarily regard themselves as subject

to the international regulators may inadvertently become subject

to their extra-territorial jurisdictional reach. For example, if an

employee in a subsidiary in South Africa pays a bribe to a foreign

government official, a prosecution could occur there. However, the

perpetrators could face prosecution in the US as well. It is only a

question of time before the South African government implements

drastic measures against corruption, similar to those of the UK

and US. Therefore, as part of being a good corporate citizen,

South African organisations should initiate robust anti-corruption

programmes to comply with and avoid prosecution by international

regulators and, of course, conform with the South African

Companies Act.

In today’s global and local anti-corruption compliance

environment, it would be reckless for any board of any

organisation not to pay serious attention to creating an

anti-bribery culture. Non-compliance with anti-corruption

requirements has far-reaching consequences and is a risk that

organisations must appropriately manage.

Despite South Africa being a signatory to international

conventions and treaties, as well as having robust legislation

in place, it has not fared well in the Transparency International

Corruption Index. In 2015 it ranked 61st out of 167

participating countries, and in 2021 ranked 70th out

of 180 participating countries.

Food for thought, the cost of corruption far exceeds that of

mitigating it.

Content vetted by:

Mohamed Randera,

Member of the Editorial Committee of De Rebus, the attorneys’ journal, published by

the Law Society of South Africa.

Source of reference:

1. https://www.oecd-ilibrary.org/docserver/9789264205376-3-enpdf?expires=165223525

9&id=id&accname=guest&checksum=2DF340281451C25004E19B4F931EBB29

2. https://www.gov.za/anti-corruption-E

3. https://www.gov.za/sites/default/files/gcis_document/202105/national-anti-corruption strategy-2020-2030.pdf

4. https://tfmmagazine.co.za/wp-content/uploads/2020/06/TFM_issue-09_2016_

Corruption-copy.pdf

5. https://www.unglobalcompact.org/what-is-gc/mission/principles

6. https://www.ft.com/content/29e192d3-a8dc-4be7-a80f-b006fa4091f1

7. https://www.transparency.org.uk/corruption-south-africa-view-front line?gclid=EAIaIQobChMI7c7Lo_Kr-AIVGLLtCh2f4whREAAYAyAAEgKBzPD_Bw