Steven Powell May 8 2012 The war against corruption: urgent interventions required ENSafrica | White Collar Crime - South Africa Steven Powell White Collar Crime IntroductionIndividual corruptionCorporate corruptionLegislative interventions to address corruption IntroductionIf business, the public at large and the government do not initiate powerful anti-corruption measures as a matter of extreme urgency, South Africa will soon become just another corrupt African state, in which no official action takes place without either a facilitation payment or a bribe.The recent arms deal scandal has left a black mark on an otherwise impressive scorecard for democratic South Africa. It is an object example of what is known as 'grand corruption' and is the single greatest contributor to South Africa's slide to 64th position on the Transparency International Corruption Index for 2011. Bribes paid to South African officials by Saab's South African subsidiary, Sanip (which at the time was controlled by BAE), to secure the €1.6 billion purchase order of 26 Gripen fighter aircraft from Sweden, as well as allegations of a litany of payments by Shabir Shaik-controlled entities to the presidential spokesman and his wife, have recently shocked the South African public, along with more startling news as the arms deal corruption saga unravels. The corollaries to the arms deal were that offset transactions were used to justify excessive spending on armaments and weaponry that was arguably surplus to requirements. The unfortunate reality is that the so-called 'offset transactions' have equally been plagued by corruption issues. They have struggled to get off the ground and consequently have created little of the promised benefit to the South African economy. Out of the R110 billion pledged, only R6 billion in offset deals has materialised.In addition to the arms deal scandal, there has been a dramatic escalation in incidents of white collar crime and corruption. South Africans are becoming accustomed to almost daily news of corruption being uncovered in government departments and municipalities across the country, many of which have been declared insolvent or placed under administration, with the poorest being the hardest hit in most communities and service delivery being brought to a near standstill. Officials are exploiting positions of power to enrich themselves and extract maximum personal gain, and unscrupulous service providers are preying on the pervasive culture of entitlement and greed to secure lucrative tenders and contracts in exchange for backhanders. Even individuals entrusted with preserving moral fibre - such as former Police Commissioner Jackie Selebi, who has been sentenced to 15 years' imprisonment for accepting bribes - are implicated in corrupt activity.In the public sector, municipal managers, mayors, councilors, officials and even premiers are awarding tenders to entities controlled by themselves, friends, family members, cadres, comrades or political allies. Self-interest has taken precedence over ethics and morality.South Africa has arrived at yet another crossroads in its history. Now is the time to take action, before corruption becomes so endemic that it is accepted as a business norm and a reality of doing business in a corrupt continent.If the rampant escalation of corruption in South Africa is to be successfully addressed, the following three fronts must be tackled:individual corruption;corporate corruption; andlegislative corruption.Individual corruptionMembers of the public must take a stand and say no when officials request payments. One of the primary indicators of endemic corruption is where police and traffic officials demand payments from members of the public in lieu of issuing fines for offences or effecting arrests. This a major problem in most parts of Africa, and unless it is curbed, it will become the norm in South Africa as well. The public are often complicit in perpetuating this type of corruption, as they readily take advantage of the opportunity to save money and avoid due process by paying bribes. Individuals must learn to say no when asked to pay bribes and must follow this up by reporting offenders, so that corrupt elements can be weeded out of government service. Greater emphasis must also be placed on ethics and morality training in learning institutions, particularly schools.Corporate corruptionCompanies must play a greater role in helping South Africa to address rampant corruption. Every business should be proactive and put an anti-bribery policy in place. This is not only good governance, but also the right thing to do. It introduces the concept of self-regulation in the anti-bribery domain to business in South Africa. Many companies have created a strategy to prevent and detect fraud in their business; these strategies must be revisited to ensure that they incorporate an anti-bribery policy. If all companies, as a matter of policy, were to refuse to pay bribes and adhere to ethical and sound business practices to win business, then an economic landscape that is not conducive to corruption could be established. However, if the adoption of anti-corruption policies is not imposed as a legislative requirement, very few companies will adopt this approach and self-regulation will take place only in model companies which are already committed to sound and ethical business practices.Legislative interventions to address corruptionIt is argued that the South African criminal justice authorities need to review and strengthen the existing anti-corruption legislative infrastructure if they are to stem the ever-increasing wave of bribery and corruption that is threatening to strangle South Africa's fledgling democracy.On July 1 2011, the UK Bribery Act came into effect, with sweeping anti-corruption provisions for entities that are listed, are linked to or have business relations or associations with the United Kingdom. The UK Bribery Act, which is even more far reaching than the US Foreign Corrupt Practices Act, has many aspects to it that South African authorities should draw on to bolster anti-bribery initiatives. The most dramatic initiative in this new legislation is that it has created the corporate offence of "failure by a commercial organisation 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; and communication and continuous monitoring for corrupt activity. Corruption is notoriously difficult to detect and, unsurprisingly, there have been few successful prosecutions in terms of the Prevention and Combating of Corrupt Activities Act of 2004. The Office of the Director of Public Prosecutions in South Africa can be commended on its anti-corruption project, which has prioritised the prosecution of corruption cases. These cases are tracked and monitored by corruption experts within the Department of Justice in each of the provinces, targeting and monitoring such cases to ensure successful prosecutions. Many of these cases are heard in the specialised commercial crime courts, which were created several years ago in each of the major provinces, and which are staffed by dedicated white collar crime specialists who are well equipped to address the complexities of matters of this nature.The key to addressing corruption in South Africa lies in embracing a similar strategy to that enshrined in the UK Bribery Act and the US Foreign Corrupt Practices Act. This strategy involves getting the private sector - which often pays bribes to officials - to play a more meaningful role in anti-corruption initiatives. If South Africa can effectively neutralise the corruptors, it will take a meaningful stride towards this end.Through various mechanisms, the UK Bribery Act and the US Foreign Corrupt Practices Act compel businesses to self-regulate to prevent corruption. Failure to prevent corruption - 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 - results in severe penalties.The cost of non-compliance with anti-bribery legislation must be sufficiently high to deter companies from looking to win contracts by nefarious means. The United States has successfully de-incentivised companies from using corruption to win business. In terms of Foreign Corrupt Practices Act violations, statistics show that during 2010:more than $1.8 billion was paid in fines to the Department of Justice and the Securities Exchange Commission,22 companies resolved their investigations; and53 people were convicted and sentenced.The first successful bribery prosecution in respect of the UK Bribery Act has already taken place and the authorities look set to use this rigorous legislation - which even 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.Facilitation payments are payments made to a government official simply to do his or her job efficiently. A bribe is a payment is offered, paid or received, either for an official to do something that he or she should not do or not to do something that he or she should be doing. The payment of a facilitation fee has always been illegal in South Africa in terms of the Prevention and Combating of Corrupt Activities Act (12/2004), which prohibits the provision of any form of gratification to an official that is not legally due.The authorities in South Africa must impose rigorous penalties on companies that pay bribes, expanding on the example set by the Competition Commission, which has made significant inroads against price-fixing cartels via severe penalties and disgorgement of illicit profits. If rogue entities that rely on bribery for success can be identified, prosecuted and penalised, a powerful deterrent message will be sent to businesses in South Africa.The government should consider establishing a professionally staffed, dedicated anti-corruption unit, which - like the now defunct Scorpions - will be driven by a combination of specialist prosecutors and investigators. The temporary anti-corruption unit that has recently been created is not an adequate response.The UK Bribery Act has also created a new corporate offence of failing to prevent bribery. In order to avoid liability for this offence, companies must show that they have a robust anti-bribery policy in place, which is actively enforced. Herein lies the self-regulatory aspect of the UK legislation, which South African authorities are strongly urged to consider implementing.The anti-bribery self-regulatory component is found in the guidelines regarding the implementation of the UK Bribery Act which were issued by the UK Ministry of Justice. 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 policies and processes which prohibit such practices within the organisation. 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 non-prescriptive fundamental principles which 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 behalf of the organisation 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 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.If the authorities in South Africa were to adopt procedures of a similar nature to those contained in the UK Bribery Act, a culture of zero tolerance to bribery could potentially be created. This is a critical need, because as long as the risk of detection of corrupt activities remains low and the penalties for those who are apprehended and convicted are insignificant, corruption will continue to flourish. The authorities must use the opportunity for South Africa to set the anti-bribery tone and to become a role model for the rest of Africa.Individuals must start saying no to bribe requests; corporate South Africa must promote an anti-bribery business environment; and the government must take positive legislative steps to address rampant corruption. If South Africa is to prevail in this war, the government must up the ante and demonstrate that it has the will and desire to eradicate the scourge of corruption, which will strangle South Africa's fledgling democracy if left unchecked.For further information on this topic please contact Steven Powell at ENSafrica by telephone (+27 11 269 7600), fax (+27 11 269 7899) or email ([email protected]).