With corruption having become part and parcel of everyday life, South African companies have good reason to be worried. But they have as much reason to be worried about the ever-increasing number of anti-corruption laws that they are required to comply with. Not only do they need to consider local legislation, but a significant number of South African companies must now also comply with foreign laws.
Local legislation includes the Federal Insurance Contributions Act and the Financial Intelligence Centre Act (38/2001). Then there is the lesser-known Prevention and Combatting of Corrupt Activities Act (12/2004), which:
- specifically makes bribery an offence; and
- describes bribery in very broad terms, involving the giving or offering of any 'gratification'.
This act also deals with a number of specific activities, including the corruption of public and foreign government officials, as well as corruption relating to tenders, contracts, agents and members of the legislature and judiciary. Those found guilty of offences under the act can be sentenced to lengthy jail terms.
But perhaps the legislation that South African companies should be thinking about most seriously is the Companies Act (71/2008); and more particularly, the regulations promulgated under that act in 2011. The regulations – which apply to every state-owned and listed company, as well as medium-sized to large private companies and non-profit organisations – basically give effect to recommendations made by the Organisation for Economic Cooperation and Development (OECD) – the OECD Recommendations on Combatting Bribery, Bribe Solicitation and Extortion (2011).
So just what are the OECD recommendations? In general terms, they state that companies should not – directly or indirectly – offer, promise, give or demand a bribe or other undue advantage to obtain or retain business or any other improper advantage, and should resist the solicitation of bribes. In particular, they provide that companies should:
- not offer bribes to – or accept rewards from – public officials or employees of business partners or use third parties for channelling rewards;
- develop internal controls, programmes and policies for preventing and detecting bribery;
- prohibit the use of small facilitation payments;
- ensure that there is properly documented due diligence relating to agents used in connection with transactions with public and state-owned bodies;
- ensure that there is transparency in the fight against bribery, including public commitments, and the disclosure of controls;
- promote employee awareness of anti-bribery measures; and
- not make illegal contributions to candidates for public office and make full disclosure of political contributions.
The regulations under the Companies Act give effect to the OECD recommendations by requiring the company's social and ethics committee to perform a range of activities, including the monitoring of the company's anti-corruption processes and procedures. In particular, the committee must monitor – and report to the board and shareholders on – the company's activities, having regard to relevant legislation, legal requirements and codes of best practice on the following matters:
- social and economic development, taking into account the United Nations Global Compact principles (one of which says that companies should work against corruption) and the OECD recommendations regarding corruption; and
- good corporate citizenship, including the company's reduction of corruption.
If a company fails to comply with these requirements, a directive can be issued; and if this is not complied with, a fine of up to R1 million can be imposed.
Foreign legislation that South African companies need to consider includes the US Foreign Corrupt Practices Act. This act targets the payment of bribes by US-linked businesses to foreign government officials or foreign political parties. The US authorities have made it known that their courts will accept jurisdiction in cases where the only US link is the fact that payments made were routed through a US dollar account, or emails relating to the corruption were sent through a US-based server. The act is enforced by the US Securities Exchange Commission (SEC) and the Department of Justice (DOJ), and between them they do a good job. Two examples include the following:
- In 2010 Siemens AG settled a Foreign Corrupt Practices Act case that related to payments made by subsidiary companies in remote countries by paying an eye-watering settlement figure of $1.6 billion.
- In the same year Swiss-based logistics company Panalpina agreed to pay penalties of $70 million and pay back $11 million in illicit profits to the SEC for bribes paid by subsidiaries to customs officials in Latin America and Nigeria.
As a result of these massive penalties, companies now take the prevention of corruption very seriously. The act therefore plays a role in driving ethical behaviour by companies which are registered in, or associated with, the United Sates. This culture of compliance is so entrenched that many companies self-report in order to get deferred prosecution agreements and leniency from regulators.
Even more radical is the UK Bribery Act, which came into effect in July 2011. Unlike the US legislation, this act is not limited to bribes paid to foreign government officials, covering both public sector and private sector corruption. The UK Bribery Act also has expressly declared facilitation payments – those (often small) payments that are made to government officials to ease the processes, and that are endemic in Africa – to be unlawful. And once again, there is extra-territorial jurisdiction, in that the act covers corruption – irrespective of where it happened – by those that have a close connection with the United Kingdom.
The UK Bribery Act also introduces an entirely new offence: the failure by a commercial organisation to prevent bribery. The jurisdiction in relation to this new offence is even wider – a UK court will have jurisdiction if the company charged simply carries on a business or part of a business in the United Kingdom. This means that a South African company with outlets in the United Kingdom can be charged in the United Kingdom for corruption that may have occurred in an African country. The UK Bribery Act does provide companies with a possible defence – if a company can show that it took "adequate procedures designed to prevent persons associated with (the company) from undertaking such conduct", it may get off the hook. In this way, compliance is encouraged.
The UK Bribery Act lays down six principles that will indicate that adequate steps were taken:
- appropriate anti-bribery procedures, which must be robust and designed to foster compliance by employees, partners and agents, and which must be proportionate to the bribery risk faced by the company;
- top-level commitment;
- risk assessment;
- due diligence;
- communication and training; and
- monitoring and review.
The UK Bribery Act may seem daunting, but its principles are quite similar to the OECD recommendations that now form part of the regulations under the Companies Act. So it is possible for a South African company to devise an effective and compliant anti-corruption policy – but it needs to be taken seriously.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.