Combatting Corruption And ESG

Ai
Andersen in South Africa

Contributor

Andersen in South Africa is a Legal, Tax and Advisory firm offering a full range of value-added and cost-effective services to their corporate and commercial clients. They are a member firm of Andersen Global, an international entity surrounding the development of a seamless professional services model providing best in class tax and legal services around the world.
This article is the second of a 3-part series which will consider environmental, social and governance ("ESG") and factors that have the potential to impact components of ESG. Having established in the first article...
South Africa Corporate/Commercial Law
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This article is the second of a 3-part series which will consider environmental, social and governance ("ESG") and factors that have the potential to impact components of ESG. Having established in the first article posed within this series that corruption is one of the factors which have been detrimental to South Africa's ESG score, this factor will need to be explored in more detail with a specific reference to the national and foreign instruments that may impact on corporate entities conducting business in South Africa.

The Relevant Instruments

South Africa is subject to numerous legislative instruments that have, as at least one of their aims, to prevent corruption. These are, inter alia:

  • Prevention and Combating of Corrupt Activities Act, 2004;
  • Prevention of Organised Crime Act, 1998;
  • Protected Disclosures Act, 2000;
  • Financial Intelligence Centre Act, 2001;
  • Protection of Constitutional Democracy Against Terrorist and Related Activities Act, 2004; and
  • Competition Act 1998.

South Africa is furthermore, amongst others, a signatory of the following international conventions promised on combating corruption:

  • The United Nations Convention Against Corruption;
  • The African Union Convention Against Corruption;
  • The OECD Anti-Bribery Convention; and
  • The SADC Protocol Against Corruption.

The plethora of legal instruments which seek to curb corruption do not end at the foregoing. There are also numerous foreign legislative instruments which have a similar aim to that of domestic Prevention of Corrupt Activities Act and which find application to South Africa by virtue of its international reach. These include, inter alia, the United States Foreign Corrupt Practices Act (1977) ("Corrupt Practices Act") and the United Kingdom Bribery Act (8 April 2010) ("the UK Bribery Act") and which find application to South Africa by virtue of their international reach.

The Corrupt Practices Act and South Africa

The Corrupt Practices Act is, in many respects, the United States equivalent to Prevention and Combating of Corrupt Activities Act. It applies to, inter alia, United States Companies, foreign firms and persons who cause an act of furtherance of corrupt payments outside of the territory of the United States.

Recent cases, such as that of SAP (being German software giant) wherein SAP agreed to make payment of fines totalling $220 000 000.00 to both the US Securities and Exchange Commission (SEC) and the US Justice department, illustrate that corrupt activities can have severe impacts on a corporate entity.

SAP and / or the agents of SAP allegedly paid bribes to officials of South African state-owned business to secure lucrative government contracts. The case is furthermore the second such instance of a co-ordinated resolution between the United States Justice Department and South African Authorities in a period of less than 12 months – indicative of the strengthening relationship between international bodies in their fight against corruption.

The Corrupt Practices Act seeks to keep both directors and multi-national corporations accountable and has a commendably broad scope that is only strengthened by a significant body of caselaw. It is foreseen that the relationship between South African and United States authorities will persist.

The UK Bribery Act

The UK Bribery Act was enacted to "make provision about offences relating to bribery; and for connected purposes". In this regard, it creates four notable and broadly defined categories of offences:

  • the offence of bribing another person (section 1 of the UK Bribery Act);
  • the offences relating to being bribed (section 2 of the UK Bribery Act);
  • bribery of foreign public officials (section 6 of the UK Bribery Act); and
  • failure of commercial organisations to prevent bribery (section 7 of the UK Bribery Act).

Whilst the former offences are intuitive, the latter deserves some explanation. The UK Bribery Act provides that a commercial organisation is guilty of an offence if a person that is associated with the commercial organisation bribes another person with the intention of either:

  • to obtain or retain business for the commercial organisation; or
  • to obtain or retain an advantage for the commercial organisation.

An "associated person" has been defined as a person who performs services for, or on behalf of a commercial organisation, without regard to the capacity in which such a person performs the services. It follows that strict liability can be founded on circumstances where, inter alia, an employee, agent or subsidiary of the commercial organisation is guilty of the offences more fully described in sections 1 or 6 of the UK Bribery Act.

The offence of failure of commercial organisations to prevent bribery can be further distinguished from the other offences in that it has a broader territorial application. The scheme of the UK Bribery Act applies to offences committed in the United Kingdom and to offences committed by entities outside of the United Kingdom by persons who have a close connection with the United Kingdom.

The offence of a failure of commercial organisations to prevent bribery can take place in the United Kingdom or elsewhere and any proceedings that may be instituted in relation to that offence may be so instituted anywhere in the United Kingdom.

Seemingly, this offence can be prosecuted by the United Kingdom regardless of where the offence took place. This, when coupled with the strict liability that is imposed, can have severe repercussions to commercial organisations.

The scope of the offence is, however, limited by the definition of a "relevant commercial organisation" which includes, inter alia:

  • a body or partnership that is incorporated or formed in the United Kingdom and carries on business (whether there or elsewhere); and
  • a body or partnership, wherever incorporated or formed, that carries on a business or part of a business in any part of the United Kingdom.

Commendably, the UK Bribery Act contains a statutory defence to the strict liability that would otherwise be imposed, that of having adequate procedures in place. These procedures must be designed to prevent persons who are associated with the commercial organisation from undertaking the criminal conduct.

This forces those entities whose commercial activity would place them within the ambit of the UK Bribery Act to adopt adequate procedures to limit their liability. The development, whilst somewhat novel, is welcomed and is in this author's view supportive of both ESG and CSR.

The United Kingdom Ministry of Justice has issued guidance, in 2011 ("the Guidance"), regarding the procedures which relevant commercial organisations can affect to prevent persons associated with them from bribing.

The Guidance outlines 6 (six) principles which are intended to be non-prescriptive, flexible principles which result, if properly applied, in a robust and effective anti-bribery procedure ("the Principles"). The Principles are as follows:

  • proportionate procedure;
  • top-level commitment;
  • risk assessment;
  • due diligence;
  • communication and training; and
  • monitoring and review.

South African corporate entities who conduct business in the United Kingdom, or who have links to entities in the United Kingdom are well advised to ensure that they comply with the prescripts of the UK Bribery Act and that they have the requisite internal processes to combat bribery.

Such an approach would ensure that the level of economic integration between South African corporate entities and corporate entities based outside of the country can further develop whilst being supportive of improving South Africa's ESG score.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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