Prosecuting the new ‘failure to prevent corrupt activities’ offence a challenge

One of the most far-reaching recommendations of the Zondo state capture commission — the introduction of a failure to prevent corruption offence — is on the cusp of being introduced in SA. The Judicial Matters Amendment Bill, tabled at the National Council of Provinces this week, includes a proposed amendment to SA’s primary anticorruption legislation, the Prevention & Combating of Corrupt Activities Act, in the form of a new clause (34A) creating a failure to prevent corrupt activities offence.

The wording of the proposed new offence is closely aligned with the version proposed in the Zondo commission report and draws inspiration from the failure to prevent bribery offences contained in section 7 of the UK Bribery Act. In terms of the proposed section 34A an entity will be guilty of an offence if a person associated with it gives, agrees or offers to give any gratification to another person (as prohibited in terms of chapter 2 of the Prevention & Combating of Corrupt Activities Act) with the intention of obtaining or retaining business or an advantage for that entity.

While there are many aspects of the proposed new offence that require careful consideration, here are some key takeaways:

• As with the Bribery Act offence, section 34A is a strict liability offence. In other words, the prosecution will not be required to prove the entity itself knew of or intended to commit the corrupt act. This creates a significant new legal compliance challenge for organisations, which will essentially bear the burden of preventing corrupt activities.
• The concept of “association” for purposes of the offence is broadly framed, referring to people who “perform services for or on behalf of that [entity], irrespective of the capacity in which such person performs services for or on behalf of that [entity]”. The current wording casts the net of association quite broadly and would seem to include not only employees but also independent contractors and potentially other third parties providing services to the entity.
• No offence will be committed in terms of section 34A if the entity can prove it had in place “adequate procedures” designed to prevent associated persons from committing corrupt activities. What will constitute adequate procedures is unclear, as unlike the Bribery Act there is no requirement to publish an accompanying guidance in this regard. In the UK the justice ministry has issued guidance on what constitutes “adequate procedures” to prevent bribery and it is hoped the authorities in SA will issue similar guidance. The UK guidelines set out six nonprescriptive fundamental principles that commercial organisations should consider when adopting “adequate procedures” to prevent bribery being committed on their behalf, commonly referred to as the “Six Principles”. In the absence of further clarity, it would be advisable for SA entities to adopt an approach to adequate procedures that mirrors the Six Principles approach.
• The draft wording does not specify the penalty on conviction of the offence, though it is likely that the same approach would be followed as with Chapter 2 offences.
• Unlike the UK, SA does not have a prosecutorial regime that allows for entities to enter into deferred prosecution agreements, which have been successfully used in both the US and the UK as a mechanism to encourage organisations to self-report wrongdoing in exchange for the imposition of a reduced fine and no prosecution.

The introduction of deferred prosecution agreements is not addressed in the proposed Prevention & Combating of Corrupt Activities Act amendment, but it is worth noting that this is a further recommendation proposed by the state capture commission, designed to encourage companies that identify wrongdoing within their own organisations to come forward and self-report identified wrongdoing.

It would seem that the introduction of the above new offence, in the absence of the introduction of a deferred prosecution agreement regime in SA, may pose a challenge to the National Prosecuting Authority (and law enforcement and investigative bodies) as organisations suspected of breaching the failure to prevent offence may have little incentive to self-report and/or co-operate with the authorities. 

President Cyril Ramaphosa has previously confirmed that the SA Law Reform Commission is considering deferred prosecution agreements as part of its review of the criminal justice system, and we believe it would be helpful for these reforms to be introduced as soon as possible to align with the introduction of the new offence.

However, even in the absence of deferred prosecution agreements in SA the proposed failure to prevent corrupt activities offence is likely to bolster anticorruption compliance initiatives in the country as it would place the onus on organisations to put in place strong policies and control mechanisms to mitigate bribery and corruption risks and demonstrate that they have adequate procedures to prevent corruption.

The introduction of a new failure to prevent corrupt activities offence will constitute a significant change to SA’s anticorruption legal landscape and pose a substantial compliance challenge for organisations. The proposed amendment will also deal with valid concerns that the government has been slow to implement the state capture commission’s recommendations and should provide further impetus to the concerted efforts now under way to persuade the Financial Task Force to remove SA from its greylist.

In light of current developments it is crucial for organisations to establish strong anticorruption compliance programmes and align them with the Six Principles approach to “adequate procedures” from the Bribery Act guidance. 

• The authors are with ENSafrica.