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Picture: 123RF
Picture: 123RF

SA’s recently amended corruption legislation, the Prevention & Combating of Corrupt Activities Act (Precca), now makes it an offence for corporates to fail to prevent corruption by “associated persons”.

The offence was promulgated under the Judicial Matters Amendment Act 15 of 2023 following recommendations by the Zondo state capture inquiry. The new law has been inserted into Precca under section 34(a) of the act. The failure to prevent corruption offence broadly mirrors the section 7 offence under of the UK’s Bribery Act of 2010.

Section 34(a) provides that any member of a private sector entity or an incorporated state-owned entity (SOE) is guilty of an offence if an associated person commits a corruption offence to obtain or retain business or a business advantage for that private or SOE. An “associated person” is broadly defined and includes anyone associated with a business, including employees, third-party service providers and contractors.

Similar to the Bribery Act, section 34(a) also makes provision for an affirmative defence, which is available if an entity can show that it has implemented “adequate procedures” to prevent associated persons from committing the offence of corruption.

Lack of guidance

However, the newly minted law is silent on what constitutes “adequate procedures” and at this stage there is little to no guidance from the legislators.

Since section 34(a) drew its inspiration from the Bribery Act, it is recommended that until such a time that clear guidance is provided in the SA context, that similar inspiration be taken from the UK justice ministry’s six bribery prevention principles.

Importantly, in the UK these principles are not prescriptive and act merely as guidance. The principles are purposely flexible, enabling organisations with nuanced characteristics to implement them accordingly.

Below are the six principles recommended by the UK and how they would fit in an SA context.

Proportionate procedures. A key feature of the six principles is their interrelatedness. The state capture inquiry noted various instances where both SOEs and private companies failed to adopt proportionate procedures or to undertake appropriate due diligence before entering into commercial relationships.

What constitutes proportionate procedures depends on the nature, scale and complexity of that relevant company. Companies should assess their corruption risk profile based on factors such as the jurisdiction and industry in which they operate, as well as their exposure to government officials.

Top-level commitment. Companies are advised not to merely pay lip service to the principles. By its very nature the section 34(a) offence enables a holding company to be held liable for the corrupt dealings of an associated person under one of its subsidiaries. This means the board of directors would be well advised to ensure that top-level commitment, or “tone from the top”, in adopting these principles is evident and filters through the company and on to its subsidiaries.

Top-level management’s oversight, in accordance with the monitoring and review principle, is fundamental when one considers the average duration of commercial contracts, especially in the public sector.

Risk assessment. It is here where the flexibility and context specific application of the principles is highlighted. Considering the heightened corruption risk, companies dealing in the public sector will be held to a higher standard in the context of their risk assessment, and the accompanying risk assessment procedures should be proportionate to the features of that organisation and the market in which it deals.

Due diligence. Risk-based due diligence on parties who might be deemed as “associated persons” performing services on behalf of the organisation is crucial to mitigate against corruption risks. The state capture inquiry noted that had proportionate due diligence been undertaken, it is likely that many of the current corruption charges would not have materialised.

Communication. This requires an entity to ensure its bribery-prevention policies are rooted and understood throughout the organisation, through internal and external communication. As this is commonly done via internal and external training, the key is to ensure the communication (and training) is up-to-date and relevant.

Monitoring and review. Demonstrating ongoing monitoring and constant reviewing of the legal landscape and the associated corruption risks is necessary to demonstrate to a court or regulator that the company is regularly monitoring processes and procedures. For example, recently SA’s Supreme Court of Appeal (SCA) in the case between DPP Western Cape v Bongo, articulated what could constitute an act of corruption under SA law.

The SCA clarified that a corrupt offer need not contain a reference to a specific sum of money, but that a vague reference will suffice. Flowing from this, companies operating in SA are well advised to ensure that all internal procedures and trainings are routinely scrutinised to align with market and legal developments to avoid attracting liability under section 34(a).

While clarity is still required on what constitutes “adequate procedures” to defend against a charge under the section, liability does not rest on the conduct of the offending associated person, but rather on the company’s failure to adopt adequate procedures to prevent an act of corruption.

The six principles discussed above provide a starting point based on the UK guidance for a company to ensure it has suitable mechanisms in place to guard against corruption taking place for the benefit of the company.

• The authors are with law firm Herbert Smith Freehills.

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