South Africa needs a corporate offence of failing to prevent bribery

The move would bring South African law into line with the position in the UK and could redefine the way in which companies approach anti-corruption compliance for the better.

What has Zondo recommended?

The Zondo Commission has made several recommendations for systemic change to combat corruption in South Africa. In making those recommendations, Zondo has referred to tools for combatting corruption in the legal frameworks of other countries – including the UK.

Zondo has outlined the case for introducing deferred prosecution agreements (DPAs) in South Africa, for example, noting how these have operated since being introduced into UK law.

He has also recommended that the South African Prevention and Combatting of Corrupt Activities Act 2004 (PRECCA) be amended to substantively mimic section 7 of the UK Bribery Act 2010 (UKBA) by creating a new corporate and personal criminal offence of failing to prevent bribery by an associated person. Similar to with the UK offence, Zondo recommended that it should be a defence to the new ‘failure to prevent’ offence in South Africa to have in place adequate procedures designed to prevent associated persons from bribing.

What is section 7 of the UKBA and what impact has it had?

Section 7 of the UKBA is a seminal piece of law that came into effect in July 2011.

The effect of section 7 is that if the prosecutor can prove that someone associated with a “commercial organisation”, like a company, has bribed someone to obtain or retain business or another advantage for the commercial organisation, the organisation will automatically be criminally liable unless it can prove an adequate procedures defence.

What constitutes “adequate procedures” is not defined in the UKBA. However, the Ministry of Justice in the UK has published guidance on what a business needs to do to demonstrate that they had “adequate procedures” in place to prevent bribery. The guidance outlines six principles that should be incorporated into an anti-bribery compliance programme:

• Proportionate procedures;
• Top level commitment (also know as “tone from the top”);
• Risk assessment;
• Due diligence;
• Communication and training;
• Ongoing monitoring and improvement.

A common misunderstanding about section 7 is the view that it creates a positive obligation on commercial organisations to implement the measures laid out by the Ministry of Justice and that a failure to implement these measures constitutes an offence in and of itself. This is not the case.

The question of whether or not “adequate procedures” have been implemented only arises if a company needs to rely on the legal defence created by section 7. In other words, companies subject to the UKBA do not have to implement “adequate procedures” to comply with the Act but they certainly should do so if they want to be able to avoid being held liable for bribery perpetrated by their employees or other associated persons. This is why we strongly recommend that companies subject to the UKBA implement such procedures. 

Section 7 has undoubtedly shaped the anti-corruption landscape in the UK and abroad.

The section 7 offence completely changed the UK and global approach to anti-bribery compliance. We are now seeing significant bribery enforcement of the failure to prevent bribery offence, and comparable offences elsewhere in the world, and we see businesses struggling to discharge the defence of adequate procedures due to there being a lack of risk assessment, inadequate due diligence on higher risk third parties and failure to respond effectively to bribery red flags. The disruption and financial costs caused by a criminal investigation and the fines being imposed by the courts are staggering. Investing in anti-bribery compliance is undoubtedly a good business decision.

What is the current position in South Africa?

In South Africa, companies and other entities have legal personally and can be held criminally liable. The legal mechanism for this is for the state to impute the conduct of certain persons to the company under the provisions of section 332 of the Criminal Procedure Act 1977 (CPA).

The South African law currently enables the state to hold companies liable for corruption by imputing the conduct of any director or “servant” to a company under certain circumstances, or any person that acts under the instruction or permission of a director or “servant”. The instruction or permission may be express or implied. This creates an expansive position where the acts of third-party agents, advisers, distributors, freight forwarders and other contractors can be imputed to a company if they act under the express or implied instructions or permission of a director or “servant” of the company.

According to Zondo’s recommendation for the new ‘failure to prevent’ offence, any persons “associated” with a company would be covered. This is defined as anyone who performs services for or on behalf of the company. The capacity in which the persons do so is not relevant. In our view the proposed position would be simpler and more streamlined than the current position under section 332 of the CPA.

In addition to simplifying the position in respect of whose conduct a company can be held liable for, the recommended new wording would also change what conduct a company can be held liable for.

Under section 34A of PRECCA, a company can be held liable if the conduct is done by a director or servant in the exercise of their power or performance of their duties. A company can also be held liable if a director, servant or anyone acting on their instruction or permission does something to further or endeavour to further their interests. Under the recommended new provision, a company could be held liable if the act were performed to obtain or retain business, or an advantage in the conduct of business, for the company.

Whilst the current position is similar, particularly the category of conduct that applies to furthering the interests of a company, circumstances may arise when bribes are paid by a director, servant or third party to further their own interests. Circumstances may also arise where it could be argued that the payment of bribes does not further the interests of the company concerned. The proposed new position is simpler for purposes of determining what a company can and cannot be held liable for.

In addition, a significant additional change would be the creation of a clear defence for companies to raise.

Under the current provisions of section 332 of the CPA, companies do not have a clear defence that they can rely on to escape being held liable for something done by a director, “servant” or anyone acting on their instruction or with their permission. Companies can try and persuade the state to choose to refrain from charging the company itself based on the measures taken to prevent corruption and remoteness of the conduct from what was done with the express authorisation or knowledge of senior management – there are however no guarantees and there is no statutory defence in the CPA or PRECCA.

The recommended new wording would create a clear defence – the defence would be premised on the ability of a company to show it adopted “adequate procedures”. Similar to section 7 of the UKBA, this would create very clear incentives for companies to implement comprehensive compliance programmes. If the recommendation is implemented, we would highly recommend that South African companies implement controls similar to those detailed by the UK Ministry of Justice and any subsequent guidance given by the South African government on what it would consider to be adequate.

Broad benefits

We strongly support the recommendation of the Zondo Commission that a section 7-type offence be incorporated into South African law. The new provision, if adopted, would simplify and streamline the way in which the state could hold companies liable for corruption. It would, however, also introduce a clear legal defence that companies could rely upon to escape being held liable for the actions of associated persons.

We believe that many companies would respond to the proposed new provisions by implementing robust compliance programmes which would have a positive impact on the anti-corruption landscape in South Africa as a whole.