Zondo inquiry raises prospect of reform over political donations in South Africa

Out-Law Analysis | 02 Mar 2022 | 4:44 pm | 5 min. read

There is a risk that businesses making legitimate political donations in South Africa, and applying robust compliance standards in doing so, could be unfairly impacted by well-meaning but over-reaching changes in regulation that could follow from an ongoing inquiry into alleged state capture.

Whether the law on political donations in South Africa is amended in response to the findings and recommendations of the Zondo Commission, businesses can expect greater scrutiny of the political donations they make in the country in future.

The Zondo Commission inquiry

Political contributions can strengthen multiparty politics and advance greater accountability and professionalism in politics, and it may be entirely legitimate for companies to donate funds to parties that advance policies they support and to support the democratic process. However, there is a risk that payments are used as a means to improperly influence public policy and bribe persons with political power.

These inherent tensions in political donations are not unique to South Africa, but the issue has shot to prominence in the country after the Zondo Commission’s inquiry into allegations of state capture made specific reference to the misuse and abuse of political donations.

The Zondo Commission, led by judge Raymond Zondo, released its first report on 4 January 2022, with Zondo noting his “extreme concern” over evidence that public tenders had been granted to companies that had made political donations. Zondo said the examples detailed in the report should be prioritised by the National Prosecuting Authority (NPA) for investigation and possible prosecution. However, he believes that this will not in and of itself address the root of the problem.

Shortly after the release of the first instalment of the Zondo Commission’s report, the Independent Electoral Commission (IEC) published its third quarterly report on political party funding. The IEC is obliged to publish such reports under the Political Party Funding Act, 2018 (PPFA). In its 22 February 2022 report, the IEC reported that political parties had disclosed private donations totalling ZAR 43.9 million ($2.84m) in the last quarter. These donations include contributions made by listed companies, international political foundations and private individuals.

Whilst the increased transparency in political party funding – as reflected in the IEC’s report – should be welcomed, as part of the inquiry into state capture Zondo has argued that more needs to be done to “prevent, expose and criminalise” the giving of donations linked to public tenders.

For example, Zondo said: “The making of any such donations by a prospective tenderer or by a successful tenderer within an extended period of time must be made to constitute a criminal offence as must the receipt of any such payment whether such payment is made directly into the coffers of the political party or by some indirect means. To be effective, it will be necessary for the legislation to require external inspections both of tenderers and political parties by a designated authority with appropriate powers of search and seizure. Significant monetary penalties need also to be imposed both on the tenderer and on the political party in the event of a breach of these provisions.”

However, there is an apparent disconnect between what Zondo said and the recommendation contained elsewhere in the report that the PPFA “be amended to criminalise the making of donations to political parties in the expectation of or with a view to the grant of procurement tenders or contracts as a reward for or in the recognition of such grants having been made”.

While Zondo suggested that there is a need for a window period to be created before and after the award of a tender and that if a company made a political donation in this window period it should be held criminally liable, this was not carried through into the recommendation, which instead is focused on ensuring criminal liability for ‘quid pro quo’ situations.

Avoiding unfair intervention

The implementation of window periods during which political donations are prohibited would certainly create a robust legal prohibition to address the apparent issue. However, a blanket approach fails to take into account prevailing circumstances and could be overly draconian and unfair.

For example, a company that supplies vehicles to local government authorities could have a policy in terms of which it provides the top five political parties with donations of equal amounts, or amounts pro-rated based on representation, in the period leading up to local government elections, with the intention of generally supporting the democratic process in South Africa. In that period, the same company could win a contract with a large metro council in that period.

It would be difficult to attribute corrupt intent to the company if it had a specific policy and past track-record of making equal or pro-rated political donations to a spread of political parties. It would also seem unfair to exclude the political party in control of the metro from its share of the political donations simply because it has majority representation in the metro where the contract is awarded. This in itself could be viewed as anti-democratic, as all political parties should be able to solicit donations irrespective of their size or status as a governing/opposition party.

We cite this example to highlight that more consideration needs to be given to how the window periods proposal would apply to real world situations to balance good corporate governance with fairness.

In any event, donations made with an expectation of receiving some benefit already constitute a criminal offence under, amongst others, section 13 of the Prevention and Combatting of Corrupt Activities Act, 2004 (PRECCA). PRECCA prohibits the direct or indirect giving, and receiving, of “gratification” to induce someone to award a tender to a particular person. Adding a similar offence to the PPFA would not make the law any more robust than it already is and could create inefficiency in the prosecution of cases, as similar, but different, elements would need to be proven beyond a reasonably doubt.

Inspections and enforcement

Zondo’s views on external inspections and enforcement have not been directly carried through to the specific recommendations made in respect of amending the PPFA either. However, Zondo has made extensive recommendations in relation to the establishment of an independent Public Procurement Anti-Corruption Agency (PPACA).

In these recommendations, he indicates that the PPACA should include an Inspectorate. Zondo has not expressly recommended that the Inspectorate should be responsible for conducting inspections of tenderers and political parties based on the PPFA framework, but one of the recommended functions of the Inspectorate is to “monitor and inspect public procurement activity to detect and expose corruption”.

This overarching function would presumably include conducting the type of inspections Zondo contemplates in relation to public tenders. It is incumbent on South Africa’s law makers to clarify this should they decide to implement the recommendation. They would also need to address a potential overlap based on section 14 of the PPFA, which already gives the Electoral Commission powers to conduct inspections to monitor compliance with the PPFA.

Managing risk

The intent behind Zondo’s findings and recommendations in respect of political party funding is laudable given that such donations could be used by external parties to improperly influence government decisions. These recommendations add to the greater transparency created by the PPFA, with the public now having access to data regarding political contributions. This allows greater scrutiny and opens the door for better monitoring and inspection.

However, Zondo’s suggestions regarding the amendment of the PPFA may be superfluous and could represent an over-correction following the allegations of state capture. For example, corrupt donations are likely already criminalised under existing legislation. In addition, while instituting donation window-periods has merit in principle, it could unfairly limit political contributions made by companies who apply robust internal compliance standards and have no corrupt intent behind such donations.

More monitoring and inspection is needed and it seems sensible that the PPACA would lead on this, if Zondo’s recommendations are followed, and the PPACA is formed.

Companies that operate in South Africa should monitor for changes to the regulations on political donations and the way compliance is enforced. The prospect of reform should spur companies to carefully manage their risk to ensure that if and when they provide political or other donations, they do so without breaking any laws.

Co-written by Edward James, partner and white collar crime expert at Pinsent Masons, and Thorne Godinho, an expert compliance consultant at Pinsent Masons Vario.