South Africa’s arms deal scandal, its two disgraced former police commissioners, and President Jacob Zuma’s Nkandla renovations are not only cause for concern in the local political arena. They also impact us more detrimentally, in that they have done little to boost confidence in the country, especially among foreign firms looking to do business here.
This was the message of Matthew Woodford, partner at United Kingdom law firm Browne Jacobson LLP, who was in SA last week with his country’s justice ministry officials to raise awareness about the UK Bribery Act and how this affects South African companies.
“The Act, introduced last year, is probably the most powerful piece of legislation to combat bribery in the world at the moment, exposing companies which contravene it to huge fines and individuals to jail time of up to 10 years,” he said.
Rated 64 out of 183 countries in Transparency International’s 2011 Corruption Perceptions Index, South Africa’s reputation as a corruption hot spot is cause for concern among UK companies and investors, Woodford said, adding that a UK company could be held liable if its South African agent, branch or subsidiary were implicated in bribery.
New Zealand, Denmark and Finland top the list as the cleanest among the 183 nations indexed, while Afghanistan, Myanmar, North Korea and Somalia are perceived as the most corrupt.
South Africa has slipped back by more than 20 positions in the index over the last five years. The results of the 2012 index are due to be released in early December.
"SA has a corruption problem, and (it) is well known in the UK, and by implication that means people are quite nervous about dealing with South African companies," said Woodford.
The UK Bribery Act is not limited to bribery involving a public official, but extends to bribery in the private sector as well.
"People dealing with South African businesses will be quite concerned about what the local businesses are doing to put proper procedures in place to ensure that it is not exposed to the huge liabilities under the Act," Woodford said.
What the law in South Africa says
South Africa has its own anti-graft armoury, but few people are aware of how binding the local legislation is, according to Steven Powell, head of forensics at leading law firm Edward Nathan Sonnenbergs.
Many of the initiatives to address corruption in South Africa are not marketed effectively and, consequently, are not widely known, he added, citing the example of Section 34 of the Prevention and Combating of Corrupt Activities Act (Precca), which requires incidents of bribery and corruption matters to be reported to the authorities.
In terms of that section, it is a criminal offence for any person in a position of authority who knows, or ought reasonably to have known, or suspects that an act of fraud, theft, corruption, extortion or forgery where the value exceeds R100 000, and does not report the incident to the South African Police Service.
“This legislation is designed to compel executives, managers and business leaders who become aware of corrupt acts to report such knowledge or suspicion to the authorities, however … very few people are aware of this requirement even though the failure to report carries a potential 10-year jail penalty,” Powell added.
The regulations to the new Companies Act, which came into effect in 2011, place quite heavy anti-corruption compliance requirements on local firms as well – but, as with Precca, there is limited public awareness thereof.
Regulation 43 of the new Companies Act (Act 71 of 2008) requires South African companies to establish social and ethics committees that have a host of good corporate citizenship obligations, according to Powell.
Among these obligations is a requirement to monitor the company's progress in terms of sticking to the recommendations of the Organisation for Economic Co-operation and Development (OECD) on reducing corruption.
“Very few people have any idea of what the OECD recommendations entail,” Powell added.
South Africa is a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the recommendations apply to all local firms – listed and unlisted.
“Many companies are blissfully unaware that they are even obliged to comply with this legislation, as many business leaders labour under the misapprehension that this legislation only applies to listed corporate entities in South Africa,” Powell said.
“While it does apply to listed South African companies, it also applies to all state-owned entities, for example Telkom and Eskom.”
What even fewer people realise is that the Companies Act regulations are also applicable to medium to large enterprises.
“Eligibility to comply to the Act is determined either by being a listed entity or a state-owned entity, or further by achieving a score of 500 points or more.”
In terms of scoring points, the entity is awarded one point per employee, based on the average number of employees over any two of the last five years. The entity further scores one point per million rand in turnover, one point per million in debtor’s book, one point per million in creditors and one point for every holder of issued securities (shareholders).
The government needs to play its role if it wants firms in South Africa to stick to these requirements, Powell added, recommending strong campaigns to boost public awareness of the obligations.
According to Powell, the OECD recommendations amount to extremely useful proactive anti-bribery measures that will have a positive impact on corruption levels as they require South African companies to put anti-corruption policies and procedures in place, and develop internal controls to mitigate the risk of bribery.
“The inclusion of the OECD recommendations on reducing corruption in the regulations to the Companies Act is a bold step that should have a positive effect on reducing corruption in our country,” Powell said.