Source: The Conversation – Africa – By Rehana Cassim, Professor in Company Law, University of South Africa
Bribery is one of the most common forms of corruption in South African companies and state institutions. This has a number of harmful outcomes.
Firstly, research shows that it weakens democracy and slows down economic growth. It also creates expensive barriers for honest businesses to succeed because it distorts fair competition. If bribery is not stopped or punished it has a demoralising effect, because it erodes trust and creates a culture where ethical conduct is undermined.
In 2024 a new law came into force in South Africa that puts a duty on companies to take proactive steps to prevent bribery. This law falls under a broader law dealing with corruption in South Africa.
The new provisions make it a crime for companies to fail to prevent bribery by an associated person. This is a major policy shift in South African anti-corruption law, and aligns with the United Kingdom’s anti-bribery legislation.
An associated person is anyone who performs services for the company. This can include suppliers, joint venture partners, distributors, consultants, and other professionals advising the company. It can even be other companies, like subsidiaries.
In my research I found that South Africa took inspiration from the United Kingdom (UK) Bribery Act 2010. The law makes it a criminal offence for commercial organisations to fail to prevent bribery by associated persons.
Despite some successes, enforcement of the UK Bribery Act has been slow and the volume of prosecutions has been low.
Based on my research into company conduct, given the current challenges in law enforcement and the low conviction rates for crimes of corruption, the new law might not work as well as hoped.
But with improved enforcement, it has potential to reduce bribery in South Africa.
What’s behind the new law?
The new addition to the law was introduced after a commission of inquiry found evidence of widespread bribery and corruption under former president Jacob Zuma.
For example, Angelo Agrizzi, former chief operating officer of African Global Operations (Pty) Ltd (formerly known as Bosasa), testified that Bosasa won about US$129 million in government tenders by paying about US$4 million in bribes to politicians and government officials. He said that every contract in which Bosasa was involved was linked to bribery and corruption.
The new law is designed to prevent this from happening.
If a person associated with a member of the private sector or an incorporated state-owned entity gives, agrees or offers to give a bribe (or gratification) to another person, the company could be held liable. This applies to companies as well as individuals, partnerships, trusts and other legal entities.
The bribe must be given by the associated person to get business for the company or to gain a business advantage for it. Importantly, a company can be found guilty even if it didn’t know about the bribe.
What counts as a bribe?
A bribe (or gratification) is not just money. It includes avoiding a loss or other disadvantage, releasing any obligation or liability, or giving any favour or advantage.
The bribe does not actually have to be given. It is enough if the associated person agrees or offers to give the bribe.
It is not clear yet if hospitality or promotional expenditures count as bribes.
Under the UK Bribery Act a hospitality payment is not regarded as a gratification unless it is disproportionate. In my view South Africa should follow the same approach.
For example, if paying for transport from the airport to a hotel for an on-site visit, taking clients to dinner, or giving them tickets to an event aligns with the norms for the industry, this probably will not be seen as a bribe.
Facilitation payments is another tricky area. These are small bribes made to minor officials to get routine administrative tasks done, such as applying for visas, clearing customs or getting licences.
The new law doesn’t say whether facilitation payments are regarded as bribes. In my view, they should be.
What companies need to do
Companies can avoid liability under the new law if they can prove that they had adequate procedures in place to prevent bribery by associated persons.
But the law doesn’t explain what “adequate procedures” are. Until the South African government provides guidance on this, it is useful to look at the guidance provided under the UK Bribery Act. It recommends the following:
- Companies should adopt procedures that are proportionate to the bribery risks they face and the nature, scale and complexity of their activities.
So a larger company operating in a high-risk market where bribery is known to be common must do more to prevent bribery than a smaller company in a low-risk market where bribery is less common.
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The company’s board of directors should foster a culture where bribery is never acceptable.
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Companies should periodically assess their exposure to potential bribery risks.
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Companies should carry out due diligence procedures on their associated persons.
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Companies should communicate their anti-bribery polices internally and externally. They should also provide training to ensure that everyone understands their anti-bribery position.
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Companies should monitor their procedures and improve them where necessary.
The way forward
The South African government should urgently publish official guidelines to help companies understand what they must do to comply with the new law.
The principles of South Africa’s corporate governance code, the King IV Report, can also be used to help companies comply with the new law. These principles promote ethical leadership, an ethical culture, risk management, accountability and transparency.
Guidelines are also important for small and medium enterprises. They also have a legal duty to put in place adequate procedures to prevent bribery.
Companies that have not already put in place anti-bribery procedures should act quickly. And they should check that their corporate hospitality policies are reasonable and proportionate to their businesses.
Companies should also evaluate their relationships with the people associated with them.
Setting up anti-bribery procedures may have cost implications. But not having them could cost far more. Having adequate procedures in place is the only defence under the new law.
– Bribery in South Africa: law now puts a duty on companies to act
– https://theconversation.com/bribery-in-south-africa-law-now-puts-a-duty-on-companies-to-act-260148
