South Africa has received additional ammunition in its fight against corruption with the recent introduction of Section 34A in the Prevention and Combatting of Corrupt Activities Act 12 of 2004 (‘PRECCA’).

In recent years, doubts have emerged regarding the effectiveness of South Africa’s anti-corruption measures. The findings of the State Capture Commission’s report, released on October 12, 2022, and the subsequent ‘grey listing’ of South Africa by the Financial Action Task Force (FATF) in February 2023 have highlighted the extent of corruption in South Africa.

In response, South Africa is beginning to demonstrate, to both the local and international community, its renewed commitment to combatting corruption by way of legislative interventions.

One such notable legislative intervention is the insertion of Section 34A of PRECCA, which recently received assent by President Cyril Ramaphosa on 3 April 2024, and introduces the concept of a failure to prevent corrupt activities offence.

Clause 1 of Section 34A of PRECCA reads as follows:

“34A. (1) Any member of the private sector or incorporated state-owned entity is guilty of an offence if a person associated with that member of the private sector or that incorporated state-owned entity gives or agrees, or offers to give any gratification prohibited in terms of Chapter 2 to another person, intending to obtain or retain—
(a) business for that member of the private sector or that incorporated state-owned entity; or
(b) an advantage in the conduct of business for that member of the private sector or that incorporated state-owned entity: …”

Essentially, this means that if X (an ‘associated person’ or third party of Z) bribes Y, to the advantage of Z (a member of the private sector or incorporated state-owned entity), Z is guilty of a criminal offence.

The definition of ‘person associated’ for the purposes of the offence can be viewed as relatively wide, despite additional clarification found in Clause 2 of Section 34A of PRECCA. It is suggested that ‘person associated’ not only includes employees of the organisation but also, for example, external service suppliers, independent contractors, agents and other third parties who provide services to the private or public organisation.

This strict liability imposed on organisations, both private and public, under Section 34A of PRECCA, is far-reaching. It holds organisations liable for the actions of persons associated to the organisation, including third parties, even in cases where the organisation has no direct knowledge or active involvement.

Consequently, organisations may soon find themselves unintentionally breaching their new anti-corruption obligations and this may, as a result, lead to unfavourable and costly criminal penalties.

However, there is a silver lining, in that Section 34A of PRECCA does provide a legal defence which may allow organisations to avoid criminal liability for any unintended breaches of their newly acquired anti-corruption obligation.

Clause 1 of Section 34A of PRECCA further reads that:

“Provided that no offence shall be committed where that member of the private sector or that incorporated state-owned entity had in place adequate procedures designed to prevent persons associated with that member of the private sector or that incorporated state-owned entity from giving, agreeing or offering to give any gratification prohibited in terms of Chapter 2.”

Following on from the example given above, one can now see that no offence will be committed where Z had put in place ‘adequate procedures’ to prevent X from engaging in such corrupt activities (i.e. bribery) on behalf of and/or to the benefit of Z.

It is therefore crucial for organisations to ensure that ‘adequate procedures’ are put in place to mitigate their own risk of liability, under Section 34A of PRECCA.

However, the question arises, what is considered an ‘adequate procedure’?

While the South African legislature has not offered specific guidance or clarification on this matter yet, it may be useful to consider the context in which Section 34A of PRECCA was developed.

Section 34A can trace its origins to Recommendation 8 of the State Capture Report which proposed to amend PRECCA to include a so-called ‘failure to prevent bribery’ offence. This concept is similar to Section 7 of the United Kingdom’s (UK) Bribery Act, suggesting ‘adequate procedures’ is a term borrowed from the UK legislation.

Given the context of PRECCA and the similarity it shares with the UK’s Bribery Act, it is advisable to follow the approach employed in the UK. The UK Bribery Act’s Guidance refers to six principles which should inform an organisation’s procedures to prevent bribery, namely:

  • Proportionate Procedures,
  • Top-level Commitment,
  • Risk Assessment,
  • Due Diligence,
  • Communication (including training) and lastly,
  • Monitoring and Review.

It is essential to remember that the first step in implementing these principles should always involve conducting a thorough risk assessment. Through this process one can gain a holistic view and clear understanding of the risks their organisation faces.

With this understanding, one can tailor their organisation’s anti-corruption compliance program to proportionally align with their organisation’s specific needs whilst simultaneously adhering to the remaining principles found in the UK’s Bribery Act Guidance.

It is important to note that the Companies and Intellectual Property Commission (CIPC) previously released a Guideline for Corporate Compliance Programme in 2018. This guideline shares similar principles with the UK’s Bribery Act Guidance. Consequently, it would be advisable to review this alongside the 6 principles outlined in the UK’s Bribery Act Guidance to further strengthen an anti-corruption compliance program.

Accordingly, despite the South African legislature not mandating the publication of specific guidance requirements specifically for Section 34A of PRECCA, by following the approach found in the UK Bribery Act’s Guidance together with the CIPC’s Guideline for Corporate Compliance Programme, one should be in the comfortable position to confidently demonstrate that the ‘adequate procedures’ requirement will be met.

In summary, while the introduction of Section 34A of PRECCA represents a step forward in combating corruption in South Africa, it is not without its challenges. The broad scope and nature of the offence, coupled with a distinct lack of clarity surrounding what exactly is to be considered an ‘adequate procedure’ creates potential dangers for organisations. However, the guidance offered by the UK Bribery Act, alongside the CIPC’s Guideline for Corporate Compliance Programme, may provide the necessary clarity that PRECCA lacks.

The introduction of Section 34A of PRECCA is a practical reminder for organisations to regularly assess their risk exposure. It is advisable to be proactive in reviewing and updating one’s anti-corruption compliance program often. As the legal landscape evolves, so should one’s compliance programs, to ensure that they remain effective and properly aligned with current legislation.

For further information, please contact DML Forensics for assistance. We are always happy to assist with any of your concerns.

 

Written by Paul Hill