South African businesses with links to American organisations
need to be aware of the potential risks associated with US-enacted
legislation that makes it illegal for facilitation payments to be
paid to third party agents for facilitating a 'corrupt
The legislation in question is the Foreign Corrupt Practices Act
(FCPA), which is pertinent to organisations such as US corporations
doing business in South Africa or who are trading with South
African counterparts. The Act does not apply to South African
businesses with no links with the US.
The FPCA legislation specifically provides that payment to third
parties to facilitate corrupt acts is a violation.
David Loxton, director in the Forensics Department of Werksmans
Attorneys, cites below a typical case study that illustrates the
extent to which companies could be put at risk of violating the Act
and the onerous penalties they would be in line to incur.
"A company constructing subsea
oil equipment in Nigeria authorised an agent to pay processing fees
to Nigerian customs officials. Over a period of five years, the
agent made more than 400 payments involving an amount of some USD
However, in an investigation into
the company's corporate operations worldwide, it was found that
these payments amounted to a violation of the FCPA. The corporation
co-operated and pleaded guilty to violations of the Act, incurring
a fine of USD $26,000,000.00."
With this in mind, companies need to have a comprehensive system
of safeguards in place, says Loxton. He points out that in order to
mitigate risk, corporations are advised to institute proper due
diligence of their agents and should, for example, write into the
agents' contracts that the company is entitled to follow every
payment that the agent makes to ensure that it is above board.
Should companies suspect or become aware that agents are
violating the Act, they would need to mitigate the risk further by
investigating the circumstances - and if there is a violation - to
terminate the contract immediately and institute proceedings
against that agent.
In South Africa, the legislation is still quite new and untested
because it applies only to US corporations with a presence in this
country. However Loxton points out that the equivalent British
legislation (UK Bribery Act) is definitely more onerous as it does
not have an exemption that allows for these so-called
'facilitation payments', which the US legislation
General consensus among legal analysts is that the US
legislation is deficient in that it allows for this exemption,
whereas the British and South African legislation takes a contrary
Loxton says the US legislation on facilitation payments could
arguably be regarded as reasonable from the point of view of
individual companies wishing to comply with normal and proper
business practices. But for organisations that feel that they could
be disadvantaged by having to compete with companies who
effectively pay bribes, "then the legislation is clearly
unreasonable from their perspective."
Depending on the approach, such companies should exit the
market, or alternatively – should they wish to remain
competitive - they would need to find ways of circumventing the Act
and finding legitimate ways, through agents, to facilitate
For their part, adds Loxton, companies' legal
representatives would need to advise corporations on the extent of
the potential risks, undertake a proper assessment and categorise
what specific risks the corporation may be exposing themselves
This would take the form of a due diligence study, which is the
type of compliance audit that firms such as Werksmans Attorneys are
qualified to undertake.
Loxton concluded "The case law relating to this legislation
is quite developed in the US but is in its relative infancy in the
UK. While the legislation in South Africa is also far advanced,
insufficient case law has so far been accumulated to allow for the
development of proper
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about your specific circumstances.
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In December 2009, a Federal High Court in Asaba, Delta State discharged and acquitted James Onanefe Ibori of all 170 charges of corruption brought by the Economic and Financial Crimes Commission (EFCC).
Incidents of bribery have increased, but so has general awareness of anti-bribery compliance among organisations: these were some of the high-level findings of a recent survey conducted by ENSafrica.
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