South Africa: Forensics – A Study Of Cases

Last Updated: 28 November 2011
Article by Dave Loxton

The best way of demonstrating the applicability of the UK Bribery Act (the UKBA) and the US Foreign Corrupt Practices Act (FCPA) in South Africa is by way of case studies.

The applicability of the US-enacted FCPA to agencies

The FCPA specifically provides that payment to third parties to facilitate corrupt acts is a violation and includes onerous penalties for doing so.

For example, 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 2,5 million. Following an investigation into the company's corporate operations worldwide, it was found that these payments amounted to a violation of the FCPA. The corporation cooperated and pleaded guilty, incurring a fine of USD 26 million.

In South Africa, the legislation is still quite new and untested because it applies only to US corporations with a presence in this country. It also has an exemption that allows for so-called "facilitation payments". General consensus among legal analysts is that the legislation is deficient in that it allows this exemption, whereas the British and South African legislation do not.

Suggested risk mitigation measures

  • Institute a proper due diligence of all agents.
  • Include the entitlement to follow every payment that an agent makes (to ensure that it is above board) in all agents' contracts.
  • Investigate the circumstances of a suspected violation and, if it is confirmed, terminate the contract immediately and institute proceedings against that agent.

The FCPA and import duties

The FCPA cracks down on US corporations seeking to avoid foreign import duties and other taxes by bribing customs officials.

This has emerged from a recent case in which an American company exporting rice to a subsidiary in Haiti issued false shipping documents to reduce the amount of customs duties and sales taxes due to the Haitian authorities. The corporation was convicted of paying bribes to customs officials totalling some USD 530,000 which saved it more than USD 1,5 million in import tax.

In this case, the vice-president of marketing and the president of the corporation were acquitted in the American District Court, but the decision was overturned by the US Court of Appeals. It ruled that the FCPA is sufficiently broad to include violations designed to obtain a tax benefit. The vice-president of marketing was sentenced to 37 months in jail, followed by a two year term of supervisional release, as well as a fine of USD 1,3 million. The president of the corporation was sentenced to 63 months in jail and ordered to pay a fine of USD 1,4 million.

The lines of accountability and liability in violation of the FCPA were clearly drawn in this case. They rested with the individuals involved, extending upwards to the executives who were aware of this practice - in this case the vice president of marketing and the president of the corporation itself.

Testimony in the trial was that the corporation believed that these payments were necessary to compete with other companies that paid lower - or indeed no - taxes on similar imports. The Appeals Court held that the fact that other companies were guilty of bribery did not excuse this particular corporation's actions, and that multiple violations of a law do not make those violations legal, or create vagueness in law.

Suggested risk mitigation measures

  • Request legal counsel to provide advice on compliance, potential risks and grey areas.
  • Undertake compliance audits, which include examining processes against the FCPA legislative requirements and identifying risk minimisation programmes.
  • Implement a monitoring system to deal with possible abuses of the law.
  • Institute internal disciplinary proceedings against the individual(s) concerned if corrupt activities are uncovered.
  • Cooperate with the authorities in their investigations fully as this may help to minimise any fines or penalties that may accrue.

Hospitality and gifts under the UK Bribery Act

Distinguishing between genuine hospitality, promotional gifts and what could constitute a bribe, is a grey risk area that South African companies need to be aware of – particularly those associated with British companies.

Defining this legal distinction presents a challenge across jurisdictions worldwide. However, the UKBA is different to the FCPA in the US, and the South African legislation, in that it specifically provides for a strict liability offence (where intention is not a requirement) to cater for corporations that do not have adequate measures in place to mitigate their risks.

For example, consider a company that invites its business partners to a variety of events, such as dinners and sporting occasions, to cement relationships. In this instance, private bodies and individuals pay their own travel and accommodation costs, but the cost of the travel and accommodation of any foreign public officials attending is met by the host company. Is this bona fide marketing, or does it constitute bribery in contravention of the UKBA?

In addition to fines, jail sentences can be imposed on those people who are in breach of the UKBA.

Suggested risk mitigation measures

  • Apply criteria when deciding the appropriate levels of hospitality and the type of hospitality that is appropriate in different sets of circumstances.
  • Publish policy statements indicating commitment to "transparent, proportionate, reasonable and bone fide hospitality and promotional expenditure".
  • Create internal guidelines on procedures that apply to hospitality and/or promotional expenditure - indicating areas where employees might potentially be in breach of the legislation.
  • Provide appropriate training and supervision to employees. Monitor, review and evaluate internal procedures, as well as compliance with them regularly.
  • Conduct a bribery risk assessment covering dealings with business partners (and in particular foreign public officials) and specifically investigate the provision of hospitality, entertainment and other promotional expenditure.
  • Ensure that recipients of hospitality and gifts are not to be given the impression that they are under any obligation to confer business advantages, or that their independence will be compromised.
  • When faced with contraventions of the UKBA, follow due disciplinary processes in dealing with employees, to send a clear message to other employees that such activities will not be tolerated.
  • Co-operate with the authorities in full and - if necessary - agree to criminal prosecution of the employees concerned. This may help mitigate any fines and damages that the company may be in line for.

The impact of the UK Bribery Act on charities and donations

South African businesses with associate links to UK corporations – or who are represented by agents in their dealings with such companies – need to be aware of the potential implications of the UKBA on a business transaction relating to donations and charities.

While there is no case law from which to draw legal precedents in this area, the UKBA impacts South African companies "associated" with UK companies. An agent acting on behalf of a particular UK company would also fall under the ambit of the UKBA.

Take the example of an exporter who sends a representative to a foreign country to discuss supplying a new strain of seed to a local farming co-op. In this meeting, the head of the co-op tells the representative that there is a scarcity of anti-retroviral drugs in the face of a high local HIV infection rate. In a subsequent meeting an official of the co-op suggests to the representative that the exporter could pay for the necessary anti-retroviral drugs. He says that this would be a very positive factor for the government in considering whether or not to grant a licence to import the seeds.

Hidden in that particular proposal is the inferred undertaking that if the company pays to help solve that country's Aids problem, they will be given the licence. In a further meeting, the same official indicates that the company should donate money to a certain charity, which would purchase and distribute the drugs. Clearly this is a potential bribery risk.

The UK legislation is fairly wide-ranging in that it does provide for allowances to be made for the effect of local legislation in jurisdictions where a business transaction relating to donors or charities is taking place.

So where the local legislation requires government involvement and, for example, payment for - or shared costs of - corporations doing business in that particular country, then it will not fall foul of the UKBA. But this is a very grey area. A charity such as the one in this case study could well be a slush fund for government officials and the money could find its way into the hands of the wrong people.

And where the local legislation provides for facilitation payments, but it is clear from the nature of the business transaction that such payments are not in fact facilitation payments, then the UKBA will kick in.

Suggested risk mitigation measures

  • Undertake a proper due diligence of the official.
  • Investigate particular countries and their approaches to corruption.
  • Include a clause in the sales agreement terminating the relationship the moment there are any inklings of corrupt payments.
  • Make contractual allowances to chase the funds or follow the payment of monies.

Conclusion

Risk mitigation measures would go a long way towards assisting South African companies with foreign links to avoid the onerous consequences of violating UK and US anti-bribery and corruption legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions