South African companies that have operations in the UK or the US - or are listed in these territories - that fail to comply with anti-corruption legislation could be on the receiving end of devastating fines or even incarceration of key stakeholders.
This is according to Steven Powell, a Forensics Executive at ENS (Edward Nathan Sonnenbergs), who spoke at an Anti-Corruption Compliance Seminar in Johannesburg last week.
Powell highlighted the UK Bribery Act (UKBA) of 2010, which came into effect on 1 July 2011, as the most dramatic change to the global corruption environment since the introduction of the Foreign Corrupt Practices Act (FCPA) in the US more than 25 years ago.
"The UKBA is not only more aggressive, but also has more far-reaching consequences for South African companies than the FCPA, as it allows regulators radical powers to impose fines in respect of corruption matters. In addition, unlike the FCPA, the UKBA applies to both public and private sector corruption and has also criminalized of facilitation payments, which is endemic in most parts of Africa," says Powell.
Additionally the UKBA has created a new corporate offence, namely the failure by a commercial organisation to prevent bribery. This requires companies to put rigourous measures to prevent bribery.
He explains that from a South Africa perspective, the UKBA applies to companies that are resident in the UK or have an affiliate in the country. "No direct involvement from parent companies is required in order to be prosecuted. For example, if an agent of a South African company, with a subsidiary in the UK engages in bribery in Africa, the company would be liable to be prosecuted in the UK."
Powell says that with more and more South African companies expanding into Africa, it is crucial that they educate foreign subsidiaries, including agents and suppliers, about anti-corruption policies, especially new or updated ones.
"As with the FCPA, the UKBA regulators will be targeting large corporates." He says that that cost of FCBA non-compliance by companies in 2011 of $508.6 million is a warning to local companies, as many were fined due to activities by their foreign subsidiaries.
"For example, Aon were fined $16.2 million for non-compliance in Costa Rica, Egypt, Vietnam, Indonesia, the United Arab Emirates, Myanmar and Bangladesh; and Bridgestone were fined $28 million for noncompliance in Mexico.
"The UKBA will add increased momentum in identifying offenders globally."
He explains that the Ministry of Justice has communicated six principles that companies should consider when wishing to prevent bribery being committed on their behalf and if they adopt those principles they will have a defence against prosecution in respect of the corporate offence of failing to prevent bribery. These six principles are:
- Proportionate procedures. "Companies need to have anti-bribery policies in place for both internal and external stakeholders."
- Top level commitment. "Management tone is critical and the top level management of a company (be it the board of directors, the owners or any other equivalent body or person) should be committed to preventing bribery."
- Risk assessment. "Companies need to actively assess the nature and potential for bribery risk."
- Due diligence. "'Companies need to do their homework and ensure that they don't use corrupt suppliers, as well as inform agents and affiliates of the company's anti-bribery policies and procedures."
- Communication (including training). "The company needs to ensure that its bribery prevention policies and procedures are embedded and understood throughout the company via internal and external communications, including training."
- Monitoring and review. "The company needs to continually monitor and review its procedures designed prevent acts of bribery, as well as make improvements, where necessary. Site visits are also crucial for companies with affiliate offices in other territories."
Powell says that South Africa as an emerging economy is playing a much more active role globally and there is an urgent need for local companies to comply with both national and international anti-corruption legislation.
"Locally, we already have a weapon in the form of Section 43 of the 2011 regulations to the Companies Act, which requires the establishment of a social and ethics committee which has to ensure that all listed companies, large unlisted companies and state owned companies implement the OECD recommendations on preventing corruption which are effectively what is required by the UKBA. Non compliant SA companies face fines of millions of rands.
"However, the global anti-corruption landscape is changing radically and regulators are now talking to each other much more than previously. With increased merger and acquisition activity, as well as more business partners being appointed, South African companies need to ensure that rigorous anti-bribery and corruption structures are put in place in order to avoid being made an example of," concludes Powell. - INet Bridge
Previously published in IOL Business
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