South Africa: How To Recover From A Fraud

Last Updated: 22 November 2007
Article by Andre Vos

Recent press reports have highlighted the prevalence of white collar crime in South Africa. The effect on businesses which fall victim to fraud and other types of white collar crime is exacerbated by the lack of institutional capacity to effectively deal with the problem.

In South Africa, there are, however, a variety of ways in which the business and private sector, both through the civil and criminal justice systems, can mitigate the effects of such crime, despite the fact that the criminal justice system in particular is overburdened and struggling to cope.

White collar crime is, however, not a uniquely South African problem. The United Nations recently estimated proceeds from crime worldwide to be between USD 1 trillion and USD 1,6 trillion, a staggering R7 to R11 trillion. In September, the United Nations launched the Stolen Asset Recovery (StAR) Initiative. This partnership with the World Bank and the United Nations is an endeavour to assist developing nations to recover assets stolen by corrupt leaders and to use the funds so recovered in development programmes.

But what can businesses in South Africa do to ameliorate the effect of economic crime? Our law provides a number of ways in which those who fall victim to this type of crime can recover its money or assets and adhere to their social responsibility of ensuring that the perpetrators are brought to account.

Firstly, there are the common law remedies such as urgent interdict proceedings to freeze bank accounts in which the proceeds of crime are deposited, place assets on hold, and the like.

Secondly, the guilty party is often in an employment relationship with the victim. Companies should act firmly and consistently by evoking the disciplinary procedures allowed by our employment law in order to sanction guilty employees and, where appropriate, dismiss them. Section 37D of the Pension Funds Act, 1956 provides a useful mechanism to recover losses from against the guilty employee’s pension fund in instances of dishonesty.

Thirdly, there are powerful statutory provisions such as the Prevention of Organised Crime Act, 1998 (POCA) and the Financial Intelligence Centre Act, 2001, which provide the means to combat not only organised crime but, where appropriate, cases of individual criminal activity. Our courts have held that although POCA is aimed primarily at organised crime, it applies to individual wrongdoing too. In appropriate cases, POCA provides for permanent confiscation of assets which are found to be the proceeds of crime of which the perpetrator is found guilty, or for the civil forfeiture to the state of such assets, and compensation for the victims.

Fourthly, businesses could, and it is submitted should, cooperate with the police and prosecution and assist them by making detailed information, resources and funds available, where applicable, to ease the burden on our criminal justice system and ensure proper prosecution of the matter. Where a company is defrauded, it gives rise to two causes of action. The one is for the company to claim back through the civil court procedure what was stolen from it. On the other hand, such wrongdoing constitutes a crime which ought to be prosecuted. The National Prosecuting Authority Act, 1998 contains useful provisions in this regard which facilitates the cooperation between the private and public sector in prosecuting cases of complexity requiring significant resources, in circumstances where such resources are not always at the State’s disposal where it has to act alone.

It is often suggested that the private sector cannot be expected to incur significant legal costs in order to assist the public sector in this regard. Businesses pay taxes, so the argument goes, and therefore it is expected of government to use such revenue to fight crime. The stark reality is that there are more pressing priorities in the allocation of State funds in a developing country such as South Africa. Although the private sector may complain about the high instance of economic crime, it is should be prepared to work with government in addressing the problem. By providing financial, technical and practical assistance to the police and prosecution, the institutional capacity of government to deal with the problem is improved.

In order to ensure the best possible prospects for successful recovery, time is of the essence. The more time passes from the commissioning of the offence, the more likely the perpetrator is to get away with it, both civilly and criminally. Businesses therefore ought to act decisively. The private sector has a crucial role to play in stamping out economic crime and our law provides various opportunities to businesses to take their destiny into their own hands, so to speak, in recovering from fraud and related crime, whilst at the same time fulfilling its social responsibility of building the state’s institutional capacity to address these issues in the long run and bring the offenders to account.

None of the above detracts from the primary duty to put sufficient checks and balances in place to avoid the losses in the first place.

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.

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