South Africa's New Anti-bribery Law: Setting The Stage For Corporate Accountability

In this first article of a two-part series, Derrick Kaufmann and Janine Hillspdiscuss the significant changes to South Africa's anti-bribery and corruption framework. The new legislation introduces a 'failure to prevent' offence, holding companies accountable for bribery committed by their 'associated persons.'

Corporate governance in South Africa has undergone a significant transformation, particularly in the sphere of anti-bribery and corruption. As a firm advising a broad spectrum of clients, from major international corporations to emerging start-ups, we believe it's important for businesses to fully grasp the implications of the new legislation that came into force in 2024.ppBribery has long plagued a number of South African companies and state institutions, deeplyphindering economic growth, skewing fair competition and eroding public trust. ThepZondo Commission of Inquiry, which uncovered widespread corruption under a formerpadministration, served as a stark and undeniable indictment of the status quo. Itpexposed the insidious nature of bribery, demonstrating how it was intricately woven intopthe fabric of large-scale government tenders and business operations. Testimonypdetailing millions in illicit payments to secure contracts painted a grim picture of anpenvironment where ethical conduct was systematically undermined.

In direct response to these revelations, South Africa has taken a decisive step forward,pintroducing a pivotal amendment to its anti-corruption legislation – the Prevention andpCombating of Corrupt Activities Act (PRECCA). This new provision is a game-changer,pimposing a proactive duty on companies to prevent bribery by "associated persons".pThis marks a significant policy shift, bringing South African law into closer alignmentpwith the strong framework of the United Kingdom's Bribery Act 2010.p

Who are "associated persons" and what constitutes a bribe?p

The breadth of "associated persons" under the new law is extensive and demandspcareful consideration from all businesses. It encompasses anyone performing servicespfor the company, including but not limited to:

• Suppliers
• Joint venture partners
• Distributors
• Consultants
• Other professional advisors
• Even other companies, such as subsidiaries within a corporate group.

Importantly, a company can be held liable even if it had no direct knowledge of thepbribe. This highlights the "failure to prevent" offence – the company's culpability stemspfrom not having adequate procedures in place to deter such illicit activities.

Furthermore, the definition of a "bribe" or "gratification" extends beyond mere monetaryppayments. It includes any favour or advantage, the release of an obligation or liability, orpeven the avoidance of a loss or disadvantage. The bribe does not even need to bepsuccessfully delivered; the act of agreeing or offering to give it is sufficient for liability toparise.

The "tricky areas": Hospitality and facilitation paymentsp

While the new law provides a clear framework, certain areas remain somewhatpambiguous. The treatment of corporate hospitality and promotional expenditures, forpinstance, is not explicitly defined. Drawing parallels with the UK Bribery Act 2010, it'spour view that such payments should not be considered bribes unless they arepdisproportionate to the legitimate business purpose. For example, standard practicesplike paying for airport transfers, client dinners or tickets to industry events, if alignedpwith industry norms, are unlikely to be deemed corrupt. However, anything excessive orpclearly intended to influence a decision could fall foul of the law.ppAnother "tricky area" is facilitation payments – small bribes made to minor officials topexpedite routine administrative tasks. While the new law remains silent on this, ourpstrong advice to clients is that these payments should unequivocally be regarded aspbribes. Companies must adopt a zero-tolerance approach to all forms of illicitpgratification, regardless of their perceived size or customary nature in certainpjurisdictions.

Steps for anti-bribery compliance

The good news for companies is that there is a clear defence available: proving thatp"adequate procedures" were in place to prevent bribery by associated persons. Thepchallenge, however, is that the South African government has yet to publish officialpguidelines defining what constitutes "adequate procedures".ppIn the interim, businesses are well-advised to look to the guidance provided under thepUK Bribery Act, which outlines six core principles that should underpin an effective anti-pbribery programme:

1. Proportionate Procedures: Anti-bribery procedures must be commensuratepwith the bribery risks a company faces, considering its nature, scale, andpcomplexity. A multinational operating in high-risk sectors will require morepsubstantial measures than a small enterprise in a low-risk environment.
2. Top-Level Commitment: The board of directors must foster and demonstratepa culture where bribery is unequivocally unacceptable. This "tone from theptop" is paramount in embedding ethical behaviour throughout theporganisation.
3. Risk Assessment: Companies must regularly assess their exposure toppotential bribery risks. This involves identifying vulnerable areas,pgeographies, and business interactions.
4. Due Diligence: Thorough due diligence procedures must be conducted onptheir associated persons. This is a critical step in vetting third-party relationshipspand identifying potential red flags.
5. Communication and Training: Anti-bribery policies must be clearlypcommunicated, both internally and externally, and comprehensive trainingpprovided to ensure all stakeholders understand their obligations and thepcompany's stance.
6. Monitoring and Review: Anti-bribery procedures must be continuouslypmonitored and reviewed, with improvements implemented as necessary topadapt to evolving risks and operational changes.

The new legislation marks a momentous shift in South Africa's fight against corruption.pWhile historical enforcement challenges and low conviction rates previously hindered progress, the new "failure to prevent" offence, combined with greater corporatepaccountability, becomes a strong driver for change.

Companies without substantial anti-bribery procedures must act swiftly. This meanspprioritising reviewing corporate hospitality policies, scrutinising relationships withpassociated persons, and investing in comprehensive compliance programmes. Anypinitial costs are far outweighed by the potential financial and reputational damage ofpnon-compliance.ppIn Part 2 of this series, we will explore the pivotal question of individual accountabilitypwithin companies, who can be prosecuted and fined under the new law and steps forpmitigating personal and corporate liability.

In Part 2 of this series, we will explore the pivotal question of individual accountability
within companies, who can be prosecuted and fined under the new law and steps for
mitigating personal and corporate liability.

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.