Corruption becoming endemic

Corporate South Africa, starting with Johannesburg Stock Exchange (JSE)-listed companies, should play a decisive role in addressing the scourge of corruption that is strangling our democracy. It is imperative that business, the public at large and the government initiate anti-graft measures.

Steven Powell, Head of Forensics at Edward Nathan Sonnenbergs (ENS), says South Africa’s anti-corruption legislation and investigation units are in need of overhaul. However, they cannot go it alone and will require corporate South Africa’s help. In this month’s SmartProcurement.

In addition to the widely publicised arms deal scandal, there has been a dramatic escalation in incidents of white collar crime and corruption in recent years. South Africa was at position 64 on the Transparency International Corruption Index for 2011, and a recent survey by TNS South Africa indicates that most urban South Africans feel corruption has become a way of life.

Corruption is notoriously difficult to detect and, not surprisingly, there have been few successful corruption prosecutions in terms of the prevailing anti-corruption legislative infrastructure in South Africa.

While the Office of the Director of Public Prosecutions can be commended for prioritising the prosecution of corruption cases, it has not done enough to address rampant corruption, which has been escalating at alarming levels. To ensure successful prosecutions, the Department of Justice has put procedures in place in terms of which all corruption cases are tracked and monitored by experts within the Office of the Director of Public Prosecutions in each of the provinces.

Most corruption cases are heard in the specialised commercial crime courts, which were created several years ago in each of the major provinces. They are staffed by dedicated white collar crime specialists who are well equipped to address the complexities of matters of this nature. This has improved conviction rates for corruption across the board in South Africa.

The improved prosecution and conviction statistics, however, remain a cause for concern as the bulk of the corruption cases that take place in our country are not prosecuted. The key reason for this is that a large proportion of corruption matters are undetected. Additionally, many corruption cases that are detected are not reported to the authorities. Among the rationalisations cited for not reporting corruption – notwithstanding the fact that it is a criminal offence not to report such matters, in terms of Section 34 of the Prevention and Combating of Corrupt Activities Act (Act 12 of 2004) – include; inter alia, lack of confidence in the criminal justice system; the negative stigma attached to admitting that an employee has paid a bribe; or the fear of victimisation on the part of companies, should they report an official for soliciting a bribe.

Under-detection and under-reporting make it difficult to measure the true extent of corruption in South Africa. The few cases that are reported to the authorities are often hampered by insufficient investigative capacity and inadequate resources in the police, which results in poor quality investigations and leads to acquittals or even worse, cases where the Public Prosecutor declines to prosecute. Clearly, the Prevention and Combating of Corrupt Activities Act, coupled with inadequate investigative resources, has not achieved the success required to de-incentivise bribe-payers and bribe-takers, who are acting with impunity to enrich themselves. As long as the risk of detection and conviction remains low, corruption will continue to flourish.

The existing anti-corruption legislative infrastructure and the commercial crime investigation units require a complete overhaul if the system is to discourage would-be bribe-payers or bribe-takers. The authorities would do well to look at the far-reaching provisions of the United Kingdom’s recently promulgated anti-bribery act when considering a revamp of our corruption legislation.

Corporate South Africa’s anti-graft role

Fighting corruption cannot, however, be the sole and exclusive responsibility of the government. If companies in South Africa merely sit back and wait for legislative interventions without taking action themselves, the future of the economy may be at serious risk.

JSE-listed entities have an opportunity to become role models to the rest of corporate South Africa in creating an anti-bribery corporate environment. In this regard, the JSE should consider implementing a new requirement that every listed company should put appropriate anti-bribery policies and processes in place, to restrict and address instances of bribes paid by that entity or by agents or intermediaries on behalf of such entities.

A number of multinational corporates, such as BHP Billiton and the Anglo American group, have already implemented rigorous anti-bribery measures, but most businesses in South Africa have devoted little or no attention to bribery, either within their own organisation or within those of agents and intermediaries who represent them and who may pay bribes on their behalf, sometimes even without their direct knowledge.

However, as a result of rampant employee fraud over the past decade, most companies have created policies and strategies to prevent and detect fraud in their business. These strategies now have to be revisited and revised to ensure that they incorporate an anti-bribery focus, as opposed to merely addressing the fraud risk to the business. If all companies adhere to ethical and sound business practices in winning business, and make it their policy to refuse to pay bribes, then the corporate world will have created an economic landscape that is not conducive to corruption.

A framework for requiring companies and listed entities in particular to adopt appropriate anti-bribery processes in their businesses can be found in Britain’s anti-bribery act.

On 1 July 2011, the United Kingdom’s Bribery Act (UKBA) came into effect, with far-reaching anti-graft provisions for entities that are listed in, linked to, or have business relations or associations with the United Kingdom. The Act, which is even more far-reaching than the United States’ Foreign Corrupt Practices Act (FCPA), has many aspects to it that the South Africa authorities should draw on to bolster their anti-bribery initiatives.

Purchasing Index is working with ENS to provide larger organisations with a suite of audit analysis solutions, aimed at assisting clients to identify, and manage the level of risk within their organisations, and take the necessary steps to ensure compliance. Contact Joshua@pibenchmark.com to arrange for a free demo of this service.