Company Liability in South Africa: Take Adequate Steps to Prevent Corruption or Face Criminal Prosecution | DLA Piper

An amendment to South Africa’s Prevention and Combating of Corrupt Activities Act (PRECCA) in April 2024 has created a new criminal offense relating to the failure by members of the private sector or state-owned entities (SOEs) to prevent certain types of corruption. To safeguard against criminal liability and prevent corruption, companies should design and adopt adequate procedures.

New offense: Failure to prevent corruption

PRECCA already provides for a general offense of corruption, as well as various categories of corrupt activity offenses addressing persons complicit in those offenses. Because PRECCA has extraterritorial effect, a South African company may be prosecuted even if the corruption or bribery is committed outside of South Africa.

The recent PRECCA amendment introduces a new criminal offense of failing to prevent certain corrupt activities by persons associated with members of the private sector and SOEs. This may result in criminal liability for the directors of a company, as a director is deemed to be guilty of an offense committed by the company, unless it is proven that the director did not take part in the commission of the offense and that the director could not have prevented it.

The key elements of the new offense are as follows:

• Members of the private sector or state-owned entities may be found guilty of the offense.
• The offense is based on misconduct of a “person associated” with that member. The company needs not to be directly complicit in the corruption.
• The misconduct involved is the act of giving, agreeing to give, or offering to give a prohibited gratification. That gratification must be given with the intention of securing business or an advantage for the business.
• It is a defense if the member had in place “adequate procedures” designed to prevent associated persons from committing the misconduct.

A “person associated” with a company is broadly defined as a person who provides services for or on behalf of the company in any capacity. It conceivably includes directors, employees, contractors, agents, and the like, whether natural or legal persons. It may also include intra-group companies. The associated person need not necessarily have been convicted of the offense for the company to be held liable.

What are “adequate procedures” to prevent corruption?

To avoid criminal liability, companies may implement “adequate procedures” designed to prevent associated persons from participating in the corrupt activity.

Companies are therefore well advised to develop and implement practical and effective anti-bribery and corruption (ABC) policies and systems to prevent prohibited practices. There is as yet no guidance in South Africa on what measures will be considered “adequate.”

However, it may be useful to look at comparative law in the UK, where the Ministry of Justice has issued guidance that sets out six principles as to what constitutes “adequate procedures” to prevent bribery pursuant to the similar section 7 of the UK Bribery Act .

In the UK, the failure to prevent offense and associated defense of adequate procedures have been on the statute books for over a decade; However, that defense has never been fully tested in court. As a result, these principles are the core focus when seeking to establish adequate procedures. These principles are:

• Provide yourself: The anti-bribery measures must be proportionate to the bribery risk the company faces and to the nature, scale, and complexity of the commercial organization’s activities. An initial assessment of risk should be undertaken across an organization in order to establish the risk areas and specific requirements for such risk areas.
• Management and oversight: Top-level management must ensure that it fosters a company culture in which bribery is never acceptable. Management must ensure the company’s anti-bribery stance is clearly communicated and must have an appropriate degree of involvement in the development of anti-bribery procedures. This “tone from the top” endorsement of these policies should also be made public, as this will serve to emphasize the importance that the company attaches to implementing these policies. A senior manager should be responsible for the implementation of these policies within the business.
• Risk assessment: A business must assess the nature and extent of its exposure to potential external and internal risks of bribery. As the business evolves, so too will the bribery risk face it. Therefore, this risk assessment should be periodic, informed, and documented.
• Due diligence: Appropriate due diligence procedures should be followed in respect of persons who perform or will perform services for or on behalf of the organization, in order to mitigate identified bribery risks. Due diligence is firmly established as an element of corporate good governance and should be conducted using a risk-based approach.
• Communication and training: The ABC policies should be understood throughout the company and should be conveyed to associated persons through internal and external communication, including training, that is proportionate to the risks it faces. By enhancing communication and training, a business could potentially prevent bribery from occurring. Training should further be provided to each employee, including tailored training for those individuals employed in high-risk functions such as purchasing, contracting, distribution, and marketing.
• Monitoring and review: The company must ensure that its ABC policies and procedures are not only regularly reviewed and evaluated for effectiveness but also updated as necessary to align with any changes in the company’s risk profile.

What steps should a company take now to minimize risk?

A culture of zero tolerance to corrupt activities must be developed within the organization. An appropriate response to the risk of bribery and corruption starts with senior management. Directors must set the tone in the business and they must regularly report to the board on implementation of ABC measures as well as any incidents of concern.

A company’s procedures to prevent corruption will be informed by the nature of the business and its specific risk areas. The starting point is therefore to conduct a risk assessment across all areas of the business. This risk assessment must be properly documented so that it can be relied on and revisited in the future.

Once the risks are identified, policies and procedures should then be developed, or reviewed, and updated. This may include a broad swath of materials: ABC policies, corporate governance policies, employment policies, disciplinary codes, procurement or supply chain policies, and similar documents. Contracts with third-party suppliers must also be reviewed. Then associated systems and procedures must be put in place to implement these policies.

This implementation process begins by ensuring that people with integrity are hired or appointed to render services on behalf of the company. Particular care must be taken in appointing persons to high-risk positions. There should be regular ABC training for and communications to all associated persons. The policies developed should be strictly enforced. If there is a deviation, compelling reasons for the deviation must be documented. A company may also consider setting up a whistleblower reporting channel.

Once the policies and procedures are in place, they must be continuously monitored and reviewed. Such review should take place on a time basis (egannually) and on an incident basis (egif a particular corrupt activity occurs).

Aiscension: Using AI to manage bribery risk

Major risks are often hidden within data. To address the demands on global businesses for adequate anti-bribery measures, DLA Piper has developed an in-house tool, Aiscension.

This cutting-edge pre-trained AI tool efficiently scans an organization’s data sets, dramatically cutting the time needed to conduct investigations or compliance reviews. Through pro-active use of Aiscension, a business may cost-effectively ensure that it is working to mitigate potential bribery risk while testing whether it has adequate measures in place to prevent bribery by associated persons.

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