Company liability: Take adequate steps to prevent corruption or face criminal prosecution

An amendment to South Africa’s Prevention and Combating of Corrupt Activities Act (PRECCA) in April 2024 created a new criminal offence 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, companies should design and adopt adequate procedures to prevent corruption.

 

The introduction of the offence of a failure to prevent corruption

PRECCA already provides for a general offence of corruption, as well as various specific categories of corrupt activity offences, against persons complicit in those offences. 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 offence 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 offence committed by the company, unless it is proven that the director did not take part in the commission of the offence and that the director could not have prevented it.

The key elements of the new offence are as follows:

• Members of the private sector or state-owned entities may be found guilty of the offence;
• The offence is based on misconduct of a “person associated” with that member. The company need not be directly complicit in the corruption;
• The misconduct involved is the act of giving, agreeing 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 defence 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 juristic persons. It may also include intra-group companies. It is not necessary for the associated person to have been convicted of the offence 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, drawing on comparative law, the UK 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.

Despite the failure to prevent offence and associated defence of adequate procedures having been on the statute books for over a decade in the UK, the defence has never been fully tested in court in the UK. As a result, these principles are the core focus when seeking to establish adequate procedures. These principles are:

• Proportionate: The anti-bribery measures must be proportionate to the bribery risk the company faces and to the nature, scale and complexity of the commercial organisation's activities. An initial assessment of risk should be undertaken across an organisation in order to establish the risk areas and specific requirements for such risk areas.
• Management and oversight: Top-level management must ensure that they foster a company culture in which bribery is never acceptable. They must ensure communication of the company's anti-bribery stance and have an appropriate degree of involvement in the development of anti-bribery procedures. Their endorsement of these policies should also be made public, as this will serve to emphasise 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 it faces and therefore this risk assessment should be periodic, informed and documented.
• Due diligence: Appropriate due diligence procedures should be taken in respect of persons who perform or will perform services for or on behalf of the organisation, 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 avoid bribery from occurring. Training should further be provided to each employee and tailored training to 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 stay aligned with any changes in the company’s risk profile.

 

What steps should a company now take to minimise risk?

A culture of zero tolerance to corrupt activities must be developed within the organisation. An appropriate response to the risk of bribery and corruption to a business starts with senior management. Directors must set the tone in the business and there must be regular reporting back to the board on implementation of ABC measures and incidences, if any.

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 the areas of the business. This risk assessment must be properly documented, so that it can be relied upon and revisited in future.

Once the risks are identified, policies and procedures should be developed, or reviewed, and updated. This may include 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. Associated systems and procedures must be put in place to implement these policies.

This starts with 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 in high-risk positions. There should be regular ABC training for and communications to all associated persons. The policies developed should be strictly enforced and 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 (e.g. annually) and on an incident-basis (e.g. if a particular corrupt activity occurs).

Artificial intelligence (AI) can be used to detect bribery. It can therefore be a helpful tool in monitoring the effectiveness of a company's procedures, or investigating bribery.

 

Aiscension: Using AI to manage bribery risk

Given the demands on global businesses to put adequate anti-bribery measures in place, together with the serious threat bribery poses to businesses and growth, DLA Piper developed an inhouse tool, Aiscension.

With major risk often lying hidden within data, this cutting-edge pre-trained AI tool scans data sets in an organisation, within seconds. Investigations or compliance reviews are conducted 10x faster, and at, at least, one fifth of the time cost of traditional lawyer-led eDiscovery reviews.

The tool is monitored by lawyers and learns and adapts to provide high quality results. Through the proactive use of Aiscension, a business can cost-effectively ensure that it mitigates potential bribery risk and test whether it has adequate measures in place to prevent bribery by associated persons.

Contact Kirsty Simpson or Megan Sturgeon for legal advice on adopting adequate measures to prevent corruption in your business, or to discuss if Aiscension is a useful tool for your business.