Criminal liability under foreign law for the corrupt activities of a foreign agent
The risk faced by South African companies of incurring criminal liability for bribes or other corrupt payments perpetrated by their agents in foreign jurisdictions
With the growing awareness of the need for informed and ethical corporate governance, South African companies would do well to take note of a risk which has perhaps hitherto not been fully appreciated.
It is safe to assume that all South African companies are aware of the need to have systems in place to prevent the company from falling foul of this country's anti-corruption legislation – for illegalities in this regard appear to be rife, particularly in relation to contracts with government and semi-government agencies.
However, a different risk arises where a South African company is engaged in business transactions in a foreign country through overseas agents, intermediaries or subsidiaries. It is less easy for the South African company to maintain discipline over the conduct of such middlemen.
Legal liability for corrupt activities of foreign agents
In addition to any liability that may be incurred in terms of South African anti-corruption legislation, such as the Prevention and Combating of Corrupt Activities Act 12 of 2004, a South African company will, in certain circumstances, be legally accountable for the acts, carried out in foreign countries, of its agents and middlemen in those countries.
Of particular significance is that the United Kingdom's Bribery Act of 2010, which came into force on 1 July 2011, has created a so-called new section 7 offence which is committed by a commercial organisation that fails to prevent persons associated with it from bribing another person on its behalf, for example, bribing officials of a foreign government in order to secure a favour.
A South African company is subject to UK’s Bribery Act if it carries on business in the United Kingdom. This somewhat elastic expression is not defined in the Act and its scope has been the subject of considerable debate.
It seems that where a company has premises in the UK, or actively sells into or out of the UK, it will be carrying on business in the United Kingdom. However, where a South African company merely has a subsidiary company that is formed or active in the United Kingdom, the activities of the latter company will not automatically be attributable to the South African parent company for the two companies are, in law, separate juristic persons.
A defence available under the UK’s Bribery Act
Corrupt payments by foreign agents to secure business for their principal are often ingeniously disguised as above-board remittances, and a South African company needs to be vigilant to ensure that its overseas agents are not engaging in such practices on its behalf.
Of great importance in this regard is that it is a defence to a charge under section 7 of the UK Bribery Act for an organisation to prove that it has adequate procedures in place to prevent persons associated with it from engaging in bribery.
South African companies that do business overseas through intermediaries would thus do well to ensure that such safeguards are an integral (and provable) part of their corporate governance structures and processes so as to avoid the risk of the huge reputational damage that would be suffered if the company were to be convicted on a charge under section 7 of the UK Bribery Act or similar legislation in other foreign countries.
A particular risk arises from so-called facilitation payments made to government officials by a company's overseas agents. Such payments are referred to in South Africa’s Prevention of Corrupt Activities Act (which extends to the bribery of a foreign public official, including payments made through an intermediary) as gratification, in cash or in kind.
The line between propriety and impropriety can be difficult to draw. The guidelines provided by the UK’s Serious Fraud Office (an independent government department that investigates and prosecutes serious fraud and corruption cases) indicate that, as a general rule, it is not improper to provide tickets to sporting events, take clients to dinner, offer gifts to clients or pay for clients’ reasonable travel expenses.
However, the South African courts may take a stricter view. In the unreported Durban High Court decision in Arrow Altech Distribution (Pty) Ltd v S Byrne (case 9661/07) the evidence revealed that gifts of alcohol, chocolates, cakes, dinners, drinks and entertainment at sporting events had been provided by the company in question in order to maintain customer loyalty. The presiding judge commented that ‘the practice of soliciting and maintaining customers’ goodwill with “gifts” appears to constitute a criminal offence’.
It is clear, therefore, that so-called facilitation payments may be disguised bribes, and where this occurs in the United Kingdom, the South African company may be criminally liable in that jurisdiction for the acts of its agents who were instrumental in making (or receiving) such payments.
The Serious Fraud Office in the UK has published corruption indicators which include –
- abnormal cash payments;
- pressure being exerted for payments to be made urgently or ahead of schedule;
- payments being made through a third party country – for example, goods or services supplied to country 'A' with payment being made, usually to a shell company, in country 'B';
- an abnormally high commission being paid to a particular agency, or a commission payment that is split into two accounts for the same agent, often in different jurisdictions;
- the giving or receiving of lavish gifts;
- unexpected or illogical decisions in the negotiation of projects or contracts;
- an unusually smooth passage of events involving an individual who does not appear to have the knowledge or expertise to achieve such results;
- an unexplained preference for certain contractors during the tendering period;
- the by-passing of normal tendering or contracting procedures;
- invoices being inexplicably settled in excess of the contracted amount;
- missing documents or records in relation to meetings or decisions.