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International initiatives to stamp out corruption in business

Anti-corruption legislation is becoming an international norm

Internationally, corruption in business is coming under increasing scrutiny, particularly in regard to corrupt payments made to government officials in order to gain trade advantages. No longer can the greasing of palms be regarded as an acceptable (or risk-free) way of growing a business.

The Bribery Act of the United Kingdom

The United Kingdom's Bribery Act is regarded as the world's toughest anti-corruption legislation. The legislation came into effect from 1 July 2011 and it covers business kickbacks, corrupt commissions, and other forms of illicit business payments to secure business or government contracts.

The Act prohibits the making of payments in order to derive a business advantage, for example, a payment to a government official to expedite the passage of goods though customs. Directors of an offending company can be disqualified from holding directorships for up to fifteen years. The company itself will suffer severe reputational damage if it becomes public knowledge that it has engaged in corrupt practices.

The Act applies to both individuals and companies, and to both UK-based and to foreign firms which have operations in the UK. The legislation is therefore of direct concern to the many South African individuals and companies who do business in the UK.

The Act has a broad prohibition that outlaws the giving or receiving of a bribe, or offering or promising a bribe or requesting or agreeing to receive a bribe. There is a separate offence of the bribery or attempted bribery of a foreign public official for the purpose of obtaining business. Facilitation payments in which government officials are paid to speed up routine services that they are obliged to carry out are also regarded as bribes, and were in fact illegal even before the Bribery Act.

A strict liability offence has been created (in other words, an offence where legal liability does not depend on a dishonest intent or on negligence) where a commercial organisation fails to prevent bribes being paid by those associated with them. It is however a defence for a company to show that it had adopted "adequate procedures" designed to prevent bribery. Such "adequate procedures" necessitate more than just laying down rules and they require the establishment of programmes for staff training and due diligence processes. The need for vigilance is particularly acute where a company makes use of contractors, sub-contractors and middlemen.

There are some grey areas in the UK legislation, for example, whether a holding company is liable for a bribe paid by a subsidiary. It seems that, if the bribe was to the advantage of the subsidiary only, the parent company will not be liable.

The Foreign Corrupt Practices Act in the USA

In the USA, the Foreign Corrupt Practices Act of 1977 makes it unlawful for defined categories of persons and entities to make payments to foreign government officials in order to secure or retain business. Amendments enacted in 1998 have extended the scope of the Act to foreign firms and persons who, directly or through agents, cause corrupt payments to be made within the territory of the United States. The anti-bribery provisions of the Act apply to all companies listed on a US stock exchange, any "domestic concern", and all foreign subsidiaries of US companies, whether wholly-owned or otherwise.

The Act will thus apply to US corporations that do business in South Africa or who trade with South African businesses.

The criminal penalties for violations of the Act are $2 million in respect of companies and other business entities, $100 000 and imprisonment for up to five years for officers, directors, employees and agents. Such fines can be increased to double the amount of the benefit. Civil penalties may be enforced on behalf of the firm concerned by the attorney-general or the Securities Exchange Commission.

The USA has extracted an agreement from thirty-three of its most important trading partners to enact similar legislation. The European initiative in this regard is the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

South Africa

South Africa enacted the Prevention and Combating of Corrupt Activities Act of 2004. Local companies that engage in international trade now need to put comprehensive internal controls in place to safeguard against unauthorised and corrupt activities by rogue employees and agents.

Suspicious activities need to be rigorously and expeditiously investigated. Particularly vulnerable to transgressions of the Act are businesses that engage in the entertainment of important clients, or which interact with government officials in a social setting.

Internationally, industries that have proven to be particularly susceptible to corrupt payments in order to gain business are those engaged in telecommunications, oil and gas exploration, mining, health care, construction and defence.

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