SOUTH AFRICA: WHITE-COLLAR CRIME - LAW AND PRACTICE

Authors: Cameron Dunstan-Smith, Jonathan Ripley-Evans, Jenalee Harrison and Fiorella Noriega.

1. LEGAL FRAMEWORK

1.1 Classification of Criminal Offences

South Africa’s criminal legal framework consists of a mixture of common law and statutory offences and does not consist of a formal framework of categories of offences – however, offences can be categorised in terms of severity, by way of the sentence or sanction ascribed in connection with the offence, whether in terms of minimum sentences prescribed under legislation or in terms of precedent through case law. In most offences in South Africa, the following elements must be proved beyond a reasonable doubt by the State against the accused: voluntary conduct which is unlawful, criminal capacity and fault (in the form of intention or negligence). Within this, the following elements are generally required to be proven: conduct, causation, unlawfulness, culpability and fault.

In terms of white-collar offences, South Africa has a matrix of domestic legislation that caters for the particular offences that are associated with white-collar crime, which stands alongside the common law offences such as fraud. The Prevention and Combatting of Corrupt Activities Act 12 of 2004 (PRECCA), the Financial Intelligence Centre Act 38 of 2011 (FICA) and the Prevention of Organised Crime Act 121 of 1998 (POCA) are the primary statutes that form part of the matrix of statute dealing with white-collar crime in South Africa.

PRECCA is South Africa’s principal piece of corruption legislation and creates the general offence of corruption. PRECCA also makes provision for a number of specific corruption offences as well as ancillary offences such as being an accessory to corruption and attempting or conspiring to commit an offence under PRECCA.

POCA creates statutory offences that are encountered in the organised crime environment, such as racketeering, money laundering and offences relating to the proceeds of unlawful activities. The offences of racketeering and money laundering are cast widely, and address conduct relating to a pattern of racketeering activity and conduct concerning arrangements or transactions that involve the proceeds of unlawful activity.

FICA also plays a central role in the combatting of white-collar crime in South Africa. FICA established the Financial Intelligence Centre, a state agency tasked with the identification and combatting of money laundering and terrorist financing and the implementation of financial sanctions pursuant to resolutions of the Security Council of the United Nations. In addition to the monitoring of money-related activity, FICA creates obligations of reporting and monitoring on accountable institutions (including institutions such as banks) and powers of monitoring, inspection and investigation for the Financial Intelligence Centre and in relation to suspected offences such as money-laundering or terrorist financing. In addition, FICA creates offences relating to non-compliance with the provisions of FICA as well as offences for interfering in the investigations of the Financial Intelligence Centre.

Attempting or conspiring to commit an offence, or aiding and abetting in one may also result in criminal liability in South Africa, including in respect of white-collar offences such as racketeering, corruption or money laundering.

Motive is not required to prove liability for the commission of a crime, or for an offence to be punishable. Fault, whether in the form of intention or negligence, is however generally a requirement that must be proven.

1.2 Statute of Limitations

The Criminal Procedure Act 51 of 1977 (CPA) governs procedures and related matters in criminal proceedings. Section 18 of the CPA provides that the right to prosecute any offence will lapse after the expiry of a period of 20 years from the time when the offence was committed, except for certain specific offences such as murder, rape or treason. White-collar crimes would not fall within the list of offences that exceed the 20-year period in terms of which prosecution must be instituted. In this regard the CPA defines an offence as an act or omission that is punishable by law.

1.3 Extraterritorial Reach

Section 35 of PRECCA specifically provides that a South African court may have jurisdiction to prosecute a corruption offence outside of South Africa:

• if the alleged offender is a South African citizen or a company incorporated or registered in South Africa;
• if the person to be charged is ordinarily resident in South Africa; and
• if the person was arrested in the territory, territorial waters or on board a ship or aircraft registered in South Africa.

POCA’s ambit extends beyond the borders of South Africa – any conduct, whether occurring in South Africa or elsewhere, that meets the definition of racketeering in POCA, is also an offence in South Africa. Further, the definition of “unlawful activities” that features in many of the offences in POCA, includes unlawful conduct that constitutes a crime whether before or after the commencement of POCA and whether it occurred in South Africa or elsewhere.

South Africa has also enacted legislation with the specific purpose of facilitating co-operation with foreign enforcement authorities. See 2.5 Mutual Legal Assistance Treaties and Cross-Border Co-Operation below.

1.4 Corporate Liability and Personal Liability

Corporate entities may face criminal liability in South Africa for a wide range of offences. They can be prosecuted for any crime unless the law specifically limits liability for a particular offence to natural persons.

Section 332 of the CPA contains express provisions deeming certain acts and omissions of the directors and “servants” of the company to be the acts and omissions of the company itself. In general, the acts and omissions of a company’s directors or “servants”, (i) when exercising their powers or performing their duties or (ii) undertaken in furtherance of the company’s interests, are attributed to the company for the purposes of imposing criminal liability on the company for any statutory or common law offence.

While there is no definition of “servant”, the term is understood to encompass not only employees, but anyone whose work falls under the company’s control. In general, for a company to incur criminal liability, a degree of supervision and control by the company over the relevant individual is required.

In South Africa, however, if an individual commits a crime while acting to further the company’s interests, regardless of whether such conduct was within the scope of that individual’s duties, a company may face criminal liability.

Both a company and the individuals involved may be prosecuted for the same crime. A company is a legal person without any physical existence and has no mind or will of its own. For this reason, the acts, omissions, intentions, purposes and knowledge of certain individuals within the company are regarded as being the acts, omissions, intentions, purposes and knowledge of the company. However, even if the individuals who committed an offence are not prosecuted in their personal capacities, a company may be prosecuted for the offence. Company representatives will face criminal liability only if they were complicit in wrongdoing.

As separate legal entities, parent companies are unlikely to face criminal liability for the conduct of their subsidiaries unless they are complicit in, or knowingly condone, the unlawful conduct. Further, if a company is acquired after the occurrence of the offending conduct, the entity cannot be held liable for the prior conduct of the target, nor will any newly appointed board members or employees face liability as they were not directors and/or employees (as the case may be) at the time of the commission of the offence.

1.5 Damages and Compensation

The common law in South Africa entitles a person who has suffered financial loss caused by the unlawful and wrongful actions of another individual, to recover that financial loss from the wrongdoer.

This would include a claim by a victim against the actions of the perpetrator of a white-collar crime. Such a claim would usually be instituted under the law of “delict” (tort).

In order to be successful in a claim for delictual damages, the plaintiff must prove the following:

• the defendant performed an act;
• the act was ‘wrongful’;
• the wrongful act must have caused harm, in the form of damage or loss, to the plaintiff; and
• due to the fault (whether intentionally or negligently) of the defendant.

Importantly, South African law does not recognise the concept of “punitive damages”, as such, the victim of a crime is only able to recover the damage that he, she or it can prove they have actually suffered.

Although the provisions of POCA are more focused on the forfeiture and confiscation of the proceeds of crimes to the state, it also contains provisions which specifically recognise that there may be individuals who wish to recover property from the perpetrator or perpetrators through civil proceedings.

In this regard, under POCA, the National Director of Public Prosecutions is entitled to apply for the confiscation or forfeiture, to the state, of the benefits derived from any unlawful activities (ie, the proceeds of a crime).

However, POCA also allows individuals who have “suffered damage to or loss of property or injury as a result of an offence or related criminal activity… which was committed by the defendant” to make representations to the court in regard to suspending the forfeiture of those proceeds to the state, pending the civil proceedings to be instituted, and finalised, by the victim against the perpetrator. Those proceeds can then be used to satisfy any judgment against the perpetrator.

The Asset Forfeiture Unit (AFU) was established in 1999 specifically to ensure that the powers of confiscation and seizure under POCA were implemented. The AFU’s mandate is primarily to target the proceeds of economic crimes and to seize criminal assets derived from or deemed the instrumentality of a criminal offence.

The court of first instance in South Africa is a magistrates court or a high court (depending on the quantum of the dispute).

Although South Africa recognises the concept of class actions, there is no statute which governs the procedural and substantive aspects of these actions. The concept of the class action is a relatively new one in South Africa and there are no reported cases of class actions having been brought by victims of white-collar crimes. However, victims of white-collar crimes could, technically bring a class action against the perpetrator or perpetrators.

It should be noted that South African law requires a representative of the class to first approach the courts in order to “certify” the class, before proceedings can be launched.

During the certification application, the court will generally consider, inter alia, the following:

• whether there is a cause of action;
• whether it is appropriate to bring a class action in those circumstances;
• the authority of the representative;
• whether there is an appropriate procedure for allocating damages to the members of the class; and
• whether the class should be “opt-in” or “opt-out.”

1.6 Recent Case Law and Latest Developments

In the past two years South Africa’s President, Cyril Ramaphosa, has set up several judicial Commissions of Inquiry (Commissions) to investigate and gather information relating to concerns of widespread corruption and maladministration in South Africa’s public sector. These Commissions include:

• The Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector;
• The Commission of Inquiry into Tax Administration and Governance by the South African Revenue Services; and
• The Commission of Inquiry into Allegations of Impropriety Regarding the Public Investment Corporation.

The various Commissions have revealed a network of public officials, private companies and individuals that have facilitated or benefited from corrupt activity. Further, the identities of the public officials implicated in impropriety include some of the most senior officials in government and the alleged corporate wrongdoers include renowned and reputable global organisations.

Steps have also been taken to decentralise and restructure the National Prosecuting Authority (NPA). In December 2018 Cyril Ramaphosa appointed Shamila Batohi as the new National Director of Public Prosecutions and formed a new Investigating Directorate within the NPA. The Investigative Directorate will be tasked with investigating serious and complex corruption matters which will include those that are identified during the various Commissions referenced above. The focus will be on corruption in the security sector (this includes the criminal justice system), state owned enterprises and other high level public and private corruption.

There have yet to be any significant prosecutions of white-collar crimes in South Africa and the Organisation for Economic Co-operation and Development has criticised South Africa for its poor track record of prosecuting bribery and corruption. It remains to be seen whether the affirmative steps by President Ramaphosa and others to address the ever-increasing list of corruption scandals in South Africa will be effective.

2. ENFORCEMENT

2.1 Enforcement Authorities

While a number of entities may investigate corporate crime in South Africa, most investigations are led by specialised units within the South African Police Service, most notably the Directorate of Priority Crime Investigation (known colloquially as the “Hawks”) (DPCI) and the Commercial Crimes Unit, which focus on the investigation of sophisticated economic offences. The NPA is empowered to institute and prosecute criminal proceedings on behalf of the state. The Special Investigating Unit (SIU) (a specialised unit constituted by legislation) and the AFU (a specialised unit established within the NPA) may also become involved in corporate criminal investigations. However, the limited capacity of the South African Police Services to investigate sophisticated white-collar crime and the perceived lack of independence of the Hawks as an anti-corruption agency remain significant obstacles in the investigation and ultimate prosecution of corporate crime in South Africa.

In addition to the Police Service, certain other regulatory bodies may refer criminal matters to the NPA. These include the Financial Services Board (the non-banking financial services regulator) and the South African Reserve Bank (responsible for banking regulation). Following such a referral, the regulators may assist the NPA in building its case – particularly given the complex and specialised nature of some financial crimes and the fact that the referral may have been preceded by an in-depth regulatory investigation. The Financial Intelligence Centre also assists the Police Service and the NPA in the identification of the proceeds of unlawful activities, the combatting of both money-laundering activities and the financing of terrorist and related activities, and by providing financial intelligence for use in the fight against crime.

The Competition Commission and the Competition Tribunal are two other, and highly active, enforcement authorities that both conduct investigations into unlawful corporate conduct, including cartel conduct and restrictive business practices; and determine the punishment for these offences. This is addressed in further detail below in 3.7 Cartels and Criminal Competition Law.

Finally, the Specialised Commercial Crimes Court has also been established within the judicial ranks of the South African court system which conducts some of the trials relating to commercial criminal offences.

2.2 Initiating an Investigation

There are a number of agencies and governmental bodies with mandates which include investigating corporate impropriety. These bodies have powers to subpoena information and witnesses, powers of search and seizure and powers to access financial information. Accordingly, the manner in which an investigation is conducted will likely depend on the agency conducting the investigation and the nature of the offence. For example, an investigation concerning money laundering would likely involve the Financial Intelligence Centre, the body mandated to monitor financial transactions for the purposes of combatting money laundering and other finance-related offences such as terrorist financing. However, an investigation concerning corruption would often involve the DPCI (a specialist commercial crime unit within the South African Police Services) whose remit includes investigating commercial crimes.

Investigations may be triggered via multiple avenues, including third-party reports made directly to the authorities, voluntary self-disclosures or reports made in accordance with statutory obligations.

In order to pursue a criminal prosecution, the agency or body conducting the initial investigation will refer the investigation to South Africa’s prosecuting authorities (the NPA) and thereafter co-operate with the NPA to gather evidence and prepare a case against the alleged offenders.

2.3 Powers of Investigation

As stated above, multiple statutory bodies are empowered to investigate corporate crime. The investigative powers afforded to a particular agency or body are generally determined by the empowering legislation that confers the authority on the agency to conduct investigations. The range of powers typically granted to agencies authorised to conduct investigations include:

• powers to compel the production of evidence (ie, books, records, documents, electronic data or other information) from “any person” (natural or juristic) believed to be able to furnish information relevant to the investigation;
• powers to compel persons to appear in person to provide verbal information;
• powers to acquire relevant information (both documentary and verbal information) through a range of mechanisms, including subpoenas or through invoking specific legislative provisions authoring the request for information;
• powers of search and seizure (ie, dawn raids); and
• powers to access financial records and information.

South Africa’s principal piece of criminal law legislation, the CPA, also addresses issues such as the admissibility of evidence, search warrants and powers in relation to the entering of premises and the seizure and disposal of property. In addition, under the CPA everyone who is a compellable and competent witness can be required to give evidence in court.

2.4 Internal Investigations

South Africa has no single overarching duty, nor any specific requirement or obligation, on companies to conduct internal investigations. The relevant statutes applicable in respect of the prosecution and enforcement of financial or white-collar crimes generally make provision for investigation by the relevant regulatory bodies.

However, certain South African statutes create fiduciary duties on the part of the directors and senior managers of companies. In addition, in certain instances, companies may have an obligation to report a “suspicion” that certain crimes such as theft, fraud or “corrupt activities” have been committed.

Although not obligatory, internal investigations may assist organisations to comply with those duties, as well as to assess their potential exposure in the event of investigations being launched by regulatory bodies.

The evidence and information revealed as a result of internal investigations may, in certain circumstances, be used in subsequent court proceedings or by regulatory bodies and enforcement authorities, insofar as they comply with the relevant requirements for admissibility in respect of those proceedings. For example, FICA states that a certificate, issued by an official of the Financial Intelligence Centre, stating that the information specified in the certificate was reported or sent to the centre in terms of FICA is, on its mere production in a matter before a court, admissible as evidence of any fact contained in it.

2.5 Mutual Legal Assistance Treaties and Cross-Border Co-operation

South Africa is party to numerous international agreements and legal instruments that provide for mutual legal assistance and cross-border co-operation.

The International Co-operation in Criminal Matters Act 75 of 1996 (ICCMA) provides a process for a South African court to submit a request to an overseas regulator for assistance in obtaining evidence in criminal proceedings. The Financial Sector Regulation Act 9 of 2017 also provides for information sharing and the creation of memorandums of understanding between financial sector regulators and overseas regulators. In this regard the Financial Intelligence Centre and the Financial Sector Conduct Authority have entered into numerous memorandums of understanding with countries such as the UK, the USA, Peru, Brazil, Portugal, Sweden, Denmark, Ghana, Angola, Russia, India, China, Australia and New Zealand (amongst others).

South Africa has also adopted different initiatives to co-operate with foreign countries, such as the Mutual Legal Assistance in Criminal Matters treaty with Algeria, Argentina, Canada, China, Egypt, France, India, Lesotho, Nigeria and the USA. In terms of national legislation the Extradition Act 67 of 1962, provides for the surrender of an accused or convicted person by South Africa to a “designated state”, these being Ireland, Zimbabwe, Namibia and the UK.

South Africa has entered into the agreement on “Trade, Development and Co-operation between the European Community and its Member States and the Republic of South Africa”, which is aimed at “notifying enforcements and co-operation between the parties in investigating harmful or unfair business practices.” In addition South Africa is a signatory to the following:

• Council of Europe’s Convention on Extradition in 2003;
• the Southern African Development Community (SADC) Protocol on Extradition;
• United Nations Convention against Transnational Organised Crime; and
• SADC Protocol on the Control of Firearms, Ammunition and Related Materials.

Furthermore, South Africa is part of the London Scheme on Extradition and the Harare Scheme on Mutual Assistance.

2.6 Prosecution

Although there are number of enforcement agencies that investigate white-collar offences in South Africa, these agencies co-ordinate with South Africa’s primary prosecuting authority, the NPA which is the body responsible for prosecuting white-collar crimes. The National Director of Public Prosecutions determines prosecution policy and issues policy directives.

For example, the SIU is an independent body created by statute with the primary mandate of recovering and preventing financial losses suffered by the state. Although the SIU has certain powers of investigation, such as the power to subpoena, search, seize and interrogate witnesses, the SIU refers its reports, findings and evidence to the South African Police Services and the NPA and works with them to ensure effective investigation and prosecution of the matters the SIU investigates.

2.7 Deferred Prosecution

Although Deferred Prosecution Agreements (DPA) are becoming increasingly popular in various jurisdictions globally, no such mechanism formally exists in South African legislation.

In August 2002, the South African Law Reform Commission published its sixth interim report on the simplification of criminal procedure. Its report dealt specifically with the need to formalise a procedure in respect of out-of-court settlements in criminal cases and also touched on recommendations in respect of deferred prosecution.

However, this has not been formally implemented in South African law or legislation pertaining to white-collar crimes.

The issue of corruption in both the public and private sectors is garnering more attention than ever before and the pressure is mounting on enforcement authorities to achieve meaningful results and successfully prosecute white-collar crimes.

However, South Africa’s enforcement authorities have a very poor record of prosecuting corporate crimes and the NPA in particular is under pressure as it is under-resourced and lacks the capacity to address the levels of corruption and related white-collar offences. If South Africa were to implement a system which included some form of DPA programme, it could well serve to assist with the capacity and resource challenges the NPA is facing.

2.8 Plea Agreements

Under Section 105(A) of the CPA an accused party may, prior to pleading to the charge brought against him or her, negotiate and enter into an agreement with the state.

In respect of corporate bodies, a plea of guilty will only be valid if the individual representing the entity is authorised to enter into such a plea agreement.

A prosecutor may enter into a plea agreement after:

• consultation with a person charged with the investigation of the case, with regard to the following factors:

(a) bature and circumstances of the offence;

(b) personal circumstances of the accused;
(c) previous convictions of the accused; and
(d) interests of the community.

A prosecutor must also afford the complainant, where it is reasonable to do so, the opportunity to make representation regarding the content of the agreement and the inclusion of conditions relating to compensation.

The court must satisfy itself that the accused confirms that they entered into the agreement and that the requirements of Section 105(A) of the CPA have been satisfied. Lastly, the court will consider whether the agreed sentence is just.

3. WHITE-COLLAR OFFENCES

3.1 Criminal Company Law and Corporate Fraud

Companies may face corporate criminal liability in South Africa for a wide range of offences - companies may be prosecuted for any crime unless the law specifically limits liability for a particular offence to natural persons (eg, sexual offences). Due to this wide ambit, including statutory and common-law offences (such as fraud), providing a concise list is not possible.

A particular offence to note in the context of corporate fraud and white-collar offences is that, under PRECCA, any person who conspires with, aids, induces, instructs, commands or counsels another person to commit an offence under PRECCA, is guilty of an offence. Accordingly, a company may be liable if a director or servant of that company, when exercising their powers or performing their duties in furtherance of the company’s interests, instructs or is complicit in a third party’s commission of an offence.

Fines and, in certain circumstances, the confiscation and forfeiture of assets, are the only forms of punishment courts may impose on companies found guilty of a crime. The size of the fine depends on the nature and scope of the crime and the existence of aggravating and mitigating factors (such as co-operation with the investigation).

3.2 Bribery, Influence Peddling and Related Offences

PRECCA creates the general offence of corruption (the primary corruption offence in South Africa) as well as a number of specific corruption offences. Examples of these specific corruption offences include:

• offences in respect of corrupt activities relating to public officers;
• offences in respect of corrupt activities relating to foreign public officials; and
• offences in respect of corrupt activities relating to contracts.

Although PRECCA makes provision for specific corruption offences, the elements of each offence are substantially similar to the general corruption offence contained in Section 3 of PRECCA. The general corruption offence under Section 3 provides that any person who, directly or indirectly:

• accepts or agrees to accept any gratification from another person; or
• gives or agrees to give to any person any gratification, whether for the benefit of himself or herself or for the benefit of another person,

in order to act personally or by influencing another person to act in a manner that amounts to the:

• illegal, dishonest, unauthorised, incomplete, or biased; or
• misuse or selling of information or material acquired in the course of the

exercise, carrying out or performance of any powers, duties or functions arising out of a constitutional, statutory, contractual or any other legal obligation; that amounts to the abuse of a position of authority, a breach of trust or the violation of a legal duty or a set of rules; designed to achieve an unjustified result; or that amounts to any other unauthorised or improper inducement to do or not to do anything, is guilty of the offence of corruption.

Under PRECCA it is an offence to enter into a corrupt relationship with any person, rendering such conduct illegal in both the public sector and private sector.

3.3 Anti-bribery Regulation

PRECCA does not create an obligation to prevent corruption; however, PRECCA does contain a specific reporting obligation in terms of Section 34 (this is addressed in greater detail in 4.4 Whistle-blower’s Protection below) which makes it an offence not to report corruption to the Directorate for Priority Crime Investigation.

In 2017 the Prevention and Combating of Corrupt Activities Act Amendment Bill (PRECCA Bill) was published for public comment. A proposed amendment under the PRECCA Bill includes a requirement that certain entities will be required to implement appropriate internal compliance programmes to ensure that corruption and other related offences are not committed. However, the proposed amendments under the PRECCA Bill have not been signed into law yet.

3.4 Insider Dealing, Market Abuse and Criminal Banking Law

With regards to insider dealing and market abuse, the primary statute involved is the Financial Markets Act 19 of 2012 (FMA). Chapter X (Market Abuse) of the FMA provides for the offences of insider trading, prohibited trading practices and false, misleading or deceptive statements, promises and forecasts, as well as providing for the resultant penalties from the commission of such offences.

In terms of Section 78 of the FMA, insiders, who knows that they have inside information and who deal, directly or indirectly or through an agent for their own account, in the securities listed on a regulated market or in derivatives related to those securities, to which the inside information relates or which are likely to be affected by it, commit an offence. Anyone who knowingly deals on behalf of an insider, is also guilty of an offence.

The sanction for insider trading varies. Such a person is liable to pay an administrative sanction not exceeding (i) the equivalent amount of the profit that the person, made or would have made if he or she had sold the securities at any stage; or the loss avoided, through such dealing; (ii) an amount up to ZAR1 million (adjusted for inflation annually) plus three times the amount referred to in (i); (iii) interest; and (iv) costs, including investigation costs. In addition, any person who commits the offence of insider trading is liable on conviction to a fine not exceeding ZAR50 million or to imprisonment for a period not exceeding ten years, or to both.

The FMA also regulates market-manipulation behaviour, prohibiting any conduct that creates the false appearance of demand for a security of a company listed on a regulated market; creates an artificial price; or the making of any false, misleading or deceptive statement in connection with the securities of a company listed on a regulated market.

The FMA also places a positive obligation on any person who makes such a statement while being unaware that the statement was false, misleading or deceptive and who becomes aware of such, to, without delay, publish a full and frank correction with regard to such statement.

A person who commits an offence relating to market manipulation under the FMA is liable on conviction to a fine not exceeding ZAR50 million or to imprisonment for a period not exceeding ten years, or to both.

Although there is no statute directly dealing with criminal banking, the Banks Act 94 of 1990 (Banks Act) regulates the business of a bank and prohibits a person from conducting the business of a bank unless such person is a public company and is registered as a bank in terms of the Banks Act. Should a person be found guilty of conducting the business of a bank without complying with the Banks Act, that person shall be liable to a fine (to be determined by the court) or to imprisonment for a period not exceeding ten years, or to both.

3.5 Tax Fraud

The Tax Administration Act 28 of 2011 (TAA) governs tax-related offences in South Africa, in addition to providing the South African Revenue Service (SARS) with wide ranging powers to investigate potential tax violations, it also prescribes the criminal offences relating to non-compliance with tax legislation.

The TAA criminalises a variety of offences in relation to non-compliance with tax legislation including dissipating a person’s assets or assisting another to dissipate their assets in order to impede the collection of any taxes, penalties or interest; issuing an erroneous, incomplete or false document required to be issued under tax legislation; failing to comply with a directive or instruction issued by SARS; or failing or neglecting to disclose to SARS any material facts which should have been disclosed. Such offences may result in a fine or imprisonment for a period not exceeding two years.

In addition, the TAA provides for the offence of tax evasion. A person who, with intent to evade or to assist another person to evade tax or to obtain an undue refund under tax legislation, falsifies information, gives a false answer to a request for information under the TAA, prepares and maintains false books or makes use of fraud or contrivance, commits the offence of tax evasion and is guilty of an offence under the TAA and is subject to a fine or imprisonment not exceeding five years.

Although there is no express duty to prevent tax evasion in South Africa, with regard to the wording of Section 235, a person who has knowledge of tax evasion activity but does nothing to prevent it, could be said to have assisted in the evasion of tax in the event that they were complicit in enabling tax evasion (for example a private banker who knowingly allowed his or her bank to be used by another party in evading tax).

3.6 Financial Record Keeping

FICA creates obligations on particular entities defined as “accountable institutions” to keep various records pertaining to clients, prospective clients and transactions. These records must be kept for at least five years.

In particular, accountable institutions are required to retain customers’ “due diligence records” and records of all “transactions” with the client. Examples of the due diligence records that must be kept include documents used in verifying the identity of a party, the source of funds and the nature of the business relationship.

Examples of transaction records which must be retained include the amount and currency involved, the parties and nature of the transaction, business correspondence and the identifying particulars of all accounts, account files and account facilities.

In addition, the Financial Intelligence Centre is entitled to examine, make extracts from or copies of any such record.

Failure to comply with the record retention requirements under FICA constitutes an offence and the accountable institution will be subject to an “administrative sanction.”

The nature of the sanction is determined at the discretion of the Financial Intelligence Centre, the factors which are taken into account include the nature of the non-compliance with FICA, previous compliance history and remedial action taken to prevent a recurrence of the non-compliance.

The sanction may include:

• a caution not to repeat the conduct;
• a reprimand;
• a directive to take remedial action or to make specific arrangements;
• the restriction or suspension of certain specified business activities; and
• a financial penalty not exceeding ZAR10 million in respect of natural persons and ZAR50 million in respect of legal persons.

It should be noted that the Financial Intelligence Centre may direct that, in respect of institutions, the penalty should be paid by the natural person for whose actions the relevant institution is accountable in law if that person was personally responsible for the non-compliance.

3.7 Cartels and Criminal Competition Law

The Competition Amendment Act 18 of 2018 (Competition Act) prohibits various forms of traditional cartel conduct, including price fixing, market allocation and collusive tendering. This conduct is per se prohibited, in the sense that no pro-competitive gains can be offered to justify the conduct.

Firms can engage in this conduct by way of agreement or through a concerted practice. Agreements in this context are broadly defined to include contracts, arrangements and understandings, whether or not they are legally enforceable, and the notion of a ‘concerted practice’ encompasses co-operative or co-ordinated conduct through direct or indirect contact between firms that does not amount to an agreement, but which replaces those firms’ independent action.

The responsibility for investigating and prosecuting firms for such conduct lies with the Competition Commission of South Africa (Competition Commission). If, following an investigation, the Competition Commission considers there to be sufficient evidence that a firm has contravened the Competition Act, it will refer the matter for prosecution before the Competition Tribunal (Tribunal).

The Tribunal may make a finding that the firm has engaged in cartel conduct of the nature described above.

If such a finding is made, the Tribunal may impose an administrative penalty on the firm of up to 10% of the firm’s annual turnover in South Africa and its exports from South Africa during the firm’s preceding financial year.

If the firm subsequently engages in conduct that is substantially a repeat of the conduct that was previously found by the Tribunal to be a prohibited practice, this limit is increased to 25%.

In determining the extent of the administrative penalty to be imposed, the Tribunal can increase the cap on the administrative penalty amount to include the turnover of a firm that controls the guilty firm. The Tribunal can also hold a controlling firm jointly and severally liable for the administrative penalty imposed.

The Competition Act imposes criminal liability on persons (but not firms) who, while being a director of a firm or while engaged or purporting to be engaged by a firm in a position having management authority within the firm, either: (i) cause the firm to engage in cartel conduct; or (ii) knowingly acquiesce in the firm engaging in such conduct. It is a prerequisite to any such finding that the firm involved has either acknowledged in a consent order that it engaged in cartel conduct or alternatively has been found to have engaged in such conduct by the Tribunal or Competition Appeal Court.

A person convicted of this offence is liable to a fine not exceeding ZAR500,000 or to imprisonment for a period not exceeding ten years, or to both a fine and imprisonment. The authority to prosecute individuals for the offence is vested in the independent NPA.

As of 1 September 2019, no prosecution has been initiated by the NPA in terms of this provision of the Competition Act.

3.8 Consumer Criminal Law

The majority of consumer crimes are dealt with under the South African common law (and criminal law in particular) and are not necessarily established by statute. However, the Consumer Protection Act 68 of 2008 (Consumer Protection Act) also plays a part in this particular area of the law.

The most common crimes committed against consumers are fraud and theft. As indicated above, these crimes are common law crimes and are prosecuted as such.

A report is generally made to the South African Police Services (particularly the Commercial Crimes Unit) and, if a decision is made to do so, the defendant is prosecuted by the NPA. If the offence is a contravention of the Consumer Protection Act then it can also be reported to the National Consumer Commission who may refer the complaint to the NPA.

Where the above crimes are successfully proven and the defendant is found to be guilty the sanction is generally imprisonment (natural persons) and/or a penalty.

Pyramid schemes may constitute both a fraud and a theft. In addition, it is a contravention of Sections 11(1) and 11(2) of the Banks Act, which constitutes an offence thereunder.

The Consumer Protection Act was enacted in order to establish norms and standards relating to consumer protection, prohibit unfair marketing and business practices, promote responsible consumer behaviour and to create an enforcement framework relating to consumer transactions and agreements.

The Act imposes various obligations and standards on the suppliers of goods and services and attempts to ensure the protection of the consumer. It also prohibits certain “unconscionable” conduct relating to the marketing and supply of goods and services to consumers and the negotiation, conclusion and enforcement of an agreement to supply goods or services to consumers.

Although the common law crimes of fraud and/or theft still apply, the Consumer Protection Act also prohibits (amongst many other things) the initiation, sponsoring, promotion or participation in “fraudulent schemes and offers”, including pyramid schemes.

The Consumer Protection Act entitles a consumer, who wishes to enforce any of their rights under the Consumer Protection Act to inter alia:

• refer the matter to a consumer court;
• refer the matter to the relevant ombud with jurisdiction;
• refer the matter to the Consumer Tribunal (in certain instances); or
• file a complaint with the National Consumer Commission.

The National Consumer Commission is entitled to investigate any complaint and, if necessary, refer the matter to the NPA if an offence has been committed.

A person convicted of an offence under the Consumer Protection Act is liable to a fine or imprisonment for a period not exceeding twelve months, or to both a fine and imprisonment.

The Consumer Tribunal is also entitled to impose administrative fines in respect of prohibited or required conduct. The administrative fine may not exceed the greater of 10% of the respondent’s annual turnover during the preceding financial year or ZAR1 million. The appropriate penalty is determined after considering a range of factors, such as the gravity of the offence, the loss suffered, the level of profit derived from the contravention and the degree of co-operation of the transgressor.

3.9 Cybercrimes, Computer Fraud and Protection of Company Secrets

The Electronic Communications and Transactions Act 25 of 2002 (ECTA) criminalises conduct aimed at unlawful interference with, or access to, or interception of electronic data including hacking, the production and sale of devices such as software used for hacking and related offences. If committing any of these offences results in the production of fake data with the intent that this data be considered or acted upon as if it were authentic for purposes of obtaining any unlawful advantage, that is also an offence.

To be found guilty of any of these offences, it must be proved that the perpetrator acted with intention and without authority (as opposed to, for example, lawful interception of data by law enforcement authorities under the direction of a court order).
It is also unlawful in terms of ECTA to threaten to commit any of these crimes but to offer not to do so in return for a reward. Accordingly, extortion and ransom attacks are therefore also criminal offences.

The penalties for these offences range from fines to periods of imprisonment for up to five years.

The Cybercrimes Bill B6-2017 (Cybercrimes Bill) is set to become law in the future, although the precise date is not yet confirmed. It will repeal these Sections of ECTA and broaden the scope of cybercrimes. Where the Cybercrimes Bill overlaps with ECTA it contains greater specificity in relation to the crimes. In addition, it adds new cybercrimes including malicious communications inciting damage to property or violence and distribution of intimate images (so-called revenge porn).

Intention and unlawfulness are necessary elements of all crimes under the Cybercrimes Bill.

The sentences under the Cybercrimes Bill are significantly higher than sentences under ECTA for equivalent crimes ranging from maximum prison terms of five years to 15 years, depending on the offence. The newly created crimes carry lower sentences of up to three years in prison. Fines are also possible sentences under the Cybercrimes Bill but, whereas under ECTA a fine is a possible sentence as an alternative to prison, a court will be able to sentence an offender under the Cybercrimes Bill to both a fine and imprisonment.

3.10 Financial/Trade/Custom Sanctions

As South Africa is a member of the United Nations, Article 41 of the Charter of the United Nations provides that only the United Nations Security Council (UNSC) is mandated to apply sanctions that must be complied with by all member states. Part 2A of FICA provides for the enforcement of financial sanctions issued by the UNSC. Section 26(B) of FICA provides for a wide prohibition on dealing in any way, or inviting to deal with, a person or entity identified pursuant to a resolution of the UNSC, subject to limited exceptions. Failure to comply with this provision of FICA constitutes an offence and is punishable with a fine not exceeding ZAR100 million or imprisonment not exceeding 15 years.

FICA also makes it an offence should an accountable institution (having reporting obligations under FICA) not report to the FIC that it possesses or controls property which is owned or controlled by, or on behalf of, or at the direction of a person or entity that has been identified in a notice by the President of South Africa under Section 25 of the Protection of Constitutional Democracy against Terrorist and Related Activities Act 33 of 2004 (POCDATARA) following a resolution of the UNSC identifying such an entity or person. The accountable institution concerned will also be subject to an administrative sanction in addition to the offence.

POCDATARA also contains wide prohibitions on dealing in any manner with a person or entity identified pursuant to Section 25 of POCDATARA following a resolution by the UNSC, and also captures the threatening, attempting, conspiring, aiding, abetting, inducing, instructing or procuring the commission of an offence under POCDATARA. Failure to comply constitutes an offence and is punishable with a fine not exceeding ZAR100 million or imprisonment not exceeding 15 years.

3.11 Concealment

Under South Africa’s primary anti-money laundering (AML) legislation, POCA, it is an offence to enter into a transaction so as conceal or disguise the nature or source of property (including money) which is deemed to be the proceeds of unlawful activity. This is addressed in more detail in 3.13 Money Laundering below.

3.12 Aiding and Abetting

Generally, conspiring with or aiding another party to commit an offence may render the party who assisted the offender in committing a crime, guilty of an offence. South Africa’s AML legislation contains specific references to aiding or assisting another party to commit a money laundering offence and renders this conduct an offence as well. This is addressed in further detail below.

Section 21 of South Africa’s corruption legislation, PRECCA, provides that a person who conspires with any other person, aids, abets, incites, instigates, instructs, commands, counsels or procures another person to commit an offence in terms of PRECCA, is guilty of an offence.

3.13 Money Laundering

POCA and FICA are the two statutes that primarily govern South Africa’s AML framework.

The primary purpose of POCA is to combat organised crime, money laundering and criminal gang activities. POCA prohibits two main money-laundering offences:

• general money laundering offences involving the proceeds of any unlawful conduct; and
• offences involving proceeds from a pattern of racketeering activity.

In broad terms, a person commits a money laundering offence under POCA if that person:

• knows, or ought reasonably to have known;
• that property is, or forms part of, the proceeds of unlawful activities; and
• enters into any transaction, agreement or arrangement or performs any other act in connection with such property, which has or is likely to have the effect of:
  (a) concealing or disguising the nature, source, location, disposition or movement of the said property or the ownership thereof or any interest which anyone may have in respect thereof; or
  (b) enabling or assisting any person who has committed or commits an offence, whether in the Republic or elsewhere:
  (i) to avoid prosecution; or
  (ii) to remove or diminish any property acquired directly, or indirectly, as a result of the commission of an offence.

A person who uses or has possession of property and knows, or ought reasonably to have known, that the property forms part of the proceeds of unlawful activities of another person may also be liable under POCA.

FICA established the Financial Intelligence Centre in order to combat money laundering and the financing of terrorist and related activities. In order to combat money laundering, FICA imposes a number of compliance obligations on certain persons and organisations, particularly those that fall within FICA’s definition of “accountable institutions” and “reporting institutions.”

The principal obligations that these institutions are required to comply with include the following:

• identifying and verifying the identity of new and existing customers;
• retaining records of identities of clients and transactions entered into with clients;
• reporting irregular transactions to the FIC; and
• training staff and implementing internal controls.

In addition to the above, accountable institutions are required to develop and maintain AML and counter-terrorist financing risk-management and compliance programmes.

Although the reporting obligations under FICA relate primarily to accountable or reporting institutions, there are certain instances where non-accountable or non-reporting institutions are required to file reports with the FIC in terms of Section 29 of FICA. For example, when a person who is in charge of or manages a business, knows or suspects that the business has received or is about to receive the proceeds of unlawful activities or property which is connected to an offence relating to the financing of terrorist and related activities.

4. DEFENCES/EXCEPTIONS

4.1 Defences

There is no statutory defence that expressly provides for the existence of a compliance programme being an affirmative defence against criminal prosecution for an offence such as fraud or corruption. However, the existence of a compliance programme may serve as a mitigating factor in any enforcement action.

From a reporting perspective, a person charged with certain offences under POCA may raise the defence that he or she reported the knowledge or suspicion of the offence in terms of Section 29 of FICA.

4.2 Exceptions

There is no minimum amount below which a white-collar crime will not be deemed a crime. For example, PRECCA does not prescribe a minimum threshold stipulating what constitutes a corrupt payment or benefit. Furthermore, facilitation payments are not permitted in South Africa and are illegal.

4.3 Co-operation, Self-Disclosure and Leniency

As stated above in 3.13 Money Laundering, South Africa’s corruption legislation contains an onerous reporting obligation and failing to report certain offences in excess of ZAR100,000 is a criminal offence.

Although there is no formal policy governing co-operation with investigators or prosecuting authorities, in practice co-operating with the authorities will likely serve as a mitigating factor when the matter is considered by the courts.

South Africa’s Competition Commission has adopted a leniency policy in order to encourage participants in cartel conduct to make disclosures to the Commission.

4.4 Whistle-blowers' Protection

Although there are no particular incentives for whistle-blowers to report impropriety, certain legislation criminalises the failure to report corrupt conduct or suspicious transactions.

Some, but not all, of these statutes also encourage whistle-blowers to come forward in light of the protection which is afforded to them under those specific statutes.

The Protected Disclosures Act 26 of 2000 (PDA) aims to encourage whistle-blowing in the workplace both in the public and private sectors. In this regard, the disclosure of certain categories of information by “employees” or “workers” to certain individuals who are specifically listed in the PDA are deemed to be “protected disclosures.” In particular:

• the PDA protects employees from occupational detriment in circumstances where their disclosure is deemed to be a “protected disclosure”; and
• the PDA requires procedures to be put in place in the workplace, in order for the employee or worker to make the relevant disclosure.

Importantly, an employee or worker is able to elect to make the disclosure anonymously.

The PDA deems a disclosure to be a “protected disclosure” if it is made to the individuals or bodies designated in the PDA and if it relates to information which shows, or tends to show, inter alia:

• that a criminal offence has been committed, is being committed or is likely to be committed;
• that a person has failed, is failing or is likely to fail to comply with any legal obligation to which that person is subject;
• that a miscarriage of justice has occurred, is occurring or is likely to occur;
• that the health or safety of an individual has been, is being or is likely to be endangered; or
• that any of the above has been, is being or is likely to be deliberately concealed.

Employers are able to tailor their own policies to encourage whistle-blowers to come forward.

Section 34 of the PRECCA creates an obligation to report the knowledge or suspicion of certain white-collar crimes (specifically corruption, theft, fraud, forgery, uttering a forged document and extortion) involving R100,000 or more. The reporting obligation is placed on an individual who “holds a position of authority” and the report must be made to the Directorate for Priority Crime Investigations (colloquially the “Hawks”) within the South African Police Services. A failure to do so constitutes an offence under the PRECCA in itself. However, the PRECCA does not contain any provisions pertaining to the protection of the reporting individuals.

The FICA places an obligation on individuals and entities to make reports, including reports of suspicious and unusual transactions, to the financial intelligence centre.

Section 38 of the FICA provides protection to the entities and/or individuals making reports under the Act. In particular, it states that no action, whether criminal or civil, lies against an accountable institution, reporting institution or any other person complying in good faith with a provision of the FICA.

The FICA does not provide for the protection of individuals in terms of anonymity, however, the Financial Intelligence Centre does have a duty to ensure that appropriate measures are taken in respect of personal information in its possession or under its control.

Section 107 of the Consumer Protection Act states that it is an offence to disclose any personal or confidential information concerning the affairs of any person obtained as a result of initiating a complaint or participating in any proceedings under the Consumer Protection Act.

5. BURDEN OF PROOF AND ASSESSMENT OF PENALTIES

5.1 Burden of Proof

The state has the burden to prove every element of the crime beyond reasonable doubt. Section 35(3)(h) of the Constitution of the Republic of South Africa, 1996 provides that every person’s right to a fair trial includes the right “to be presumed innocent, to remain silent and not to testify during proceedings.”

The Constitutional Court in S v Coetzee 1997 (3) SA 527 held that Section 332(5) of the CPA was unconstitutional as it deemed all directors and employees to be guilty of the same offence committed by the company and as a result breached the right to be presumed innocent.

5.2 Assessment of Penalties

Following conviction by a competent court of an offence, the accused is then arraigned for sentencing. Generally, South African courts have a wide discretion when it comes to sentencing. However, there are legislative guidelines in respect of periods of imprisonment or the imposition of fines, including minimum and maximum penalties that can be administered. In respect of white-collar offences, PRECCA, POCCA and FICA contain maximum limits on penalties which can be imposed in respect of offences under those acts, such as fines, imprisonment and, in certain instances, both.

In addition, the CPA and the Criminal Law Amendment Act 105 of 1997 (CLA) prescribe minimum sentences for a variety of offences, including fraud. For example, for a first-time offender convicted of fraud involving an amount exceeding ZAR500,000, the minimum sentence is imprisonment for a period not less than 15 years. Only substantial and compelling circumstances may justify a deviation from the minimum sentences prescribed by the CPA and the CLA.

The parameters set out in the above-mentioned legislation will be used as a basis and then mitigating and aggravating circumstances will be considered in determining the appropriate sentence. Mitigating and aggravating circumstances may include the accused’s co-operation with the relevant authorities. When determining if a sentence is appropriate courts will consider the principles set out in S v Zinn 1969 2 SA 537 (A) 540 being:

• “the nature of the crime;
• the personal circumstances of the offender; and
• the interests of society.”

The CPA also provides for the general rules regarding the assessment of penalties in relation to plea agreements (see 2.8 Plea Agreements).

 

This article first appeared on the Chambers Global Practice Guide

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