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The South African Legislature has amended South Africa's corruption legislation, creating a new offence of "failing to prevent corruption". Now, private sector and state-owned companies face potential liability for the conduct of "Associated Persons".

The Judicial Matters Amendment Act 15 of 2023 ("JMAA") came into operation on 3 April 2024. In an attempt to answer the call for a comprehensive framework to deal with the persistent problem of State Capture in South Africa, section 34A has been inserted into South Africa's primary corruption legislation, the Prevention and Combating of Corrupt Activities Act 12 of 2004 ("PRECCA").

Section 34A inserts the newly crafted "failure to prevent corruption" offence in addition to PRECCA's other "failure to" offence: the section 34 offence for failing to report corruption and several other offences.

The newly inserted Section 34A provides that any member of a private sector entity or an incorporated state-owned entity ("SOE") is guilty of an offence if an associated person commits a corruption offence in order to obtain or retain business or a business advantage for that private or state-owned entity. An "associated person" is broadly defined and includes anyone associated with a business including employees, third party service providers, and contractors.

The amendment to South Africa's corruption legislation follows the recommendation by Chief Justice Zondo's Judicial Commission of Inquiry into State Capture to amend PRECCA to include a new offence for companies that do not take affirmative steps to prevent corruption that has taken place for their benefit, even if the entity is not directly involved or aware of the unlawful conduct. Those familiar with the UK Bribery Act's section 7 "failure to prevent" offence, will recognize the similarities between the new PRECCA section 34A offence and the Bribery Act's section 7 offence.  The latter has been substantively replicated by South African lawmakers.

Key characteristics of the new section 34A "failure to prevent" offence include:

  • It is a strict liability offence, and the prosecution will not be required to prove that a company participated in or knew that corruption took place for its benefit or under its watch.
  • The broad definition of "associated person" will increase pressure on companies that control multiple layers of parties that could be categorized as associated persons.
  • As with the section 7 Bribery Act offence, there is an affirmative defence to section 34A if a company is able to demonstrate that it had adequate procedures in place designed to prevent associated persons from committing corruption offences;
  • The amended act does not prescribe or define what will constitute "adequate procedures" but, given the similarity with Section 7 of the UKBA , it is likely that any future guidelines or regulations that the legislators might promulgate will follow the "Six Principles" guidance for preventing bribery recommended by the UK's Ministry of Justice. Until such time as South African authorities publish their own guidelines, a prudent approach would be to follow the approach used in the UK and other jurisdictions whose anti-corruption measures are more developed than South Africa's.
  • Unlike the penalty for failing to comply with a reporting obligation under section 34, no specific penalty for contravening section 34A is referenced; although the penalty provisions in section 26 of PRECCA would likely serve as a catch-all. Although largely untested, the penalties for a conviction of corruption under PRECCA provide for a fine of an unlimited amount and a period of up to life imprisonment.

South Africa's legislators have placed the burden on companies to develop enhanced anti-corruption measures which, considering South Africa's history of corporate corruption and State Capture, may be viewed as treating the cause at its root.

Viewed differently, corporate corruption may be considered a symptom of South Africa's long-standing failure to prosecute perpetrators. To date South Africa's prosecution authorities have failed to prosecute many clear and obvious cases of corruption involving the private sector and government officials.

An analogy may be drawn between the country's attempts at combating corruption and its efforts to address the FATF's grey-listing of South Africa in 2023. Many commentators agree that one of South Africa's main challenges in getting off the FATF's greylist is not the lack of legislation or progress in enhancing its legal mechanisms for prosecuting money laundering or terrorist financing offences; rather, it is South Africa's ability to successfully investigate and prosecute the perpetrators that may be the ultimate basis on which FATF assesses South Africa's chances of moving off of the greylist.

While South Africa's new offence may have noble intentions of bolstering the country's anti-corruption framework – and the authorities should not be faulted for enhancing the arsenal of legislation in their armoury - like many of South Africa's efforts to clamp down on corrupt actors, the key will be whether enforcement actions will be taken.

In the interim, both private and state-owned entities would be well advised to develop their internal anti-corruption procedures to stand the test of judicial scrutiny to be ready and protected when enforcement increases.

 

Cameron Dunstan-Smith photo

Cameron Dunstan-Smith

Partner, Johannesburg

Cameron Dunstan-Smith
Robyn Khumalo photo

Robyn Khumalo

Associate (South Africa), Johannesburg

Robyn Khumalo

Key contacts

Cameron Dunstan-Smith photo

Cameron Dunstan-Smith

Partner, Johannesburg

Cameron Dunstan-Smith
Robyn Khumalo photo

Robyn Khumalo

Associate (South Africa), Johannesburg

Robyn Khumalo
Cameron Dunstan-Smith Robyn Khumalo