South Africa has long been dogged by corruption, a problem that has drained resources and undermined public trust, with the State Capture saga serving as a glaring example. However, recent legislative developments bring some hope for combating this ongoing problem.

The signing of the Judicial Matters Amendment Bill by President Cyril Ramaphosa has marked a significant step forward as the head of state expanded the scope of culpability under the Prevention and Combating of Corrupt Activities Act (PRECCA).

The amended Section 34 of PRECCA imposes a duty on individuals in both public and private sectors to report any knowledge of corruption or fraud to the South African Police Service if the loss involved exceeds an amount of R100,000. Notably, the new legislation extends liability to organisations if they fail to prevent individuals from engaging in corrupt activities. This change is crucial, as it holds not only the direct perpetrators accountable but also those in positions of authority who may have turned a blind eye.

Among the critical aspects of the amendment is its inclusion of third-party contractors. Historically, these entities have played a central role in facilitating corruption by creating layers of bureaucracy that make it difficult to trace fraudulent activities. This amendment acknowledges their influence and further emphasises the need for organisations to implement protection that prevent such abuse.

The Section 34A of PRECCA establishes an offense for failing to prevent corrupt activities.

Clause 1 of Section 34A states:

“34A. (1) Any member of the private sector or incorporated state-owned entity is guilty of an offense if a person associated with that member of the private sector or that incorporated state-owned entity gives or agrees, or offers to give any gratification prohibited in terms of Chapter 2 to another person, intending to obtain or retain –

(a) business for that member of the private sector or that incorporated state-owned entity; or

(b) an advantage in the conduct of business for that member of the private sector or that incorporated state-owned entity: …”

In practical terms, this means that if an associated person (X) bribes another party (Y) to benefit a member of the private sector or state-owned entity (Z), then Z is considered guilty of a criminal offense.

The definition of “person associated” in this context is relatively broad. As clarified in Clause 2 of Section 34A, it encompasses not only employees of the organisation but also external service providers, independent contractors, agents, and other third parties that provide services to either private or public organisations.

“The new Section 34A of the Prevention and Combating of Corrupt Activities Act 12 of 2004 (PRECCA) has significantly increased the risk for companies regarding involvement in corrupt activities. For example, if someone associated with a company bribes another party for the company’s benefit, the company is considered guilty of an offense. Strict liability applies, meaning it doesn’t matter whether the company was aware of the corrupt actions. However, having adequate procedures in place to prevent such activities can serve as a defence,” says Paul Hill of DML Forensics.

The Importance of Reasonable Measures

With the new provisions, organisations can avoid sanctions if they can demonstrate that they have instituted “reasonable measures” to prevent corruption. This sets a standard that encourages proactive risk management. In this case, the UK Bribery Act serves as a useful reference point, as Section 34A of PRECCA is modelled on its principles. These principles include:

1. Proportionality: Measures taken should be appropriate to the risk level.
2. Top-Level Commitment: Senior management must be visibly committed to anti-corruption efforts.
3. Risk Assessment: Organisations must regularly assess their exposure to corruption risks.
4. Due Diligence: Careful vetting of third-party partners is essential.
5. Communication: Clear channels for reporting corruption should be established.
6. Monitoring and Review: Ongoing evaluation of anti-corruption measures is necessary.

By aligning with these principles, South African organisations can set a benchmark for what constitutes adequate measures against corruption.

The Role of Data Analytics

Despite the advancements in legislation, organisations often remain reactive rather than proactive in addressing corruption. 

Leaders may find themselves “fighting the last war,” focusing on past incidents instead of anticipating future risks. Whistleblowers have historically contributed significantly to uncovering corruption, but relying solely on them is not enough.

In this context, data analytics emerges as a powerful tool. Organisations can utilise real-time data monitoring to identify anomalies and patterns that signal potential corruption. Indicators such as invoices processed during weekends, when oversight is minimal, and employees who take little to no leave can serve as early warning signs. Establishing systems for continuous learning and proactive reporting is crucial for identifying and mitigating risks before they escalate.

Encouraging a Culture of Reporting

To effectively combat corruption, organisations must create a supportive environment that empowers employees to report suspicious activities without fear of retaliation.

In addition, investing time in vetting third-party contractors is now more critical than ever, given their propensity to facilitate corrupt practices.

As the Judicial Matters Amendment Act stipulates, failure to prevent corrupt activities can now lead to criminal liability for organisations. Specifically, if an associated person offers a bribe, the organisation may be held accountable unless it can demonstrate that adequate procedures were in place to prevent such actions. This provision underscores the necessity for businesses to review and enhance their internal anti-corruption protocols.

Recommendations for Organisations

1. Conduct a Comprehensive Review: Organisations should assess their current anti-corruption measures against the requirements outlined in the amended PRECCA. This is a timely opportunity to fortify internal controls and processes.
2. Implement Data Analytics Solutions: Invest in technology that enables real-time monitoring of transactions and analysis of historical data to identify trends that may indicate corruption.
3. Promote a Transparent Culture: Encourage employees to speak up about unethical behaviour and ensure that reporting mechanisms are straightforward and confidential.
4. Enhance Third-Party Due Diligence: Establish rigorous vetting procedures for all third-party contractors to mitigate risks associated with corruption.
5. Training and Awareness Programmes: Regularly train employees on anti-corruption policies and the importance of ethical conduct, emphasising their role in the organisation’s integrity.

Public Procurement Act 

In addition, the Public Procurement Act, also has signed into law legislation by President Ramaphosa, introduces an important layer of accountability in the fight against corruption. This new law is designed to regulate how government bodies buy goods and services, making sure the process is fair, clear, competitive, and cost-effective, as required by Section 217 of the Constitution.

The Act aims to simplify the existing, fragmented procurement rules and fix past problems that have allowed corruption to thrive. By encouraging the use of technology and promoting transparency, it seeks to ensure that public resources are used wisely and that more goods and services are sourced from local producers.

Together, with the amended Section 34 of PRECCA, these efforts promise a more transparent and accountable South Africa, reducing the influence of corruption significantly.

The South Africa’s procurement system is in crisis, plagued by mismanagement, corruption, a culture of impunity and poor service delivery, as clearly shown by the findings of the Zondo Commission into state capture.

Before the Public Procurement Bill was signed into law, billions of rand in public funds were being wasted, particularly in the basic education sector. 

According to researchers at Equal Education, the National Treasury identified R3 billion in irregular spending within this sector, with R405 million occurring in the 2020/21 financial year alone in 2022.

School infrastructure often highlights these issues, especially regarding the procurement processes involving implementing agents. The agents, who manage and oversee school construction for education departments, frequently waste substantial amounts of money or engage in illegal spending, facing little to no government intervention or consequences.

This led to the Equal Education (EE) and the Equal Education Law Centre (EELC) submitting comments on the Draft Public Procurement Bill, urging for enhanced accountability and transparency in procurement processes.

The government has a constitutional duty to provide essential goods and services to the public. When it cannot do so directly, it can contract with other providers, including private companies, through tenders or a competitive bidding process. Therefore, the concept of “association” for purposes of the offence becomes highly important. Section 34A casts the net of association broadly and would include independent contractors and other third parties providing services to the entity. It will therefore be important to ensure a robust anti-corruption policy and risk mitigation controls are sufficient to cover such third parties

However, this public procurement process must be fair, transparent and cost-effective, as it involves spending taxpayers’ money, and organisations need to ensure compliance with some critical key compliance considerations such as introduction of deferred prosecution agreements “as a mechanism to encourage organisations to self-report wrongdoing”. “The introduction of DPAs is not addressed in the PRECCA amendment, however, President Ramaphosa previously confirmed that the South African Law Reform Commission is considering DPAs as part of its review of the criminal justice system. In the interim, the National Prosecuting Authority is relying on the Corporate Alternative Dispute Resolution Directive to reach similar outcomes” says Adrian Roux Senior Associate Forensics.

“The two bills are crucial in the fight against corruption and malfeasance that erode public trust in government and rob ordinary citizens of a better quality of life,” says Kgothatso Maoko, head of the Technical Unit head at SAIGA and an expert in Fraud Risk Management, Accounting and Audit.

SAIGA recommends the following brief checklist/guidelines below (not limited to the following) to ensure compliance with section 34A of PRECCA and avoid Preferential treatment not in accordance with Public Procurement Act 

1. Competitive bidding that is fair, clear, economical competitive, and cost-effective
2. Entities to adopt an anti-bribery policy to promote a culture of reporting and mechanisms to deal with fraud and corruption and framework within which preferential procurement must be implemented, therefore regulating procurement and adherence to the necessary legislation
3. Adopt the six procedures designed to prevent associated persons from committing corrupt activities
4. Implement and develop the necessary internal controls to ensure rotation of procurement staff; to avoid preferential treatment of suppliers. Supply chain personnel need to declare their conflict of interest annually and for each bidding process. Entities are encouraged to use data analytics procedures to identify potential conflict of interest of employees with service providers and implement proactive measures to mitigate any risk
5. Self-reporting and reporting of any knowledge of corruption or fraud to the South African Police Service if the loss involved exceeds an amount of R100,000.