Corruption Concerns Dampen South Africa’s
Economic Prospects
Policy Analysis | January 2013
By: Frederick T. Stocker, Vice President, General Counsel and Secretary
[email protected]
PA-117
“It goes without saying that corporate governance, ethics, and
better business practice is the future, not only internationally
but within South Africa as well, as South African businesses
will be forced to ensure they have their own controls, policies,
and procedures in place by their foreign business partners.”
Tim Marshall, CEO of Trifecta Capital Services
Background
This report is the latest in a series of MAPI publications
dealing with anti-corruption activities in key global
markets. Previous reports examined this issue in the
BRIC countries (Brazil, Russia, India, and China)1 and
in Mexico.2
Also by Fred Stocker
The Trans-Pacific
Partnership—U.S. Free
Trade Agenda Appears to
be Picking Up Steam
As with those other countries, South Africa is singled
out for examination because of the importance of that
market to MAPI member companies. South Africa has
been plagued with serious corruption problems—both
before and after the end of apartheid—that have posed obstacles for investing and doing
business there. Particularly troubling in the case of South Africa is the perception that
corruption is worsening—notwithstanding government proclamations to the contrary. It
is not much of a stretch to say that the nation is at a crossroads in addressing the issue of
corruption and the path taken may well determine the economic future of South Africa and
its people.
Anti-corruption developments in the countries featured in this series of MAPI reports have
largely been overshadowed in the global anti-corruption spotlight over the past two years
by two developments deemed more newsworthy: the brisk volume of enforcement activity
in the United States under the country’s Foreign Corrupt Practices Act (FCPA)3 and the
entry into force of the United Kingdom Bribery Act (UKBA)4 in mid-2011.
With regard to the FCPA, the U.S. Department of Justice (DOJ) and Securities and
Exchange Commission (SEC) continued their stepped-up enforcement activity throughout
2012 albeit at a slightly slower pace than in 2011. The DOJ and SEC brought 16 enforcement actions against corporations and 18 against individual defendants in 2011, reaping
more than $508 million in corporate fines, penalties, and disgorgements. These figures
represent only a modest decline from the record year of 2010, which saw 20 corporate
enforcement actions, 16 aimed at individuals, and a staggering $1.8 billion in fines, penalties, and disgorgements. At the end of 2011, nearly 80 companies were known to be the
subject of ongoing and unresolved foreign bribery investigations under the FCPA.
1 Anti-Corruption Developments in the BRIC Countries: A MAPI Series, PA-107, MAPI, April 2012.
2 Surveying Mexico’s Anti-Corruption Landscape, PA-110, MAPI, August 2012.
3 The FCPA, 15 U.S.C. § 78dd-1, et seq., is available at
www.justice.gov/criminal/fraud/fcpa/statutes/regulations.html.
4 The UK Bribery Act is available at www.legislation.gov.uk/ukpga/2010/23. For a detailed review of the United
Kingdom law, see Global Companies Prepare for the July 1, 2011 Effective Date of the UK Bribery Act, LAR-505,
MAPI, June 2011, and UK Bribery Act Implementation Delayed: Respite or Reprieve?, LAR-503, MAPI, March 2011.
Copyright © 2013 MAPI. All rights reserved.
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Corruption Concerns Dampen South Africa’s
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Policy Analysis | January 2013
Maintaining their enforcement intensity in 2012, the DOJ and SEC brought FCPA actions
against both corporations and individuals. Some of the more significant cases brought
by or resolved with these entities involved notable global companies (and/or their executives), including: Eli Lilly and Company; Allianz SE; Tyco International, Ltd.; Oracle
Corporation; Pfizer H.C.P. Corporation; Orthofix International; Data Systems and
Solutions LLC; Morgan Stanley; BizJet International (a Lufthansa Technik Company);
Biomet; Nobel Corporation; Smith & Nephew; and Marubeni Corporation. Of course, no
2012 list of FCPA developments would be complete without mentioning the ongoing U.S.
investigation of alleged bribery of Mexican officials by U.S. retail giant Wal-Mart Stores
Inc. (and its Mexican subsidiary) to assist in the company’s ambitious growth strategy in
that country.
Another 2012 FCPA development worth noting is the November 14 release by the DOJ and
SEC of A Resource Guide to the U.S. Foreign Corrupt Practices Act.5 This 120-page guide
provides a detailed analysis of the statute and closely examines the agencies’ approach to
FCPA enforcement. While intended as a tool to assist companies’ FCPA compliance efforts,
the guide also sends a signal in no uncertain terms that strict enforcement of the law is and
will continue to be a priority of the U.S. government. It has been reported that there is a
significant volume of FCPA cases in the pipeline for 2013, with the SEC having a slightly
heavier court docket than DOJ.
Concerning newsworthy anti-corruption events in the United Kingdom, earlier in 2012,
the Ministry of Justice took a page out of their U.S. enforcement counterparts’ playbook by
proposing the incorporation of U.S.-style plea agreements into UK law. Also in 2012, the
The DOJ and SEC brought 16 UK Financial Services Authority asserted its oversight of anti-bribery comenforcement actions against pliance with regard to investment banks. Moreover, on October 9, the UK
Serious Fraud Office (SFO, the UK’s key anti-corruption regulator) revised
corporations and 18 against
its policies on corporate self-reporting, hospitality, and facilitating payindividual defendants in
ments. These new policies represent the manifestation of a hard-line pros2011, reaping more than
ecutorial approach to UKBA violations. Similarly, in an October 23, 2012
$508 million in corporate
speech at the World Bribery and Corruption Compliance Forum in London,6
fines, penalties, and
UK Solicitor General Oliver Heald announced that the UK government
disgorgements
decided to move forward with legislation giving the SFO and the Crown
Prosecution Service authority to enter into deferred prosecution agreements (DPAs) to
resolve certain economic crime issues, including fraud, bribery, and money laundering.
Shortly thereafter, the proposed legislation was tabled as an amendment to the UK government’s Crime and Courts Bill.
Where does UKBA enforcement stand? There have been two successful prosecutions since
the new law came into force. In October 2011, a magistrate’s court clerk was convicted
after being filmed by The Sun accepting a £500 bribe to take care of a citizen’s traffic
offense. He received a sentence of six years.7 In December 2012, an applicant for a taxi
license was convicted of offering a £200 or £300 bribe to a licensing officer in exchange
for a passing mark on a required test that the would-be hack failed several times. Among
other penalties, the applicant received a two-month prison sentence.8
Although there have yet to be any major corporate prosecutions under the UKBA, companies are feeling the weight of its far-reaching impact. In December 2012, Rolls-Royce
5 A Resource Guide to the U.S. Foreign Corrupt Practices Act, November 2012,
www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf.
6 Keynote speech to the World Bribery and Corruption Compliance Forum, https://www.gov.uk/government/
speeches/keynote-speech-to-the-world-bribery-and-corruption-compliance-forum.
7 R versus Munir Patel, Southwark Crown Court, Sentencing Remarks of HHJ Alistair McCreath,
www.judiciary.gov.uk/Resources/JCO/Documents/Judgments/munir-patel-sentencing-remarks.pdf.
8 Valerie Surgenor and David Flint, “United Kingdom: The Bribery Act Strikes Again,” Mondaq, December 13,
2012, www.mondaq.com/x/211498/White+Collar+Crime+Fraud/The+Bribery+Act+Strikes+Again.
Copyright © 2013 MAPI. All rights reserved.
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Corruption Concerns Dampen South Africa’s
Economic Prospects
Policy Analysis | January 2013
Corporation admitted to the SFO its concerns about possible bribery and corruption
involving multiple foreign intermediaries. In November, offshore drilling and well services
contractor Abbot Group Limited agreed to a settlement with UK prosecutors to the tune of
£5.6 million with regard to corrupt overseas practices.
These recent FCPA and UKBA activities show that global companies have to be aware of
the expansive jurisdictional reach of these laws—particularly when dealing in markets that
are known for corruption problems. Moreover, key developing countries are increasingly
coming to the realization that effective anti-corruption measures are an important factor
in integrating into the global business community, becoming more attractive to foreign
direct investment, and achieving or sustaining goals of economic growth and expansion.
To a growing extent, U.S. companies have to be concerned about exposure to a multiplicity
of anti-corruption laws, including broad extraterritorial measures such as the FCPA and
UKBA and local laws in the countries where they operate.
This report examines the general corruption landscape in South Africa. Topics covered
include specific examples of past and present corruption problems, the magnitude of the
issue, areas of concern for companies doing business or investing in the country, and the
legal regime in place to address related issues. Finally, the report offers some practical
anti-corruption compliance tips for operating in South Africa as well as elsewhere in the
global marketplace.
Introduction
South Africa is a substantially transformed country since multiracial democratic elections ended apartheid in 1994. It has gone from being an international pariah to a regional
power with developed economic and political ties to countries both in Africa and beyond.
It differs from most other African countries in the sense that it has a large private sector
and an expanding private tax base. The government has adopted a liberal economic policy
focusing on macroeconomic stability, financial discipline, and encouragement of foreign
direct investment. Moreover, the country has had a fair measure of success in establishing independent public institutions. The political climate remains stable, with the African
National Congress (ANC) party controlling the government since the end of apartheid.
The ANC once again captured the presidency when its controversial leader, Jacob Zuma,
won in 2009. That election was deemed “free and fair” by the U.S. Department of State. In
December 2012, Zuma was again picked as the leader of the ANC at the party conference in
Mangaung, in Free State province. That position virtually ensures that he will be re-elected
as South Africa’s president in 2014 for another five-year term.
All is not well economically in South Africa. While its gross domestic product is the highest
in Africa, its economic situation is characterized by great income inequality and unemployment. About one-quarter of the country’s population lives below the international poverty
line. The unemployment rate exceeds 25 percent; the jobless rate fuels crime, inequality,
poverty, and social unrest in the continent’s richest nation. Of course, hand in hand with
these woeful economic issues is the nation’s public corruption problem.
While the level of corruption in South Africa is not as high as in many other African countries, it remains significant. More ominously, the problem seems to be worsening. Wellfunctioning South African government institutions such as an improving judiciary serve as
a check on corruption to a degree. Still, corruption poses a significant obstacle for business
and investment in the country and the international perception that the problem is growing
is not conducive to economic growth. Some go as far as saying that the country is approachCopyright © 2013 MAPI. All rights reserved.
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Corruption Concerns Dampen South Africa’s
Economic Prospects
Policy Analysis | January 2013
ing a tipping point and that if action is not taken to rein in corruption, the problem will
become so endemic that it is accepted as a reality of doing business on a corrupt continent.
Prominent Examples of Public Corruption
The Arms Deal
South African political culture has been marred by a string of major corruption scandals
in the post-apartheid era. Perhaps the most infamous of these instances of official skullduggery are the misdeeds alleged to have taken place in the late 1990s in conjunction with
a series of arms deals involving billions of dollars. These developments are significant
because of the magnitude of the purchases and alleged bribes associated with winning the
contracts and the fact that the scandal is alleged to have tainted current President Zuma.9
The original accusations associated with this matter surfaced in 1999 following South
Africa’s purchase of 4 frigates and 3 submarines from Germany, 30 light utility helicopters from Italy, 24 fighter trainer aircraft from Britain, and 28 Gripen fighter aircraft from
Sweden. Twenty-six of the Gripens were eventually delivered. The arms deal was worth
around $5 billion, but that cost has grown. Purportedly, bribes were paid to South African
officials by Saab’s local subsidiary, Sanip (which was then controlled by BAE), to secure
the contract for the fighters. In addition to bribes, the arms deal scandal involves offset
agreements accompanying the sales that were, in many instances, illusory.
To date, only two people have been convicted over the scandal. One was Schabir Shaik,
Zuma’s friend and personal financial advisor. He received a 15-year prison sentence for
soliciting bribes on Zuma’s behalf from arms manufacturers. The evidence seemingly
implicating Zuma prompted then-President Thabo Mbeki to dismiss Zuma as his deputy.
Zuma was charged multiple times in these matters but they were repeatedly dismissed in
2003, 2006, and 2009 on procedural technicalities. In total, Zuma had 783 charges of corruption against him withdrawn under dubious circumstances. Between those dismissals, in
2005 he was charged with raping a family friend. During the trial, Zuma was roundly criticized for his ignorance about how HIV/AIDS is transmitted. The woman who accused him
of rape was HIV-positive and Zuma admitted that they had unprotected sex and added that
All is not well economically he had showered just after the encounter to prevent getting the virus. This was
headline news in a country in the midst of an HIV/AIDS epidemic. At the time
in South Africa. While its
of this testimony, Zuma was the head of South Africa’s AIDS Council. After the
gross domestic product
judge ruled that the sex was consensual, Zuma was acquitted in May 2006.
is the highest in Africa,
its economic situation is
Jacob Zuma has always been larger than life to his ANC supporters. He was
characterized by great
born in 1942 in Nkandla, South Africa, in a part of the country known as
income inequality and
KwaZulu-Natal (once Zululand). He joined the ANC in the late 50s and its
unemployment
militant wing, Umkhonto we Sizwe, in the early 60s. In 1963, this relationship
with the militant wing of the party led to his arrest, along with that of 45 other members,
for conspiracy. He was sentenced to a 10-year imprisonment at the infamous Robben
Island, where iconic ANC leader Nelson Mandela was already serving a life sentence. Upon
his release, he worked for the then-banned ANC in exile and continued such activity in
South Africa when the ANC ban was lifted in 1990.
Zuma has been known to don full leopard-pelt Zulu warrior gear and engage in foot stomping tribal dances. He adopted as his signature political song the anti-apartheid ballad
“Umshini Wami” (“Bring Me My Machine Gun”). He has 4 wives and 21 children. It was
his youngest child that raised eyebrows in South Africa since the child was born out of
9 “Corruption in South Africa—A can of worms,” The Economist, October 29, 2011, www.economist.com/
node/21533410; and Jacob Zuma, biography, www.biography.com/people/jacob-zuma-262727.
Copyright © 2013 MAPI. All rights reserved.
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Corruption Concerns Dampen South Africa’s
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Policy Analysis | January 2013
wedlock; that is, not to one of his then-three wives or fiancée. Polygamy is a Zulu tradition
and recognized in the South African constitution. It was the birth of that 21st child, however, that caused a stir over his ability to control his passions.
In September 2008, Zuma assumed the mantle of victim—saying that the corruption
charges were part of a political vendetta by former President Mbeki—in order to have the
latter politician dropped by the ANC and force his resignation. In 2009, Zuma won the
presidency by a large margin.
In September 2011, the South African government, in part because of new evidence that
surfaced in Sweden, announced it was reopening the arms deal investigation. In October
2011, a commission was established and given a broad mission to examine whether anyone
inside or outside government improperly influenced any of the arms deal contracts and, if
so, whether legal proceedings should be brought against them. The commission, headed
by well-respected appellate jurist Willie Seriti, has powers of search and seizure, and the
ability to subpoena witnesses and force them to cooperate. Despite a promising charter
and start, the subsequent promulgation of regulations applying to the inquiry (issued
under the authority of the apartheid-era Commissions Act of 1947) suggests that President
Zuma is attempting to control the information given to the commission and to prevent the
release of information that is damaging to the ANC or him personally.10 These regulations
prompted speculation that the entire process of establishing the commission was to help
suppress further unsavory information about the arms deal. By drawing critics of the arms
deal into the commission process, they might be precluded from revealing any further
damning information about corruption to the public.
Travelgate
More than 40 members of the South African Parliament have been accused of defrauding
Parliament out of 18 million rand by using fake travel vouchers. This scandal weakened
trust in the ruling ANC—but not to the extent of removing the party from power anytime
soon. The party—a once-banned liberation movement—was at the center of one of the
20th century’s most important struggles for justice and human rights. Today, the ANC
is harshly criticized for the widespread poverty, deep-seated inequality, and rampant
unemployment plaguing South Africa. It would appear that Nelson Mandela’s decades-old
liberation movement has gone astray from the moral high ground it occupied when it came
to power 19 years ago. The wave of wildcat strikes centered in the mining industry in summer 2012 and the violent crackdown against them spawned anger at the ANC. The party is
viewed by many as out of touch with common people. Moreover, party leaders are seen as
being out for themselves.
Still, the ANC has sharply increased its membership in recent years. Many young recruits
are victims of a substandard educational system that failed to provide them the basic
skills necessary to find jobs. They see politics as a road out of poverty. The rise in unemployment and poverty feeds the belief that political posts mean kickbacks and contracts.
Commensurate with this belief and waning economic fortunes, political murders are
increasing. Since 2010, in KwaZulu-Natal province alone, there have been some 40 political killings.11 This violence has reached down as far as to low-paying rural ward council
member positions. While these posts pay a mere $150 per month, those who hold them are
10 Pierre De Vos, “A secret arms deal whitewash?” Constitutionally Speaking, February 22, 2012,
http://constitutionallyspeaking.co.za/a-secret-arms-deal-whitewash.
11 Lydia Polgreen, “In South Africa, Lethal Battles for Even Smallest of Political Posts,” The New York Times,
November 30, 2012, www.nytimes.com/2012/12/01/world/africa/south-africa-corruption-fuels-battle-forpolitical-spoils.html; and Peroshni Govender, “In South Africa, ANC struggle now a deadly scramble for spoils,”
Reuters, October 12, 2012, www.reuters.com/article/2012/10/12/us-safrica-anc-idUSBRE89B0AW20121012.
Copyright © 2013 MAPI. All rights reserved.
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Corruption Concerns Dampen South Africa’s
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Policy Analysis | January 2013
in a position to influence rural development projects in their jurisdictions and can sway
awards of government contracts. As such, the positions pose opportunities for bribes and
shady deals that benefit ward council members. It seems that some in the ANC are willing
to turn a blind eye toward corruption through a sense of black entitlement in compensation for past suffering under apartheid.
A final note related to the Travelgate scandal concerns the case of local government minister Sicelo Shiceka.12 In an October 2011 memorandum, Public Protector (i.e.,
The ANC has sharply
Ombudsman) Thuli Madonsela found Shiceka guilty of fraudulent conduct
increased its membership
after spending more than 1 million rand on first-class airline travel and
in recent years. Many young stays at luxury hotels. Half of these excesses involved trips to Switzerland to
recruits are victims of a
visit his girlfriend who was imprisoned there on narcotics dealing charges—
substandard educational
a fact that came to light notwithstanding his protestations that his trips
system that failed to
involved official business. When Madonsela urged President Zuma to take
provide them the basic skills “serious action” against this miscreant, Shiceka was placed on sick leave for
eight months before being dismissed.
necessary to find jobs
Police Headquarters Lease Scandal
Last year, South African police chief Bheki Cele came under investigation for dishonesty
and impropriety surrounding the leasing of police headquarters in Pretoria and Durban
from a businessman friend named Roux Shabangu at highly inflated prices.13 Allegations
involving these dealings also affected public works minister Gwen Mahlangu-Nkabinde.
A three-person commission of inquiry and an investigation by Public Protector Madonsela
concluded that Cele acted improperly and dishonestly. Madonsela found the actions in
question to be unlawful, leading to the police chief’s suspension late in 2011. In June 2012,
he was dismissed after a commission of inquiry unanimously called on President Zuma to
remove him.
The Jackie Selebi Scandal
Bheki Cele was merely following in the footsteps of his predecessor, police chief Jackie
Selebi, who was also sacked after allegations of dishonesty. Selebi, former president of
Interpol, was convicted of fraud in 2010 after accepting at least 120,000 rand from underworld boss Glenn Agliotti. Selebi was sentenced to 15 years in prison.14
The Siphiwo Hewana Matter
Adding to the history of police corruption in post-apartheid South Africa, in 2009,
Goodwood police station commander Siphiwo Hewana was convicted of attempting to
subvert justice by tampering with the docket of convicted fraud perpetrator Tony Yengeni’s
arrest for drunken driving.15
South African confidence in the national police force has been tested by numerous fraud
and corruption scandals involving its senior figures, rumors of political vendettas initiated by the police, and routine shakedowns of money from motorists for traffic violations.
Buttressing this public sentiment is a May 2012 report of police statistics revealing that
12 “Corruption in South Africa: A can of worms,” op. cit.
13 “South African President Zuma changes police chiefs amid scandals,” Los Angeles Times, June 13, 2012,
http://latimesblogs.latimes.com/world_now/2012/06/south-africa-police-chief-fired.html.
14 “Corruption in South Africa: A can of worms,” op. cit.
15 “Yengeni cop found guilty,” News24, November 30, 2009,
www.news24.com/SouthAfrica/News/Yengeni-cop-found-guilty-20091130.
Copyright © 2013 MAPI. All rights reserved.
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Corruption Concerns Dampen South Africa’s
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Policy Analysis | January 2013
more than 630 police officers in the country’s most populous province, Gauteng, have been
arrested on charges including corruption, fraud, rape, and murder.16
Nkandlagate
President Zuma’s latest scandal involves splurging public money on his rural Nkandla
homestead.17 These upgrades include dozens of new contractor-built dwellings, a helicopter landing pad, a tennis court, a soccer field, a sports stadium, and an underground bunker. Moreover, $28 million of public funds are said to have been spent on Zuma’s private
residence in the compound—ostensibly for security reasons. Tens of millions more are
alleged to have been spent on roads surrounding the compound.
Some two years ago it was estimated that these upgrades would cost 6.4 million rand
(approximately $733,000), but documents leaked from the South African Department of
Public Works disclose that the cost to taxpayers is closer to 238 million rand (approximately $28 million), raising concerns as to exactly who authorized this major expenditure.
Official guidelines authorize upgrades of the private residences of senior political figures
in the amount of 100,000 rand (approximately $12,000). Public Protector Madonsela is
said to be investigating these matters. President Zuma has said that other than expenditures for security upgrades, private funds were used.
Areas of Particular Concern for Doing Business
and Investing in South Africa
Regulatory Obstacles
Generally speaking, the regulatory environment in South Africa is under continuous
improvement. Import/export policies and procedures are said to be less burdensome and
costly than previously had been the case. Still, red tape poses obstacles in certain public service areas to the disadvantage of business. With red tape comes the temptation to
offer facilitating payments to expedite provision of public services and the issuance of
required permits and licenses. Global companies with a demonstrable business presence
in the United Kingdom need to be aware of the UKBA’s prohibitions against facilitation
payments.
Government Contracting
Corruption is rife in the government contracting process in South Africa. Bribery is commonplace in this area—particularly in the contracting practices of the central government. South Africa’s Special Investigating Unit (SIU), the primary state entity addressing
problems of graft and organized crime, estimates that 20-25 percent of state government
procurement expenditures—an amount in the range of 30 billion rand (approximately $3.8
billion) annually—is either stolen or untraceable because of official negligence.18
Concerning government contracting in South Africa generally, a local term has been
coined—tenderpreneur—to refer to a person who enriches himself through government
tender contracts by employing backhanded methods such as taking advantage of personal
16 “South African President Zuma changes police chiefs amid scandals,” op. cit.
17 Lydia Polgreen, “South Africa’s Zuma, Tested by Mining Crisis, Faces Scandal Close to Home,” The New York
Times, October 23, 2012, www.nytimes.com/2012/10/24/world/africa/south-africas-zumatested-by-miningcrisis-faces-scandal-close-to-home.html.
18 “Corruption in South Africa: A can of worms,” op. cit.
Copyright © 2013 MAPI. All rights reserved.
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Corruption Concerns Dampen South Africa’s
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Policy Analysis | January 2013
connections, corrupt relations, or outright bribery. The practice might involve government officials themselves (or their family members) being awarded contracts. In this latter
regard, the South African auditor-general has reported that one-third of the central government’s departments have awarded contracts to officials or their close family members.19
It would appear that officials are routinely exploiting positions of authority to benefit
themselves and extract maximum personal gain. Public authorities have been awarding
contracts to themselves, family members, friends, and ANC comrades. Self-interest taking
precedence over morality and ethics seems to be pervasive. Also, the SIU reported that as
many as 400,000 civil servants receive welfare benefits to which they are not entitled and
that at least 6,000 senior government officials have failed to report required information
about their personal business interests.20
Another practice related to unsavory government contracts involves companies employing
Black Economic Empowerment (BEE) fronting. A person previously disadvantaged under
apartheid is placed on a company’s board without decision-making authority to allow the
entity to receive preferential treatment in the contracting process. Indeed, the BoardBased BEE strategy itself, which is designed to increase the participation of black citizens
in the economy, has come under criticism for affording too much preferential treatment
to wealthy elites with regard to government contracts—thus exacerbating the problem of
procurement corruption.
Perceptions of South African Corruption
The Country’s Citizenry
Despite South Africa’s democratic transformation and rising economic clout, the country is beset with social problems. It citizens are aware of the threats posed to the country’s continued economic development by corruption, but statistics from the March 2012
Afrobarometer, published by the Institute for Democracy in South Africa (Idasa),21 show
that the public would like to see their government first address what are perceived to
be more pressing issues such as unemployment, crime, and housing.
A local term has been coined— Corruption, however, is the next most pressing issue, ahead of poverty.
tenderpreneur—to refer to a
These top issues are obviously interrelated. The survey respondents
person who enriches himself
viewed the government’s actions against corruption as ineffective.
through government tender
According to the Global Corruption Barometer published by
contracts by employing
Transparency International, the typical South African household’s opinbackhanded methods such as
ion as to the Zuma administration’s efforts to combat corruption are
taking advantage of personal fairly mixed: 44 percent view those efforts as “effective” and 45 percent
connections, corrupt relations, “ineffective.” The same survey found that 62 percent of respondents saw
or outright bribery
corruption increasing in the previous three years. Respondents said that
the police are the country’s most corrupt public institution.22 Idasa reported last May that
public concern in South Africa about corruption is at its highest level since 1994.23
19 Ibid.
20 “Corruption in South Africa: Stop that virus,” The Economist, February 4, 2010,
www.economist.com/node/15464513.
21 Afrobarometer, Institute for Democracy in South Africa, March 2012, www.idasa.org/media/uploads/outputs/files/2012_afrobarometer__briefing_public_agenda_and_evaluation_of_govt.pdf.
22 Global Corruption Barometer, Transparency International, http://gcb.transparency.org/gcb201011.
23 Chantelle Benjamin, “Public concern about corruption at 18-year high,” Corruption Watch, May 22, 2012,
www.corruptionwatch.org.za/content/public-concern-about-corruption-18-year-high.
Copyright © 2013 MAPI. All rights reserved.
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Corruption Concerns Dampen South Africa’s
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Policy Analysis | January 2013
The Global View
2013 Index of Economic Freedom.24—The Index of Economic Freedom consists of
10 economic metrics developed by the Heritage Foundation and The Wall Street Journal
designed to measure the degree of economic freedom by nation. In 2013, South Africa
received a score of 61.8, making it the 74th freest country in the ranking, and the 6th freest
of the 46 countries in Sub-Saharan Africa. Its overall score is higher than the global average. In recent indexes, South Africa was given positive marks in such areas as an open and
flexible economy, microeconomic stability, and a competitive trade regime, but the reports
mentioned that lingering corruption and the weak rule of law add to the cost of doing
business and erode overall economic competitiveness. The rule of law remains weak and
uneven across the country, but the legal system is relatively effective in protecting contract rights—contracts are generally secure. The court system, however, is overburdened,
slow, understaffed, and underfunded. The system places undue burdens and costs on
those claiming infringement. Corruption continues to undermine the foundations of South
Africa’s economic freedoms.
2012 Corruption Perceptions Index.25—On December 5, 2012, Transparency
International released its annual Corruption Perceptions Index (CPI), which measures
the perceived levels of public sector corruption in 176 countries and territories. This past
year’s CPI ranked South Africa 69th—not a terrible standing. South Africa ranks ahead
of three of the BRIC countries; that is, China (80th), India (94th), and Russia (133rd). It
tied with Brazil, which improved to 69th from 73rd in 2011. A less favorable comparison is
drawn from the fact that eight other African countries fared better in the 2012 rankings—
Lesotho and Ghana (tied for 64th), Namibia (58th), Seychelles (51st), Rwanda (50th),
Mauritius (43rd), Cape Verde (39th), and Botswana (30th). Botswana, the perceived least
corrupt country in Africa, has adopted a policy of zero tolerance to corruption and taken
concrete steps to back up that position.
The damning picture the CPI paints of South Africa is in the country’s steady downward
slide over the past several years. The 69th rating is down from 64th in 2011. Moreover,
from 2001 to 2012, South Africa slipped 31 places in the index. This slide accelerated since
President Zuma took office—15 places from 2008 to 2012.
There comes a time when perception translates to reality for foreigners looking to do business and/or invest in South Africa. When risk is seen to be outweighing reward in that
market, other countries begin to look more attractive.
2011 Bribe Payers Index.26—Transparency International’s most recent Bribe Payers
Index (BPI) ranked 28 of the largest economies according to the perceived likelihood of
companies from these countries paying bribes to gain business abroad. It is based on the
results of a survey of leading global business executives. The countries ranked in the index
cover all regions of the world and represent almost 80 percent of the total world outflow
of goods, services, and investments. The 2011 survey examined different types of bribery
across sectors—including for the first time, bribery among companies.
According to the 2011 BPI, companies from South Africa are seen as the 15th most likely
to use bribery to secure foreign contracts. Companies from Russia (28th) and China (27th)
are deemed most likely to bribe. India (19th) fared worse than South Africa in this ranking
while Brazil (14th) did slightly better. Companies from the Netherlands and Switzerland
(tied for 1st) are seen as least likely to bribe.
24 2013 Index of Economic Freedom, The Heritage Foundation and The Wall Street Journal,
www.heritage.org/index/ranking.
25 2012 Corruption Perceptions Index, Transparency International, http://cpi.transparency.org/cpi2012.
26 The 2011 Bribe Payers Index, Transparency International, http://bpi.transparency.org/bpi2011.
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The Existing Anti-Corruption Legal Framework in South Africa
While by almost all accounts, South Africa has a strong anti-corruption legal framework,
problems persist in the country’s enforcement of the laws—particularly in cases involving
prominent political figures.
International Conventions
South Africa is a signatory to and has ratified three main international anti-corruption
conventions: the African Union Convention on Preventing and Combating Corruption;27
the Organisation for Economic Co-operation and Development (OECD) Convention on
Combating Bribery of Foreign Public Officials in International Business Transactions;28
and the United Nations Convention against Corruption (UNCAC).29 These three conventions are summarized in turn.
The African Union Convention on Preventing and Combating Corruption.—
This convention was adopted in 2003. It covers corruption in both the public and private
sectors; transgressions include bribery (domestic or foreign), diversion of property by public officials, trading in influence, illicit enrichment, money laundering, and concealment
of property. All provisions are mandatory. The convention addresses issues of prevention,
criminalization, regional cooperation, mutual legal cooperation, and asset recovery.
South Africa signed this regional convention on March 16, 2004 and ratified it on
November 11, 2005. The instrument of ratification was deposited on December 7, 2005.
The OECD’s Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions.—The OECD convention sets forth the obligations of government and businesses in its member and other signatory countries to adopt
and implement mechanisms to prevent, detect, and sanction offenses committed by natural or legal (e.g., corporations) persons of giving or promising undue pecuniary or other
advantage, whether directly or through intermediaries, to a foreign public
The damning picture the
official in international business transactions, in order that the official acts or
CPI paints of South Africa refrains from acting in relation to the performance of official duties. As such,
is in the country’s steady the OECD convention is similar in import to the FCPA.
downward slide over the
Although not a member of the OECD, South Africa has acceded to this conpast several years
vention. It deposited its instrument of ratification/acceptance on June 19,
2007. The convention entered into force in South Africa on August 18, 2007, and enabling
legislation came into force on August 28, 2007.
The United Nations Convention against Corruption.—The UNCAC was opened for
signatures in 2003 and entered into force on December 14, 2005. It represents a milestone
in the history of international agreements that emerged in the battle against corruption,
and the multilateral treaty covers all fundamental themes in this effort. The UNCAC establishes jointly agreed standards and methods for international cooperation as well as for
local efforts to combat corruption. Of particular significance are the provisions regarding
mutual legal assistance, which simplify the procedures and processes for the prosecution
27 African Union Convention on Preventing and Combating Corruption, July 11, 2003,
www.africa-union.org/Official_documents/Treaties_%20Conventions_%20Protocols/Convention%20on%20
Combating%20Corruption.pdf.
28 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, OECD,
2011, www.oecd.org/dataoecd/4/18/38028044.pdf.
29 United Nations Convention against Corruption, 2004,
www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdf.
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Policy Analysis | January 2013
of transnational corruption investigations and for the reparation of funds from transactions that moved across international borders.
South Africa signed the UNCAC on December 9, 2003 and ratified it on November 22,
2004.
The Statutory Framework
Again, South Africa has a well-developed statutory framework aimed at fighting corruption.
Several of the more significant laws in this regard are examined in turn. The consensus of
opinion is that these laws suffer from poor implementation.
The Prevention and Combating of Corrupt Activities Act No. 12 of 2004
(PCCAA).30—The PCCAA is South Africa’s principal anti-corruption statute. Generally
speaking, Section 3 of the act provides that a person or entity is guilty of the act of corruption where the offer or acceptance of a “gratification” is for the “unauthorised or
improper inducement to do or not to do anything.” It should be noted that both the giver
and receiver of a benefit are equally engaged in corruption. If the offered benefit is not
accepted, only the offering party is guilty of a crime. A person does not have to take the
benefit (e.g., money or gift) to be guilty of an act of corruption—merely saying yes to such
an offer constitutes corruption. Similarly, it is no defense to claim that one did not perform, had no intention of carrying out, or lacked the authority or power to carry out the
favor. Gratification is broadly defined to include: monetary gain, bonuses, avoidance of
punishment or a loss or other disadvantage, loans, gifts, donations, contracts of employment, and any status, honor, right, privilege, etc. The gratification or benefit does not have
to accrue to the receiver—even if the benefit goes to a third party (individual, group of
persons, or company), it is considered corruption.
Beyond the general offense of corruption, the PCCAA sets forth offenses of corruption pertaining to specific persons (such as public officers and officials, members of the legislature,
judicial officials, etc.). The statute identifies further instances of corruption relating to
such matters as witnesses and evidentiary materials during certain proceedings, contracts,
tenders, auctions, sporting events, etc.
While the PCCAA clearly establishes a broad definition of corruption in South Africa, it
also lays the groundwork for the public and private sectors to engage in the anti-corruption battle. Section 34 attempts to address situations where organizations seek to avoid
bad publicity by simply dismissing employees found to have engaged in corrupt activities
rather than reporting such nefarious conduct.
Section 34 places an affirmative duty on any person who holds a “position of authority”
to report corrupt activities to police officials. This duty attaches when the relevant person
“knows or ought reasonably to have known or suspected” that a person has committed an
offense of corruption that involves 100,000 rand or more. Failure to report such an offense
is a crime itself, carrying a penalty of a fine and imprisonment of up to 10 years. Most significantly, persons in positions of authority for the purpose of the PCCAA include not only
public officials, but also certain members of the private sector. Section 34 identifies the
following positions of authority [emphasis added]:
• The director-general or equivalent officer of a national or provincial department;
• Appointed municipal manager;
• Public officer in the senior management service of a public body;
• Any head, rector, or principal of any tertiary institution;
30 Prevention and Combating of Corrupt Activities Act, www.info.gov.za/gazette/acts/2004/a12-04.pdf.
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• The manager, secretary, or a director of a company as defined in the
South African Companies Act of 1973;
• The executive manager of any bank or other financial institution;
• Any partner in a partnership;
• Any person who has been appointed as a chief executive officer or an
equivalent officer of any agency, authority, board, commission, committee, corporation, council, department, entity, financial institution, foundation, fund, institute,
service, or any other institution or organization whether established by legislation,
contract, or any other legal means; and
• Any other person who is responsible for the overall management and control of the business of an employer.
Any person serving in these positions in a temporary capacity is also regarded as being in a
position of authority. The effect of Section 34 is that fault in the form of negligence is sufficient to constitute a criminal offense.
In terms of the PCCAA’s jurisdictional reach, if conduct proscribed by the statute is
engaged in by a South African citizen, resident, company registered in South Africa, or a
person within the country’s borders at the time, then South African courts will have jurisdiction. As such, the act provides that a South African business or person trying to corrupt
a foreign official in another country will transgress South African law.
Persons in positions of authority Such perpetrators can be tried and sentenced in South Africa even if the
for the purpose of the PCCAA
conduct in question is not a crime in the country in which the transgresinclude not only public officials, sion took place.
but also certain members of the
One shortcoming of the PCCAA is that it does not offer protection for
private sector
whistleblowers against defamation claims or recrimination.
The Promotion of Access to Information Act, 2000 (PAIA).31—The PAIA is a
freedom of information type of law. The statute is an attempt to advance the values of
transparency and accountability in South Africa. It allows access to any information held
by the government—and information held by private bodies if:
• That record is required for the protection of any of the requestors’ legal rights;
• That requestor complies with the statutory procedural requirements; and
• Access is not prohibited by the exceptions set forth in the act.
With regard to documentation and records held by any South African government department, its officials, or any other public body, they may be accessed regardless of when the
document came into existence. Such accessible documents include the following:
• Personal records held by the department or any public body;
• Third-party records or information—only with permission from the involved third
party, especially if the documents contain confidential or private information;
• Information to which access is not precluded by the terms of the act (e.g., cabinet
minutes);
• The records of the South African cabinet and its committees;
• Records that relate to court judicial functions; and
• Information obtained by a special tribunal that was established in terms of the law:
◦◦ held by a judicial officer of such a court or tribunal; and/or
◦◦ held by an individual member of Parliament or of a provincial legislature.
31 Promotion of Access to Information Act,
www.sun.ac.za/university/Legal/dokumentasie/access%20to%20information.pdf.
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The statute sets forth specific procedural standards for filing requests for covered public
or private documents. The act establishes compliance requirements for public and private
bodies. As of late 2012, it has been reported that many public and private concerns subject
to the act’s requirements have yet to comply with the letter of the law.
The Public Finance Management Act, 1999 (PFMA).32—In essence, the PFMA
builds the framework for accountable management of finances in national and provincial
government. The act sets out procedures for effective and efficient management of all
assets, liabilities, revenue, and expenditures, and lays out the duties and responsibilities of
government officials in charge of finance, holding such persons accountable for unauthorized expenditures. The PFMA is intended to promote transparency, accountability, and
sound financial management in government and public institutions.
The statute clarifies laws in respect to the National and Provincial Treasuries, the National
and Provincial Revenue Funds, and the National Budget. It regulates the management of
finances in departments and other public entities, as well as Parliament, the provincial
legislatures, and certain constitutional institutions (e.g., the Human Rights Commission).
The Promotion of Administrative Justice Act, 2000 (PAJA).33—The PAJA is the
statutory foundation of the general administrative law in South Africa, codifying the principles of administrative procedure and judicial review. Its aim is to require government
to follow fair procedures when making decisions that affect the public or an individual.
Pursuant to the PAJA’s provisions, individuals may request written reasons for decisions
with which they disagree. This affords a person the opportunity to determine whether corruption influenced a government decision.
The pending Protection of State Information Bill (Secrecy Bill).34—
Notwithstanding South Africa’s fairly impressive array of anti-corruption legislation, there
is a dark cloud in this area on the legislative horizon. The Protection of State Information
Bill, widely known as the “Secrecy Bill,” has almost completed the legislative process,
much to the dismay of the international community. The highly controversial bill is an
attempt to regulate the classification, protection, and dissemination of state information.
While even critics of the bill recognize the need to replace apartheid-era security laws that
deal with similar issues, they contend that the instant effort is too broad in scope. Most
notably, opponents focus their objection on provisions of the bill that criminalize the
mere possession of classified information, even if such information is already in the public
domain. They contend that the bill has an overly broad definition of “national security”
that could be used to suppress legitimate disclosures that are in the public interest. Also
overly broad, critics maintain, are the bill’s provisions as to which government functionaries get to determine whether information at issue is “secret”—even junior officers in the
police and intelligent structures would have such authority to classify information. Critics
say there is not an adequate “public interest” exception to the bill’s strictures, and the bill’s
passage into law would negate important aspects of PAIA and PCCAA provisions requiring
persons to report corruption.
If enacted into law, persons that violate the bill’s provisions will face severe jail terms of
5 to 25 years. The bill’s passage would have a chilling effect on the whistleblowers and
journalists who, facing the possibility of stiff jail terms, might have second thoughts about
disclosing information in the public interest. The bottom line for critics is that the bill
would serve as a vehicle for the ruling ANC—which has faced a spate of recent corruption
scandals—to cover up graft.
32 Public Finance Management Act, www.treasury.gov.za/legislation/pfma/act.pdf.
33 Promotion of Administrative Justice Act, www.saflii.org/za/legis/num_act/poaja2000396.pdf.
34 “South Africa: Completion of the Processing of the Protection of State Information Bill in the National
Council of Provinces (NCOP),” AllAfrica, November 27, 2012, http://allafrica.com/stories/201211280982.html.
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The Secrecy Bill passed the lower house of Parliament, the National Assembly, on
November 22, 2011. The bill was then rammed through an ad hoc committee of the upper
house, the National Council of Provinces (NOCP), by the ANC majority. Reportedly, the
committee’s opposition parties were presented with a 22-page report on amended statutory language prepared by majority members and afforded only 10 minutes to consider
the changes. The opposition members of the committee walked out and ANC members
voted to send the measure to a plenary session of the NCOP, where it was
The purpose of the SIU came
approved on November 29, 2011. The bill now heads back to the National
into question when it did not Assembly for final approval. Since Parliament recessed in early December,
participate in the original
that vote will likely take place in early 2013. Passage is considered a forearms deal investigation—
gone conclusion, after which time all that is necessary for the Secrecy Bill’s
perhaps the most significant enactment is President Zuma’s signature.
case of alleged corruption in
There is still a possibility that the new law could be blocked by South
South Africa’s history
Africa’s Constitutional Court. A challenge in that court could be mounted
by a vote of 30 percent of the members of Parliament or by members of the public. Public
challenges, however, are both time-consuming and expensive.
South African Government Bodies Involved in the
Investigation/Prosecution of Corruption
South Africa has many public entities involved in the fight against corruption. These
include the Special Investigating Unit, the Auditor-General, the Public Protector
(Ombudsman), the South African Police Service, and the National Prosecuting Authority.
The Special Investigating Unit (SIU).—The SIU is the only South African agency
dedicated exclusively to the fight against corruption. It is an independent statutory
entity established by the president’s office in 1996 pursuant to the terms of the Special
Investigating Units and Special Tribunals Act, 1996 [No. 74 of 1996]—G 17586.35 The SIU
was established to conduct investigations at the president’s request and report to him on
the outcome. It is responsible to the president and Parliament.
The SIU functions in a manner similar to a commission of inquiry inasmuch as the president
refers cases to it by way of proclamation. By statute, it may investigate such matters as:
• Serious maladministration concerning the affairs of any state institution;
• Improper or unlawful conduct by employees of any state institution;
• Unlawful appropriation or expenditure of public money or property, and any unlawful, irregular, or unapproved acquisitive act, transaction, measure, or practice that
has a bearing on state property;
• Intentional or negligent loss of public money or damage to public property;
• Corruption in connection with the affairs of any state institution; and
• Unlawful or improper conduct by any person that has caused or may cause serious
harm to the interest of any category of the public.
The unit can also take civil action to correct any wrongdoings it uncovers during an investigation and, therefore, can obtain a court order to:
• Compel a person to pay back any wrongful benefit received;
• Cancel contracts when the proper procedures were not followed; and
• Stop transactions or other actions that were not properly authorized.
35 Special Investigating Units and Special Tribunals Act, 1996,
www.saflii.org/za/legis/num_act/siuasta1996481.
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The SIU does not have authority to arrest and prosecute suspects. The unit works with the
National Prosecuting Authority (NPA) and the Asset Forfeiture Unit (AFU) to facilitate
prosecutions.
The purpose of the SIU came into question when it did not participate in the original
arms deal investigation—perhaps the most significant case of alleged corruption in South
Africa’s history. The SIU’s credibility has arguably been restored through its work in
the investigation of other significant scandals, including one involving South Africa’s
Department of Public Works.
The SIU’s website features a whistleblower mechanism for reporting corruption within
government departments.
The Auditor-General (AGSA).—The Auditor-General of South Africa (AGSA) is
established by the terms of 181(1)(e) of the country’s constitution 36 and its functions are
delineated therein as well as in Section 4 of the Public Audit Act, 2004. 37 The AGSA is
appointed by the National Assembly and has its independence guaranteed by the constitution. It is required to report on its activities and performance in the Auditor-General’s
Budget and Strategic Plan and in an annual report tabled annually in the National
Assembly. The National Assembly’s Standing Committee on the Auditor-General oversees the AGSA’s performance.
The AGSA produces audit reports on all government departments, public entities, municipalities, and public institutions. The audit outcomes are analyzed in general reports that
cover both the Public Finance Management Act38 and the Municipal Finance Management
Act, 2003 39 cycles. Additionally, reports on discretionary audits, performance audits, and
other special audits are generated. The AGSA tables reports to the legislature with a direct
interest in the audit (e.g., Parliament, provincial legislatures, or municipal councils).
These reports are then used in accordance with the respective legislature’s rules and procedures for oversight.
The AGSA is obviously intended to play an important role in combating economic crime.
While its independence is constitutionally guaranteed, the arms deal experience called that
independence into question. Moreover, it is said that incomplete reporting—most notably
at the provincial and local levels—and the lack of urgency by Parliament to take action on
AGSA’s recommendations dull the institution’s efforts.
The Public Protector (Ombudsman).—The ombudsman is authorized to investigate
any perceived misconduct, maladministration, and abuse of power in state affairs or in
the public administration of any government entity. The public protector has the power
to resolve administrative disputes or rectify acts or omissions in administrative conduct
through mediation, conciliation, or negotiation. The office can advise on appropriate
remedies to problems or employ other expedient means deemed necessary with regard to
violations of the Executive Members’ Ethics Act, 199840 and resolving disputes related to
the Promotion of Access to Information Act.41 The ombudsman is charged with responsibilities mandated by the South African constitution and a host of statutes to ensure fair,
responsive, and accountable public sector decision-making and service delivery.
Former Public Protector Lawrence Mushwana—who was previously an ANC member of
Parliament—was accused of thwarting a number of investigations of prominent ANC mem36 Constitution of the Republic of South Africa, 1996,
www.agsa.co.za/Portals/1/Constitution%20of%20RSA,1996.pdf.
37 Public Audit Act, 2004, www.agsa.co.za/Portals/1/PAA.pdf.
38 PFMA, op. cit.
39 Municipal Finance Management Act, www.info.gov.za/acts/2003/a56-03/a56-03a.pdf?.
40 Executive Members’ Ethics Act, www.da.org.za/docs/9943/Executive%20Members%20Ethics%20Bill.pdf.
41 PAIA, op. cit.
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bers. It has been charged in the past that the Office of Public Protector has been subjected
to political interference and that the government has often failed to act on its findings and
recommendations.
Current Public Protector Thulisile Madonsela—who has received virtually unanimous high
marks from the international anti-corruption community—has complained to Parliament
on occasion about such government inaction and a failure to articulate reasons for noncompliance. Her calls for disciplinary action against National Police Commissioner Bheki
Cele in 2010 over the police headquarters lease scandal led to his eventual dismissal.
The South African Police Service (SAPS).—SAPS derives its authority from the
South African Constitution,42 which charges the organization with the responsibility to:
• Prevent, combat, and investigate crime;
• Maintain public order;
• Protect and secure the inhabitants of the Republic and their property;
• Uphold and enforce the law;
• Create a safe and secure environment for all people in South Africa;
• Prevent anything that may threaten the safety or security of any community;
• Investigate any crimes that threaten the safety or security of any community;
• Ensure criminals are brought to justice; and
• Participate in efforts to address the causes of crime.
SAPS is, in effect, a national police force under the executive command of a national
commissioner appointed by the president. With regard to addressing corruption, the
Commercial Branch of the Detective Service Division is charged with primary responsibility. SAPS was tainted by major scandals involving successive National Commissioners
Jackie Selebi and Bheki Cele, who were, respectively, imprisoned and sacked. SAPS is
reported to be striving to clean up its image with a new strategy based on prevention,
detection, investigation, and resolution of involved crime.
The National Prosecuting Authority (NPA).—Section 179 of the South African
Constitution43 creates a single National Prosecuting Authority (NPA), governed by the
National Prosecuting Authority Act 32 of 1998.44 The office of the National Director of
Public Prosecutions was established on August 1, 1998. The NPA is made up of the national
director (who heads and manages the office), directors of public prosecutions, investigating directors, and special directors as well as administrative staff and
SAPS was tainted by major
others. The NPA is constitutionally independent and has the authority and
scandals involving successive power to initiate criminal proceedings on behalf of the state and to carry
National Commissioners
out any necessary functions incidental to instituting such proceedings.
Jackie Selebi and Bheki
Of its several distinct units, one particularly distinguished itself in the
Cele, who were, respectively,
battle against corruption. That unit, established in 2001, was known as
imprisoned and sacked
the Directorate of Special Operations and was popularly referred to as the
Scorpions. The Scorpions were trained by the U.S. Federal Bureau of Investigation and the
UK’s Scotland Yard, and were designed to address corruption and crime too sophisticated
for the regular police.
The unit called attention to itself by exposing several high-ranking officials to corruption
charges. The 500-plus members of the Scorpions brought a high volume of cases within its
mandate, which included drug trafficking, human trafficking, public fraud and corruption,
racketeering, white collar crime, and private corruption. It enjoyed a 90 percent convic42 Constitution, op cit.
43 Ibid.
44 National Prosecuting Authority Act 32 of 1998, www.justice.gov.za/legislation/acts/1998-032.pdf.
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tion rate while gaining the trust of the South African public. It drew the ire of the powerful
ANC, which alleged that the unit allowed itself to be politically manipulated. Following
investigations, raids, convictions, and the December 2007 indictment of then-Deputy
President Zuma on corruption charges, the ANC chose to merge the Scorpions into SAPS.
Then-President Thabo Mbeki later suspended the head of the NPA, Vusi Pikoli, whose unit
was on the verge of arresting Police Commissioner Jackie Selebi.
Despite public consternation, in October 2008, the president disbanded the Scorpions.
Some 252 votes were cast in Parliament in favor of the disbanding. At the time of the vote,
220 sitting members of Parliament had been investigated by the unit.
Scorpions versus Hawks.—After the Scorpions were disbanded, a new unit was established called the Directorate for Priority Crimes, dubbed the Hawks, within SAPS—the very
official organization whose head was under investigation by the Scorpions. By bringing the
Hawks under the jurisdiction of the police ministry, they are, in effect, under the control of
the executive branch of government. By all accounts, the Hawks have a somewhat mediocre record in combating corruption in terms of both number of cases filed and conviction
rate.
Legal challenges that placing the Hawks under the auspices of SAPS infringed upon the
unit’s independence resulted in a declaration by the South African Constitutional Court
in March 2011 that the arrangement was unconstitutional. The opponents to that move
had argued that the decision to disband the Scorpions was intended primarily to protect
ANC members and that it would undermine the fight against corruption. The court gave
Parliament 18 months to rectify the problem, saying that the executive needed to act to
provide for adequate specialization and training for the Hawks, independence from political interference and influence, a guarantee of sufficient resources for the unit, and security
of tenure for the unit’s officials.
In the summer of 2012, Parliament amended the authorizing legislation for the Hawks in
an attempt to satisfy the Constitutional Court’s concerns. To help insulate the Hawks from
political interference and ensure the unit’s independence, the amendment provided that
the unit, while remaining within SAPS, will not report to the national police commissioner
but to the police minister.
Prominent Johannesburg businessman Hugh Glenister, who waged the original challenge
to the Hawks’ placement in SAPS to the tune of 4 million rand of his own funds, is not
satisfied with the legislative fix. He opined that it will be impossible for the Hawks to fulfill
their corruption-fighting mandate as long as they remain answerable to an organization
that is itself riddled with it. He plans yet another challenge in the Constitutional Court.
*
*
*
Notwithstanding some obvious shortcomings and obstacles, it seems that South Africa’s
numerous anti-corruption agencies and developed legal framework afford the country the
ability to address related problems provided the political will is present. Many of these
agencies, however, are handicapped by overlapping mandates, and the involved laws
suffer from uneven implementation. This situation has had a negative effect on both the
operating ability of the enforcement entities and the consistent application of the legal
framework.
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Conclusion
The South African democratic revolution represents one of the most significant such
events of the 20th century. The country has transformed itself from an international
pariah during the apartheid era to a regional power with developed economic and political
ties to countries in Africa and beyond. The country has a bright economic future, but the
specter of corruption is a significant threat to future growth and development.
Is it fair to single out South Africa as one of the countries where such a threat looms?
Corruption is a problem that all countries face to a certain degree, and one that can
never be completely eradicated. South Africa has done much to address these issues. It
has an excellent anti-corruption regulatory framework, highlighted by the passage of the
Prevention and Combating of Corrupt Activities Act, 2004; the statute defines graft, bars
the payment of bribes in South Africa and by South African citizens and firms to foreign
public officials, and obliges public officials and certain private persons in positions of
authority to report corrupt activities. Foreigners doing business in the country should be
particularly aware of that reporting requirement. In recent years, the country has stepped
up its anti-corruption efforts, and has prosecuted several high-profile targets.
In terms of international comparisons, South Africa fares reasonably well. In Transparency
International’s 2012 CPI, South Africa is ranked higher than China (80th), India (94th),
Mexico (105th), and Russia (133rd), and is tied with Brazil (69th) in a listing of 176 rated
countries. The rub is that unlike most rapidly developing countries that realize that corruption must be reined in to realize goals of economic growth and be attractive to foreign
direct investment, this message seems to be lost to the powers that be in South Africa. The
global perception of the problem there is worsening at a steady clip. The 69th
While enforcement of the rating in the 2012 CPI is down five places from its 2011 ranking. Moreover,
laws might be sporadic,
the country has dropped some 31 spots over the past dozen years. Ominously,
they nonetheless establish the slide has accelerated since President Zuma took power in 2009.
legal obligations and pose Several events contribute to this perception problem, including the lingering
potentially significant
scandal over the arms deal and the skepticism that the renewed investigation
penalties
into that scandal will not be fair and open; the pending Secrecy Bill, which is
viewed by many as a vehicle for covering up corruption at the highest levels; and the lack
of independence of the Hawks. Skeptics argue that when it comes to corruption, those at
the highest levels of government feel they can act with impunity. It is a travesty that the
apparent greed of a select few in the country threaten to subvert the crowning achievement
that is the democratic transformation of South Africa.
Notwithstanding the country’s corruption issues and the threats they pose in terms of
attracting foreign business and investment, companies operating in South Africa need to
understand the country’s laws and regulations regarding corruption and bribery. While
enforcement of the laws might be sporadic, they nonetheless establish legal obligations
and pose potentially significant penalties. Despite this enforcement uncertainty, companies operating in South Africa are well advised to adhere to the same high anti-corruption
compliance standard they have in place globally.
Most MAPI member companies have long monitored their potential FCPA exposure. As
such, their anti-corruption compliance activities are generally well refined. Recent anticorruption activities in the BRIC countries, Mexico, South Africa, and elsewhere—as well
as the entry into force of the UKBA—are vivid reminders that a company’s international
dealings can simultaneously expose it to enforcement scrutiny for charges of corruption
in a number of different jurisdictions. Moreover, authorities from different jurisdictions
are increasingly willing to cooperate with one another in transnational investigations.
Copyright © 2013 MAPI. All rights reserved.
18
Corruption Concerns Dampen South Africa’s
Economic Prospects
Policy Analysis | January 2013
This continuing development of global anti-bribery/anti-corruption laws necessitates that
companies review their related compliance policies and programs to ensure that they take
into consideration the nuances of the different national legal regimes to which they might
be exposed.
Basic risk mitigation factors considered in a company’s anti-corruption compliance program—based largely on guidance provided by the UK Ministry of Justice—should include
at a minimum:
• Top-level commitment—The company’s top-level management (be it a board
of directors, the owners, or any other equivalent body or person) are committed to
preventing corruption/bribery by a person with whom it is associated. Management
should foster a culture within the organization in which such conduct is never
acceptable.
• Risk assessment—The company should assess the nature and extent of its exposure
to potential internal and external risks of corruption on its behalf by associated persons. Such assessments should be periodic, informed, and documented.
• Due diligence—The company should apply due diligence procedures, taking a riskbased approach, with respect to persons who perform or will perform services for it
or on its behalf in order to mitigate identified corruption risks. This step is critical in
many emerging markets, where use of third-party intermediaries in business dealings
with the government is a prevalent practice.
• Communications (including training)—The company should seek to ensure that
its anti-corruption policies and procedures are embedded in and understood throughout the organization via internal and external communications, including relevant
training for key personnel. Increasingly, a recognized anti-corruption best practice
is to conduct training of foreign personnel, partners, and agents in the indigenous
language of the country in which they are located.
• Monitoring and review—The company should monitor and review its corruption
prevention policies and procedures and make modifications and improvements where
necessary.
In revising policies and practices to reflect the changing global anti-corruption landscape,
an area to which close attention should be paid is a company’s relationships with third
parties. It is imperative that a commercial organization ensures that its agents, suppliers,
subcontractors, distributors, joint venture partners, consultants, and other third parties
live up to its standards of ethical conduct.
Establishing an effective third-party ethics and compliance program is strongly advised.
Such a program should, at a minimum:
• Survey these third parties as to their ethics and compliance efforts.
• Use the results of these surveys to create an approved list of acceptable third parties
with whom doing business is acceptable (third parties on the approved list should be
monitored to ensure that they maintain the standards that qualified them in the first
instance).
• Set standards in a code of conduct for third parties so they understand that integrity
is a prerequisite for doing business with your company.
• Include the third parties in anti-bribery training programs or conduct separate training for them (preferably, local training will be in the native language of the country
where the third party resides).
• Closely monitor all payments to and from third parties, such as commercial representatives, agents, and consultants—particularly in high-risk countries.
Copyright © 2013 MAPI. All rights reserved.
19
Corruption Concerns Dampen South Africa’s
Economic Prospects
Policy Analysis | January 2013
• Maintain an ongoing communication link with third parties on key issues related to
the anti-bribery policy.
• Create an anonymous whistleblower facility for third parties.
• Ensure that contracts with third parties include provisions addressing the issue of
bribery, such as warranties that no secret commissions have been paid, no competition rules have been violated, no bid-rigging or price fixing has been engaged in, etc.
(contracts should have provisions for immediate termination if any of the standards
are not adhered to).
• Provide ready access for third parties to relevant documents such as the code of conduct, contracts, the approved list, etc.
Many companies’ anti-bribery policies and procedures may already touch upon these
issues in the FCPA context, but the evolving global anti-corruption environment might
well warrant a re-examination and tightening of these measures.
The recent anti-corruption developments in the BRIC countries, Mexico, South Africa,
the United Kingdom, and elsewhere present an opportunity for companies to reassess the
adequacy of their compliance activities and to update as necessary their controls, corporate
policies and practices, and self-policing mechanisms. As enforcement authorities worldwide
continue to expand their extraterritorial jurisdiction and cooperate with one another in anticorruption campaigns, companies must adopt a global approach to their efforts.
In conclusion, MAPI recommends that companies keep anti-bribery and anti-corruption
issues high on the agendas of both senior management and boards of directors, tailoring
their related compliance measures to deal with this new global enforcement environment.
Companies would be well advised to interpret this cavalcade of anti-corruption developments in as broad a light as possible to guard against future unpleasant surprises.
MAPI will continue to monitor issues associated generally with global anti-bribery and
anti-corruption enforcement and report on them to its membership.
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Copyright © 2013 MAPI. All rights reserved.
20
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