SMEs must prevent fraud or face automatic penalties: An Insightful Discussion with Edward James
In a recent episode of the Accounting Weekly podcast hosted by, Nicolaas van Wyk, the CEO of the Chartered Institute for Business Accountants NPC (CIBA), engaged in a compelling dialogue with Edward James, a seasoned attorney specializing in corporate crime and a partner at Pinsent Masons. The podcast delved into significant changes in South Africa's legal framework aimed at combating corruption, especially the introduction of a new offense under the Prevention and Combatting of Corrupt Activities Act 2004 (PRECCA).
Introduction of the "Failure to Prevent Corruption" Offense
Edward James opened the discussion by outlining the major legislative change: the introduction of the offense of failing to prevent corruption activities under PRECCA. This new development is a direct outcome of the Zondo Commission’s findings, which highlighted extensive 'state capture' during Jacob Zuma’s presidency. The commission's recommendations aimed to simplify the process for the state to prosecute companies for corruption.
Key Aspects of the New Offense:
Strict Liability Regime: James explained that this new offense introduces a strict liability regime for actions by associated persons, where companies can only defend themselves by proving they had 'adequate procedures' in place to prevent corruption.
"The introduction of this offense under PRECCA marks a pivotal shift in holding companies accountable. Businesses need to demonstrate proactive steps to prevent corrupt activities by associated persons to leverage the 'adequate procedures' defense," James noted.
Scope and Definition: Under the new legislation, any member of a private sector or state-owned entity is guilty if an associated person offers any form of "gratification" to obtain or retain business advantages. The definition of gratification is extensive and includes money, gifts, jobs, and other benefits.
"The definition of gratification under Chapter 2 of PRECCA is broad, encompassing any advantage, which amplifies the scope of what constitutes corrupt activities," James added.
Duplication and Historical Acts: The law requires an initial offense under Chapter 2 of PRECCA and additional elements of obtaining business. It applies only to current, ongoing, and future acts, but historical corruption can still be prosecuted under the Criminal Procedure Act.
Credibility and Enforcement
James highlighted the necessity for the South African state to bridge a credibility gap to ensure the meaningful enforcement of the new laws.
"While the Zondo Commission's recommendations have been legislated, the absence of high-profile corruption convictions of key actors implicated in state capture could undermine the new law. For the legislation to be effective, the state must demonstrate its ability to hold people accountable," James emphasized.
Advice to Businesses
James advised CEOs, general counsel, and compliance heads not to overlook the importance of implementing adequate procedures.
"Implementing robust procedures provides a clear defense against potential legal challenges. Companies unsure about their compliance should seek professional advice to establish adequate corruption controls," said James.
Reflections on International Practices and Corporate ADR
James, who had previously advocated for the introduction of a new corporate offense of failure to prevent bribery in South Africa, remarked that the new offense largely mirrors the 'failure to prevent' bribery offense under section 7 of the UK Bribery Act.
International Best Practices
No Current Guidance on 'Adequate Procedures': "There is no specific guidance yet on what will constitute 'adequate procedures.' Companies should look to established systems like the UK’s, adhering to the six principles recommended by the Ministry of Justice until local guidelines are clarified," James advised.
OECD Anti-Bribery Convention: South Africa's adherence to the OECD’s Convention on Combating Bribery of Foreign Public Officials highlights its commitment to aligning with international best practices.
"Corporate ADRs align with the OECD’s principles, encouraging corporations to self-police, voluntarily report, and remediate in exchange for non-prosecution by the NPA," James explained.
High-Profile Cases and NPA Policy
Discussing the application of ADR resolutions, James referred to the ABB and SAP cases as examples of the state using these resolutions to manage high-profile corruption cases.
ABB and SAP Settlements: The ABB case was a multijurisdictional settlement involving various global authorities, and the SAP case involved resolving corruption with state-owned enterprises. "These cases demonstrate the efficacy of ADRs in resolving complex corruption cases without extended legal battles," James noted.
NPA’s Corporate ADR Policy: The NPA’s policy allows for pre-trial resolutions, enabling companies to settle corruption cases outside the formal criminal justice system. This approach saves costs and expedites the recovery of funds.
"The NPA’s ADR policy sets out principles that guide state decisions on resolving corruption through ADR. This includes legality, public interest, and transparency," James highlighted.
The Landmark Sasfin Case
James and van Wyk also discussed the groundbreaking case against Sasfin Bank, where the South African Revenue Service (SARS) aims to hold the bank accountable for facilitating large-scale tax evasion.
Sasfin’s Liability: SARS filed a substantial damages claim against Sasfin Bank, arguing the bank should be liable for economic losses due to its role in facilitating tax evasion linked to a money laundering racket.
"This case against Sasfin Bank shows the expanding reach of new legal frameworks in holding financial institutions accountable for preventing unlawful offshore money movements," van Wyk commented.
Implications for Financial Institutions: This case underscores the importance of stringent internal controls and risk management procedures to prevent similar legal and financial repercussions.
"The Sasfin case could set a precedent, highlighting the need for banks to maintain rigorous control measures to avoid being implicated in facilitating corrupt activities," James added.
The Crucial Role of Accountants
During our interview, Edward emphasized the pivotal role that accountants play in preventing financial crimes such as bribery, fraud, and tax evasion. Accountants are often the first line of defense, possessing the ability to identify financial irregularities that could indicate deeper issues.
Technical Discussion:
Proactive Vigilance: Edward encouraged accountants to remain vigilant and proactive, questioning any financial data that doesn’t seem to add up. He pointed out that bribery and other forms of corruption are seldom labeled transparently in financial records and require a keen eye to discern.
Engagement and Procedures: Edward shared how accountants need to be thorough in their engagements, applying critical thinking to the numbers and transactions they review. This is not just about compliance but about safeguarding the financial health and legal standing of their clients.
Practical Steps for Businesses and Accountants
To help businesses comply with the new "failure to prevent bribery" law, Edward provided a framework of steps that companies of all sizes should consider:
Set the Tone at the Top: Leadership must demonstrate a clear stance against corruption.
Conduct Targeted Risk Assessments: Understand specific vulnerabilities to corruption within the business.
Implement Robust Procedures: This includes anti-bribery policies and codes of conduct.
Perform Due Diligence: Especially on third parties involved in significant transactions.
Facilitate Comprehensive Training: Ensure that employees are educated on how to recognize and combat corrupt practices.
Maintain Dynamic Monitoring: Regularly update and improve compliance programs to respond to changing risks.
For accountants, Edward’s advice was clear: be diligent, be inquisitive, and don’t be satisfied with surface-level answers. Accountants should advise their clients on these procedures and, where appropriate, help implement them.
Conclusion
The discussion between Nicolaas van Wyk and Edward James provided deep insights into the evolving landscape of anti-corruption legislation in South Africa. The introduction of the new offense under PRECCA, coupled with the strategic use of corporate ADRs and significant legal cases like that against Sasfin Bank, signals a robust approach to enhancing corporate accountability and compliance.
As businesses navigate these changes, the insights shared by James underscore the importance of proactive compliance and the potential benefits of aligning with international best practices. The detailed discussion not only sheds light on the technicalities of the new laws but also offers practical advice for businesses aiming to stay ahead in the fight against corruption.
For more expert insights and guidance on navigating these legislative changes, follow Edward James on LinkedIn. Learn more about the work at the Chartered Institute for Business Accountants NPC on their LinkedIn page.
Stay Informed on Anti-Corruption Laws with the Quick Update Series
In the latest episode of the Accounting Weekly podcast, Nicolaas van Wyk, CEO of the Chartered Institute for Business Accountants NPC (CIBA), and Edward James, a seasoned attorney specializing in corporate crime from Pinsent Masons, delve deep into South Africa's evolving legal framework against corruption. They particularly focus on the introduction of the "Failure to Prevent Corruption" offense under the Prevention and Combatting of Corrupt Activities Act 2004 (PRECCA).
Key Insights from the Podcast:
Understanding Legislative Changes: Learn about the new PRECCA offense, designed to simplify prosecuting companies for corruption.
The Role of Accountants: Discover how accountants are at the forefront of identifying and preventing financial crimes.
Navigating Compliance: Hear expert advice on how businesses can adapt to remain compliant under new laws.
For professionals seeking to further understand these changes and apply this knowledge in their work, the Quick Update series provides an invaluable resource.
What You Will Learn with Quick Update:
By subscribing to the Quick Update series, you will gain:
Up-to-Date Knowledge: Quickly grasp the latest legislative changes, including those discussed by van Wyk and James, and understand their implications for your business, practice, and clients.
Tools for Compliance: Equip your staff and clients with the knowledge and resources to stay compliant with evolving regulations.
Strategic Adaptation: Modify your business models to align with new legislative landscapes, leveraging insights like those shared in the podcast.
Access to Expert Resources: Benefit from vital references, guides, and direct access to technical resources and experts.
Interactive Learning Experience: Engage with specialists through monthly webinars and Q&A sessions to deepen your understanding and application of the new laws.
Comprehensive Benefits of the Quick Update Subscription:
Monthly Expert Webinars: Stay informed with sessions led by specialists in accounting, taxation, and law, echoing the depth of discussions found in the podcast.
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Enhance Your Professional Journey:
Each CPD event in the subscription, including interactive webinars, valuable materials, and certification, is designed to help you:
Apply Practical Knowledge: Use the insights from the podcast, like those on the "Failure to Prevent Corruption" offense, in practical scenarios.
Engage and Certify: Earn certificates and engage with presenters for Q&A support, enhancing your learning experience similar to the podcast’s interactive format.
By connecting the dots between the podcast’s insights and the Quick Update series, professionals can navigate the complexities of anti-corruption legislation effectively and stay ahead in their field.