Shielding Your Business: How Section 34A Can Hold Companies Accountable for Corruption
The global fight against corruption has brought essential changes in South Africa’s laws, including an update to the Prevention and Combating of Corrupt Activities Act (PRECCA). The new section 34A of PRECCA came into effect on 3 April 2024, making private companies and state-owned entities accountable for corrupt activities undertaken by associated individuals under certain circumstances.
Below, we look at the requirements of sections 34 and 34A on South African businesses and provide simple tips for accountants on how to help businesses remain compliant.
Duty to Report: Section 34 of PRECCA
Section 34 of PRECCA requires individuals in positions of authority to report certain offences, such as corruption, theft, fraud, extortion, forgery or uttering of forged documents, that involve transactions of R100,000 or more. Failure to report these activities is a criminal offence.
The obligation applies to individuals in positions of authority, including government officials (e.g., Director-Generals, municipal managers), company executives (directors, managers, or CEOs), heads of educational institutions, partners in partnerships and banking executives.
Reports must be made to the Directorate for Priority Crime Investigation (DPCI) using prescribed forms or affidavits. Ensure a thorough record of the report is retained.
Note:
Reports should be made as soon as reasonable suspicion is confirmed.
The R100,000 threshold applies to single or cumulative transactions.
Failure to report can lead to legal penalties.
Added Liability Under the 34A of PRECCA
Section 34A provides that businesses associated with individuals engaging in corrupt acts could be held liable unless they implement adequate corruption prevention measures.
Here’s what section 34A means in plain language:
When is a Business Guilty of an Offence?
A business (either a private company or an SOE) is guilty of an offence if someone connected to the business gives, agrees to give, or offers a bribe (illegal gratification as defined in Chapter 2 of PRECCA) to either:
a) Get or keep business for the company or
b) Gain an advantage in the company's business operations.
Who Is "Connected" to the Business?
A person is considered connected to the business if they perform services for or on behalf of the business, regardless of their role or capacity. This includes employees, agents, contractors, and any other individuals acting on behalf of the business.
How Can a Business Avoid Being Found Guilty?
If the bribe is offered to gain an advantage in business (point b above), the business will not be guilty if it proves that it has adequate anti-corruption procedures in place.
What Does This Mean for Businesses?
Businesses must be proactive in setting up systems and procedures (such as policies, training, and monitoring) to prevent corruption. They must ensure that anyone acting on their behalf (employees or others) follows strict anti-corruption practices.
Failing to have these measures in place could result in the business being held responsible for corrupt acts, even if it didn’t directly participate in the wrongdoing. This section is designed to make businesses more accountable for preventing corruption and promoting ethical behaviour.
Applying section 34A - Examples
The examples below demonstrate the broad application of Section 34A and the critical need for businesses to implement anti-corruption frameworks to mitigate risks proactively.
Bribery to Secure a Contract
A private construction company, BuildWell, instructs its sales representative to offer a bribe to a state official to ensure they win a government tender for roadworks. Section 34A applies as BuildWell, through its representative, engages in corrupt practices to retain business. The company (its CEO, directors, etc.) may be held liable if it does not have adequate anti-corruption measures.
Preventing Business Corruption
TechFuture, an IT service provider, unknowingly hires an agent who offers illegal gratification to a corporate client to secure an exclusive service contract. Since the agent is considered an "associated person," TechFuture could face penalties under Section 34A unless it can demonstrate it had robust corruption prevention policies in place.
Contractor Misconduct
A logistics company, QuickTrans, contracts a third-party driver who offers bribes to traffic officers to avoid fines and ensure faster deliveries. QuickTrans could be deemed guilty under Section 34A for not implementing measures to prevent its associated contractors from engaging in corrupt practices.
Whistleblower Protections Unavailable
A private engineering firm is implicated when one of its employees bribes a municipal officer for approval on a non-compliant project. The company lacks a whistleblower hotline or anti-corruption training for staff. In this case, Section 34A holds the company accountable for failing to establish adequate corruption prevention mechanisms.
What Are Adequate Anti-Corruption Measures?
While Section 34A does not define "adequate corruption prevention measures," businesses can reference best practices, such as:
Creating robust internal controls to monitor high-risk transactions. Preventative measures should be proportionate to the risks faced by the entity.
Documenting and making anti-corruption policies accessible to relevant stakeholders.
Conducting annual reviews of policies to ensure they remain effective.
Steps to Implement Adequate Measures
As an accountant, you can ensure that your clients’ businesses comply with anti-corruption laws by designing internal controls, monitoring compliance, or maintaining accurate financial records. To implement adequate measures in terms of section 34A, businesses should be able to demonstrate that they have adequate anti-corruption procedures in place. The following should be documented.
Risk Assessment
Conduct a thorough risk-based assessment to identify vulnerabilities in corruption-prone operations, industries, or jurisdictions. Focus on high-risk areas such as procurement, supply chains, and interactions with government officials.
Establish a Culture of Integrity
Assist in implementing clear anti-corruption policies and provide routine training for employees and associated persons. Establish expected ethical standards, outline consequences for non-compliance, and use real-world examples during training to clarify complex issues.
Develop Reporting Mechanisms
Set up confidential channels, like hotlines or online portals, for reporting unethical conduct. Ensure whistleblower protection to foster trust and encourage reporting of corruption.
Employee and Partner Screening
Vet employees, agents, and contractors during recruitment and periodically afterwards. Use tools like targeted sanctions lists to screen for potential risks.
Monitor and Address Corruption Risks
Regularly review financial transactions and operational processes for signs of unethical conduct. Investigate and take decisive action against violations, including disciplinary measures or contract termination.
Consolidate Legal Obligations
Align anti-corruption practices with related statutes, such as the Protected Disclosures Act and the Financial Intelligence Centre Act.
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