South Africans are due to head to the polls on 29 May 2024. Globally, elections are scheduled in over 70 countries this year, including some of South Africa's largest trading partners, the United States, the United Kingdom and the European Union (Parliament), as well as key members of regional blocs, BRICS and SADC.
While 2024 is a record year for elections, there is also an elevated bribery and corruption risk for private sector firms in South Africa as political parties compete for crucial donor funding, and legislative changes amplify the risk from third parties that firms do business with.
Firms will need to carefully consider their compliance programmes and applicable legislation, as well as any existing or contemplated public-private partnerships, tender processes and engagement with regulators, and appropriately structure their approach to avoid actual or perceived conflicts of interest.
Donations to Political Parties
Political party funding is an essential component of modern democracies, and donations made in good faith do support the electoral process. However, donations invariably carry the potential, or at least the outward perception, of enabling private interests to unduly influence the political system.
Firms considering political donations in South Africa will need to review their anti-corruption compliance programmes, in conjunction with the provisions of the Political Party Funding Act, 2018, whilst ensuring strict compliance with the Prevention and Combating of Corrupt Activities Act, 2004 ("PRECCA"), South Africa's primary anti-corruption legislation.
Section 9(2) of the Political Party Funding Act requires donors to disclose all donations above a threshold determined by the President of the Republic of South Africa, whether in cash or kind (e.g. services, transport, catering), to the Independent Electoral Commission ("IEC") within 30 days of making the donation. Previously, the disclosure threshold was set at R100,000.00. However, a new threshold is expected following the passing of the Electoral Matters Amendment Bill in April 2024.
For a comprehensive overview of the obligations in terms of the Political Party Funding Act, refer to our article on The Disclosure of Donations to a Political Party: A Corporate's Perspective.
Corruption Risk from Third Parties
Aside from adhering to the requirements of the Political Party Funding Act, firms need to be conscious of the significant election-related corruption risk from third parties such as business partners, agents, intermediaries, suppliers and service providers, for which they may be held liable in terms of the new "failure to prevent corrupt activities" offence in Section 34A of PRECCA.
In terms of the new clause, private sector firms will be guilty of an offence if an associated person (notably, not only employees but also third parties) gives or agrees or offers to give any gratification as prohibited in terms of Chapter 2 of PRECCA. The key takeaway is that no offence will be committed if firms to have in place "adequate procedures" designed to prevent these corrupt acts. Accordingly, without "adequate procedures" in place, firms may be held criminally liable for the acts of these third parties in respect of election-related corruption.
Adequate Procedures and "Six Principles" Approach to Mitigating Corruption Risk
What constitutes "adequate procedures" is not expressly defined in PRECCA, and will depend on the particular facts and will need to be proportionate to the risks facing each firm. We note that the term "adequate procedures" has been borrowed from the United Kingdom Bribery Act, of 2010. Guidance to the Bribery Act ("Bribery Act Guidance") outlines a "six principles" approach to the formulation of "adequate procedures," being (i) proportionate procedures; (ii) top-level commitment; (iii) risk assessment; (iv) due diligence; (v) communication and training; and (vi) monitoring and review.
In the absence of local guidance, we suggest that firms should refer to the Bribery Act Guidance when implementing "adequate procedures" in compliance with Section 34A of PRECCA.
Red-Flags around Elections
Global trends in enforcement action by regulators indicate that the majority of corrupt corporate activities involve third parties that a firm does business with. Firms therefore need to ensure that they have in place a robust, risk-based third-party due diligence ("TPDD") process as part of their overall anti-corruption compliance programmes to demonstrate that it has taken appropriate measures to mitigate risk as part of its suite of "adequate procedures" to prevent corruption.
In this context, compliance teams should be on the lookout for contextual red flags when engaging with third parties in and around elections, for example:
- public-private partnerships and business dealings that may disproportionately benefit political parties or suspicious payments for services from government or state-owned entities;
- transactions involving countries with ambient levels of corruption and specifically those holding elections in and around contractual timeframes (compliance teams can consider tools such as the Transparency International Corruption Perceptions Index to assess country risk); and
- attempts to conceal the true nature of a company's relationship with a third party.
Where initial information provided indicates the presence of the above-mentioned red flags, enhanced TPDD procedures are necessary to assess the level of risk and ultimately inform a decision on whether to continue their business arrangement with the third party.
Where firms choose to pursue an engagement that has been flagged as a higher risk through a TPDD process, it is imperative that risk be mitigated to an extent that the firm is comfortable with. This can include ongoing monitoring procedures or the inclusion of anti-corruption clauses and warranties in the contracts to be concluded between the parties.
ENS' Forensics team can provide support to establish or enhance anti-corruption compliance programmes and conduct TPDDs, ensuring compliance with the Political Party Funding Act and PRECCA, and aligning firms with the Six Principles approach to "adequate procedures" from the Bribery Act Guidance. For more information, please contact our experts here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.