Analysis: How to get elite crooks in orange jump suits

Apart from a smattering of arrests on charges of corruption, a battalion of crooks walks around undisturbed.

The Zondo Commission of Inquiry into State Capture provides ample sport for an outraged public, but no convictions as yet. It will take years before prosecutors and investigators disgorge themselves of the Everest of paperwork accumulated during the inquiry.

There were eight arrests related to the VBS Bank heist, and four more among Tubular Construction and former Eskom executives accused of corruption related to the Kusile Power Station.

Civil society stepped in where Dudu Myeni is concerned. She was recently declared a delinquent director by the Pretoria High Court for dishonesty, negligence and recklessness while occupying the chair at South African Airways (SAA), which is now under business rescue.

Former SAA chair Dudu Myeni, was declared a delinquent director for life by the high court on May 27. Image: Moneyweb

It was the Organisation Undoing Tax Abuse (Outa) and the South African Airways Pilots Association (Saapa) that brought the legal suit against Myeni – not the responsible minister or National Treasury, which had to dole out roughly R50 billion to keep the airline afloat.

One might have thought that Treasury, presumably representing the interests of citizens, might have raised a whimper of concern over her destructive rampage when the bailout figure got to, say, R30 billion.

In the Tubular case, it was forensic investigator Paul O’Sullivan who appears to have kicked the case into high gear.

Why such a meagre body count for a corruption orgy that Open Secrets estimates cost the economy R5 trillion over five years due to state capture?

Legal deficiencies in SA

At a recent anti-bribery and corruption webinar, Herbert Smith Freehills director for corporate crime and investigations Cameron Dunstan-Smith highlighted key deficiencies in the SA legal landscape – key among them the deferred prosecution agreements (DPAs) that are so common in jurisdictions like the US, UK and Canada.

These allow prosecutors to grant amnesty to defendants in cases such as fraud, provided they fulfil certain conditions, such as payment of a fine and implementation of compliance programmes designed to prevent any repetition of wrongdoing.

“South Africans may not like to hear of companies getting away with what they perceive to be such light penalties, but the reality is that these DPAs have proven themselves to be effective in changing corporate behaviour for the better and forcing wrongdoers to pay hefty fines – without having to admit guilt,” says Dunstan-Smith.

As a consequence, companies accused of wrongdoing find it more fruitful to defend allegations of corruption and wrongdoing to the highest court in the land. That can take years and cost millions.

Unlike well-resourced law enforcement and investigatory agencies in the UK and US, South Africa lacks the kind of enforcement resources with the right forensic and prosecutorial skills to bring wrongdoers to court.

Companies are able to drag the legal process out for years, using the best lawyers money can buy. You need deep pockets to embark on any legal offence against corporate SA.

Deloitte in the crosshairs

A case in point is the disciplinary inquiry brought by the Independent Regulatory Board of Auditors (Irba) against Deloitte for its involvement in the failure of African Bank in 2014.

This is an audit inquiry operating in a quasi-legal setting that has gone on since 2018 and reportedly cost millions of rands so far in legal fees.

Irba has a limited legal budget, which must surely blunt its enthusiasm for the fight against other auditors charged with wrongdoing.

Since November 2018 it has also been investigating KPMG and its then-external auditor Sipho Malaba over the VBS heist.

The maximum sanction currently allowed by law is R200 000, though far larger fines will likely be legislated in terms of amendments to the Irba Act currently under consideration.

The paucity of legal and financial penalties for corruption leaves it to the press to bring reputational harm to those deserving of it.

The one benefit of the Zondo Commission is the reputational damage visited on those hauled before the inquiry, even if the alleged wrongdoers have not yet had a chance to put their side of the story forward.

Foreign corruption in SA

For international companies accused of wrongdoing in SA, the reality is they may face far harsher penalties in their home country than they do here.

A case in point is Hitachi, which in 2015 agreed to pay $19 million to settle claims brought by the US Securities and Exchange Commission on charges of violating the Foreign Corrupt Practices Act.

It had inaccurately recorded improper payments to SA’s ruling political party in connection with contracts to build Eskom’s Medupi and Kusile power plants.

Last month the US toughened its anti-corruption guidelines by evaluating whether a company’s anti-corruption compliance programme was effective at the time of an offence being committed and when a charge is brought.

US regulators pay scrupulous attention to whether companies’ anti-bribery and corruption programmes are adequately resourced and empowered to function effectively.

In times of economic hardship, the temptation is for companies to divert resources from compliance programmes to more ‘worthy’ causes.

France set up an Anti-Corruption Agency in 2017 and has since launched 90 investigations, resulting in a number of trials.

Last year the UK passed the Overseas Production Orders Act, which gives UK law enforcement agencies the power to apply for an ‘Overseas Production Order’.

Such an order requires an overseas communications service provider to supply or give access to electronic data it holds in relation to investigations of corruption. Refusal to do so constitutes contempt of court.

These orders are only applicable where the UK has a cooperation agreement with the country in question.

Commissions no longer ‘token’ inquiries

Fiorella Noriega Del Valle, senior associate in the corporate crime and investigations practice at Herbert Smith Freehills, said one of the anti-corruption tools available under the Constitution and the Commission Act in South Africa is the power vested in the president to launch commissions of inquiry.

“Commissions of inquiry were previously seen as token inquiries, such as the one we had into the police force suppressing political opponents, but they are now seen as more credible because they focus on maladministration and corruption.”

She adds however that: “The recommendations [of the commission] are not binding, and the terms of reference not often as precise as indictments.

“Witnesses have limited protection, and there is no automatic right to legal representation. You can apply, but this is up to discretion of commission.”

Another problem arising from commissions of inquiry is that witnesses can expose themselves to criminal and civil proceedings, as happened to former Bosasa chief operating officer Angelo Agrizzi, who was charged by his former employer of theft after giving testimony to the Zondo Commission.

Also charged for an alleged theft of R37.5 million was former Bosasa chief financial officer Andries van Tonder, who also gave testimony to Zondo claiming widespread corruption at the facilities management company.

Arsenal for the fight

To win the war on corruption, Dunstan-Smith says SA law enforcement agencies need an army of highly trained investigators, ranging from accounting to legal and data specialists, backed by prosecutorial teams capable of framing cases that are capable of success in court.

Another tool that would advance the fight against corruption is DPAs, which would short-circuit protracted court battles.

“There is still an attitude in SA that if you haven’t been found guilty of anything, why should you pay a fine even if you don’t have to admit guilt,” says Dunstan-Smith.

“The attitude overseas is quite different. Our law does not make allowance for DPAs, which is something that would definitely help in curtailing bribery and corruption.”

This article first appeared on Moneyweb and was republished with permission.

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