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Who Bears The Cost Of Corporate Corruption?

Who Bears The Cost Of Corporate Corruption

Who Bears the Cost of Corporate Corruption?

You’d be hard-pushed to find anything positive to cling onto when it comes the state of both public and private sector corruption in South Africa. But, although I know two negatives will never make a positive, in this case, they might help us feel slightly less alone.

Allow me to explain…

The UK has one of the largest South African diasporas in the world. According to the 2021 census, there were over 200,000 South African-born nationals living in the UK. The number has likely grown to more than that in the past two years.

While I know many have moved to escape the crime, corruption-inspired challenges such as load-shedding and the wide-spread disintegration of state schools, services and health care are undoubtedly also significant contributing factors.

And yet the UK is not as squeaky-clean as you might think.

While violent crime is less prevalent, instances of corruption – at both corporate and government level – are on the rise.

So much so, in fact, that the UK is one of nine countries identified by Transparency International as ones to watch over the next 12 months.

With a 7-point decline on the organisation’s Corruption Perceptions Index (CPI) since 2021, the UK has fallen to its lowest ever score – 71/100. It’s now 20th in the global rankings – a worrying plunge from its previous position just outside the top ten two years ago.

The score reflects increasing concerns about the UK government’s approach to corruption, despite the Prime Minister’s promise of a government of “integrity and professionalism.”

“With the most significant drop [of all countries] in Western Europe, and despite repeated warnings, [the UK] remains an unfortunate outlier, falling behind our peers – a powerful indictment of the recent decline in standards in government that have dominated the headlines in recent years,” said Daniel Bruce, Chief Executive of Transparency International UK.

But before we non-emigrants start feeling too smug, the picture’s not looking too rosy for us either.

Having lost a further two points on Transparency International’s CPI since 2022, South Africa has now dropped below the global average, and, like the UK, is currently sitting at its lowest ever score – just 41/100. This puts us shamefully in the category of flawed democracies.

Not surprisingly, the ANC – dealing with allegations of corruption and cronyism – is now facing its toughest election year yet, with support hovering just below 50% for the first time since being voted into power in 1994.

As Melusi Ncala asks in an article in the Daily Maverick, “Ultimately, at what point will the fight against corruption be about righteousness and integrity instead of being a weapon and a rhetorical refrain for the popular vote?”

Obviously, the UK is undoubtedly still faring significantly better than South Africa, but the sharp decline in its corruption standings signify things are starting to trend in the wrong direction.

And, much like South Africa, prosecutions of individuals suspected of corporate corruption are few and far between.

In fact, according to a recent report published by Spotlight on Corruption:

  • In the past 10 years, only 13% of the Serious Fraud Office (SFO)’s individual convictions have involved senior executives in large firms despite over 60% of SFO cases involving wrongdoing associated with large firms.

  • In the same time period just 6% of the Financial Conduct Authority (FCA)’s individual convictions have involved senior executives in large firms.

  • The FCA has imposed individual fines in just 13% of cases where it imposed corporate fines between 2013 and 2022.

  • The SFO has achieved just one conviction of a senior executive of a large firm (on minor charges) following eight corporate convictions.

Here at home, the situation is equally concerning.

Kirsten Wolmarans, a partner at law firm Webber Wentzel, said recently in a podcast that in order for South Africa to be taken off the Financial Action Task Force’s (FATF’s) grey list, we have to significantly ramp up our money laundering convictions – one of the biggest issues that led to us being put on the list in the first place.

“Despite [efforts to redress issues], I have seen challenges still persist, particularly in achieving higher conviction rates,” she said.  

Since 2020, just 51 people have been convicted for corruption, fraud, tax evasion and money laundering – just a fraction of the number of cases, many of which never even see the light of day.

Take, for example, the R2.2 billion fraud, corruption, and money laundering case involving the awarding of a multi-billion Rand contract for the construction of Kusile Power Station. The case was eventually struck off the court’s roll due to “unreasonable delays in the completion of the investigation.”

According to Louis Botha, a senior associate previously with Cliffe Dekker Hofmeyr, this is one of the biggest challenges facing investigations by the National Prosecuting Authority – a lack of capacity and expertise.

Put plainly, there are simply not enough people with the skills needed to ensure the bad guys are convicted.

The reason why it’s so important that individuals, and not just the corporates themselves, are held accountable, is because when companies are so big, a fine for corruption simply becomes the cost of doing business.

A short, sharp, financial rap on the knuckles, and then back to fraudulent business they go.

And yet, even if measures are introduced to hold individuals personally accountable, will this actually translate to any kind of meaningful sanction?

The picture looks depressing.

Spotlight on Corruption’s report states:

“If you are a senior executive of a large firm in the UK, you face almost zero chance of being prosecuted for economic crime by any of the main regulators or prosecutors responsible for enforcing these offences.

“You also face very limited chances of any regulatory enforcement action, whether a fine or prohibition order, by the main and largest financial crime regulator, the Financial Conduct Authority.

“Even under the regime introduced to hold senior managers to account, the Senior Managers and Certification Regime, there is a very low prospect that you will face enforcement action. As the recent Carillion case shows, outside of competition law, any action against you is likely to be rare, take many years, and will not result in you having to pay any money back.”

To me, it’s obvious that trying to prosecute corporate individuals or fraud and corruption is about as effective as proverbially shutting the barn door after the horse has already bolted.

The only hope is to try and stop the corruption before it starts by creating corporate environments that don’t facilitate criminal behaviour.

Perhaps that sound naïve, but I honestly believe we don’t have a choice.

As someone who has navigated the intricacies of the forensic investigation industry, I’ve seen first-hand the importance of proactive measures to prevent corruption. By implementing robust compliance programmes and fostering a culture of transparency, organisations can mitigate the risk of financial crime.

And this can only be beneficial for us all. Because to answer the question I asked at the beginning – who really bears the cost of corruption – the answer is: us. And our beloved country.