Foreign laws on bribery can apply to SA firms

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Dear Corruption Watch,

I’m on the board of a company that has listed American Depository Receipts (ADRs) in New York to build our international shareholder base. I have been reading about the new UK Bribery Act and of course the Foreign Corrupt Practices Act and wonder if our company based here in South Africa must comply now with particularly the US laws because of our ADR programme? Yours sincerely - Worried

Dear Worried,

Whew, that’s a complicated one.  Let’s start with exactly what the Bribery Act and the Foreign Corrupt Practices Act (FCPA) say, in broad brushstrokes.

The Bribery Act has two relevant provisions: Section 6 prohibits bribing foreign officials, and section 7 makes it a crime for a corporation to fail to prevent bribery.  The FCPA also has two basic requirements.  First, it requires those corporations that are covered by it to comply with certain accounting practices.  Second, it makes it a crime under US law for certain companies to bribe foreign officials.

Let’s tackle this in two stages.  The first is ethical: Should you comply with the Bribery Act and the FCPA?  The second is legal: Are there any legal consequences if you fail to comply with these foreign laws?

The answer to the ethical question is easy: Yes.  The basic protections in both the Bribery Act and the FCPA are that you should keep honest accounting records, not bribe foreign officials and take steps to prevent bribery happening in your company.  Ethically, you should comply with those norms, even if there is no legal obligation on you to do so.  There is an interesting class of bribes called “grease payments”.  These are payments for officials to do what they should do in any event, but to do it a little faster for you.  Grease payments are legal in some countries and are therefore not automatically prohibited under the FCPA.  But ethically, they are still suspect.  They afford you a benefit at the expense of somebody else who does not pay a bribe.  More importantly, the line between greasing the wheels, and outright corruption is pretty blurry.  Grease payments feed the culture of corruption, and should be avoided, even if they are technically legal.

On the legal question, the best advice is to talk to an attorney.  Relying on a newspaper advice column is probably not the best idea.  That said, we can offer you two pieces of guidance for your upcoming chat with your attorney.  One, the substantive prohibitions on bribing foreign officials are concerned, that is in any event prohibited by section 5 of our own, Prevention and Combating of Corrupt Activities Act.  Even if you are not bound by the Bribery Act or the FCPA, you will be committing crimes under South African law.  Best to just avoid it really.

Two, based on a cursory glance at the American law, the fact that you list ADRs makes the FCPA applicable to you.  In 1996 the Security and Exchanges Commission prosecuted an Italian company called Montedison under the FCPA.  Its securities were only traded in the US as ADRs.  This means that you would be bound not only by the prohibitions on bribing foreign officials, but also by the accounting requirements.  We would hope that it is the second concern that you are more worried about.  You will also be bound by the UK Bribery Act if you do any business in the UK, or if you have a “close connection” with the UK.

So, before you prepare your next accounting statements, or plan to deliver some brown envelopes, go have that little chat with your attorney.

Take a stand and report an incident of corruption. This article originally appeared in the Sunday Times Business Times on 22 July 2012.