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Duty to report certain offences

Prevention and Combating of Corrupt Activities Act, 2004 (Act 12 of 2004)

Financial Intelligence Centre Act, 2001 (Act 38 of 2001)

 

 Legal impact and potential regulators

  • Potential civil, criminal and administrative risks and liabilities arising from the investigation findings;
  • Lawyers have to advise re statutory duties, including reporting obligations and recommend remedial and other measures to mitigate risk;
  • Legal privilege is critical

Summary of Acts, contraventions & penalties

Act
Contravention
Penalty

PRECCA

Prevention and Combatting of Corrupt Activities Act, 2004

•Corruption
•Failure by a person in authority to report suspected corruption of R100K or more

Corruption:

•Fine or life imprisonment
•Fine of 5x bribe value
•Blacklisting
•Cancellation of contracts

Failure to report

•Fine or 10 years of prison

POCA

Prevention of Organised Crime Act, 1998

•Racketeering
•R1bn fine or life imprisonment

PFMA

Public Finance Management Act, 1999

•Breach of procurement rules
•Contract cancellation and damages
•Blacklisting

MFMA

Municipal Finance Management Act, 2003

•Breach of procurement rules
•Interfere with SCM mechanisms against corruption (a criminal offence)
•Contract cancellation and damages
•Blacklisting
•Criminal offence: fine or 5 years prison

PPPFA

Preferential Procurement Policy Framework Act, 2000

•Misrepresenting B-BBEE
•False information in a tender
•Undisclosed subcontracting arrangements
•Contract cancellation and damages
•Blacklisting
•A penalty of up to 10% of the contract value

PAJA

Promotion of Administrative Justice Act, 2000

•Tender irregularities constituting unfair administrative action
•Contracts set aside on review
•Court order to pay compensation

Companies Act, 2008

Breach of directors duties:

•knowingly caused harm
•withheld material information
•breach of fiduciary duties; or
•breach of duty of care skill and diligence
•Director personally liable for loss to company, shareholders or other affected third parties
•A company can be vicariously liable for third party loss

JSE

•Failure to report price sensitive information (e.g. known illicit activities)
•Shareholder claims for losses as a result of misrepresentation
•Cancellation of share subscriptions & restitution of share proceeds
•Directors may be personally liable

Competition Act, 1998

•Collusive tendering and price-fixing
•Fine of max 10% annual turnover
•Criminal offence:  R500K fine or 10 years prison or both
•Civil damages

FICA

Financial Intelligence Centre Act, 2001

•Failure to report suspicious or unusual transactions in 15 days
•R10m fine or 15 years prison

B-BBEE Act

Broad-Based Black Economic Empowerment Act, 2003
•Misrepresenting B-BBEE
•Fronting
•Fine of max 10% annual turnover
•Automatic blacklisting for 10 years

 

Forensic Practitioners must consider which regulators they need to engage with

  • National treasury – if the scandal impacts government departments – this is crucial as any state department can apply to have company blacklisted – disbarment can be 5 to 10 years;
  • JSE – if listed entity – need to also consider SENS announcements once company receives investigation updates (price sensitive info);
  • DPCI – Section 34 reporting obligation;
  • SIU – may be investigating on behalf of the government;
  • FIC – section 29 obligations;
  • Other potential regulators that apply to your specific area – eg SITA in tech companies;
  • Auditors – Auditors are obliged to submit RI reports to IRBA;
  • SAICA – CA’s in the business can face disciplinary measures (NOCLAR);
  • BEE – potential fronting;
  • Competition Commission – did the scandal involve antitrust activity;
  • CIPC – Companies Act – scandal may involve a breach of fiduciary duties by directors – fit and proper enquiries;
  • SARS – 100/200% penalties

 

PRECCA
According to section 34(1) of the Act, any person who holds a position of authority (defined in section 34(4) of the Act), who knows or ought reasonably to have known or suspected that any other person has committed an offence (of corruption) in terms of sections 3 to 16 or 20 to 21 of the Act or theft, fraud, extortion, forgery or uttering of a forged document involving an amount of R100 000,00 or more, must report such knowledge or suspicion or cause such knowledge or suspicion to be reported to any police official.
Section 34(2) of the Act provides that any person who fails to report such corrupt activities is guilty of an offence. The following are the people who must report:
the Director-General or head, or equivalent officer, of a national or provincial department;
in the case of a municipality, the municipal manager appointed in terms of section 82 of the Local Government: Municipal Structures Act, 1998 (Act No. 117 of 1998);
any public officer in the Senior Management Service of a public body;
any head, rector or principal of a tertiary institution;
the manager, secretary or a director of a company as defined in the Companies Act, 1973 (Act No. 61 of 1973), and includes a member of a close corporation as defined in the Close Corporations Act, 1984 (Act No. 69 of 1984);
the executive manager of any bank or other financial institution;
any partner in a partnership;
any person who has been appointed as chief executive officer or an equivalent officer of any agency, authority, board, commission, committee, corporation, council, department, entity, financial institution, foundation, fund, institute, service, or any other institution or organisation, whether established by legislation, contract or any other legal means;
any other person who is responsible for the overall management and control of the business of an employer; or
any person contemplated in paragraphs mentioned above, who has been appointed in an acting or temporary capacity.

What to report

Corruption:

Chapter 2 of the Prevention and Combating of Corrupt Activities Act, 2004 (Act 12 of 2004) defines corruption as

any person who gives or accepts or offers to give or accept any gratification amounting to an unauthorised or improper inducement to act or not to act in a particular manner using is guilty of an offence.

Common law offences under Section 34 of the Prevention and Combating of Corrupt Activities

Theft:

It consists of the unlawful appropriation of moveable corporeal property belonging to another with intent to deprive the owner permanently of the property.

Fraud:

It is the unlawful and intentional making of a misrepresentation which causes actual prejudice or which is potentially prejudicial to another.

Extortion:

It consists of taking from another some patrimonial or non-patrimonial advantage by intentionally and unlawfully subjecting that person to pressure which induces him or her to submit to the taking.

Forgery:

Forgery consists of unlawfully and intentionally making a false document to the actual or potential prejudice of another.

Uttering of forged document:

Uttering consists of unlawfully and intentionally passing off a false document (forged) to the actual or potential prejudice of another;

 Where and how to report an offence:

As amended by the South African Police Service Amendment Act, 2012 (Act 10 of 2012), reporting should be made to the police official in the Directorate for Priority Crime Investigation in terms of Section 34(1) of the Prevention and Combating of Corrupt Activities Act, 2004 (Act 12 of 2004).

 

PDF form to report offences in terms of section 34

Link to DPCI


Financial Intelligence Centre Act, 2001 (Act 38 of 2001)

 
WHO MUST REPORT?
The obligation to report suspicious and unusual transactions and activities under section 29 of the FIC Act apply to a very wide category of persons and institutions. The FIC Act imposes this obligation on any person who:
 
  • carries on a business;
  • is in charge of a business;
  • manages a business; or
  • is employed by a business.

The obligation to report in terms of section 29 of the FIC Act arises when a person knows of certain facts, or in circumstances in which a person ought reasonably to have known or suspected that certain facts exist. This means that a person associated with a business, as described above, must report his or her knowledge or suspicion to the Centre whenever:

  • he or she becomes aware of something; or
  • circumstances arise in which a person can reasonably be expected to be aware of something; or
  • circumstances arise in which a person can reasonably be expected to suspect something.
HOW TO FILE A REPORT?
  • Accountable and reporting institutions must report any transaction in which a client provides cash in excess of R24 999.99. This is known as a cash threshold report (CTR).
  • Any business or person associated with a business must report a transaction or interaction with a client that appears to be suspicious or unusual. This type of transaction or interaction could possibly be an attempt at money laundering or the financing of an act of terrorism. This report is known as a suspicious transaction report (STR).
  • An accountable institution must report to the FIC any situation in which they think they may possess or control property belonging to a client that could be linked to terrorism. This is known as a terrorist property report (TPR).

All these reports must be filed electronically on the goAML EE section of the FIC’s website. The goAML system has the capability to accept individual reports and to batch reports.