Business in Africa: Fraud and Corruption
The challenge presented by fraud and corruption
Fraud and corruption will always be at the forefront of the minds of those looking to invest in Africa. In this regard, the recently published KPMG Africa fraud Barometer for 2011 reported some telling statistics about reported fraud on the continent. The Barometer was developed “to form a bigger picture of fraud prevalence on the African continent”, incorporating data from available news articles on Africa and other designated databases. The Barometer compares fraud reports from the six months ended June 2011 to the six months ended December 2011.
What is clear from the report is that although there was a 46.47 percent increase in the number of reported cases from the first six months to the second, there was a Us$3.4 billion decrease in the value of reported cases. Most fraud cases were committed by employees during both periods, but the highest value of fraud cases was perpetrated by management in the second half, and professional advisors in the first.
Government, in both periods, was the most frequently targeted victim − with insurance companies hit less than 5 percent. Fraud and misrepresentation constituted the most common type of offence (35 percent to 38 percent), followed by misappropriation and theft. Bribery and corruption constituted approximately 10 percent to 12 percent of all cases. However, these statistics relate only to cases that were reported. In terms of the number of reported fraud cases, South Africa was the hardest hit with 37 percent of all African cases in the first half and 35 percent in the second. In terms of the value involved, the country suffered fraud losses of approximately US $4 billion in the first half, which decreased dramatically to approximately US $500 million in the second. Other countries hard hit by fraud include Nigeria (25 percent in the first half and 22 percent in the second) and Zimbabwe, with fraud totaling more than US $1.2 billion in the second half.
Several countries in Africa have anti-corruption legislation in place. Differences among them lie in the tenacity with which the provisions are enforced. However, regardless of the existing local regulatory framework, foreign companies may be governed by other legislation. It is critical that they be vigilant about their conduct and what may be regarded as corruption. Foreign nationals should be wary of requests by government officials in Africa for ‘facilitation payments’.
The term was coined following an exception granted to such payments by the United States Foreign Corrupt Practices Act (FCPA). The act prohibits corrupt payments by US companies to foreign officials for the purpose of securing or retaining business or gaining an improper advantage. In terms of the act, it is an offence to offer, promise or make the corrupt payment. This also applies to entities and individuals who, while in the US, “take some act in furtherance of such payment”.
Specifically excluded from the act’s prohibition is a ‘facilitation payment’ made to a foreign official, political party or party representative to expedite routine government action − such as securing basic services, expediting paperwork or scheduling (but not passing) inspections. To qualify as an authorised facilitation payment, the amount paid must be a small Dollar amount, must be accurately recorded, as a facilitation payment and the foreign official involved must have no legal discretion over whether or not to perform the act whose expedition is sought. The FCPA is applicable to any domestic us company or person or entity listed on a US stock exchange and its subsidiaries.
UK Bribery Act and the South Africa PRECCA
Despite the exception created by the FCPA, companies and their directors or employees may also be subject to other, more stringent legislative provisions such as the UK Bribery act or the South African Prevention and Combating of Corrupt Activities Act (PRECCA), neither of which allows such facilitation payments. The UK act applies to, among others, all British citizens and those ordinarily resident in the UK, as well as “a body” incorporated under the law of any part of the United Kingdom. This includes entities with their head office in the UK and those carrying on all or part of a business in that region. The act will apply regardless of where the offence takes place.
Among the various acts criminalised by this piece of legislation is the act of bribing a foreign public official. Such an offence occurs where an individual bribes a foreign official with the intent to obtain or retain business or an advantage in the conduct of business. Expediting routine government action is not specifically excluded in this act. Companies must be cautious, when they have offices incorporated in the United Kingdom, not to fall foul of this statute as, like its Us counterpart, the penalties are substantial.
In South Africa, PRECCA creates various offences relating to bribery and corruption including, specifically, corrupt activities relating to foreign public officials. This statute creates an offence, among others, of providing a ‘gratification’ to a foreign public official in exchange for that person acting in violation of a legal duty, or in a way that is designed to achieve an unjustified result. This act also provides for extraterritorial jurisdiction, in that it applies outside South Africa where the individual is a South African citizen, ordinarily resident in South Africa or where the entity is a company incorporated or registered under any law in South Africa. This act, too, provides no exception for facilitation payments made outside South African borders.
The three Ps of Africa business
No new territory is without its challenges for a company looking to penetrate the market. If the challenges are unique on the African continent, then the potential is in the same class. It is imperative to always remember that Africa is a continent of patriots who are proud of their countries and cultures. It is critical that foreign employers gain knowledge of the cultural beliefs and practices of the people in an African country and respect them. The key to doing business in Africa was succinctly summed up in an article entitled ‘How to succeed in the African Market’ published on www.africa-business.com:
About David Okwara
Africa, Africa challenges, Africa opportunities, anti-corruption, anti-corruption legislation, bigger picture, bribery, common offence, development, FCPA, fraud, fraud and corruption, government, insurance companies, Invest Africa, investment, KPMG Fraud Barometer, Legislation, misrepresentation, Nigeria, PRECCA, regulation, South Africa, The three Ps of Africa business, transformation, UK, UK Bribery Act, Zimbabwe