SOUTH AFRICA : FOLLOW-UP TO THE PHASE 3 REPORT & RECOMMENDATIONS June 2016 This report, submitted by South Africa, provides information on the progress made by South Africa in implementing the recommendations of its Phase 3 report. The OECD Working Group on Bribery's summary of and conclusions to the report were adopted on June 01 2016. The Phase 3 report evaluated South Africa's implementation of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the 2009 Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. 2 TABLE OF CONTENTS SUMMARY AND CONCLUSIONS BY THE WORKING GROUP ON BRIBERY ................................... 4 PHASE 3 EVALUATION OF SOUTH AFRICA: WRITTEN FOLLOW-UP REPORT .............................. 6 PART I: RECOMMENDATIONS FOR ACTION ......................................................................................... 7 PART II: ISSUES FOR FOLLOW-UP BY THE WORKING GROUP ....................................................... 40 3 SUMMARY AND CONCLUSIONS BY THE WORKING GROUP ON BRIBERY Summary of findings 1. In March 2016, South Africa presented its written follow-up report to the OECD Working Group on Bribery (Working Group), outlining its responses to the recommendations and follow-up issues identified during its Phase 3 evaluation in March 2016. South Africa has taken initial steps to implement the Working Group’s Phase 3 recommendations with 6 recommendations fully implemented, 23 partially implemented and 10 not implemented. One recommendation is no longer relevant and has been converted to a follow-up issue. 2. In Phase 3, the Working Group raised concerns about South Africa’s lack of enforcement and insufficient sanctions for legal persons (recommendations 2 and 3a). These concerns remain as South Africa was not able to present statistics and relevant examples to demonstrate adequate enforcement of legal person liability. In addition, sanctions for legal persons remain low, particularly where foreign bribery cases fall under the jurisdiction of the Regional Courts. South Africa has drafted amendments to address this concern; however, they remain at a very preliminary stage and, as currently drafted, would only address sanctions in cases that fall under the jurisdiction of the High Court. Regarding its confiscation capacity, South Africa has demonstrated an increase in the value of assets being seized in domestic corruption cases and taken positive steps to raise awareness of and improve its coordination on seizure and confiscation of assets in relation to foreign bribery. 3. Since Phase 3, the South African Government has highlighted its commitment to fighting foreign bribery in a number of national policy documents and has developed five work programmes within its inter-departmental Anti-Corruption Task Team to coordinate the government’s anti-corruption activities. In spite of these welcomed efforts, serious concerns remain about South Africa’s overall lack of active enforcement. At the time of its Phase 3 report, it had only 4 ongoing investigations from 10 allegations, all of which were far from reaching prosecution. While South Africa has yet to prosecute a case, its written follow-up report demonstrates some progress. South Africa now has 11 open investigations (from a total of 17 allegations) and has taken formal investigative steps in 4 of these cases. However, most of these cases appear far from prosecution and few formal investigative tools have been used in the majority of cases. This low level of enforcement remains particularly concerning in light of South Africa’s large economy and the sectors and countries with corruption risks in which it operates. 4. Since its Phase 3 report, South Africa has taken positive steps with respect to MLA, including assigning a specialized unit to handle MLA and tracking response times for processing incoming requests (recommendation 6). However, it emerged from South Africa’s follow-up report that the majority incoming requests (49 out of 54) have not been acted upon and that South Africa has only used MLA in connection with one of its ongoing investigations. 5. Few steps have been taken to address Phase 3 concerns that political and economic considerations may influence the investigation and prosecution of foreign bribery (recommendations 4a and 4g). While the Supreme Court has reviewed and requested amendments to the South African Police Service Amendment Act to improve guarantees of independence, the revised Act has not yet been passed and other concerns with regard to the independence of investigation and prosecution remain unaddressed. 6. With respect to money laundering, South Africa has provided training and guidelines on the detection of foreign bribery as a predicate offence to its supervisory authorities and the Financial Intelligence Centre. However, this training has not been extended to reporting institutions and South Africa still does not maintain comprehensive statistics on money laundering investigations and prosecutions. 4 7. South Africa has taken substantial measures to encourage the reporting of foreign bribery among the accounting and auditing profession. It has also taken positive steps to raise awareness among publicly listed and state owned enterprises of the requirement to establish social and ethics committees to further strengthen internal controls for preventing and detecting foreign bribery (recommendations 9d and 9e). However, in the absence of statistics, South Africa is unable to show whether it is effectively investigating, prosecuting, or sanctioning false accounting offences. In addition, no steps have been taken to close loopholes that may allow entities to escape external audits required by law (recommendations 9a and 9b). 8. South Africa is now systemically using language in its bilateral tax treaties to enable the use of information for non-tax purposes (recommendation 10f). It has also taken some steps to raise awareness of non-deductibility of bribe payments among small-medium sized enterprises and has provided training to tax auditors on detection of bribe payments (recommendations 10b and 10c). However, South Africa’s written follow-up report did not demonstrate that authorities are systemically auditing criminal defendants’ tax returns to determine whether bribes have been deducted (recommendation 10a). It was also unclear from South Africa’s report whether tax authorities are detecting and reporting bribe payments discovered in the course of their work (recommendation 10e). 9. In Phase 3, the Working Group noted an urgent need for South Africa to ensure whistleblowers are in practice afforded the protections guaranteed by the law (recommendations 12b and 12c). During the oral presentation of its report, South Africa provided new information that clauses 43 and 49 of the Protection of State Information Bill, which raised concerns during Phase 3, had been withdrawn. However, the Group could not properly assess the revised Bill at this late stage. While South Africa has drafted a Bill to strengthen its Protected Disclosures Act, awareness raising of whistleblower protections remains limited and no concrete steps have been taken to ensure that reporting can occur without fear of reprisal or retaliatory action. This is particularly concerning in an environment where there was a public perception of serious reprisals against whistleblowers. South Africa has however, taken steps to raise awareness of the foreign bribery offence more generally, though more could be done to target small to medium sized enterprises (recommendation 11). 10. Finally, regarding public advantages, South Africa has taken no action to ensure that adequate controls are in place to prevent foreign bribery in relation to official development assistance, including routinely checking contracting parties against international and domestic debarment lists (recommendation 13a). However, it has continued to train and raise awareness of foreign bribery among staff in the Export Credit Insurance Corporation (recommendation 13b). Conclusions of the Working Group on Bribery 10. Based on these findings, the Working Group concludes that recommendations 3c, 9d, 9e, 10c, 10f, and 13c have been fully implemented; recommendations 1, 2, 3d, 3e, 4a, 4b, 4c, 4d, 4e, 4f, 4g, 5, 6, 8a, 8b, 8c, 8d, 9c, 10b, 1, 10d, 10e, 11, and 12a have been partially implemented; and recommendations 3a, 3b, 9a, 9b, 10a, 12b, 12c, 12d, 13a, and 13b have not been implemented. Recommendation 7 is no longer relevant and has been converted to a follow-up issue. The Working Group also agreed to continue to monitor follow-up issues 14a-m as case law and practice develops. 11. The lead examiners recommend that the Working Group ask South Africa to report back in writing in one year on: (i) enforcement action including against legal persons (under recommendations 1 and 2); (ii) PRECCA amendments to raise the level of sanctions available to legal persons (recommendation 3a); (iii) steps taken to ensure that factors forbidden under Article 5 of the Convention do not influence the investigation and prosecution of foreign bribery cases (under recommendations 4a and 4g) whistleblowing (under recommendations 12b, 12c and 12d). Although