Graft Settlements – time for South Africa to join the global movement towards non-trial resolutions

by | Jul 13, 2022 | Chapter 9, General | 0 comments

By Colette Ashton


06 Jul 2022

Unlike amnesty, non-trial resolutions have built-in mechanisms to incentivise improvements in corporate culture. Among other things, companies typically only receive a non-trial resolutions after they have paid back a substantial sum of money.

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Traditional methods of prosecuting corruption are not well adapted to a complex 21st-century economy. Even the US Department of Justice finds it impossible to meet the high criminal burden of proof – beyond a reasonable doubt – in all cases.

Corporate corruption is so well disguised that it is sometimes difficult for experienced lawyers to tell the difference between a genuine invoice and one that is evidence of corruption. Investigations require massive resources and technical expertise.

The globalisation of high-end money laundering involves rapid cross-border transactions between multilayered chains of corporate structures, designed by teams of professionals to conceal beneficial ownership.

To complicate matters further, the beneficiaries of corruption are often also the primary enforcers of anti-corruption rules. The result is that the crimes that cause the most socioeconomic destruction are the most difficult to prosecute – resulting in widespread impunity for corruption, a burgeoning illicit economy and an erosion of the rule of law.

Seen in this light, it is clear that the traditional anti-corruption enforcement framework cannot be described as upholding the rule of law. Anti-corruption enforcement authorities need to develop innovative new methods more appropriate to a globalised economy.

Corruption is similar to organised crime: both rely on secretive networks, and the successful investigation and prosecution of both often require the use of inside information. This information is usually obtained by offering leniency to one or more members of the secretive network.

This method is the basis of the UN’s support of public-private cooperation as an effective way to combat corruption. Public-private cooperation is promoted by the UN Convention Against Corruption of 2002. It amounts to the use of leniency to encourage companies and people implicated in corruption to cooperate with law enforcement authorities.

Public-private cooperation is the “invisible foot” method of combating corruption, which targets the weak points of corrupt networks. Weak trust exists in these networks, partly because corrupt bargains cannot be enforced using the legal system, and partly because members of these networks are aware that their co-conspirators are inherently untrustworthy.

Law enforcement authorities should exploit this weak trust by providing strong incentives for people to come forward with information. Research shows that creating safe, reliable, predictable channels for people or companies to come forward with information is probably the most effective way to combat corruption.

Is there in existence a form of public-private cooperation that is widely used internationally, which has benefited from empirical research and is likely to help South Africa move towards better anti-corruption enforcement, while addressing some of the root causes of corruption?

These questions were addressed in my recent master’s thesis at the UN-founded International Anti-Corruption Academy in Vienna. Based on empirical research, the findings were: leniency as a strategy to investigate and prosecute corruption can and should be employed in a form that reinforces enforcement efforts against perpetrators of high-level corruption, strengthens preventative measures and enhances rather than damages investor confidence. Such an instrument exists, is widely used and enjoys a measure of success.

South Africa should join the global movement towards adopting non-trial resolutions (NTRs) for corruption. Such resolutions are any agreement between a legal or natural person and an enforcement authority to resolve bribery cases without a full trial on the merits of the allegations either before or after conviction (such as plea deals) or a non-conviction mechanism (such as non-prosecution, deferred-prosecution agreements, negotiated settlements or similar instruments).

Since South Africa already uses plea bargains, the paper researched the feasibility of the second type of NTRs, namely non-conviction-based NTRs, in the South African context.

Non-conviction-based NTRs avoid a finding of guilt, with the implicated person or company accepting “responsibility” instead. A finding of guilt is a powerful card in the hands of the prosecutor and can be exchanged for financial remediation and information that could lead to convictions against the individuals most responsible for the wrongdoing.

NTRs first arose within the ambit of the global anti-corruption discourse in the early 2000s when the US Department of Justice innovated a new method for enforcing corruption charges in terms of the Foreign Corrupt Practices Act. Using the inherent power of prosecutors to withdraw charges, the department developed various types of resolutions to resolve corruption charges without a trial – deferred prosecution agreements, non-prosecution agreements and declinations (decisions not to prosecute on the grounds that companies had satisfactorily remediated).

Since then, other countries, including the UK, the Netherlands, Brazil, Argentina, France, Israel, Japan, Chile, Canada and Australia, have also developed a legal framework to provide for NTRs. NTR-type instruments are also used to settle corruption cases out of court in countries including Malaysia, Norway and Germany. There is a substantial and growing body of empirical research about NTRs.

In some countries, like Canada, the UK and France, they are used exclusively for companies. In other countries, like the US, Brazil, Germany, Kenya and Malaysia, they are available for individuals as well as companies. If an international anti-corruption court is set up in the future, it is likely that it too will use the NTR methodology to good effect.

It is the author’s view, arrived at after two years of empirical research, that NTRs for individuals and companies could be a helpful tool in the struggle against corruption in South Africa. It should be possible to build a legal framework for such resolutions that upholds constitutional principles of openness, accountability and responsiveness. 

NTRs were recently endorsed by the OECD Working Group on Bribery in its latest Recommendation to Member States of their Anti-Bribery Convention (of which South Africa is a member state). The Zondo Commission also recommended that South Africa adopt a type of deferred prosecution agreement (one variety of a NTR).

Unlike amnesty, NTRs have built-in mechanisms to incentivise improvements in corporate culture. Companies typically only receive a NTR after they have paid back a substantial sum of money (usually more than the profits of corruption), improved their anti-corruption detection and prevention methods, handed over information to law enforcement authorities, taken disciplinary action against wrongdoers and admitted responsibility for a set of facts, which declaration is published.

This system shifts a substantial part of the burden of anti-corruption enforcement onto the private sector. For instance, in Canada, companies are required to pay for forensic specialists to assist the government in its own investigations.

An important advantage of NTRs is that they give countries a seat at the negotiating table where international corruption cases are settled. These days, large corporate corruption cases are usually not resolved at trials in the different countries where the offences took place. They are usually resolved without a trial at the negotiating table where each country that has cooperated in the investigation receives a portion of the penalties, which regularly amount to billions of dollars. The past decade has seen an increase in the use of these coordinated multijurisdictional NTRs.

Malaysia recently used them to reclaim the majority of the money it lost in the 1MDB scandal, with record settlements against corporates like Goldman Sachs, KPMG and Deloitte. The Malaysian finance minister has gone on record to say that the use of NTRs facilitated the rapid return of stolen funds to state coffers.

Lawyers who drew up corrupt contracts have handed over large sums in negotiated settlements with enforcement authorities to avoid a finding of guilt which would deprive them of their licences to practice. Information gained in these NTRs was used to convict high-level actors, from the CEO of Goldman Sachs Malaysia to the former prime minister Najib Razak.

The OECD records that NTRs have become the primary enforcement mechanism for foreign bribery rules and “could indirectly contribute to an overall increased enforcement” rate for these offences.

Non-conviction-based NTRs are the primary driver of this increased enforcement rate.

However, NTRs do not resemble conventional modes of justice and as such they can be controversial. International civil society organisations like Transparency International generally accept the necessity for NTRs, viewing them as a real-world compromise, essential to creating some form of accountability for corruption. However, they warn that, in the absence of sufficient transparency and oversight, NTRs could become secret “backroom deals” between powerful actors.

The Recommendation 6 Network, a coalition of civil society and business representatives, advised the OECD that the risk inherent in NTRs should be mitigated with accountability and transparency mechanisms, and that a “principled approach” to NTRs is imperative.

NTRs are not a silver bullet. They are one tool in a prosecutor’s toolbox that should be used alongside plea bargains and trials. NTRs are not designed for the worst offenders and would not be suitable for individuals such as the Guptas and companies such as Bosasa and Trillian. They are designed to incentivise companies and individuals with the potential for reform to make amends to society for their conduct and take steps, at their own expense, to avoid repeating this conduct in future. 

NTRs have been criticised as being a system of “justice for the rich” which allows wealthy people and companies to stay out of jail. However, an analysis of the NPA’s conviction statistics reveals that such a pattern of anti-corruption enforcement already exists. The National Director of Public Prosecutions, Shamila Batohi, admits in the latest NPA annual report that a situation exists of impunity for high-level corruption. NTRs are actually designed to counter this problem, incentivising the handover of information that can be used to prosecute high-level offenders.

Civil society and business should support the drafting of legislation to provide for NTRs which are designed to maximise principles of accountability, transparency and fairness.

For instance, NTRs must be published, together with details about the company’s wrongdoing and a formal acceptance of “responsibility” by the company for this conduct. A successful NTR framework depends on rewarding and protecting those who come forward with information. In the South African context, where corrupt bargains are often enforced using violence, whistle-blower protection is vital to the success of investigations and prosecutions.

The notion of amnesty for State Capture corruption in South Africa was first raised (and criticised) at the Daily Maverick Gathering in Cape Town in 2020. The same punters of the notion have again opined, this time in their op-ed column in Daily Maverick of 27 June 2022, A bitter pill it is, but there are sound reasons for giving amnesty to alleged State Capture wrongdoers.

Like NTRs, amnesty is a form of public-private cooperation in the investigation and prosecution of corruption. Amnesties for corruption have been used recently in countries like Nigeria, Moldova, Tunisia, Mongolia and Romania. Very little empirical research exists on their effectiveness as a tool in the struggle against corruption, particularly regarding their impact on deterrence and prevention. They are not a legitimate, internationally recognised tool to deal with corruption.

The use of amnesty as a tool to deal with corruption in South Africa, particularly in light of the recent recommendation by the OECD Working Group on Bribery that countries consider using NTRs, is likely to damage South Africa’s performance on corruption indices such as the World Bank’s Control of Corruption Indicator, with a resultant negative impact on its investment grading by ratings agencies like Moody’s.

By contrast, NTRs are an internationally recognised, legitimate way to prosecute corruption and should be incorporated into our legislation as a matter of urgency. DM

Colette Ashton is a civil society lawyer, a consultant to the Institute for Security Studies and a director of Accountability Now. She holds a master’s degree from the UN-founded International Anti-Corruption Academy in Vienna.

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