How to put corrupt officials behind bars in double-quick time

by | Apr 6, 2020 | General, Integrity Commission | 0 comments

Opinionista • Simon Mantell • 3 April 2020

The state can leapfrog conventional prosecutorial gridlock and jail state-owned-enterprise executives and company directors by using a ‘winning ugly’ strategy.

South Africans are hopelessly fatigued by the never-ending bad news stories of crooked politicians, equally dishonest business people, incompetent civil servants and hollowed out institutions where the topics of grand corruption and state profligacy loom large and the public is clamouring for visible justice where actions speak louder than words.

Unfortunately, little progress is being made owing to prosecutorial gridlock at a corrupted and sabotaged NPA devoid of the requisite forensic, data collection or financial skills necessary for the successful prosecutions of complex cases and where the NPA, on its current trajectory, will never achieve the timeous prosecutorial success necessary to assist our country in avoiding the failed-state bullet.

The NPA and the country are fast running out of road and, in many ways, the NPA’s unfortunate position is not dissimilar to that of the broken Springbok rugby team of 2017 where coach Rassie Erasmus was forced to adopt a simple “winning ugly” game plan in order to deliver the desired results in the shortest possible time frame.

It has been suggested by the NPA that solid corruption cases take between six to nine years to get to court and it is argued that this is unrealistic and that a blunt and simplistic prosecutorial approach analogous to the methodology employed by the World Cup-winning Springboks is required for the quicker ugly wins which will restore the country’s confidence in the NPA.

The win ugly strategy revolves around three key areas: the targets for prosecution; the readily available evidence which does not require skilled investigative teams; and the statutes to be relied upon for prosecution.

The targets at state-owned-entities (SOEs) and listed companies

While middle managers have certainly been involved in crooked procurement for pens and paper clips, it is the senior and executive management and boards known as the accounting authority at SOEs like Eskom, Prasa and SAA that have been the key decision-makers for the crooked procurement and fundraising deals and it the SOE accounting authorities, including non-executives, which are the blanket target. At listed companies, the entire boards, including non-executive directors of the likes of African Bank, Steinhoff and Tongaat, should be in the NPA’s sights.

The evidence

The existing annual financial statements (AFS) of SOEs and listed companies provide the original hard-copy evidence for prosecution in terms of the Companies Act, and the acknowledged business collapses of all the high profile SOEs confirms the absolute failure of the respective accounting authorities in terms of the relevant sections of the Public Finance Management Act (PFMA) which govern SOEs.

It must be noted that the evidence required to confirm breaches of these two acts does not require proof of corruption, which appears to be the current complex sticking point for the NPA.

The statutes – the Public Finance Management Act (PFMA) and the Companies Act

The PFMA and the Companies Act provide statutory guidance setting out the legal responsibilities for the accounting authorities and boards of directors and clarify the terms for criminal prosecution in the event of breaches of applicable sections.

Relevant sections of the PFMA include sections 50 and 51, which address the responsibilities and requirements of the accounting authority with respect to: care for assets; integrity and acting in the interests of the entity; maintenance of appropriate systems of internal control; procurement in a manner which is fair, transparent and cost-effective; prevention of wasteful and irregular expenditure and safeguarding of the assets and managing of the revenue, expenditure and liabilities of the public entity. 

Section 83 explains that an accounting authority commits an act of financial misconduct where it wilfully or negligently fails to comply with a requirement of sections 50 and 51 and makes or permits an irregular expenditure or fruitless and wasteful expenditure. This section also explains that the accounting authority members are individually and severally liable for any financial misconduct. 

Section 86 provides for imprisonment of five years if that accounting authority wilfully or in a grossly negligent way fails to comply with a provision of section 50, 51 or 55.

The PFMA does not set a high bar on the burden of proof in establishing breaches of relevant sections of this act and it is patently clear that successive accounting authorities of all the major SOEs have been grossly negligent for the consistent failure of lack of internal control as well as irregular procurement and wasteful expenditure, and by doing so have persistently breached sections 50 and 51, which provides for jail time in terms of section 86(2).

The PFMA’s first cousin, the Companies Act, provides an additional route for jail time owing to the act’s requirements with respect to the disclosure of misleading information in annual financial statements (AFS).

It is obvious that the AFS of SOEs, for which the accounting authorities are solely responsible, never make adequate disclosures relating to weak internal control and breaches of statute, which are requirements of both the PFMA and the Companies Act, and it is argued that the false disclosures by these accounting authorities, given all the available evidence, is fraudulent.

In a similar vein, the almost immediate implosions of listed companies like African Bank, Steinhoff and Tongaat following the signing-off of glowing AFS by their respective boards is indicative of clearly misleading AFS.

Section 29 of the Companies Act requires that annual financial statements must not be false or misleading in any material respect and that a person is guilty of an offence if that person is party to the preparation, approval or dissemination of AFS which are materially false or misleading.

Section 214 confirms that a person is guilty of an offence if the person is a party to the preparation, approval, dissemination or publication of AFS as described in section 29.

Section 216 confirms that any person guilty of an offence is liable in the case of a contravention of section 214 (1), to a fine or to imprisonment for a period not exceeding 10 years, or to both a fine and imprisonment.

The Companies Act draws no distinction between the responsibilities of executive and non-executive directors and it is patently clear that the accounting authorities of all the large SOEs have consistently breached the statutory requirements of the PFMA, while the hard-copy AFS in the reports of directors repeat the misleading and false statements of claimed compliance with the PFMA.

It follows then that the NPA can prosecute applicable boards, including the non-executive directors, who have profited handsomely from board fees, in terms of the PFMA and Companies Act and, where applicable, hold these individuals jointly and severally liable in their personal capacities.

Legitimate concerns exist as to the political will of the NPA to prosecute ANC appointed cadres at SOEs, but even in matters such as the Steinhoff fraud where no obvious political cover is required, the silence from the NPA has been deafening, leading to the conclusion that it is incapable of mounting any serious complex commercial prosecution.

Swift prosecution for elementary breaches of the PFMA and Companies Act resulting in a year or two of jail time allied to being financially broken through personal liability actions might not be as attractive as the elusive dream of high profile corruption cases taking six to nine years, but it will represent quick wins for a nation longing for justice. 

NPA head Shamila Batohi must surely recognise that the simple and blunt approach recommended above is the most practical strategy for putting the likes of Markus Jooste and Brian Molefe and their ilk in orange overalls in double-quick time and that the adoption of this win ugly game plan will provide breathing space necessary for the rebuilding of the NPA and its investigative capacity to take on the more complex cases in years to come.

A failure to do so will simply confirm the lack of political will. DM

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