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Category Archives: Blog

State Capture and its unfolding legacy

Read Time: 7 minutes

Few things have cast such a shadow over modern-day South African politics than the State Capture and the resultant Zondo Commission tasked with investigating it. And no name has been more present than that of the Gupta family – a state connection that continues to haunt the country – with the financial costs of illicit financial trade flows during this period crippling economic growth in the country.

While much of the corruption occurred under former president Jacob Zuma, who is himself under investigation (corruption and illicit financial trade flow in 2017 cost the South African economy an estimated R180 billion) the legacy of the myriad of illicit dealings continues to unfold today.

How much has State cost South Africa?

In 2017, Ebrahim Patel, South Africa’s minister of economic development, claimed that corruption costs the country R27bn and 76000 jobs every year. And, according to South Africa’s Minister of Public Enterprises, Pravin Gordhan, the cost of corruption during the second term of Zuma’s presidency amounted to as much as R500-billion per year. This figure pails in comparison to journalist Marianne Merton’s claim that State Capture under Zuma – over the last three years – cost the country R1.5-trillion!

Broken down, the amount can be attributed to:

  • R252,5-billion in lost budget,
  • R67-billion more in debt service costs,
  • R90-billion lost in tax revenue collection.
  • R506 billion were lost from the value of South African bonds and listed companies in the March 2017 midnight Cabinet reshuffle,
  • Nenegate wiped out R378-billion from the JSE.
  • R200-billion overspent on Medupi and Kusile coal power stations that are not only over budget but also overdue in completion. (Still has budget overruns)
  • The State Capture costs include R1-billion McKinsey consultancy fee, R659-million Eskom prepayment for coal to the Gupta-owned Tegeta and the R5,3-billion finder’s fee to a Gupta-linked company in the Transnet locomotive deal.

Economic growth in South Africa declined from 4.9% in 2006 to 0.7% in 2019, while the number of foreign investors coming to South Africa also declined. Products or services that could be produced in the country were replaced by imports from elsewhere in the world.

The news is not getting any better, with the economy in 2020 having contracted by 7.6% – the largest contraction in 90 years – and it’s expected to get worse, with the effects of the Covid-19 lockdown yet to be factored in. The deterioration in the government’s finances has also led to a lack of confidence in local investors, who have shelved future plans and reduced current investments, has only further exacerbated the situation.

While the shadow of State Capture has loomed large for years, the impact of a weakened and captured South African government was put on full display this year. A weakened state coffer had scarce economic resources available to support SA citizens during the Covid-19-imposed lockdown. If anything, the hard lockdown instituted by government further highlighted its inability to stamp out fraud and corruption, with a spate of high-profile allegations levelled against government officials, themselves tasked with managing the fight against the Covid-19 pandemic.

Cyril Ramaphosa promises to act against corruption

On a positive note, South African President Cyril Ramaphosa has been seen to be leading the fight against corruption in his government.  But it needs to be remembered that this has all taken place at the same time the Zondo Commission continues to unearth more allegations against the previous government under Zuma. That is a worrying sign.

In the second half of 2019, Business Confidence in South Africa hit a 20-year low shortly after Finance Director-General DondoMogajane told the Zondo commission that debt service costs in the 2016 Budget were R5-billion higher than initially planned. This was a result of the Cabinet shuffle that saw Zuma controversially appoint Des van Rooyen as the Minister of Finance for a weekend and was notoriously referred to by political parties as “a weekend special”…

Fronting and tenderpreneurism

The Zondo Commission still needs to run its course, and there will be a lot more to digest in coming months,  but two specific trends have begun to take root in the country: tenderpreneurism and BEE-fronting, with recent scandals involving South African politicians and the Gupta family having brought both of these into the public spotlight.

A tenderpreneur is described as an individual who enriches themselves through corrupting the awarding of government tender contracts, This is mostly based on personal connections and corrupt relationships – although outright bribery might also take place – and sometimes involving an elected or politically appointed official (or his/her family members) holding simultaneous business interests. This is often accompanied by overcharging and shoddy workmanship.

BEE-fronting, meanwhile, is an abuse of the rules governing Black Economic Empowerment (BEE), where qualifying persons are given a seat on the Board of a company while having no decision-making power in the company. All this is done to qualify the company for government contracts in terms of BEE. Numerous complaints have been filed against various South African companies regarding BEE-fronting, while a survey conducted by PriceWaterhouseCoopers in 2019, found that companies reported material financial and reputational impacts because of corruption and unethical behaviour by suppliers, employees, and customers. When quantifying the financial losses of BEE-fronting, it was found that 36% of companies reported a loss due to corruption of up to R1,8 million, 27% reported losing up to R18 million, and 13% claimed to have lost up to as much as R90 million as a result of corruption. In the same study, 50% of the companies surveyed reported that they had been accused of being involved in corruption themselves.

The outcomes of these statistics are telling. Companies who have suffered loss because of corruption reported to have seen material financial damage as well as a decline to their reputation and value of their brand. This in some cases, extended to damaging the reputation of individual executives and non-executive directors on the boards of companies.

Corruption places a heavy burden on the economy

Corruption continues to place a heavy burden on the economy – both in the financial and reputational aspects – yet the businesses that were surveyed reported much lower values of corruption than those reported by Patel in 2017. This again shows deficiencies in how corrupt practices are combatted.

Unfortunately, there is no doubt that there will be more revelations to come from the State Capture enquiries and we will be covering the outcomes in future articles.

For more information

For more information on State Capture in South Africa, and the role the Guptas and others are alleged to have played, download a copy of our E-book, which along with local case studies, looks at global cases and the legacies they have left. It also presents you with all the information at hand to better detect and fight corruption within your business.

Corporate Insights has developed a one-of-a-kind modular system that combines TransUnion’s big data universe with our own artificial intelligence and smart logic algorithms. It enables you to continually monitor, detect, act on, and prevent critical risks, both internally and externally.

The Corporate Insights system will allow you to protect your business from succumbing to the typical pitfalls that lead to corruption. It also comes with a host of additional benefits to ensure your company continues to operate optimally, free of the threat of corruption.

Click here to book a demonstration or call us today to find out how you can transform your business.

1

Corruption in South Africa – From Apartheid to Democracy

Read Time: 7 minutes

The topic of corruption in South Africa is a hard one to avoid, with the media headlines dominated by high-profile scandals, from State Capture and the Guptas to the more recent PPE corruption and mismanagement of Covid-relief funds, at times, there seems little else to digest.

Here we look back at some of the most high-profile cases within the South African government, ranging from the Apartheid-era to the current rule. From the Truth and Reconciliation Commission to the Zondo Commission, South Africa has had its fair share of corruption scandals to deal with and it’s certainly nothing new…

The Apartheid Regime

Open Secrets reported that the South African government during the Apartheid regime channelled around R339-billion into secret government accounts between 1978 and 1994, and while these funds were used to fight against the ANC-led sanctions regime, a material number of corruption allegations and findings were made in relation to business deals conducted to circumvent imposed sanctions.

An early example of state corruption is from 1984, in what was considered the largest case of grand scale fraud in maritime history. The case, which later became known as the Salem case, saw the South African government, through the use of middlemen, attempt to circumvent sanctions and covertly purchase oil using a tanker it had acquired called the Salem. The plan had the Salem dock in SA to secretly offload the oil, fill the tanker up with water and scuttle the vessel in the ocean to claim on insurance. At least 47 countries were affected by this case, setting off 13 separate investigations and legal proceedings. The only country in which no investigations or prosecutions took place? South Africa…

The Special Defence Account is another high-profile example of corruption during the Apartheid regime. Running from 1974 to 1994, its sole purpose was to obtain weapons/weapons technology from around the world. Government spent just under R50 billion on the programme, which in today’s climate would translate to roughly R501 billion.

Ultimately, the apartheid government became adept at getting around the sanctions imposed on them, including the exchange controls that were introduced to stem the flow of currency out of the country to support the levels of the Rand. They implemented numerous elaborate and fraudulent schemes to circumvent these controls and take advantage of the lucrative and illicit rewards on offer. Under these schemes, non-residents were able to invest capital in South Africa at a discounted exchange rate, known as the financial Rand and realise these investments sometime later at the higher, commercial exchange rate.

Exploitation of round tripping

These illegal activities became known as ’round tripping’ where enterprising South African locals would fund the non-residents’ investments into the country in return for a share of the profits made on the gains between the financial and commercial Rand exchange rates. To implement the scheme and achieve the aims of the investors, methods including fraudulent invoicing were often employed with the resultant tax evasion being commonplace occurrences. You can conclude that corruption was no less rife during Apartheid than it is now…

Unfortunately, the current climate in South Africa is much the same, with a number of high-profile cases of corruption playing out on various platforms – from court to social media – but again, this nothing new to our young(ish) democracy.

Alan Boesak, Sarafina II and the Arms Deal

From the fraudulent behavior of activist Alan Boesak – and his subsequent arrest and three-year jail term – to 1999 Arms Deal and the drama of Sarafina II, there have been more than enough corruption cases to keep us engaged. Worryingly, the Boesak case shows that the current government seems to favour internal investigations or long-winded commissions that seldom end in real punishment for those implicated. Boesak was initially cleared by then SA Deputy President Thabo Mbeki, who conducted his own investigation, a result that was rubbished by international observers, and while Boesakdideventually serve jail time, he would receive a presidential pardon in 2005 clearing him of any criminal wrongdoing.

The Arms Deal, meanwhile, was a wide-ranging affair, which questioned the $4-8-billion purchase of weaponry by the ANC government led by Nelson Mandela in 1999. It has long been subject to repeated, seemingly substantive, allegations of corruption and the fallout has been messy. The scandal became headline news when senior ANC MP Andrew Feinstein resigned in protest to the ANC moving to curtail a probe into the deal. Feinstein would later claim that by trying to cover up the corruption at play the ANC had ‘lost it moral compass’, while Corruption Watch reported that the massively flawed arms deal is viewed as having set a regrettable tone for government dealings ever since. The Seriti Commission that was set up to look into the Arms Deal was always seen to be a whitewash with little accomplished in the three years that it ran for. After years of legal wrangling, sparked by NGOs such as Corruption Watch and Right2Know, legal proceedings finally began to take place over the Arms Deal and those implicated in it. Currently, former president Jacob Zuma has a date in court on charges of corruption, fraud and racketeering.  But the reality is, that after more than 20 years, there has yet to be a conviction.

Sarafina II was another high-profile debacle that continues to haunt the current SA government. The project was headed up by then Minister of health, Dr. Nkosazana Dlamini-Zuma, who was caught lying to parliament. Following an investigation into the production, it was revealed that production contract was awarded to a good friend of Dlamini-Zuma. In the process, proper bidding procedures were ignored, the tender process was revealed to be a sham, and in the end, the approximate R14-million production costs of the play would be borne by the government.

Dlamini-Zuma, meanwhile, is currently the Cooperative Governance minister and leading the country’s fight against the Covid-19 pandemic, which itself has been marred by a number of PPE tender scandals, fraudulent COVID grant claims and other fraudulent behaviour.

From Apartheid to democracy, there have been significant, positive changes, but corruption is seemingly a constant, and if anything, recent headlines have exposed a systemic disdain for taking any real action. Perhaps recent developments may change this, but only time will tell if government acts, lest we suffer a Sarafina III or worse.

Government is not alone in its fight against corruption, of course, with a number of private companies caught up in massively damaging cases. In future blogs, we will profile these cases, and how they unfolded, including the wide-ranging costs to those involved,

For more Information

For more information on corruption in South Africa, download a copy of our E-book, which along with local case studies, looks at global cases and the legacies they have left. It also presents you with all the information at hand to better detect and fight corruption within your business.

Corporate Insights has developed a one-of-a-kind modular system that combines TransUnion’s big data universe with our own artificial intelligence and smart logic algorithms. It enables you to continually monitor, detect, act on, and prevent critical risks, both internally and externally.

The Corporate Insights system will allow you to protect your business from succumbing to the typical pitfalls that lead to corruption. It also comes with a host of additional benefits to ensure your company continues to operate optimally, free of the threat of corruption.

Click here to book a demonstration or call us today to find out how you can transform your business.

 

The first corporate collapses due to corruption

Read Time: 7 minutes

While it may seem at times that corruption does not bring with it any real consequences, occasionally the reality can be very different, with a number of companies paying the price for their actions.

South Africa is currently grappling with a number of high profile cases dominating the local headlines, and while little action has taken place at home (to date), globally a number of companies have been left decimated by corrupt practices, with others collapsing entirely. This kind of corruption, and the resultant fall-out, are nothing new.

The first corporate collapse due to corruption was several hundred years ago by the Dutch East India Company, with the huge publicly-listed multi-national falling foul to declining markets in the late 18th century, internal corruption, and excessive distribution of dividends (more than its profits), and finally the Anglo-Dutch wars. Founded in 1602, the company was nationalised by the Batavian Republic in 1796 but closed its doors three years later.

Arguably the first modern-day company to buckle under corruption was American energy company Enron in 2001 when its Directors and Executives fraudulently concealed large losses made by the company. A number of those found guilty went to prison, while a US court also convicted accounting firm Arthur Andersen of obstruction of justice by shredding documents relating to the Enron scandal.

The US steps up its fight against corruption

The US government has been seen to step up its fight against corruption, aggressively stepping up its enforcement of the  Foreign Corrupt Practices Act (FCPA) – a U.S. statute that prohibits firms and individuals from paying bribes to foreign officials to further business deals – with the top ten settlements during the Obama administration totalling over $3.7 billion! Most of these cases involved US firms bribing officials of foreign governments for access to lucrative contracts in the telecommunications, medical, and arms industries.

In January 2020, however, Airbus took corruption fines to new heights when they agreed to pay $3.9-billion in penalties to resolve foreign bribery charges with authorities in the United States, France, and the United Kingdom. $2.9 billion was paid in FCPA charges, nearly doubling 2019’s biggest FCPA case, which saw Ericsson pay out a $1.06-billion settlement.

According to the FCPA Blog, the global top FCPA 40 cases now sits at payments of $17.1 billion. That’s more than the GDPs of Belize, Somalia, the Seychelles, and Kyrgyzstan… combined. Airbus, of course, currently tops the list, with Petrobras (Brazil) claiming the dubious ‘honour’ of second place with $1.78 billion in 2018 and Telefonaktiebolaget LM Ericsson (Sweden) rounding out the top 3 with a settlement of $1.06 billion in 2019.

The US Department of Justice’s stepped-up enforcement of FCPA is part of a worldwide movement against government corruption, which would, it was claimed, help U.S. businesses abroad. “People want to see governments where they can succeed based on their own efforts, not based on corruption,” said LA assistant attorney general, Lanny Breuer. “We want U.S. business to compete on a level playing field.”

South Africa steps up the fight against corruption

Locally, the National Prosecuting Authority is also making moves to combat corruption, although not at the pace many would like. Opposition MPs in July criticised the slow pace of high-profile prosecutions taking place, despite promises made to the contrary. In July this year, the DA, EFF, ACDPA and others were at pains to highlight the lack of progress made prosecuting crimes related to state capture and corruption.

The NPA’s investigation into Transnet last year, for example, may have led seizure of assets of controversial company Regiments Capital, but to date, nobody has appeared in the dock. The company stands accused of involvement in Gupta-linked state capture, which saw The NPA flag R1.1 billion of Regiments’ revenue as the proceeds of crime. The Assets Forfeiture Unit in turn seized assets to this value, with those implicated forced to surrender the assets of all their companies and family trusts.

The key difference here is that while the FCPA has achieved considerable results by getting companies to pay fines, the NPA has moved to freeze company assets, but the accused have yet to appear in the dock.

We have listed the top 10 global cases below. The financial costs to these companies are quite staggering and again showcase the needs to ensure your business does not fall victim to these kinds of practices, either wittingly or unwittingly.

Top 10 global settlements

Airbus SE (Netherlands/France):

  • What they did: used agents across world to bribe officials to land high-value contracts.
  • Settlement costs: $2.09 billion in 2020.

PetróleoBrasileiro S.A. – Petrobras (Brazil):

  • What they did: Employees accepted more than $30 million in bribes to sell oil at lower costs.
  • Settlement costs: $1.78 billion in 2018.

Telefonaktiebolaget LM Ericsson (Sweden):

  • What they did: Improperly record tens of millions of dollars in improper payments around the world.
  • Settlement costs: $1.06 billion in 2019.

Telia Company AB (Sweden):

  • What they did: Paid more than $331 million in bribes to  Uzbek government officials.
  • Settlement costs: $1.01 billion in 2017.

Mobile TeleSystems Public Joint Stock Company (Russia):

  • What they did:paid $420 million in bribes to an Uzbek official related to the former President of Uzbekistan to secure business.
  • Settlement costs: $850 million in 2019.

Siemens AG (Germany):

  • What they did:Bribed Argentine government officials to win a government I.D. contract.
  • Settlement costs: $800 million in 2008.

VimpelCom Ltd. (Netherlands):

  • What they did:Paid more than $114 million in bribery payments to a government official in Uzbekistan between 2006 and 2012 to enable them to enter and continue operating in the Uzbek telecommunications market.
  • Settlement costs: $795 million in 2016.

Alstom S.A. (France):

  • What they did: Bribed officials to secure a transportation contract in Tunisia.
  • Settlementcosts: $772 million in 2014.

Société Générale S.A. (France):

  • What they did: Conducted a multi-year scheme to pay bribes to officials in Libya and manipulated the London InterBank Offered Rate (LIBOR), one of the world’s leading benchmark interest rates.
  • Settlement costs: $585 million in 2018.

Kellogg Brown & Root LLC  / Halliburton Company (United States):

  • What they did: Paid bribes to officials within the Nigerian government in order to obtain construction contracts related to the NLNG project.
  • Settlement costs: $579 million in 2009.

The above numbers reflect the reality that, while corruption is rife globally, the costs if caught far outweigh the gains. If anything, this further highlights the necessity of having a system that ensures it never happens in the first place.

Additional Resources

Corporate Insights has published an E-Book aimed at detailing the damage done by undetected corruption. Detailing global cases, the scourge of State Capture in South Africa, and other high-profile cases, it presents you with all the information at hand to better detect and fight corruption within your business.

* Corporate Insights has developed a one-of-a-kind modular system that combines TransUnion’s big data universe with our own artificial intelligence and smart logic algorithms. It enables you to continually monitor, detect, act on, and prevent critical risks, both internally and externally.

The Corporate Insights system will allow you to protect your business from succumbing to the typical pitfalls that lead to corruption. It also comes with a host of additional benefits to ensure your company continues to operate optimally, free of the threat of corruption.

Click here to book a demonstration or call us today to find out how you can transform your business.

Counting the costs of corruption

Read Time: 5 minutes

The financial costs to a company effected by corruption are very clear, with a myriad of cases over the years – and across the globe – detailing the staggering amounts lost. But while those numbers are jaw-dropping, they pale in comparison to the real costs of corruption being felt globally every year. While the companies directly affected may never recover – financially or reputationally – the roll-on effects of global corruption are equally devastating.

According to the World Economic Forum, the global cost of corruption amounts to $2.6 trillion at least. That’s equivalent to 5% of the global gross domestic product (GDP)! Further to that, the World Bank claims that businesses and individuals around the world are paying out more than $1 trillion in bribes every year. That’s a staggering amount in illicit practices and shows just how embedded corruption is in global practices.

United Nations denounce corruption

In 2019, then Secretary‑General of the United Nations, Antonio Guterres, spoke of the problem of corruption sweeping the globe, pointedly remarking that no country was safe from it – rich or poor, developed or developing, all were in danger of being derailed by corrupt practices in both private and public enterprise. Guterres stressed that corruption at by government officials not only hurt the state finances at an immediate level but also put future foreign investment at risk, further exacerbating the problem. The fall-out, of course, is not purely financial, with government corruption sowing the seeds of discontent amongst the public towards their perception of elected officials.

“Corruption breeds disillusion with Government and governance and is often at the root of political dysfunction and social disunity,” said Guterres at the time. He further noted, that more often than not, it is the poor that suffer most from such practices.

You need only look to the current climate in South Africa to understand just how corrupt practices can poison the morale of a country’s population…

Independent researcher, ŠtefanŠumah,says “corruption inhibits economic growth and affects business operations, employment and investments. It also reduces tax revenue and the effectiveness of various financial assistance programs”.

His study proposed that the impacts of corruption on an economy are far wider than the financial loss suffered by specific parties.

Sumah suggests that in addition to the increase in expenditure required to maintain the necessary development projects undertaken by the state, corruption reduces the availability of funds required for service delivery, reduces tax revenues and increases the cost of doing business through overregulation, bureaucracy and additional administrative measures.

FIFA 2010 World Cup fall out

You need to look no further than the fall-out from the 2010 FIFA Football World Cup where construction companies were sanctioned for collusion by the South African competition commission as an example of this.

It has, of course, long been accepted that corruption is associated with lower GNP per capita, and lower investments and growth rates, but a study by Ernesto Dal Bó, Professor of Business at the University of Berkley, and Martin Rossi, Associate Professor of Political Economy, of the University of San Andres in Argentina, was the first to show that corruption damages nations even further, by making the firms that operate there inefficient.

Using a theoretical model combined with data from 80 electricity distribution firms in Latin America between 1994 and 2001, the study found that in countries where government corruption was higher — as measured by the International Country Risk Guide and Transparency International — firms used significantly more employees to get the same job done. They found that if a country in their sample of Latin American nations with a median corruption level, namely Brazil, were to lower its corruption level to that of the least corrupt country — Costa Rica—its utilities firms would use 7 percent fewer workers. The effect is independent of a country’s general economic or political stability.

South Africa’s SOEs

Again, it is not hard to draw comparisons here with South African State Owned Enterprises (SOEs) such as Eskom and South African Airways, both of which have been at the centre of a slew of alleged corrupt practices and maladministration.

Laws and regulations against corruption exist, but they are largely ineffective due to weak judicial systems and the indifference of governments.
As such, studies have concluded that privately-run businesses need to take control of their own systems to combat corruption as they are key players in international business. It is up to these firms to institute strategies to increase performance and efficiency throughout their organisation and to establish anti-corruption systems.

Without these systems in place, they will continue to run the risk of corruption and the resultant spill-over effect.

Additional Resources

Corporate Insights has published an E-Book aimed at detailing the damage done by undetected corruption. Detailing global cases, the scourge of State Capture in South Africa, and other high-profile cases, it presents you with all the information at hand to better detect and fight corruption within your business.

*Corporate Insights has developed a one-of-a-kind modular system that combines TransUnion’s big data universe with our own artificial intelligence and smart logic algorithms. It enables you to continually monitor, detect, act on, and prevent critical risks, both internally and externally.

The Corporate Insights system will allow you to protect your business from succumbing to the typical pitfalls that lead to corruption. It also comes with a host of additional benefits to ensure your company continues to operate optimally, free of the threat of corruption.

Click here to book a demonstration or call us today to find out how you can transform your business.

 

 

Corruption: A brief history and where SA stands on the global scale

Read Time: 7 minutes

First written records of corruption

Corruption can come in many forms. It is described by Investopedia as “dishonest behavior by those in positions of power, such as managers or government officials. Corruption can include giving or accepting bribes or inappropriate gifts, double-dealing, under-the-table transactions, manipulating elections, diverting funds, laundering money, and defrauding investors.”

First and foremost, however, it needs to be said that corruption is not a new problem. It has been around for as long as people have been keeping records. Where some are willing to work for their gains, other are less prone to do so, preferring to jump the queue in order to reap the rewards. It has always been the case since the first recorded case of corruption was captured on a (stone) tablet around 2800 BC, while there are records of corruption seeping into the judiciary in Egypt from as early as 3100 BC. The first anti-corruption law, which criminalized electoral bribery, was written as early as 2000 BC.

Fast-forward to modern society and corruption is as rampant as ever, with both private and public enterprises crippled by activities such as bribery and embezzlement. Political corruption, meanwhile, is a common form of publicly reported corruption and is defined as when an officeholder or other governmental employee acts in an official capacity for personal gain. Sound familiar?

An Evil Scourge

By 2003, corruption had become so rife, so embedded in governments around the world, that the United Nations was moved to call it an ‘evil scourge’. It highlighted the disproportionate impacts corruption has on the poor in developing countries, such as in Africa, where funds were and are diverted away from development. In a bid to stem the tide, the United Nations Convention Against Corruption was launched in October 2003. This gave member countries a new instrument, containing standards, measures, and rules to fight corruption. It required member states to return the money from corrupt gains to the countries from which it was stolen.

On the face of it, the private sector is also well policed. Arguably the most well-known, and feared, anti-corruption legislation in the world is the US Foreign Corrupt Practices Act (FCPA), which was enabled in 1977. It has developed and maintained a phenomenal reputation for identifying, prosecuting and reaching settlements in corrupt transactions involving US based firms and their foreign counterparties.

But despite the success of the FCPA, the costs attributed to corruption are still overwhelming, with the top 10 settlements in the US alone, amounting to $6.2-billion. Put simply, finding corruption after the fact does not stem the financial burden attached to it.

How does South Africa rank?

So, where does South Africa fare in the global scale of corruption? According to the Corruption Perception Index (CPI), not very well.

Using a scale out of 100 – with 100 considered very clean, and 0 highly corrupt – the CPI ranks 180 countries and territories by their perceived levels of public sector corruption, according to experts and business people. The lower down the list a country finds itself, the higher the perceived corruption.

In the 2019 Index, South Africa ranked 70 out of 198, with a score of 44 out of 100. Certainly not a glowing report card, but hardly surprising when you consider the high-level corruption that has taken place in the country. The Zondo Commission, for example, continues to unearth massive corruption at the highest tiers of government, while the recent PPE tender scandal during the ongoing Covid-19 Pandemic has only served to further highlight the issues the country is facing.

To put it in numbers, former Finance Minister Pravin Gordhan has said that State Capture has cost the country around 500-billion per year, with government estimating it costing the country a staggering R1.5-trillion.This is almost equivalent to the 2019 South African budget and approximately one-third of the country’s GDP.

World Bank Studies

That is an astounding figure, and has gone undetected, despite the ambitions of the UN and global watch dogs. So how could such rampant corruption take place when the world is supposedly on high alert?

A World Bank study conducted in 2006 identified several criteria to manage the scope of corruption

  • Multi-sector: corruption is both an economic and governance problem.
  • Multi-level: corruption manifests at all levels of government and companies.
  • Many ways of manifestation: administrative corruption targets everyday actions at a low level; gratuities, small bribes, or gifts necessary to gain access – jump a queue or get served in a government department quickly.
  • Dynamic evolvement: Like markets, corruption patterns change over time and are adapted to suit changing circumstances or opportunities to avoid prevention and detection.
  • Influenced by situational factors: The fish rots from the head syndrome.

In identifying ways in which corruption manifests the study identified four key steps to be undertaken: pre-implementation analysis, risk assessment and impact study, diagnosis and analysis of results and program development and implementation.

The study used these tools to categorize countries into different enabling sectors of corruption. Using data gathered over a decade to 2006, most developed countries were categorised as either elite influence markets or elite cartels and leading African economies were categorised as being oligarchs and clans, with weak transitional states.

The influence of the Elite

Elite influence markets used wealth and power not for direct personal gain but to influence decisions or the implementation of policies. Transitional states or Provisional governments are moving from one form to another, defined as transfer of power from undemocratic to democratic are defined as economies that are developing and where institutions and their capacity are weak. High value stakes are up for grabs in transitional state countries, with very few rules moderating the high stakes games.

South Africa, of course, falls into the latter category, and it is abundantly clear that retro-active actions against corruption are not enough and do little to curb it. Forensic investigations, investigative lifestyle analysis, and crisis management, all deal with cases of corruption AFTER the fact. The reality is that the current tools were designed and defined in the 60’s and 70’s and they have not kept pace with changing times and technology. Because of this, they often fail to detect and prevent corruption and fraud, while they are also relatively expensive and disruptive to organisations. What is needed is a *proactive system that identifies corruption red flags and enables you to take action ahead of time. What is needed is a framework that provides a 360-degree view to detect and prevent corruption before it happens.

Corruption is nothing new, it has run rampant through government and private companies for thousands of years, despite the actions taken against it. To truly stamp it out, it needs to be detected before it can happen, not merely punished once its already done the damage.

Additional Resources

Corporate Insights has published an E-Book aimed at detailing the damage done by undetected corruption. Detailing global cases, the scourge of State Capture in South Africa, and other high-profile cases, it presents you with all the information at hand to better detect and fight corruption within your business.

*Corporate Insights has developed a one-of-a-kind modular system that combines TransUnion’s big data universe with our own artificial intelligence and smart logic algorithms. It enables you to continually monitor, detect, act on, and prevent critical risks, both internally and externally.

The Corporate Insights system will allow you to protect your business from succumbing to the typical pitfalls that lead to corruption. It also comes with a host of additional benefits to ensure your company continues to operate optimally, free of the threat of corruption.

Click here to book a demonstration or call us today to find out how you can transform your business.