Disclosing corruption: corporates must look to their futures

Guptagate is demonstrating at length, and in the full glare of the media, how formerly respected companies allowed corrupt practices to continue over sustained periods of time.

For many companies, the question is what to do if they become aware of corrupt practices within their own ranks: come clean in a bid to limit damage control or keep the lid on?

David Loxton, Partner at Dentons, the world’s largest law firm, says that there is nothing voluntary about disclosing corruption in terms of South African law. Our law requires anybody who becomes aware of corruption to report it, so there is a huge risk in not disclosing.

“Being found to be corrupt is extremely damaging, with tattered reputations leading to cancelled contracts and staff flight. There is a distinct temptation to keep silent, but that is simply illegal as well as being unwise,” he says. “The real question is thus not whether to disclose but how much to disclose. I advise clients in this position to take vigorous and auditable steps to stop the corruption and to prevent it from reoccurring, but to disclose only the bare minimum to the authorities. The brutal truth of it is that a company gets no credit within the courts of public opinion or law for full disclosure, and premature disclosure can prejudice one’s future legal position.”

“The real question is thus not whether to disclose but how much to disclose.” – David Loxton

David Loxton, Partner at law firm Dentons South Africa

He strongly advises companies with no in-house legal counsel to engage with outside counsel who has experience in this particular area. Turning to auditors is not ideal because this is a legal process: it makes sense to have a lawyer on board. In addition, companies can be frank with lawyers because these communications are protected by privilege, whereas interactions with accountants or auditors are not. An experienced lawyer is also best placed to help negotiate a plea bargain if that seems an appropriate course of action.

When undertaking their own investigations into suspected corruption, Mr Loxton advises companies to avoid taping conversations or interviews as, in the event of a court case, these would have to be shared with prosecutors.

Companies with international interests or partnerships may also find themselves affected by corruption laws in other countries. The United States’ Foreign Corrupt Practices Act and the United Kingdom’s Bribery Act are the two best-known. Such companies should tighten their own policies and practices to ensure they comply with what are typically more stringent regulations.

“Corruption is something we all want to see stamped out. Companies must ensure that they have the right measures in place to prevent it but, if it does occur, they must proceed cautiously with their long-term survival in mind,” Mr Loxton concludes.