I. Corporate liability deriving from criminal activity
1. Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company)
While the general rule is that only a natural person can perform a criminal act, a juristic person (including a corporation) can nevertheless be liable for a crime in certain circumstances.
Historically, corporate criminal liability in South Africa was determined through common law and principles of vicarious liability. Today, however, such liability is mainly governed by Section 332(1) of the Criminal Procedure Act No. 51 of 1977 (the “Criminal Procedure Act”). This provides that a corporate body may be held directly liable for any offense, whether under any law, be it at common law or statute, arising from:
- any act performed, with or without a particular intent, by or on instructions or with permission, express or implied, given by a director or servant of that corporate body; and
- the omission, with or without a particular intent, of any act which ought to have been but was not performed by or on instructions given by a director or servant of that corporate body,
in the exercise of his powers or in the performance of his duties as such director or servant or in furthering or endeavoring to further the interests of the corporate body. In such cases, the act or omission that gives rise to the offense shall be deemed to have been performed (and with the same intent, if any) by the corporate body.
In terms of Section 332(2) of the Criminal Procedure Act, a director or servant of the corporate body shall be cited as a representative of the corporate body in any prosecution and will be dealt with as if he were the person accused of the offense (although if the corporation is convicted, the liability will be imposed on the corporate, rather than the individual representative).
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
As noted above, Section 332(1) of the Criminal Procedure Act may impose criminal liability on a company for an offense “under any law, or common law.” The types of crimes and offenses that may give rise to criminal liability on the part of a corporate body are, therefore, varied and extensive and it is not possible to present an exhaustive list here.
3. Identification of companies and entities to which liability may apply
Section 332(1) of the Criminal Procedure Act applies to any corporate body and members of associations.
4. Corporate liability for crimes committed abroad by its representatives or subsidiaries
It is not possible to answer this question definitively because a corporation’s criminal liability in South Africa for a crime committed by its representatives or subsidiaries abroad will depend on a number of factors, including whether or not the crime constitutes an offense under South African law and whether or not there is a sufficient nexus between the offense committed by the representative/subsidiary to trigger liability on the part of the South African entity (for example, was the representative acting on the South African company’s instructions or with their permission/knowledge and/or seeking to further the local company’s interests?)
The Prevention and Combatting of Corrupt Activities Act No. 12 of 2004 (the “PCCA”) has extraterritorial jurisdiction in a number of circumstances, including where the individual accused of breaching its provisions is a citizen of South Africa, ordinarily resident in the republic, was arrested in the territory, or is a company incorporated or registered in the republic. Section 5 of the PCCA also makes it a crime to corrupt “foreign public officials.”
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
II. Applicable sanctions
1. Type of sanctions applicable to the company
In general terms, the sanctions imposed on a corporate body that is found to be criminally liable are fines or asset forfeiture. Fines may be imposed even if the relevant law governing the offense for which the company is convicted makes no provision for a fine, in which case the court will have discretion over what level of fine to impose.
Where a corporation has benefitted financially from the crime and/or acquired assets from the proceeds of the crime, the Asset Forfeiture Unit of the National Prosecution Authority may apply to the court for forfeiture of such assets.
South African companies convicted of foreign bribery may be barred from receiving public contracts in the republic, and South African courts may order the conviction to be registered if it also constitutes an offense under the PCCA.
It is possible that a criminal offense may also give rise to separate civil liability, as well as other industry/sector-specific law and regulation.
2. Interim measures, cease and desist orders, bans and confiscatory measures
The measures that are available will depend on the nature of the offense and whether or not the corporate body has previously been convicted of the offense in question.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
It is not possible to provide here a definitive list of the liability that may be imposed on a director or manager that fails (intentionally or negligently) to adopt measures to prevent a crime, as this will depend on a variety of factors, including the nature of the offense in question.
It is, however, worth noting that pursuant to Section 77 of the Companies Act No. 71 of 2008 (the “Companies Act”), a director is liable for any loss, damage or costs sustained by the company as a direct or indirect consequence of the director having:
- acted in the name of the company, signed anything on behalf of the company, or purported to bind the company or authorized the taking of any action by or on behalf of the company, despite knowing that the director lacked the authority to do so;
- acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a manner prohibited by Section 22 (1) of the Companies Act;
- been a party to an act or omission by the company despite knowing that the act or omission was calculated to defraud a creditor, employee or shareholder of the company, or had another fraudulent purpose;
- signed, consented to, or authorised, the publication of:
- any financial statements that were false or misleading in a material respect; or
- a prospectus, or a written statement contemplated in Section 101 of the Companies Act that contained:
- an “untrue statement” as defined and described in Section 95 of the Companies Act; or
- a statement to the effect that a person had consented to be a director of the company, when no such consent had been given, despite knowing that the statement was false, misleading or untrue, as the case may be, but the provisions of Section 104 (3) of the Companies Act, read with the changes required by the context, apply to limit the liability of a director in terms of this paragraph; or
- been present at a meeting, or participated in the making of a decision in terms of Section 74 of the Companies Act and failed to vote against:
- the issuing of any unauthorised shares, despite knowing that those shares had not been authorised in accordance with Section 36 of the Companies Act;
- the issuing of any authorised securities, despite knowing that the issue of those securities was inconsistent with Section 41 of the Companies Act;
- the granting of options to any person contemplated in Section 42 (4) of the Companies Act, despite knowing that any shares:
- for which the options could be exercised; or
- into which any securities could be converted, had not been authorised in terms of Section 36 of the Companies Act;
- the provision of financial assistance to any person contemplated in Section 44 for the acquisition of securities of the company, despite knowing that the provision of financial assistance was inconsistent with Section 44 of the Companies Act or the company’s Memorandum of Incorporation;
- the provision of financial assistance to a director for a purpose contemplated in Section 45 of the Companies Act, despite knowing that the provision of financial assistance was inconsistent with that section or the company’s Memorandum of Incorporation;
- a resolution approving a distribution, despite knowing that the distribution was contrary to Section 46 of the Companies Act;
- the acquisition by the company of any of its shares, or the shares of its holding company, despite knowing that the acquisition was contrary to Section 46 or 48 of the Companies Act; or
- an allotment by the company, despite knowing that the allotment was contrary to any provision of Chapter 4.
It should also be noted that from 1 May 2016, Section 73A of the Competition Act No. 89 of 1998 imposes personal liability on a director of a company or an individual engaged, or purportedly engaged, by a company in a position with management authority, if he has caused the company to engage in anti-competitive conduct or knowingly acquiesced in the company performing anti-competitive conduct. This includes failing to adopt measures to prevent the company from conducting anti-competitive practices. In such instance, the individual can be sentenced to a period of imprisonment of up to 10 years and/or a fine not exceeding ZAR 500,000.
Further, South Africa’s framework environmental legislation provides for joint and several liability of company directors with a company for deliberate, or inadvertent, environmental impact – including damage, degradation or pollution. Such liability may include administrative or criminal sanction.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
The adoption of a compliance “model” or program will not automatically exempt a corporate body from liability for criminal acts performed by its servants/directors. Corporations may, therefore, be prosecuted even if they have taken what may seem to be reasonable steps to mitigate the risk of a criminal act occurring.
That being said, the adoption and implementation of a compliance program can reduce the risk of a corporation being prosecuted or convicted, and is always recommended.
Where a corporation can demonstrate that it has, for example, taken steps to ensure that:
- its employees, representatives and officers receive regular training on compliance risks and relevant legal developments;
- it has in place policies and procedures that are effectively and regularly communicated to staff and representatives;
- it gives clear instructions on the scope of a person’s duties and on what they can or cannot do on behalf of the corporation; and
- it takes a firm and proactive approach to compliance,
the likelihood of the body being successfully prosecuted for a criminal act performed by its directors or servants may be reduced.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
As noted above, the adoption of a compliance model will not give rise to any automatic exemption from liability.
Some of the measures which a corporation may take in order to try to mitigate the risk of prosecution are, however, set out above.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body
There is no general requirement under South African law for a corporation to appoint an independent person to control, supervise or verify its compliance programme/ procedures and this is so even where a company has been found guilty of a criminal offense.
We nevertheless recommend that decisions regarding compliance are taken by senior officers/directors of the corporation, that the compliance programme is led “from the top” and that expert legal advice is sought as appropriate.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
The nature of the offense and the place in which the crime occurred will determine which specific court has jurisdiction to hear the matter (and if applicable, impose penalties). The trial may, however, be moved to another court within the jurisdiction of a Director of Public Prosecutions other than the one in whose area the offense was committed pursuant to Section 111(1)(a) of the Criminal Procedure Act.
Section 73A of the Competition Act provides that an individual may only be prosecuted where (i) the company has, in a consent order, acknowledged it has engaged in anti-competitive conduct or (ii) the Competition Tribunal or the Competition Appeal Court has made a finding that the firm engaged in anti-competitive conduct in terms of Section 4(1)(b).
2. Possibility of the application of interim measures
See II(2) above.
3. Plea bargains and related effects on the corporate liability
Pursuant to Section 332(2)(a) of the Criminal Procedure Act, a guilty plea by the director or servant who is cited as the representative in the prosecution will not generally be valid unless it has been authorised by the corporate body.
Any plea agreements entered into by the corporate should, moreover, be dealt with in accordance with Section 105A of the Criminal Procedure Act. This provides that a duly authorised prosecutor and an accused who is legally represented may, before the accused pleads to the charge, negotiate and enter into an agreement in respect of a guilty plea and if the accused is then convicted of the offense to which it has agreed to plead guilty, agree to a just sentence to be imposed by the court, or the postponement of the passing of the sentence and/or, if applicable, an award of compensation where the offense has caused damage or loss to property to the victim.
4. Imposition of sanctions against the company
See II(1) above.
5. Permanence of corporate liability if the crime is extinguished
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
There is no specific legislative provision that clarifies if, and in which circumstances, a parent company located abroad may be held criminally liable in relation to offenses committed by any of the local management, individuals or representatives.
Whether or not this can be the case will depend on a number of factors including where the crime was committed and pursuant to what law, whether or not the offense occurs under local/foreign legislation, the nexus between the parent company and the offense and whether or not it was aware of the offense or has a statutory duty to report it and whether the failure to do so will of itself result in a criminal offense.
2. Basis of liability and applicable sanctions
See above. There is no specific legislative provision that clarifies if, and in which circumstances, a parent company located abroad may be held criminally liable in relation to offenses committed by any of the local management, individuals or representatives.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
In S v. Coetzee, the Constitutional Court held that Section 332(5) of the Criminal Procedure Act (which states that where a corporate body has committed a criminal offense, any person who was, at the time of the commission of the offense, a director or servant of the corporate body shall be deemed to be guilty of the offense unless it is proved that the he or she did not take part in the commission of the offense and could not have prevented it), is unconstitutional.
Specifically, the Court held that this provision of the Criminal Procedure Act violates the presumption of innocence enshrined in Section 25(3)(c) of the interim constitution, and associated rights. In the circumstances, it declared the provision null and void from the date of the Court’s judgement.
2. Proposed or contemplated new legislation
Section 26 of the Mine Health and Safety Amendment Act has been introduced, but not yet proclaimed. If proclaimed, it will insert Section 86A into the Mine Health and Safety Act, which will regulate criminal liability for deaths, injuries and illnesses caused by failure to adhere to the provisions of the Act.
 Government Gazette No. 39952 of 22 April 2016.
 Section 73A(1) of the Competition Act.
 Section 74(a) of the Competition Amendment Act 1 of 2009.
 Section 24N(8) of the National Environmental Management Act 107 of 1998.
 Section 73A(3)
 1997 3 SA 527 (CC).
 26 of 2008.
 29 of 1996.