Criminal charges around collusion is possible

Corruption Watch has called for criminal prosecution of individuals involved in the construction sector tender rigging scandal in a submission that should pass as one of the most forceful within the hullabaloo that has surrounded this saga.

The submission is forceful in making an unemotional but legal case for prosecution of individuals involved in the construction saga. The lobby group led by former chairperson of the Competition Tribunal said individuals involved in the tender rigging scandal must and can be individually prosecuted under the Prevention and Combating of Corrupt Activities Act.

The submission raises the possibility that the country will see a whole host of executives charged of corruption. Up to this far this possibility was largely seen to be remote and requiring legislative amendment.

Corruption Watch also called for companies to claw back bonuses awarded to individuals implicated in the cartel.

Corruption Watch made its submission to the Competition Tribunal hearing which followed a recommendation of a settlement agreement by the Competition Commission. The commission settlement agreement saw 15 construction firms fined a total of about R1.4bn. This has been met with disapproval from a number of quarters with observations that the penalty is lenient.

There have been calls for the prosecution of individuals involved in the scam but most such calls pass as emotional rumblings.

Corruption Watch submission said the behavior of construction firms made for “a particularly egregious form of collusion in part because it represents an assault on the living standards of those most dependent on the provision of public services and who can least afford a reduction in their living standards”.

“While we urge confirmation of the settlement agreements we align ourselves with the sentiment that the punishment meted out to the companies by the imposition of administrative penalties does not sufficiently fit the offence, particularly this rigging of public sector tenders, and so may not constitute sufficient punishment or have an adequate deterrent effect. We note particularly that the settlement embodies no consequence for any individual officers of the companies involved”.

The organisation added that “Individuals who manipulate a tender process by way of cover pricing or any other form of collusion in contravention of the Competition Act may in fact also be in contravention of sections 12 and 13 of our anti-corruption statute – PRECCA. And thus liable to be prosecuted under this statute”.

Thus where firms, through their employees and directors, participate in a bid-rigging cartel and engage in cover pricing to favour one or more firms in exchange for, for example a ‘loser’s fee’, this amounts, in Corruption Watch’s view, to an offence under PRECCA2. Those individuals who participated in this corrupt activity can and should be charged with this criminal offence, to which criminal sanctions, including imprisonment, attach”.

“It is however not only management level individuals, such as those potentially personally involved in bid rigging ‘negotiations’ that can be held to account under PRECCA. Section 34 of PRECCA mandates ‘persons in positions of authority’ to report any corrupt activity or suspected corrupt activity involving in excess of R100 000.00 to the police and makes the failure to report, even in instances where the person in authority ‘ought reasonably to have known’ about the corrupt activity, a criminal offence. A fine or up to ten years in prison attaches to this particular offence known as a ‘s34 offence’”.

The organisation said to date, a lack of co-ordination between competition law and anti-corruption law has allowed criminal acts committed by individuals to go unpunished. “International experience in combating corruption clearly indicates that it is necessary to hold individual perpetrators to account for their corrupt activities if these assaults on the public are to be effectively tackled and deterred”.

“We submit that additional sanctions must be explored. Certain of these require action by other law enforcement authorities, others require active intervention by those directly damaged by the cartel. Others may be fruitfully incorporated into future settlement agreements or require policy and legislative interventions. We are fully cognisant that these are not all within the jurisdiction of the competition authorities. However we see this as an appropriate forum to air our recommendations in this regard”.

Corruption Watch summed up its recommendation as follows: 

1. Commends the Competition Commission for securing consent agreements with the 15 Respondent companies and recommends that the Competition Tribunal confirms these settlements;

2. Urges the Competition Commission to make provision in future consent agreements for ‘naming and shaming’ of individual perpetrators;

3. Calls on the Competition Commission to take swift action against those companies in the cartel who have not settled claims;

4. Calls on the relevant prosecuting authorities to lay criminal charges against those individuals who have contravened the Prevention and Combatting of Corrupt Activities Act; and in order to counter the tendency to pass the buck to individuals lower down the chain in the corporate hierarchy we urge criminal investigation and exploration of charges under S34 of PRECCA;

5. Call on Companies to claw back bonuses awarded to individuals implicated in the cartel;

6. Calls on the Respondent companies to take steps against those individuals implicated including employment-related sanctions and to cooperate with the authorities in bringing individual perpetrators to book;

7. Calls on companies and Government Entities who have suffered loss at the hands of the Respondent companies to institute damages actions to recover losses;

8. Calls on shareholders to hold directors of the companies in which they hold an interest to account;

9. Calls on the Courts and, if necessary, the policy- and law-makers to draw from international trends and provide for the trebling of damages in the case of corruption-related offences, including bid-rigging.

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