THE LEGALITY OF CORPORATE GIFTS AND ENTERTAINMENT IN SOUTH AFRICA

By Tanya Viljoen

“We can defeat corruption because the frontline soldiers of corruption are gifts" - President Khalema Motlanthe in the Times published 25 February 2009

Introduction

The social norm of exchanging gifts and entertaining is well entrenched in the corporate arena.

Historically this common corporate practice has received little legal consideration, but as the global economy evolves and business relations become more regulated, considerable emphasis is placed on good corporate governance and the promotion of values such as integrity, transparency, accountability in all spheres of corporate interaction.

Reputable institutions are also becoming more pro-active in combating bribery and corruption.

When is the Exchange of Corporate Gifts and Entertainment an Offence?

A significant consequence of the enforcement of the Prevention and Combating of Corrupt Activities Act 12 of 2004 (“PCCA Act”) is that it extended the definition of corruption in South Africa to encompass corrupt activities amongst any persons or bodies, regardless of whether or not, one or more of them are public officers.

The general offence of corruption as defined in Section 3 of the PCCA Act is very broad and includes three elements, namely a “giver”, an “acceptor” and a “gratification”.

A giver is defined as “any person who directly or indirectly gives or agrees or offers to give to any other person any gratification, whether for the benefit of that other person or for the benefit of another person.”

An acceptor is defined as “any person who directly or indirectly accepts or agrees or offers to accept any gratification from any other person, whether for the benefit of himself or herself or for the benefit of another person”.

The PCCA Act definition of gratification is very broad and includes money, donations, gifts, loans, property, avoidance of a loss or other disadvantage, discounts, commission, bonuses, deductions, contract of employment or any status, honour, right, privilege, etc.

A person or body is guilty of an offence of corruption where the giving and/or accepting of the gratification inter alia amounts to any “unauthorised or improper inducement to do or not to do anything”.

Aside from the general definition of corruption the PCCA Act goes further and identifies certain corrupt activities in relation to contracts, tenders, public officers etc.

Unfortunately there is very little case law available on how the courts enforce the PCCA Act and therefore a conservative approach is recommended.

It is important to distinguish between the private and public sector as there are regulations and legislation which deal specifically with the public sector.

Private Sector

In South Africa gifts and entertainment offered and accepted within the private sector is not unlawful per se, as long as these are not intended and cannot be interpreted as being a form of gratification for an unauthorised or improper inducement to do or not to do anything.

In the recent Durban High Court case of Arrow Altech Distribution (Pty)Ltd v Byrne and others 2008 (2008) 1 All SA 356 (0), Judge Nicholson made the following remarks regarding the entertainment and gifts provided by the respondents to their customers, which were financed by the applicant company :

“…., these requisitions regularly included expenditure incurred in making gifts to and entertaining customers’ employees and suppliers of the applicant. Gifts included DVDs, alcohol purchases, gift baskets, tickets for sports events including test matches in cricket or rugby and tickets to an A1 Grand Prix event.

What distresses the court the most is the brazen and shameless manner in which this is put before the court whose assistance is sought in enforcing a customer connection founded on such disreputable sources . …

I appreciate that small tokens of gratitude or generosity might well fall under the de minimis non curat lex rule but the amounts involved were such as to take it outside the application of such a defence”. …..

Although the judge strongly disapproved of the gifts and entertainment that the respondents showered on the customers, the court did not have jurisdiction to consider the criminality of the conduct as the matter at hand was a civil matter. Accordingly the judge referred the papers in the matter to the Director of Public Prosecutions for investigation.

There is no statutory limit on corporate gifts and entertainment, but it is good corporate practice for companies to have their own internal gift policy regulating the acceptance and offering of gifts and a gift register should also be implemented for the recordal and monitoring of gifts and entertainment.

It is recommended that, to avoid genuine gifts being perceived as bribes, it would be sound practice to avoid offering or receiving lavish gifts and entertainment. Ideally gifts to clients should be uniform and preferably branded. It is also useful to issue all client gifts at a specific time of year, so that there is no inference of either favouring specific clients, or attempting to influence corporate relations. Gifts to, or received by, individuals involved in the procurement process are strongly discouraged.

To avoid any uncomfortable or compromising situations it is advisable to make advanced enquiries to an organisation about their policy in relation to gifts and entertainment.

Public & Government Sector

Section 4(1)(b) of the PCCA Act provides for offences in respect of corrupt activities relating to public bodies. Section 5 has the same provisions but applies to foreign Public officials.

The Public Finance Management Act 1 of 1999 ("PFMA") applies specifically to :
all government departments; public entities listed in Schedule 2 and 3 of the PFMA; the constitutional institutions identified in Schedule 1 of the PFMA; as well as parliament and provincial legislatures.

The object of the PFMA Act 1 of 1999 (“PFMA”) is to secure transparency, accountability and sound management of revenue, expenditure, assets and liabilities of the institutions to which the PFMA applies.

Private entities contracting with any of these entities also need to be aware of the provisions of the PFMA.

Treasury Regulation 16A8.3(d) stipulates that “a supply chain management official or other role player must ensure that they do not compromise the credibility or integrity of the supply chain management system through the acceptance of gifts or hospitality or any other act.”

Treasury Regulation 21 specifies how gifts, donations and sponsorship should be dealt with

With specific regard to the Public Service (all traditional government employees) the Public Service Commission Code of Conduct for Public Servants (“Code of Conduct”) which forms part of the Public Service Regulations (01 July 1999) should be considered.

There is a guideline in the Code of Conduct which stipulates :

“An employee does not use his or her official position to obtain private gifts or benefits for himself or herself during the performance of his or her official duties nor does he or she accept any gifts or benefits when offered as these may be construed as bribes.”

An employee may be found guilty of misconduct if he or she contravenes this guideline and therefore gifts and entertainment should not be offered to them.

Conclusion

Aside from the legal consequences that may flow from unlawful gifts or entertainment, the public and private sectors also need to consider the far reaching commercial damage that can be suffered as a result of either being found to be corrupt or being perceived to be corrupt. One only needs to consider some of the highly publicised ARM deals, to really appreciate how detrimental this can be.

 
www.bowman.co.za