The case for deferred prosecution agreements in South Africa

The Zondo Commission, which has been investigating alleged ‘state capture’ in South Africa, has recommended DPAs be introduced in the country. Lessons learned from their introduction in the UK and other jurisdictions show that they can be a valuable tool in uncovering corruption while offering businesses a route towards corporate immunity for those practices.

What are DPAs?

DPAs are agreements between the state and a company that allow both parties to get an optimal outcome. Typically, the company will admit wrongdoing and agree to pay a fine. In exchange, the state will agree to refrain from prosecuting the company in respect of the practices in scope of the agreement.

A company benefits from a DPA because it will avoid being criminally convicted and the associated adverse consequences that can result, such as being blacklisted from public sector tenders. The company also gets legal certainty. This is something that the current law in South Africa does not provide.

From the state’s perspective, a DPA allows it to recover ill-gotten gains without having to spend years fighting the company in court. Companies usually also agree to provide evidence against the individuals involved in the wrongdoing. This makes it easier for the state to prosecute the individuals that commit the crime.

What is the current position in South Africa?

There is no legislation or court-driven precedent that provides for the use of DPAs in South Africa currently. Whilst South Africa does not have DPAs, it does have a legal mechanism that can be used by state witnesses to achieve immunity from prosecution. The mechanism is contained in section 204 of the Criminal Procedure Act, 1977 (CPA).

What typically happens under this mechanism is that the state identifies a witness who, notwithstanding their participation in a crime, can provide evidence that is needed to bring down other more culpable perpetrators. The state, through the National Prosecuting Authority, will balance the pros and cons and enter into a deal with the witness to secure their testimony. The deal cannot be approved by the prosecution acting on its own and the court must make the decision the decision of whether or not to “discharge” the witness from prosecution. It will do so if it believes the witness has answered all questions put to them by the prosecution, defence and court “frankly and honestly”.

Section 204 applies to individuals who turn state witness. It has been applied in high profile corruption cases. One prominent case involved the former South African police commissioner Jackie Selebi and the deal that the state entered into with Glenn Agliotti. Between 2004 and 2008, Selebi was the president of Interpol. However, he was investigated for corruption in South Africa and the state identified Agliotti as a key witness. A deal was entered into and Agliotti testified that he paid Selebi more than R1.2 million ($83,000) in bribes. The deal enabled Agliotti to escape liability for the role he played as the corruptor whilst Selebi was convicted and sentenced to 15 years in prison.

Whilst section 204 provides legal certainty and a clear path to immunity for individuals, it does not do so for companies. Currently there is no clear path to corporate immunity from prosecution in South Africa. If anything, section 204 may incentivise employees involved in corruption to turn state witness in exchange for testifying against their employers.

The problem with the current legal framework is that companies that want to cooperate with the state and provide potentially self-incriminating evidence do so at the peril of being criminally charged as guaranteed immunity is not provided for in South African law. This may lead companies to decide that it is better to not cooperate or self-report corruption.

What has Zondo recommended?

Justice Raymond Zondo, who leads the Zondo Commission, appears to have recognised the shortcoming in the South African legal framework. In part one of the report, the case for introducing DPAs in South Africa is laid out. DPAs in the UK and the US are also dealt with briefly in the report as comparative examples.

Zondo recommends that the South African government introduce legislation that enables the state to enter into DPAs with companies subject to the following conditions:

• Companies must self-report and cooperate fully;
• Remedial action must be agreed to in order to avoid a reoccurrence of the corrupt conduct;
• A fine must be paid;
• The terms must be sanctioned – Zondo suggests that a new tribunal, envisaged as a component of a new centralized anti-corruption agency he has recommended be established – the Anti-Corruption Agency of South Africa (ACASA) –would be best placed to perform this function.

How do DPAs work in the UK?

DPAs are a relatively new tool in the UK’s anti-corruption armoury. They were only introduced at the beginning of 2014 under the provisions of Schedule 17 of the UK Crime and Courts Act 2013. It took almost two years for the first DPA to be entered into after the new legislation took effect. That DPA, reached at the end of 2015, involved a South African headquartered bank and concerned a corrupt arrangement in Tanzania that was linked to the bank’s UK subsidiary.

The core characteristics of UK DPAs include the following:

• DPAs can only be entered into with companies and other corporate bodies (referred to below as “company” or companies for ease of reference) – DPAs cannot be entered into with individuals;
• The prosecution must institute charges against the company and when this is done, the proceedings are automatically suspended. This means no other agency in the UK can charge the company for the same offence;
• The DPA itself must contain certain required particulars, including a statement of facts and conditions imposed on the company – where a fine is imposed it must be comparable with what would have been imposed if the company was found guilty of the offence;
• All DPAs must be approved by the courts – the courts will only give approval if it is deemed to be in the interests of justice and the terms are assessed to be fair, reasonable and proportionate;
• There are limits to the types of crime that can be addressed by a DPA. DPAs are limited to specified crimes – the specified crimes include corruption, fraud and certain other economic crimes.

Since the first DPA was entered into at the end of 2015, the UK’s Serious Fraud Office (SFO) has entered into 11 DPAs with other companies based on various different circumstances. The DPAs have included some of the most high-profile corruption cases in the world where companies have chosen to self-report and fully cooperate with the SFO to positively address the shortcomings in historical practices and make good the potential harm caused.

The largest recovery from a UK DPA to-date occurred in 2020 when Airbus SE agreed to pay the UK government €991 million as part of a global settlement amount of €3.6 billion in a case that also involved regulators in France and the US. This was the largest ever global settlement in relation to corruption.

Should South Africa implement DPAs?

Companies face an unenviable situation at present where they must consider whether or not to self-report and cooperate with the South African authorities in the context of ambiguity over, and risk of, criminal prosecution if they do so. There is no clear and guaranteed path to immunity and the current legal position discourages companies from doing the right thing.

The position in South Africa is further complicated by the provisions of section 34 of the Prevention and Combatting of Corrupt Activities Act 2004. This section requires persons in a position of authority to report any knowledge or suspicion of corruption to the police involving their companies, in certain circumstances. The obligation is not imposed on the company itself and it pits the interests of management against the company as failure to comply is a criminal offence. The result is that management may be compelled to self-report and trigger an investigation into their employer with no clear path to legal immunity. 

The success of the DPA model in the UK since 2014 shows how such a model could work in South Africa.

Some commentators may argue that companies that self-report and cooperate bring severe financial consequences onto themselves that the state would not be able to secure without their cooperation. However, the fines and recoveries imposed in the UK under DPAs are typically the same as what would have been imposed if the company was found guilty of the conduct based on the application of leniency under sentencing guidelines. The same leniency would not be afforded to a company that does not cooperate and a company that does not cooperate runs the risk of more severe fines if convicted.

Criminal conviction also brings about other adverse consequences, most notable blacklisting from public sector tenders – possible across multiple jurisdictions.

In view of the balance of risk, companies that have committed clear acts of corruption – through their employees or agents – can benefit from the legal certainty, lower fines and avoidance of criminal conviction that DPAs offer. The resolution of corruption also serves a greater societal good and can ensure that wrongdoers do not remain in positions where they can cause further harm.

The recommendation of the Zondo Commission that South Africa should introduce DPAs should be acted on by the South African government. The current legal framework is deficient and creates a minefield of competing legal obligations and risks that do not coherently encourage companies to do the right thing. A failure to introduce DPAs may leave the South African authorities behind in a global race for relevance in terms of anti-corruption enforcement.