The escalation of corporate corruption during the Covid-19 pandemic: Is the anti-corruption framework of the Companies Act 71 of 2008 adequate?

• Author: Cassim, R.
• DOI: https://doi.org/10.47348/SLR/2022/i3a1
• Published date: 27 October 2022
• Date: 27 October 2022
• Pages: 349-375

https://doi.org /10.47348/ SLR/2 022/i3 a1

349

THE ESCALATION OF CORPORATE

CORRUPTION DURING THE COVID-19

PANDEMIC: IS THE ANTI-CORRUPTION

FRAMEWORK OF THE COMPANIES ACT 71 OF

2008 ADEQUATE?

Rehana Cassim

BA LLB LLM LLD

Professor, Department of Mercantile Law, University of South Africa*

Abstract

During the Covid-19 pandemic, corruption in South African companies,

both state-owned and privately-owned, reached staggering proportions.

This included bribery, procurement irregularities, overpricing and

fraudulent deals between government ofcials and companies. This article

identies provisions of the Companies Act 71 of 2008 that may be used to

address corporate corruption. This is done with a view to ascertaining

whether the anti-corruption framework of the Companies Act is adequate to

counteract corporate corruption. It concludes that the Act contains a fairly

comprehensive framework to tackle corruption in companies registered under

it. In spite of this framework the level of corporate corruption remains high,

and increased substantially during the Covid-19 pandemic. The article makes

recommendations to reduce these high levels of corporate corruption.

Keyword s: Companies Act 71 of 2008; corporate corruption; br ibery; social

and ethics committee; disqu alica tion of directors; whistle-blowers

1 Introduction

The pandemic caused by SARS-CoV-2 (the coronavirus disease 2019

(Covid-19)) created uncertain economic conditions for many South African

companies. The forced shutdown of non-essential businesses and services

caused many companies to rely on remote working,1 one effect of which

may have been a lower level of oversight or even a failure to carry out due

diligence. As compliance requirements in South Africa were suspended in

the context of emergency state procurement, many companies beneted from

* This art icle was written w hile on research leave g ranted to me by the Un iversity of South Af rica (Unisa)

I absolve Unisa fro m any responsibilit y for any opinions or co nclusions containe d in this article

1 A national sta te of disaster was declare d on 15 March 2020 under the Disas ter Management Act 57 of

2002 (in ter ms of GN R 313 in GG 43096 of 15- 03-2020) The loc kdowns imposed in respon se to the

pandemic were i mplemented from 26 Ma rch 2020, in term s of GN R 398 in GG 43148 of 25-03-2020

(2022) 33 Stell LR 349

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https://doi.org /10.47348/ SLR/2 022/i3 a1

corrupt transactions.2 In the course of the national lockdowns in 2020 the scale

of corruption in South African companies reached staggering proportions. An

audit of Covid-19 expenditures in South Africa reveals overpricing, fraud,

and corruption.3 While the Covid-19 pandemic remains the greatest global

concern, many South Africans are more concerned about the distressing levels

of corruption in the country.4

In 2020, Corruption Watch recorded the second highest number of reports of

corruption received in a year, most of them from Gauteng.5 The most reported

forms of corruption in 2020 and 2021 in state institutions and companies were

maladministration, compliance issues, procurement irregularities, soliciting

of kickbacks, bribery and fraud.6 Corruption Watch recorded a high level of

corruption in the private sector during the Covid-19 pandemic. Malpractices

by companies included fraudulent deals between government ofcials and

companies to provide medical equipment which they had no licences to sell

or distribute;7 inated prices to supply personal protective equipment (“PPE”)

by companies8 (such as Dis-Chem Pharmacies Limited);9 irregular contracts

with companies to decontaminate schools in Gauteng during the Covid-19

2 Corrupt ion Watch “In South Af rica, Covid-19 Has Exp osed Greed an d Spurred Long- Needed Action

against Cor ruption” (04-09-2020) Transparency International og/

in-south-africa-covid-19-has-exposed-greed-and-spurred-long-needed-action-against-corruption>

(access ed 04- 07-2022)

3 Transparenc y Internat ional “Corr uption Percept ions Index 2021” (2022) Transparency International

(accessed 04-07-2022) The Cor ruption Perceptions In dex

published by Trans parency Inte rnational ra nks 180 countrie s according to th eir perceived levels of pu blic

sector corr uption Zero indicate s a highly corr upt state while 100 indicates a ve ry clean stat e South

Africa sco red a fail mark of 44 in 2021 (it received t he same score in 2019 and 2020 as well) In 2020,

South Afri ca had a ranki ng of 69 (out of 180 countries su rveyed) on the globa l scale in term s of its

perceived level of publi c sector corru ption, but slipped dow n to a ranking of 70 in 20 21

4 Business In sider SA “Survey Shows South Af ricans Are More Worried ab out Corruption tha n Covid”

(22- 01-20 21) Business Insider SA /www businessinsiderco za/survey-south-africans-are-more-

worried-about-corruption-than-covid-2021-1> (accessed 04-07-2022)

5 Corrupt ion Watch “Annual Report 20 20: From Crisis to Action” (2020) Corr uption Watch

corruptionwatch org za/wp- content/uploads/2021/05/Corruption-Watch-AR-2020-DBL-PG-20210324

pdf> (acces sed 04-07-2022) In 2021 the number of corrupt ion reports received by Cor ruption Watch

decreased sl ightly compare d to 2020 but it still re mains a signi ficant fig ure The highest number of

reports of co rruption came again f rom Gauteng in 2021 (Corrupt ion Watch “An nual Report 2021: Ten

Years Pushing for Ch ange” (2021) Corruption Watch

uploads/2022/03/cw-2021-annual-report-10-years-20220330-spreads pdf> (accessed 04-07-2022))

6 Corrupt ion Watch “Annual Report 2 020: From Crisis to Action” Cor ruption Watch 18; Corruption Watch

“Annual Repor t 2021: Ten Years P ushing for Change” Corr uption Watch 31

7 M Heywood “Sca ndal of the Year: Covid-19 Corr uption” (27-12-2020) Maverick Cit izen

dailymaverick co za/article/2020-12-27-scandal-of-the-year-covid-19-corruption /> (accessed

04-0 7-2022)

8 The Special In vestigating Unit (“SIU” ) estimates that the am ount of irregular exp enditure on Personal

Protective E quipment (“PPE”) in Ga uteng was R2 bil lion (Heywood “S candal of the Year: Covid -19

Corrupt ion” Maverick Citizen) The SIU esti mates further t hat, as at June 2021, the estimate d costs of

its investigat ions into irregul ar and corrupt proc urement of PPE by government de partments was R351

million, wh ile the potential amo unt recoverable was R1 39 billion As at the end of Ju ne 2021 there were

4 302 Covid-19 PPE contract s under investigat ion involving 2 421 service prov iders, but new cases we re

continual ly being added (L E nsor “SIU: As Much As R1 39bn Can Be Recouped A fter PPE Probes”

Business Da y (02-09-2021 2))

9 Dis-Chem Ph armacies Limit ed was found guilt y by the Competition Trib unal of the excessive pric ing of

surgical fac e masks and materi al price increase s (in the magnitude of b etween 43% to 261%) during the

Covid-19 pandemic wit hout any corres ponding incr eases in costs It was ordered t o pay an admin istrative

penalty of R1 200 0 00 (Competitio n Commission of So uth Africa v Dis -Chem Pharm acies Limited

(CR008Apr20) 2020 Compe tition Tribunal of S outh Africa (7 Ju ly 2020) Competition Tribunal Sou th

Africa (accessed 04-07-2022))

350 STELL LR 2022 3

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