Law, Examples and Summary Around Governance, Compliance and Investigations related to Business

- Featured article by LAWYERS-ONLINE.CO.ZA - June 2019

When it comes to doing business in South Africa, there is always a risk of fraudulent action derailing any well-meaning attempt at entrepreneurship. This is particularly applicable to those businesses dealing with issues of governance and compliance as it relates to business. In many cases, investigations are required to resolve these types of disputes with the help of a legal professional.

As South African law is incredibly rigorous and complex when it comes to regulatory compliance, it is important to consult the law on the matter and stay ahead of the developments. In fact, some legal professionals specialise in this field, making an entire career out of helping companies leverage their need for compliance into the core values of the company.

So how is this done? Well, it comes down to investigating whether or not the current policies that a company has in place are in line with current legislative needs and provisions. For example, if a company wishes to go public, a compliance professional will help them understand the role of a board, draw up the necessary documentation for them and even train employees, managers, and executives on how to operate under these new regulations.

So what happens if a business does not meet governance and compliance regulations following an investigation? Well, this leaves a business open to both criminal and civil liability, meaning they can face heavy penalties in the eyes of the law, while also being sued by a private member of society.

For example, under the Competition Act 89 of 1998, and its ensuing amendments, companies may not only face a fine for non-compliance, but they are also exposed to the real possibility of a criminal investigation into their practices and possibly contravention of the regulatory framework provided for in the act.

So why all the need for such heavy regulation and compliance measures? Well if we use the example of the Competition Act above, we can see that it would be greatly detrimental to public interest, the economy and smaller businesses if companies were not held to standard regarding price fixing and colluding. In South Africa, contravention of regulatory compliance measures is taken very seriously. In fact, the Hawks are a special branch of the South African police service that often investigates these matters.

So stringent are the measures for governance and compliance that the legislative branch even stepped in to create the Prevention and Combating of Corrupt Activities Act 12 of 2004. Under the act, directors of companies may even face liability in their personal capacity of the business under their control does not meet regulatory standards.

Other pieces of legislation that also have an influence on governance, compliance and investigations include The Companies Act 71 of 2008. For example, if a director of a business has a prior conviction related to bribery, fraud, or offence contained in the acts mentioned above, they are disqualified from occupying that position. This is why it is so important to employ a compliance professional to help you investigate these matters and ensure that none of these regulations are being broken. A person may not disclose their criminal record or it may even be sealed from public record, therefore doing proper due diligence is of the utmost importance.

So we have covered the criminal and civil liability aspect of governance and compliance, but what of the reputational damage? A business's image is everything and in order to drum up business and continue to make valuable contacts, it needs a sparkling reputation. Being embroiled in a compliance scandal does not promote good business in the future. Even if the act of non-compliance was a simple oversight or due to ignorance regarding the law, it still stains a reputation. Therefore ensuring compliance before trading is best.

To talk to a compliance professional or to simply seek legal advice regarding the information above, kindly reach out to us and we can put you in touch with a lawyer who will be able to assist.