Recently when the world was watching the battle for the US presidency between Senators McCain and Obama, the gloves came off with Obama’s online video “Keating Economics: John McCain and the making of a financial crisis”.
Before embarking on McCain’s “making of a financial crisis”, let us consider the local frontier and the prominent display in various forums of allegations of corruption.
To understand the corruption phenomenon, five key principles require closer scrutiny.
The first principle is the concept of corruption as defined in the Prevention and Combating of Corrupt Activities Act (PRECCA). Briefly summarised, corruption occurs in three stages:
- The acceptance of, agreement to accept, or offer to accept a corrupt payment and/or the giving of, agreeing to give or offering to give a corrupt payment
- In exchange, a party will agree to act either personally or by influencing another
- This action has a specific effect, such as the abuse of a position of authority that is designed to achieve an unjustified result or amounts to unauthorised or improper inducement to do or not to do something.
The second principle is the objective of the corrupt payment which is defined as “gratification” and is much broader than merely money exchanging hands. Some interesting examples are: the avoidance of a loss or other disadvantage – any office, status, honour or employment; the discharge or liquidation of a loan; and the protection from criminal proceedings.
On the topic of protection from criminal proceedings, we return to McCain. An article published on Time.com on 8 October 2008 summarised the content of the online video posted on Obama’s website. In summary, it stated that an investigation in the late 1980s by the Federal Home Loan Bank Board (FHLBB) indicated that Lincoln Savings and Loan (Lincoln) exceeded its investment limit into risky real estate ventures by $615 million. Lincoln was chaired by Charles Keating, Jnr (Keating). Before the FHLBB could take steps against Lincoln, five senators requested it not to institute charges against Lincoln. McCain was one of the five senators constituting the “Keating Five”. The only factor linking the senators was the fact that Keating had been a major contributor to their respective campaigns. Lincoln was seized by the FHLBB two years later, its investors lost their savings and Keating was convicted on 73 counts of fraud. The Senate Ethics Committee then conducted an investigation, which the “Keating Five” survived without legal consequence. All denied improper conduct, stating that they were not motivated to act because of Keating’s donations, but because of his status as a constituent. Keating saw it a bit differently and it is reported in the article that when asked whether his financial support had motivated the senators to intervene on his behalf, he responded by saying: “I want to say in the most forceful way I can: I hope so.”
The limited information in the article makes it impossible to conclude whether the above scenario would have amounted to corruption in the South African context. However, it does highlight an interesting factor when dealing with corruption. Keating supposedly donated funds to the “Keating Five”. Having no knowledge of other dealings between Keating and the senators, we must assume that the senators could have accepted the donations bona fide. When the call came afterwards to intervene on Keating’s behalf and the senators agreed to act in a manner which appears to have had the effect of an unjustified result, the question of corruption arises. Does a possible non-corrupt payment in the form of a donation, (at least from the view point of the senators), now transform itself into a corrupt payment? In these instances, the relationship between the parties over a period of time would have to be considered to conclude as to whether the parties had an overall corrupt relationship, as no direct link can be identified between a specific payment made and a specific benefit received.
Returning to the five principles, the third is that PRECCA pre-empted some “less creative” excuses when it listed three defences which cannot be raised by the accused:
- The accused did not have the power, right or opportunity to perform the agreed act
- The accused claims never to have intended to perform the agreed act, and
- Note to the untrustworthy corrupt partner: The accused cannot claim that he failed to perform as agreed.
The fourth principle is that a South African citizen or company registered in South Africa is bound by PRECCA, even when outside South African borders.
There seems to be a trend to adopt a US invention, in the form of a facilitation payment, as it stems from the Foreign Corrupt Practices Act (FCPA), US legislation that allows for making facilitation payments defined as:
- A small amount
- To facilitate “routine governmental action”
- Action must be non-discretionary
- All payments must be accurately recorded, and
- Must be allowed under local written laws and regulations.
Even though the tides of globalisation have washed ashore various US inventions, the practice of facilitation payments cannot legally be accommodated in South Africa as PRECCA does not provide for this exemption.
The fifth principle is the reporting responsibility which inter alia provides that a person who holds a position of authority (which includes by definition a director of a company) and who knows or ought to reasonably have known or suspected that a person has committed the offence of corruption, theft, fraud etc, involving an amount of R100 000 or more, must report such knowledge or suspicion to the police.
Is corruption only government’s responsibility? Or is it not true that too often in South African business, we find “Keatings”, willing to make a profit at any cost? Based on the principle of supply and demand, the economics of corruption has to show a negative growth if either party, being government or business, responds.
Source document:
The Keating Five by Alyssa Fetini, http://www.time.com/time/business/article/0,8599,1848150,00.html