Lack of teeth means financial crime pays
Back in 2007 the Fidentia scandal rocked South African financial markets. At the heart of the scandal was the looting of a trust that was created to provide financial support to 50 000 widows and orphans.
The mastermind of the looting, J Arthur Brown, a crook who clearly didn’t like his first name, was found guilty of fraud.
His sentence? An initial fine of just
R150 000 — which he could easily afford to pay after stealing more than half a billion.
For a man who had been found guilty of depriving widows and orphans of their only source of income, the sentence was regarded by many as unjustly lenient.
On review, the Supreme Court of Appeal replaced the original sentence with 15 years’ imprisonment.
Since the Fidentia scandal, various corporate scandals have rocked South Africa, ranging from currency rigging to collusion by construction companies, bread cartels, state capture, BEE fronting, African Bank, VBS and, more recently, Steinhoff.
And yet, surprisingly, Brown remains the only perpetrator of crimes of this nature to have served time behind bars.
Last month the auditor-general released a report indicating that irregular and wasteful expenditure across municipalities has increased by over 70% in just the past year alone.
While the term does not necessarily mean the funds were not going to be spent, its irregular nature — usually through bypassing existing policies and guidelines regulating public spending — simply means that there is an implicit cost to the state when it fails to secure the most economical price. On the other hand, fruitless and wasteful expenditure simply means that no value was derived for the amount that was spent.
The cumulative effect of such actions has created a financial crisis across municipalities and state departments.
Every year the auditorgeneral has reported on such matters and highlighted that merely reporting on them is not sufficient if no actions are taken against the perpetrators.
Historically, the auditor-general’s own powers have never stretched beyond informing the affected stakeholders — municipal councils, for example — and simply advising them to take action.
For reasons no one has ever been able to crack, very few such cases ever get referred to prosecution agencies.
The recent passing of the Public Audit Amendment Bill is a massive step towards addressing this crisis.
The bill seeks to provide the auditorgeneral with the power to directly refer its own reports on financial malpractice to prosecution agencies. The auditor-general will now be able to direct that wasted funds be recovered from the accounting officers who have failed to adhere to the Public Finance Management Act.
When only 33 out of 257 municipalities are able to secure a clean audit, there is clearly a need for intervention.
But while the auditor-general’s powers of referral will now ensure that reports must be followed up, there is still the question of whether our justice system is well equipped to handle financial crimes.
Take the Gupta case, for example. This week the Free State High Court ordered that Gupta assets be unfrozen owing to the low probability of a prosecution being secured on the basis of available evidence.
Key to the question surrounding the money laundered from the Free State is the matter of how the state can prove that the amounts deposited into various Gupta-affiliated accounts originated from Free State government coffers.
Simply put, the NPA has failed to convince the courts — even on a preliminary basis — that it can secure a conviction in relation to the allegations of fraud and money laundering.
If our prosecution agencies are still battling with such questions, there is the distinct possibility that even the auditorgeneral’s powers of referral will be frustrated by lethargic prosecution agencies.
So, perhaps beyond just the powers advanced to the auditorgeneral, what is also of importance is a more holistic review of whether the existing civil justice framework — which allows perpetrators to get away with fines that are minuscule in relation to the social and financial impact of their crimes and even their revenues — is sufficient to assist us in destroying the cancer of corruption that has taken over the public sector and the private sector at large.
Until we find a way of aligning the sentence with the crimes committed, we might just end up with J Arthur Brown as the only perpetrator of financial crimes whose sentence has a tangible correlation to the scale and impact of his crimes.
Very few cases of public financial misdeeds ever get to prosecution