- PPE tender fraud has once again highlighted the prevalence of corruption in public procurement.
- Beneficial ownership transparency helps to “follow the money” and expose tender irregularities.
- The Public Procurement Bill process should make beneficial ownership transparency a requirement in order to do business with the state.
Corruption costs lives.
This simple truth has been grimly illustrated over the past months of national
disaster, where front-line workers have had to brave conditions with
insufficient or poor quality personal protective equipment.
Many of these workers
have contracted the virus, and some have died.
In monetary terms, the
cost of PPE tender fraud – as yet unquantified but suspected to run into
hundreds of millions (if not billions) of rand – will be
detrimental to the country’s efforts to recover from the blow that Covid-19 has
dealt to the economy. There will be a human cost to this, too, but these deaths
will be harder to pinpoint, the victims unnamed.
Recent weeks have seen
a number of revelations regarding the destination of public funds earmarked for
the procurement of life-saving PPE by government.
Instead of being spent
on acquiring adequate supplies of quality masks, gloves, face shields and other
equipment at fair prices, it appears that money has been siphoned into the pockets of the politically connected in exchange for PPE at
inflated prices.
So
egregious is the alleged looting that the president has signalled his displeasure, calling the profiteers “scavengers” and taking steps
to clamp down on PPE tender fraud.
“Scavengers”
is a tantalisingly evocative description, conjuring images of hyenas or
vultures tearing at a carcass. But tender fraudsters and beneficiaries of
corruption are not animals. They are people with names and ID numbers
and houses in fancy neighbourhoods. And we need to know who they are.
Who enjoys the spoils
of corruption?
This is the question
that we at amaBhungane ask ourselves regularly as we work to uncover acts of
corruption and those responsible for them.
Finding the answer to
that question is made all the more difficult when one of the parties to a
transaction – say, a bidder seeking to be awarded a lucrative government
contract – is a juristic person that is just one entity in a complicated
organogram involving layers of shell companies and trusts.
These arrangements,
which are sometimes facilitated with the assistance of shrewd lawyers and
consultants, are calculated to obfuscate the identities of those who profit
from dodgy tenders. As a result, “following the money” leads to dead ends, meaning
that the perpetrators’ identities are obscured and they are shielded from being
held accountable.
AmaBhungane is fighting
for beneficial ownership disclosure in order to answer that very question. The
“beneficial owner” is the individual that ultimately owns or controls a legal
entity: the person on whose behalf a transaction is being conducted. Where
there is corruption, it is the answer to the question of who enjoys the
spoils?
For years, amaBhungane
has advocated for the inclusion of beneficial ownership disclosure in our legal
framework via the Companies Amendment
Bill. While this process is ongoing, another avenue for beneficial ownership
disclosure has recently been opened: the Public Procurement Bill.
An unmissable opportunity
South Africa’s
piecemeal and uncoordinated procurement framework has been crying out for
reform for years. This is why the announcement of the publication of a draft Public
Procurement Bill – reportedly seven years in the making – was initially
welcomed.
Upon reading the Bill,
it unfortunately soon became clear that it is flawed in many respects, as
pointed out in various submissions by civil society organisations and
academics.
One of its greatest
failings is its light touch on matters of transparency, despite this being one
of the five essential requirements for procurement systems set out in the
Constitution. AmaBhungane has pointed out these deficiencies in our written
submissions on the Bill, including proposed revisions to the draft.
Outside of these
transparency concerns, the Bill is lacking in another important respect: it
misses the opportunity to require beneficial ownership disclosure as an
integral part of the procurement process. In other words, to introduce a
stipulation that, in order to tender for state business, each bidder would have
to submit information detailing who owns or controls them – and not just their
parent companies, but all the way down to the relevant individuals.
There are many reasons
why beneficial ownership disclosure in procurement is essential. First, it
allows the procuring entities to investigate potential conflicts of interest
prior to or during the procurement process, thereby eliminating ineligible
tenderers at an early stage.
Second, the public will
be able to access this information. This pro-active publication should be
enabled by the Bill itself in order to be maximally effective. The publication
of information in relation to PPE procurement has already revealed that tenders
have been awarded to politically exposed individuals. Real-time beneficial
ownership information, made available when tenders are submitted, will allow
for intense and timeous scrutiny.
Failing this, the
public would be able to request this information by submitting information
requests in terms of the Promotion of Access to Information Act. By permitting
this access, it will be possible to expose not only dodgy suppliers, but also
those officials who fail to act on conflicts of interest. This will feed into
accountability processes, where a lack of knowledge will be no excuse.
Arguments that bidders are
entitled to privacy cannot be sustained in this context. Where public funds are
spent, the public has a right to know. Those shy of public scrutiny will simply
have to refrain from seeking to do business with the state.
While it is possible
for members of the public to enquire into the shareholding of a company in
terms of the Companies Act, this is a blunt tool at best. Companies can delay
responding or refuse outright.
The prescribed avenue
of recourse where this occurs is to submit a complaint to the Companies and
Intellectual Property Commission (in our experience, a lengthy process without
defined time frames) or to go to court, which can be costly.
But crucially, in order
to peel back the layers of subsidiaries to the ultimate beneficial owner,
multiple share register requests may be needed – and this does not account for
the use of trusts, or for the fact that the Companies Act as it stands allows
for nominee shareholding.
The way forward
The president
has taken steps aimed at addressing PPE-related corruption, including signing a
proclamation authorising an investigation by the Special Investigating Unit and
setting up a committee of ministers to look into allegations of tender fraud.
However,
procurement-related corruption is a malaise that long predates Covid-19, and
will be with us long after. It can no longer suffice to take reactive measures
in response to a public outcry. Effective mechanisms are needed to deter
corrupt behaviour even before it occurs and aids in ensuring accountability.
The
way forward is simple. If we are serious about stamping out corruption, it is imperative
that beneficial ownership disclosure is included in the Public Procurement
Bill.
*
Thakur is amaBhungane’s advocacy coordinator.
*The amaBhungane Centre for Investigative
Journalism, an independent non-profit, produced this story.
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