Three strikes against graft: assessing the impact of high-profile corruption

(March 15, 2004) Discussion paper on the Lesotho highlands bribery prosecutions.

by Guido Penzhorn SC, paper delivered to the Institute for Security Studies (ISS) seminar on the impact of high-profile corruption cases in Lesotho, Mozambique and South Africa, held in Gauteng, South Africa, March 15-17, 2004.

1.     In 1998 I was briefed to make an application on behalf of the Lesotho government to the Swiss authorities for the release of the Swiss bank records of the LHDA Chief Executive, Mr. M.E. Sole. Swiss legislation regulates how such an application is to be made. This application was later expanded to include bank accounts held in Switzerland by contractors/consultants engaged on the Highlands Water Project. The applications were vehemently resisted, all ending up in the Swiss Federal Appeal Court, which finally ordered the release of these records. These were received in Lesotho in June 1999. (A similar application for mutual legal assistance was made at about the same time to the French authorities and this was also successful.)

2.     I was then retained by the Lesotho government, together with Hjalmar Woker, also of the Durban Bar, as my junior, to investigate these matters, together with Deputy Commissioner Matsoso who since then has been our investigating officer throughout, and to prosecute those which we identified as being involved in this bribery can of worms which is what all this turned out to be. On the information available to us we were in a position to charge Mr. Sole almost immediately and we did so in July 1999. Thereafter we charged the other consultants and contractors involved and brought them before Court in December of that year. Cullinan AJ, before whom the matter came, ordered a separation of trials and we then first proceeded with the case against Sole. Thereafter followed Acres, Lahmeyer, Du Plooy (the intermediary who paid on behalf of the consortium which built the Katse Dam, led by the Italian company Impregilo) and Spie Batignolles.

3.     A forensic analysis by Jean Roux of PriceWaterHouseCoopers revealed a pattern of payments which is conveniently summarised in exhibit “AH” in the trial against Mr Sole. A reduced copy of exhibit “AH” is annexed here to to give an idea of what was involved. A larger one will be available at the time I present this paper. Briefly, the figures on the left [the document referred to is not available as an attachment with this paper] denote the contractors/consultants making the payments into the bank accounts of the intermediaries depicted in the centre, who in turn paid Mr. Sole into his different Swiss accounts depicted on the right, some of the funds finally ending up in his South African and Maseru accounts depicted on the far right. The red lines denote payments that can be forensically pulled through to Mr. Sole and the blue lines those that cannot.

4.     Fiona Darroch attended the trials at various stages and wrote a detailed case study on them for Transparency International. My intention is not to duplicate what is contained in this comprehensive document. Instead I will confine myself to the following.

5.     At the beginning of proceedings and while all the accused were still joined on one indictment the various lawyers (and there were many of them representing the 19 accused, to the extent that at the first hearings the first two rows of a large Court were basically reserved for silks) and apparently following a “bosberaad,” divided up the work and took turns in taking legal points against the Crown. These ranged from jurisdiction (the bribes having been paid in Switzerland), Sole not being a public official for purposes of common law bribery (he was the Chief Executive of a parastatal), whether common law bribery requires proof of a quid pro quo in exchange for the bribe, in what form directors must be cited when representing their company, proof of overseas bank records, and so on. In each of these preliminary skirmishes comprehensive heads of argument were filed by both sides and similarly comprehensive rulings were delivered by Cullinan AJ, which were then also later considered by the Court of Appeal in the Sole appeal (Judges Smalberger, Gauntlett and Melunsky), delivered on April 14, 2003 and in the Acres appeal judgement (delivered by Judges Steyn, Ramodibeli and Plewman on 15 August 2003). All these issues were definitively settled by the Lesotho Court of Appeal in these two comprehensive judgements.

6.     A legal issue which had to be resolved upfront in the Sole trial related to jurisdiction as regards common law bribery. Here the High Court, per Cullinan AJ, held (in a 124 page ruling) that the country where the recipient of the bribe is a public official has jurisdiction, irrespective of where the bribe agreement was entered into or where the bribe money was paid. It is the integrity of that country’s institutions that are undermined and which accordingly suffers the harmful effects.

7.     Also what actually constitutes common law bribery. Here the trial Court in the Sole case held that the mere offer of a corrupt consideration establishes bribery by the briber and the acceptance of the offer without more establishes bribery on the part of the bribee. It is then not necessary to prove either what the bribee had to do in return for the bribe or that he in fact did so. This makes proving bribery much easier than previously thought because invariably the nature of the actual favour for which the bribe is intended is only known to the two parties involved. This is especially so in a building/construction type situation where any number of favours are possible.

8.     These offences were committed before the enactment of the Prevention of Corruption and Economic Offences Act of 1999 which largely resolved these problems. In South Africa the same applies to the Corruption Act of 1996 which in fact abolished the common law crime of bribery. I would submit however that a thorough understanding of common law bribery and its historical development is invaluable when dealing with these statutory enactments.

9.     Multinational corporations as bribers almost invariably it would seem rely on so-called representative agreements. In terms of these agreements the bribers engage a local middleman ostensibly to perform various lawful services in the country where the contract is sought. Included among these is then also the obligation to secure the contract coupled to a stipulation that unless the contract is obtained the agent will not be paid. This is known as the “no duck no dinner” arrangement. The Court in the Sole case considered such an agreement, particularly where the agent seeks to secure the contract outside the formal bidding process, to be one that has bribery written all over it. It follows that the protection afforded by such agreements against future prosecution has largely been removed. It is the facts in each case which will determine if the representation agreement is a genuine one or not or whether it is just a disguised bribe agreement.

10.     Inter alia this reliance on these agreements (there was also other evidence) dispelled the widely held notion, i.e. in Europe, that particularly in Africa bribes such as these emanate from the bribee. This is certainly not what happened in Lesotho. It was the contractor/ consultant that through these agreements with the middleman set the corrupt transaction in motion.

11.     The prosecution of Acres left a bad taste. The officers who testified on behalf of Acres before the Chief Justice, Mr. Justice Lehohla, adopted a first world/third world attitude to everyone in Lesotho, including the judge. When they were shown to be liars, however, which is what the judge found, they went back to Canada and in the press trashed not only the judgment but also, after the Court of Appeal confirmed their conviction, the judiciary in Lesotho as a whole. Acres also, through their President, gave the Court of Appeal a firm undertaking before the appeal was heard to pay any fine that was ultimately imposed. Here, as in South Africa, being a juristic person, Acres could only be punished by way of a fine. This persuaded the Court to only call for security of R2 million. When the Court of Appeal eventually fined them R15 million in August 2003 (the fine in the Court a quo had been R21 million) the balance went unpaid and is even today unpaid.

12.     Initially there was considerable scepticism among the donor countries and funding agencies about the prospects of success in these prosecutions. Once these prosecutions started showing results this attitude, i.e. as displayed by the EU office in Maseru and those in Brussels dealing with EU funded contracts, underwent a remarkable change. Before that the EU people couldn’t/wouldn’t accept that we could achieve what they had not been able/willing to tackle, namely to bring these multi-nationals to book. Now we were being invited to conferences and, ironically, I was even invited to address the European Parliament Committee on Co-operation and Development in Brussels in June last year on how we successfully prosecute corruption.

13.     Here I need to say something about the involvement of OLAF, the investigating and prosecuting arm of the EU which deals with white collar crime involving EU funds. We first made contact with OLAF in the first half of last year and they have been of enormous assistance ever since, particularly in the matters involving Spie Batignolles and Impregilo. It is largely through their help that the merger between Spie Batignolles and Schneider Electric SA in 1995 could be shown for what it was, namely Spie absorbing Schneider and not the other way around, which then allowed us to prosecute Schneider under the name of Spie and which finally resulted in them pleading guilty. I would suggest that the same sort of co-operation should be nurtured between Mozambique, the South African Scorpions and OLAF, particularly when it comes to corruption cases where the bribes emanate from Europe. Here I would also like to mention the fledging new anti-corruption unit under Deputy Commissioner Matsoso. Mr. Matsoso through his involvement with the OLAF people in the prosecutions has built on that co-operation and there is now a strong link between his anti-corruption team and the OLAF people in Brussels. OLAF has also for instance undertaken to help with investigative capacity.

14.     In all these cases (except for Du Plooy which I will return to) the prosecution has had to rely on circumstantial evidence. Because a dispute arose in the Acres case as to precisely how far the prosecution has to go in order to place the accused on his defence and, once it has done so, what the position then is with regard to the accused either not furnishing an explanation or giving an explanation which is not satisfactory. The Court of Appeal affirmed the stance taken by the prosecution in that it held that once the prosecution establishes a prima facie case, in other words a case on which a Court could conclude that the payments involved bribery, then there is an evidential burden on the accused to provide a satisfactory explanation for the payments. If the accused does not do so the prima facie case becomes conclusive. One then really has a balance. The stronger the circumstantial case made out by the prosecution the more difficult it becomes for the defence to give a satisfactory explanation.

15.     In the Sole, Acres and Lahmeyer cases the records ran up to some 20,000 pages. This was partly because we sought to present an evidential mosaic as comprehensive as possible. Once the prosecution overcomes an (in all these cases spirited) application for discharge at the close of its case, this puts the defence in a very difficult position. Some of the evidential blocks, for instance the amounts involved when seen in their context, are simply incapable of innocent explanation.

16.     To use the Acres case as an example (I don’t want to comment on the Lahmeyer case because the appeal is still pending), here the prosecution showed for instance that the payments made to the intermediary were shared between him and Sole. The only relationship between Acres and Sole was that Acres were vying for contracts and Sole was in a position to secure them for Acres. When you then add that the payments were made secretly in Switzerland, amounted to the equivalent 25% of Acres’ profits and that the services supposedly performed by the agent were largely not necessary or were indeed not performed, then it became very difficult for Acres to (satisfactorily) explain the payments and to sustain that explanation under cross-examination.

17.     In the Du Plooy case several offers were made to Du Plooy to turn Crown witness. Each offer was declined. (Such offers were also made to other accused. This was done as part of our overall mandate to not only secure convictions but to get to the bottom of this whole mess.) It was only when all the preliminary issues had been decided in favour of the prosecution and Mr. Du Plooy now literally had his back against the wall and facing a long term of imprisonment that he came forward, tendering a plea of guilty and offering to co-operate. He in the process pierced the façade that is the representative agreement. Clearly once you involve yourself in the murky world of bribery it is not open to you to simply opt out whenever you like. Du Plooy told us that he quite literally feared for his life. Despite all his legal avenues having been exhausted Mr. Sole is still not prepared to tell what he knows, this despite it having been made clear to him that any assistance he can give, even at this late stage, to finally clear out all the corrupt cobwebs which there may still be, could well result in an earlier release.

18.     This serves to illustrate the insidious nature of the crime of bribery. There is a wall of silence which is very difficult to penetrate. The reason for this seems to be that everyone who is in a position to talk cannot do so because someone else in turn has something on him. Once corruption creeps into, for instance, a department of state it is very difficult to know how far the rot has spread. There is no obvious victim as, for instance, in an assault case. The victim is society. There is then no reason for anyone to come forward, particularly in circumstances where the ones who know are probably involved themselves. Such involvement could even extend to the prosecuting authority itself. The previous Director of Public Prosecutions, when I presented a draft charge to him, wanted me to remove from it one of the accused. When I refused to do so he attempted to have my mandate withdrawn. Instead he lost his job.

19.     I would like to make particular mention of the role played by Fine Maema, the Attorney General. Various persons and parties, either directly or indirectly, sought over the years to derail these prosecutions. It was said that they were unlikely to succeed, that they were politically motivated, that they cost too much, and so on. Despite all this we retained our open mandate from Fine Maema to investigate and prosecute whoever we thought was involved and throughout he gave us his unwavering support. This also applies to the Director of Public Prosecutions, Linus Thetsane.

20.     Here it seems to me that a sine qua non for successfully prosecuting corruption is a prosecution team that can do so free from any political or other non-legal constraints.

Guido Penzhorn SC, Durban, Institute for Security Studies (ISS) Seminar, March 15-17, 2004

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