Davidson Legislative proposal to prohibit party-political office bearers and representatives from contracting with the State, Davidson legislative proposal to correct Executive Members' Ethics Act

Private Members' Legislative Proposals and Special Petitions

24 August 2010
Chairperson: Mr S Thobejane (ANC)
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Meeting Summary

Hon Ian Davidson presented two legislative proposals to the Committee. The first was entitled the Executive Members’ Ethics Amendment Bill, which aimed to eliminate anomalies related to the declaration of interests, to ensure better accountability by the President in relation to the declaration of interests, to make it obligatory to publish the Executive Ethics Code after each general election or whenever it was amended, and to provide for penalties in the event of breaches of the Code. This legislative proposal arose out of an incident earlier in the year when it was alleged that the President had failed to return his declaration of interests, leading to a debate whether he, as President, was bound by the Code. The current Code stated that if a member of the Executive breached the provisions of the Code the matter must be reported to the Public Protector, who would investigate and report to the President, who in turn would impose certain penalties and order a return to be made. The Code did not state to whom the Public Protector must report, nor who must impose the penalties, where the President was in default. His legislative proposal provided that in these circumstances, the Deputy President was the responsible individual. Members asked if Mr Davidson was aware that Cabinet had debated this matter and had issued a statement on 27 July that interim sanctions were adopted. He noted that he would be happy to assess any differences between what he was suggesting and Cabinet’s resolution. However, he suggested that this was an opportunity for Parliament to make a strong statement and ensure that the Executive, including the President, were accountable.

The second legislative proposal aimed to introduce a bill prohibiting contracting between an organ of State in the national sphere of government, and companies or entities, whether public or private, listed or unlisted, in circumstances where that company or entity had directors who were serving political party public representatives or political party office bearers, where any serving political party public representative or political party office-bearer individually held more than 2% of the shares of the relevant company or entity, or where a political party, directly or indirectly, held any shares in any company or entity. This proposal aimed to eliminate abuse of power by political office bearers, public representatives or political parties that directly or indirectly were beneficiaries to contracts with the State. Mr Davidson outlined a hypothetical scenario where this might exist, and noted that it essentially involved fronting. It was recognised that in certain cases an individual might have skills that would genuinely add value, and this was catered for. Members asked if Mr Davidson had meant to confine this to national government contracts, or wished it to apply to all spheres of government, asked whether this proposal would undermine individual rights, and asked how it would apply to independent party representatives. They also queried how the figure of 2% was arrived at, pointed out that this might still represent substantial amounts of money and that perhaps it could be clarified in monetary values, and what were the sanctions should there be misleading information provided. They also questioned whether any current contracts would be affected, whether this was based on any other benchmarking in other countries, and whether there were financial implications. The Chairperson noted that stakeholders would be invited to comment on the proposals.

The Committee adopted the Minutes of the meeting on 18 August.  

Meeting report

Chairperson’s opening remarks
The Chairperson noted that the Fourth Term Programme was handed to all Members. It was intended to have a strategic planning workshop in November, in preparation for 2011.

The Chairperson announced that Mr Mukesh Vassen, Parliamentary Legal Advisor, had been advised that the Parliamentary Legal Advisors should, whenever proposed legislation was presented, give an opinion on the constitutionality of the proposals, to ensure that Members were advised whether or not this might be in conflict with the Constitution.

The Chairperson also noted that a document, containing standard questions that the Committee required stakeholders to address when they were invited to give submissions, was also handed to Members. This would guide stakeholders as to what they must address, would reduce unnecessary padding in presentations and would address the relevance of why they were invited.

The Chairperson noted that his meeting with the subcommittee of the Rules Committee had been helpful, and the intention of this was to obtain approval of the Rules Committee to the proposed new Rule 235(a), which dealt with the criteria to be followed when this Committee considered submissions. The issue of time frames was not covered. However the idea was not to sit with proposals for prolonged periods.

Davidson Proposal: Executive Members’ Ethics Amendment Bill
Mr Ian Davidson, MP, tabled his legislative proposal and noted that the objects of the proposed legislation were to eliminate anomalies in the Executive Members’ Ethics Act (the Act) in order to ensure better accountability by the President in respect of the declaration of interests, to make it obligatory to publish the Executive Ethics Code (the Code) after each general election or whenever it was amended, and to provide for penalties in the event of breaches of the Code.

Mr Davidson explained that his legislative proposal was prompted by the situation earlier this year when the President had allegedly failed to return his declaration of interests. There was significant debate at that stage as to whether he, as President, was bound by the Executive Ethics Code. The current Code required that in the event of default with this requirement by a member of the Executive, a complaint must be lodged with the Public Protector, who would then undertake an investigation, and then report to the President, who could impose penalties and require that a return be made. There were anomalies, the first concerning to whom the Public Protector must report if the President himself was in default, and the second relating to how the President could compel himself to act. Another mechanism would have to be provided. Mr Davidson’s proposal provided that if the President were to be in default, then the Public Protector must report to, and a request to compel must be made by the Deputy President to compel. His proposal also provided for what the penalties would be if there were to be a breach. The original Act set no penalties, but his proposal inserted penalties which were applicable to normal Members of Parliament in other aspects. These included a reprimand, a fine not exceeding the value of 30 days’ salary, a reduction of salary or allowances for a period not exceeding 15 days, or the suspension of privileges or a member’s right to a seat in Parliamentary debates or committees for a period not exceeding fifteen days.

Mr Davidson believed that there would be cross-party support for his proposal. The Public Protector was awaiting a response on the complaint that was lodged. His proposal provided a legitimate, responsible, response to a scenario in which there was contravention by not only members of the Executive in respect of penalties, but to technical problems that existed when the President was in default.

The Chairperson noted that no Members had any questions of clarity.

The Chairperson asked whether Mr Davidson was aware that Cabinet had looked into the matter and had, on 27 July, issued a statement on the way forward.

Mr Davidson said he was not aware of this. However, his legislative proposal had been on the table well before 27 July. If further developments superceded his proposal, then he would be happy to have them tabled. As far as the amendment of this Act was concerned, individual Members of Parliament had the right to take their own initiative, which was what he had done. However, he would be happy to compare what Cabinet had suggested with his proposals. It was important to establish a principle to deal with these matters.

Ms J Kilian (COPE) believed this was a very important matter. She noted the Chairperson’s reference to the resolution by Cabinet but said that she had understood that this was an interim sanction.

Mr Davidson noted this also, and the comment that Cabinet was waiting for a report that was due to be tabled by November of this year. He did not know whether that report would lead to legislation. If anything was to be done to compel the President to comply, then there must be legislation in place, to deal with the legal lacuna that the President could not compel himself to do something, probably by the Deputy President issuing the compelling order. His proposal differed only marginally from what the Executive had proposed.  It was more symbolic than anything else to say that the President was not above the law, and that whatever sanctions applied to Members of Parliament were also applicable to himself. He thought that the Committee, when processing his proposal, could interact with the Executive and its proposal. Parliament was tasked with oversight and ensuring accountability of members of the Executive. This was an opportunity for Parliament to establish itself strongly on the point that the Executive, including the President, was accountable.

Davidson Legislative proposal to correct certain anomalies in the Executive Members’ Ethics Act (No. 82 of 1998)
Mr Davidson then introduced his second legislative proposal. This would introduce a bill prohibiting contracts between an organ of State, in the national sphere of government, and companies or entities, whether public or private, listed or unlisted, in various circumstances. Contracts as mentioned would be prohibited where the company or entity had directors who were serving political-party public representatives, or political party office-bearers, irrespective of what sphere of government they served. Contracts would also be prohibited where any serving political party public representative or political party office-bearer individually held more than 2% of the shares of the relevant company or entity, and where a political party, directly or indirectly, held any shares in any company or entity.

The proposal aimed to prohibit any contracting between the State and such individuals and political parties.
This was to eliminate abuse of power by political office bearers, public representatives or political parties, who might directly or indirectly benefit from contracts with the State.

The intention behind his proposal was to prevent a scenario in which political parties were able to fund themselves through front companies or front individuals. It would further avoid parties having individuals or companies established or put in place in respect of contracts with government at all levels.

Mr Davidson cited some exampled in support of his proposal. He noted that the City of Cape Town, which was DA-controlled, could, for instance, through a tendering process, establish a number of companies through whom it could push tenders, through apparently proper tender processes. In most cases the companies or individuals would add no read value but were perfect front companies, who would then subcontract to other individuals or companies. Whatever profit was gleaned from that transaction could go via the front company or individual straight to the coffers of the DA. This  could happen at local government level, at provincial level and at national level. His proposal aimed to stop that type of perversion of the tendering process.

Mr Davidson said that there must be some allowance to cater for the situation where a member had a skill and genuinely added value, yet could be discriminated against. This proposed legislation was designed to get round the back-to-back transaction where there was no skill and no intention to add value, but just a convenient funnel for the political party to fund itself. Provision had to be made for skills to be made available on the open market.

Ms Kilian asked a question of clarity. Mr Davidson had mentioned other spheres of government as well, although this was not contained in the proposal. She asked if that omission was intentional.

Mr Davidson responded that his proposal was forwarded to the Speaker’s Office at a time when public discourse was full of the activities of the national government. His proposal was essentially an immediate response to that. In fact, though, it was not only the national government, but all spheres of government who were affected, including public representatives and senior officials. Soon after that, President Zuma himself had indicated that there was a huge problem with public representatives partaking in such activities. The object was to rout out corruption in all spheres of government.

Mr A Ainslie (ANC) asked whether the effect of the proposal would undermine the rights of the individual.

Mr Davidson responded that individuals had rights, and these must not be detracted from. The Constitution said that procurement legislation had to be set out, and Section 217 read what procurement policy was. His proposal indicated exactly how procurement framework should be structured in terms of the Preferential Procurement Framework Act (PPFA). In terms of the PPFA, certain aspects may well be discriminatory, for instance quotas could be discriminatory, but justifiable within the framework of that policy. This proposal aligned itself with a framework that would ensure a non-corrupt atmosphere and scenario in which contracting could take place.

Mr Ainslie noted that Mr Davidson mentioned political parties and public representatives. He pointed out that at local government level. Councillors were independent party representatives. He wondered how this proposal would cover those independents who were not members of parties.

Mr Davidson acknowledged that independents did pose a problem. Very few independents were in Executive office and thus were in a position to make use of the type of mechanism that would ensure that political entities’ backing was supplemented by financial means. Mr Davidson was not opposed in principle to parties holding shares in companies that did business with government, but he was just concerned about proportion.

Mr Ainslie referred to subclause d) of the proposal, reading that “no political party would directly or indirectly be a beneficiary to the contract.” All parties raised funds from business people and from government contracts. He wondered how that point would affect normal, ordinary party funding. Indirectly, a party may benefit from a business contract, although that party might not even have shares in that company.

Mr Davidson acknowledged that Mr Ainslie had a point. Indirectly all political parties were recipients of largesse from companies. The wording could be changed that no political party could directly be a party to a contract.

Ms J Sosibo (ANC) asked how Hon Davidson arrived at the 2% quoted.

Mr Davidson said the 2% was an arbitrary figure around which one could estimate that real money would flow. It was an attempt to establish some reference point. Whilst political representatives should not be barred from holding shares in any company, the proposed legislation should prevent somebody who was in a position of influence in a company contracting with a political party, in a manner that would result in a flow from the contract through the individual directly to the political party, so that that person was effectively a front.

Ms Sosibo asked about the exclusion in respect of a person who had skills that would add value to a company. She asked if the 2% would still apply here. She also asked what would happen if a person misled the State after the commencement of the company.

Mr Davidson responded that should a company wilfully mislead the State about its directors or shareholding, his proposed Clause 4 laid out the penalties. The State itself may institute legal action against companies, and the company could be barred from future State contracting, while any monies paid to that office bearer or public representative could be recoverable.

Mr N Fihla (ANC) followed up on the 2% issue. This 2% value would differ according to the type of company in which the shares were held. For instance, a person having a 2% shareholding in the mines might still hold an investment worth billions, while a 2% shareholding in a small factory might bring in only a small profit. He thought that quoting an amount in figures, rather than percentages, might be more equitable.

Mr Davidson agreed. Perhaps the percentage should be tied to the total capitalisation of that company, or tied to turnover.

Ms N Twala (ANC) asked if there were any existing contracts between companies and office bearers at any level. The proposal did not mention those that already existed.

Mr Davidson responded that the legislature had to be very careful about making any bill retrospective because it would then affect people’s existing rights. This was rather concerned with regularising matters for the future.

Ms Kilian noted that she had looked at an index of perceived corrupt countries, including Brazil. She wondered if Mr Davidson had looked at existing international best practice, to attempt to create some type of ethical political environment in South Africa. She wondered how he had arrived at the wording of these clauses.

Mr Davidson answered that he had not compared this to any international best practice.

Ms A Dreyer (DA) agreed that the 2% was arbitrary, but the underlying principle went back to competitiveness and the margins of profit of companies that tendered to contract with the State. The bigger the profit margin, the more likely the chance of corruption, because the company owner could pay costs and employees and his or her own salary, and still have a lot left to hand to the political party. Smaller businesses were more competitive, so the chance of corruption was lower.

Mr Davidson agreed that a company would not be giving donations if it was not profitable, but there were all sorts of ways in which accountants could structure an income statement to ensure that a company was marginally profitable on paper, but was nonetheless distributing large amounts of money.

The Chairperson asked whether Mr Davidson was suggesting that there must be an obligation for political parties to declare their funding. Currently, this related to individual Members of Parliament. He asked how Mr Davidson intended to deal with members of political parties who were in the hierarchy, but were not necessarily Members of Parliament.

Mr Davidson explained that his proposal was not aimed at the individual. This proposed legislation would prohibit the three spheres of government from contracting with individuals who were members of a political party or held high office in a political party. The proposal set out the mechanism by which this would be enforced. There had to be a declaration by the member holding high office that he or she had no substantial interest in the company, which was where the idea of a 2% interest derived. There was a duty on the State in some instances, and on the individual in other instances, to ensure compliance.

The Chairperson asked whether Mr Davidson was sure there were no financial obligations to the State in his proposal.

Mr Davidson said there would be no cost to the State whatsoever. That clause was there as a requirement to reflect whether the State would require money to implement the bill.

The Chairperson explained the procedure following the briefing. The Committee would invite stakeholders to comment,  including the Department of Justice and Constitutional Development (DOJ), since this proposal related to the constitutionality of ethical behaviour of political parties,. The Committee would then deliberate.

Mr Fihla suggested also inviting the Committee on Ethics to comment.

Ms Kilian suggested that National Treasury comments might also be relevant, because of procurement, tender procedures and systems that already existed.

The Chairperson agreed to look at that. He confirmed that DOJ would also be called to comment in respect of the first presentation, and the Committee on Ethics.

Adoption of Minutes
The Committee went through the minutes of Committee Meeting held on 18 August 2010.

Mr Pretorius commented on the Facts Sheet adopted at the previous meeting. The minutes stated that evidence would not be heard from interested groups. The Committee would need clarity on the Fact Sheet, which he believed was too limiting.

The Chairperson said it was a working document.

Members adopted the minutes.

The meeting was adjourned.


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