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Net1: Department of Justice closed FCPA probe

Jaclyn Jaeger | July 31, 2017

Net1 UEPS Technologies, a Johannesburg, South Africa-based provider of alternative payment systems, last week received a letter from the Criminal Division's Fraud Section of the U.S. Department of Justice advising the company that it has closed its investigation concerning possible violations of the Foreign Corrupt Practices Act.

The Department of Justice began its investigation in 2012 after the company was awarded the SASSA national contract in January of that year. According to Net1, the investigation was initiated largely as a result of one of the losing bidders for the contract, Barclays Africa’s subsidiary AllPay Consolidated Investment Holdings, referring unsubstantiated South African press articles to the Department of Justice, alleging or implying that the SASSA tender process was tainted by corruption involving the company's subsidiary, Cash Paymaster Services Proprietary Limited.

These actions resulted in the Justice Department and the Securities and Exchange Commission launching investigations into alleged FCPA and disclosures violations in November 2012. In June 2015, Net1 received a letter from the SEC stating that it had concluded its investigation and that it did not intend to recommend an enforcement action against the company. Receipt of the letter from the Department of Justice, thus, concludes the U.S. government's investigation into this matter, the company stated.

South African probe. In February 2013, Net1 said it filed an application pursuant to Section 34 of the South African Prevention of Corrupt Activities Act in South Africa with the South African Police Service to investigate the allegations of corruption that were contained in certain newspaper reports. Section 34 deals with the reporting of suspected fraud, theft, extortion and forgery.

In November 2015, the company received a written notice from the South African Police Service’s Directorate for Priority Crime Investigation (the Hawks), stating this case was investigated and that the prosecutors assigned to the case declined to prosecute these matters. The Hawks closed the investigations in November 2015.

Class-action filed. As a result of the U.S. government investigations initiated in 2012, Net1, its chief executive officer, and its chief financial officer consequently were named as defendants in a purported class-action lawsuit filed in the U.S. District Court for the Southern District of New York alleging violations of the federal securities laws. The lawsuit was brought on behalf of a purported shareholder of Net1 and all other similarly situated shareholders who purchased our securities between Aug. 27, 2009 and Nov. 27, 2013. The U.S. District Court dismissed this class-action litigation in September 2015.

“We cooperated with all government agencies and other regulatory bodies regarding these allegations as well as the extensive investigations that followed over the last four and half years,” said Net1 CEO Herman Kotzé said in a statement. “The closure of the DOJ investigation concludes a lengthy, arduous and costly exercise involving government agencies in the United States and South Africa, including the DOJ, SEC and the Hawks.”

“This letter from the DOJ is the final step to clear our name, and is consistent with the total absence of any findings of irregularities against us by any United States or South African court or regulator, the SEC, or the Hawks,” Kotzé added. “We will continue to focus our energies and resources on the expansion of our businesses in South Africa and internationally.”