The US Department of Justice (DoJ) is investigating whether South Africa's Net1 Technologies made corrupt payments to SA government officials to secure a lucrative social grants contract.

Net1, which is a provider of payment solutions and transaction processing services, released a statement yesterday saying that the DoJ and the Federal Bureau of Investigation (FBI) are investigating whether the company had violated provisions of the US Foreign Corrupt Practices Act.

The Act is a strict piece of regulation that can penalise any US listed firm for engaging in corrupt practices outside of the North American country.

Net1, which is listed on both the Johannesburg Stock Exchange (JSE) and the US-based Nasdaq, stands accused of bribing South African government officials to secure a R10 billion contract with the SA Social Security Agency (SASSA). In January, a unit of Net1 won the SASSA tender to distribute social grants of R500bn to more than 15-million recipients over a five-year period.

Following the announcement, Net1’s share price on the Nasdaq plummeted 53% to an all-time low.

The announcement, though, is not just scaring off investors and traders. Analysts are also concerned about what impact this could have on the millions of South Africans who rely on monthly social grants to survive.

“I don’t think SASSA has any plan B,” Stuart Theobald, an analyst with investment research company Intellidex, told South African talk radio station 702.

“And when you look at the potential systemic consequences to the country of ... people not getting their monthly grants - and that is a worst case scenario that could happen here - that is something that is very serious and that we should all be very worried about,” he added.

Net1 officials say they also received a letter from the US Securities and Exchange Commission (SEC) on an investigation initiated against it.

The firm said it intends to cooperate fully with the investigations against.

It is not the first time, however, that controversy has emerged regarding Net1’s deal with the SA government.

A unit of South African bank ABSA, called AllPay, was also in the running against Net 1 for the social grants contract.

And when AllPay failed to secure the deal, it took the matter earlier this year to a South African court where it accused Net1 of corruptly obtaining the deal.

A judge then ruled that the tender process was invalid and illegal. However, the judge did not rule against the contract because of its magnitude and importance in terms of the South African social grant distribution.