Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here). Wyld is the Australia Expert for FCPA Professor. Jasmine Forde (Senior Associate, Johnson Winter & Slattery) also contributed to this post.
A FOCUS ON AUSTRALIA
For many years, bribery and corruption in Australia has taken a back seat to profitable enterprise. It was all considered a bit too foreign and something Australian companies simply did not do. All of a sudden, that changed in 2006 when the Australian Wheat Board (AWB) wheat sales to Iraq, corrupting the UN Oil-for-Food program, blazed across Australia’s public awareness. Since then, the media has treated us to a never-ending procession of allegations and sagas involving companies of the stature of Rio Tinto (with the corruption prosecution and imprisonment of former Rio Tinto executive Stern Hu in China), BHP and its now abandoned bauxite mining ventures in Cambodia, Leighton Holdings in the Middle East and as a standout, subsidiaries of Australia’s central bank, the Reserve Bank of Australia, engaged in potentially illegal conduct to secure lucrative polymer banknote printing contracts.
So what has been happening over the last few years? In short, a much more focused awareness of the risks that foreign corruption brings to corporations and individual liability and a legislative push to increase investigative powers and penalties to deter errant behaviour.
Legislative Developments Post AWB Wheat Saga in 2005
In 2007, the Australian government tightened up the weaknesses in Australian foreign corruption laws highlighted by the Cole Inquiry and AWB’s conduct. (The Cole Inquiry was a Royal Commission headed by a retired appellate Judge, The Hon Terence RH Cole AO, RFD, QC, who investigated AWB’s conduct and who formed the opinion that the company and various senior executives may have committed criminal and/or civil offences in connection with their wheat sales to Iraq under the UN Oil-For-Food Program.) Those involved:
- ensuring the foreign law defence to bribery was reflected in a written foreign law; and
- criminalising conduct in contravention of United Nations’ sanctions.
Between 2007 and 2010, the Australian Government established a Taskforce to investigate whether any of the identified AWB executives should be prosecuted. The Australian Federal Police (AFP), as the Australian federal investigative policy agency responsible for investigating contraventions of Australian laws, ultimately abandoned any criminal prosecution due to insufficient evidence to warrant a criminal case. The Australian Securities and Investments Commission (ASIC), the Australian corporate regulator, commenced civil penalty proceedings against 6 former AWB directors and officers alleging breach by those persons of their common law and/or statutory duties in connection with the AWB wheat sales and the payment of monies to Iraq and to third parties. The individuals are defending the cases, although in June 2012, both the former AWB Managing Director Andrew Lindberg and the CFO, Paul Ingolby, agreed to a settlement with ASIC and their penalties will be imposed by the Victorian Supreme Court in the future.
In 2010, primarily as a result of increasing focus on Australia’s inadequate penalties by the OECD and Transparency International, the Australian Government revised the applicable penalties for foreign corrupt offences. Those penalties were now set, for conduct post February 2010, as follows:
- for an individual – imprisonment for up to 10 years, a fine of up to 10,000 penalty units (one penalty unit being AU$110, with the maximum fine, AU$1,100,000) or both; and
- for a corporation – a fine being up to the greatest of 100,000 penalty units (or AU$11,000,000), 3 times the value of the benefit obtained directly or indirectly from the conduct or if the benefit cannot be determined, 10% of the corporation’s annual turnover during the period of 12 months ending at the end of the month in which the offending conduct occurred.
Section 70.2(6) of the Criminal Code defines “annual turnover” to be the sum of the value of all supplies that the corporation or any related corporation has made or are likely to make during the 12 month period subject to limited statutory exceptions.
These penalties are similar to the penalty regime which applies to the criminalisation of Australia’s cartel or anti-trust offences. It remains to be seen how they will be applied to a foreign bribery prosecution by an Australian Court.
In 2011, the Australian Government published a Consultation Paper reviewing a number of aspects of Australia’s foreign bribery laws. In particular, the Paper asked:
- whether facilitation payments should remain as a defence to foreign bribery; and
- whether a particular foreign official had to be identified in respect of which the alleged bribe was either paid, offered or promised to be paid.
It is unclear which way the Government will go, but the authors understand that the Government has received conflicting views on both abolishing and retaining the defence.
In April 2012, the Crimes Legislation Amendment (Powers and Offences) Act 2012 amended the Australian Crime Commission Act (ACC Act) to enable Australian statutory and secretive crime agency, the Australian Crime Commission (ACC) to share information with corporations for a ‘permissible purpose’. Features of this new regime include the following:
- section 59AB of the ACC Act enables the CEO of the ACC to disclose information to a prescribed body corporate, but only in circumstances where it would not prejudice the safety, or the fair trial, of a person who has been charged with an offence;
- the ACC can impose conditions on the body corporate to ensure that the information is not used, and further disclosed, in a way that might prejudice the reputation of a person; and
- the overriding purpose of the amendments is to facilitate cooperation between the private sector and the ACC to enable the ACC to combat serious and organised crime, which includes foreign bribery and corruption.
Aside from the privacy issues in connection with the use and disclosure of information, there are a number of practical challenges that arise, and present obvious risks, for a corporation in circumstances where one of its employees is the subject of an ACC investigation and subsequent disclosure, which include:
- whether the information should be disclosed in the first place just to the corporation CEO, Chairman, or a wider group including General Counsel and, if applicable, any Head of Security;
- if a person directly or indirectly makes a record of the information or discloses it to another person (other than for a specified purpose), that person has committed an offence with a potential penalty of up to 12 months’ imprisonment;
- care must be taken to manage the storage of material constituting the disclosed information;
- whether and if so, how the disclosed information interacts with a corporation’s continuous disclosure obligations to the market; and
- whether the corporation should conduct its own internal investigation and if so, the impact that may have on any external official (or covert) investigation.
It remains to be seen how the ACC will handle this new power. It is hoped that the ACC will adopt a sensible and flexible approach, ensuring that any disclosure is undertaken co-operatively with a relevant corporation and the corporation is informed of whether any internal investigation may or may not impact on an official investigation.
Since Australia criminalised foreign bribery in December 1999, until July 2011, there had been but a few investigations, no prosecutions and no convictions.
In July 2011, the Commonwealth Director of Public Prosecutions (CDPP) laid the first criminal charges against Securency International Pty Ltd and Note Printing Australia Pty Ltd, two subsidiaries of the Reserve Bank of Australia and various individuals, alleged to be involved in corrupt conduct to secure valuable polymer banknote printing contracts. Allegations suggested the Central Bank subsidiaries used foreign agents or intermediaries in various countries to pay or offer to pay bribes to foreign officials to secure the contracts to replace national paper currency with polymer (plastic) banknotes. These proceedings are continuing and are subject to suppression orders by the Courts in Victoria hearing the charges.
The AFP has a number of current referrals involving potential foreign bribing. Whether prosecutions occur in the future remains to be seen.
Current issues under review in Australia
The current anti-bribery regime in Australia still has many practical difficulties which are of concern, particularly in terms of advising and educating corporations on compliance with local and international laws.
The main issues of concern are:
1 Regulatory Body
The AFP investigates foreign bribery. Any prosecution is conducted by the (CDPP).
There is no one identified organisation or agency which can be approached if a corporation wishes to self-report a potential offence. While a potential offence can be reported to the AFP, the present structure simply requires the AFP to investigate and then determine if a brief should be presented to the CDPP. It is only the CDPP who is authorised to offer any inducement to a potential defendant to cooperate.
A regulator modelled on the US DOJ or UK SFO would be better positioned to educate, enforce, facilitate and provide guidance to corporations. Presently, that does not exist in Australia.
2 Facilitation Payments
This is regarded as one of the biggest risk areas. There is confusion in understanding any real distinction between a facilitation payment and a bribe, particularly in relation to hospitality, travel and education allowances. There is very little guidance regarding when these are acceptable commercial relationship activities and when they are considered to be a bribe. This is exacerbated by virtue of the fact that there are differences in the foreign bribery laws around the world where the US permit facilitation payments and offer official “guidance opinions’ while in the UK, facilitation payments do not exist.
The authors consider that facilitation payments should be abolished but until that time, the best advice is to look to the UK Bribery Act as the ‘gold standard’ and as far as possible, ban them from within your organisation.
3 Awareness of Foreign Bribery and Training
Awareness of the foreign bribery regimes outside of Australian Stock Exchange listed corporations is patchy at best. There is a great need for corporations to continually educate their employees and third party service providers so that they can put in place robust procedure and processes. Whilst some global companies now insist on anti-corruption clauses being included in contractual arrangements, it is by no means standard practice.
One need only look to the features of the recent investigation into Morgan Stanley in the US and the non-prosecution of the company in light of the rogue conduct of Mr Petersen in Chinese real estate speculation, to understand what a corporation must be able to demonstrate if it is to satisfy a regulator that it did all it could, in the circumstances, to prevent foreign bribery.
4 Lack of Prosecutions
To date, there has been no judicial enforcement in Australia which has had the effect of sending a message to the market that non-compliance is not an option.
The first prosecution under the legislation has taken 12 years and is still ongoing. The lack of prosecutions in Australia is not likely to be because Australian companies are compliant; rather, the better explanation appears to be that corporations:
(a) are simply not recording facilitation payments in accordance with the law (to do so would essentially be a self- admission with no protection and/or may expose relevant individuals to prosecution if the country they are dealing with does not allow for such payments);
(b) are failing to self-report any potential foreign bribery;
(c) are prepared to take a risk against prosecution, given the inherent complexity and cost associated with foreign bribery investigations; and
(d) accept that such controversial payments (either as a bribe or a facilitation payment) are simply the reality of doing business in some ‘risky’ jurisdictions.
5 Whistleblower Protection
Arguably, it is not considered culturally acceptable in Australia to ‘dob’ in a friend or colleague. However, recent research pioneered by Professor AJ Brown from Griffith University Queensland in conjunction with the University of Melbourne, suggests that over 80% of his sample considered it was more important to support whistleblowers for revealing serious wrongdoing than to punish them. The overall findings, released on 6 June 2012 (see www.newsroommelbourne.edu), suggest Australia is not a country where hostility to whistle blowers is the norm.
Currently, there is no incentive to be a whistleblower; monetary or otherwise and indeed, there can be severe, even criminal sanctions applied to certain individuals (Commonwealth employees) who blow the whistle. There is a need for legislative reform around whistleblower protection as the Australian Public Interest Disclosure Bill presently being considered by the Australian Parliament offers limited protection.