A guest post from Robert Wyld (an attorney at Johnson Winter & Slattery in Sydney). Wyld is the Australia Expert for FCPA Professor.
This update covers a range of important developments in Australia and overseas in the area of foreign bribery policy, commercial crime, investigations and regulation to 19 December 2018. The year has been mixed with statutory reforms progressing at a snail’s pace while the Australian Government has been brought kicking to the table for a national Integrity Commission, which surprisingly, protects parliamentarians from public hearing or dare it be said, public scrutiny. The year ended with the publication of the court cases in the long-running Securency banknote printing foreign bribery scandal. While some convictions by way of guilty pleas were achieved, the remaining prosecutions spectacularly collapsed with the High Court of Australia sternly criticising investigative agencies for egregious illegal conduct which irreparably prejudiced the rights of certain accused to a fair trial.
The key issues that are covered in this update include:
- Securency Foreign Bribery Prosecutions Published with Mixed Results
- ACIC and AFP: Illegal Use of Statutory Examination Powers
- Substantial Reforms to Australia’s Corporate Penalties
- Foreign Bribery, a Commonwealth DPA and Whistleblower Protection Reforms
- Former Leighton CFO Guilty of False Accounting Charges
Australia – Securency Foreign Bribery Prosecutions Published with Mixed Results
On 29 November 2018, the Supreme Court of Victoria vacated all non-publication orders affecting the Securency foreign bribery prosecutions. This was as a result of the last accused, Christian Boillot, pleading guilty to one count of conspiracy. Mr Boillot will be sentenced separately.
In July 2011, the Australian Federal Police (AFP) and the Commonwealth Director of Public Prosecutions (CDPP) commenced criminal prosecutions against Securency International Pty Ltd (Securency) and Note Printing Australia Pty Ltd (Note Printing) together with several executives, alleging that they engaged in a conspiracy to bribe foreign public officials in numerous countries in order to secure valuable and very profitable banknote printing contracts for central banks, facilitated by various foreign intermediaries.
Over the last 7 years, the prosecutions were mired in lengthy committal hearings and legal arguments. Securency and Note Printing provided early pleas of guilty and were subject to pecuniary penalty orders pursuant to the Proceeds of Crime Act 2002 (Cth) forfeiting an amount reported in the media as in excess of AU$20 million. The authorities secured success against the companies and some individuals who pleaded guilty to a variety of offences (and although convictions were recorded, no one was imprisoned), see:
- CDPP v Note Printing Australia Pty Ltd and Securency International Pty Ltd  VSC 302 where:
- Each company pleaded guilty to three charges of conspiring with others to bribe a foreign official, contrary to sections 11 (5) (1) and 70.2 (1) of the Criminal Code Act 1995 (Cth) Criminal Code);
- The Indonesian conspiracy involved a contract to supply the 100,000 rupiah polymer banknotes between 1999 and 2001 with a total value of AU$13 million with benefits paid to foreign officials of approximately US$3 million;
- The Malaysian conspiracy involved a contract to supply 160 million 5 ringgit polymer banknotes between 2001 and 2003 worth more than AU$15.2 million with AU$760,000 paid to a very senior Bank Negara Malaysian foreign official;
- The Vietnamese conspiracy involved 7 contracts for the supply of polymer banknotes for Vietnamese currency with a total value of AU$76 million between 2002 and 2004, although the evidence of what benefits were paid to any foreign officials was not known;
- The Nepalese conspiracy involved a contract for the supply of 50 million 10 rupee polymer banknotes between 2001 and 2004 with a contract value of AU$3.5 million although the evidence of what benefits were paid to any foreign officials was not known; and
- The Court imposed fines totalling AU$480,000 on Securency and AU$450,000 on Note Printing (it should be noted the fines available for foreign bribery and conspiracy offences committed between 1999 and 2004 were substantially lower than they are today
- CDPP v Curtis  VSC 613 where Myles Curtis, a former director and CEO of Securency pleaded guilty to:
- One charge of conspiracy to bribe a foreign official in order to obtain or retain business in Indonesia and Malaysia contrary to sections 11 (5) (1) and 70.2 (1) of the Criminal Code and was sentenced to 2 years, 6 months’ imprisonment, to be released immediately on a recognisance order due to suffering chronic PTSD and severe depression; and
- One charge of false accounting contrary to section 83 (1) (a) of the Crimes Act 1958 Vic and was sentenced to 6 months’ imprisonment, wholly suspended for 1 year;
- CDPP v Radius Christanto  VSC 521 where Mr Christanto, an Indonesian national and former agent of Securency (the first natural person to be sentenced under Australia’s foreign bribery laws), pleaded guilty to one count of conspiracy to bribe a foreign official, contrary to sections 11 (5) (1) and 70.2 (1) of the Criminal Code, and was sentenced to 2 years imprisonment, suspended for 2 years;
- Queen v Ellery  VSC 349 where David Ellery, the former CFO and company secretary of Securency pleaded guilty to one charge of false accounting contrary to section 83 (1) (a) of the Crimes Act 1958 Vic and was sentenced to 6 months imprisonment, wholly suspended for 2 years; and
- CDPP v Gerathy  VSC 289 where Clifford Gerathy, former senior director of business development for Securency (and a former bank officer employed by the Reserve Bank of Australia (RBA) and seconded to Note Printing and then Securency), pleaded guilty to one charge of false accounting contrary to section 83 (1) (a) of the Crimes Act 1958 Vic and was sentenced to 3 months imprisonment, suspended for 6 months.
The judgments referred to above contain the appropriate denunciation of bribery and its impact on society. In the Note Printing and Securency sentencing judgment, the first in Australia to enforce our foreign bribery offences, the Court said this (at -):
The prosecution says that the conduct had the potential to bring the reputation of Australia and the Reserve Bank into disrepute, and included the possibility of impeding Australia’s capacity to engage in legitimate foreign trade. I agree with the defence that such matters do not form part of the “injury, loss or damage resulting from the offence”; s 16A (2)(e) of the Crimes Act is concerned with actual (not potential) injury, loss or damage. But, the identity of the person acting corruptly (whether the offeror or recipient of the bribe) may be very relevant to the gravity of the offence. For example, where the corrupt person is the holder of a high public office, courts have long recognised that their conduct is particularly serious, because it has the capacity to destroy the integrity or reputation of a public institution.
By analogy, the fact that Securency and Note Printing were both subsidiaries of Australia’s central bank (which plays an important role in relation to national monetary policy, financial stability and the issuing of banknotes), means that their actions had the capacity to harm the reputation of the Reserve Bank itself, and of broader Australian interests. That does make the offending more serious than if they had been commercial entities with no such connection.
However, in the Christanto sentencing judgment, accepting that Mr Christanto was an Indonesian national, arrested and subject to extradition proceedings in Singapore and who voluntarily assisted the AFP in a substantial manner despite his serious ill health, at a level of detail the Court noted was not expected by the AFP, the Court noted the following (at ):
Your original agreement with Securency and its employees, and most of your activities in relation to the promotion of polymer banknotes, occurred prior to the introduction of the foreign bribery provisions. What had previously been legal suddenly became illegal on 17 December 1999. Your actions also occurred in a cultural context, in your own country, in which the payment of bribes in order to secure business was a commonplace occurrence. I accept that you were not aware that your activities after December 1999 might involve a breach of Australian law. Although ignorance of the law is not a defence, in sentencing you I have borne in mind the rather unusual circumstances of your offending.
This recognition of the culture of the acceptance of bribes is likely to become increasingly less relevant over time, given how many countries are toughening up their bribery and corruption laws.
The remaining 4 individual defendants all argued at the end of the committal process that the conduct of the Australian Criminal Intelligence Commission (ACIC) (then known as the Australian Crime Commission) and the AFP with the CDPP tainted by having illegally obtained evidence disclosed by the ACIC to the AFP and the CDPP, was sufficiently egregious (and illegal as far as the ACIC was concerned) so as to warrant the most extreme judicial sanction of a permanent stay of the criminal prosecutions.
As noted below, in CDPP v Brady & Ors  VSC 334 (published on 29 November 2018), the Victorian Supreme Court stayed the prosecutions against the remaining accused on the basis of the illegal conduct which had the effect of fundamentally prejudicing the accuseds’ prospects of a fair trial and thus bringing the administration of justice into disrepute. The key trial judgment is here. The Court of Appeal, while supporting the findings of illegal behaviour by the authorities, set aside the stay, see DPP (Cth) V Galloway (A Pseudonym) & Ors  VSCA 120. The High Court of Australia reinstated the stay orders (see below).
Unlike the Australian Wheat Board (AWB) scandal with kickbacks paid to Iraq a decade ago, with the corporate regulator, the Australian Securities & Investments Commission (ASIC) taking a lead role in investigating the conduct of the company and its directors and officers, ASIC was nowhere to be seen. While ASIC appeared to be taking its financial sector enforcement failings on the chin and promising more before the Financial Sector Royal Commission (see below), the Australian media have been very critical of ASIC for doing nothing in the Securency matter, failing to investigate the conduct of Securency and Note Printing directors, which included former senior officials from the RBA (see here). It should be remembered that this systemic and illegal conduct took place under the watch of boards of directors some of who were RBA officials. The RBA consistently denied it knew anything about the affair, only for internal documents authored by former employees to suggest otherwise and when it all became public, the RBA called in the AFP to investigate, something it failed to do some two years earlier (see here). It is disappointing that in some cases, ASIC takes the front foot and as in the AWB case, pursued directors and officers over a long period, yet with the plea deals and evidence available in the Securency matter, it appears to have ignored it entirely. One can only ask why and the silence from ASIC is deafening!
At the end of a saga lasting not far short of 7.5 years, two companies pleaded guilty and some executives were sanctioned but with no jail time and the expenditure of a vast amount of taxpayer funds, the remaining prosecutions disintegrated before the High Court with findings of egregious illegal conduct with irreparable prejudice to the rights of an accused to a fair trial. This mixed result and the severe findings of the High Court should result in some serious soul searching and accountability by the ACIC, the AFP and to a lesser extent, the CDPP. This is not an edifying moment for Australia’s regulatory, investigative and prosecutorial agencies.
Australia – ACIC and AFP: Illegal Use of Statutory Examination Powers
On 8 November 2018, the High Court of Australia published its judgment in Strickland (a pseudonym & Ors v CDPP & Ors  HCA 53 (see here) which involved the exercise of statutory inquisitorial powers to compel the Securency suspects to attend a secret interview and to give evidence in circumstances where their right to a fair trial was at issue. This has been a serious issue previously before the High Court in X7 v Australian Crime Commission  HCA 29 (26 June 2013); Lee (No 1) (2013) 251 CLR 196 and Lee v The Queen; Lee v The Queen  HCA 20 (21 May 2014) (known as Lee No 2).
At the heart of the appeal before the High Court was a consideration of the conduct of an examiner under sections 24A and 25A of the Australian Crime Commission Act 2002 (Cth); and in particular:
- Section 25A (9) and the circumstances where an examiner may direct that examination material must not be disclosed or may be only used by or disclosed to specified persons; and
- Section 25A (9A) where an examiner must give such a direction (see above) if failure to do so would reasonably be expected to prejudice the examinee’s fair trial, if the examinee has been charged or such charge is imminent.
At first instance, the Trial Judge held that the ACIC, with representatives of the AFP, acted illegally and beyond power in examining the individuals pursuant to the ACIC’s statutory powers, disseminated the illegally obtained evidence within the AFP and the CDPP to a broad degree and, in the exercise of judicial discretion, granted a permanent stay of the prosecution. The Court of Appeal, while agreeing with the findings of illegal conduct with the examinations having been conducted for an improper purpose, set aside the stay order finding there was no irremediable prejudice suffered by the individuals. During the appeal, the CDPP agreed that the prosecution team had to be replaced (given the disclosure to it of illegally obtained information), yet the investigation team remained.
The High Court held, unanimously, that the ACIC had acted unlawfully and had acted at all times simply as a facility for the AFP to cross-examine the individuals under oath for the AFP’s own purposes. The majority of the Court held, consequently, that the prosecutions ought to be permanently stayed, as to allow them to proceed would bring the administration of justice into disrepute. The majority held that the prosecution had derived a forensic advantage, which the examinations were expressly calculated to achieve, of compelling the individuals to answer questions that they had lawfully declined to answer and thereby locking them into a version of events from which they could not credibly depart at trial. Given the wide dissemination of the examination product within the AFP and the Office of the CDPP, the forensic disadvantage and consequent prejudice to the fair trials of the individuals were incurable.
The leading judgment of Kiefel CJ, Bell and Nettle JJ made these remarks (at  and ):
There is an indeterminate element of incurable prejudice as a consequence of the ACC’s (the former initials of the ACIC, then known as the Australian Crime Commission) widespread, uncontrolled dissemination of the examination product to and within the AFP and the Office of the CDPP…in each of these cases the ACC…acted in disregard of the stringent statutory requirements mandated by Parliament for the protection of the liberty of the subject and to prevent prejudice to the subject’s fair trial…the common law right to silence is a fundament of the criminal justice system that applies at all stages of the process to all persons suspected of an offence, whether charged or not yet charged, and also at trial…any statutory provision that purports to restrict the common laws right to silence must be perspicuously expressed and strictly construed.
The High Court majority (5:2) found this was a rare and exceptional case where the defect in process was so profound as to offend the integrity and functions of the court and it was necessary to stay the proceedings in order to prevent the administration of justice falling into disrepute. This is a singular judicial rejection of attempts by the AFP and the ACIC (and indirectly the CDPP) to cut corners and to use the ACIC’s Star Chamber-like powers for improper, illegal purposes. The High Court has been warning investigators for some years about the need to carefully balance the inquisitorial statutory powers of the ACIC with individual rights to a fair trial. In this case, the investigators went too far and their conduct tainted the entire prosecution, including the conduct of the CDPP. This is a sad reflection on all those involved.
Australia – Substantial Reforms to Australia’s Corporate Penalties
As a result of the Financial Services Royal Commission and the egregious systemic conduct exposed to public scrutiny (long resisted and denied by the institutions and ignored by the regulators), the Australian Government was finally forced to act. On 26 September 2018, the Government released the Treasury Laws Amendment (ASIC Enforcement) Bill 2018.
In the Exposure Draft Bill Explanatory Materials, the following legislative reforms were outlined to enhance penalties for corporate misconduct available to ASIC, which had been seeking these increased penalties for a number of years without success:
- Increase the maximum penalties, up to in some cases;
- For individuals, 10 years imprisonment and fines up to 4,500 penalty units (currently AU$945,000 per offence);
- For companies, the greater of a fine of up to 45,000 penalty units (currently AU$9,450,000 per offence), 3 times the value of the benefit derived or detriment avoided due to the contravention or 10 percent of the annual turnover of the company;
- Expand the range of civil penalty offences;
- Introduce criminal offences where there are existing strict and absolute liability offences;
- Introduce a new formula to calculate the maximum financial penalty for criminal offences under the Corporations Act 2001 (Cth) (Corporations Act);
- Introduce a new “objective only” test for dishonesty offences under the Corporations Act;
- Subject all strict or absolute liability offences to a penalty notice regime;
- Introduce disgorgement to civil penalty proceedings; and
- Require courts to give priority to compensating victims over ordering financial penalties.
It is likely these reforms will secure bi-partisan political support and will be enacted in due course.
Australia – Foreign Bribery, a Commonwealth DPA and Whistleblower Protection Reforms
As a result of a spate of proposed legislative reforms, the Australian Government has been looking to introduce the following reforms:
- Amendments to the Criminal Code to reform the foreign bribery offence and to introduce the strict liability corporate offence of failing to prevent foreign bribery due to the conduct of an associate;
- Amendments to the Director of Public Prosecutions Act 1983 (Cth) to introduce a deferred prosecution agreement scheme for identified serious Commonwealth offences;
- Amendments to the Corporations Act 2001 (Cth) and associated statutes to enhance private sector whistleblower protections.
On 6 December 2018, the Government published an Amended Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 which took up a number of the matters raised during the Parliamentary review process, (see here). The Bill will return to the Parliament in early February 2019 for further consideration before it is enacted.
The key features of the amended Bill, without repeating the contents of the first draft Bill, covered in earlier Updates, are as follows:
- An “eligible recipient” to whom a “protected disclosure” may be made is now a “senior manager” rather than a “supervisor” or “manager”, which narrows the group of more senior employees who are required to respond to a protected disclosure;
- The protection of an “emergency disclosure” (to a journalist or a politician) has the following new tests:
- A substantial and imminent danger to a person’s health and safety, or the natural environment (without the 90 day period having passed from the first disclosure to a prescribed authority and first informing the prescribed authority of the intention to make the emergency disclosure); or
- whether the disclosure is in the public interest (after the applicable 90 day period has passed);
- most personal work-related grievances are excluded from the “protected disclosure” regime;
- a whistleblower can seek compensation from a company that failed its duty to prevent a third person engaging in detrimental conduct (victimisation);
- a company’s “due diligence” is now only a factor for a court to consider in making compensation orders (it is no longer a complete defence);
- where termination of employment occurs, a court must consider the period of time a whistleblower is likely to be without employment; and
- penalties are increased.
Listed and large proprietary companies must be aware that they will need to have in place a whistleblower policy compliant with the law, at the earliest, by 1 July 2019 or a later date depending on when the amendments are finally approved and the Bill becomes law.
Regrettably, the other reforms (for the foreign bribery offence and a deferred prosecution agreement scheme) have yet to be amended and published by the Government. It is hoped these reforms will be enacted without delay once Parliament resumes sitting in February 2019.
Strategies For Minimizing Risk Under The FCPA
A compliance guide with issue-spotting scenarios, skills exercises and model answers. "This book is a prime example of why corporate compliance professionals and practitioners alike continue to listen to Professor Koehler."
Australia – Former Leighton CFO Guilty of False Accounting Charges
On 27 October 2018, Peter Gregg, the former CFO of Leighton Holdings, a former CFO of Qantas and CEO of Primary Health, appeared in court at a criminal trial charged with two counts of contravening section 1307(1) of the Corporations Act 2001 (Cth) in that he allegedly engaged in conduct which resulted in the falsification of Leighton’s books arising out of a payment of $15 million from Leighton to a UAE entity.
On 12 December 2018, Gregg was found guilty of the two counts of falsifying the books of account at Leighton Holdings. Gregg will return to Court in late January 2019 for sentencing where he faces potential imprisonment for up to 4 years and/or fines up to AU$22,000. It remains to be seen whether Gregg will appeal his conviction and ultimate sentence.
According to media reports, the heart of the case turned upon unravelling a complex commercial transaction between Leighton Holdings and Welspun Infra Projects Pvt Ltd, majority owned by Indian Billionaire BK Goenka, the founder of Welspun and whether a particular agreement signed by Gregg in 2011, was to help Leighton legitimately buy steel or whether it was a sham and backdated in an attempt to justify a payment of AU$15 million to a Dubai-based company potentially on behalf of the Welspun Indian interests.
Russell Waugh was also charged with aiding and abetting Gregg as an intermediary in the signing of the agreement. The jury found Waugh not guilty.
This case reinforces a view that ASIC is increasingly prepared to take on some complex financial crime cases and that a jury can come to a finding of guilt or innocence notwithstanding complex financial evidence.
FCPA Institute - Nashville (April 11-12, 2019)
A unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills through active learning. Learn more, spend less. CLE credit is available.