Checking In Down Under

Today’s post is from Robert Wyld (an attorney at Johnson Winter & Slattery in Sydney and the Australia Expert for FCPA Professor) and covers recent developments from Australia in the general area of foreign bribery.

The key issues that are covered include: Australian Securities & Investments Commission and Australian Wheat Board UN Oil-For-Food Cases; Foreign Bribery Law Reforms; Private Sector Whistleblower Protection Reform; and Senate Economics Reference Committee Review of Australian Foreign Bribery Laws.

Australia – ASIC and Australian Wheat Board UN Oil-For-Food Cases

On 23 April 2018, the last gasp of the decade long battle by the Australian Securities & Investments Commission (ASIC) against various Australian Wheat Board (AWB) executives arising out of the ill-fated UN Oil-For-Food humanitarian program (OFF Program) passed into history with barely a ripple. The Victorian Court of Appeal dismissed ASIC’s appeal against the Trial Judge’s rulings that threw out ASIC’s case against Peter Geary for alleged breach of his statutory duties. The appeal judgment is here.

The Court of Appeal, while not condoning the conduct of senior AWB officials, including the former Chairman, Managing Director and Chief Financial Officer (each found liable for various offences), who were “proved to have been at the centre of this entire sorry affair”, found that ASIC’s case against Geary failed because, in substance, ASIC could not displace the genuine and reasonable belief Geary had that the trucking and inland service fees (paid to the Iraq Government through inflated prices via intermediaries) were not approved by the United Nations or otherwise were genuine fees. While Geary might have been one of a long list of recipients to numerous emails concerning these fees, they were not specifically addressed to him and ASIC failed to identify how Geary, or a reasonable person in Geary’s position, would have acted upon such emails.

Thus, from June 1999, when the first wheat contracts contained an “inland trucking fee”, later enhanced in 2000 with the “10% after sales service fee”, the story unfolded thus:

• Between 1999 and 2003, AWB through 41 contracts, sold wheat to the Iraqi Grains Board with a face value of US$2,290,718,296 (see clause 5.10, Vol 1, Cole Royal Commission Report, 2006);
• Between November 1999 and March 2003, AWB paid US$224,128,189.98 through an intermediary who in turn (less a commission), distributed those monies to various Iraqi Government ministries (page lxiii, Introduction, Vol 1, Cole Royal Commission Report, 2006);
• Between 2004 and 2005, the Independent Inquiry conducted by Paul Volcker for the United Nations (towards which Commissioner Cole found that AWB engaged in a strategy of ‘passive cooperation’) found that AWB had channelled about US$212 million to the former Government of Iraq (see clause 28.337, Vol 3, Cole Royal Commission Report, 2006);
• Between 2004 and 2006, the Cole Royal Commission examined the conduct of AWB and its officers, and in a substantial report, recommended various civil and criminal charges bed considered against a range of individuals;
• Between 2006 and August 2009, the Australian Federal Police (AFP) and ASIC conducted a Taskforce to examine the Royal Commission findings, until the AFP terminated its role in August 2009, handing the matter to ASIC, stating that criminal prosecutions were unlikely to be successful and were not in the public interest;
• Between 2007 and April 2018, ASIC pursued various AWB executives for civil penalties and alleged breaches of their statutory duties and while ASIC settled and discontinued claims against some executives, the following agreed to or had imposed on them, sentences (declarations of a contravention of the Corporations Act, a fine and disqualification orders):
  • Andrew Lindberg, the former Managing Director, by an agreed settlement, was fined AU$100,000 and disqualified for 3 years from managing a company (Australian Securities & Investments Commission v Lindberg  [2012] VSC 332);
  • Paul Ingleby, the former Chief Financial Officer, on appeal, by an agreed settlement, was fined AU$40,000 and disqualified from managing a company for 15 months (ASIC v Ingleby  [2013] VSCA 49);
  • Trevor Flugge, the former Chairman, was, after a contested trial, fined AU$50,000 and disqualified for 54 years from managing a company (at trial, ASIC v Flugge  & Geary [2016] VSC 779 and on sentencing, ASIC v  Flugge  (No 2) [2017] VSC 117).

At the end, it is worth recalling the words of Commissioner Cole when he pondered upon why AWB and its executives embarked on a course of conduct that would, in 18 years, result in the demise of the company (AWB lost its single desk wheat export monopoly powers and was ultimately acquired by a foreign competitor) and a stain upon all those involved and indeed, Australia’s international trading reputation. The Commissioner said this (at page xii, Introduction, Vol 1, Cole Royal Commission Report, 2006):

The conduct of AWB and its officers was due to a failure in corporate culture. The question posed within AWB was: “What must be done to maintain sales to Iraq?”

The answer given was:

Do whatever is necessary to retain the trade. Pay the money required by Iraq. It would cost AWB nothing because the extra costs will be added into the wheat price and recovered from the UN escrow account [out of which approved humanitarian payments were made]. But hide the making of those payments for they are in breach of sanctions.

No one asked, ‘what is the right thing to do?’ Necessarily, one asks ‘Why?’

The answer is a closed culture of superiority and impregnability, of dominance and self-importance. Legislation cannot destroy such a culture or create a satisfactory one. That is the task of boards and the management of companies. The starting point is an ethical base. At AWB the Board and management failed to create, instil or maintain a culture of ethical dealing.

One wonders over the years, with the cultural and ethical problems apparently rampant throughout the Australian banking and financial services sector, whether Australian companies learn from the past. One can but hope.

Australia – Foreign Bribery Law Reforms

On 20 April 2018, the Senate Economics Legislation Committee published its Report on the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017 (the Corporate Crime Bill).

The Report is here.

The proposed amendments supported by the Committee covered the following:

• To include a person standing or nominated as a candidate for public office as a “foreign public official” under Australian’s foreign bribery laws;
• To remove the requirement that a foreign public official must be influenced in the exercise of official duties;
• That the threshold test in the foreign bribery offence of “not legitimately due” be changed to one of “improperly influencing” a relevant foreign public official;
• The amended foreign bribery offence will apply if a bribe was to obtain or retain a personal advantage;
• The introduction of the strict liability corporate offence of failing to prevent foreign bribery;
• When drafting the Ministerial Guidance on the adequate procedures for a company (to prove in defence of the alleged corporate offence), internal whistleblower systems should form part of the proscribed adequate procedures;
• The proposed Deferred Prosecution Agreement (DPA) scheme for nominated Commonwealth offences (although one Senator noted there should be a set of minimum requirements for a DPA to be published, to avoid the perception of a lack of transparency in the process); and
• The Government allows appropriate (4 weeks) consultation on the Ministerial Guidance for adequate procedures and the proposed DPA Code of Conduct.

The Committee recommended the Whistleblower Protections Bill be passed.

Given the relatively minor changes proposed by the Committee, it is hoped that once the publication and consultation process for the draft Ministerial Guidance and DPA Code of Practice has occurred, the Corporate Crime Bill will be reintroduced to Parliament and enacted.

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Australia – Private Sector Whistleblower Protection Reforms

On 22 March 2018, the Senate Economics Legislation Committee published its Report on the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 (the Whistleblower Protections Bill). The Report is here.

The Committee recommended the Whistleblower Protections Bill be passed.

The Committee accepted that while the Whistleblowers Protections Bill did not include all of the recommendations made by the Joint Parliamentary Committee Report (covered in the December 2017 Update and here), it was a move in the right direction as a valuable contribution to reform even though some submissions regarded the current Bill as inadequate and others said the Bill should be withdrawn and redrafted to “get it right”. This view has been reinforced by concerns expressed by Prof AJ Brown, the undisputed leader in integrity and whistleblower protections in Australia. He has been reported in The Australian (on 13 April 2018) as saying, due to the drafting flaws he sees in the Bill, that “the only logical conclusion you could reach is that it would be better not to have the bill go forward unless these things are fixed”.

The Committee did recommend that the Bill include an explicit requirement for review. This is encouraging as we need to assess how these reform work in practice. In addition, while the Bill did not address the question of whistleblower rewards or an independent authority to represent and act on behalf of whistleblowers, it is hoped that these topics remain on the radar to be reviewed over time.

It is critical that all listed and large proprietary companies review their existing whistleblower policies and how they interact with other policies and any external hotline. While the laws are likely to commence from 1 July 2018, all listed and large proprietary companies must have compliant whistleblower policies in place by 1 January 2019. Some important things to consider are the following[1]:

• What “misconduct” is to be captured by an internal whistleblower policy and what conduct should be handled by other policies;
• The motivation or indeed, the malice of a whistleblower, whether real or perceived, is irrelevant to how a company must respond to a complaint – what is critical is whether, objectively, the whistleblower has a reasonable belief in the complaint;
• Training will be critical under the new regime to ensure employees and managers understand their responsibilities and do not, even inadvertently, contravene the provisions;
• The appointment of experienced managers to handle and manage complaints by whistleblowers and the conduct of an investigation (mandated by the new reforms); and
• Ongoing monitoring and review of how a whistleblower policy is being implemented will be crucial to protect the company (and individual employees) from contravening the new laws.

Australia – Senate Economics Reference Committee Review of Australian Foreign Bribery Laws

In late March 2018, the Senate Economics Reference Committee published its much-anticipated Foreign Bribery Report.  This Report has been over 3 years in the making and has covered two parliaments due to a general election intervening and causing the initial review to lapse with a new referral by the current parliament. The Report is here.

The Senate Committee undertook a substantial and wide ranging review of the state of Australia’s foreign bribery laws, their investigation and enforcement and the reasons for the popular perception, and indeed criticism, of Australia’s position that it appears to have laws that, while complying with the OECD Anti-Bribery Convention and its obligations as a signatory, appear otherwise untested and little used. Overall, the Committee considered that “more needs to be done to enhance the effectiveness of Australia’s implementation” of the OECD Convention and the United Nations Convention against Corruption.

The Senate Committee made 22 recommendations.  While the substance of the recommendations were not always accepted by Government members of the Committee and indeed, the reservations in respect of certain recommendations are set out by the Government members in an appendix, in broad terms the Senate Committee recommendations repeat many of the substantive submissions made to it; namely, that there needed to be substantial and significant reform to Australia’s foreign bribery laws and practices in relation to successfully and proactively targeting foreign bribery and corruption.

The key recommendations included the following:

• The Australian Government should prioritise the consideration and implementation of the recommendations made by the OECD in its Phase 4 Report published in December 2017.
• The Australian Government should establish a mechanism that specifically provides for additional one off funding to appropriate Australian agencies for large and complex foreign bribery investigations and prosecutions. While it was disappointing but perhaps predictable that the Committee endorsed the interagency (and fractured) approach to dealing with foreign bribery (at clauses 3.101 to 3.103), it made it clear there needed to be permanent funding mechanisms in place to ensure the authorities were not cash-strapped and had to constantly seek ongoing funding from the Government. The 2017 ASIC Annual Report, in so far as ASIC is concerned (aside from the AFP and criminal investigations) shows that while ASIC had Commonwealth funding of AU$341.6 million over the last financial year (below the AU$350 million it received in 2012-2013 before significant costs to its budget), ASIC contributed AU$948.6 million from fees and charges (see the Annual Report here). Thus it appears ASIC costs the Government and taxpayers nothing yet it generates massive fees – so why, one might ask, are governments reluctant to fund ASIC to get robust on enforcement? Therein lies deep philosophical debates as to the eternal dichotomy between self-regulation and State regulation.
• The change to the critical threshold test in the existing foreign bribery offence (in section 70.2 of the Criminal Code), moving from a benefit that was “not legitimately due” to “improperly influencing” a foreign public official, was accepted by the Committee.
• Overall, the proposed amendments to the foreign bribery laws, including the creation of a new corporate offence of failing to prevent foreign bribery (with strict liability on the company) which is the subject of the proposed bill (referred to above), is supported. The Committee considered that the creation of the corporate offence was overdue and that for too long, the law had protected those who used opaque financial and corporate structures to hide potentially criminal conduct (at clause 4.96). In addition, the Committee supported a principles-based approach in terms of the guidance the Minister is to publish in relation to the adequate procedures a company must demonstrate in order to satisfy the statutory defence (at clause 4.100). The Committee recommended that the Minister allow an appropriate period of time for consultation on the guidance and a transition period for companies to implement the necessary compliance measures to satisfy the statutory defence.
• The Committee agreed that it was irrelevant under the Criminal Code whether a foreign public official was improperly influenced (as the new threshold test is likely to be) within or beyond their official duties (at clause 4.114). Thus any business advantage that is caught by the law can be an advantage for a third party.
• The Committee considered whether the Criminal Code should contain a proposed offence of “reckless” bribery of a foreign public official. While noting that absent such an offence, companies and individuals may still structure their affairs so as to limit or avoid criminal liability, the Committee accepted the Bill as drafted, suggesting the proposed reckless offence be further explored in the future, once the impact of the reforms can be assessed (at clauses 4.132 to 4.135).
• The report by the Parliamentary Joint Committee on Corporations and Financial Services on private sector whistleblower protections (the subject of an update in December 2017) was supported and the Australian Government was urged to implement all outstanding recommendations from that committee and its report. There was some dissent amongst the members of the Committee on this point, with the Government members (in a separate note, at page 204 of the Report) stating that the Whistleblowers Protections Bill (as noted above) was sufficient.
• The facilitation payments defence currently contained in Section 7.4 of the Criminal Code Act 1995 (Cth) (the Criminal Code) should be abolished over a transition period. The status of the facilitation payment defence has been in limbo since 2011 when the Australian Government published a consultation paper on the topic. Now it seems the Government is resisting abolishing the defence as it appears to be supporting what the Report described as the “pragmatic justifications” for its continued existence – its removal will create “disadvantages” for small to medium businesses and it will have no effect on the prevalence of bribery or corruption (at clauses 7.52 to 7.60). The Committee (save for the dissenting Government members) expressed this view (at clauses 7.97 to 7.103):

The committee believes Australia’s position on this issue is increasingly isolated, and the committee is concerned about the inconsistencies between international standards and Australia’s domestic bribery laws and the domestic laws of comparative countries (of which some are Australia’s major trading partners)…the committee is deeply concerned and disappointed about the lack of legislative action that the government has taken in this area and wishes to recognise the initiatives of Australian businesses who have taken matters into their own hands by implementing internal policies prohibiting facilitation payments…a facilitation payment is not materially different from a small bribe and therefore should not be recognised as a defence to a foreign bribery offence in Australia…abolition of the facilitation payment defence should proceed with a transition period to allow business time to implement the changes to their internal processes and to inculcate a culture of compliance amongst its employees.

• The Australian Government should introduce a debarment framework so that if companies have been found guilty of foreign bribery offences, relevant Australian government agencies should have the power to preclude that company as a tenderer from being awarded a government contract (funded by public revenue). It is somewhat surprising that the Attorney General’s Department told the Committee (at clause 8.29) that “there aren’t any specific debarment policies for procurement by the Australian Government”. Given the many years of proactive debarment regimes implemented by the World Bank and other regional and multilateral development banks and the fact that the OECD had been raising it as an issue since 2006 (with no great success, it appears), Australia’s silence on this topic is disappointing. The Committee considered the Australian Government had been remiss in not adequately exploring a foreign bribery debarment scheme for companies in Australia. Whether such a scheme should have as a threshold a guilty conviction of foreign bribery (which is as rare in Australia as a hen’s tooth) or a lesser standard is a topic yet to be considered by the Government.
• The Australian Government should provide and publish clear practical guidance to companies concerning foreign bribery and, in particular, how an individual or a small company should go about making a voluntary report of foreign bribery. The Committee considered (at clauses 8.78 to 8.81) that it was “extremely important to develop a culture of risk awareness across the corporate sector” and that it was “essential that the government act to encourage self’-reporting and cooperation by corporates.” The Government was encouraged to publish practical information which could be used by individuals and small businesses to understand how to go about reporting misconduct.

While the Senate Committee Report was not unanimous, there are a number of important messages to take out of this review.  The review is the culmination of significant work undertaken by the Senate over a 2-3 year period.  Almost all submissions made to the enquiry supported substantial reform.  The current Australian Government is in the process of enacting legislation, currently the subject of review by Parliamentary committees, which focuses on, in particular, foreign bribery offences, a Commonwealth deferred prosecution agreement scheme and private sector whistleblower protection reforms.

However, as we have so often seen in Australia, while these reports and recommendations for substantial change have been made in the past, they have rarely been followed through.  It is encouraging that the current Australian Government has substantial bills before the Australian parliament to address a number of these issues.  While they may not be perfect, and there is room to criticise the approach by the Government and indeed in some areas where it seems to ignore calls for reform and change, it is a positive start.  It appears the Australian approach is for small steps to be made over a long period of time.  That in itself has some merit, but it does create a public perception that, overall, the question of foreign bribery, complex commercial crime and opaque offshore business opportunities are simply too hard and too complicated and should be left for investigators and prosecutors to do their best with the limited resources that are provided to them without, from a philosophical perspective, imposing more regulations on over-regulated business.

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[1] Comments gratefully acknowledged from Yoness Blackmore, Associate in the JWS Employment Group.