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Checking In Down Under

Today’s post is from Robert Wyld [1] (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 [2].

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.

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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:

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 [4].

The proposed amendments supported by the Committee covered the following:

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 [6].

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 [7] and here [8]), 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] [9]:

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 [10].

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 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.

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