Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery in Sydney) and covers recent developments from Australia in the general area of foreign bribery and commercial crime.
The key issues that are covered include: Current Foreign Bribery Prosecutions; Reforms to Foreign Bribery Laws; The New Corporate Foreign Bribery Offence; The Proposed Commonwealth DPA Scheme; Foreign Bribery Test – Dishonesty or Improper Influence; Reforms to Principles of Corporate Criminal Responsibility.
Current Foreign Bribery Prosecutions
Australia’s record on foreign bribery prosecutions is still patchy at best. While the Australian Federal Police (AFP) and the independent prosecutor, the Commonwealth Director of Public Prosecutions (CDPP), may have numerous investigations on the go from time to time, there are only two current prosecutions before the Australian courts.
The first involves the Australian arm of Jacobs Engineering Group in the US, Jacobs Group (Australia) Pty Ltd (formerly Sinclair Knight Merz Pty Ltd which Jacobs US acquired after the relevant conduct) and 6 former directors, officers and employees. Jacobs Australia reported the conduct to the AFP in 2012. The criminal proceeding commenced in 2018. In June 2020, the individuals were committed to trial and in December 2020, the individuals were indicted on charges of conspiring with each other to provide a benefit to foreign public officials in the Philippines and in Vietnam in connection with aid-funded infrastructure projects between January 2005 and June 2012, contrary to the Criminal Code Act 1995 (Cth) (Criminal Code). This is the first contested foreign bribery prosecution. It is unclear when a full trial will take place, possible towards the end of 2021 or during 2022 subject to prevailing Covid-19 conditions and social distancing regimes then applicable.
The second involves three former executives of Leighton Holdings (now CIMIC, a Spanish owned entity). The AFP has alleged that certain improper payments were made by a Singapore registered operating entity, Leighton Offshore Pty Ltd, regarding two contracts with Iraq Crude Oil Export in 2010 and 2011. The investigation revealed two contracts for the development and installation of onshore and offshore oil pipelines designed to increase the capacity of Iraq’s crude oil export. For Leighton Offshore Pty Ltd to be awarded the two contracts – which had a combined value of approximately US$1.46 billion – approvals were required from the Iraqi Ministry of Oil and the South Oil Company of Iraq. It is alleged that Leighton Offshore Pty Ltd funnelled bribes through entities associated with third party companies and Unaoil to guarantee approvals for the Iraq Crude Oil Export contracts and the key targets of the bribery scheme were Iraqi Ministry of Oil officials and government officials within the South Oil Company of Iraq. The AFP has identified approximately US$77.6 million in suspicious payments made via third party contractors (see here for AFP media release).
Two of the three accused individuals have, to date, been charged. Russell Waugh was arrested on 18 November 2020 and charged with two foreign bribery offences contrary to sections 70.2 and 11.5 of the Criminal Code. He was also charged with allegedly engaging in conduct to falsify books linked to the corporation, and knowingly providing misleading information, contrary to sections 1307 (1) and 1309 (1) of the Corporations Act 2001 (Cth). David Savage was arrested in early January 2020 after returning to Australia from France and completing hotel quarantine. He has been charged with two counts of knowingly providing misleading information contrary to sections 1309 (1) of the Corporations Act 2001 (Cth) (see here for AFP media release).
The Leightons case is likely to take some time to work its way through the courts. It very much seems that the decision by the AFP to charge the accused, arises from media reports that members of the Ahsani family (who owned and ran Unaoil) have been cooperating with authorities and in return for that cooperation, are likely to give Crown evidence. As the Sydney Morning Herald observed on 21-22 November 2020, “the private-school educated, suit-wearing Ahsani brothers may have appeared brash and defiant when publicly proclaiming their innocence, but when the prospect of long stints in jail became real in 2018, they did what many crooks do. They cut a deal with the FBI” (see here for media reports). The Australian authorities already tried a crack at Peter Gregg, the former CFO at Leighton Holdings with two false accounting offences. While he was convicted at trial, he was acquitted on appeal, with the NSW Court of Criminal Appeal delivering a scathing assessment of the conduct of the prosecutor and the trial judge, finding an egregious miscarriage of justice. See here for the judgment of the Court of Criminal Appeal. Not an encouraging finding for professional prosecutors or indeed the lower court.
Reforms to Australia’s foreign bribery laws
On 2 December 2019, the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2019 (Corporate Crime Bill) was introduced to Parliament which seeks to address challenges associated with detecting and addressing serious corporate crime. The Corporate Crime Bill is available here.
The Senate referred the Corporate Crime Bill to the Legal and Constitutional Affairs Legislation Committee (Committee). The Committee published its report in March 2020 and recommended that the Senate pass the Corporate Crime Bill. The report is available here.
The Corporate Crime Bill seeks to enact the following four reforms:
- amendments to the existing offence of bribery of a foreign public official (FPA) in the Criminal Code;
- introduction of a new offence of failure of a body corporate to prevent foreign bribery by an associate;
- implementation of a Commonwealth Deferred Prosecution Agreement (DPA) scheme; and
- repeal and replacement of the existing definition of “dishonest” in the Criminal Code.
These reforms, if finally enacted, will mean Australian businesses with any operations overseas (through subsidiaries, joint ventures or other agents, consultants or third parties) will need to take a proactive approach to identifying and managing risk and, where possible, avoiding risk in transactions that might give rise to the possibility of foreign bribery. Many Australian companies are already addressing these risks while the enactment of the new proposed laws will add impetus for corporate misconduct to be identified, fixed and if applicable, reported to authorities.
The Corporate Foreign Bribery Offence
The Corporate Crime Bill seeks to amend the terms of section 70.2 of the Criminal Code which sets out the offence of bribing a FPA in a number of ways.
- It broadens the current definition of a FPA to include an individual standing or nominated as a candidate to be an FPA, in order to capture bribery of candidates with the intent of obtaining an advantage once they take office.
- It replaces the current requirement that the benefit or business advantage not be “legitimately due” with the concept of “improperly influencing” an FPA to obtain or retain business or an advantage.
- It extends the existing offence of obtaining or retaining business or a business advantage to the obtaining or retaining of a personal advantage.
- It includes an offence-specific defence relating to whether a law in the relevant foreign jurisdiction would permit the provision of a relevant benefit to a FPA.
To address the perceived difficulty of attributing liability to an Australian parent company for the acts of an overseas subsidiary or other third party, the Corporate Crime Bill introduces a new offence of failure of a body corporate to prevent foreign bribery by an “associate”.
An “associate” is defined broadly as a person undertaking services for or on behalf of another for profit. The offence has the same maximum penalty as the existing offence in section 70.2 of the Criminal Code and is intended to be a deterrent to companies being wilfully blind to corrupt practices within their business but separated from parent entities by offshore subsidiaries or other third party intermediaries. The offence is a strict liability offence.
However, it would be a defence if a company can demonstrate that it had adequate procedures in place designed to prevent the commission of the foreign bribery conduct by an associate. The Australian Attorney-General has published a Consultation Paper on the likely steps a company can take to ensure it has adequate procedures in place to prevent foreign bribery from occurring. The Consultation Paper is available here. It is modelled on the Guidance published by the United Kingdom Ministry of Justice for the similar section 7 offence under the Bribery Act 2010 (UK). The Consultation Paper proposes a high level set of principles for companies to adopt in proactively addressing foreign bribery risks to assist a prosecutor and a court in determining whether adequate procedures have, in fact, been implemented.
The Proposed Commonwealth DPA scheme
To incentivise corporations to self-report, the Corporate Crime Bill seeks to enable the CDPP to invite corporations who have engaged in serious corporate crime to negotiate a DPA. The offer to negotiate a DPA can only be made to a company (similar to the UK position and narrower than in the US).
Any DPA must be assessed by the CDPP consistently with the existing Prosecution Policy of the Commonwealth of Australia (available here). In addition, the CDPP has published a Guidance on the factors that will be considered in circumstances where a company self-reports a potential offence and whether a DPA should be offered to it. The CDPP Guidance is available here.
The Corporate Crime Bill largely maintains the features that were in an earlier version published in 2017, including:
- mandatory conditions as well as a non-exhaustive list of optional conditions;
- the extent of ongoing co-operation with investigations;
- the payment of financial penalties;
- the role of an independent monitor to assess compliance with a DPA;
- admission to agreed facts but not, importantly, any admission of liability;
- limitations on the admissibility in any subsequent civil or criminal proceedings of documents generated or provided to Commonwealth agencies during the course of negotiating or complying with a DPA; and
- the implementation of compliance programs.
The Australian court system is not involved in the DPA. There is no filing of any indictment or court attendance notice (as required under Australian State criminal procedure laws). This is because of the constitutional separation of powers and the ruling of the High Court of Australia that a prosecutor in a criminal case cannot make submissions on or agree to penalties; that is the exclusive preserve of the sentencing court. Accordingly, a DPA must be considered and approved by an “approving officer”, being a former judicial officer who is satisfied that its terms are in the interests of justice, and are otherwise fair, reasonable and proportionate.
The most significant failing in the model DPA scheme is that there is no clear obligation on the approving officer, or the CDPP, to publish reasons for a DPA. While the CDPP must publish the terms of a DPA (subject to any non-disclosure requirements to protect ongoing investigations or prosecutions), the Corporate Crime Bill is silent on publishing reasons to support a DPA. This is a major drawback to the clear desirability for transparency, accountability and judicial reasoning by the approving officer. The Australian Law Reform, in its report on corporate criminal responsibility, recommended that reasons be published.
The UK’s DPAs have been subjected to clear judicial scrutiny and there are, at present, 7 leading judgments by senior UK Judges. The leading judgment still remains that of Lord Justice Leveson in the first DPA in SFO v Standard Bank Plc delivered in November 2015 (available here) where the Court clearly articulated with detail the balancing act that was required to assess the proposed DPA and the attitude of the courts towards assessing the company’s conduct, both on liability and on mitigating factors.
Without such clearly published reasons, the Australian system runs the risk of being shrouded in secrecy and lacking transparency. This is counter-productive to the success of the proposed scheme and in generating community faith that it is indeed an open, transparent scheme, rather than a system designed to let companies buy their way out of criminal liability without proper public disclosure of what occurred.
Foreign Bribery Test – Dishonesty or Improper Influence
The current test for dishonesty requires proof of not only conduct that is objectively dishonest according to the standards of ordinary people, but proof that the defendant is aware that his or her knowledge, belief or intent is dishonest in the relevant sense. Under the new proposal, the subjective limb would be removed and the new definition for dishonesty would simply be “dishonest according to the standards of ordinary people”, to align the Criminal Code with the common law test endorsed by the High Court of Australia in Peters v The Queen (1998) 192 CLR 493.
The reforms seek to address the present difficulties in obtaining sufficient admissible evidence that a defendant is aware of or knows that his or her conduct is dishonest according to the standards of ordinary people. Several stakeholders have voiced significant concerns about the proposed reforms. For instance, the change in definition would affect at least 58 current Commonwealth offences without any specific attention as to whether the change and penalty is appropriate for each particular offence. In addition to re-framing a number of offences in the Criminal Code, the reforms have the potential to unduly trespass on personal rights and liberties in a manner that may not be justified to merely make the prosecution of individuals easier for the Crown.
Reforms to Principles of Corporate Criminal Responsibility
Over many years, there has been criticism of why Australia rarely commences criminal prosecutions against companies for financial crime. Prosecutors usually say that they like to focus on the conduct of individuals who drive corporate behaviour. In truth, they find it very difficult to establish criminal liability on a company where corporate conduct is diffused and spread out amongst the layers of management. The Australian law instead relied upon the traditional common law test of attribution by the directing will and mind of a company to establish corporate liability. It was considered very hard to establish given that those who direct a company, particularly large organisations, are rarely involved in hands-on misconduct. In 2001, Part 2.5, sections 12.1 to 12.6 of the Criminal Code established a statutory test for attributing criminal liability to a company, based upon the objective conduct of a Board of Directors and/or the conduct of a “high managerial agent”. However, these reforms appeared illusory as corporate criminal prosecutions appeared to be no easier for prosecutors.
On 15 November 2019, the Australian Law Reform Commission (ALRC) was issued with broad Terms of Reference to review the existing law on corporate criminal responsibility and to consider what reforms if any, might be warranted.
On 29 April 2020, the ALRC published its report to the Australian Attorney General, which was released in August 2020 (here). The key recommendations include the following:
- Significant changes to how the conduct of individuals should be attributed to a corporation;
- Streamlining how a corporation should be sentenced;
- Amending the foreign bribery offence, proposing changes to the proposed strict liability “failure to prevent” offence and the proposed deferred prosecution agreement (DPA) scheme.
For the critical changes in attributing criminal liability to a corporation, the ALRC recommended the following:
- Attributing conduct to a corporation committed by persons acting at the direction, or with the agreement or consent (express or implied) of such employees, agents or officers; and
- Replacing the concept of a ‘high managerial agent’ (in the Criminal Code) with an ‘officer, employee, or agent of the body corporate, acting within actual or apparent authority’”, which will align with the attribution provisions with the majority of other Commonwealth laws;
- More generally, repeal any other alternative attribution methods under Commonwealth law so there is one consistent approach.
The result of these reforms, if enacted, will be to potentially improve the options open to investigators and prosecutors to target corporations and senior executives suspected of engaging in commercial crime. For corporations, a better framework should exist to voluntarily self-report potential misconduct, which ought to provide greater certainty to corporations in responding to and managing suspected misconduct.
