Checking In Down Under

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery in Sydney). Wyld is the Australia Expert for FCPA Professor.

There have been a number of important developments in Australia over the last few months. The key issues include: (i) false accounting prosecutions arising out of AFP Leighton Holdings investigation; (ii) ASIC’s penalty prosecutions against former senior AWB Ltd executives continue; (iii) proposed model for a Commonwealth Deferred Prosecution Agreement scheme; (iv) proposed amendments to the Commonwealth foreign bribery offence and introduction of new corporate offence of failing to prevent bribery; and (v) AFP and CDPP foreign bribery initiatives

False Accounting Prosecutions and AFP Leighton Holdings’ Investigation

There have been two recent developments during late December 2016 and January 2017 arising out of the long standing ASIC and AFP investigation into the conduct of Leighton Holdings and its commercial contracting activities in the construction and oil and gas industries in Iraq.

On 31 January 2017, Mr Peter Gregg, a former executive of Leighton Holdings and more recently the managing director of Primary Heath Care, was charged with two counts of falsifying books and records in contravention of section 1307(1) of the Corporations Act 2001 (Cth). The offence reads as follows:

An officer, former officer, employee, former employee, member or former member of a company who engages in conduct that results in the concealment, destruction, mutilation or falsification of any securities of or belonging to the company or any books affecting or relating to affairs of the company is guilty of an offence.

The penalty is 100 penalty units (currently AU$18,000) or imprisonment for 2 years, or both.

The Australian media reported that the charge concerns an allegation that Mr Gregg signed off or approved a payment of $15 million while he was the CFO of Leighton Holdings for a quantity of steel in circumstances where it appeared that, as alleged, no steel was in fact, ever supplied.  Mr Gregg has denied all the allegations against him and will be defending the matter.

ASIC has also charged Russell Waugh, who worked for Leighton Holdings in relation to the same matter.

On 14 March 2017, both Messrs Gregg and Waugh were committed to stand trial in the NSW District Court.

These are the first charges commenced either by ASIC or the AFP arising out of their long standing investigation into the activities of Leighton Holdings in the Middle East.

ASIC and AWB Civil Penalty Prosecutions

On 15 December 2016, the Victorian Supreme Court handed down the last of its trial findings arising out of ASIC’s prosecutions against several former executives of the former Australian Wheat Board Ltd (AWB) and its ill-fated kickback scheme under the United Nations humanitarian Oil-For-Food Program. The Program was created to allow humanitarian aid to be sold to the Iraqi Government, notwithstanding United Nations sanctions, subject to contracts and sale transactions being supervised and approved by the United Nations. AWB supplied wheat to the Iraqi Grains Board (IGB). The Iraq Government never accepted the sanctions regime and sought to circumvent it. AWB ended up paying kickbacks (by inflated contract prices) to the IGB in amounts exceeding US$300 million.

The kickback scheme was created in 1999, was discovered in 2003, was the subject of a Royal Commission in 2006, resulted in changes to the law concerning the effect of breaching United Nations’ sanctions in 2007, generated a criminal and civil task force to investigate numerous individuals, spawned class action litigation in Australia and the United States and ultimately, ASIC’s proceedings seeking declarations of contravention against several former directors and officers for breach of duty and penalties.

The proceedings commenced in 2007, several defendants settled with agreed penalties (the former managing director and the CFO), others settled with no penalties and the last men standing, the former Chairman Trevor Flugge and another former executive, Peter Geary, fought on.

The Supreme Court found:

• for ASIC against Mr Flugge, holding that he breached his duty under section 180 of the Corporations Act 2001 (a duty, in substance, to act with the degree of care and diligence that a reasonable person would exercise if they were a director) by failing to exercise due diligence in failing to make inquiries or inform himself as to AWB’s improper conduct (the fact that AWB’s wheat contracts with Iraq were a sham, contained fees for services never rendered (the infamous “trucking fees” and that those services had never been approved by the United Nations or the Australian Government, given the knowledge he had that had effectively put him on notice; and
• against ASIC against Mr Geary, dismissing the circumstantial case, holding that ASIC failed to prove any breach of duty from the documents (and all ASIC had was a documentary case against Mr Geary, with no direct evidence implicating Mr Geary in AWB’s improper conduct).

The Court is yet to determine the declarations and penalties against Mr Flugge. ASIC has said that it will appeal the findings against Mr Geary. The case continues.

Proposed Commonwealth Deferred Prosecution Agreement Model

In late March 2017, the Attorney General’s Department (AGD) published a Consultation Paper, Improving enforcement options for serious corporate crime: A proposed model for a Deferred Prosecution Agreement scheme in Australia. (See here).

The Paper is the result of the initial 2016 consultation process inviting submissions on the introduction of a deferred prosecution agreement (DPA) scheme for Commonwealth offences. Broadly, the majority of submissions in 2016 favoured the introduction of a DPA scheme.  The rationale for a DPA scheme is to enhance accountability within the business sector for serious corporate crime, to punish companies in a process that provides effective redress and seeks to promote an improved compliance and corporate culture.

The model proposed by the Australian Government contains the following key features:

• a DPA will only be available for companies, not individuals;
• a DPA will apply to nominated Commonwealth offences, including:
  • fraud,
  • false accounting,
  • foreign bribery,
  • money laundering,
  • dealing with the proceeds of crime,
  • forgery and related offences,
  • exportation or importation of prohibited or restricted goods,
  • “specific offences” under the Corporations Act, and
  • any ancillary offence to which the DPA scheme explicitly applies;
• the invitation to commence DPA negotiations will be at the prosecutor’s (the CDPP) discretion;
• the Commonwealth Prosecution Policy will be amended to give guidance on the factors to be taken into account during a DPA negotiation;
• the terms of a DPA will depend upon the circumstances but will include certain standard terms such as duration, an agreed statement of facts, a formal admission of criminal liability for specified offences, ongoing cooperation, approval by a retired judge (not a Court), termination clauses for “material breach” and publication of the DPA and the approval decision;
• for approval of a DPA:
  • the prosecutor must formally seek approval from a retired judge;
  • the retired judge must assess whether the DPA is in the interests of justice and its terms are fair, reasonable and proportionate; and
  • if the DPA is approved, it takes effect and is published on the CDPP website;
• in terms of ongoing compliance, an independent monitor might be appointed;
• all communications relevant to the DPA negotiations (where “that material was provided during the DPA negotiation period and was created solely to facilitate, support or record DPA negotiations”) will remain confidential;
• if a DPA is approved, runs its terms and the CDPP issues an undertaking not to prosecute, the information disclosed during the DPA negotiations will remain confidential and only be shared “with relevant law enforcement agencies unless otherwise required by law” (which opens up the risk of disclosure in other jurisdictions or legal proceedings if permitted by a court);
• if however, the company materially breaches the DPA, all negotiation material can be disclosed and relied upon by the CDPP to prosecute the company; and
• the DPA scheme will be reviewed after 2 years from its introduction.

Submissions on the proposed model DPA scheme are due by 1 May 2017.

Proposed Amendments to the Commonwealth Foreign Bribery Offence and New Corporate Offence of Failing to Prevent Bribery

In April 2017, the AGD published a Consultation Paper, Combatting bribery of foreign public officials: Proposed amendments to the foreign bribery offence in the Criminal Code Act 1995 (See here)

This is the first substantive review and proposed amendments to the primary foreign bribery offence (in section 70.2 of the Criminal Code Act 1995 (Cth) (Criminal Code) since the offence was enacted in 1999.

The key proposals put forward by the AGD seek to address several weaknesses under the present system – the problems of proof of an intent in relation to influencing a foreign public official, what it means for a benefit to be “not legitimately due”, the problems associated with obtaining evidence on foreign laws and duties of foreign officials and whether an offender must have a specific business or business advantage in mind which leads to the offending bribe. Taken together with the Senate review of foreign bribery laws, the Parliamentary review of whistleblower protections and the proposed model Commonwealth DPA scheme, companies need to take stock of the impact of these legislative and policy developments in their governance and compliance frameworks.

The Consultation Paper calls for submissions by 1 May 2017 and the AGD is proposing the following changes to the Criminal Code:

• include candidates for office within the definition of “foreign public official”;
• replace the concept of “not legitimately due” with “improperly influence” a foreign public official (reflecting the foreign bribery laws in the US, the UK, Canada and New Zealand);
• extend the offence to cover bribery to obtain a personal advantage;
• create two new offences:
  • of foreign bribery based on recklessness (where an accused is reckless as to whether the conduct would improperly influence a foreign public official in relation to obtaining or retaining business or an advantage); and
  • a corporate offence of failing to prevent bribery (reflecting the section 7 Bribery Act offence in the UK where a company is automatically liable for the conduct of employees, contractors and agents except where it had in place proper systems of internal controls and compliance to prevent the bribery from occurring);
• remove any requirement of influencing a foreign public official in the exercise of their official capacity; and
• clarify that the offence does not require an accused to have a specific business or advantage in mind, and it could be obtained for a third party.

AFP and CDPP Foreign Bribery Initiatives

In September 2016, the Australian Government announced some dedicated funding to the AFP for foreign bribery investigations.  A significant amount of money was allocated to the establishment of dedicated teams of foreign bribery experts within the AFP to be based in Sydney, Melbourne and Perth.  The Perth operation is understood to focus particularly on the activities of companies in the mining, energy and resources sector based in Perth and often working on commercial activities outside Australia.

The Commonwealth Director of Public Prosecutions (CDPP) is working with the AFP to encourage companies to voluntarily self-report potential criminal offences, and if so, whether a more transparent and clearly defined process can apply as between the AFP, the CDPP and a company (as potential offender) in promoting early self-reporting and resolving an investigation (or potential prosecution) without a contested trial. This process may be further developed in light of the proposed model for a Commonwealth DPA scheme (see above).

FCPA Institute - Zoom (May 16-18, 2023)

Elevate your FCPA knowledge and practical skills. Nine hours of integrated and cohesive instruction led by Professor Koehler (an FCPA expert with teaching experience). Learn more, spend less. Professional credential available.

Learn More and Register