Today’s post is from Robert Wyld (an attorney at Johnson Winter & Slattery in Sydney).
Wyld is the Australia Expert for FCPA Professor.
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This year-end review covers a range of important developments in Australia and overseas in the area of foreign bribery policy, investigations and regulation to 20 December 2017. It has been a busy year for politicians (creating new laws), regulators (pushing for easier ways to investigate and prosecute) and enforcers (Australia’s first foreign bribery convictions). And of course, and very much deserved, much enhanced private sector whistleblower protections are inching ever closer to reality.
The key issues that are covered in this review include:
- Australia – First Foreign Bribery Convictions
- Australia – ASIC False Accounting Prosecution against ex-Leighton Holdings Executives
- Australia – Proposed New Foreign Bribery and DPA Laws
- Australia – Proposed Reforms to Private Sector Whistleblower Protection Laws
- Australia – Senate Review of Foreign Bribery Laws
- Australia – ASIC Enforcement Review Report on Penalties for White-Collar Crime and Corporate and Financial Misconduct
- OECD – Enforcement Review 2016 and Phase 4 Report of Australia’s obligations under the OECD Anti-Bribery Convention
Australia – First Foreign Bribery Prosecution and Conviction
On 27 September 2017, in R v Jousif; R v I Elomar; R v M Elomar [2017] NSWSC 1299, the NSW Supreme Court sentenced 3 individuals on charges of conspiring to bribe a foreign public official. Two of the offenders were brothers and directors of an engineering, construction and infrastructure company, Lifese Ltd while the third was a facilitator who held himself out as an expert in introducing companies to government and statutory authorities in Iraq. The two brothers were convicted and sentenced to 4 years imprisonment (with a 2 year non-parole period) and a fine of AU$250,000 each while the third offender, the facilitator, was sentenced to 4 years imprisonment (again with a 2 year non-parole period) and with no fine. The case can be found here.
The case concerned the payment of approximately US$1 million to entities in Iraq for the purpose of ensuring that commercial contracts were secured in favour of the company. In passing sentence, the Court made the following observations (at [269]-[270] and [313]):
“I infer that the offence is difficult to detect. None of the parties to a conspiracy to bribe has an interest in its disclosure. The victim is the nation state whose foreign public officials are to receive a benefit…It is important that the sentence includes an element of denunciation so that those Australians who carry on business overseas appreciate that bribery of foreign officials is as serious and as criminal as bribery of local officials and can never be excused, much less justified, on the basis of a business imperative…Each offender has deliberately flouted Commonwealth law and employed criminal means in the expectation of financial advantage. Their respective criminality is serious and warrants imprisonment to communicate “the censure of society”.
The first foreign bribery prosecution, the Securency bank note printing saga, will finally make it way to trial. The trial is listed to commence before the Supreme Court of Victoria in late January 2018. Assuming the extensive non-publication orders are dissolved for the hearing, then expect some close media scrutiny of the evidence as it unfolds.
Australia – False Accounting Prosecution against ex-Leighton Holdings Executives
In late 2016 and early 2017, ASIC charged Peter Gregg and Russell Waugh with engaging in conduct that resulted in the falsification of the company’s books in contravention of the Corporations Act 2001 (Cth). The trial of the two accused was listed to commence on 27 November 2017. On 29 November 2017, the trial was adjourned to 15 October 2018. Further updates will be provided as they become available.
Australia – Proposed New Foreign Bribery and DPA Laws
On 7 December 2017, the Australian Government tabled before Parliament the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017. The reading of the Bill was adjourned to the first sitting of Parliament in the New Year, on 5 February 2018 and has been referred to the Senate Legal & Constitutional Affairs Legislation Committee to consider and report by 20 April 2018. The bill can be found here.
The Bill includes the following important reforms to Australia’s foreign bribery laws:
- Amendments to the Criminal Code Act 1995 (Cth) to create new intentional (but not the proposed reckless) foreign bribery offence based upon improper influencing a foreign public official in order to obtain or retain business or an advantage;
- The creation of a new strict liability corporate offence of failing to prevent foreign bribery; and
- The introduction of a deferred prosecution agreement (DPA) scheme for certain Commonwealth serious financial offences.
These reforms have been covered in the April 2017 Update. In reviewing the draft Bill, the following important developments should be noted in relation to the foreign bribery offence:
- The existing foreign bribery offence in section 70.2 of the Criminal Code will be repealed, to be replaced with a new offence of, in substance, providing, offering or causing to offer a benefit to another person with the intention of improperly influencing a foreign public official (who may be the other person) to obtain or retain business or an advantage;
- While a similar offence of being reckless as to whether conduct would improperly influence a foreign public official was proposed, that proposed offence is not in the Bill;
- The Bill outlines the factors a Court is to consider in determining whether influence is improper and importantly, must disregard whether the conduct was: customary, necessary or required; whether there was any official tolerance of the conduct; if a particular business or advantage is relevant, the fact that its value may be insignificant or of any official tolerance to an advantage or whether an advantage may be customary;
- The strict liability corporate offence of failing to prevent bribery of a foreign public official is as proposed (predicated upon an underlying offence of bribing a foreign public official) with the only defence being that the company had in place adequate procedures designed to prevent the commission of the offence and any associate engaging in the offending conduct; and
- The Minister must publish a “guidance” on the steps a company can take to prevent an associate from bribing foreign public officials.
The Bill also outlines in more detail the statutory process for the operation of the Commonwealth DPA scheme for certain Commonwealth offences:
- The Commonwealth Director of Public Prosecutions (CDPP) may enter into a DPA with a company;
- Criminal proceedings must not be commenced if a DPA is approved unless the CDPP is satisfied an agreement has been contravened or that inaccurate, misleading or incomplete information was provided in connection with the agreement and the entity supplying the information ought to have known that;
- The Commonwealth offences to which a DPA may apply will include contraventions of:
- Australia’s anti-money laundering and terrorism financing laws;
- The Autonomous Sanctions Act 2011 (covering Australian sanctions);
- The Charter of the United Nations Act 1945 (covering UN sanctions);
- The Corporations Act 2001, covering:
- Market manipulation (section 1041A);
- False trading and market rigging (section 1041B);
- Dissemination of information concerning illegal transactions (section 1041C);
- False or misleading statements (section 1041D);
- Inducing persons to deal (section 1041F);
- Dishonest conduct (section 1041G);
- Prohibited conduct concerning insider information (section 1043A); and
- Falsification of company books and records (section 1307)
- The Criminal Code, covering:
- Theft (section 131);
- Obtaining property or a financial advantage by deception (section 134);
- Fraud and dishonesty (section 135);
- Bribery of a Commonwealth public official (section 141);
- Corruption a Commonwealth public official (section 142);
- Forgery (section 144);
- Forgery offences (section 145);
- Dealing in the proceeds of crime and the anti-money laundering offences (section 400);
- The use and misuse of financial information concerning obtaining funds, credit or financial benefits (section 480); and
- False and/or reckless dealings with an accounting document (section 490);
- A DPA must contain certain terms including an agreed statement of facts, any conditions to be satisfied, the amount of any financial penalty and a consent to the institution of an indictment without any future committal process;
- A DPA may contain a variety of other terms concerning compensation, the implementation of a compliance program, the payment of costs, the forfeit of benefits and any other term the CDPP “considers appropriate”;
- The Commonwealth may appoint an “approving officer” (being a former judicial officer of a Federal, State or Territory Court) for a term of 5 years;
- The approving officer must review and either approve or not approve the DPA, with an approval based on the officer being satisfied the DPA is “in the interests of justice” and is “fair, reasonable and proportionate”;
- Once a DPA is approved, it must be published on the CDPP’s website in whole or part, and can be redacted in whole or part in the CDPP’s discretion if publication would threaten public safety, prejudice ongoing investigations, or the fair trial of a person or be contrary to an order of a court;
- Any variation to a DPA must go through the same approval and publication process;
- There are limits to the admissibility into evidence of documents indicating a DPA was being negotiated or documents created solely for the purpose of negotiating a DPA (but derivative use of information so obtained may still exist); and
- There are limited rights of a Commonwealth official to disclose any information about a DPA.
There are some transitional amendments to other laws, most notably the Income Tax Assessment Act 1997 (Cth) where the non-deductibility of bribes exists as an offence, the Crimes Act 1914 (Cth) in relation to factors to consider on sentencing and the DPP Act 1983 (Cth) in relation to authorising the CDPP to negotiate, enter into, administer, and issue directions or guidelines concerning the negotiations for, the entering into and the administration of a DPA.
Given that these proposed amendments have been on the Parliamentary table and under extensive public consultation for many months, it is hoped these reforms will be enacted in the first half of 2018 after further review by the Senate Legal & Constitutional Affairs Legislation Committee.
Australia – Proposed Reforms to Private Sector Whistleblower Protection Laws
In September 2017, the Parliamentary Joint Committee on Corporations & Financial Services published its Report on whistleblower protections. The Report contained a number of important recommendations for reform including a wholesale review of private sector whistleblower protections.
On 23 October 2017, the Commonwealth Government published an Exposure Draft Treasury Laws Amendment (Whistleblowers) Bill 2017 for public consultation.
However, three important features from the Report not contained in the draft Bill are that:
- There is yet no independent authority to represent whistleblowers;
- There are no rewards (or a US-style bounty) to be paid to whistleblowers; and
- For compensation, a whistleblower must still bring his or her own civil claim and run the gauntlet of litigation against a well-funded employer.
On 7 December 2017, the Australian Parliament considered a revised whistleblower protections bill, the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017. This Bill contains the formal changes proposed to enhance whistleblower protections which are to be included in the Corporations Act 2001 (Cth). The Bill can be found here.
The key changes set out in the December 2017 Bill are as follows:
- The Bill, once enacted, will apply from 1 July 2018 but will cover conduct occurring before 1 July 2018;
- A disclosure may be made by an eligible whistleblower to an eligible recipient where the discloser has reasonable grounds to suspect that the information indicates that a company (or officer or employee) or a related body corporate has engaged in conduct that constitutes a contravention of any Commonwealth law that is punishable by imprisonment for a period of 12 months or more, or which represents a danger to the public or the financial system;
- An eligible whistleblower can be a current or former officer, employee, or person who supplies goods and services to the company, an associate of a company and in respect of any individual, a dependent or spouse;
- Emergency disclosures are permitted to a third party (a journalist or a member of a Parliament of the Commonwealth, State or Territory) if a disclosure has been made, a reasonable period has passed, and the discloser has reasonable grounds to believe that there is an imminent risk of serious harm or danger to public health or safety, or to the financial system if the information is not acted on immediately;
- Confidentiality of a whistleblower’s report and his or her identity is reinforced;
- Compensation rights are set out and while a whistleblower must still bring an individual claim, there are provisions reversing the onus of proof for certain matters and cost protections (so no adverse cost order can be made unless the discloser acted without reasonable cause);
- A public company and a large proprietary company must have a whistleblower policy in place (by 1 January 2019) that covers a range of matters including information about a whistleblower’s rights under the new laws;
- Enhances the protections to whistleblowers against retaliation and victimisation; and
- Provides protection from civil and/or criminal liability in connection with the subject matter of a disclosure made under the new laws.
While there are still some serious criticisms of the scope of the protections, particularly the high threshold test for disclosures to third parties, being “an imminent risk of serious harm or danger to public health or safety, or to the financial system if the information is not acted on immediately” (see section 1317AAD(1)(c) of the draft Bill), which may result in further amendments (see “Whistleblower laws need to be fixed”, Adele Ferguson, The Australian Financial Review 11 December 2017), the Bill remains a good start to tackle the long-standing deficiency of adequate and robust private sector whistleblower protections in Australia.
While the Bill remains under consideration, it is timely for all large listed and proprietary companies to revisit their internal policies and procedures to bring them into line with the expected changes, which have cross-party support in the Parliament. They will be required to have in place a whistleblower policy that reflects the new laws by 1 January 2019.
The importance of addressing these issues is highlighted by Prof AJ Brown who led the research project, Whistling While They Work 2 (in conjunction with ASIC). In the Project’s Preliminary Report published in July 2017 (see here), Prof Brown found out of 702 organisations surveyed, almost 23% reported “having no specific strategy, program or process for delivering support and protection to staff” with another 26.8% relying on “setting up such a strategy as needed, rather than having any standing support program”. The time for corporate complacency in the private sector over whistleblowers in Australia is fast disappearing.
Australia – Senate Review of Foreign Bribery Laws
During the second half of 2017, the Australian Senate Economics Reference Committee reactivated its review of Australia’s foreign bribery laws. While a report was to be published by early December 2017, that has now been pushed back to 7 February 2018.
Australia – ASIC Enforcement Review Panel Report on Penalties for White Collar Crime
In October 2017, the Australian Government announced a consultation process into the level of penalties for white collar crime. The ASIC Enforcement Review Panel published its Position Paper 7, Strengthening Penalties for Corporate and Financial Sector Misconduct, outlining key issues that it thought should be addressed by changes in the law (see here). Consultation has closed and it is hoped reforms occur early in 2018.
The key issues include the following:
- The effect of the key positions put in the paper would be to expand the range of civil penalty provisions and to increase maximum civil penalty amounts in the Corporations Act 2001 (Cth) and National Consumer Credit Protection Act 2009 (Cth) (Credit Act) to:
- for individuals, 2,500 penalty units ($525,000); and
- for corporations, the greater of: 12,500 penalty units ($2.625 million), or three times the benefit gained (or loss avoided) or 10% annual turnover.
- This would mean increases from $200,000 (individuals) and $1 million (corporations) in the Corporations Act and 2,000 penalty units ($420,000) for individuals and 10,000 penalty units ($2.1 million) for corporations in the Credit Act.
- To broadly align with planned changes to the Australian Consumer Law, penalties in the Australian Securities and Investments Commission Act 2001 (Cth) would increase from 2,000 penalty units ($420,000) for individuals and 10,000 penalty units ($2.1 million) for corporations to:
- For individuals, 2,500 penalty units ($525,000); and
- For corporations, the greater of: 50,000 penalty units ($10.5 million), three times the benefit gained (or loss avoided) or 10% annual turnover.
- In addition to increasing civil penalties ASIC would be able to seek disgorgement remedies (removal of benefits illegally obtained or losses avoided) in civil penalty proceedings brought under the Corporations, Credit and ASIC Acts.
- Maximum terms of imprisonment would be increased for a range of offences. The most serious Corporations Act offences, given the nature and/or consequences of the offending (many involving dishonesty), will increase to the highest penalties available under the Act: 10 years imprisonment, 4,500 penalty units ($945,000) or 3 times benefits (individuals) and 45,000 penalty units ($9.45 million) or 3 times benefits or 10% annual turnover (corporations).
- Maximum fine amounts for other criminal offences would also increase, and be standardised by reference to a formula based on length of available prison term:
- Maximum term of imprisonment in months multiplied by 10 = penalty units for individuals,;
- Multiplied by a further 10 for corporations.
- For strict liability offences, the lowest level fines would increase and ASIC would be able to deal with these offences through the existing penalty notice regime as an alternative to prosecution.
- ASIC would also be able to deal with a wider range of offences through infringement notice regimes.
While substantially increased penalties have been on the horizon for some years, this is a consistent review to look at the spectrum of penalties open to ASIC in the corporate and financial sectors and will do much to give ASIC extra teeth, assuming it is prepared to press for such penalties to be imposed.
Australia & the OECD – Enforcement Review 2016 and Phase 4 Report of Australia’s Obligations under the OECD Anti-Bribery Convention
On 14 November 2017, the OECD Working Group on Bribery released its 2016 Data on Enforcement of the Anti-Bribery Convention. While the report focused on the degree of international cooperation, it made some interesting findings:
- At least 443 individuals and 158 entities have been sanctioned in criminal proceedings for foreign bribery from 1999 to the end of 2016 with at least 125 individuals sentenced to terms of imprisonment for foreign bribery;
- At least 121 individuals and 235 entities have been sanctioned in criminal, administrative and civil cases for other offences related to foreign bribery, such as money laundering or false accounting in 8 member States;
- Over 500 investigations are ongoing in 29 member States with prosecutions ongoing against 125 individuals and 19 entities in 11 member States;
- While in Australia, to the end of 2016, there was still no sanctioned individual or entity for any foreign bribery offence or other associated offences (although it seems odd that these figures do not include the criminal prosecution for false accounting and conviction of the former Securency CFO, David Ellery and more obviously, the 2017 convictions in the Lifese prosecution).
Against this backdrop, on 19 December 2017, the OECD Working Group on Bribery published the Phase 4 Report on Australia and its performance in complying with the OECD Anti-Bribery Convention. The OECD recognised the substantial steps taken by the Australian Government to improve its framework for detecting and investigating foreign bribery (with 19 ongoing investigations and 13 referrals under evaluation), that enforcement had increased markedly since the 2012 Phase 3 Report and a number of legislative and institutional reforms have or are designed to strengthen the focus on targeting foreign bribery.
The Phase 4 Report makes the following recommendations for the future:
- To address the risks that the proceeds of foreign bribery could be laundered through the Australian real estate sector;
- To enhance private sector whistleblower protections;
- To adequately resource the AFP and CDPP;
- To pursue criminal charges against companies for foreign bribery and related offences (false accounting, money laundering and tax evasion); and
- To continue to encourage companies, particularly SMEs, to develop and adopt adequate internal controls, ethics and compliance programs to prevent and detect foreign bribery.
Overall, the Phase 4 Report illustrates that the Australian Government is recognising the importance of tackling foreign bribery and corruption, is strengthening Australia’s laws to prosecute companies and individuals, is recognising the importance of enhanced whistleblower protections (to promote the disclosure of illegal conduct) and ultimately, and this is where the test lies, to adequately resource and staff the AFP and the CDPP to go after foreign bribery in a manner now being adopted by their overseas counterparts.
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