Corruption and regulatory enforcement in Australia

June 2012 | TALKINGPOINT | FRAUD & CORRUPTION

financierworldwide.com

FW moderates an online discussion covering corruption and regulatory enforcement in Australia between Amanda Turnill at DLA Piper, Paul Wenk at Freehills, and Owain Stone at KordaMentha Forensic.

FW: Could you provide a broad overview of Australia’s key anti-bribery laws, and the general principles that underlie them?

Turnill: At a federal level, the key piece of Australian anti-bribery legislation is the Commonwealth's Criminal Code Act 1995 (Criminal Code). The Criminal Code creates two main categories of bribery-related offences. The first, set out in Division 70, prohibits bribery of foreign public officials, while the second, set out in Division 141, prohibits bribery of Commonwealth public officials. There are differences in the way each offence is formulated, but essentially, Divisions 70 and 141 prohibit a person from providing, offering or promising a benefit to another person, with the intention of influencing a foreign public official or a Commonwealth public official, respectively, in the exercise of his or her official duties. Under Division 70, only the person offering or promising the bribe is caught; however, Division 141 criminalises both provision and receipt of the bribe. Division 70, but not Division 141, also requires that the bribe be provided with the intention to obtain or retain business or a business advantage. Division 142 of the Criminal Code creates a number of other bribery-related offences applicable in the context of Commonwealth public officials.

Wenk: Under Australian law it has long been an offence to bribe a Commonwealth or state public official. However, it is also an offence under the Australian Criminal Code 1995 for a person to bribe a foreign public official. The foreign bribery laws were introduced in 1999 to bring Australia in line with its obligations under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The general principle is that an offer or provision of a benefit for the purpose of obtaining or retaining a business advantage from a foreign public official is a criminal offence. The penalties for breach are serious: for companies, a maximum of $1.1m, three times the value of any benefit received or 10 percent of annual turnover; for individuals, a maximum of 10 years imprisonment and a fine of $1.1m. The Code applies to Australian citizens or residents or Australian companies, regardless of where the bribery occurs in the world. Foreign companies or individuals will also be caught by the Code if the relevant conduct occurs, at least in part, in Australia.

Stone: Our understanding, as non-lawyers, is that legislation prohibiting bribery at the Federal level is contained in the Australian Criminal Code Act 1995 as amended by the Crimes Legislation Amendment (Serious and Organised Crime) (No. 2) Act 2010. There are two relevant sections: Division 70 is related to foreign bribery, while Division 141 is related to domestic bribery. Division 70 is based on the OECD 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The focus of Division 70 is on the supply side of bribery, that is the offering or giving something of value in order to secure a business advantage abroad and applies to a perpetrator that is an Australian citizen or a corporation incorporated in Australia, for conduct both within and outside Australia, as well as any conduct occurring wholly or partly within Australia or on board an Australian ship or aircraft regardless of the nationality of the perpetrators. It should be noted that whilst the domestic bribery aspects of the Code focus on Commonwealth public officials, bribery of public officials is also illegal under applicable legislation of each state. A key feature is that the Australian legislation is aimed at stopping the bribing of public officials, rather than all commercial bribery and corruption.

FW: What influence have foreign regulations such as the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act 1977 (FCPA) had on Australia’s laws in this area?

Wenk: The UK Bribery Act is one of the strictest anti-bribery regimes in the world, and has far reaching implications, including for Australian business. Australian business is very aware of the UK Bribery Act. Shortly after the introduction of the UK Act, the Australian government began its own public consultation in relation to whether or not the exception to facilitation payments under the Code should be repealed. That move was likely motivated in part by the introduction of the strong UK regime and criticism by the OECD of the less stringent regimes elsewhere. On the other hand, the US is renowned as the most active enforcer of its anti-corruption laws, the FCPA. In 2005, five charges had been brought under the FCPA, and $16.5m in penalties ordered. In 2010, 50 cases were under investigation, of which the top eight resulted in $1.53bn in fines. The Australian government has also no doubt been influenced by the US’s commitment to combating corruption and the FCPA’s increased enforcement in 2010 and the fines and settlements associated with that.

Stone: Australia’s foreign bribery legislation appears, in some ways, to be modelled on the FCPA in that it is focused on the bribery of foreign public officials and provides a defence for facilitation payments. However, aside from requirements regarding recording of facilitation payments, it does not contain the bookkeeping elements of the FCPA. The effect of the UK Bribery Act in outlawing facilitation payments has been a major reason behind the Australian government recently asking for public comment on removing the facilitation payments defence in Australia’s foreign bribery legislation. The results of this public comment are yet to be communicated. However, other proposed changes to Australia’s foreign bribery legislation have not gone as far as to outlaw business to business bribery like the UK Bribery Act does.

Turnill: The provisions in the Criminal Code which prohibit bribery of foreign public officials reflect Australia's obligations under the various international anti-bribery conventions which have been ratified by the federal government over the past decade. The Australian provisions were modelled on those found in the US Foreign Corrupt Practices Act (FCPA). More generally, the Australian government has also been responsive to criticism from the international community regarding Australia's perceived failure to take a tough enough stance on bribery, despite complying with its international obligations. As a result, amendments to the Criminal Code were introduced in February 2010 which dramatically increased the penalties for bribing domestic and foreign officials. In November 2011, the Minister for Home Affairs and the Attorney-General's Department released a consultation paper (Consultation Paper) describing several additional proposed amendments designed to toughen Australia's anti-bribery laws further still. However, there are no plans to introduce legislation as broad and far-reaching as the UK Bribery Act in Australia at this stage.

FW: What defences are available to companies accused of bribery and corruption under Australian law? What issues currently surround facilitation payments?

Stone: We understand there are two defences: that the advantage was permitted or required by the written laws that govern the foreign public official; and/or that the benefit constituted a ‘facilitation payment’. Under Australian Federal law, for a payment to be considered a facilitation payment, the benefit must be of ‘minor value’ and offered “for the sole or dominant purpose of expediting or securing performance of a routine government action of a minor nature”. Importantly, detailed records of the payment must be kept. A ‘routine government action’ does not include any decision to award or continue business, or any decision related to the terms of new or existing business. The Australian government recently asked for public comment on removing the facilitation payments defence. Additionally, the government “encourages Australian businesses to work actively to reduce corruption by resisting demands for facilitation payments and reporting them to authorities”. Given the requirements of the UK Bribery Act, proposed changes to Australia’s foreign bribery legislation and the corporate benchmark set by large companies in banning facilitation payments, Australian firms who still allow such payments to be made – assuming they are not bound by the UK Bribery Act which forbid them – should have company policy which specifies it is preferable for such payments to be avoided; ensure full transparency as per the requirements of the Criminal Code; and work with the government of the country where the payment has been made to reduce the incidence of future payments being requested.

Turnill: There are two defences available under Division 70 of the Criminal Code. A person will not be guilty of bribing a foreign public official if provision of the benefit (that is, the bribe) is required or permitted under the written law in force in the official's country, or if the benefit provided to the official can be classified as a ‘facilitation payment’. A facilitation payment is a low value benefit provided to an official to speed up the performance of a minor routine government action, such as processing a visa. Facilitation payments are also permitted under the US FCPA and under Canadian, New Zealand and South Korean law, but there is no such exemption under the UK Bribery Act. Probably the most controversial proposed amendment to the Criminal Code described in the Australian government's Consultation Paper relates to the removal of the facilitation payments defence. While some argue that this will put Australian companies at a competitive disadvantage, the fact that facilitation payments are only expressly permitted by a handful of nations and are not recognised under the UK Bribery Act, means that Australian companies with international operations will need to hold themselves to this higher standard of conduct regardless of whether the defence is removed from the Criminal Code. The distinction between facilitation payments and bribes can be hard to draw and there is increasing international pressure for nations to prohibit such payments altogether.

Wenk: There are two defences to foreign bribery offences under the Code. The first covers situations where the bribe was lawful in the foreign public official’s country. The second is if the payment was a facilitation payment, however, the Australian government is currently reviewing its anti-bribery laws and considering whether to repeal that defence. Removal of the facilitation payments defence effectively converts such minor payments, which may be a normal requirement in some countries in order to obtain the performance of routine and minor government action, into bribery. Any person making such a payment would thereby commit a crime under Australian law.

FW: Have you seen significant changes in monitoring and enforcement action on the part of Australian regulators? What insights can be learned from recent prosecutions and penalties made against companies in Australia?

Turnill: Until last year, no charges had been laid under Division 70 of the Criminal Code and Australia was criticised by organisations such as Transparency International for its perceived failure to enforce its anti-bribery laws. However, this changed in July 2011 when charges were laid by the Australian Federal Police (AFP) against two Australian companies and a number of their former executives, relating to bribes which were allegedly paid to foreign officials in Asia to secure banknote supply contracts. The laying of charges was reported to be the culmination of a two year investigation by the AFP, which should put individuals and companies on notice that the AFP is willing to devote significant time and resources to investigating cases of alleged foreign bribery. Since then, media reports have suggested that a number of Australian companies with overseas operations have self-reported suspected corrupt activity to the AFP, and it seems that investigative activity by the AFP in this area is increasing. There have been recent calls by some commentators for the Australian Securities and Investments Commission to take on a greater role as Australia's anti-bribery enforcement regulator, and for it to be resourced appropriately to take on this significant task.

Wenk: Australian law has prohibited corrupt payments to foreign public officials for more than a decade. While it took until 2011 for the first charges to be laid, the relevant conduct is alleged to have occurred from 1999 to 2004. Enforcement of foreign corruption laws by Australia looks set to be on the increase given that there are currently a number of other large scale AFP investigations into international companies which may result in prosecutions. Further, the Australian government is currently reviewing the administration of the anti-bribery laws and objectives, among other things. That review process is expected to affect the enforcement activities of Australian regulators and agencies.

Stone: As yet, there has not been a successful prosecution under Australia’s foreign bribery legislation. The first real use of the legislation came with the AWB investigations under taken by the Australian Securities & Investments Commission (ASIC) and Australian Federal Police. However, the investigations were allegedly dropped due to there being no chance of a successful prosecution. However, we could soon see the first prosecution under Australia’s foreign bribery legislation. Last year saw the arrest of six executives of companies associated with the Reserve Bank of Australia, being Securency and Note Printing Australia, for allegedly paying bribes to foreign public officials in order to be awarded banknote supply contracts. The most recent development has been the scrutiny Leighton Holdings Limited has come under for alleged payments made by a subsidiary to secure contracts in southern Iraq. While this investigation appears to be at a very early stage, the interesting aspect is that Leighton Holdings allegedly self-reported the issue to the Australian Federal Police.

FW: Are there any particular bribery and corruption pitfalls that you would usually bring to the attention of a foreign company with a presence in Australia?

Stone: Australia is ranked the eighth least corrupt country on Transparency International’s Corruption Perceptions Index for 2011. Luckily, bribes are not a culturally accepted part of everyday life in Australian society. Indeed, we are not aware of a foreign company being convicted of bribery conduct that occurred in Australia. However, one item foreign companies operating in Australia may like to consider are interactions with Indigenous Australians. Indigenous leaders or tribal elders may fall under the remit of what anti-corruption legislation like the FCPA deem a foreign public official. As with any country, it is important for companies to properly understand who is a public official so they can properly monitor dealings with such individuals and organisations. This will be of particular interest to mining and resources companies when negotiating for consent for land access or for mineral or petroleum rights. Payments to indigenous communities or groups for such consent may be required by law. However, mining and resources companies must ensure that in order not to potentially fall foul of any applicable anti-corruption legislation, there are no associated payments, or offers thereof, made to improperly influence a decision.

Turnill: Foreign companies with a presence in Australia must be aware that they are not immune from the operation of the Criminal Code simply because they were incorporated overseas. Foreign companies will be caught under Division 70 of the Criminal Code if the conduct constituting the offence occurred wholly or partly in Australia, and under Division 141 regardless of where the impugned conduct occurred. It is also important for companies with an Australian presence to remember that a bribe under the Criminal Code is not limited to a cash payment made directly to an official in exchange for a favour. Rather, it can include any advantage whatsoever and may be provided to a third party, for example the spouse of an official, rather than directly to the official himself or herself. This means that conduct that may not intuitively look like bribery, for example, the provision of gifts and entertainment to government officials, may well be captured by the provisions of the Criminal Code.

FW: Over the last few years, how has the risk profile changed for Australian companies operating abroad?

Wenk: Australian companies with international operations now have to consider not just the implications of Australian anti-bribery laws, but those in each country in which they have operations. The UK Bribery Act, for example, applies to Australian companies or partnerships if they carry out ‘any part’ of their business in the UK. In that event, the company will be liable for bribes committed anywhere in the world by any of its ‘associated persons’. Further, regulators around the world are increasingly focused and co-ordinated in combating suspected corruption, so companies can expect to see a rise in enforcement inquiries and activities.

Turnill: Bribery and corruption have been an unfortunate part of international business for decades, so in that sense the risk profile for Australian companies operating abroad has not changed. Where we have seen real development is in the international community's condemnation of bribery and corruption, and in the readiness of regulators around the world to take enforcement action against companies engaging in unscrupulous conduct. The UK Bribery Act, which took effect in July 2011, is seen as the ‘gold standard’ in anti-bribery legislation. It is very broad in scope, covering not only bribery of officials but also bribery in the private sector. The Act also creates a corporate offence of ‘failing to prevent bribery’, under which a commercial organisation will be guilty of an offence if an ‘associated person’ bribes another person to obtain or retain business for the organisation, even if the board and senior management were unaware that the bribery was occurring. The corporate offence applies to any company, regardless of where it is incorporated, if it ‘carries on a business, or part of a business’ in the UK. This means that an Australian company with a UK business presence, which engages in bribery or corruption anywhere in the world either directly or through third party agents, may potentially be prosecuted under the UK Act. Australian companies must be aware of this risk and take steps to manage it.

Stone: Partly this comes down to a question of awareness. Australia has been criticised for a lax attitude in the enforcement of its foreign bribery legislation. It is only recent issues that have made many Australian companies aware that we had legislation outlawing bribing of foreign public officials or the need to take such legislation seriously. The arrests last year associated with alleged bribes paid abroad by companies associated with the Reserve Bank of Australia, being Securency and Note Printing Australia, further turned the tide, and together with news this year of Leighton Holdings self-reporting to the Australian Federal Police for alleged bribes in Iraq, we are seeing more and more Australian companies starting to become mindful of the need to take Australia’s foreign bribery legislation seriously and of the potential impact of overseas legislation on their operations. On the international scene, awareness for Australian companies has risen further in that we have seen BHP Billiton disclose that the US Department of Justice has commenced an investigation for potential violations of the FCPA in securing mining tenements abroad, while Rio Tinto was embroiled in the Stern Hu affair with employees receiving bribes in China. There is, however, still a long way to go and the tide will have well and truly turned when we see the first successful prosecution under the Australian legislation.

FW: What key considerations should a company make when implementing an anti-corruption framework to comply with Australian laws?

Turnill: Companies should conduct risk assessments and undertake due diligence to identify the corruption risks particular to their organisation, and then devise appropriate and proportionate policies and operating procedures to manage these risks. As I mentioned earlier, bribery and corruption can be subtle and companies need to consider whether they have adequate internal controls to manage the risks. For example, the provision of gifts, hospitality and entertainment to government officials are potentially high risk activities, and should be monitored and controlled carefully in order to avoid falling foul of the Criminal Code and foreign anti-bribery legislation. However, it is not enough for companies to have an anti-bribery and anti-corruption framework in place if the company culture tolerates or tacitly encourages non-compliance with the law by its employees. The latter can be sufficient for a finding of corporate criminal responsibility under the Criminal Code, so a true culture of compliance, established by the top levels of management and entrenched within the organisation through regular training for staff, is essential.

Stone: Australian companies should not simply conduct a box ticking exercise but develop an anti-corruption framework specific to their business operations and ensure that they go beyond paper compliance and monitor its ongoing effectiveness. While the specifics of applicable anti-corruption legislation need to be followed depending on where a company is operating, we do not feel this is cause for widespread panic as we saw with the introduction of the UK Bribery Act. Our view is that a company should concentrate on ensuring their anti-corruption framework will allow employees and associated persons to follow the spirit of anti-corruption compliance. Getting the spirit right will allow the letter of the law to be followed. In essence, a company that has implemented an effective anti-corruption framework that is compliant with either the UK Bribery Act or FCPA should be compliant with Australian anti-corruption legislation. However, in the case of the latter, they need to be mindful that the defence for facilitation payments may soon be removed from Australia’s foreign bribery legislation.

Wenk: Australian companies (most critically those with operations in high risk counties and sectors) need to establish, implement and regularly review their anti-corruption procedures and policies, especially where there are changes to operations and places of operation. To mitigate the risk of exposure under Australian laws, companies should first and foremost foster a culture which does not tolerate bribery – much of that will come from the top down and be communicated through the policies in place to address these risks. Companies should be particularly cognisant of these risks in the context of tendering or bidding for work, applications for licences – for example mining licences and the like – hospitality and sponsorship and facilitation payment. Beyond that, companies with operations, agents, or partners overseas need to ensure that they are satisfied that those on the ground – whether employees or third parties – understand and will comply with relevant anti-bribery policies and laws.

FW: What action would you recommend that a company take in the event of regulatory investigation into suspected bribery or corruption?

Stone: If a regulatory action has commenced, our recommendation would be for a fully transparent investigation at a criminal standard of proof. When investigating a company for a potential violation of the FCPA, one of the questions the US Department of Justice will ask is “what did you do when you found out?” It is our experience that the regulator will likely know further detail about the potential violation than they indicate. In particular, a whistleblower may have already provided prescriptive information or there may be numerous parties under investigation so it is advised a company not fall short in the information it reports to the regulator. Additionally, at the time of handing out a penalty, regulators will often consider the company’s co-operation and robustness of its internal investigation. If no regulatory action appears to have commenced then it is necessary to investigate to ensure the full extent of the issue is identified, including whether similar issues may exist in other countries or business units. In conjunction with proper legal advice, the company can then decide whether to self-report and, if so, to which regulator(s). To ensure both objectivity and robustness, we recommend any investigations be conducted by external consultants reporting directly to the Audit Committee and the chairman or the Board.

Wenk: Companies that uncover possible occurrences of bribery or corruption need to act quickly and treat it seriously. A single senior point of internal co-ordination is imperative. Decisions will need to be made as to whether to conduct an internal investigation, how to manage that investigation and any information uncovered, and disclosure to regulators and the market. Equally, companies that have been informed or come to know that they are being investigated for breach of Australian or other anti-bribery laws need, as a matter of urgency, to develop a strategy for engaging with the regulator; decide what, if any, corrective action needs be taken; decide whether to also conduct their own investigation or assist the regulator in its investigation; deal appropriately with the media; and decide whether to sanction those involved.

Turnill: A company under investigation by a regulator for suspected bribery or other corrupt conduct should seek legal advice as soon as possible. Legal advisers will be able to assist during the investigation process and take steps to protect the interests of the company and its personnel as far as possible. Legal advisers can also assist in devising internal remedial action, and in managing reputational issues for the company. In addition, it is worth remembering that cooperation by company personnel during an investigation may help to mitigate the potential consequences for the personnel involved, and for the corporation, down the track. Appropriate cooperation may also help to demonstrate that the company does not have a corporate culture which tolerates or encourages bribery.

Amanda Turnill is a partner at DLA Piper and sector leader for Life Sciences in Australia and the Asia Pacific. She has extensive experience in Australia and the UK advising pharmaceutical and medical technology companies in the defence of complex product liability claims; group and class actions; regulatory compliance; and crisis and risk management. Ms Turnill is also experienced in advising corporate clients on anti-bribery and anti-corruption legislation and developing compliance programmes. She is consistently named in international directories as a leading lawyer in the life sciences, product liability and regulatory areas. She can be contacted on +61 2 9286 8629 or by email: amanda.turnill@dlapiper.com.

Paul Wenk is a partner at Freehills. He represents clients in a wide range of commercial disputes including, anti-corruption and bribery, complex contract, Corporations Act and tax disputes. His practice has involved litigation in senior Courts across Australia in both State and Federal jurisdictions, Asian litigation and arbitration in Europe. Since 2010 Mr Wenk has been listed as a leading litigator in Best Lawyers. He can be contacted on +61 3 9288 1704 or by email: paul.wenk@freehills.com.

Owain Stone is a partner at KordaMentha Forensic. He manages the KordaMentha Forensic team of over 50 professionals and has over 25 years’ experience in a wide range of forensic accounting projects including fraud and corruption investigations. His experience includes expert witness related forensic accounting services in the Australian Federal Court, the Supreme Court and County Court of Victoria, the Supreme Court and High Court of Singapore, the Supreme Court of Vanuatu and giving evidence in arbitrations in Australia, Hong Kong and USA. Mr Stone can be contacted on +61 3 8623 3410 or by email: ostone@kordamentha.com.

THE PANELLISTS

Amanda Turnill

DLA Piper

Paul Wenk

Freehills

Owain Stone

KordaMentha Forensic