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Resources Newsletter - May 2015 © Carter Newell 2015

Resources Newsletter May2015

The Organisation for Economic Cooperation and Development’s (OECD) Working Group on Bribery in International Business Transactions1 (Working Group) has published its latest report2 (released in April 2015) on Australia’s compliance with international bribery conventions (Report).3 The Working Group’s previous report was issued in October 2012. Over the years, the OECD has been a harsh critic of Australia’s inadequate regulatory mechanisms and enforcement of laws dealing with anti-corruption and bribery matters.4

Many well known Australian companies have become embroiled in scandals involving the bribery of foreign officials in order to win or retain business abroad. Perhaps the most high profile case is that of the Reserve Bank of Australia’s subsidiaries Securency International and Note Printing Australia (Securency) which led to Australia’s first foreign bribery prosecution under Australian law in 2012.5 According to the Report, since October 2012, 15 new foreign bribery allegations have surfaced involving Australian companies and there are currently 17 investigations on foot. Further, the Senate Committee on Economics is to launch an inquiry into the activities of Australian companies abroad.6

The Report provides that Australia has made ‘good progress’ on addressing a number of the Working Group’s key recommendations, however further law reform is required.

What Australia has achieved to date Australia has progressed to fully implementing many of the recommendations of the OECD Working Group as contained in its October 2012 Report. The most notable developments in Australia’s approach to tackling foreign bribery and corruption include:

▪ the establishment of an inter-agency Fraud and Anti-Corruption Centre (FAC Centre), hosted by the Australian Federal Police (AFP) and includes government officials seconded from the Australian Tax Office, Australian Securities and Investments Commission (ASIC) and other bureaus. Notably, the FAC Centre is improving coordination between AFP and ASIC. It has been designed to ‘triage and evaluate serious and complex fraud and corruption referrals’ to deliver a Commonwealth multi-agency response when serious concerns are raised;

Foreign Bribery Update: OECD issues follow up Report on Australia’s progress in anti-bribery law reform Audine Bartlett, Senior Associate

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▪ enhancing the existing AFP Foreign Bribery Panel of Experts to assist in the training of officers in foreign bribery, and to prevent the historical failings of the AFP where foreign bribery cases were not properly investigated, or cases prematurely closed. They will also be responsible for proactively gathering information and evaluating foreign bribery referrals and investigations;

▪ conducting, through the Attorney General’s Department (AGD), ‘awareness raising’ within the private sector of foreign bribery and corporate compliance (through presentations and publications), in which the AFP, Department of Foreign Affairs and Trade and Austrade have been active across the country;

▪ the adoption of public sector whistleblower protection; and

▪ the restructuring of the office of the Commonwealth Director of Public Prosecutions to ensure sufficient resources are available to prosecute foreign bribery.

Where gaps exist However, many of the OECD Working Group’s recommendations remain only partially implemented or not implemented at all.

Bribe v facilitation paymentUnder Australian law, facilitation payments are still allowed. These are payments made to expedite performance of routine government action (of a minor nature) which the official in question would normally provide. There is considerable confusion within industry on what constitutes a facilitation payment. While the government’s ‘awareness raising’ activities have discouraged use of facilitation payments, the Report confirms that no government publications provide any clarification on the distinction between a facilitation payment and a bribe. As the facilitation payments defence has not been tested in court there is no case law available to give guidance.

The Report recommends that the government summarise publicly available information on when hospitality, promotional expenditure and charitable donations may amount to bribes. The AGD is developing an online learning module on foreign bribery (for use by government and industry) however in the absence of relevant case law the government is reticent to provide advice on what may constitute ‘a bribe’ in certain circumstances.

In any case, facilitation payments should be viewed as a business risk and companies should aim to eliminate their use in practice.

Whistleblower protection Australia is described as having weaker private sector whistleblower protection laws than other G20 countries.7 A ‘whistleblower’ is an individual who discloses illegal activities occurring within an organisation with which they are associated, to persons or organisations with

authority to take action. Whistleblower protection laws generally protect persons from civil and criminal liability, personal victimisation, and allow whistleblowers the right to seek compensation if they suffer loss as a result of making a disclosure. The whistleblower protection laws governing the private sector are narrow in scope and only certain people can qualify for protection under the current corporations law provisions.

The government has improved Commonwealth public sector whistleblower protections with the introduction of new public interest disclosure legislation in 2013. The Working Group recommends that Australia put in place additional measures to protect private sector employees who report suspected foreign bribery to authorities. The Report provides that the Senate Economics References Committee (in its inquiry into the performance of ASIC) recommended to the government that the laws protecting private sector whistleblowers be updated so they are in line with the protections given to the public sector, and the corporations legislation be amended to expand the definition of what constitutes ‘a whistleblower’ and the scope of information protected.

Plea bargaining and self-reporting The United States (US) places significant emphasis on the use of plea bargaining as part of its enforcement cooperation program. The US regulators are increasingly using deferred or non-prosecution agreements in their enforcement of the Foreign Corrupt Practices Act 1977 (FCPA). Deferred prosecution agreements (DPA) involve the regulator forgoing enforcement action in exchange for a company fully cooperating and complying with express prohibitions and undertakings during the period of deferred prosecution. A monetary penalty is usually payable. If the company successfully completes the term of the DPA the regulator will dismiss the filed charges. Non-prosecution agreements (NPA) are used in more limited circumstances if the company complies with express undertakings. The regulator maintains the right to file charges but refrains from doing so to allow the company to demonstrate good conduct during the term of the NPA. For example, an Argentine subsidiary of Ralph Lauren Corporation (RLC) paid bribes to government and customs officials to improperly secure the importation of RLC products into Argentina. RLC paid a substantial fine and was made to introduce a significant new compliance program. In both the US and Canada, a high premium is placed on the self-reporting, cooperation and remedial efforts of companies in determining the appropriate resolution to foreign bribery matters.

Australia does not have an enforcement cooperation program similar to that of the US. Under Australian law, co-operating with authorities and entering an early guilty plea may be taken into account on sentencing (at the discretion of the court). For corporate entities, self-reporting instances of foreign bribery to law enforcement may have the advantage of potentially limiting corporate criminal liability and the liability of company officers.

The Report recommends that Australia develop a clear framework that addresses matters such as the nature and degree of co-operation expected of a company being investigated for foreign bribery related offences,

Resources Newsletter - May 2015 © Carter Newell 2015

how and where the company is expected to reform its compliance processes and corporate culture, what leniency will be given to a company who self-reports, what measures can be taken to monitor a company’s compliance with a plea agreement and the prosecution of natural persons related to the company.

Debarment for pubic sector procurement Corruption in public procurement typically occurs when a public official uses public powers for private gain, for example, by accepting a bribe in exchange for the granting of a tender resulting in public contracts being awarded on a basis other than fair competition. In turn, public funds are wasted and there is a subsequent detrimental impact on the provision of public infrastructure and services. The process of public procurement is vulnerable to corrupt practices as it often involves significant, high value projects.

In the US, significant collateral consequences exist for individuals and companies in violation of the FCPA. Under federal guidelines persons and entities can be disbarred or suspended from doing business with the US government. The decision to debar or suspend is not made by the FCPA regulators themselves, but by independent debarment authorities which exist within each federal government agency. They assess a number of factors including whether the contractor has effective internal controls in place, self reported the conduct in a timely manner and has taken appropriate remedial action. If a government department or agency debars or suspends a contractor, this will normally apply to the entire executive branch of the US federal government. The European Union, Canada and the World Bank also operate comprehensive systems of debarment. For example, under Canada’s federal government procurement policy, companies may be disqualified from bidding on federal government contracts (for a 10 year period) if they or their affiliates have been convicted of certain offences (such as tax evasion, bid-rigging, forgery, bribery, falsification of books etc.), including offences under the Corruption of Foreign Public Officials Act.

The Report provides that Australia has yet to put in place transparent debarment policies for procuring agencies. Australia states that its public procurement agencies have the discretion to debar companies based on domestic or foreign bribery, and that it is the responsibility of individual agencies to develop their own policies

on how foreign bribery is investigated and managed. However, the OECD is concerned that in the absence of government wide guidelines, lead procurement agencies may overlook foreign bribery and related convictions in exercising their discretion to debar.

What we can expect in law reform Short term focus Despite the recommendations contained in the Report, the only legislative amendments that the Australian government (at this stage) proposes are as follows:

1. To clarify that intention to bribe an official is not a requirement of Australia’s foreign bribery laws.

Although the current legislation does not require proof of an intention to bribe a particular official, the OECD recommended taking steps to clarify this aspect and remove a possible barrier to enforcing the offence. On 19 March 2015, Australia introduced a Bill8 to amend the foreign bribery offence in Division 70 of the Criminal Code Act 1995 (Cth) to clarify that proof of an intention to influence a particular foreign official is not required to establish the offence.

2. To introduce a new false accounting offence with respect to foreign bribery under Commonwealth legislation. In Securency, executive David Ellery pleaded guilty to one count of false accounting under Victorian legislation.

A bill is proposed for introduction in 2015 and may be similar to the false accounting offence introduced by Canada (in response to a similar recommendation from the OECD Working Group). Under Canada’s Corruption of Foreign Public Officials Act it is an offence for the purpose of bribing a foreign public official, or for the purpose of hiding that bribery, to record non-existent expenditures in books and records, make transactions that are not recorded in those book and records or inadequately identified, or knowingly use false documents (amongst other matters). In Canada, a maximum prison term of 14 years attaches to the offence of false accounting.

Prosecutions and convictions may be easier if the offence of false accounting is strengthened, as Australian regulators would then only need to show that a false entry in a company’s financial records could be to trying to hide an act of bribery.

Longer term focus Over the longer term it is hoped the government will work towards legislative reforms to remove the facilitation payments defence and improve private sector whistleblower protection.

With respect to the facilitation payments defence under the Criminal Code Act 1995 (Cth), Australia is likely to eventually fall in line with the law in the United Kingdom and Canada where such payments are banned. The former Labor government conducted public consultation on removal of the defence and this process concluded in early 2012. While removal of the defence is under

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active consideration by the current government, there is no timeframe on any possible law reform at this stage. Given the widespread uncertainty within the business community on the difference between a facilitation payment and a bribe, the lack of judicial consideration available to provide guidance on the issue, and the difficulty in practical application of the defence, there are strong arguments for removing the defence.

With respect to improving protection for private sector whistleblowers, the government may initiate a review of the adequacy of the current framework for protecting corporate whistleblowers and this could lead to legislative change. Any law reform is likely to reflect the recommendations of the Senate Economics References Committee, which along with those already noted above, include the following measures:

▪ protection of anonymous disclosures;

▪ the removal of the requirement that a whistleblower be acting in ‘good faith’;

▪ clear statutory remedies for whistleblowers disadvantaged by their disclosures;

▪ making it a criminal offence to take action against a person because they have made, or propose to make a disclosure; and

▪ protection in limited circumstances, for external disclosures to third parties (such as the media).9

Whistleblowers play a key role in the detection of corporate misconduct, including foreign bribery and other corrupt behaviour. Statistics on corporate whistleblowing in Australia is extremely limited however a study in the US concluded that 19% of corporate fraud between 1996 and 2004 was uncovered by employees of the company responsible.10 In fact the Securency bribery allegations came to light through the disclosures of the former company secretary of Note Printing Australia, Mr Brian Hood. Embarking on the recommended reforms will ensure better protection for private sector whistleblowers, and encourage the reporting of illegal activity which may otherwise go undetected.

Conclusion Overall, Australia has ‘passed’ its most recent assessment by the OECD Working Group on Bribery on its compliance with international bribery conventions but there is still significant work to do, especially with respect to the investigation and enforcement of foreign bribery related offences. The Working Group would

like to see an increase in enforcement activity and has invited Australia to report back in six months on the progress it is making to fully implement the Working Group’s recommendations with respect to investigation and enforcement actions.

1 The OECD Working Group on Bribery was established in 1994. It is responsible for monitoring the implementation and enforcement of the OECD Anti-Bribery Convention, the 2009 Recommendation on Further Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments. 2 Organisation for Economic Cooperation and Development, Australia: Follow-Up to the Phase 3 Report & Recommendations (April 2015), Organisation for Economic Cooperation and Development Working Group on Bribery. 3 Organisation for Economic Cooperation and Development, Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Australia (October 2012), Organisation for Economic Cooperation and Development Working Group on Bribery.4 Spencer Wilson, ‘OECD seriously concerned by lack of foreign bribery convictions, but encouraged by recent efforts by the AFP’, (25 October 2012), Organisation for Economic Cooperation and Development .5 The case primarily related to the bribery of foreign officials in Indonesia in order to secure contracts for the printing of the companies’ signature plastic polymer banknotes for the Indonesian central bank. 6 Marianna Papadakis, ‘Weak laws get bribery blame’, Australian Financial Review (27 March 2015), 33.7 Will Ockenden, ‘Australia a long way behind G20 counterparts on whistleblower protection, says report’ (10 September 2014), ABC news online .8 Crimes Legislation Amendment (Powers, Offences and Other Measures) Bill 2015. 9 Commonwealth of Australia, Australian Government response to the Senate Economics References Committee Report: performance of the Australian Securities and Investments Commission (October 2014) .10 Commonwealth of Australia, Corporate Whistleblowing Discussion Paper – Improving protections for corporate whistleblowers – Options Paper, (October 2009), .

Audine BartlettSenior Associate

P: (07) 3000 8331E: abartlett@carternewell.com

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