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17 October, 2017
What you need to know
- There is a global trend of cross-border investigations and significant penalties against companies and company directors for bribery and corruption.
- There is broad scope for Australian companies to be held criminally and civilly liable for bribery and corruption involving their officers, employees and agents, and proposed legislative changes will further increase this risk.
- Directors might also be held liable for bribery and corrupt conduct of others if they fail to prevent, investigate and respond to bribery or corrupt conduct, and therefore fail to comply with their duty to act with reasonable care and diligence.
- Developing and maintaining a corporate culture that requires strict compliance with anti-bribery and corruption laws is a key to mitigating corporate and director liability risks.
ABC for in-house counsel
Anti-bribery and corruption compliance is currently a priority for many Australian companies, and should be for many others. Recent cross-border investigations have resulted in substantial penalties. Since companies have rarely been prosecuted for bribery, the Australian government has announced that it intends to introduce significantly tougher bribery laws. Yet, in the past, as companies have rarely been prosecuted for bribery or corruption in Australia, many lawyers are unfamiliar with how these laws apply. So when will an Australian company or director be liable for bribery or corruption?
The answer varies depending on the type of conduct, but maintaining a corporate culture that requires compliance is a key way of mitigating risk.
In Part 1 of this series, we examine the broad scope for companies and directors to be held criminally and civilly liable for corrupt conduct of others, including company directors, officers, employees and agents.
In Parts 2 and 3, we will look at the steps that can be taken to reduce liability risks before and after an issue arises.
What is bribery and corruption?
Bribery is an offence under both Commonwealth and State law:
- Bribery of a Commonwealth or foreign public official is an offence under the Commonwealth Criminal Code. Most relevantly, Division 70 of the Criminal Code prohibits providing a benefit not legitimately due to another person with the intention of influencing a foreign public official in order to obtain business or a business advantage. The meaning of a "benefit" is very wide, and can include gifts, entertainment or hospitality of any value.
- Bribery of State and Territory public officials is a criminal offence at common law and under State and Territory legislation.
- Bribery of agents and other fiduciaries in the private sector is also a criminal offence under State and Territory legislation.
Corruption is the misuse of a position for private gain, and includes accepting bribes.
For a wider understanding of Australia's anti-bribery and corruption laws, also see our ABC Quick Guide. While this article focuses on anti-bribery laws in Australia, regimes in other jurisdictions often have a wide jurisdictional reach and should be borne in mind by Australian companies that operate internationally.
Corporate criminal liability
The criminal offence of bribery has a mental element. This means that a corporation must have a "guilty mind" to commit the offence.
At common law, there is limited scope for a company to be held vicariously liable for a criminal offence that has a mental element. In particular, the guilty mind of an individual will generally only be attributed to a corporation if the person is the "directing mind or will" of the corporation (discussed in more detail below).
The common law rules of attribution have not been modified in Victoria, NSW, Queensland, SA or WA. However, for the Commonwealth, ACT and NT bribery offences, the rules of attribution are codified and extended.
Bribery and corporate culture
The Commonwealth, ACT and NT criminal codes provide that a corporation can be found guilty of any offence. If an employee, agent or officer of a corporation is found to have bribed a Commonwealth or foreign official, the corporation will be liable if:
- the person was acting within the actual or apparent scope of their employment or authority; and
- the corporation expressly, tacitly or impliedly authorised or permitted the conduct.
The criminal codes provide broad scope for conduct to be attributed to a corporation on the basis that it was "expressly, tacitly or impliedly authorised or permitted" by the corporation. This fault element will be satisfied where either:
- senior management is involved – specifically, where the board or a "high managerial agent" of the corporation knowingly or recklessly carried out the conduct, or authorised or permitted the conduct. A "high managerial agent" is anyone with such responsibility that their conduct can fairly be assumed to represent the corporation's policy; or
- the company permits a corporate culture to exist which encourages or tolerates non-compliance with anti-bribery laws, or fails to create and maintain a corporate culture that requires compliance with those laws. This means that a company can be liable for the conduct of a director, officer, employee or agent, even where the company itself has no knowledge of or involvement in the conduct.
In setting this wide test for corporate liability, the criminal codes place a positive obligation on corporations to actively foster a culture in which bribery is unacceptable.
This is particularly important given that the maximum penalty for a company found liable for bribery or corruption is the greatest of: (i) $18,000,000; (ii) three times the value of the bribe; or (iii) 10% of the company's annual turnover.
Further raising the stakes, the Commonwealth government is currently proposing to create a new offence for companies which fail to prevent bribery of a foreign public official. This would mean that a company is automatically liable for bribery committed by its employees, contractors and/or agents, unless it can demonstrate that it has a proper system of internal controls and compliance in place to prevent the bribery from occurring. For more detail, see our Regulatory Alert dated 6 April 2017.
State laws target commercial bribery
Although State offences specifically provide that corporations can be liable for bribery offences, corporate liability for criminal conduct is still governed by common law. Under the common law approach, a corporation will be liable for a crime where a person who is the "directing mind and will of the company" or an agent acting within the scope of his or her authority commits or has relevant knowledge of the offence.
The relevant principles concerning "directing minds" are derived from the case of Tesco Supermarkets Pty Ltd v Nattrass [1972] AC 15. The "directing mind and will of the company" is not necessarily limited to directors, but can include anyone with such a degree of responsibility that they can be said to be acting as the corporation rather than for the corporation.
State laws do not impose the same positive obligation as Commonwealth laws to create a corporate culture of compliance with anti-bribery laws. The scope of corporate liability for commercial bribery is accordingly narrower than for bribery of public officials.
Personal liability of directors
Aside from the fact that corporations can be held liable for bribery offences, directors should be alert to the risk that a failure to take reasonable steps to prevent, investigate and respond to potential bribery issues may constitute a breach of their duties.
This was highlighted by a recent decision under section 180 of the Corporations Act 2001 (Cth) involving the duty to exercise powers and discharge duties with reasonable care and diligence. In ASIC v Flugge [2016] VSC 779, the Supreme Court of Victoria held that, where facts come to a director's attention and such facts would have awoken a prudent director's suspicion that something is amiss, the director has a positive duty to inquire into the matter. It was also held that directors cannot simply rely on the judgment of others and excuse themselves from making their own inquiries.
Directors who become aware of suspicious conduct should take active steps to investigate, respond to and, if possible, put a stop to such conduct. Failure to do so may result in serious penalties. For example, in ASIC v Flugge, Mr Flugge was found to have breached section 180 by failing to make adequate enquiries about certain payments, in circumstances where he was aware of the payments and the state of affairs surrounding them. As a result, in April this year, Mr Flugge was fined $50,000 and disqualified from managing corporations for a period of five years.
International reach
While the details are outside the scope of this article, it is important to note that it is not only Australian anti-bribery laws that companies must consider – regimes in some other jurisdictions have a wide jurisdictional reach and often apply to Australian companies operating internationally.
For example, the United States Foreign Corrupt Practices Act 1977 prohibits the payment of bribes to foreign officials for the purpose of obtaining or retaining business, and can apply to conduct both inside and outside the US.
Similarly, in the United Kingdom, any business which is registered in the UK, has any part of its operations in the UK, or employs UK citizens may be caught under the Bribery Act 2010 (UK). An Australian company which "carries on a business" in any part of the UK may also be liable for failure to prevent bribery (even if that bribery occurs elsewhere).
Understanding and reducing corporate exposure
Due to the risk of being investigated and held liable under the laws of multiple jurisdictions, it is important that companies are familiar with relevant anti-bribery and corruption laws both in Australia and overseas.
This article has provided an overview of why liability for bribery and corruption is a risk not only for the individuals personally involved in criminal conduct, but also for their companies and the directors of those companies.
In Part 2 of this series, we will outline some practical steps that companies and directors can take to minimise the risk of liability for bribery or corruption, including by creating an appropriate compliant culture.
For further information, please contact:
Alyssa Phillips, Partner, Ashurst
alyssa.phillips@ashurst.com
