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14 November, 2017
How to reduce the damage of a bribery or corruption incident
What you need to know
If a bribery or corruption issue arises in your organisation, you need to act immediately to minimise the potential harm to the company and individuals.
All organisations should have procedures in place to ensure that any bribery or corruption matter can be dealt with appropriately and efficiently, without delay.
If an issue does arise, you should investigate the matter, consider internal and external reporting and disclosure obligations, prevent further misconduct by the individuals involved and implement measures to address any underlying or systemic problem.
In Part 1 of our ABC for In-House Counsel series, we looked at when a company or its directors can be criminally or civilly liable for bribery or corruption.
Part 2 focused on what organisations can do to reduce the risk of bribery or corruption issues arising, and to reduce the risk of being held liable for any bribery or corruption offences committed by individuals within or associated with an organisation.
However, even with the best preventative measures in place, bribery or corruption issues may still arise from time to time. This article outlines the steps an organisation should take if that happens, in order to minimise the potential harm to the organisation and individuals involved.
Act quickly and investigate
When you become aware of a potential issue, it is imperative that you act quickly.
First, the organisation should investigate the problem. In order to facilitate a productive investigation, organisations should ensure, before any issue arises, a policy is in place that:
- details what steps the organisation needs to take in order to commence an investigation;
- appoints specific people to be responsible for investigations (being personnel that are not otherwise involved in the alleged bribery or corruption), and gives them the ability to engage external investigators if necessary;
- requires all relevant personnel to cooperate in the investigation;
- requires any investigation to be carried out in a confidential manner; and
- ensures that legal professional privilege is maintained in relation to any documents created to the extent appropriate.
It is important to ensure clear lines of communication are established from the outset of an investigation. This may include appropriate reporting to senior management, and liaison between legal, human resources and media and communications teams, as well as potentially other specialist input (eg, in relation to potential notifications to insurers).
However, in relation to those internal communications (and any subsequent external communications), remember that, if the bribery or corruption issue has come to light because of a disclosure by an employee or contractor, organisations should be mindful of whistle-blower protections, including under the Corporations Act2001 (Cth).
Under the law as it currently stands, these whistle-blower protections will apply if:
- In such circumstances, it can be an offence to further circulate the information that forms the disclosure, except where this is done with the consent of the discloser or when reporting to ASIC, the Australian Prudential Regulation Authority or the Australian Federal Police. As such, where the whistle-blower provisions of the Corporations Act apply, an organisation should be careful to consider its obligations before commencing an investigation.
- the discloser is a current employee of the company or a person who has a contract for the supply of services to the company;
- the disclosure is made to the company's audit team, a director, secretary or senior manager of the company, a person specifically authorised by the company to receive whistle-blower disclosures, or to Australian Securities and Investments Commission (ASIC);
- the discloser informs the person to whom they make the disclosure of their name before making the disclosure;
- the discloser has reasonable grounds to suspect that the information indicates that an officer or employee of the company has breached the Corporations Act or the Australian Securities and Investments Commission Act 2001 (Cth); and
- the disclosure is made in good faith.
You should also be mindful that Australia's whistle-blower protections are likely to be widened and strengthened in the near future (for more information, see our recent update regarding the proposed new legislation).
General reporting obligations and considerations
In Australia, there are no mandatory reporting obligations specific to bribery or corruption offences. However, there are a number of broader reporting obligations that organisations need to consider.
Indictable offences
In New South Wales, it is an offence for a person who knows or believes that a serious indictable offence has been committed, and who has information which might be of material assistance in securing the apprehension, prosecution or conviction of the offender, to fail to bring that information to the attention of the police or another appropriate authority: Crimes Act 1900 (NSW). However, the Crimes Act only applies where an element of the offence occurs in New South Wales or the offence causes an effect in New South Wales.
In other Australian jurisdictions, there is no general obligation to report an actual or suspected criminal offence.
Continuous disclosure
Under the Corporations Act and ASX Listing Rules, ASX listed entities must make continuous disclosure of information material to the price of their securities. As such, listed entities should consider whether information held in relation to the potential bribery or corruption offence is captured by these obligations and therefore must be disclosed to the relevant authority.
Anti-money laundering obligations
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML Act) imposes ongoing reporting obligations on certain "reporting entities" (which are defined as entities that provide designated services). Reporting entities include companies that provide financial services and/or gambling services.
Under the AML Act, reporting entities are required to submit three types of reports to AUSTRAC: (i) Suspicious Matter Reports (when a reporting entity, when dealing with a customer, forms a reasonable suspicion that the matter may be related to an offence against a Commonwealth, state or territory law); (ii) Threshold Transaction Reports (when an entity transfers AUD10,000 or more); and (iii) International Fund Transfer Instruction Reports (when an entity sends or receives funds transfer instructions to or from a foreign country).
Reporting obligations of auditors
Auditors are obliged to notify ASIC if they have reasonable grounds to suspect that a significant contravention of the Corporations Act has taken place. Auditors must also notify ASIC of contraventions that are not significant if they believe that the matter will not be adequately dealt with in the auditor's report or by bringing it to the attention of the company's directors.
Although this obligation does not apply directly to anti-bribery legislation, it may be relevant if there are reasonable grounds for an auditor to suspect that there has been a breach of directors' duties in connection with the bribery or corruption conduct. Where the obligation arises, the auditor must notify ASIC as soon as practicable, and in any case within 28 days.
Directors' duties
In certain circumstances, directors' duties to act with due care and diligence and in the best interests of the company may require them to report an actual or suspected offence to the authorities. As with all decisions made by directors, whether or not the director chooses to report the offence will be a matter over which the director must exercise his or her judgment, balancing the foreseeable risks, benefits and harm from the conduct in question. Depending on the circumstances, it may be sufficient for a director to conduct an internal investigation, ensure that the conduct is stopped, the responsible personnel are appropriately dealt with, and internal policies and procedures are in place to avoid the risk of similar conduct occurring again in the future.
Deferred prosecution agreements
Australia is in the process of investigating a deferred prosecution agreement scheme, to encourage companies to self-report. If introduced, this would provide a framework for a company accused of a serious corporate crime (such as bribery) to enter into a voluntary settlement arrangement with the prosecutor. Under a deferred prosecution agreement, a company would ordinarily agree to pay a fine and comply with certain requirements in exchange for the investigation or prosecution of a serious criminal offence being discontinued.
For further information about the potential introduction of deferred prosecution agreements in Australia, see our Regulatory Update.
Seek legal advice
Once the scope of the issue has been identified, it may be necessary for an organisation to seek legal advice about the risks and the best course of action. When seeking legal advice, organisations should take steps to ensure that communications (both internally and externally) are privileged to the extent appropriate.
The English High Court has recently held that documents created by a company's external lawyers during an internal investigation of a potential bribery issue, including notes of interviews with third parties, were not protected by legal advice privilege: Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB). This was because there was no evidence that any of the persons interviewed were authorised to seek and receive legal advice on behalf of the company, and the communications were not made in the course of conveying instructions to the lawyers on behalf of the company. Further, the Court held that an argument for legal advice privilege is not strengthened by the fact that the notes were taken by a lawyer and were not a verbatim transcript.
Australian courts, in contrast, have more readily recognised that legal advice privilege may extend to documents brought into existence in the course of factual investigations carried out by lawyers to enable them to provide advice to a client, and to communications between a lawyer and a third party, provided the communications meet the dominant purpose test. In particular, it must be demonstrated objectively that documents were created for the dominant purpose of providing the client with legal advice or in relation to actual or anticipated litigation.
Whilst the narrower UK approach has not been followed in Australia, companies and individuals should be mindful of the risk that claims of privilege may be challenged by Australian authorities, or overseas authorities where the relevant conduct has cross-border implications.
Further, companies should be careful not to waive privilege unintentionally. If a company acts in a manner inconsistent with maintaining privilege, such as by disclosing the "gist" or substance of legal advice that is founded upon factual investigations carried out by the lawyers, or by disclosing the documents themselves to third parties, there is a real risk that privilege will be taken to have been waived. To minimise the risk of waiver, companies should ensure that any notes taken by lawyers or documents created during investigations are only distributed internally in a way that is consistent with the maintenance of the confidentiality that the privilege is intended to protect, and that disclosure to third parties is strictly limited.
If an authority asks a company or individual to waive privilege over documents in order to assist with the authority's own investigation, careful consideration should be given to the advantages and disadvantages of doing so before deciding whether to agree to the request.
Consider potential civil consequences
If a bribery or corruption offence has been committed, this may have ramifications for the company's commercial arrangements. Obviously, allegations of bribery or corruption can have serious consequences for a company or individual's commercial reputation. If a company or individual is ultimately found to have contravened the law, those consequences will include financial penalties and likely other court orders.
In addition, bribery or corruption may affect the enforceability of contracts entered into as a result of the bribe or which depend substantially upon the giving of bribes. Further, it is increasingly common for contracts to contain provisions which afford a party certain rights (such as termination rights) in the event that it forms a genuine belief that the other party has been involved in unlawful conduct related to bribery or corruption.
Address the core problem
Finally, and perhaps most fundamentally, the organisation should seek to identify and address any underlying weakness in its internal controls and procedures to minimise the risk that similar conduct could occur in the future.
This may include appropriately dealing with those who were involved in the misconduct, and implementing or strengthening internal anti-bribery policies and procedures (as discussed in Part 2 of our ABC for In-House Counsel series). The interviews and document review likely undertaken as part of the internal investigation will provide an important starting point for identifying potential risk areas, and developing recommendations for improvements to internal controls and training.
It is important to bear in mind that how a company responds to a bribery or corruption incident may well be scrutinised by authorities at a later date and may affect the extent of any penalties imposed on the company and/or individuals.
As we have explained in this three part series, there is broad scope for companies and directors to be held criminally and civilly liable for bribery or corrupt conduct of individuals within or associated with their organisation. However, there are practical steps that can be taken before and after issues arise, in order to reduce this risk.
Beginning with a Senate committee report on the findings of an inquiry into Australia's foreign bribery laws, due to be published by 7 December 2017, the next 12 months is likely to see continued focus on anti-bribery and corruption reforms in Australia. As such, it is important for in-house counsel and company directors to keep abreast of developments in this area.
Please do not hesitate to get in touch with any of the key contacts listed below if you have any queries about anti-bribery and corruption issues.
For further information, please contact:
Alyssa Phillips, Partner, Ashurst
alyssa.phillips@ashurst.com
