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21 March, 2018
What you need to know
The Australian Government is implementing significant anti-bribery reforms through the Crimes Legislation Amendment (Combatting Corporate Crime) Bill, introduced in December 2017.
In 2018, we expect to see new foreign bribery offences on the books, new incentives to self-report misconduct and further developments in prosecutions for foreign bribery.
It is important for companies to be aware of the increasing focus on anti-bribery and corruption enforcement in Australia, and to implement policies and procedures that will mitigate legal and reputational risks.
2017 was a significant year for Australia in its fight against bribery and corruption. We saw greater enforcement of foreign bribery laws and the introduction of draft legislation to Parliament which, if passed, will bring Australia more in line with countries such as the United States and United Kingdom. Globally, we have seen the biggest corporate fines ever imposed, politicians and senior executives sent to prison, and big corporate names making the headlines for the wrong reasons.
Despite this, the OECD has recently released a report that indicates Australia still has some way to go in the anti-bribery and corruption space, particularly when it comes to enforcement. This is also reflected in Transparency International's recently released Corruption Perceptions Index for 2017. While Australia remains 13th out of the 180 countries ranked, its score has slipped from 79 to 77 (where 0 on the scale represents highly corrupt, and 100 represents very clean). This continues Australia's slide down the index, since scoring 85 in 2012.
These external pressures suggest that the focus on enforcement and the strengthening of legislative regimes in Australia are set to continue throughout 2018. The result is an escalating risk for companies (and individuals involved in relevant conduct), and the need for bribery and corruption to be pushed to the top of the corporate compliance agenda.
In this update, we look at the major developments in Australia from 2017, and consider the key trends we expect to see in 2018.
New legislative regime for foreign bribery
One of the main developments in Australia from 2017 was the introduction of the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017, which aims to significantly strengthen Australia's anti-bribery and corporate misconduct laws.
After a number of extensions, the Senate inquiry into foreign bribery is due to report by 28 March 2018, and the Senate Legal and Constitutional Affairs Legislation Committee is due to report on the Bill by 20 April 2018. The Bill may then be voted on in mid-2018, and we believe it is likely to be passed in some form.
We set out below the key reforms that the Bill seeks to introduce, which we considered in more detail in our recent publication [Carrot and stick: Tough new bribery laws introduced, but DPAs will be coming].
Corporate offence for failing to prevent bribery
First, the Bill seeks to introduce a new corporate offence of failing to prevent bribery of a foreign official by associates (defined to include employees, agents, contractors, officers and third party service providers); that is, an offence similar to the corporate offence that exists in the United Kingdom under the Bribery Act. The introduction of this offence will mean that a company can be held automatically liable where an associate has bribed a foreign official for the benefit of the company, unless the company can demonstrate that it had adequate procedures in place designed to prevent the bribery from occurring.
This offence will apply regardless of whether the company knew about the bribe and/or whether the relevant associate has been successfully convicted of the foreign bribery offence. Not only is the risk of liability large, there will also be substantial penalties available, with the maximum penalty being the greater of $21 million, 3 times the benefit obtained from the bribe, or 10% of the company's annual turnover.
To prepare for the introduction of this new offence, companies should ensure they have adequate policies and procedures in place to prevent bribery and corruption. Whilst the Government will be required to publish guidance on what constitutes "adequate procedures" if the legislation is passed, there are existing international standards available (such as the ISO 37001) to provide assistance in the meantime. You can find more guidance in our publication ABC for In-House Counsel Part 2 – What can companies, directors and in-house counsel do to reduce corruption risks?.
Amendments to existing foreign bribery offence
Secondly, the Bill proposes amendments to Australia's existing foreign bribery offence. If passed, the bar to a successful prosecution will be lowered, and the number of successful prosecutions is likely to increase.
The key amendments include:
- extending the definition of "foreign public official" to include candidates for office;
- removing the requirement to show that the official was influenced in the exercise of his or her official duties;
- replacing the requirement that the benefit or advantage must not be "legitimately due" with the concept of "improperly influencing" a foreign public official, and introducing a list of factors that may be considered when determining whether there was improper influence (including the nature of the benefit, whether the value is disproportionate to any consideration provided by the official, and the extent to which the benefit has been accurately documented);
- extending the offence to cover instances where the advantage sought is personal in nature, rather than limiting it to business advantages; and
- clarifying that the accused did not need to have a specific advantage in mind to have committed the offence.
Removing potential hurdles to successfully prosecuting foreign bribery is another reflection of the Australian Government's desire to increase enforcement, and prevent bribery and corruption activity more generally.
Encouragement to self-report and settle
The third important change that the Bill seeks to make is the introduction of a Deferred Prosecution Agreement (DPA) scheme in Australia, similar to regimes that currently exist in the United States and United Kingdom.
A DPA is a voluntary settlement between a criminal prosecutor and a defendant company, whereby the defendant agrees to comply with certain requirements (such as compensating victims and paying a financial penalty) in exchange for prosecution being discontinued. DPAs will be available for certain corporate crimes, including bribery, fraud and insider trading. If a DPA is successfully entered into and approved, it will ordinarily be made publicly available and the prosecutor will undertake not to prosecute the company for the offence to which the DPA relates.
The introduction of a DPA scheme will encourage companies to self-report serious misconduct in order to reduce their exposure to financial penalties and the consequences of an extended investigation and prosecution. In the meantime, the Australian Federal Police and Commonwealth Department of Public Prosecutions have released best practice guidelines (available here) setting out details of the process that occurs where a company self-reports.
When considering whether or not to self-report and seek a DPA, companies should carefully consider the risk that the prosecutor will not be willing to offer a DPA or that civil claims arising out of the same circumstances will be brought once a DPA is finalised.
Increased focus on enforcement
In its Phase 4 report, the OECD commended Australia on the steps taken in the past couple of years in relation to its anti-bribery and corruption framework. In particular, the OECD was impressed by the marked increase in Australia's enforcement of its foreign bribery offence. The OECD noted that, as at December 2017, (i) Australia had successfully prosecuted seven offenders for foreign bribery offences, and (ii) Australia had 19 ongoing investigations and 13 referrals under evaluation.
For example, three directors and shareholders of Lifese Pty Ltd were recently sentenced to four years' imprisonment for conspiring to bribe foreign officials, with two of them also being fined $250,000 each. Further, bribery-related claims will be before the courts again this year, with the trial for two former executives of Leighton Holdings, in relation to alleged breaches of the Corporations Act 2001 (Cth), currently listed for mid-October 2018.
Nevertheless, the OECD recommended that Australia continue to increase its level of enforcement, particularly in light of the level of exports and outward investment by Australian companies in jurisdictions and sectors at high risk for corruption. This is likely to result in greater activity by the AFP and Commonwealth Department of Public Prosecutions, and therefore an increased number of convictions, investigations and successful prosecutions.
We also expect a decision to be handed down this year regarding whether a permanent stay should be placed on foreign bribery charges imposed by the AFP on several executives of two companies that were owned, at least in part, by the Reserve Bank of Australia. The decision centres around whether or not the AFP improperly used the Australian Criminal Intelligence Commission to question the suspects on the AFP's behalf, and may have significant implications for enforcement practices.
Increased enforcement activity is a trend that is set to continue in 2018 on a global scale. A number of countries have significantly increased the number of prosecutions, and introduced DPA schemes and other legislative reforms to enable the better detection, prevention and enforcement of bribery and corruption.
For more detail on global trends, see our UK publication Bribery and Corruption: What Now for 2018? covering:
- increased international cooperation in enforcement;
- focus on prosecution of individuals; and
- calls for a global anti-bribery framework.
What you can do to address the risk
Our own experience and anecdotal evidence suggest that many companies are not doing enough to adequately address increased bribery and corruption risks. There are a number of tools available globally to help with implementing appropriate policies and procedures aimed to prevent misconduct, and these are a good starting point for companies.
The International Organisation for Standardisation released a new global standard in 2016 (ISO 37001), which sets out a series of measures that companies can take to help them prevent, detect and address bribery. There is also a certification process whereby an ISO-approved certifier declares corporate compliance with the standard.
In 2017, Transparency International UK launched an online tool which can help in-house lawyers to be alert for and have a greater understanding of bribery and corruption issues. The guidance contains 18 modules, including modules relating to risk assessment, due diligence and managing third parties.
Whilst these tools are likely to assist companies, every business is different and there is no "one size fits all" solution. Many of the organisations fined in 2017 had policies and procedures in place; however, they were not appropriately tailored or were not being effectively implemented. It is therefore important that each organisation conducts an in-depth analysis that identifies the key risk areas, monitors and reviews the effectiveness of its policies and procedures on a regular basis, and ensures proper implementation, understanding and training of those policies and procedures.
Organisations need to be proactive and thorough in light of the trends that are developing in the fight against bribery and corruption, both within Australia and on a global scale.
For further information, please contact:
Alyssa Phillips, Partner, Ashurst
alyssa.phillips@ashurst.com
