7 March, 2016
New false accounting offences have commenced
What you need to know
- With the strengthening of Australia's anti-bribery laws, it is increasingly important that companies implement robust compliance systems.
- Because every company's operations come with their own unique set of challenges in combating bribery and corruption, developing appropriate controls typically begins with a legal review of a company's systems and processes.
What you need to do
- With the strengthening of Australia's anti-bribery laws, it is increasingly important that companies implement robust compliance systems.
- Because every company's operations come with their own unique set of challenges in combating bribery and corruption, developing appropriate controls typically begins with a legal review of a company's systems and processes.
Australia responds to OECD criticism
Australia's anti-bribery laws have been criticised in recent years as being underutilised and ineffective at addressing corrupt conduct. This has included criticism from the Organisation for Economic Co- operation and Development, which is responsible for the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
At the same time, Australia's ranking has declined for four consecutive years in Transparency
International's Corruption Perceptions Index.
The Federal Government has begun to respond to this criticism by taking steps to strengthen Australia's anti- bribery laws.
On 24 June 2015, the Australian Senate referred an inquiry into foreign bribery to the Senate Economics References Committee for inquiry and report by 1 July 2016.
However, new offences for false accounting have already been enacted. These offences came into effect on 1 March 2016.
The new false accounting offences
Two new offences of false dealing with accounting documents have been introduced into the Criminal Code (Cth).
The first offence applies where a person:
- makes, alters, destroys or conceals an accounting document; or
- fails to make or alter an accounting document that the person is under a duty to make or alter, with the intention that the conduct would facilitate, conceal or disguise:
- the receipt or giving of a benefit that is not legitimately due; or
- a loss that is not legitimately incurred.
The second offence applies in the same circumstances as the first, but where the person is reckless as to whether the benefit or loss would arise.
"Accounting document" is widely defined to mean (1) any account, (2) any account or document made or required for any accounting purpose, or (3) any register under the Corporations Act 2001 (Cth), or any financial report or financial record within the meaning of that Act.
The offences apply to conduct which the Commonwealth has the constitutional power to regulate, including conduct outside Australia.
Previously, false accounting was primarily regulated at the Federal level by:
(a) section 286 of the Corporations Act, which required a company to keep financial records that accurately reflected and explained its financial position; and
(b) section 1307 of the Corporations Act, which prohibited any concealment, destruction, mutilation or falsification of books.
However, the OECD criticised these laws as being ineffective due to evidentiary hurdles in prosecution and inadequate penalties (being strict liability offences). They were also criticised as being under- enforced.
While there are State based false accounting provisions, these are rarely used against companies because of the need to show that the offending employee was the directing mind and will of the company. At Commonwealth level, prosecutors can take advantage of the much broader bases for corporate criminal responsibility in section 12 of the Criminal Code (eg failure to maintain a corporate culture of compliance).
Penalties
The new false accounting offences carry significant penalties.
For an individual, an intentional breach is punishable by imprisonment for up to 10 years, a fine of up to $1.8 million or both.
For a corporation, an intentional breach is punishable by a fine of up to $18 million, up to three times the value of the benefit obtained from the conduct, or up to 10% of the annual turnover of the corporation during the 12 months prior to the conduct.
The maximum term of imprisonment and pecuniary penalties for an offence of recklessness are half of the penalties for an intentional offence.
In contrast, the penalties for breaches of section 286 of the Corporations Act are 6 months' imprisonment, a $2,750 fine or both, and, for a corporation, a fine up to $13,750. The penalty for a breach of section 1307 is a maximum of 2 years' imprisonment, a $11,000 fine or both.
Practical effect on Australia's anti-bribery laws
The new offences suggest that Australia is taking its obligations to comply with the OECD Convention more seriously.
The new offences have been designed to address previous criticism and now provide the Federal authorities with a clear legal framework to prosecute false accounting offences.
The offences are targeted so that (1) any corporation, (2) any employee, officer or director of a corporation, or (3) any supplier or other third party provider to a corporation will be in breach if they intentionally or recklessly falsify accounting records in the context of any illegitimate benefit or loss, the most obvious being a monetary bribe.
Generally speaking, recklessness occurs where a person can foresee some probable or possible consequence, but nevertheless decides to continue with their actions with disregard to the consequences. Accordingly, an offence could be committed by simply turning a blind eye to whether or not a recorded benefit or loss was legitimate.
Further, the broad definition of "accounting documents" could capture many types of documents routinely created by most large organisations, such as invoices for services or annual financial reports.
These developments represent significant progress by the Federal Government in strengthening Australia's anti-bribery laws. However, it remains to be seen whether these laws are vigorously enforced in order to rebuild Australia's reputation as a country with a strong anti-bribery agenda.
Protecting your company from bribery and corruption risks
With false accounting laws now in effect, and stronger anti-bribery laws on the horizon, it is increasingly important that companies are aware of their bribery and corruption risks and implement robust systems to address those risks and a culture of compliance.
Every company's operations come with their own unique set of challenges in combating bribery and corruption risks, which is why it has been difficult for Government to provide specific guidance on compliance systems and culture.
As a result, developing appropriate measures to address bribery and corruption risks typically begins with a legal review of a company's systems and processes.
For further information, please contact:
Fiona Hudgson, Partner, Ashurst
fiona.hudgson@ashurst.com
