For many years, the OECD, Transparency International Australia and experts have criticised Australia for failing to have in place any meaningful false accounting laws which can apply generally or in particular, to foreign bribery cases.

The US history of books and records offences

The United States Foreign Corrupt Practices Act (FCPA) and the US Securities Exchange Act have had substantial administrative accounting sanctions for many years. While the US criminal offences require a degree of intentional conduct, the US civil books and records and internal control offences do not – that is, they merely require listed entities to maintain books and records in a manner that a company would be reasonably expected to maintain. These laws have been particularly fruitful for the US authorities in prosecuting companies for foreign bribery related offences. The US Department of Justice (DOJ) focuses on the criminal offences while the US Securities and Exchange Commission (SEC) focuses on the civil administrative cases (the books and records and internal controls offences), often in parallel with the DOJ.

On 27 November 2015, the Australian Government finally addressed this glaring gap in our laws by introducing the Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Bill 2015 to Parliament. The proposed laws are to be enacted in a new Part 10.9 – Accounting Records section in the Criminal Code Act 1995 (Cth) (the Criminal Code).

The False Accounting Offences

There are two primary offences

Intentional false dealing with accounting documents

The essential elements of this offence (proposed s490.1(1) Criminal Code) are as follows:

  • the person commits an offence where the person:
    • makes, alters, destroys or conceals an accounting document; or
    • fails to make or alter an accounting document where the person is under a duty to so make or alter the document; and
  • the person intended the making, alteration, destruction or concealment of the document to facilitate, conceal or disguise the occurrence of one or more of the following:
    • the person receiving a benefit that is not legitimately due;
    • the person giving a benefit that is not legitimately due to the recipient or intended recipient;
    • another person receiving a benefitthat is not legitimately due;
    • another person giving a benefit that is not legitimately due to the recipient or intended recipient;
    • loss to another person; and
  • one or more circumstance applies as set out in s490.1(2) of the Criminal Code.

The reckless false dealing with accounting documents

The essential elements of this offence (proposed s490.2 of the Criminal Code) are as follows:

  • the person commits an offence where the person:
    • makes, alters, destroys or conceals an accounting document; and
    • fails to make or alter an accounting document where the person is under a duty to so make or alter the document; and
  • the person is reckless as to whether the making, alteration, destruction or concealment of the document facilitates, conceals or disguises the occurrence of one or more of the following:
    • the person receiving a benefit that is not legitimately due;
    • the person giving a benefit that is not legitimately due to the recipient or intended recipient;
    • another person receiving a benefit that is not legitimately due;
    • another person giving a benefit that is not legitimately due to the recipient or intended recipient;
    • loss to another person; and
  • one or more circumstance applies as set out in s490.1(2) of the Criminal Code.

The qualifying circumstances (or jurisdiction) for each offence

The proposed s490.1(2) sets out certain circumstances, one of which must apply for an offence under s490.1 or s490.2 of the Criminal Code.

The relevant circumstances are that:

  • the person is:
    • a constitutional corporation, a corporation incorporated in a Territory or a corporation whose core or routine activities are carried out in connection with a Territory; or
    • an officer or employee of a constitutional corporation acting in the performance of his or her duties or carrying out his or her functions; or
    • engaged to provide services to a constitutional corporation and acting in course of providing those services; or
    • a Commonwealth public official acting in the performance of his or her duties or carrying out his or her functions;
  • the person’s act or omission referred to in s490.1(1)(a) or act referred to in s490.1(2)(a):
    • occurs in a Territory; or
    • occurs outside Australia; or
    • concerns matters or things outside Australia; or
    • facilitates or conceals the commission of an offence against the Commonwealth,
  • the accounting document:
    • is outside Australia; or
    • is in a Territory; or
    • is kept under or for the purposes of a law of the Commonwealth; or
    • is kept to record the receipt or use of Australian or foreign currency.

Penalties for False Accounting Offences

The penalties for a contravention of s490.1, the intentional conduct offence, are:

  • for an individual:
    • imprisonment for not more than 10 years;
    • a fine of not more than 10,000 penalty units (currently AU$1.8 million); or
    • both imprisonment and a fine,
  • for a corporation:
    • a fine of not more than 100,000 penalty units (currently AU$18 million);
    • three (3) times the value of a benefit directly or indirectly obtained or which is reasonability attributable to the conduct; or
    • if the value cannot be determined by a Court, 10% of the annual turnover of the body corporate during the 12 month period ending where the relevant conduct occurred.

The penalties for a contravention of s490.2, the reckless conduct offence, are:

  • for an individual:
    • imprisonment for not more than 5 years;
    • a fine of not more than 5,000 penalty units (currently AU$900,000); or
    • both imprisonment and a fine,
  • for a corporation:
    • a fine of not more than 50,000 penalty units (currently AU$9 million);
    • three (3) times the value of a benefit directly or indirectly obtained or which is reasonability attributable to the conduct; or
    • if the value cannot be determined by a Court, 10% of the annual turnover of the body corporate during the 12 month period ending where the relevant conduct occurred.

Definitions

The amendments define an “accounting document to mean “any account” or “any record or document made or required for any accounting purpose”.

In addition, it is not necessary that the prosecution prove that a defendant or any other person in fact received or gave a benefit or that loss was suffered by a person.

Commentary on the Proposed False Accounting Offences

The Minister of Justice, when he introduced these amendments into Parliament, made it clear that these offences were being introduced in order to address Australia’s obligations under the OECD Foreign Bribery Convention. For many years, the OECD and Transparency International had criticised Australia for the lack of such laws.

The penalties are substantially more than any existing false or misleading account offences in the Corporations Act 2001 (Cth) (see s286, s1307 and s1309). The offences reflect the significant penalties applicable to the primary foreign bribery offence in the Criminal Code. However, these new offences are not predicated upon an underlying foreign bribery offence, so corporations need to be alive to the increasing likelihood that these offences will be used by the Commonwealth to prosecute companies and individuals for any conduct where false accounting has occurred, whether by intentional or reckless conduct.

As a practical example, in August 2012, David Ellery as the former Securency CFO, was convicted of one count of false accounting (pursuant to s83(1)(a) of the Crimes Act 1958 (Vic)) involving the dishonest falsification of an invoice for approximately $80,000, being money paid to a Malaysian intermediary for expenses purportedly incurred but in fact were not incurred. The intermediary told Securency that he had to “disburse certain expenses accrued” and this and other information was recorded in emails received by, sent to and copied to Mr Ellery. When a debit note was received from the intermediary, outlining certain “marketing expenses”, which Mr Ellery then processed with a request for payment, he knew, in the Court’s view, that no such expenses had been incurred. The Court found that Mr Ellery’s knowledge that what he was doing was dishonest by the later attempts to conceal what had actually occurred.

In this scenario, it is highly likely that an offence would have been committed under the proposed false accounting offences. It is likely that Mr Ellery made an accounting document being the request to process the payment, or alternatively, he failed to alter the request for payment by refusing to pay it in circumstances when he knew the payment was not for any legitimate services and was not therefore legitimately due to the recipient (the Malaysian intermediary). Mr Ellery by his subsequent conduct in concealing the true nature of the transaction, intended (or even was reckless as to the effect which was) to conceal the fact that another person (the intermediary) had received a benefit that was not legitimately due to him and a person (Securency) had incurred a loss. Mr Ellery was an officer (and employee) of Securency carrying out his duties or functions, his conduct concerned matters or things outside Australia and the accounting document was kept for the purposes of a law of the Commonwealth (taxation laws as to expenses incurred by the company in generating income) or otherwise recorded the use of Australian currency.

These proposed laws have the potential to apply far more broadly than might at first blush be anticipated. While the proposed laws grew out of a concern to target foreign bribery and international corruption, the breadth of the drafting of the proposed laws mean that they may apply to a much wider range of domestic and international commercial and financial transactions and give rise to unanticipated consequences, serious and criminal in nature, for those companies and individuals who engage in transactions where “accounting documents” (within the meaning of the proposed law) play a critical part.