This newsletter is a follow on from the Carter Newell September 2015 Newsletter ‘Senate Inquiry into Foreign Bribery – why a good corporate culture is becoming increasingly paramount’ which noted that the Australian Senate Economics References Committee’s Inquiry into Foreign Bribery was examining whether Australia should introduce a new federal offence of false accounting for the purpose of foreign bribery.

Background

Persons who engage in bribery are likely to conceal, or attempt to conceal their financial transactions. For example, bribes are often paid out of slush funds specifically set up for the purpose of bribery. These illegitimate accounts can be created with the use of falsified documentation and invoices enabling the diversion of funds from a company to secret accounts in multiple jurisdictions.

In order to combat bribery of foreign public officials effectively, Article 8 of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Bribery Convention) requires countries, such as Australia, that are signatories to the Bribery Convention to create offences within the framework of their existing laws to tackle the issue of false accounting in the context of foreign bribery.

The Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery has recommended that Australia ‘vigorously pursue false accounting cases’ and take all steps to ensure such cases are investigated and prosecuted where appropriate, and increase the maximum sanctions against legal persons for false accounting under Commonwealth legislation to a level that is ‘effective, proportionate and dissuasive’ within the meaning of the Bribery Convention.1 At present, all foreign bribery investigations undertaken or evaluated by the Australian Federal Police (AFP) involve an analysis of whether false accounting offences are applicable (under either State or Territory accounting offences or under the Corporations Act 2001 (Cth)), and in this regard, the AFP work closely with the Australian Securities and Investments Commission (ASIC) throughout the life cycle of an investigation.

The approach in the US and Canada

The US foreign bribery laws allow for prosecutors to secure a conviction for false accounting (in lieu of foreign bribery) as the US Foreign Corrupt Practices Act 1977 contains specific accounting or ‘books and records’ provisions. For example, a conviction under its books and records provisions does not require the prosecution to prove that the accused engaged in a specific act of bribery. If it can be proven that false documentation was maintained (such as sham consulting agreements or invoices) then this is sufficient to secure a conviction.2 Further, in response to recommendations from the OECD, Canada introduced into its Corruption of Foreign Public Officials Act 2013 provisions whereby a person commits an offence if for the purpose of bribing a foreign public official in order to retain an advantage in the conduct of business (or for the purpose of hiding that bribery), they engage in certain conduct. This includes maintaining secret accounts, making transactions that are not recorded in books and records or inadequately identified, recording non-existent expenditures, and knowingly using false documents or intentionally destroying accounting records (etc.). The maximum penalty is 14 years imprisonment.

The proposed new criminal laws for false accounting

As foreshadowed in our previous publication, the Australian government has now introduced to Parliament the Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Bill 2015 (Bill) which introduces, amongst other things, a false accounting offence for the purposes of foreign bribery. The second reading speech (delivered on 26 November 2015) notes that the proposed law is aimed at strengthening Australia’s compliance with the Bribery Convention. It seeks to amend the Commonwealth Criminal Code Act 1995 (Cth) (Code) to create two new criminal offences of false dealing with accounting documents.

The new offences (to be inserted in a new division of the Code titled ‘Division 490 – False Dealing with Accounting Documents’), will criminalise conduct where a person either:

  1. Makes, alters, destroys or conceals an accounting document, or fails to make an accounting document that the person is under a duty to make, with the intention that the person’s conduct would facilitate, conceal or disguise the receiving or giving of a benefit that is not legitimately due or a loss that is not legitimately incurred (‘intentional false dealing with accounting documents’); or
  2. Makes, alters, destroys or conceals an accounting document, or fails to make an accounting document that the person is under a duty to make if they are reckless to the fact that this conduct would facilitate, conceal or disguise the giving or receiving of a benefit that is not legitimately due or a loss that is not legitimately incurred (‘reckless false dealing with accounting documents’).

The offences will apply both within Australia and overseas. The intentional false dealing offence (as noted above) imposes a maximum penalty for an individual of 10 years’ imprisonment, a fine of $1.8 million, or both. The inclusion of a significant monetary penalty for individuals serves to deter false accounting.

The maximum penalty for a body corporate is the greater of:

  1. $18 million;
  2. (If the court can determine the value of the benefit) three times the value of the benefit directly or indirectly obtained by the company and related body corporate and that is reasonably attributable to the conduct constituting the offence; and
  3. (If the court is not able to ascertain the value of the benefit) 10% of the annual turnover of the company during the previous 12 months.

For the reckless false dealing offence, to which the lower fault element of recklessness attaches, the penalties are half that of the intentional false dealing offence.

When enacted, the new law will make bribery prosecutions easier as Australian regulators will only need to show that conduct such as falsifying entries in company financial records could be trying to hide an act of bribery. The proposed law is an important development towards law reform in the area of foreign bribery and company executives and officers should be acutely aware of its potential implications.