On 29 February 2016, the Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Bill 2016 received Royal Assent, with significant implications for Australian companies and their foreign subsidiaries' anti-bribery compliance programs. The false accounting offence provisions are effective from today.
The Bill amends the Criminal Code Act 1995 (Cth) (Criminal Code) by introducing two offences of intentional or reckless false dealing with accounting documents which facilitates, conceals or disguises the receipt or provision of a benefit to another person which was not legitimately due.
The false accounting offences have been introduced to specifically meet an OECD Anti-Bribery Convention requirement to address falsification of books and records, and follows other recent reforms aimed at improving the enforcement of Australia's anti-bribery laws.
False accounting offence provisions
The new offence of intentionally (s 490.1) or recklessly (s 490.2) dealing with accounting documents 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 under Australian law to make or alter; and
- the person intended that action or failure to act to facilitate, conceal or disguise the receiving or provision of a benefit not legitimately due, or was reckless as to whether that was the result.
The offences apply to conduct that occurs both within Australia and overseas, subject to constitutional limitations, and applies to both companies incorporated in Australia and an officer, employee or service providers of an Australian corporation.
The definition of "accounting document" is broad and includes any:
- record or document made or required for any accounting purpose (e.g. invoices); or
- register under the Corporations Act 2001 (Cth), or any financial report or financial records within the meaning of that Act.
The offence provisions extend to conduct of foreign subsidiaries of domestic parent companies, their employees and agents. However, where the alleged conduct occurs wholly outside Australia's territory and the alleged offender is not an Australian citizen, Australian resident or corporation incorporated under Commonwealth, State or Territory law, then the Attorney-General must approve any intended prosecution.
The new provisions are framed to capture accounting records relating to benefits given or received that are "not legitimately due". Although the provisions do not expressly state that their application is limited to circumstances where the recipient of the benefit is a foreign public official the language of "not legitimately due" is only found in division 70 of the Criminal Code in relation to bribery of foreign public officials and not in the equivalent legislation relating to bribery of Commonwealth public officials or legislation relating to secret commissions or kickbacks. The Explanatory Memorandum discusses the provisions only in the context of foreign public officials. Unless prosecutors seek to adopt a wider interpretation of the scope of the provision, then Australia's false accounting provisions remain significantly more limited than the false accounting provisions in other jurisdictions, such as in the US, where commercial bribery payments which are misreported in a company's accounting records may constitute a breach of the books and records provisions in the Foreign Corrupt Practice Act 1977.
Significant penalties apply
For the intentional false accounting offence significant penalties apply, with:
- individuals subject to no more than 10 years imprisonment and/or a fine of up to $1.8m; and
- bodies corporate subject to a fine the greater of $18m, three times the value of any benefit provided or 10% of the annual turnover in the 12 month period preceding the offence.
For the reckless false accounting offence the are as follows:
- individuals subject to no more than 5 years imprisonment and/or a fine of up to $900,000; and
- bodies corporate subject to a fine the greater of $9m, 1.5 times the value of any benefit provided or 5% of the annual turnover in the 12 month period preceding the offence.
Why the false accounting offences are important to your compliance program
Any Australian citizen, resident or company incorporated within Australian is subject to these new provisions, as is any officer or employee of an Australian corporation performing their duties or carrying out their functions or acting in the course of providing services to an Australian corporation. Given that these offences are based on intent or recklessness, pursuant to division 12 of the Criminal Code a company could be found to be criminally liable if it is found to have a corporate culture that tolerated or led to an employee or agent creating, altering, destroying or concealing documents. It is therefore essential for companies to have in place clear policies which make clear that such conduct is not acceptable and to ensure that employees and agents are properly trained in relation to these policies.
Significantly for any Australian corporate group with consolidated accounts there is the real prospect that it may be held criminally responsible for any false accounting by its foreign subsidiaries. Indeed, even if there is no intention to create false account records, if sufficient compliance programs are not established within foreign subsidiaries, this may be sufficient to establish the less stringent recklessness offence.
Section 5.4 of the Criminal Code Act defines recklessness as including where a person is aware of a substantial risk as to circumstances which exist or with respect to a result which will occur and, having regard to the circumstances known to them, it is unjustifiable to take the risk. While this is a question of fact, it will likely be informed by the known compliance risk concerning the relevant business activities, the industry and jurisdictional risk for bribery and corruption, and the known quality of the compliance program in place for the company or its foreign subsidiaries.