This Update covers a range of important developments in Australia and overseas in the area of foreign bribery policy, investigations and regulation to 1 April 2015. These developments will impact on Australian businesses working offshore and only reinforces the need to have and to implement an ongoing, pro-active anti-corruption compliance framework within your business.
Please insert this Update behind the Updates tab in your copy of the JWS Foreign Bribery Guide.
The key issues that are covered in this Update include:
- Australia’s second foreign bribery prosecution
- Australia reforms foreign bribery laws
- Australia update report by the OECD
- Control Risks and Deloitte Surveys of Foreign Corruption
- China Developments – Operation Skynet and Chinese economic fugitives
- Republic of Korea amends Anti-Corruption laws
- US Developments
- Other International Developments
Australia’s second foreign bribery prosecution
Since July 2011, Australia’s one and only foreign bribery prosecution (arising out of the Securency banknote printing scandal) has been chugging along before the Victorian courts at a slow pace, cloaked in suppression orders.
In late March 2015, the Commonwealth Director of Public Prosecutions (CDPP) commenced a prosecution against John Jousif, Mamdouh Elomar and Ibrahim Elomar, charged with attempting to bribe a foreign public official in order to win certain construction contracts in favour of Lifese Steel Fabrication or Lifese Pty Ltd in Iraq. The press have reported (from ASIC searches) that the company was established in 2007 by Mohamed Elomar (one of Australia’s most-wanted terrorists connected to Islamic State). In addition, the offenders face charges of dealing in and with the proceeds of crime and money laundering. According to newspaper reports, Mr Jousif ran a number of companies from his office in Fairfield (a Sydney suburb), including a construction and a pharmaceutical firm selling products across the Middle East and in China.
As a result of the prosecutions, the Chairman of the Lifese company, John Dowd a former NSW Attorney General and Supreme Court Judge, resigned as Chairman upon being contacted by the authorities and has declined to comment on questions concerning his role as chairman and director of Lifese Pty Ltd, which conducted business in Iraq, a well-known high risk country. The media reports suggest that John Jousif, Mamdouh Elomar and Ibrahim Elomar did not disclose the true nature of the company’s operations to Mr Dowd. No doubt further facts will emerge as the prosecutions of those charged work their way through the Court system.
In addition to these new matters, the Australian Federal Police (AFP) are reported to be close to finalising their investigations into Leighton (and its Iraq oil refining projects) and BHP Billiton (and its Beijing Olympics medal minting contract). The results of these matters will be monitored.
Australia reforms foreign bribery laws
In March 2015, the Australian Government introduced the Crimes Legislation Amendment (Powers, Offences and Other Measures) Bill 2015 into the Parliament. The Bill is important as it contains a number of key changes to Australia’s foreign bribery and other economic crimes.
The identity of a foreign public official
Section 70.2 of the Criminal Code 1995 (Cth) will be amended to make it clear that the prosecutor is not required to establish an intention (on the part of an accused person) to influence a “particular” foreign official. This has long been an issue for the CDPP. Many bribery cases involve payments through intermediaries and third parties. A bribe paying person (or company) will invariably have not met or know the identity of the bribed foreign official.
Knowingly concerned as a secondary liability offence
Section 11.2 of the Criminal Code (which extends criminal responsibility) will be amended to insert “knowingly concerned” as an additional form of secondary liability. This offence used to exist in the Crimes Act 1900 (NSW), yet dropped out of the Criminal Code in its consolidation in 1995. A number of criminal appellate judgments have highlighted the vacuum in the criminal law which Courts believed Parliament did not intend by the absence of “knowingly concerned” as a ground of secondary criminal liability. This is because the concept of “knowingly concerned” allows a prosecutor to charge a person in broader circumstances than the traditional grounds of assistance to the principal prior to and during the commission of an offence; for example, conduct after the conclusion of an offence. Knowingly concerned requires an objective demonstration of connection or involvement in the offending conduct, with knowledge of the essential elements or facts of the offence, which they intentionally and knowingly acquired or involved themselves in.
It will now mean that persons who are knowingly and intentionally involved in the commission of an offence (against any Commonwealth laws where offences traditionally involve other or secondary persons) will be liable for the primary offence.
Other amendments relevant to economic crime offences and investigations
Other proposed amendments in the Bill include the following:
- increased penalties under the Proceeds of Crime Act 2002 (Cth) for failing to comply with a production order or notice, by a penalty of 100 penalty units (currently, AU$17,000) or 2 years imprisonment or both;
- other technical amendments to the Proceeds of Crime Act;
- enhancing the investigative powers of the Australian Crime Commission;
- clarifying the scope of foreign serious offences and foreign pecuniary penalty orders in the Mutual Assistance in Criminal Matters Act 1987 (Cth) so they can be enforced as orders of Australian Courts with charges over tainted property in the name of the Australian Government; and
- amending various Australian statutes to permit the Independent Commissioner Against Corruption of South Australia to access information from Australian agencies, to be granted defences for certain telecommunication offences (where intercepts are used) and to apply for certain search warrants.
OECD follow up report on Australia
On 13 April 2015, the OECD published its Follow Up to the Phase 3 Report & Recommendationson Australia’s compliance record under the OECD Convention.
In summary, Australia was given a respectable pass but with significant areas to improve upon.
The OECD highlighted a number of key features where Australia’s performance had substantially improved over the last 3 years. These features include the following:
- establishing the Fraud and Anti-Corruption Centre hosted by the AFP, drawing significant resources from the ATO, ASIC, the ACC, DFAT and the Customs, Human Services and Defence Departments;
- closer involvement of the AFP Asset Confiscation Taskforce in foreign bribery investigations to target the proceeds of crime;
- a restructuring of the Office of the Director of Public Prosecutions to allocate more resources to prosecute foreign bribery offences;
- improved public-sector whistleblower protections; and
- heightened awareness being promoted by Australia that foreign bribery will not be tolerated and all suspicious conduct will be thoroughly investigated.
There are a number of areas where the OECD expressed concern as to a lack of action, or inaction. These included the following:
- clear evidence of enhanced enforcement (as to which see above);
- prosecution of companies under Australia’s corporate liability provisions;
- a structured form of plea-bargaining for companies and/or individuals taking into account matters related to compliance systems (as a defence);
- enhanced private sector whistleblower protections;
- better mutual legal assistance between Australia and other countries to tackle foreign bribery by way of civil or administrative proceedings;
- action on the question of facilitation payments and enforceable “record keeping” offences (of which the OECD has seen no action); and
- evidence of transparent debarment policies for procurement agencies.
While a significant amount of work is going on behind the scenes, for companies faced with potential foreign bribery events, one of the most important benefits that Australia should pursue is to create a structured form of plea-bargaining for companies. The model already exists in the UK Deferred Prosecution Agreements which now form part of the UK statutory criminal procedure process. These should be introduced into Australia without delay as without them, there is no real incentive for any company to self-report a potential offence and wait to see what sort of conviction the prosecutors insist a company accepts. If Australia is serious on incentivising companies and executives to be transparent on reporting foreign bribery conduct, it must provide a real and meaningful mechanism to encourage them to do so in a manner that gives certainty to those involved.
Surveys of Australian companies and executives into corruption and business attitudes to corruption
Control Risks Survey
In early 2015, Control Risks published its International Business Attitudes to Corruption Survey 2014/2015.
The key findings of the Control Risks Survey were as follows:
- paper compliance is not enough, companies must mean it and act on policies; there must be board level leadership and responsibility in implementing a robust and meaningful anti-corruption program beyond a “tick-the-box” approach;
- companies need to be proactive, particularly with operations in high risk jurisdictions;
- robust and meaningful compliance means ongoing education and training to ensure all employees and agents know what to do and what not to do;
- investment must be made in compliance leadership;
- enhanced channels for protected disclosures (or whistleblowers) must be implemented; and
- there needs to be an increased willingness by companies to “say no” and to report illegal conduct.
On 1 April 2015, Deloitte released the Deloitte Bribery and Corruption Survey 2015 Australia and New Zealand: Separate the Wheat from the Chaff.
The Survey was conducted and received responses from 269 respondents from ASX200 and NZ50 companies, Australian subsidiaries of foreign companies, public sector organisations and other listed and private companies.
The findings of the Deloitte Survey make for some interesting (and perhaps depressing) reading:
- self-reporting of suspected foreign bribery and corruption by Australian companies is rarely occurring;
- out of over 100 investigations conducted by Deloitte in the past 2 years, only a handful have been reported to police;
- one-third of companies operating in Asia, the Middle East and Africa had uncovered suspected bribery or corruption over the last 5 years; and
- 40% of respondents (who had an offshore operation) did not have or did not know if they had compliance programs in place to manage corruption risks while 23% with offshore operations had never undertaken a risk assessment and have experienced a foreign bribery and corruption incident over the last 5 years; and
- many businesses did not have adequate or any anti-corruption procedures.
One of the most concerning findings in the Deloitte Survey is this:
Of organisations with offshore operations, 23% said they are not concerned with risk arising from non-compliance with applicable legislation, yet 77% have never conducted a bribery and corruption risk assessment
This is seriously at odds with corporate cultures that express compliance with the law and high ethical standards as the norm. As the authors of the Deloitte Survey noted “it’s fundamental governance imperative that executives and board members understand that the legislation exists, their organisation’s obligations under it, and what their organisation is doing to manage those obligations”.
China and Operation Skynet
Since July 2014, there has been a range of media coverage on Operation Foxhunt, a joint initiative between Australian and Chinese investigators and police forces (in China and overseas), targeting corrupt Chinese officials who are purportedly investing corruptly secured assets in Australia.
The media reported that China arrested 288 suspects accused of financial crimes across 56 countries as part of its sweeping Operation Foxhunt. The Chinese Ministry of Public Security said 126 of those suspects were brought back to China and confessed to their crimes. Some of them were apprehended in the US, Canada, and Australia, which have become popular with white-collar criminals because they do not have extradition treaties with China.
The Chinese government declared a deadline of 1 December 2014 for suspects to come forth and surrender to authorities, which could get them more lenient punishments. The operation required Chinese authorities to co-operate with law enforcement in each of the countries where fugitives reside. While details are scarce, Chinese media quotes the Ministry of Public Security thanking countries for "cooperation and support" in the operation.
In late March 2015, China expanded Operation Foxhunt to Operation Skynet. This is now a global operation, focusing on at least 150 economic fugitives in the US and 50 fugitives in the UK. Media reports from China suggest the Chinese Government has given to the US and UK Governments a Priority List of fugitive Chinese nationals living in those countries who are alleged to have corruptly stolen Chinese assets. In February 2015, Italy extradited a Chinese woman alleged to have defrauded her employer of more than 1.4 million yuan (or about AU$300,000). In addition, France (which also has an extradition treaty with China) has stated it is willing to work with China to target economic fugitives so long as China agrees to not seek the death penalty against any extradited person.
Republic of Korea amended anti-corruption laws
On 3 March 2015, the Korean Parliament passed the Act on the Prevention of Improper Solicitation and Receipt of Money and Goods. The Act is widely known as the “Kim Young-Ran Act” after retired Justice Kim-Young who pioneered the Act through the Parliament. This new Act builds on the Korean Criminal Code which covers domestic bribery in Korea. The law will become effective 15 months after its announcement; that is, September 2016.
Key features of the Kim Young-Ran Act are as follows:
- expands the categories of offences;
- broadens the definition of “public official” to reach into certain private sectors, such as teachers in private schools, employees of media entities and “civilians who perform public functions according to relevant laws”, which has resulted in opposition to the extent of the new laws and a constitutional challenge to the proposed laws by the Korean Bar Association;
- prohibits more broadly the conduct of “improper solicitation” with the explicit involvement of money; and
- imposes vicarious liability on companies where employees or agents commit offences unless the company exerted due care and supervision to prevent such conduct occurring.
The extent to which the provision of courtesy payments and benefits that may be allowed will be set by Presidential Decree before the new Act comes into force.
On 9 February 2015, the Eleventh Circuit Court in United States v Duperval (No. 12-13009) (11thCir.) considered and affirmed the conviction and 9 year sentence of Duperval who was a former Assistant Director General of Haiti Teleco, who participated in two schemes to launder bribes paid to him by two Miami-based companies for business favours.
The Court accepted the DOJ’s opinion that money laundering and conspiracy charges were legitimate offences upon which to base a prosecution against a foreign public official for their roles as bribe recipients. As part of the ruling, the Court rejected Duperval’s argument that the payments he made were for “routine government action”; rather, holding that bribe payments will rarely fall within the narrow “facilitation payment” defence.
On 2 March 2015, the Securities and Exchange Commission granted a whistleblower award payment of between US$475,000 and US$575,000 to a former company officer who reported “original, high quality information about a securities fraud” that resulted in an SEC-led prosecution and sanctions exceeding US$1 million. While company officers who learn of a fraud from another employee reporting the conduct are not usually eligible for award payments, this award was made to an officer in circumstances where, after 120 days had passed and compliance employees had failed to address the issue, the officer reported the conduct.
Two recent decisions in the US District Court for the Southern District of New York (in Wultz v Bank of China (11 Civ 12266 (SAS) (GWG) 21 January 2015 and in In Re General Motors LLC Ignition Switch Litigation (14-MD-2543 (JMF) 15 January 2015) highlight the increasing applications by litigants to access lawyers’ records created during an internal investigation. The Court in Wultzmade orders granting access to the legal documents while in the General Motors litigation, the Court declined to grant access. The cases highlight the importance for parties, particularly corporate counsel (with or without external counsel), to structure the conduct of internal investigations and to ensure the delivery of legal advice or legally created documents in order to properly maintain legal professional privilege.
Other international developments
The Petrobras saga in Brazil rolls on. Criminal charges have been laid in Brazil against nearly 40 individuals for active and passive corruption, organised crime, falsification of documents and money laundering with the aim of increasing Petrobras’ construction costs to pay kickbacks to senior Brazilian politicians. While the current Brazilian President, Dilma Rousseff was chair of the Petrobras Board of Directors between 2003 and 2010, she has denied any knowledge of the corruption scheme.
The US SEC and DOJ are investigating the Petrobras conduct and there are various class actions pending against Petrobras in the US District Court for the Southern District of New York.
In the UK, in April 2015, the UCL Centre for Ethics and Law published report, Legal Risk: Definition, Management and Ethics (athttp://www.ucl.ac.uk). The Report makes for interesting reading for corporate and external counsel involved in understanding and managing corporate risk. In discussion ethics and legal risk, the Report noted the following:
Objectivity and independence are necessary for risk assessment to be accurate and useful to the business but are in tension with the pressures on in-house counsel to be commercial team players.
Appetite for legal risk involves accepting, even welcoming, tolerance for conduct which may be, even may be likely to be, unlawful. This is sometimes in tension with the professional obligation to promote the rule of law and the guidance to solicitors that they must treat the public interest in the administration of justice as definitive of conflicts between professional obligations.