The Senate Economics References Committee’s Inquiry into foreign bribery (Senate Inquiry) has received a range of submissions from industry groups, government departments, law and accounting firms, large resource companies, banks and academics (respondents) on its terms of reference.

This newsletter is a follow on from our previous newsletters on the Senate Inquiry issued in September 2015 titled ‘Senate Inquiry into foreign bribery - why a good corporate culture is becoming increasingly paramount’ and December 2015 titled ‘Foreign bribery update - proposed laws for false accounting introduced to parliament’.

Overview

In reviewing the respondents’ submissions, it is clear that there are problems with the current regulatory framework. However, many of the respondents give useful suggestions to improve the effectiveness of Australia’s Commonwealth foreign bribery laws. A few of the key suggestions for change, (and what the Senate Inquiry may give particularly close attention to), include:

  • The Australian Government issuing formal guidance on:
    • the Commonwealth anti-bribery legislation and best practice;
    • what constitutes acceptable levels of gift, hospitality and travel offerings for foreign officials; and
    • what constitutes a ‘corporate culture of compliance’ in the context of anti-bribery laws.
  • Reforming the Commonwealth anti-bribery provisions to make it easier to prosecute foreign bribery cases and giving companies better incentive to self-report, taking into consideration the approach in other jurisdictions;
  • Introducing a range of alternative sanctions for foreign bribery, taking into consideration the approach in other jurisdictions;
  • Removing the facilitation payments defence (however if retained, making such payments subject to better regulatory oversight);
  • Strengthening private sector whistleblower laws to encourage corporate sector whistleblowing, whilst ensuring that whistleblowers are adequately protected; and
  • Widening the Commonwealth anti-bribery provisions to cover all forms of bribery (including passive bribery), and foreign bribery not involving foreign public officials.

Guidance on limits for acceptable gift, travel and hospitality offerings

Some of the respondents request that the Government release formal guidance on what constitutes acceptable limits for gifts, travel, hosting, gratuities and hospitality offerings under Australia’s Commonwealth anti-bribery laws (such as that provided by the regulators in the US and UK). This is particularly pertinent in light of the recent decision by US anti-corruption regulators against BHP Billiton.

The Resource Guide to the US Foreign Corrupt Practices Act 1977 (FCPA) provides examples of what constitutes improper travel and entertainment of foreign government officials and real case examples. Similarly, the UK Ministry of Justice has also issued guidance on hospitality, promotional and other business expenditure. Both the US and UK make it clear that it is not the intention of the laws to prohibit any reasonable hospitality and promotional expenditure in order to promote products and services or facilitate cordial relations (and the like).

Reform of existing Australian legal framework for foreign bribery offences

Respondents note there are a few key impediments to investigation and enforcement of foreign bribery related offences in Australia.

Prosecuting companies for foreign bribery offences

Under the Australian Commonwealth anti-bribery provisions, it is not particularly easy for the prosecution to attribute to a company criminal responsibility for acts of bribery.

There are a few reasons for this, namely:

  • The evidentiary burden rests with the prosecution to prove beyond reasonable doubt a company’s authorisation (or permission) of an act of bribery or a company’s failure to maintain a corporate culture of compliance with the law;
  • Foreign intermediaries are commonly used to facilitate corporate bribery overseas. In such instances, Australian prosecutors need to show the foreign intermediary or agent had the requisite intent to bribe on behalf of the company to obtain or retain business (or a business advantage). For a variety of reasons, it may be difficult to gather sufficient evidence to establish the person’s intent at the time the payment or benefit was conferred to the foreign official; and
  • Practical evidentiary difficulties arise when basing corporate prosecutions on the rather nebulous concept of‘corporate culture’. Unfortunately, the existing law provides little guidance as to what is expected of companies to ensure they have in place a robust, anti-bribery compliant corporate culture (as there have been no prosecutions to date based on a company having a deficient corporate culture).

In contrast, the laws in the UK and US make corporate prosecutions easier, especially in the all too common situation where a foreign intermediary or third party acting on behalf of a company engages in acts of bribery abroad.

In the UK, a company is liable if a person ‘associated with it’ commits an act of bribery (whether domestic or foreign bribery). This is a strict liability offence for failure of a commercial organisation to prevent bribery. Thus, no mental element of knowledge or intent needs to be proven. There is a full defence available (of ‘adequate procedures’), thus placing the evidentiary burden on the company, not the prosecutor. If it can be proven that a bribe was paid by a foreign intermediary on behalf of a UK company, then this is sufficient to attribute liability to the company. The UK’s Ministry of Justice provides guidance about the procedures companies can put in place to prevent persons associated with them from bribing.

In the US, a company may be held liable for the illegal activities of its agents if the company knew that a violation would occur or was substantially likely to occur. This concept of ‘knowing’ is akin to ‘wilful blindness’ or ‘deliberate ignorance’. Thus, under the US law, it is the intention of regulators to impose liability not only on those with actual knowledge of wrong doing, but also on those who purposefully avoid actual knowledge. The US regulators also provide companies with the Resource Guide to the US FCPA detailing anti-bribery laws and information on how companies can implement an effective compliance program.

In light of the above, respondents suggest the following reforms:

  • Providing formal guidance on the operation of the existing Commonwealth anti-bribery offences, especially what constitutes a ‘corporate culture of compliance’ and clarification of senior company officer liability;
  • Creating an offence similar to the UK Bribery Act 2010 (UK Bribery Act) (s 7 offence) ‘failure of a commercial organisation to prevent bribery’ and making available an associated defence. This would be a reversal of the burden of proof so that the onus is on the company to prove that it has in place a compliant corporate culture (etc). However, if such a provision is adopted, the Australian Government will need to provide clear guidance to companies on commercial bribery, what constitutes a compliant corporate culture, and how companies can meet any available defence; and
  • Creating an offence for a company’s failure to report bribery (where a company believes on reasonable grounds that bribes have been paid), in addition to failing to prevent it. This reform may assist in incentivising self-reporting.

Further, one particular respondent highlights the fact that there is no proper linkage between the Corporations Act 2001(Cth) (Act) and the Commonwealth anti-bribery offences as the Act makes no express reference to the Commonwealth anti-bribery provisions. They suggest that the Act be amended to expressly clarify the extent of director’s duties in relation to prevention of corruption, and foreign bribery specifically. For example, a director will breach his or her duties by engaging in foreign bribery (either directly or indirectly), or by failing to take reasonable steps to prevent or deter foreign bribery by company officials and employees.

Incentives for companies to self report incidents of suspected bribery

There is a lack of any incentive for companies to self report instances of suspected bribery as the benefits of self reporting are not entirely clear. There is no comprehensive guidance available about the extent to which self-reporting will influence a decision to prosecute, or impact on any penalty imposed by a court. This is in stark contrast to the US where self-reporting, co-operation and the acceptance of responsibility will lead to reduced culpability and fine reductions in criminal cases.

Respondents call for formal guidelines on the benefits of self-reporting suspicions of bribery and co-operating with regulators including information on how such conduct will impact on decisions to prosecute, charge negotiations with the prosecution, and a sentence imposed by a court.

Alternative sanctions and resolution options

Further, many respondents view the lack of alternative legal options by which foreign bribery matters can be resolved (other than by way of criminal conviction) as a key failing of the current framework.

Australia could consider introducing some of the alternative sanctions used in the US for foreign bribery offences such as civil remedies, negotiated settlements, deferred and non-prosecution agreements, compliance monitoring or self-reporting regimes and debarment from government contracting.

Making a range of alternative sanctions available is likely to act as a more effective deterrent (and potentially encourage more companies to voluntarily self-report). As is the case in the US, the enforcement mechanism chosen by the regulator would depend heavily on a range of factors including (but not limited to) the severity of the crime and its facts, the pervasiveness of wrong doing within the corporation (including the complicity in condoning the wrongdoing of management), the degree of co-operation with regulators, voluntary disclosures and pre-existing compliance programs and remediation.

Facilitation payments defence

Many of the respondents, including large resources companies, believe that the facilitation payments defence needs to be categorically removed. They cite numerous reasons including:

  • That its existence helps to maintain an environment where bribery can flourish. They prefer the position under the UK Bribery Act where no exceptions are made for small bribes or facilitation payments as all forms of bribery are prohibited. The defence could be phased out over a period of time, such as in Canada, in order to give companies time to readjust their compliance policies and procedures;
  • That complex corporate ownership means that it is increasingly likely that Australian companies are caught by laws that do not allow for facilitation payments such as an entity that has part of its business situated in the UK (even if the UK represents only a small part of overall operations);
  • That as the defence has not been tested in court, there is no judicial guidance as to the meaning of each element of the offence. This makes it difficult if a company seeks to rely on the defence;
  • That any competitive disadvantage that may arise for Australian companies with the removal of the defence can be mitigated by increasing input into multi-stakeholder initiatives which seek to reduce the demand for facilitation payments (such as collaboration between private companies, government and bi-lateral and multi-lateral agencies); and
  • That it is consistent with Australia’s international obligations that Australian law promotes a corporate culture of compliance that discourages use of the defence.

That said, a submission from the Australian-African Mining Industry Group (AAMIG) illustrates the difficulties that small to medium sized companies have in operating in less developed country jurisdictions in Africa where the practical realities are such that small payments are often made to government officials to ensure the timely delivery of government services to which there is a legal entitlement. However, where the intent of such payments is to influence the decision of a government official in order to retain or attain business the conduct will amount to bribery.

AAMIG, and others in the sector, voice the view that removing the facilitation payments defence will not have the desired effect of eradicating bribery across the African continent but may result in driving the practice underground.

Even so, as one respondent notes, there has been no empirical evidence detailing the specific circumstances and frequency of which such payments are used in high risk sectors. A study on the actual use of these payments by Australian companies needs to occur, the findings made publicly available, and companies’ compliance with record keeping requirements better scrutinised by Government. If the defence is ultimately retained, the Government needs to release better guidance on what constitutes a facilitation payment by way of examples and case studies.

Improved corporate whistle-blower protections

A common theme across the respondents’ submissions is the concern that existing private sector whistle-blower protections are inadequate. This in turn has meant that potential whistleblowers are discouraged from coming forward to expose unethical and illegal behaviour. As noted by one respondent ‘cultural bias against whistleblowing continues to be a disincentive in corporate Australia as elsewhere’. They suggest improved regulation of internal whistleblowing systems within companies is required (i.e mandating of procedures to facilitate whistleblowing) as empirical evidence exists to suggest that the level of whistleblowing activity in a company is positively associated with how well it is supported within the organisation.

Further, many agree that the key recommendations set out in a 2014 Senate Report (into ASIC’s performance) for the protection of corporate whistleblowers have merit (i.e updating private sector whistleblower laws to be consistent with those afforded to public sector whistleblowers, as well as expanding the definition of a ‘whistleblower’ and the scope of information protected).

Implementing stronger measures to encourage and protect corporate whistleblowers is critical as they are integral in uncovering corruption within corporations that would not otherwise be detected. The deficiencies in the current regime were well illustrated in the Securency and Note Printing Australia case where a key corporate whistleblower found himself subject to retaliatory action from his employer as a direct result of his disclosures.

Foreign bribery not involving foreign public officials

Some of the respondents note that the Commonwealth legislative framework should focus not just on criminalising bribery of foreign government officials but company to company bribery or bribery of private individuals, as is covered under the UK Bribery Act. The UK law targets both the giving and receiving of bribes, to and from anyone as well as including a discrete offence for bribing foreign government officials and a corporate liability offence for failure of a commercial organisation to prevent bribery. The UK law provides a full defence to the corporate liability offence in recognition of the fact that no bribery prevention regime is capable of preventing bribery at all times. It also seeks to encourage commercial organisations to put procedures in place to prevent bribery by persons associated with a company. Notably, Australia’s Commonwealth bribery laws focus only on active bribery of a foreign public official and offer narrow defences.

Each Australian State and Territory has bribery laws that prohibit both bribery of domestic government officials and in certain instances, bribery between private sector entities and individuals (corporate bribery). However, there is considerable merit in more clearly targeting all forms of corruption (in addition to bribery of foreign officials) in any revised Commonwealth legislation. Ideally, a revised Commonwealth bribery offence incorporating harsher penalties than existing State based legislation and extraterritorial jurisdiction is warranted.

However, it is noted that any changes should not have a retrospective effect and allow companies time to alter their existing anti-corruption practices (as required) in order to respond to any new requirements.

Conclusion

The Senate Inquiry is a much needed step towards critical reform of the existing Commonwealth anti-bribery regime and its outcomes will hopefully address many of the gaps highlighted by the Organisation for Economic Cooperation and Development (OECD) Working Group on Bribery’s previous recommendations to the Australian Government. A glaring gap was the lack of a ‘books and records’ type offence in the Commonwealth anti-bribery framework (as recommended by the OECD), however this is now being addressed with the introduction of a bill to Parliament in November 2015 which incorporates a criminal offence for false accounting. This reform will help maintain accounting probity standards which is an important factor in preventing corrupt practices.

The Senate Inquiry will report by 1 July 2016. It will in all likelihood capture many of the prime concerns raised by the respondents with respect to the existing foreign bribery regime. If the Australian Government can implement some of its issuing recommendations, there will be progress towards the creation of a more up to date, robust and effective regulatory framework which better reflects international best practice.