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 2017. These developments will impact on Australian businesses working offshore and 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 – False accounting prosecutions arising out of AFP Leighton Holdings investigation
- Australia – ASIC’s penalty prosecutions against former senior AWB Ltd executives continue
- Australia – Proposed model for a Commonwealth Deferred Prosecution Agreement scheme
- Australia – Proposed amendments to the Commonwealth foreign bribery offence and introduction of new corporate offence of failing to prevent bribery
- Australia – Australian Parliamentary Committee review of whistleblower protection laws
- Australia – AFP foreign bribery initiatives
- Australia – Senate Report on penalties for white-collar crime and corporate and financial misconduct
- Australia – Progress of Commonwealth DPA scheme and updated CDPP Guidelines
- Australia – Corporate culture as an ongoing business challenge
- France – Sapin II Law – New anti-corruption, whistleblower and DPA laws
- South Korea – New Young Kim-ran laws target graft and corruption
- United Kingdom – Rolls-Royce DPA
- United Kingdom – New corporate criminal liability regime for serious financial crime
- United States – US DOJ FCPA Pilot Program continues
- United States – DOJ reviews of corporate compliance programs
- United States – Failure to comply with corporate policies may contravene FCPA accounting and internal controls provisions
- International Surveys – Bribery and corruption perceptions
Australia – False Accounting Prosecutions and AFP Leighton Holdings’ Investigation
There have been two recent developments during late December 2016 and January 2017 arising out of the long standing ASIC and AFP investigation into the conduct of Leighton Holdings and its commercial contracting activities in the construction and oil and gas industries in Iraq.
On 31 January 2017, Mr Peter Gregg, a former executive of Leighton Holdings and more recently the managing director of Primary Heath Care, was charged with two counts of falsifying books and records in contravention of section 1307(1) of the Corporations Act 2001 (Cth). The offence reads as follows:
An officer, former officer, employee, former employee, member or former member of a company who engages in conduct that results in the concealment, destruction, mutilation or falsification of any securities of or belonging to the company or any books affecting or relating to affairs of the company is guilty of an offence.
The penalty is 100 penalty units (currently AU$18,000) or imprisonment for 2 years, or both.
The Australian media reported that the charge concerns an allegation that Mr Gregg signed off or approved a payment of $15 million while he was the CFO of Leighton Holdings for a quantity of steel in circumstances where it appeared that, as alleged, no steel was in fact, ever supplied. Mr Gregg has denied all the allegations against him and will be defending the matter.
ASIC has also charged Russell Waugh, who worked for Leighton Holdings in relation to the same matter.
On 14 March 2017, both Messrs Gregg and Waugh were committed to stand trial in the NSW District Court.
These are the first charges commenced either by ASIC or the AFP arising out of their long standing investigation into the activities of Leighton Holdings in the Middle East.
Australia – ASIC and AWB Civil Penalty Prosecutions
On 15 December 2016, the Victorian Supreme Court handed down the last of its trial findings arising out of ASIC’s prosecutions against several former executives of the former Australian Wheat Board Ltd (AWB) and its ill-fated kickback scheme under the United Nations humanitarian Oil-For-Food Program. The kickback scheme was created in 1999, was discovered in 2003, was the subject of a Royal Commission in 2006, resulted in changes to the law concerning the effect of breaching United Nations’ sanctions in 2007, generated a criminal and civil task force to investigate numerous individuals, spawned class action litigation in Australia and the United States and ultimately, ASIC’s proceedings seeking declarations of contravention against several former directors and officers for breach of duty and penalties.
The proceedings commenced in 2007, several defendants settled with agreed penalties (the former managing director and the CFO), others settled with no penalties and the last men standing, the former Chairman Trevor Flugge and another former executive, Peter Geary, fought on.
The Supreme Court found:
- for ASIC against Mr Flugge, holding that he breached his duty under section 180 of the Corporations Act 2001 (a duty, in substance, to act with the degree of care and diligence that a reasonable person would exercise if they were a director) by failing to exercise due diligence in failing to make inquiries or inform himself as to AWB’s improper conduct (the fact that AWB’s wheat contracts with Iraq were a sham, contained fees for services never rendered (the infamous “trucking fees”) and that those services had never been approved by the United Nations or the Australian Government), given the knowledge he had that had effectively put him on notice; and
- against ASIC against Mr Geary, dismissing the circumstantial case, holding that ASIC failed to prove any breach of duty from the documents (and all ASIC had was a documentary case against Mr Geary, with no direct evidence implicating Mr Geary in AWB’s improper conduct).
The Court is yet to determine the declarations and penalties against Mr Flugge. ASIC has said that it will appeal the findings against Mr Geary. The case continues.
Australia – Proposed Commonwealth Deferred Prosecution Agreement Model
In late March 2017, the Attorney General’s Department (AGD) published a Consultation Paper, Improving enforcement options for serious corporate crime: A proposed model for a Deferred Prosecution Agreement scheme in Australia.
The Paper is the result of the initial 2016 consultation process inviting submissions on the introduction of a deferred prosecution agreement (DPA) scheme for Commonwealth offences. Broadly, the majority of submissions in 2016 favoured the introduction of a DPA scheme. The rationale for a DPA scheme is to enhance accountability within the business sector for serious corporate crime, to punish companies in a process that provides effective redress and seeks to promote an improved compliance and corporate culture.
A DPA involves, in summary, the following:
- a company discovers serious misconduct or illegal conduct undertaken by or in its name by employees, agents or third parties acting on its apparent behalf;
- the company reports the conduct to authorities (in Australia, the AFP responsible for serious offences against Commonwealth laws);
- the company fully cooperates with the investigators;
- the company is invited by the prosecutor to enter into a DPA on the basis that an negotiated settlement of potential criminal conduct is regarded as being more in the public interest than a formal criminal prosecution;
- if the DPA and its terms (such as agreed facts and/or an admission of criminal liability, payment of agreed fines, penalties, disgorgement of profit, compensation to victims, costs, interest, a supervisory monitor) are approved as being fair, reasonable and proportionate (by an independent body such as a court in the US or UK), it takes effect;
- during the DPA, a criminal indictment, if filed, is suspended subject to compliance with the DPA;
- at the conclusion of the DPA, it will be dismissed;
- if the company breaches the DPA, a criminal prosecution may commence or continue.
The model proposed by the Australian Government contains the following key features:
- a DPA will only be available for companies, not individuals;
- a DPA will apply to nominated Commonwealth offences, including:
- false accounting,
- foreign bribery,
- money laundering,
- dealing with the proceeds of crime,
- forgery and related offences,
- exportation or importation of prohibited or restricted goods,
- “specific offences” under the Corporations Act, and
- any ancillary offence to which the DPA scheme explicitly applies;
- the invitation to commence DPA negotiations will be at the prosecutor’s (the CDPP) discretion;
- the Commonwealth Prosecution Policy will be amended to give guidance on the factors to be taken into account during a DPA negotiation;
- the terms of a DPA will depend upon the circumstances but will include certain standard terms such as duration, an agreed statement of facts, a formal admission of criminal liability for specified offences, ongoing cooperation, approval by a retired judge (not a Court), termination clauses for “material breach” and publication of the DPA and the approval decision;
- for approval of a DPA:
- the prosecutor must formally seek approval from a retired judge;
- the retired judge must assess whether the DPA is in the interests of justice and its terms are fair, reasonable and proportionate; and
- if the DPA is approved, it takes effect and is published on the CDPP website;
- in terms of ongoing compliance, an independent monitor might be appointed;
- all communications relevant to the DPA negotiations (where “that material was provided during the DPA negotiation period and was created solely to facilitate, support or record DPA negotiations”) will remain confidential;
- if a DPA is approved, runs its terms and the CDPP issues an undertaking not to prosecute, the information disclosed during the DPA negotiations will remain confidential and only be shared “with relevant law enforcement agencies unless otherwise required by law” (which opens up the risk of disclosure in other jurisdictions or legal proceedings if permitted by a court);
- if however, the company materially breaches the DPA, all negotiation material can be disclosed and relied upon by the CDPP to prosecute the company; and
- the DPA scheme will be reviewed after 2 years from its introduction.
Submissions on the proposed model DPA scheme are due by 1 May 2017.
Australia – Proposed Amendments to the Commonwealth Foreign Bribery Offence and New Corporate Offence of Failing to Prevent Bribery
In April 2017, the AGD published a Consultation Paper, Combatting bribery of foreign public officials: Proposed amendments to the foreign bribery offence in the Criminal Code Act 1995.
This is the first substantive review and proposed amendments to the primary foreign bribery offence (in section 70.2 of the Criminal Code Act 1995 (Cth) (Criminal Code) since the offence was enacted in 1999.
The key proposals put forward by the AGD seek to address several weaknesses under the present system – the problems of proof of an intent in relation to influencing a foreign public official, what it means for a benefit to be “not legitimately due”, the problems associated with obtaining evidence on foreign laws and duties of foreign officials and whether an offender must have a specific business or business advantage in mind which leads to the offending bribe. Taken together with the Senate review of foreign bribery laws, the Parliamentary review of whistleblower protections and the proposed model Commonwealth DPA scheme, companies need to take stock of the impact of these legislative and policy developments in their governance and compliance frameworks.
The Consultation Paper calls for submissions by 1 May 2017 and the AGD is proposing the following changes to the Criminal Code:
- include candidates for office within the definition of “foreign public official”;
- replace the concept of “not legitimately due” with “improperly influence” a foreign public official (reflecting the foreign bribery laws in the US, the UK, Canada and New Zealand);
- extend the offence to cover bribery to obtain a personal advantage;
- create two new offences:
- of foreign bribery based on recklessness (where an accused is reckless as to whether the conduct would improperly influence a foreign public official in relation to obtaining or retaining business or an advantage); and
- a corporate offence of failing to prevent bribery (reflecting the section 7 Bribery Act offence in the UK where a company is automatically liable for the conduct of employees, contractors and agents except where it had in place proper systems of internal controls and compliance to prevent the bribery from occurring);
- remove any requirement of influencing a foreign public official in the exercise of their official capacity; and
- clarify that the offence does not require an accused to have a specific business or advantage in mind, and it could be obtained for a third party.
Australia – Australian Parliament Review of Whistleblower Protection Laws
The Australian Joint Parliamentary Committee on Corporations and Financial Services is currently undertaking a review of whistleblower protection laws. The review has a particular focus on whistleblower protection laws in the private and not-for-profit sectors. The public sector has in place substantial Commonwealth and State laws (for example, the Public Interest Disclosure Act2013 (Cth), applying to Commonwealth public servants) covering authorised disclosures.
The tenure of the numerous submissions lodged with the Parliamentary Committee have almost universally pointed to the long standing inadequacy of whistleblower protection laws in the Australian private sector, a lack of a robust regulator to protect whistleblowers upon complaints being made, whistleblowers being left to their devices and having to defend or prosecute claims made against them by their current or former employer, and a complete inability to secure any compensation (or indeed more controversially any reward) for the disclosure of improper or illegal conduct. Many of the submissions support substantial reform to the laws (which in respect of the private sector) currently contained in Part 9.4AAA of the Corporations Act 2001 (Cth) (with some similar laws in other specific statutes). There appears to be general consensus for the need for reform (supported by ASIC and the AFP), for more enhanced protections and, indeed, some form of compensation for whistleblowers. There is however some differences of opinion in the submissions as to whether whistleblowers should be entitled to a reward, and if so on what basis and how it should be assessed.
An important issue raised by the Association of Corporate Counsel Australia is the particular role played by corporate counsel and the knowledge that they may learn or, indeed, may receive as the first point of call for a complaint. The position of corporate counsel is indeed a peculiar one and in light of an internal lawyer’s duties of not only confidence but the operation of legal professional privilege as a substantive rule of law, suggests that some care should be taken, as the Association has pointed out, to reforms that recognise how corporate counsel should be treated under any new statutory regime.
The submission by the Australian Institute of Company Directors said this, in terms of what The Institute saw as the need for substantive reform:
Directors play a critical role in establishing and promoting a culture that supports disclosure of wrongdoing with Australian businesses. This is essential to detecting, addressing and ideally, preventing corporate wrongdoing. The regulation of whistleblowing has a significant impact on establishing a culture of disclosure, and by extension, affects the ability of directors to play their part in ensuring the compliance of their organisation with the law. For their part, directors welcome information about misconduct and would prefer for misconduct to be brought to light and addressed at the earliest opportunity.
It is expected that the Parliamentary Committee will hold a number of public hearings in relation to the submissions and a final report is due by 30 June 2017.
Australia – AFP and CDPP Foreign Bribery Initiatives
In September 2016, the Australian Government announced some dedicated funding to the AFP for foreign bribery investigations. A significant amount of money was allocated to the establishment of dedicated teams of foreign bribery experts within the AFP to be based in Sydney, Melbourne and Perth. The Perth operation is understood to focus particularly on the activities of companies in the mining, energy and resources sector based in Perth and often working on commercial activities outside Australia.
The Commonwealth Director of Public Prosecutions (CDPP) is working with the AFP to encourage companies to voluntarily self-report potential criminal offences, and if so, whether a more transparent and clearly defined process can apply as between the AFP, the CDPP and a company (as potential offender) in promoting early self-reporting and resolving an investigation (or potential prosecution) without a contested trial. This process may be further developed in light of the proposed model for a Commonwealth DPA scheme (see above).
Australia – Senate Report on Penalties for White Collar Crime and Corporate and Financial Misconduct
In March 2017, the Senate Economics Reference Committee published its Report entitled Lifting the fear and suppressing the greed: Penalties for white-collar crime and corporate and financial misconduct in Australia.
The Report considered what “white-collar crime” was, in light of the attempt by some to treat white-collar criminals in a different category to other criminals. The Report regarded the most appropriate definition as “financially motivated non-violent crimes committed by businesses or individuals acting from a position of trust or authority.” The Report noted that the level of fraud-related or serious organised crime remains very high (as at 30 June 2015, the AFP had 114 fraud-related matters with an estimated value of $1.6 billion with organised fraud costing the Australian economy somewhere close to $6.3 billion per year) and the figures are probably under-reported due to a belief that companies prefer not to report fraud-related offences due to the perceived reputational harm they may suffer.
Whether this means that Australia is or is seen as a paradise for financial misconduct is a topic that Greg Medcraft, the Chairman of ASIC, has often spoken on. While many in the media have been critical of ASIC’s performance, with ASIC being found by a 2014 Senate inquiry to be a “timid, hesitant regulator, too ready and willing to accept uncritically the assurances of a large institution” or as David Murray once observed, the ASIC penalty regime was “like being hit by a lettuce leaf” (see Adele Ferguson ”ASIC needs more power, and attitude”, Australian Financial Review 27 March 2017), there is a strong desire within ASIC to address these concerns. Many submissions to the Committee, including those from ASIC and the AFP, highlighted the importance of holding senior management in companies accountable for white-collar crimes and financial misconduct in order to address cultural weaknesses in business that tend to want to shield and insulate those executives higher up the responsibility chain.
The Report made a number of key recommendations, including:
- the Government consider reforms to the law to clarify the evidentiary standards and rules of procedure in civil penalty proceedings for white-collar offences, including engaging with the AFP to consider reforms to the corporate criminal liability provisions in the Criminal Code;
- ASIC enhances its use of the banned and disqualified register to improve transparency;
- ASIC be given power to issue infringement notices to respond to breaches of the financial services and managed investments provisions of the Corporations Act;
- the Government increase the current level of civil penalties for companies and individuals, having regards to non-criminal penalties for similar offences in other jurisdictions;
- civil penalties for white-collar offences be set as a multiple of the benefit gained or the loss avoided; and
- ASIC be given disgorgement powers for non-criminal matters.
There have been various reports in the past, including numerous submissions by ASIC, seeking to increase the overall penalty regime for white-collar crimes. It is likely to be a matter of time before this occurs. For this reason, it makes the corporate focus on the culture of a business all the more important to address.
Australia – Corporate Culture as a Business Challenge
Companies traditionally set standards or values to which they expect all individuals to adhere in the code of conduct and business policies. Commonly stated values include honesty, acting with integrity, valuing all employees, suppliers and customers and “zero tolerance” for any form of impropriety, misconduct or illegal behaviour. Companies invariably warn their employees that sanctions will be applied to those who breach those standards (as forming part of their terms of employment) which may range from a caution to a dismissal to reporting conduct to official investigative and/or prosecutorial agencies.
Over the past year, the question of corporate culture and whether the corporate culture in Australian business or in certain sectors in the Australian economy is bad, continues to generate discussion.
Ken Henry, the chairman of the National Australia Bank and a former distinguished former career public servant, put it this way in discussing the importance of corporate culture (Culture Club: Bank chairman defend conduct, BOSS Australian Financial Review May 2016 Volume 17, Page 21):
Corporate leaders have responsibility for the culture of organisations and they all kind of know it, but they are struggling with how to do it and how to be effective… when something does go wrong, the finger is going to be pointed at the board so it’s a responsibility that we cannot escape. My view is that we should embrace the responsibility.
This opinion was recently echoed by Marie McDonald, a non-executive director of the Commonwealth Serum Laboratory Ltd, Nanosonics and the Walter & Eliza Hall Institute of Medical Research who was recently quoted in the Sydney Morning Herald (4-5 March 2017), in these terms:
McDonald said that it is in their “interest as directors to have whistleblower processes working as well as possible so we know as early as possible if there is an issue. You really want a system where the whistleblower will come to the company rather than the regulator and know that they will be listened to”, she says, so “that the outcomes will be acted upon…as a director I want to know if there is an issue and deal with it first”.
The discussion of culture has resonated within the broader discussion of whistleblower protections, how employees or former employees are treated by their current or former employers, and the approach from the regulators, particularly ASIC. It is fair to say, particularly in the submissions to the Parliamentary Committee (referred to above) on whistleblower protections, that there has been considerable criticism of ASIC in the way is has, or has not, responded to, dealt with and/or protected whistleblowers. In fairness to ASIC, it has, under the Corporations Act, a very limited role to play and indeed has no statutory right to take up claims on behalf of a whistleblower against a current or former employer or individuals who may be acting against the whistleblower. In ASIC’s submission to the Parliamentary Committee, it supported the introduction of a comprehensive corporate sector whistleblowing regime, covering all disclosures involving a possible breach of Commonwealth law with an overhaul of compensation arrangements so whistleblowers will not be disadvantaged.
It is important to remember that the Criminal Code Act 1995 (Cth) (Criminal Code) regulates culture and, critically, makes it clear that where there is a failure by a company to have a corporate culture which supports legal conduct rather than illegal conduct, corporate criminal liability can arise. It is clear that corporate criminal liability can arise where a company (see sections 12.1 to 12.6, Criminal Code):
- directs, encourages, tolerates or leads (conduct) to non-compliance with a relevant provision (creating the offence); or
- fails to create and maintain a corporate culture that requires compliance with the relevant provision (crating the offence).
Companies, directors (executive and non-executive) and boards of directors are on notice that it is potentially their conduct, collectively or through a “high managerial agent”, in tolerating or encouraging non-compliance or in failing to create and maintain a corporate culture of compliance, which can give rise to corporate criminal liability. It goes without saying that while a company may be held criminally liable, so can an individual engaged in conduct before, at the time of or after the commission of an offence. Corporate culture may be hard to define and may be harder still for companies to come to terms with, but with the power of social and traditional media focused on the ethical and commercial activities of the business sector and the push to toughen up penalties for white-collar crime, companies and boards of directors cannot afford to ignore these issues.
France – Sapin II Laws: New Anti-Corruption, Whistleblower and DPA Laws
On 8 November 2016, the Sapin II Bill was passed by the French Assembly. The Bill had been around for some time and commentators wondered whether the French Government would bite the bullet on anti-corruption reforms (for so long being criticised by the OECD in its peer reviews of OECD Anti-Corruption Convention member States).
The important features of the new law include the following:
- the creation of a national agency to detect, investigate and prevent corruption;
- a broad definition of a whistleblower, with offences prohibiting retaliation and award provisions for financial compensation;
- the creation of an obligation on “presidents, managing directors, managers and members of an economic board” to actively manage corruption risks where a company has at least 500 employees and a turnover over €100m or companies in a group satisfying these requirements;
- where a company is convicted of corruption offences, amendments to the French Criminal Code requiring companies to modify their conduct and implement effective compliance programs (in breach of which there are penalties of up to 2 years imprisonment and fines up to €50,000);
- the creation of a new offence of corruptly influencing a foreign public official;
- extra-territorial reach to prosecute bribery and corruption committed outside France; and
- the introduction of a DPA scheme under the French Criminal Procedure Code, for corporate defendants involved in national or international corruption offences (including tax fraud and money laundering), with any settlement having to be approved by the French prosecutor and the Court.
For many years, the French Government was derided for its lacklustre approach to tackling foreign bribery and corruption, particularly as it involved French companies. These laws are a sign that even governments that previously showed little interest in the topic are now focused on targeting commercial crime and corruption.
South Korea – The Young Kim-ran Anti-Corruption Laws
The Act on the Prohibition of Improper Solicitation and the Provision/Receipt of Money and Valuables (the Anti-Graft Act) came into effect in South Korea on 28 September 2016 after a constitutional challenge was dismissed. While much interest in South Korea has recently focused on the impeachment of the former President and the conduct of a number of South Korean “chaebols” or leading families (who own and run various of South Korea’s global companies), the Anti-Graft Act continues to draw attention (thanks to the Kim & Chang Anti-Corruption & Compliance Issues: 2016 in Review and Outlook for 2017).
The Anti-Corruption and Civil Rights Commission that oversees and implements the Anti-Graft Act has issued some guidance and there is movement to both restrict and expand the reach of the act. The South Korean Government has established an inter-agency task force to look at how the Anti-Graft Act can be most effectively interpreted and applied. Issues arise as to where is can be said permissible gifts can be given that are or are not “directly related to official duties”. In addition, the threshold amounts for permissible meals, gifts and other exceptions are under review. All companies doing business in South Korea or with South Korean counterparts needs to be familiar with the Anti-Graft Act and its complexities.
United Kingdom – Rolls Royce Deferred Prosecution Agreement
On 17 January 2017, the UK High Court approved a deferred prosecution agreement between the Serious Fraud Office (SFO) and Rolls-Royce Plc. The case generated some significant headlines:
- a 4 year investigation into corruption, false accounting and a failure to prevent such conduct in China, India, Indonesia, Malaysia, Nigeria, Russia and Thailand over 3 decades;
- resolution of criminal and civil investigations in the UK, the US and Brazil;
- a fine of approximately £497,250,000 plus interest to the UK, with a further amount of approximately £173,750,000 towards US and Brazil penalties plus £13,000,000 costs; and
- ongoing cooperation in various investigations and a monitor to review and implement changes to the company’s internal policies and procedures.
There are some other broader issues that arise from this landmark UK judgment. In his opening comments in the judgment, Sir Brian Leveson, President of the Queens Bench Division, observed:
…if Rolls-Royce were not to be prosecuted in the context of such egregious criminality over decades, involving countries around the world, making truly vast corrupt payments and, consequentially, even greater profits, then it was difficulty to see when any company would be prosecuted.
While such critical sentiments have found a considerable voice in the UK (see What can we learn about the future of DPAs from the Rolls-Royce case?Robert Barrington, Executive Director, Transparency International UK, 18 January 2017), a more pointed commentary comes from within the SFO. This view seeks to counter a popular view that the larger the company and the more numerous are its “innocent victims”, the less likely the SFO will be to prosecute. In a speech given on 8 March 2017, Ben Morgan, SFO Joint Head Bribery & Corruption said this at a seminar for corporate counsel:
We are self-aware, self-critical, and not complacent. We have to constantly ask ourselves whether DPAs are working as well as they could. There is a very fine line to be struck between incentivising the corporate world to confront economic crime and put it right, and the UK falling subject to criticism that we are not hard enough on economic crime. To date, the court has been satisfied that the balance has been correctly struck in the three DPAs we have so far. It has become so after closely and vigorously scrutinised them, testing every part of their suitability, which we fully welcome.
So in the future you will not find us at the SFO slipping into a casual, commoditised practice of processing DPAs. You will instead find us agonising over the fine detail of each potential candidate – is it really the right thing to do this time? Has the company really done enough to shift the interests of justice away from prosecution? What, if anything can we do better when it comes to victims? Is it right that a company can secure a DPA by sending just its legal team down to the courtroom, or ought there to be a more publically visible engagement with the process from the leadership? We will continue to challenge ourselves to use the DPA legislation responsibly, and in a way that satisfies the interests of justice.
What makes the role of DPAs that much more important to the business community (including in Australia where a DPA scheme is under active consideration) is that, as Mr Morgan noted in his speech, he saw a number of principles that are emerging and growing apace resulting from the UK DPAs to date:
- responsibility and negotiated outcomes will be the new norm;
- the benchmarks for discounts on penalties is becoming clearer;
- those that defend cases may live to regret a lack of an early resolution;
- self-reporting is alive and well despite commentators saying companies will take a punt to try and keep secret what ought to be disclosed;
- there is constant, ever-increasing and better international cooperation on enforcement; and
- the fine line between incentivising companies to confront economic crime and to prosecute companies who engage in egregious criminal conduct has to be balanced in every case.
These issues are likely to play out across the Australian business landscape when (rather than if) the Australian Government initiates its proposed and widely supported, Commonwealth DPA scheme.
United Kingdom – New Corporate Criminal Liability Regime
The UK Ministry of Justice is currently considering the extent to which the traditional legal principle of attributing criminal liability to a company – the “identification” principle – should be changed and if so, in what form. This review, commenced on 13 January 2017, to conclude on 24 March 2017, is in the context of difficulties with the law of corporate criminal liability and that under the current UK law, in order to obtain a conviction a prosecutor must show that the “directing mind and will” of the commercial organisation had the necessary fault element or “mens rea” for the offence. However, this is often difficult to prove, especially in increasingly large and more sophisticated modern commercial organisations. The UK Government is also, in the Criminal Finances Bill 2016 currently before UK Parliament, looking to apply the failure to prevent model (in the UK section 7 Bribery Actoffence) to the facilitation of tax evasion and create a right for an enforcement agency to seek “unexplained wealth orders” from the courts, further enhancing the country’s anti-money laundering and terrorism financing laws.
While the Criminal Code in Australia, in respect to Commonwealth criminal offences, has abolished the directing mind test for the attribution of corporate criminal liability and the Proceeds of Crime Act 2002 (Cth) can capture any unexplained wealth, these changes in the UK are likely to have significant impact to any Australian company doing business in the UK or which is otherwise sufficiently connected to the UK to be subject to its laws.
United States – US DOJ FCPA Pilot Program
In April 2016, the US Department of Justice (DOJ) launched a Pilot Program under its FCPA enforcement division, focusing on the opportunities for companies who self-report potential criminal conduct to be accorded substantial mitigation credit on sentences (up to 50% off the bottom end of the US Federal Sentencing Guidelines if a fine is sought) and possible declination.
In a speech to the American Bar Association National Institute on White Collar Crime on 10 March 2017, Acting Assistant Attorney General Kenneth Blanco indicated that the Program will continue until the DOJ has reached a final decision on its overall utility and efficacy.
The figures seem to bear out the attraction of the program. To date, the DOJ has issued up to 5 declinations and while two companies out of the 5 had to disgorge illegal profits, for the other 3 companies, there was no disgorgement or fines (although separate actions by the SEC resulted in disgorgement and/or other penalties). While some commentators have suggested the Program does no more that state with more transparency the attitude of the DOJ to real and meaningful cooperation, it demonstrates a clear willingness of US companies to avail themselves of the benefits of the Program.
United States – DOJ Evaluation of Corporate Compliance Programs
In March 2017, somewhat unannounced, the DOJ published its Evaluation of Corporate Compliance Programs. While it lists up to 11 broad topics that the DOJ Compliance Counsel and prosecutors look at to determine the existence and effectiveness of a company’s pre-existing compliance program, it is worth noting some of the important features:
- analysis of the underlying misconduct:
- why the misconduct occurred, were opportunities missed to respond to the misconduct and any systemic issues identified;
- the role and conduct of senior and middle management:
- what do senior leaders do, through words and actions, to encourage or discourage the misconduct in question;
- what shared commitment exists, with oversight, of the senior leaders;
- the autonomy and resources for compliance functions:
- the role and freedom of compliance within the organisation, including stature, access to decision-makers, resourcing and experience of compliance officers;
- compliance policies and procedures:
- the design and implementation of compliance policies, how accessible they are and accountability for oversight of policies;
- operation integration of policies and procedures:
- the nature of implementing policies, the controls to detect misconduct, the management of payment systems and vendor selection;
- risk assessment:
- how operational risks are identified and managed;
- training and communications:
- how standard and tailored training occurs and communications concerning misconduct with guidance resources;
- confidential reporting and investigation:
- the effectiveness of internal reporting mechanisms and internal investigations
- incentives and disciplinary measures:
- how accountable are all employees held for misconduct
- how does the company incentivise compliance and ethical behaviour through rewards and/or promotions;
- continuous improvement, periodic testing and reviews:
- the regularity and types of internal audits, testing on control procedures and policies and updating risk assessments;
- third party management:
- the business rationale for use of third parties, contractual terms, the management of the third party relationship, incentivising third parties to act ethically and real-time monitoring; and
- mergers and acquisitions:
- the effectiveness of due diligence inquiries with an entity or third parties and implementing compliance procedures and policies within a new entity
The DOJ makes it clear that each case will be looked at on its merits and while the factors identified above may play more or less of a role in any given case, they are certainly topics upon which the DOJ expect clear, concise answers if the company is under investigation.
United States – Failure to Comply with Corporate Policies may Contravene FCPA
In December 2016, the Securities and Exchange Commission (SEC) issued a Cease and Desist Order against United Continental where it found the approval of a new flight route by a former CEO was outside the company’s normal internal processes and policies and contravened the FCPA accounting and internal control provisions.
The former CEO approved a new flight route to accommodate the lobbying of the Chairman of the Board of Commissioners of the Port Authority of New York and New Jersey who wanted a new Newark to Columbia, South Carolina flight (where he lived). Almost immediately after the route was activated, the Authority granted the company space to operate a new hanger at Newark airport, with an estimated yearly value to the company of approximately US$47.5 million. As it turned out, the CEO, in approving the new flight route, bypassed or did not follow a number of internal review procedures.
US commentators (see FCPA Update, Debevoise & Plimpton Dec 2016, Vol 8 No 5) see parallels in how the SEC treated BHP Billiton in its hospitality program during the 2008 Beijing Olympics and warn issuers and companies subject to the FCPA to be on notice of the broad use of the FCPA accounting and internal control provisions by the SEC. While companies may see benefit in flexible policies, the current SEC attitude seems to favour a greater degree of formal procedures (perhaps with clearly specified exceptions) which, if they exist, need to be followed.
International Surveys – Perceptions of Bribery and Corruption
Transparency International – Asia Pacific Survey
In March 2017, Transparency International published its People and Corruption: Asia Pacific Global Corruption Barometer. The report surveyed over 21,000 people in 16 countries across the Asia Pacific region between July 2015 and January 2017 – a region where Australian business seeks to flourish in opportunities.
Some of the findings should send a sobering warning throughout the boardrooms and executive team meetings for Australian business:
- only a few people believed corruption was on the decline;
- almost 50% of respondents believed their government was doing a bad job at fighting corruption;
- more than 1 in 4 or over 900 million people have paid a bribe when using or seeking a public service (with India having the highest rate of bribe paying and Japan the lowest rate);
- police are seen as the most corrupt public group of employees;
- while “standing up“ or “speaking out” against corruption is regarded as the best way to fight corruption, most do not for fear of the consequences; and
- Malaysia and Vietnam are regarded as having the most severe corruption issues.
Kroll Anti-Bribery Benchmarking Report
In March 2017, Kroll and Ethisphere published their Anti-Bribery and Corruption Benchmarking Report 2017 Beyond Regulatory Enforcement: The Rise of Reputational Risk. The report surveyed senior level executives working in ethics, compliance or anti-corruption worldwide between November 2016 and February 2017. The survey secured 388 complete and partial responses.
The interesting key findings are as follows:
- anti-bribery and corruption risks will remain with 35% seeing risk increasing often due to third party relationship risks and increased global enforcement;
- reputational risk is increasingly front and centre of all respondents;
- directors and getting involved with senior management in oversight of a company’s anti-bribery initiatives;
- the major risks are seen as:
- third party contraventions (40%);
- the increasingly complex global regulatory environment (14%); and
- employees making improper payments (12%);
- the CFO and the Financed team play a critical role (and indeed responsibility) for managing the flow of money and the record-keeping procedures;
- continuous monitoring and due diligence is required, particularly to manage risks with third parties after initial acquisitions or transactions occur; and
- the role of business acquisition is critical to manage proper due diligence to understand and know what is being acquired as risk factors are greater here than elsewhere.
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