Much recent attention has been devoted to the need for Australian companies to pay greater attention to managing the risks around bribery and corruption as regulatory enforcement attention increases in this area. The cases against the former chief executive of the Australian Wheat Board, Andrew Lindberg, and other executives of AWB illustrates that the risks for directors in this area are not only limited to the criminal liability provisions of Australia’s Federal Criminal Code.  

Australia’s Criminal Code prohibition on the bribery of foreign public officials has been in force since December 1999. The Criminal Code provides that it is an offence to offer or cause a benefit to be provided to another person with the intention of influencing a foreign public official to obtain or retain a business advantage that is not legitimately due to the recipient. In Australia that liability regime has been under-enforced over the last decade but that appears to be changing. Committal proceedings will shortly commence against executives of Securency, the bank note printing company part owned by the Reserve Bank, for the alleged payment of bribes to public officials to secure bank note production contracts in Vietnam, Malaysia and Vietnam in 1999 and 2000. The chief financial officer of Securency recently entered a guilty plea for false accounting in relation to this conduct. In addition a business associate is being prosecuted under the United Kingdom Bribery Act.

On 9 August 2012 Justice Robson of the Supreme Court of Victoria confirmed a 2011 settlement of civil penalty proceedings between ASIC and Andrew Lindberg for alleged breaches of his duties as Chief Executive Officer of AWB in failing to exercise reasonable care and skill in connection with the alleged misuse by the AWB of the Oil for Food program administered by the United Nations in AWB’s wheat trade with Iraq. The Court found four contraventions of his duty as a director in failing to make adequate enquiry of AWB’s activities in selling wheat to Iraq and for failing to advise the Board of AWB of certain matters that came to his attention as an officer of the Company. The Judge found that while the contraventions did not involve deliberate wrongful acts or dishonesty by Mr Lindberg they were essentially negligent in nature. The Judge affirmed an agreed pecuniary penalty of $100,000 and a three year disqualification period expiring on 14 September 2014 in relation to the contraventions. The judge noted that these penalties are at the upper end of appropriate ranges for the violations.

Following the delivery of the decision Mr Lindberg is reported to have said outside Court “when you deal with the third world countries, I think you’ve got to be very careful. It’s perhaps easier than you think to make mistakes”.

Further proceedings continue against other officers of AWB, including its former chariman. On 10 August 2012 Justice Robson made orders relating to a settlement of the civil penalty proceedings between ASIC and Paul Ingleby, the former chief financial officer of AWB. The judge imposed lesser penalties than those agreed in the ASIC settlement, imposing a pecuniary penalty of $10,000 and a disqualification period until the end of 2012.

The results of the recent cases bear a similarity to typical enforcement patterns in the United States, the jurisdiction that most vigorously enforces its anti-corruption laws. In the United States, companies and officers face possible liability through prosecutions by the Department of Justice under the Foreign Corrupt Practices Act, the Securities and Exchange Commission under the Securities Exchange Act for accounting violations in misclassifying corrupt payments in financial statements and from shareholders for breaching duties of care in not properly supervising business activities to avoid making corrupt payments.

In this latter area the current scandal involving Walmart Stores is instructive. Walmart has reported that its audit committee is examining possible multiple violations of the Foreign Corrupt Practices Act in connection with its Mexican business over a number of years. A New York Times exposé in April 2012 suggested that this issue had become known to senior executives of Walmart in 2005 but was subsequently covered up. On the day that the New York Times story was released Walmart shares fell by almost 5% leading some analysts to conclude that the bribery scandal could cost Walmart up to $4.5 billion in penalties from Department of Justice and SEC actions as well as claims of breach of duty against officers and the board in connection with the alleged cover up.

Justice Robson commented in the Lindberg decision that directors and officers of corporations are expected to take calculated commercial risks. A company run on the basis that no risk is ever taken would be unlikely to be successful. However the proper taking of risks in making business decisions is entirely consistent with the exercise of care and diligence. The proper assessment of risks and potential rewards by directors is a matter that demands the exercise of care and diligence.

The Lindberg decision again confirms that Courts expect directors to be more than a mere ornament and that they must carefully monitor those aspects of business activities that suggest care should be taken. This case clearly warns Australian directors that careful monitoring and review of activities conducted in high risk countries is an absolute necessity.