Following criticism by the international community of Australia’s low prosecution rates, there is a predicted increase in Australian Federal Police (AFP) enforcement of foreign bribery laws. Importantly in this context, employers should note that recent investigations by international regulators have focused on nepotism in the hiring process as a potential breach of anti-bribery and corruption laws. Similar probes may commence in Australia.

Implications for employers

Overseas regulators have concluded that employing a family member or friend of a client or government official in order to secure business could amount to bribery and attract disciplinary action. These regulators are presently conducting numerous investigations into the hiring practices of global banks and corporates in the Asia Pacific region.

This situation has significant implications for multinational companies, particularly those operating in Asia Pacific. It may be necessary for companies to review and modify the employment practices of their domestic and overseas offices, in order to ensure that they are uniform, transparent and well regulated. Employers should also increase their vigilance of hiring practices of overseas subsidiaries and agents acting on their behalf.

Closer to home, the Commonwealth Criminal Code 1995, along with State and Territory legislation, prohibits bribery in the public and private sector where a person is awarded a benefit not legitimately due in order to obtain or retain a business advantage. Accordingly, prosecution of Australian entities for similar conduct is possible under Australian law.

The steps a company may take to safeguard against investigation are discussed below.

Background

Overseas probes were spearheaded by US and Hong Kong regulators and originally targeted high profile banks and bribery in the public sector. Investigations are expanding, however, to other industries such as oil and gas, telecommunications and consumer products. Potential bribery in the private sector, in the form of favouritism towards candidates linked to privately-owned corporate clients, is an area of increased concern.

The most publicised example of these investigations involves JPMorgan Chase. The bank’s Hong Kong offire hired the son of China Everbright Group’s Chairman, as well as the daughter of then Prime Minister of the People’s Republic of China. Following these appointments, the bank secured contracts underwriting China Everbright Group’s $2bn Initial Public Offering (IPO) and China’s State-run Railway Group’s $5bn IPO. An internal spreadsheet was allegedly uncovered which linked hiring appointments to specific deals. In May, the inquiries led to the arrest of the former CEO of JPMorgan Chase’s Chinese office. The former CEO could now face criminal charges. It is reported that the bank’s hiring practices in South Korea and Singapore are also of interest.

In the private sector, both JPMorgan Chase, and later UBS, drew negative attention for securing work on the $1bn Tianhe Chemicals IPO shortly after hiring the Chairman’s daughter.

In the telecommunications arena, mobile chip-making company Qualcomm Inc is under scrutiny for giving special consideration to candidates associated with state-owned Chinese companies.

Risks employers face

Breaches of relevant legislation are generally punishable with hefty fines and/or imprisonment. Under theCommonwealth Criminal Code 1995, for example, bribery of a foreign or Commonwealth public official attracts:

  • for a corporation, a fine to the value of the greater of:

    • AUD17 million;

    • three times the benefit received by the body corporate and each of its related entities attributable to the conduct; or

    • 10% of the annual turnover of the body corporate and its related entities during the period of 12 months ending at the end of the month in which the conduct constituting the offence occurred; and

  • for an individual, a fine of up to AUD1.7 million and/or up to ten years’ imprisonment.

Tips for employers

Australian entities should be mindful of the present situation both for themselves and their related entities.

There is no absolute ban on employing people affiliated with clients, or who are friends and family of clients or government officials. It is the reason for employing such a person that is critical. To establish bribery, there must be “corrupt intent”; that is, an intention that certain conduct (such as employing a certain person) will influence a person (such as a client or government official) to show favour and bestow a business advantage.

Accordingly, employers need to ensure that they can demonstrate that they are choosing candidates based on their merit rather than business connections. The best way for a company to show that an appointment was legitimate is to have appropriate anti-bribery and corruption mechanisms in place. Considering the recent focus on bribery in the employment context, these mechanisms should include a transparent and well regulated hiring procedure. The following steps may be taken to maximise compliance:

  • institute a clearly established procedure for dealing with referrals for employment positions by clients. This could include a system whereby all such referrals are funnelled directly to human resources, with the candidate subject to the same hiring procedures as all other applicants, including, for example, being required to submit the same paperwork and attend the same number of interviews;

  • be transparent. For example, it may be appropriate to keep a record of all client referrals and their outcome, explaining why the candidate was hired or not (for example, “after the interview of several employees, the candidate was shown to be the best person for the job”);

  • in the interests of fairness, many HR departments black-out information such as gender, age or schooling on a job applicant’s CV prior to interview. This practice could be expanded to black-out information that links candidates to a client or government official, such as last names, referees, etc; and

  • ensure that all employees are well informed on how to manage hiring processes and job referrals made by a client, as per the company’s policies.

Overall, the most effective safeguard is fostering a culture of compliance with anti-bribery and corruption laws and instituting transparent and well regulated policies for dealing with client referrals for employment positions.