On 2 December 2019, the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2019 (Cth) (2019 Bill) was introduced into the Senate by the Federal Government to amend the Australian legislation that prohibits foreign bribery and corruption. The 2019 Bill has been adjourned for further debate on 4 February 2020.
The Government has also released draft guidance on the steps that a corporation can take to prevent an associate from bribing foreign public officials, and is seeking submissions on this guidance by 28 February 2020. The Government previously went through a detailed consultation process, which resulted in a bill being debated, but never passed. That bill lapsed in July 2019.
The introduction of the 2019 Bill is another component of the revised and invigorated focus on corporate conduct and governance in the post-Financial Services Royal Commission environment, which has seen increased regulatory action, the passage of enhanced whistleblower legislation, and law reform consultation concerning the best way of attributing criminal conduct to a corporation.
The 2019 Bill is substantively similar to the 2017 version (2017 Bill), but together with the draft guidance, adopts some of the changes proposed by the Senate Legal and Constitutional Affairs Legislation Committee in its 20 April 2018 report on the 2017 Bill. Our prior articles in April 2018 and December 2017 provide an oversight of the legislation.
Key provisions in the 2019 Bill
These are the key provisions of the 2019 Bill:
- The re-characterisation of the bribery prohibition to one of seeking to ‘improperly influence’ a foreign government official. The existing offence requires the Commonwealth prosecutor to demonstrate that a benefit or advantage conferred was ‘not legitimately due’. This approach is out of step with regimes in the USA, UK, Canada and New Zealand, and can lead to confusion when a payment is disguised as a legitimate business transaction. The 2019 Bill outlines a non-exhaustive list of factors that can be considered, including an additional factor which was introduced after the consultation process - whether there has been dishonesty.
- The widening of the prohibition to prohibit ‘bribery to obtain or retain business or a business or personal advantage’. The use of ‘personal’ is intended to ensure that the provision captures a broad range of personal advantages, including (but not limited to) the granting of visas or other residency benefits and the bestowing of scholarships, personal titles or other honours. The prohibition also applies to benefits provided or offered to not only current office holders, but candidates for office- i.e. future office holders.
- The creation of a new strict liability offence for corporations of ‘failing to prevent’ foreign bribery. This new offence carries a maximum penalty of either $21 million, 10 percent of annual turnover in the 12 months before the conduct occurred, or three times the benefit gained – whichever is greatest. This means that companies will be automatically liable for the foreign bribery activities of their employees, external contractors, agents and subsidiaries, unless the business can demonstrate that it had ‘adequate procedures’ in place to minimise risks. Adequate procedures include:
- maintaining effective and proportionate compliance and enforcement strategies;
- risk assessments and due diligence;
- whistle-blower reporting mechanisms;
- staff training; and
- the promotion of a strong integrity culture at all levels, including company boardrooms.
- The proposal of a Deferred Prosecution Agreement (DPA) regime. If the 2019 Bill is passed, the DPA regime would become operational as soon as the legislation receives Royal Assent, and the bribery provisions would operate six months after that.
Disappointingly, the 2019 Bill has not taken the opportunity to prohibit facilitation payments – despite numerous third parties making this recommendation, and the draft guidance pointing out the risk associated with these payments. This continues to leave Australia as an outlier, leaving the distinction between facilitation payments and activities prohibited under the 2019 Bill unclear, and providing an exception that could encourage greater risk taking.
What are ‘adequate procedures’?
Given the potential for liability for the acts of an ‘associate’ (e.g. an officer, employee, agent or contractor or subsidiary) to be done for the profit or gain of the corporation, organisations will need to look very closely at who they do business with and who does business on their behalf in order to ensure that the ‘adequate procedures’ defence outlined above is available.
Particular attention needs to be paid to joint venture partners. A corporation’s only defence is to prove that it had adequate procedures in place designed to prevent the offence occurring, and the burden of proof for this defence is on the organisation.
Pushing your best practice procedures onto those you do business with – in a meaningful way which is monitored, rather than a ‘tick the box process’ – will need to become standard operating procedure to ensure that the ‘adequate procedures’ defence is available.
When the 2017 Bill was introduced, the Government also flagged that guidance would be developed to assist companies to develop adequate procedures to prevent foreign bribery. As noted above, that draft guidance has now been released for public consultation, with submissions sought by the end of February 2020. As outlined in our recent article concerning the Australian Law Reform Commission (ALRC) report on corporate criminal responsibility, the ALRC has rejected the ‘failure to prevent’ or ‘adequate procedures’ defence found in the 2019 Bill as not being the best regime for imposing criminal liability on a corporation. Instead, the ALRC sees ‘power in the argument that being convicted of a failure to prevent offence imposes a lower level of culpability than being directly responsible for the offence, because attribution means the corporation itself is criminally responsible for the offence, not just for failing to prevent someone else committing it.’
A similar ‘adequate procedures’ defence applies to the ‘failure to prevent offence’ under section 7(2) of the Bribery Act 2010 (UK), and the UK Ministry of Justice in 2012 updated its guidance on what are ‘adequate procedures’. Transparency International has also published guidance. For those Australian corporations that are also governed by the UK legislation, this will not be any surprise, but ensuring consistency between procedures to ensure they satisfy both regimes’ expectations of ‘adequate procedures’ will be important. For many Australian organisations that operate overseas, this will be a new compliance burden.
The proposed DPA regime
The DPA regime will enable the Commonwealth Director of Public Prosecutions (CDPP) to negotiate an agreement with a corporation which has engaged in serious corporate crime to comply with a range of specified conditions. It will not extend to individuals.
A DPA should contain, at a minimum, the following mandatory elements:
- a statement of facts relating to each offence specified in the DPA;
- the last day for which the DPA will be in force;
- the requirements to be fulfilled by the person under the DPA;
- the amount of financial penalty to be paid by the person to the Commonwealth;
- the circumstances which constitute a material contravention of the DPA;
- confirmation that the person consents to the CDPP instituting a prosecution of the person on indictment for an offence specified in the DPA without the person having been examined or committed for trial; and
- identification of the circumstances that will constitute a material contravention (so that DPAs don’t fall over and expose corporations to prosecution for minor, non-essential non-compliance).
An important departure from an earlier March 2017 consultation model is that entering a DPA will not require an admission of guilt, but will require that certain facts are agreed to. Given the heightened and ongoing risk of class actions, this is of real importance to corporations,
DPAs will not be a ‘get out of jail free card’ for corporate wrongdoers. For a DPA to be accepted, the CDPP must be satisfied that it is in the public interest. DPAs will also need to be issued by an ‘approving officer’ who must approve it if satisfied the terms are reasonable, appropriate and in the interests of justice. Approving officers will be former judges appointed by the Minister for five year terms.
Where a company breaches a DPA, the agreed statement of facts from the agreement can be used as evidence in the Crown’s case. Documents created for the purpose of negotiating a DPA, however, will not be admissible.
DPAs will cover a range of serious corporate crimes, including:
- foreign bribery;
- money laundering;
- dealing with proceeds of crime;
- breaching sanctions laws and a number of provisions in the Corporations Act (including the market misconduct and insider trading provisions).
For corporations, a DPA will give certainty that an investigation has come to an end, that their exposure to the regulator is known, and, by nature of the regulator’s approval, that their commitments to reform their culture and operations should be satisfactory.
There is another important benefit for corporations – if a DPA is complied with, then there will be no judicial finding that the corporation has engaged in any contravention of the law. This is important because such findings can often ‘debar’ a corporation from taking part in foreign government tenders or in business operations and tenders with other organisations which may have very strict corporate governance standards. This was recognised in the Rolls-Royce case, where the Court, in approving the DPA, expressly considered the benefit to the company being able to continue conducting business.
The ALRC also identified principled objections against the DPA regime proposed in the 2017 Bill, including that they "enable corporations to use their bargaining power with prosecutors to circumvent the opprobrium and practical consequences of a conviction, and can undermine deterrence by achieving a ‘cheaper’ outcome". The ALRC seeks comments (by April 2020) on whether that regime should be introduced. We await to see how the Government will consider any guidance the ALRC provides on this issue, given its different view.
The 2019 Bill also amends the definition of ‘dishonest’ in the Criminal Code. Dishonest will now mean ‘dishonest according to the standards of ordinary people’. This new definition will replace provisions in the Criminal Code that apply the two-limb test for dishonesty (the Ghosh/Feely test) with the objective test for dishonesty endorsed by the High Court in Peters v The Queen (1998) 192 CLR 493.
When it is finally passed, the 2019 Bill will be a watershed moment in Australian corporate governance for companies with a foreign presence or operations.
In order to protect themselves against the new automatic liability imposed by the 2019 Bill, companies who operate (or whose partners) operate overseas will need to ensure that they have put in place ‘adequate procedures’ to inoculate themselves against contagion arising from the bad acts of a single rogue employee or partner.
Between the general expansionary approach of the 2019 Bill to the underlying offence and the proposed DPA regime, there is much for companies to seek advice about in relations to the specific effect of the proposed reforms.