Hot on the heels of its 31 March 2017 consultation paper concerning deferred prosecution agreements, the Commonwealth government has 4 days later released a consultation paper on proposed reforms to Australia’s foreign bribery regime.
If implemented, these reforms would widen the scope of conduct that is viewed as corrupt and increase the likelihood of improper conduct being successfully prosecuted in Australia.
The proposed reforms represent a significantly increased risk for both corporations and directors that do not take adequate steps to ensure that appropriate compliance procedures are in place or fail to undertake the necessary due diligence in respect of their business partners and agents.
To help combat these increased risks, corporations will need to revise their risk registers, and audit and risk management committees should have a heightened focus on this area.
The writing is plainly on the wall…
With the March 2016 changes prohibiting false accounting, the foreshadowed changes in the whistle-blower area, the consultation on deferred prosecution agreements, and now this consultation on foreign bribery amendments, the Commonwealth Government is equipping itself and its regulators with a sharper set of tools for dealing with improper corporate conduct.
It now appears a near certainty that significant changes in this area will occur – and sooner, rather than later.
What are the proposed changes?
In the face of criticism from international entities such as the OECD and Transparency International, the Commonwealth Government has been looking at strengthening Australia’s regime dealing with the bribery of foreign officials.
Regulator action (at least to the external eye) has been limited. While the Australian Federal Police and other bodies have reported that a significant number of investigations are underway, this has not been reflected in the number of proceedings commenced by the Commonwealth Director of Public Prosecutions (CDPP), nor in the number of convictions achieved.
As the consultation paper says, the way in which the legislation is currently drafted (including the definition of the offences and the elements required to prove them) creates impediments to a successful prosecution. Foreign bribery is inherently difficult to detect and enforce, with most offending conduct occurring offshore and, consequently, evidence being hard for the CDPP to obtain.
As mentioned above, the aim of these changes is clearly to secure more contraventions, tighten the regulatory regime and widen the scope of conduct that can be a contravention.
Set out below are the major changes to the current foreign bribery regime proposed in the paper:
Penalties for proposed new offences
The maximum penalties for the primary offence of bribery of a foreign official will remain the same (for individuals, fines of up to $1.8-million and imprisonment for up to 10 years; and for corporations, fines of up to $18-million or by reference to the value of the benefit derived from the improper conduct), but under the proposed reforms, they will also be applicable to the proposed new corporate offence of failing to prevent bribery.
Maximum penalties of half these amounts will be applicable to the proposed new offence of recklessly bribing an official.
The definition of ‘public official’
The definition of ‘public official’ in the current legislation will be expanded to include people who are running for office.
The experience of enforcement agencies has been that corporations may bribe candidates for public office, with the goal of obtaining a benefit once they are elected. From a policy perspective, there should be no real delineation between people currently in office and people who may shortly be in office if an attempt is being made to improperly influence them.
Presently, the legislation requires the CDPP to demonstrate that a benefit or advantage was ‘not legitimately due’. This is out-of-step with the regime in the USA, UK, Canada and New Zealand, and means that confusion can sometimes exist when a payment is disguised as a legitimate business transaction. The proposed reforms would prohibit ‘improperly influencing’ a foreign public official.
The consultation paper identifies a series of factors which can be considered when determining whether certain influence is ‘improper’. The factors identified are akin to a ‘smell test’, being indicators that would raise red flags if they were being considered under an adequate anti-bribery policy or due diligence framework.
For corporations, this further emphasises the importance of having properly developed due diligence frameworks and systems in place.
The factors identified include matters such as the identity of the recipient and the nature of the benefit, as well as whether:
the value of the benefit is disproportionate to the value of any goods or services provided;
the benefit or promise to provide the benefit was done without any legal obligation to do so;
there is any record or documentation relating to the benefit and the accuracy of those documents;
there is evidence that due diligence was exercised; and
the business or advantage was awarded on a competitive or non-commercial basis.
Personal benefit is enough
The legislation currently focuses purely on whether bribery occurs in an attempt to obtain or retain ‘business’ or ‘business advantages’. However, in reality, bribery can occur for other reasons which may not necessarily be categorised as ‘business advantages’, for example, favourable processing of individual visa or immigration requests.
Under the proposed reforms, it will no longer be necessary to demonstrate that the benefit is business-related.
Failing to prevent foreign bribery and recklessness
The Commonwealth Government wants to maximise the prospects of establishing criminal liability for corporations in cases of foreign bribery. The present regime is complex and requires the CDPP to demonstrate, for example, that a corporate culture existed which permitted or lead to the non-compliance with the anti-bribery legislation. The reforms propose a reversal of this burden.
Under the proposed reforms, corporations will be liable if they fail to prevent foreign bribery that is undertaken by their employees, contractors and agents, including those operating overseas. This will reflect the operation of the UK’s Bribery Act. Importantly, the burden will be on the corporation to demonstrate that it had a proper system of internal controls and compliance measures in place to prevent the bribery from occurring.
The reforms also include a new offence to apply where a person is reckless as to whether certain conduct would improperly influence a foreign official in relation to obtaining or retaining business or an advantage.
How will the proposed reforms affect corporate governance and directors’ exposure?
As far as corporate governance is concerned, the proposed reforms will essentially make it mandatory for corporations to have detailed compliance and due diligence procedures in place. Absent this, a corporation will lose the ability to mount any defence.
The reforms will place burdens on the board of a corporation to ensure this is the case and a failure to do this may well expose directors to claims for breaches of directors’ duties.
Consequently, the adequacy of a corporation’s compliance and due diligence procedures should move up the chain in every corporation’s risk register, becoming a renewed focus for audit and risk management committees.
A shortfall in the reforms?
One disappointing aspect of the consultation paper is that ‘facilitation payments’ will not be outright prohibited – that is, such payments may be acceptable where certain factors are satisfied.
This may cause compliance difficulties when policies are being developed by corporations that operate both in Australia and in jurisdictions where facilitation payments are outright prohibited, such as the UK. If the Australian legislation permits such payments in certain circumstances, this creates a ‘grey area’ for decision makers and could easily lead to a wider culture of non-compliance.