Archive for the ‘Australia’ Category

Friday Roundup

Friday, January 17th, 2014

Did you notice?, scrutiny updates, quotable, too narrow, save the date and for the reading and viewing stack.  It’s all here in the Friday roundup.

Did You Notice?

This previous post – “Double Dipping” – spotlighted a common trend in issuer FCPA enforcement actions.  That is, the company pays twice for the improper conduct.  First, to the DOJ because alleged improper gain is a key factor in the advisory U.S. sentencing guidelines which guide criminal fine amounts, and again to the SEC because alleged improper gain often equates to a disgorgement amount.

Did you notice the following in the recent Alcoa enforcement action?  In the DOJ’s plea agreement with Alcoa World Alumina LLC the DOJ set forth various factors justifying a reduced criminal fine amount including:  “the significant remedy being imposed on the Defendant’s majority shareholder, Alcoa, by the U.S. Securities and Exchange Commission for Alcoa’s conduct in this matter.”

FCPA practitioners would be wise to file this someplace important and the DOJ’s recognition of such “double-dipping” is a welcome development.  Time will tell whether it was case specific.

Scrutiny Updates

Companies have different disclosure practices.  Some companies disclose specific FCPA internal investigation costs, others do not.  When a company falls into the former category, it is a relevant datapoint.  Nordion (see this prior post for its initial disclosure) recently disclosed that its “full year expenses associated with [its] investigation was $11.8 million.”

Microsoft, which first became the subject of FCPA scrutiny in March 2013 (see here) - thereby exposing the fallacy of the “good companies, don’t bribe period” position (see here) –  ”is now requiring its partners to educate their employees on the legal
consequences of bribery and other illegal activity.”  So says this recent article in CRN which further states:   “A new Microsoft partner program requirement that went into effect this month calls for partners to “provide anti-corruption training to all employees who resell, distribute, or market Microsoft products or services,” Microsoft said in a document sent recently to partners, which was viewed by CRN.”

Quotable

Homer Moyer (Miller & Chevalier and a dean of the FCPA) steps up to the plate and hits another one out of the park.  In this recent article he states:

“One reality is the [FCPA] enforcement agencies’ views on issues and enforcement policies, positions on which they are rarely challenged in court.  The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged.  The two may not be the same.  The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.”

Spot-on.

While the decision of one risk-averse business organization to settle an FCPA enforcement action may seem case specific, the long-term effects of such a decision affect not only the settling company, but other business organizations subject to increasingly aggressive FCPA enforcement theories.  (See here for a previous guest post titled “Prosecutorial Common Law”).

As former Attorney General Alberto Gonzales rightly noted:

“In an ironic twist, the more that American companies elect to settle and not force the DOJ to defend its aggressive interpretation of the [FCPA], the more aggressive DOJ has become in its interpretation of the law and its prosecution decisions.”

Too Narrow

See here, and here for the Truth in Settlements Act recently introduced by Senator Elizabeth Warren (D-MA) and Tom Coburn (R-OK).  As stated here:

“Federal agencies are charged with holding companies and individuals accountable when they break the law, and their investigations regularly end in settlement agreements rather than public trials. All too often, the critical details of these agreements are hidden from the public.”

The bill is too narrow.  The rule of law would be better advanced and transparency achieved by abolishing non-prosecution and deferred prosecution agreements.

Save the Date

On January 29th, Fordham Law School in New York City and the Chinese Business Lawyers Association will jointly host a panel titled “China and the Foreign Corrupt Practices Act:  Challenges for the 21st Century.” The event will be held from 6:00–7:30 p.m. in the Law School’s McNally Amphitheatre.  Speaker include:

Ohio State University Professor Daniel Chow, author of China Under the Foreign Corrupt Practices Act; Nathaniel Edmonds, Partner at Paul Hastings and Former Assistant Chief of the FCPA Unit of the Department of Justice; and Thomas O. Gorman, Partner at Dorsey & Whitney and Former Senior Counsel, Division of Enforcement, Securities and Exchange Commission.

To learn more and to register see here.

For the Reading and Viewing Stack

It would not be a major sporting event without FCPA Inc. marketing material.  But then again, certain FCPA enforcement actions in recent years have included such allegations.

For the latest on JPMorgan’s hiring scrutiny in China, see here from Bloomberg which reports that a former “regional chief who expanded the bank’s business in Asia … was met by FBI agents while traveling through a New York-area airport late last year and then interviewed.”

For the latest on the FCPA related case against Frederic Cilins, see here from Bloomberg.  As noted in the article, Cilins “won approval from [the judge] to run forensic tests on contracts that were sought by a grand jury probing claims of bribes paid to win mining rights in Guinea.”

Multimedia content here from down under questioning the lack of Australia bribery related enforcement actions.  (An interesting view, even if the program begins with a false statement).

*****

A good weekend to all.

An Update From Australia – 2013 Year In Review

Thursday, December 19th, 2013

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery).  Wyld is the Australia Expert for FCPA Professor.

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The year in Australia for foreign bribery and corruption matters has been mixed.  While the singular Securency prosecution has become delayed in legal argument with the committal hearing yet to be completed, the Australian media has been at the forefront of promoting a greater awareness of foreign bribery issues and taking to task corporations and management (ranging from allegations concerning the Reserve Bank banknote printing scandal, BHP Billiton and tainted Olympic medal minting contracts, Oz Minerals and Cambodian mining sagas and Leighton Holdings construction projects in the Middle East) who appear, at least in the eyes of the media, to be less than diligent in their compliance and ethical activities.

In September 2013, Australia changed government from a Labor to a conservative (Liberal/National) government.  Whether or not foreign bribery and its regulation and enforcement are of interest to the current government is unclear as they have said almost nothing on the topic. It is hoped international momentum in combating foreign bribery and commercial corruption continues to germinate in Australia, albeit very slowly and becomes more of a focus during 2014.

Australia’s Corruption Reputation

The Transparency International Corruption Perception Index 2013 was released earlier this month and, surprise surprise, Australia’s ranking amongst the stars in cleanliness dropped from 85 in 2012 to 81 in 2013.

While Australia was still ranked as the 9th “cleanest” country in the world and the 3rd cleanest country in the Asia Pacific region, the constant flow of media attention on the topic, particularly the criminal prosecution of the Securency and Note Printing Australia executives through to the offshore activities of BHP Billiton, Oz Minerals and Leighton Holdings to the NSW State-based corruption investigations of various former politicians and crown ministers, it does not take much publicity to generate a negative perception that Australia is perhaps not as clean as it would like to be seen.  Clearly, further work needs to be done to address these perceptions.

Australia’s Enforcement Activity

Over the last 12 months’ since the OECD Phase 3 Review was published in October 2012, the response from the Australian Federal Police (AFP) has been noteworthy.

The AFP’s Expert Panel on Foreign Bribery cases has been running for nearly 12 months. In addition, a range of earlier investigations have been reviewed and resources pooled into a coordinated team approach. Senior AFP officers have candidly admitted past shortcomings while proactively seeking to improve investigation procedures. In May 2013, the AFP signed up to the International Foreign Bribery Taskforce together with regulators from the US, Canada and the UK. While further criminal prosecutions are yet to occur, there is significant activity in the investigation space which bodes well for encouraging business to understand and comply with the law and the ethical standards underlying the law.

The AFP has also been active in the proceeds of crime jurisdiction. The AFP Asset Confiscation Taskforce has turned its attention to economic crime. Given the size of profit opportunities that exist in many large-scale contractual deals won through corrupt practices, the threat of disgorging the value of the profit or contract value secured from corrupt conduct should add a significant deterrent element to the array of regulatory sanctions that can and should be used to encourage ethical commercial behaviour.

However, the position of Australia’s corporate regulator, the Australia Securities and Investments Commission (ASIC) has been less favourably reviewed. ASIC has been heavily criticised in the media for it apparent inaction on any significant investigation into highly public scandals including the bribery allegations concerning the Reserve Bank of Australia subsidiaries (Securency and Note Printing Australia) and Leighton Holdings. The Chairman of ASIC has responded by saying that foreign bribery is a criminal matter, therefore it falls to be investigated by the AFP and besides, it will rarely interfere in a criminal investigation or undertake a civil investigation while a criminal investigation is running, save for exceptional circumstances. More surprising, the Chairman’s strategic goals of ASIC made no mention of enforcement – which is surprising and appears to add weight to a popularly held view (in many sections of the media) that ASIC is, in comparison to other corporate regulators, relatively weak and risk adverse in taking on well-funded corporations and their executives.

Some careful thought should be given to the creation of one national agency or a national coordinating agency that takes full responsibility for the criminal and civil investigations of foreign bribery and corruption complaints. This ought to have the following features:

  • a clear mandate to cover all civil and criminal investigations and to prosecute and/or negotiate settlements;
  • all potential settlements should be ultimately supervised by the Courts and the terms made public (similar to the current UK model for Deferred Prosecution Agreements in the Crime and Courts Act 2013 Schedule 17);
  • the new agency should be properly and adequately resourced (drawing upon the existing skills within numerous Commonwealth agencies);
  • prosecutions could take place in conjunction with the existing Commonwealth Director of Public Prosecutions, or a dedicated independent Prosecutor; and
  • the organisations under investigation do all the heavy work in their internal assessment of the offending conduct and report that to the agency (similar to the US and UK position) and the agency can then determine its own action or further work that it needs to perform.

This would be a great step forward in addressing the criticism directed to all Australian Governments over the years (that they pay lip service to really targeting foreign bribery by creating numerous laws and adopting international treaties but rarely follow through in practice because it is just all too hard or too expensive). However, in the current political cycle dominated by budget deficits and slash and burn financial savings, this may still be but a dream!

Australia’s Moribund National Anti-Corruption Plan

In 2011, the Commonwealth Attorney General’s Department actively promoted a National Anti-Corruption Plan.  Since that time, silence has descended and little, if anything, has been heard about it.  Indeed, some sources have suggested that the Commonwealth Government does not believe there is corruption in its ranks, and if a national Anti-Corruption Commission is necessary, then it requires examples of corruption in order to justify the creation of the commission!  We had thought such obtuse attitudes had finally been abandoned when all Australian States agreed to or are in the process of implementing their own State-based anti-corruption commissions.  The Commonwealth is clearly lagging behind in this field and it is hardly to its credit in a year when it takes on the chairmanship of the G20 Group, that it had failed to address corruption at a national level.

To Blow or Not to Blow the Whistle?

Australian Governments of all political persuasion appear alarmed by the thought that whistleblowers who report incidents of potentially serious crime should be free to do so. Over the years, Australian Governments and business have each preferred to shoot the messenger rather than address unpalatable messages.

In July 2013, the Public Interest Disclosure Act 2013 (Cth) came into effect. The Australian States have various forms of public interest disclosure statutes while other laws, for example, the Corporations Act 2001 (Cth), create a statutory protection in favour of an employee in reporting the company’s conduct which may amount to a potential offence under that Act. While the 2013 Act is a significant improvement on the previous very patchy protections given to whistleblowers and the almost inevitable targeting of whistleblowers as rogue complainants, the system still does not cover all those involved in exercising public power (that is, politicians) and ASIC’s public perception of responding to whistleblowers appears patchy at best. What is needed is clear leadership to encourage the transparent (and protected) reporting of serious allegations of commercial and public wrongdoing which can then be investigated.

Australia has not gone down the US path of offering bounties to whistleblowers if the evidence they disclose (often direct to the US Securities & Exchange Commission) results in securing a conviction against the perpetrators. Australia is probably unlikely to adopt such a course. But, the value of such a system, in positively rewarding whistleblowers, ought to be seriously considered in light of how the US program has developed over nearly 2 years of operation. The sky did not fall in and yes, the SEC has approved two modest and one more significant bounty to a whistleblower. What the system has generated is a well recognised process for whistleblowers to rely upon, completely independent from reliance upon any internal reporting of the alleged wrongdoing (often to the alleged wrongdoer) which can often result in persecution and retribution against the complainant.

Facilitation Payments

In November 2011, the Commonwealth Government issued a Discussion Paper calling for comment on certain proposed changes to the Criminal Code 1995 (Cth), the most important of which was whether to abolish facilitation payments as a defence to foreign bribery. The Government only allowed one month for submissions with the deadline closing in December 2011. Again, since then, a deafening silence.

The UK Bribery Act 2010 had no facilitation payment defence. The world of commerce in London did not fall over and collapse. The Canadians followed suit earlier this year. In January 2014, the Brazilian Clean Companies Act will impose strict liability on conduct constituting the bribery and corruption of domestic and foreign public officials with no facilitation payments permitted.

There is no good principled reason to retain any facilitation payments as a defence to conduct constituting the offence of foreign bribery. All facilitation payments do is encourage both developing and developed nations and their public officials and corporations to trade in minor bribes for pure commercial gain and personal exploitation (particularly the bribe recipient). The arguments peddled in favour of facilitation payments (maintaining Australian jobs and business and simply having to comply with “local demands”) are spurious and illustrate a misguided view about any concept of ethical commercial behaviour.

When most corporations espouse the highest standards of integrity (in the Codes of Conduct) and then resort to facilitating bribes to pursue their commercial projects, there is a serious disconnect between ethical perception and reality. For Australia to fail to address this glaring issue in a year in which it assumes a leading role within the G20 community reflects very poorly on its own ethical standards

Anti-Corruption Guidance for the Public and Business

The website of the Commonwealth Attorney General’s Department contains a series of short Fact Sheets which set out in plain terms what is foreign bribery, the offence, the penalties, Australia’s international obligations and how to report suspect conduct.

Given the vast amount of literature that exists and the level of guidance published by various regulatory agencies (such as the US FCPA Resource Guide) and NGOs (such as the World Bank, the OECD and Transparency International), it would be of great benefit for the Australian authorities to draw this body of knowledge together and to publish a guide for Australian business on anti-corruption ethics and compliance to clearly demonstrate the type of commercial conduct and ethical behaviour that is expected by Australian corporations and individuals consistent with their legal obligations, particularly operating outside Australia. The traditional view (adopting a conservative economic free market theory framework) is largely to leave it to business to work out the issues as Australian Governments and regulators do not like telling business what to do – they only act when business gets it wrong. Such a guide is likely to be of great assistance to many businesses who genuinely try and do the right thing, but who would be assisted by a clear message on what the Australian Government considers (in a non-binding sort of way) to be the way to behave.

Wish List for 2014

If I was asked to advance some key developments that I would like to see occur in 2014, then these would be on top of the ethical Santa’s list:

  • abolish facilitation payments;
  • implement a robust National Anti-Corruption Plan underpinned with a truly independent national anti-corruption commission;
  • issue a discussion process for the creation of one properly funded and resourced national agency to take responsibility for all civil and criminal investigations and prosecutions of foreign bribery offences with clear powers to negotiate settlements in a manner contemplated by the UK acceptance of Deferred Prosecution Agreements into its criminal law;
  • publish a thorough and informative guide for Australian business to encourage them to proactively manage their offshore trade risks and reduce the likelihood of foreign bribery occurring; and
  • give serious thought to implementing a whistleblower bounty scheme (modelled on the US SEC scheme) which promotes a transparent and regulated system for encouraging those inside in the know to report corrupt conduct to the authorities.

Will any of this occur? I live in hope but remain slightly pessimistic given Australia’s apparent traditional minimalist approach to tackling foreign bribery and corruption.

Checking In Down Under

Monday, November 4th, 2013

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery).  Wyld is the Australia Expert for FCPA Professor.

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There have been a number of recent developments in Australia in relation to the risks associated with foreign bribery and corruption.

The Lessons for Australian Business – Why Proactive Ethical Compliance is Important

The recently published Ernst & Young “Asia-Pacific Fraud Survey Report Series 2013″ makes some important findings from its survey results which will resonate within boardrooms:

  • weak systems and controls are exposing companies in the Region to significant risks;
  • slower growth is putting management under pressure to take short cuts;
  • fraudulent practices are on the increase; and
  • there is a disconnect between compliance policies in place and how they are applied in practice.

The recent developments will impact on Australian businesses operating offshore. They highlight the key lesson for all companies and executives with business operations in high risk countries – you must proactively recognise and address potential corruption risks at all levels of your business operations consistent with all Australian and local laws and you must instil a real sense of ethical behaviour throughout your organisation. If you fail to do this, you will be exposed to potentially severe consequences for the company and for individual directors, executives and officers involved in any questionable conduct.

These developments include:

  • an increased focus concerning the lack of obvious enforcement activity in Australia;
  • the role of Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC) in investigating foreign bribery;
  • internal governance issues and offshore commercial behaviour of Australian business highlighted by the Reserve Bank of Australia and Securency and the Leighton Holdings investigations;

Australia’s Regulatory Performance on Foreign Bribery

Over the last few weeks, the media spotlight has turned to examine the conduct of ASIC and the Australian Federal Police (AFP) in investigating foreign bribery and corruption. The issues raised in the media include:

  • ASIC’s role in corruption investigations and what it ought to be doing; and
  • the political push to inquire into the existing regulatory regime and whether, for example, one coordinating regulatory agency should be created and properly funded and resourced to investigate foreign bribery.

The existing regime in Australia has been criticised by the OECD and others over recent years. Foreign bribery and corruption invariably involve complex international inquiries, formal requests for mutual legal assistance that can take many months to complete and negotiations with foreign agencies and governments to gain the local support critical to undertake a proper investigation. In addition, while ASIC usually waits to undertake its civil investigation until a criminal investigation has been completed before undertaking its civil investigation, there is something to be said for the US approach where the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) conduct parallel investigations and invariably commence parallel prosecutions (usually involving a corporate settlement) even though the criminal hearing takes precedence. These joint prosecutions and ensuing corporate settlements may be in part explained by the severe US fines regime imposed on any company that actively defends a criminal prosecution and loses – the fines may be escalated to a point that the convicted company is unable to pay and is insolvent.

There is considerable merit in Australia reviewing how foreign bribery and corruption investigations are undertaken, how they are properly resourced and funded and the internal procedures that can allow civil and criminal investigations to run concurrently, recognising that a criminal trial ought to take precedence over a civil proceeding even one seeking the imposition of civil penalties. Some independent politicians have called for a substance review of how Australia investigates foreign bribery. This is an important issue that needs to be considered aside from any party-political notions of how business should be regulated.

The Role of ASIC v the AFP in Foreign Bribery Investigations

On 11 October 2013, Mr Greg Medcraft, the Chairman of ASIC gave a speech to the AmCham Business Leaders Lunch and responded directly to the considerable press criticism of ASIC’s handling of foreign bribery matters (which he described as “ill-informed”).

Mr Medcraft described ASIC’s role in investigating foreign bribery as follows:

  • ASIC’s strategic priorities are to focus on ensuring there is a fair and efficient financial market with confident and informed investors (enforcement gets no mention as a strategic priority);
  • ASIC has limited resources and will target its action primarily against listed companies where wrongdoing affects a wide range of mum and dad investors;
  • the AFP is responsible for investigating and prosecuting foreign bribery as a crime under the Criminal Code;
  • ASIC will liaise with the AFP and while noting foreign bribery investigations are invariably long, complex and expensive, absent exceptional circumstances or the risk of a limitation time bar arising, ASIC will defer any civil action until the completion of any criminal investigation and/or prosecution; and
  • it is primarily the responsibility of directors and executives to exercise what ASIC describes as the appropriate level of scepticism (to avoid a charge of wilful blindness) and to ensure systems and controls reflect sound corporate governance in order to ensure they comply with their statutory duties.

What can be concluded from this approach: hardly the US SEC approach of “bold and unrelenting” enforcement espoused by the new SEC Chairman in a recent speech. At the heart of this speech is confirmation that while ASIC will look at egregious conduct involving foreign bribery (maybe something on the scale of AWB), as to the rest, it is too hard, complex and expensive to allocate ASIC’s limited resources to it. Over to the AFP!

Current Corruption Investigations – Cultures of Compliance or Non-Compliance

The governance issues surrounding the foreign bribery allegations in the media involving the Reserve Bank banknote printing interests and Leighton Holdings’ offshore operations have a number of common themes, whatever the individual merits are of specific allegations. The themes are these:

  • the apparent limited investigation by ASIC into the conduct of senior company officers;
  • the role and resourcing available to the AFP to investigate allegations of complex commercial corruption;
  • the apparent payment of significant fees to overseas intermediaries in countries where there is a recognised high risk of corruption;
  • whether internal company records were or were not disclosed to regulators; and
  • the treatment of internal whistleblowers.

As an example, the media have reported that a former executive of the RBA company that printed its polymer bank notes is said to have provided a statement to the AFP that accuses a current senior Reserve Bank executive of “directing him never to use email, fax or hard copies to provide information about the company’s allegedly corrupt overseas activities” (Australian Financial Review 1 October 2013).

Whatever the merits of the individual allegations, these events raise serious issues for all companies, boards of directors, institutional investors and shareholders. They go to the heart of how companies actually perform and their professed culture of compliance.

What does all this mean?

It is fundamental to sound ethical business that a corporation must believe in its own integrity and act consistently with that belief. It requires an absolute commitment pervading a company over many years from the top to the bottom. If a corporate structure suggests an absent or disinterested parent, directors and executives being less than diligent and with management, only focused on the bottom-line profit and potential self interest (bonuses and salary benefits on hitting sales KPIs) (Chanticleer: Bribery scandal a question of culture, Australian Financial Review 9 October 2013), the words of Commissioner Cole resonate as to why this sort of conduct occurs (in the context of AWB):

The answer is a closed culture of superiority and impregnability, of dominance and self-importance. Legislation cannot destroy such a culture or create a satisfactory one. That is the task of boards and management of companies. The starting point is an ethical basis. At AWB the Board and management failed to create, instil or maintain a culture of ethical dealing.

These investigations and the Securency prosecutions have some little while to go and developments will be monitored.

Mid-Year Review From Down Under

Wednesday, July 17th, 2013

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here).  Wyld is the Australia Expert for FCPA Professor.

*****

Australia has been gripped by an unusual phenomenon over the last few months, an unreal Federal election campaign. While citizens of the US are used to a year long Presidential campaign, we like ours to be short and sharp, over in no more than a month, as the prolonged sight of too many politicians making too many promises they cannot or will not keep, is unedifying. As a result, any serious attempts at legal reforms concerning foreign bribery and corruption initiatives seem few and far between. However, there has been some movement on the Hill.

Australia Signs up to International Foreign Bribery Taskforce

During May 2013, the Australian Federal Police, the United States Federal Bureau of Investigations, the Royal Canadian Mounted Police and the United Kingdom City of London Police Overseas Anti-Corruption Unit all signed a Memorandum of Understanding setting up a new International Foreign Bribery Taskforce (to be known as IFBT).

The IFBT is part of a new transport agreement undertaken by the Australian, United States, Canadian and United Kingdom agencies to combat foreign bribery.  The purpose of the taskforce enables the agencies and the countries they represent to work collaboratively to strengthen investigations into foreign bribery offences and to support the relevant OECD and United Nations Anti-Bribery Conventions.

It is expected that the taskforce will:

  • enhance local law enforcement responses to foreign bribery on an international scale;
  • allow police experts in the participating countries to share knowledge, skills, methodologies and case studies;
  • meet annually to discuss trends and challenges in each of their jurisdictions; and
  • share investigative techniques, exchange information and good practice initiatives which can then be applied in international investigations.

The creation of the taskforce goes some way towards Australia addressing the criticisms directed towards it by the OECD in the October 2012 Phase 3 Review of Australia’s compliance with the OECD Anti-Bribery Convention.

Australia Considers Reforms to Anti-Money Laundering and Counter Terrorism Financing Laws

Where improper payments occur involving foreign public officials, there is always a risk that Australia’s anti-money laundering and counter terrorism financing laws (AML-CTF laws) may be invoked.

In June 2013, the Government released a discussion paper which looked at possible areas of reform, including:

  • the disclosure of the identity of beneficial owners and controllers in a corporate structure;
  • the identity of trust settlors;
  • the level of due diligence required in high risk jurisdictions and circumstances;
  • understanding a customer’s business or occupation; and
  • the extent of record-keeping that is required.

All of these issues impact on the extent to which Australian and overseas regulators require corporations to understand the risk profile in each jurisdiction in which they do business, with who do you do business and to proactively manage those risks.

To Facilitate or not to Facilitate – That is the Economic Question?

On 15 November 2011, nearly 2 years ago, the Australian Government issued a Consultation Paper on whether, amongst other reforms being considered to Australia’s foreign bribery laws, facilitation payments should be banned. The period for consultation was mercifully short, one month. The due date passed, then silence.

From time to time thereafter, various bureaucrats speaking at law conferences would admit that facilitation payments “were being reviewed” or “were under consideration” and that “there were arguments on both sides”, but nothing more was said to inform us about what these arguments were and why the Government was unable to make a decision. It appears as if paralysis had set in.

Then in February 2013, the Canadian Government reignited the debate by amending the Corruption of Foreign Public Officials Act and banning facilitation payments. The ban has yet to take effect, with the Canadian Government giving business, or more accurately those businesses who continue to pay facilitation fees, time to reorganise their affairs.

While the national Australian election is due over the next few months, substantive reform of criminal laws may be less of an election priority. However, that has not stopped one lobby group, the Australia-Africa Mining Industry Group (AAMIG) from spruiking the benefits of facilitation payments as promoting cultural development, lessening poverty and generally allowing Australian business to do business in developing nations.

AAMIG has argued that removing facilitation payments will not help eliminate poverty across Africa, that Africa is not a uniform nation, and that legislative changes in London, Ottawa or Canberra will not add to the economic well-being of Africa (see Why miners pay in Africa, The Australian Financial Review 10 July 2013). AAMIG says it has been lobbying Australia’s politicians (to maintain facilitation payments) and the reception has been, according to AAMIG, “very understanding”, but to what end remains unclear (see Miners nervous of anti-bribery laws, The Australian Financial Review 10 July 2013). No politician is named or quoted as agreeing to the proposition that paying small bribes is good for Australian business.

AAMIG uses an example of the payment of money to a foreign public official for petrol for his government vehicle to conduct on-site inspections. What AAMIG appears to favour is a law that permits small bribes to be allowed as a feature of doing business and for them to be transparently recorded until such time as developing countries can properly pay their employees and their own governance frameworks improve. This analysis raises many questions which AAMIG appear not to address. For example, what assurance does an Australian company receive that the money (no doubt cash) paid for petrol in fact goes in petrol? Why is cash used? Why is cash paid to an individual instead of a company dealing directly with a government agency? What receipt is received (none is the probable answer)? How does the company record the payment in its books and records? Would such a payment be made in Australia if requested by a public official?

AAMIG appears to advance a system which entrenches small systemic bribes so that affluent companies can continue to do business throughout the world without regard to the underlying damage that corruption causes to the local society. It is not as if AAMIG is promoting itself as a participant in any foreign political reform, the group just wants its members to be free to pay small bribes to get their business up and running and a financial return to stakeholders (whoever that amorphous group may be). As Glenn Dyer and Bernard Keane from the Crikey.com website wryly noted, it seems that AAMIG are promoting a sense of cultural imperialism (see No exemptions: bribes are bribes, from Murdoch to African miners, Crikey.com 10 July 2013) – it is immoral not to pay these (facilitating) bribes as the economic wellbeing of the nation demands that the foreign companies invest in the nation and they have to pay these bribes to help the nation develop. What AAMIG fails to appreciate or in fact ignores is the cancerous effect that corruption (and the very business activities it wants its members to undertake) has had and continues to have in many developing countries.

The international trend is moving inexorably away from allowing facilitation payments. While the United States of America and Australia permit facilitation payments, the defence is of very limited operation. The Commentaries to the OECD Convention suggest that while criminalisation may not be practical, governments must address the “corrosive phenomenon” of facilitation payments. The United Nations Convention Against Corruption requires its signatory members to enact laws to criminalise bribery, public or private. The Rt Hon TRH Cole, the Royal Commissioner who investigated AWB’s UN Oil-For-Food Program payments in 2006 was blunt in his assessment of facilitation payments – saying “only sophistry enables one to distinguish a facilitation payment – which is a small bribe – from the notion of a corrupt payment” as it is simply a payment made to secure an advantage or priority to which the payer is not otherwise entitled (see Managing Corruption Risks in Offshore Operations, TRH Cole, 24 October 2007).

Increasingly, large, medium and small businesses are banning facilitation payments. AAMIG is telling its members to effectively pay small bribes in circumstances where if those members do not fully understand the circumstances of the payment, their helpful bribe to promote or advance their business (why else is the payment being made?) all of a sudden has become an illegal bribe to a foreign public official with the potential intent to secure or maintain that which the company seeks, its own commercial advantage in business, and to which it might not otherwise be legitimately entitled.

Perhaps the last word should be left to the Australian Council of Superannuation Investors (ACSI) which published a report, Anti-Corruption and Bribery Practices in Corporate Australia in October 2011 (at www.acsi.org.au), one month before the Australian Government published its facilitation payment consultation paper. The ACSI offered this view:

Bribery is a ‘long tail’ risk difficult to quantify and address. Bribe giving or taking can remain hidden for many years then unexpectedly surface with catastrophic consequences. Directors and employees with shorter term horizons are less likely to suffer immediate consequences of engaging in corruption or bribery than investors (leaving aside the risk of prosecution and imprisonment) but ultimately this risk threatens the long-term success and stability of a company and consequently value for shareholders, who eventually pay the price (italics added)

The investors and shareholders of AAMIG members might do well to pause and reflect on the risks they really want their directors and management to undertake and their own levels of transparency and accountability.

Checking In Down Under

Thursday, March 28th, 2013

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here).  Wyld is the Australia Expert for FCPA Professor.

*****

Over the last 12 months, there have been some important developments in Australia concerning foreign bribery.  The key issues that are covered in this post include:

  • the news of an official United States and Australian foreign bribery investigation into BHP Billiton;
  • the role of the Australian Federal Police’s Foreign Bribery Panel of Experts;
  • the increase in fines for individuals who breach Australia’s foreign bribery laws;
  • revisiting the Australian Wheat Board (“AWB”) penalty on its CFO and how Australian courts will treat “agreed penalty” submissions in civil prosecutions;
  • reforms to Australia’s whistleblower protection laws; and
  • trends for 2013 and the importance of proactive compliance on foreign bribery risks.

US and Australian foreign bribery investigation into BHP Billiton

BHP Billiton is one of, if not the largest iron ore mining company in the world. Over the years, allegations have surfaced that in some of its operations in some countries, corruption may have occurred. It now seems that the United States Department of Justice (DOJ) is formally leading an investigation into BHP Billiton for alleged corruption in China.

Recently, BHP Billiton’s promotional activities in China associated with a contract to supply metals to produce all 6,000 medals for the 2008 Beijing Olympic Games has been cast into the public arena.  The allegations involve suspicious transactions (inducements, hospitality and gifts) that were recorded as legitimate business expenses in relation to securing a supply contract and sponsorship for the Beijing Olympics.

The Australian Federal Police (AFP) is quoted in the media as confirming that its Panel of Experts has reviewed the allegations and the AFP is working with United States regulators as a result of a formal referral from the U.S. DOJ. This highlights the development of the AFP Panel of Experts (see below for more detail) in providing a high level review over the AFP’s operational investigations and the working relationship between United States and Australian regulators to target Australian companies involved in foreign bribery. The investigation also raises squarely the contentious issues of contract inducements and hospitality and how, if they are not carefully and properly reviewed and controlled, they can give rise to significant risks and potential criminal liability.

Creation of the AFP “Foreign Bribery Panel of Experts”

In response to criticism from the OECD during the Phase 3 Review in late 2012, the AFP established a Foreign Bribery Panel of Experts, said to comprise internal AFP officers with experience in foreign bribery investigations. According to the AFP, the Panel is to undertake “periodic operations reviews” to identify areas for improvement and monitor allocation of resources.

While the composition, experience and independence of the Panel members is unknown, it seems they are all AFP officers “experienced in foreign bribery investigations”. One would hope they are at least independent from investigators working on the particular project under evaluation by the Panel.

The media reports into the United States led investigation into BHP Billiton has highlighted the role now being played by the Panel. While time will show the value of the Panel, its operations ought to be transparent and its findings made public at the conclusion of an investigation (when an investigation is terminated) or if prosecutions result, at the end of any contested proceedings.

Increase in penalties for Australian foreign bribery offences

The penalties for foreign bribery were last increased in February 2010. From 28 December 2012, the Australian Government increased the value of a ‘penalty unit’ by which amount fines are calculated under the Criminal Code 1995 and Crimes Act 1914. The amount of a penalty unit increased from $110 to $170.

The new monetary fines for foreign bribery, per offence from 28 December 2012, are now:

  • for an individual, a fine up to a maximum of 10,000 penalty units (or $1,700,0000 per offence),
  • for a corporation, the greater of:  a fine up to a maximum of 100,000 penalty units (or $17,000,000 per offence); or three times the value of the benefit; or 10% of the company’s turnover during a 12 month period from the month when the offence occurred.

The increase in the penalty unit valuation adds considerable weight to the scale of fines available to a Court and the importance for business to ensure they take all possible steps (see below) to avoid exposure to foreign bribery.

Appeal Court revisits sanctions on former AWB CFO and how Australian courts should treat “agreed penalties” for civil penalty prosecutions

Foreign bribery can give rise to potential liability for directors and officers and contravention of their statutory duties under the Corporations Act 2001 (Cth). If prosecutions arise, they can be for a civil penalty to be imposed by a Court.

On 19 March 2013, the Victorian Court of Appeal delivered its judgment in an appeal by Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC) against the reduced sentence imposed on AWB’s former CFO  (ASIC v Ingolby [2013] VSCA 49).

The Court of Appeal was very critical of what it regarded as the deficient statement of agreed facts relied upon by ASIC and the CFO, stating that it was “less than desirable”, that it did not “present a fair and accurate picture of the relevant offending conduct” and was “impossible to reconcile with what the documentary material plainly showed to be the true role” played by the CFO.

The Court of Appeal’s critical legal findings were that:

  • the Court’s role in determining a penalty is a clear exercise of judicial power, unfettered by any agreed statement or submission as to penalty;
  • a Court was not simply to assess whether an agreed penalty was within “the permissible range in all the circumstances” and if it was, to accept the agreed penalty; rather the Court had to fix an appropriate penalty in the circumstances and any submission was simply a factor to consider, accept or reject depending upon the totality of the evidence.

In light of the Court of Appeal’s views as to the inadequacy of the evidence before the lower court (where the original penalty as to fine and disqualification had been discounted by the court), the Court of Appeal reinstated the original fine ($40,000) and the period of disqualification (15 months). All appellate Judges indicated that if the matter had been determined properly, the CFO might well have received a substantially higher penalty.

This demonstrates the critical importance in civil penalty proceedings of ensuring the sentencing Court is presented with a fair and accurate statement of the offender’s conduct notwithstanding an offender’s perhaps natural inclination to seek to downplay his or her own involvement in the offending conduct. Without that, the Courts are more likely to call for further evidence or reject the agreed position.

Reform to Australia’s whistleblower protection laws

On 21 March 2013, the Australian Government introduced into Parliament its much-anticipated Public Interest Disclosure Bill 2013. The object of the Bill is to encourage and facilitate the reporting of wrongdoing, the proper investigation of such allegations and the protections to be given to public officials who disclose wrongdoing.

The Bill remains contentious and not without its critics who say the substance of the new laws add little real protection for disclosures outside government to, for example, the media,

The key features of the Bill include the following:

  • the Bill and the disclosure regime covers public officials, who are persons having a relevant connection with the Commonwealth public sector, including directors and offices of certain statutory entities, employees of Commonwealth intelligence and law enforcement agencies and some third-party contractors providing goods or services to the Commonwealth under a defined Commonwealth contract (and their employees);
  • the definition of what is a public interest disclosure, how it may be made and under what circumstances a disclosure can go beyond an authorised agency to a third person, including the media or a lawyer;
  • the broad nature of disclosable conduct, covering for example, a contravention of a Commonwealth or State law, or a foreign law, perversion of justice or corruption of any kind, maladministration, an abuse of public trust, the wasting of public money, unreasonable risks to public health or safety or a danger to the environment;
  • the protection from criminal or civil prosecution or defamation suits in favour of the disclosing public official;
  • protection from reprisal exercised against the disclosing public official;
  • obligations on a nominated agency to properly investigate the disclosure; and
  • independent review of the regime by the Commonwealth Ombudsman and the Inspector-General for Intelligence and Security (for security-related disclosures).

While the Bill goes some considerable way to address deficiencies under existing laws for disclosures of improper conduct in relation to the Commonwealth, it still leaves the general commercial community to their own devices as to the terms upon which commercial whistleblowers are properly protected when seeking to disclose evidence of commercial impropriety.

Trends for 2013

Companies and directors are likely to see the following trends throughout 2013:

  • increased regulation against facilitation payments:
  • an increased focus on cross-border investigations and cooperation between governments to target foreign corruption and to prosecute foreign nationals;
  • more countries within the Asia-Pacific Region introducing foreign bribery laws and investigative agencies, with the Government of Myanmar’s Anti-Corruption Committee formed in January 2013 a clear example; and
  • regulators will target individual directors, officers and third-party agents for personal liability and responsibility for foreign corruption.

Following the lead from the United Kingdom, the Australian Government should give serious consideration to reforming Australia’s criminal law procedures to provide some certainty to companies who wish to self-report potential offences and negotiate a structured yet transparent settlement agreement applicable to economic crimes (including foreign bribery).

Proactive action to minimise the risk of foreign corruption

The laws of many countries now place an onus on a corporation to prove that it has a real culture of compliance and any improper conduct was, in fact, the conduct of a rogue employee.

To address these risks, it is critical for Australian businesses which operate offshore to:

  • understand all operational risks in all countries where it conducts business;
  • know all local laws and practices (take advice from local experts);
  • understand and know all third parties with who you engage;
  • implement an effective, robust and dynamic compliance program for all employees;
  • conduct periodic audits of all third parties and your own internal control processes.