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  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.