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

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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.

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

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Introduction

The last 12 months have seen an increased level of activity across the spectrum of bribery and corruption in Australia – some positive and some well, just sort of ordinary and run of the mill activity. International developments filter Down Under and are likely to be taken up by Australia, ever-ready as any government to supplement its limited Treasury reserves.

Over time, Australia’s regulatory agencies learn from the experiences of their international counterparts and many foreign governments accept that foreign bribery laws should be changed and processes refined to target economic crime. While some developments overseas can greatly assist Australian corporations doing business around the world, a more proactive approach from the Australian Government would be welcome to deliver some certainty for the business community.

International Spotlight on Australia

In late October 2012, the OECD delivered its Phase 3 Review Report (here) on Australia’s compliance record under the OECD Anti-Corruption Convention. It made for sober reading to recognise that despite all the positive words emanating from Canberra, real action on combating foreign corruption still remains a political challenge and one perhaps with less priority than it should otherwise deserve.

The features highlighted by the OECD included:

• the creation of a properly resourced and coordinated body to investigate foreign bribery including the appointment of an expert panel to assist the AFP;
• ensuring that a thorough investigation occurs before any allegations of foreign bribery are dismissed;
• a substantial increase in penalties for foreign corruption and financial misreporting;
• the prohibition (or active discouragement) of facilitation payments; and
• the active promotion of foreign bribery and corruption risks for Australian businesses operating offshore.

It is hoped that the Australian Government will address these proposals in the near future.

International Trends

The laws targeting foreign bribery have inexorably grown from the US to many OECD member countries and an increasing number of Asian countries. They are becoming a legal fact of life in countries where Australian business undertakes a significant amount of trade and these businesses cannot afford to ignore them.

US Jurisdiction Creating a “World Jurisdiction”

The last 12 months has seen significant activity in the US and the UK. This activity is likely to be reflected over time in Australia. It is of immediate concern to Australian corporations subject to US and/or UK law (as subsidiaries of US or UK parent corporations), to US and UK citizens working for Australian corporations or more generally for Australian corporations doing business offshore in a manner that is likely to trigger US or UK jurisdiction.

This is because the US regulators advance broad theories of extra-territorial reach for the US Foreign Corrupt Practices Act (FCPA) and over the last 12 to 18 months, have focused extensively on targeting foreign corporations and individuals. Indeed, when considering the fines collected by the US authorities in 2011, nearly 90% came from non-US corporations and individuals (see Prof Mike Koehler, The Foreign Corrupt Practices Act Under the Microscope (here), Univ. of Penn Journal of Business Law 2012, Vol 15 No 1 page 9).

If a corporation engages in transactions in US dollars through US-based accounts or uses emails passing through (or which were stored on US servers), the US will assert jurisdiction. Together with an expansive view of the “agency” principles, the US will assert jurisdiction over conduct that might at first blush, have only a passing business connection with the US in any territorial sense.

In the UK, we have seen the Serious Fraud Office (SFO) take a step back from a warmer, fuzzy style with business promoted by its former Director, to a more hard-nosed approach, we will prosecute if serious offences have been committed. The UK Bribery Act has an extra-territorial reach, but how far is presently unclear. While the SFO initially suggested a “demonstrable business presence” to the UK would be the threshold test, more recent announcements suggest a more aggressive stance might be pushed through the UK courts.

While Australia’s foreign bribery laws have limited extra-territorial reach, the extent to which the criminal law of conspiracy can apply to foreign entities outside Australia, engaged in a conspiracy to, for example, bribe foreign (non-Australian) public officials, is likely to be pushed by the Australian regulators.

The Identity of a “Foreign Public Official”

The FCPA prohibits payments to foreign officials and not to foreign governments. Under US law, developing slowly through contested trials defended by individuals, the scope of whom or what constitutes a “foreign official” is under the spotlight. This is important as Australia’s Criminal Code contains statutory definitions of “foreign public official” and “foreign public enterprise” which reflect the broad views adopted by US authorities.

Without losing sight of the requirement that a defendant knew or believed that a person was a foreign official, the US regulators look at a fact-specific analysis which focuses on an entity’s ownership, control, status and function (exercising a public government function) to determine if an entity is an instrumentality of a foreign government and if so, whether its employees are or are not foreign officials. This issue is currently on appeal in the US and the judgment will be awaited with interest as its consequences may have far-reaching application in many parts of the world where foreign governments operate through state-owned enterprises or other entities effectively controlled or directed by a foreign government.

A National Corruption Plan

In July 2012, the Australian Government held a final series of consultations about the introduction of a National Anti-Corruption Plan. It assured those interested that the Plan would be implemented by the end of 2012. At Christmas Eve, with Parliament in recess, politicians back in their electorates and the Government in holiday mode, it seems unlikely the Plan will appear in 2012.

Maybe 2013 will see the Plan emerge from the Parliament. While it provides no comfort to proponents of a truly independent anti-corruption commission to investigate all aspects of corruption touching upon or concerning the Commonwealth, it does provide a more coordinated framework for managing and overseeing corruption issues as between Commonwealth agencies.

Legislative Initiatives

Guidance on Foreign Bribery

At the end of November 2012, the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) published their Resources Guide to the Foreign Corrupt Practices Act (here).

While the Resources Guide is a non-binding administrative restatement of how the DOJ and SEC interpret the FCPA (long called for by the US Congress and the OECD), its value lies in the clear (although in a pro-authority manner) exposition of the prevailing US enforcement theories and reinforces the critical importance for corporations doing business overseas and subject to US law, to:

• understand their operational risk profile;
• know and understand their third parties with appropriate due diligence;
• have a robust, effective, proactive and dynamic compliance plan; and
• ensure all internal controls are reviewed and updated to reflect prevailing operational risks.

It would not take a lot for Australia to produce a similar, comprehensive Guide for the benefit of Australian business. Such a guide would be of considerable benefit to local businesses operating offshore and assist them to develop their own internal systems in such a manner so as to ensure compliance with not only Australia’s laws, but international foreign bribery laws.

Self-Reporting Issues

The US regulators have for many years promoted a culture of self-reporting potential foreign bribery offences in return for which reporting corporations can secure a recognised form of settlement. The proliferation of Deferred Prosecution Agreements (DPA) and Non-Prosecution Agreements (NPA) have been criticised by some commentators as allowing corporations to avoid criminal prosecutions and convictions. However, the US DOJ stands by them, regarding the agreements as a valuable tool to promote transparency and to encourage business to come forward in return for a negotiated certainty of outcome rather than facing the unpredictability of criminal trial.

In the UK, the Ministry of Justice has not only issued consultation papers on the possible introduction of DPAs into the UK criminal law system, but in November 2012, accepted their introduction and recommended legislative reform to the UK criminal law. The UK system places considerable weight on the role of the UK courts to oversee, review and approve such agreements to ensure public transparency in the administration of the criminal law.

It is to be hoped that the Australian Government learns from this development and in 2013, actively considers the introduction of such agreements to allow corporations to engage in meaningful dialogue with the Australian regulators to report and potentially settle foreign bribery claims with a much higher degree of certainty than presently allowed under Australia’s criminal law.

Facilitation Payments

While facilitation payments, in a very limited form, are currently permissible under the Criminal Code 1995 (Cth), the Australian Government issued a Consultation Paper over 12 months ago asking whether facilitation payments as a statutory defence to foreign bribery, should be abolished. Despite over 12 months passing since the Paper was published, no decision has been made.

The trends overseas are to abolish facilitation payments or severely curtail their ambit. The US Resources Guide confirms the narrow view on the scope of what might constitute a legitimate facilitation payment and highlights the fact that the OECD’s Working Group on Bribery recommends that all countries encourage corporations to prohibit or discourage facilitating payments. There is a significant likelihood that the Australian Government will publish its response to the Consultation Paper during 2013 and in light of the OECD’s Report (referred to above), abolish facilitation payments. Corporations should prepare for this in their own internal compliance policies.

Increased Penalties

The penalties for foreign bribery are presently significant – up to a maximum of 10 years imprisonment and fines for individuals and for corporations, significant fines exceeding in a corporate context, up to $11m for each contravention of the foreign bribery laws, or 3 times the value of the benefit which if that cannot be ascertained, an amount equal to 12 months turnover.

Where the penalties are considered low, in the context of financial misreporting (as highlighted by the OECD Report referred to above), a review of the applicable penalties is likely to be on the legislative agenda for 2013.

Whistleblower Reforms

Despite all the endless talk and recommendations, the Australian Government appears strangely reluctant to actively promote real protections for whistleblowers. It seems to be easier to allow individual politicians to promote private members’ bills to enhance whistleblower protections than for the Australian Government to take the initiative. Research from Prof AJ Brown of Griffith University together with Melbourne University puts a lie to the old adage that Australians will not “dob in a mate” – in fact, quite to the contrary, over 80% of polled respondents valued the whistleblower reporting improper behaviour over the wrongdoer. It is to be hoped that in 2013, the Australian Government demonstrates real leadership in recognising the value of protecting whistleblowers to ensure illegal or improper conduct can be safely report without fear of any direct or indirect reprisal.

Enforcement Record

Enforcement for foreign bribery is a matter for the Australian Government agencies, most notably the Australian Federal Police (AFP) as investigator and the Commonwealth Director of Public Prosecutions (CDPP) as prosecutor. Prosecutions for corruption within Australia are governed by domestic State criminal statutes. Prosecutions are often triggered by the investigative activities of State-based independent anti-corruption commissions. These bodies focus on the conduct of public officials and the private business community where allegations are made of improper or corrupt conduct giving rise to direct or indirect benefits flowing to officials or private business interests.

There is no Australian or national independent anti-corruption commission. Politicians have long resisted the need for such a body, no doubt out of self-preservation. Absent such an independent body, the integrity of Australian Commonwealth agencies is policed in large part by the Australian Commission for Law Enforcement & Integrity, or ACLEI, which focuses on the integrity within national departments, agencies and other federal organisations under its statutory charter.

Commonwealth Foreign Bribery Investigations

The enforcement record of Australian authorities remains patchy notwithstanding the ongoing publicity surrounding the Reserve Bank of Australia and Securency note-printing bribery prosecutions in Victoria. What has been reported so far in the Australian media is this:

• the Reserve Bank subsidiaries have been ordered to forfeit up to $20m as proceeds of crime;
• a former Securency CFO has been criminally convicted for false accounting;
• Malaysian officials are being prosecuted in Malaysia;
• an Indonesian agent charged with conspiracy to bribe foreign officials is subject to extradition proceedings in Singapore brought by Australia and may plead guilty to unspecified offences in return for cooperating with the Australian authorities; and
• the committal hearings against the individual Securency and Note Printing Australia executives continue into 2013.

In light of the limited jurisdictional reach of Australia’s foreign bribery laws, it is likely that the AFP will use the domestic law of conspiracy (with its increasingly broad extra-territorial reach to combat transnational economic crime) to potentially capture and prosecute foreign individuals under Australia’s domestic criminal law.

In addition, the senior executives at the Reserve Bank of Australia, including the Governor, have been subjected to severe media criticism in relation to the Reserve Bank’s role in overseeing (or according to the media, not overseeing) Note Printing Australia (as a 100% owned subsidiary) and Securency (50% owned by the Reserve Bank and 50% owned by a European based media company).

From general media reports, there are various other investigations current with the AFP. Whether they will result in any prosecutions in 2013, in light of the criticisms raised by the OECD towards Australia’s investigative and prosecution history, remains to be seen.

It should not be forgotten from the saga of AWB’s wheat sales to Iraq during the United Nations Oil-For-Food Program that liability for what appears to be foreign kickbacks can sound in domestic liability for breaches of statutory and common law duties by directors and officers. Both the former AWB Managing Director and Chief Financial Officer were prosecuted for civil penalty orders and agreed to accept declarations of contravening conduct, penalties, fines and banning orders from managing a corporation.

Domestic State Corruption Investigations

There have been various domestic cases of alleged corruption investigated by State based anti-corruption commissions. The trend of these often public investigations and examinations of high-profile political and business figures contrasts sharply with the quieter, almost secretive world of foreign bribery investigations.

The most significant current investigation in NSW concerns the award of various coal seam exploration licences to corporations associated with former sitting politicians and whether a former Minister of a former State Government disclosed confidential information to persons associated with him in relation to the grant of the licences in return for commercial gain.

Independent State Anti-Corruption, Misconduct or Integrity Commissions have existed for several years in New South Wales, Queensland, West Australia and Tasmania. The Australian Government covers the Northern Territory and the Australian Capital Territory, but without any truly independent anti-corruption commission.

In Victoria, a State long resistant to the notion that corruption existed within its borders, has finally established an independent anti-corruption commission, to be headed by a leading Senior Counsel from the Victorian Bar. In South Australia, legislation has been passed by the State Parliament to establish an independent anti-corruption commission by mid-2013.

Reforms for 2013 – What Should Australian Corporations and Executives Expect on the Horizon?

Australian business should expect no let-up in the pace of international trends targeting foreign bribery. Indeed, the US approach is to focus on foreign corporations and individuals, using a very robust theory of jurisdictional reach of US law. For this reason, any Australian company which conducts trade offshore is potentially exposed to not only any local foreign law, but US (and UK) law if those jurisdictions apply.

Over the next 12 months, Australian business should take into account the following:

• the possible banning of facilitation payments under Australian law;
• the ongoing US (and UK) activity targeting foreign (non-US) corporations and individuals engaged in foreign bribery;
• the increasing enactment of foreign bribery laws throughout the Asia Pacific region;
• an increased willingness of the AFP to investigate and prosecute Australian (and foreign) entities involved in foreign bribery; and
• an increasing awareness of foreign bribery laws across Asia and the importance of responding to them.

As a result of the ever-increasing activity in this area, Australian business must understand their own operational risk profile, undertake appropriate due diligence with all third parties with who they engage and most fundamentally, have in place a robust, effect and dynamic compliance plan to manage and hopefully, avoid the reputational disaster that invariably flows from a criminal investigation and prosecution.

2013 is likely to prove an interesting year ahead!