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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.

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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!

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The OECD Scorecard For Australia

On 25 October 2012, the OECD published its Phase 3 Report (here) on Australia’s compliance with its treaty obligations under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the Convention).

Background to Foreign Corruption in Australia

Since 1999, Australia has criminalised the bribery and corruption of foreign public officials. Yet since that date, until July 1999, its enforcement and prosecution track record was poor, with few investigations, no prosecutions and no convictions of any Australian (or foreign) corporation or citizen of foreign bribery.

In 2006, Australia experienced its first public fascination with foreign kickbacks, even if the payments were not, strictly speaking, bribes. AWB Ltd was found by an independent Royal Commission to have paid over $300m in illicit kickbacks to the former Iraq Government of Saddam Hussein by manipulating the United Nations Oil-For-Food humanitarian relief program. Since July 2011, the Securency investigation and criminal prosecution has ground its way through the Courts, where two subsidiaries of Australia’s central Bank, the Reserve Bank of Australia, and various executives employed by the subsidiaries, have been charged with foreign bribery.

In relation to AWB, a former Managing Director and CFO pleaded guilty in August 2012 to civil penalty proceedings for breaches of their statutory duties under the Corporations Act 2001 (Cth) and were sentenced to fines and periods of disqualification from office. In relation to Securency, a former CFO pleaded guilty in August 2012 and was sentenced to 6 months imprisonment wholly suspended for 2 years on  one count of false accounting contrary to section 83(1)(a) of the Crimes Act 1958 (Vic). One foreign national, an Indonesian agent engaged by Securency, has been charged with conspiracy and is the subject of an extradition application by Australia to Singapore.

See here for my previous FCPA Professor guest post on the above topics.

The OECD Reports 1999 to 2011

The OECD has issued two earlier Reports on Australia’s record of compliance with the Convention.

• The Phase 1 Report (here) was published in December 1999. The OECD welcomed the fact that Australia had criminalised foreign bribery consistent with its obligations under the Convention. Some minor issues were raised under specific provisions but otherwise, no adverse comments were noted by the OECD.
• The Phase 2 Report (here) was published in January 2006. The OECD noted the lack of any prosecutions, a limited number of investigations and concerns as to the relatively low penalties and inconsistencies arising from how Australia prosecutes corporations for criminal liability on foreign bribery offences.
• In August 2008, the OECD published an update Report on Progress since its Phase 2 Report (here).  The OECD again noted the lack of prosecutions and limited investigations. Australia had however, been proactive in publishing educative material for business on the risks of foreign corruption. In addition, the OECD encouraged greater coordination between investigative agencies and Australia indicated a review of the applicable penalties was being undertaken.
• In June 2011, the OECD published an interim report into the Steps taken to implement and enforce the Convention (here). This report noted the substantial increase in penalties for foreign bribery, the triggers for money laundering that can arise with foreign bribery transactions and the legislative changes arising from the AWB Oil-For-Food kickback scandal.

In contrast to the diplomatic language of the OECD, the findings of Transparency International over the same period were more critical. In the Exporting Corruption Progress Report 2012 (here), Transparency International noted that Australia had a poor record but now, from 2011, had started to move up the enforcement chart, with its status moving from one of little or no enforcement to moderate enforcement.

It remains a challenge for corporations to balance the ethical demands of regulators with the pursuit of profit. Sustainable growth can be achieved but it requires determination over several years rather than focusing simply on short-term profits and personal remuneration. Transparency and a willingness to expose your internal operations to criticism are a hallmark of credible governance. This has been achieved at least by Rio Tinto and BHP Billiton, two of Australia’s most successful mining corporations, who have been ranked 2^nd and 3^rd respectively on the Transparency International 2012 Transparency in Corporate Reporting best practice table.

What are the implications for Australia and for business engaged in commercial operations in high risk countries arising out of the latest OECD Report? In summary, while credit has been given to Australia for adopting a robust legal framework, there still remains serious deficiencies in the way in which allegations of foreign corruption are resourced, investigated, prosecuted and sanctioned.  It is these issues that are highlighted by the OECD in its Report.

The OECD Phase 3 Report Findings

The Phase 3 Report has had the benefit of reviewing Australia’s activity on the foreign corruption front for nearly 13 years.

The critical findings of the OECD are as follows:

• Australia’s enforcement of its foreign bribery laws is still best described as only slightly better than poor;
• Australia requires a properly coordinated and focused body to investigate allegations of foreign bribery including an expert panel to help advise the AFP;
• Sufficient inquiries must be made before the AFP rejects an allegation for full investigation, including considering bribery-related charges such as false accounting and money laundering, in circumstances where there may not be sufficient evidence to support a foreign bribery offence;
• The penalties for foreign corruption and financial misreporting should be significantly increased;
• Despite efforts to raise awareness about the risks associated with facilitation payments, there is still substantial confusion over the scope of this defence and companies should be encouraged to prohibit absolutely or discourage the use of facilitation payments;
• A clear framework is required to ensure transparency and consistency for companies who self-report potential corrupt conduct including the nature and degree of cooperation expected by the AFP or the CDPP and what credit is provided for that cooperation;
• Awareness of foreign bribery risks and the development and implementation of anti-bribery corporate compliance programmes is generally inadequate which is putting many companies who conduct overseas business at risk;

The impact of the OECD findings for Australian Business

The findings of the OECD highlights that foreign bribery remains a real and measurable risk for companies operating offshore and that the Australian Government and the AFP are being encouraged to move towards having a dedicated team of investigators and prosecutors which, if properly resourced, is likely to result in a greater range of investigations and an increased likelihood of some form of prosecution.

Of particular interest to companies is the OECD recommendation that Australia should increase all applicable penalties for accounting related offences so that if an individual has not technically committed a bribe overseas, he or she is much more likely to be exposed to a significant financial penalty (aside from the threat of imprisonment), for example, for misleading accounts or false statements under Australian domestic criminal law.

Companies should understand that the OECD has recommended a much greater focus on corporate prosecutions.  This in turn will require companies to proactively understand the risk environment in which they operate, to ensure all of their employees and agents are properly trained and that a record of this compliance activity is kept in order that a defence of appropriate due diligence can be made out.

Overall, while Australia’s legal framework has been commended by the OECD, if the Report’s recommendations are accepted, there may be a much greater focus on strengthening the law and penalties that will be applied to companies and individuals who engage in foreign bribery overseas or bribery-related offences under Australia’s domestic criminal and civil laws.

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Background

According to The Age newspaper, from as early as the late 1990s, Securency International Pty Ltd (Securency) and Note Printing Australia Pty Ltd (NPA), two subsidiaries of Australia’s central bank, the Reserve Bank of Australia (RBA) sought to convince various foreign governments to award them valuable banknote printing contracts, extolling the virtues of the unique polymer plastic note features offered by Securency. Unfortunately, these commercial activities appear to have been associated with substantive allegations of bribes and illegal payments made to public officials to secure these contracts.

Prosecutions

On 1 July 2011, the Australian prosecutor, the Commonwealth Director of Public Prosecutions (CDPP) commenced Australia’s first foreign bribery prosecutions against Securency, NPA and various executives.

As reported in the Australian media, it was alleged that Securency and NPA had, for many years, engaged in widespread bribery and corruption of foreign public officials in various Asian and other countries to secure banknote printing contracts either directly or through intermediaries who received large commission payments from where it was alleged bribes to foreign public officials would be paid. The allegations covered commercial activities in Indonesia, Malaysia, Vietnam, Nepal and other unspecified countries.

The committal hearings against the Securency and NPA executives commenced before the Magistrates Court of Victoria on 13 August 2012 and are scheduled to run for between 2 to 3 months.

The reporting of these matters has been patchy over the last year due to national suppression orders preventing the publication of material which might prejudice the fair trial of the Securency and NPA executives. However, what is now emerging from the committal evidence is a disturbing tale from within the RBA and its subsidiaries of secret dealings, a refusal to tolerate criticism and a collective amnesia when pressed for an explanation.  What have we learned?

Ellery sentencing judgment

On 20 August 2012, David Ellery a former CFO of Securency was sentenced by the Supreme Court of Victoria to 6 months imprisonment, wholly suspended for 2 years (see R v Ellery [2012] VSC 349, available at www.austlii.edu.au). Mr Ellery had been charged with one count of false accounting contrary to s 83(1)(a) of the Crimes Act 1958 (Vic). Mr Ellery did not face any foreign bribery charges.

As Securency CFO, Mr Ellery received copies of various documents concerning the payment of monies as a “special commission” to an agent in Malaysia. An amount of $79,502 was authorised for payment to the Malaysian agent to a nominated bank in Singapore. The Court found that Mr Ellery knew that the invoice for the payment was false and that, relevantly, no “marketing expenses” had been incurred, as described on the invoice. In addition, Mr Ellery took steps to conceal what had occurred.

The Court accepted that Mr Ellery was not actively involved within the “inner sanctum” of Securency, where “secrecy and a denial of responsibility for wrongdoing also seem to have been part of a corporate culture at Securency at that time”. However, the Court reminded Mr Ellery that he was the company’s CFO, responsible for authorising and making payments and that his offending “involved a serious and dishonest breach of trust”.

The Court took into account various mitigatory factors in favour of a lesser sentence, from the 10 year imprisonment as a head sentence for the offence. Mr Ellery’s career had effectively ended. He had demonstrated remorse, he was unlikely to re-offend, his prospects of rehabilitation were high and he had not obtained any personal financial benefit from the offending conduct. Mr Ellery had offered an early plea with ongoing cooperation and the investigating police acknowledged that Mr Ellery would be an important prosecution witness in the other criminal proceedings against Securency and NPA executives.

Sentence

The Court formed the view that the conduct of Mr Ellery was in the mid-range of false accounting offences. Imprisonment for 6 months was the result, but wholly suspended for 2 years.

Lessons for corporate executives

The sentencing of Mr Ellery demonstrates that slowly, Australian courts are starting to reflect what their US counterparts have been doing for some time – treating white collar or economic crime with increasing seriousness, with imprisonment as the probable consequence. This has been an increasing trend in economic crime cases involving, for example, insider trading and revenue or tax fraud prosecutions. It is now being reflected in false accounting offences, often closely associated with allegations of foreign bribery.

The Court accepted that Mr Ellery was not within the group of Securency or NPA executives at the centre of what was alleged by the CDPP to be a conspiracy to bribe public officials for commercial benefit. Rather, as might often be the case with a CFO, Mr Ellery was in the position of knowing enough to contaminate him and then becoming actively involved in creating false records to record (or cover up) the questionable (or illegal) transactions. This reflects the Court’s recent criticism of AWB’s former CFO, in R v Ingolby (see my FCPA Professor post from 16 August 2012 here). Courts are making it clear that there is a need for “denunciation and just punishment” for these economic crime offences.

CFOs can no longer just authorise for payment transactions in circumstances where they in fact know or indeed perhaps, ought to have known, that the underlying transaction was improper or illegal. To remain silent, do nothing, process the finances and approve payment is no longer acceptable. If they do, even many years later, they run a real risk of detection, investigation, prosecution, a criminal conviction and deprivation of liberty.

The role of the RBA – should it have done more sooner?

In May 2009, The Age broke the story of alleged widespread and systemic corruption involving Securency, NPA, its various intermediaries or agents and payments to foreign officials to secure banknote printing contracts. It appears to be the case that Securency and NPA worked closely together, with Securency developing the substrate technology for polymer banknotes (as a 50-50 joint venture between the RBA and a Belgian company, Innovia Films) and NPA being the banknote printer. A former RBA Deputy Governor, Graeme Thompson chaired both companies. In May 2008, Thompson was replaced as chairman of both companies by Bob Rankin, the RBA’s Assistant Governor. It could not be said that the RBA was unrelated to its subsidiaries although its knowledge of their operational activities is far from clear.

The RBA, it seems, was unaware of the alleged corruption. Its reaction was to call in the AFP and KPMG to investigate and ultimately to cooperate with the AFP to the point where criminal charges were laid in July 2011.

However, in June 2007, an NPA senior manager Brian Hood (with responsibility for finance, security and compliance) wrote an extensive memorandum to the RBA’s Deputy Governor, Ric Battellino (a copy of what is now known as the Battellino memo is at www.theage.com.au). The Battellino memo was disclosed in evidence during the Securency committal hearings. It had not been disclosed in any previous statements made by the RBA, which created the impression that the first the RBA knew of the alleged corrupt conduct was when The Age broke the story in May 2009.

The Battellino memo tells a very different story. The crucial features of the memo can be summarised as follows:

• while the NPA Board wanted all agents to sign up to new agency agreements, the NPA management did not see this as important;
• Securency used the same agents and did not change its agency agreements;
• many communications with agents were informal, by mobile or text messages, with little or no documentation;
• numerous overseas trips were not reported outside NPA management;
• commission rates payable to agents greatly exceeded industry average rates;
• there were numerous occasions when agents, particularly those in Nepal and Malaysia, indicated that they had to “service others” and that there were matters that senior executives “didn’t want to know about”;
• all meetings with agents, particularly with the Malaysian agent, had to take place in Malaysia; and
• when Hood tried to take his concerns up with NPA executives, every support was given to the agents and NPA management reacted with hostility to any criticism of their conduct.

What did the RBA do?

Well, it did what AWB did and called in its lawyers, Freehills. As Commissioner Cole noted in the AWB saga, any legal advice is only as good as its instructions. It seems Freehills found “serious problems with business practices” but no illegality (see Black stain of corruption touches RBA in The Australian Financial Review, 22 August 2012). Despite the fact that NPA’s management had, according to Hood, adopted a very secretive culture, and Securency used the same agents and had done so for many years, no one within the RBA (or maybe Freehills) considered a further investigation of Securency was warranted. Life went on and the highly successful and profitable commercial operations of Securency and NPA continued to thrive.

The current RBA Governor, Glenn Stevens faced questioning on these issues before a Commonwealth Parliamentary committee on 24 August 2012. The Age described his testimony as “faltering, defensive and, at time, evasive” (see Still in the dark, with governor on the defensive, The Sydney Morning Herald 25-26 August 2012). The media suggested the Governor’s approach reflected the attitude of the current Australian Treasurer, Wayne Swan, which was “to say nothing and do nothing”. One only has to look at the consequences suffered by AWB to hope that the RBA does not suffer the same ignominious fate, metaphorically speaking!

One might think that in a matter involving such serious allegations, the RBA as Australia’s central bank, might have informed the Australian Treasurer, then Peter Costello. But no, that did not occur. Mr Costello has said that he had no knowledge of these facts and was not told of any RBA suspicions of wrongdoing up to November 2007 when he ceased to be Treasurer after a general election (see Awaiting a true account by Peter Costello in The Age, 23 August 2012). Clearly the RBA had no suspicions or if it had, it relied on its legal advice to satisfy itself that it had acted appropriately.

But had the RBA acted appropriately?

That is at the heart of corruption scandals, the difficult issue facing a corporation when it is faced with alleged corruption on the one hand and a profitable line of business sustained by that corruption on the other hand. Which has to stay and which has to go?

The lack of transparency, the reliance on legal advice (quite common amongst any person or corporation faced with allegations of impropriety) and the inevitable “I do not remember” makes the average person wonder whether anybody involved really cares about the law, about Australia’s international obligations or whether, simply, the pursuit of profit (the means) justifies the ends. Regulators are increasingly requiring corporations to give priority to ethical behaviour which requires, in the words of Richard Alderman, the former Director of the UK Serious Fraud Office, a constant and self-reinforcing cycle of directed behavioural change.

It seems as if the lessons of AWB have not been learned. This story has a long way to go and the ultimate consequences that might be visited upon the RBA, Securency, NPA and its executives is a road where judge and jury views may rule the world of those involved, whose lives will be fraught with unending time, cost and uncertainty.

*****

Nearly 13 years after wheat sales to Iraq started under the much maligned United Nations Oil-For-Food Program and 5 years after Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings against various former AWB directors and officers, the Supreme Court of Victoria  handed down on August 9th and 10th sentences against the former AWB Managing Director, Andrew Lindberg and the former AWB CFO, Paul Ingolby (see judgments at ASIC v Lindberg [2012] VSC 332 and ASIC v Ingolby [2012] VSC 339 available at www.austlii.edu.au).

Court sentences

The Victorian Supreme Court accepted the agreed submissions on facts and penalty as presented to it by ASIC and each defendant although the sentence imposed on Mr Ingolby was reduced.

The Court made the following orders:

• as against Mr Lindberg, declarations that he had contravened his duties as a director and officer contrary to s180(1) of the Corporations Act 2001, fined him $100,000 and disqualified him from managing the affairs of a corporation until 14 September 2014;
• as against Mr Ingolby, declarations that he had contravened his duties as an officer contrary to s180(1) of the Corporations Act 2001, fined him $10,000 and disqualified him from managing the affairs of a corporation until 31 December 2012.

The Court made certain observations about the conduct of each of Mr Lindberg and Mr Ingolby. The Court found that the admitted conduct was akin to an admission of negligence in the performance of their duties. The contraventions against each did not involve deliberate wrongful acts, dishonesty or any moral turpitude. The Court was satisfied that each contravention was serious, thereby warranting the imposition of a fine.

The Lindberg Contraventions

The Lindberg contraventions covered 4 matters, in that Mr Lindberg failed:

• to make inquiries as to whether the recovery of what was known as the “Tigris Debt” was in accordance with the prevailing UN resolutions or had been approved by the UN;
• to inform the AWB Board that the Tigris Debt had been recovered by inflating certain wheat contract prices and the AWB agreement with Tigris Corporation (a Gibraltar company run by a Norman Davidson Kelly, a former BHP Billiton executive) incorrectly stated the payment as a “service fee” rather than a debt and the payment to AWB of a success commission;
• to inform the AWB Board that “Project Rose” (the internal AWB review of allegations from the United States that AWB had paid kickbacks to Iraq to secure wheat contracts) was limited as 3 former employees likely to have knowledge of the kickback scheme had not been interviewed; and
• to inform the AWB Board of the evidence he learned from the UN IIC Inquiry into the Oil-For-Food Program that a Jordanian transport company, Alia For Transportation & General Trade (Alia Transport) had been used as a front to channel funds to Iraq and all suppliers, including AWB, had paid such funds to Alia Transport and then to the Iraq Government.

None of the contraventions save for one involved anything surprising to those who had experienced the Cole Royal Commission into AWB’s wheat sales to Iraq. AWB and all its senior executives had consistently given evidence that they knew nothing wrong and they believed everything they did was approved by the UN and/or the Australian Government. Commissioner Cole did not accept this evidence and delivered a damning indictment on AWB’s corporate conduct[1].

Interestingly, in relation to the Tigris Debt, both ASIC and Mr Lindberg in their Agreed Facts annexed to the judgment, use as a starting point a proposition that the Iraq Grains Board (IGB) owed BHP Ltd (as BHP Billiton then was) a debt of approximately US$8m for a shipment of wheat (at [19] of the judgment). This is in direct contrast to the findings of Commissioner Cole who, having heard evidence from executives of both BHP and AWB (but not Mr Kelly who as a resident outside Australia declined to volunteer any evidence to the Commission), concluded that[2]:

• AWB concluded a sale to the IGB of 20,000 tonnes of wheat;
• BHP paid for that wheat against an AWB invoice; and
• BHP entered into the transaction on the basis that, according to the evidence from John Prescott, its former CEO, it was a gift, ostensibly given to the Iraq Government because BHP was dead keen to secure preferential treatment if certain Iraq oilfields were opened up for exploration.

The evidence before Commissioner Cole was clear – the Australian Government had told AWB and BHP that any credit offer to sell wheat in return for payment, even deferred payment outside the UN sanction regime, was not permissible. Mr Prescott said this in his evidence[3] – I did not believe or understand that the grant approved by me was a loan to Iraq. There was no obligation on Iraq to repay any amount to BHP.

In light of this evidence, ASIC’s starting point, accepted by the Court, appears very peculiar. It must be acknowledged that these events occurred long before Mr Lindberg became AWB’s Managing Director. By the time he was in charge at AWB, the “Tigris Debt”, once a gift had transmogrified into a debt and then a payment for services rendered, involving an undisclosed success fee. Some might think this gets very close to a secret commission involving the creation of false or misleading documents, while others may legitimately say no, particularly as the intent of the parties to the Tigris Debt is still hotly contested and before the Victorian Court. Perhaps it was sufficient for ASIC to start from a base upon which it could secure a successful result. After all, a regulator needs to win, even if by winning only half the story is told.

The Ingolby Contraventions

In contrast to Mr Lindberg, the Ingolby contraventions appeared more prosaic.

Mr Ingolby was subjected to one alleged contravention – that between December 2001 and September 2004, as AWB’s CFO, he failed to discharge his duties as an officer of the company, in that he:

• co-authorised payments to Alia Transport for inland transport fees;
• had information available to him that questioned the legitimacy of those fees and that they were ultimately being paid to the Iraq Government;
• took no steps to ascertain the true position;
• took no or no reasonable steps to inform the AWB Board of the information available to him,

in circumstances where he knew that the Oil-For-Food Program prohibited direct payments  to Iraq and payments from the escrow account controlled by the UN could only be made for the purposes of the Program.

The Court took into account the role actually played by Mr Ingolby within AWB and the nature of how AWB conducted its wheat sale business. In short, Ingolby admitted that he failed to “join the dots” and had he done so with the benefit of hindsight, he would have realised that AWB was acting in breach of the UN sanctions (which did not, at that time, give rise to any direct civil or criminal offence in Australia). The Court accepted, in particular, that Mr Ingolby:

• acted with the degree of care and diligence consistent with his statutory obligations;
• he was not involved in making the wheat contracts;
• his areas of responsibility concerned areas outside the sales and marketing of wheat contracts; and
• he had cooperated with ASIC.

The Court therefore reduced the proposed penalty from $40,000 to $10,000 and shortened the period of disqualification.

The question still remains what would have Mr Ingolby or any other AWB executive done had they “joined the dots” – continue a very lucrative commercial relationship with Iraq selling Australian wheat to the benefit of the company and Australian wheat farmers with bumper wheat crops, or investigating and reporting the conduct to the UN with the risk of losing out on future wheat sales – therein lies the moral barometer!

In one sense, Mr Ingolby was in the classic position of a corporation CFO – not directly involved in the sales relationship with the customer, but was sufficiently across the financing processes that he was “involved” in the transactions by co-authorising payments. It is this salutary lesson to CFO in any large corporation engaged in trade in “high risk” jurisdictions – know your customer and know your business. Whether you can rely on what others tell you will depend upon the circumstances, but the more complex and lucrative the commercial pressures are, the greater the personal risk if it all goes pear-shaped.

General observations

In both judgments, the Court made it clear that it treated the allegations and contraventions as serious, and worthy of a penalty that acted to provide sufficient general deterrence to others committing similar offences. The Court’s attitude to directors and officers who are found to have contravened their clear statutory duties is best described by Justice Robson[4]:

The obligation imposed by s 180(1) demands a standard of care and diligence in directors and other officers of the corporation in managing the affairs of the corporation…The obligation is important in ensuring that proper standards of care and diligence are maintained in our corporations…The punishment determined by the Court may appear harsh in light of a career of honest and loyal conduct particularly where the personal and family hardship experienced by the defendant (Lindberg) is taken into account. Nevertheless, there is a significant public importance in appropriate standards being expected of directors and other officers of corporations. These standards of conduct are not unduly high…The contraventions…involved a lack of care and diligence in the performance of his duties that a reasonable director or other person would exercise in his position.

The ASIC proceedings continue on against the remaining defendants although for how long the war of attrition will continue, is anyone’s guess!

*****

A FOCUS ON AUSTRALIA

For many years, bribery and corruption in Australia has taken a back seat to profitable enterprise.  It was all considered a bit too foreign and something Australian companies simply did not do.  All of a sudden, that changed in 2006 when the Australian Wheat Board (AWB) wheat sales to Iraq, corrupting the UN Oil-for-Food program, blazed across Australia’s public awareness.  Since then, the media has treated us to a never-ending procession of allegations and sagas involving companies of the stature of Rio Tinto (with the corruption prosecution and imprisonment of former Rio Tinto executive Stern Hu in China), BHP and its now abandoned bauxite mining ventures in Cambodia, Leighton Holdings in the Middle East and as a standout, subsidiaries of Australia’s central bank, the Reserve Bank of Australia, engaged in potentially illegal conduct to secure lucrative polymer banknote printing contracts.

So what has been happening over the last few years?  In short, a much more focused awareness of the risks that foreign corruption brings to corporations and individual liability and a legislative push to increase investigative powers and penalties to deter errant behaviour.

Legislative Developments Post AWB Wheat Saga in 2005

In 2007, the Australian government tightened up the weaknesses in Australian foreign corruption laws highlighted by the Cole Inquiry and AWB’s conduct. (The Cole Inquiry was a Royal Commission headed by a retired appellate Judge, The Hon Terence RH Cole AO, RFD, QC, who investigated AWB’s conduct and who formed the opinion that the company and various senior executives may have committed criminal and/or civil offences in connection with their wheat sales to Iraq under the UN Oil-For-Food Program.) Those involved:

• ensuring the foreign law defence to bribery was reflected in a written foreign law; and
• criminalising conduct in contravention of United Nations’ sanctions.

Between 2007 and 2010, the Australian Government established a Taskforce to investigate whether any of the identified AWB executives should be prosecuted. The Australian Federal Police (AFP), as the Australian federal investigative policy agency responsible for investigating contraventions of Australian laws, ultimately abandoned any criminal prosecution due to insufficient evidence to warrant a criminal case. The Australian Securities and Investments Commission (ASIC), the Australian corporate regulator, commenced civil penalty proceedings against 6 former AWB directors and officers alleging breach by those persons of their common law and/or statutory duties in connection with the AWB wheat sales and the payment of monies to Iraq and to third parties. The individuals are defending the cases, although in June 2012, both the former AWB Managing Director Andrew Lindberg and the CFO, Paul Ingolby, agreed to a settlement with ASIC and their penalties will be imposed by the Victorian Supreme Court in the future.

In 2010, primarily as a result of increasing focus on Australia’s inadequate penalties by the OECD and Transparency International, the Australian Government revised the applicable penalties for foreign corrupt offences.  Those penalties were now set, for conduct post February 2010, as follows:

• for an individual – imprisonment for up to 10 years, a fine of up to 10,000 penalty units (one penalty unit being AU$110, with the maximum fine, AU$1,100,000) or both; and
• for a corporation – a fine being up to the greatest of 100,000 penalty units (or AU$11,000,000), 3 times the value of the benefit obtained directly or indirectly from the conduct or if the benefit cannot be determined, 10% of the corporation’s annual turnover during the period of 12 months ending at the end of the month in which the offending conduct occurred.

Section 70.2(6) of the Criminal Code defines “annual turnover” to be the sum of the value of all supplies that the corporation or any related corporation has made or are likely to make during the 12 month period subject to limited statutory exceptions.

These penalties are similar to the penalty regime which applies to the criminalisation of Australia’s cartel or anti-trust offences. It remains to be seen how they will be applied to a foreign bribery prosecution by an Australian Court.

In 2011, the Australian Government published a Consultation Paper reviewing a number of aspects of Australia’s foreign bribery laws. In particular, the Paper asked:

• whether facilitation payments should remain as a defence to foreign bribery; and
• whether a particular foreign official had to be identified in respect of which the alleged bribe was either paid, offered or promised to be paid.

It is unclear which way the Government will go, but the authors understand that the Government has received conflicting views on both abolishing and retaining the defence.

In April 2012, the Crimes Legislation Amendment (Powers and Offences) Act 2012 amended the Australian Crime Commission Act (ACC Act) to enable Australian statutory and secretive crime agency, the Australian Crime Commission (ACC) to share information with corporations for a ‘permissible purpose’. Features of this new regime include the following:

• section 59AB of the ACC Act enables the CEO of the ACC to disclose information to a prescribed body corporate, but only in circumstances where it would not prejudice the safety, or the fair trial, of a person who has been charged with an offence;
• the ACC can impose conditions on the body corporate to ensure that the information is not used, and further disclosed, in a way that might prejudice the reputation of a person; and
• the overriding purpose of the amendments is to facilitate cooperation between the private sector and the ACC to enable the ACC to combat serious and organised crime, which includes foreign bribery and corruption.

Aside from the privacy issues in connection with the use and disclosure of information, there are a number of practical challenges that arise, and present obvious risks, for a corporation in circumstances where one of its employees is the subject of an ACC investigation and subsequent disclosure, which include:

• whether the information should be disclosed in the first place just to the corporation CEO, Chairman, or a wider group including General Counsel and, if applicable, any Head of Security;
• if a person directly or indirectly makes a record of the information or discloses it to another person (other than for a specified purpose), that person has committed an offence with a potential penalty of up to 12 months’ imprisonment;
• care must be taken to manage the storage of material constituting the disclosed information;
• whether and if so, how the disclosed information interacts with a corporation’s continuous disclosure obligations to the market; and
• whether the corporation should conduct its own internal investigation and if so, the impact that may have on any external official (or covert) investigation.

It remains to be seen how the ACC will handle this new power. It is hoped that the ACC will adopt a sensible and flexible approach, ensuring that any disclosure is undertaken co-operatively with a relevant corporation and the corporation is informed of whether any internal investigation may or may not impact on an official investigation.

Prosecutions

Since Australia criminalised foreign bribery in December 1999, until July 2011, there had been but a few investigations, no prosecutions and no convictions.

In July 2011, the Commonwealth Director of Public Prosecutions (CDPP) laid the first criminal charges against Securency International Pty Ltd and Note Printing Australia Pty Ltd, two subsidiaries of the Reserve Bank of Australia and various individuals, alleged to be involved in corrupt conduct to secure valuable polymer banknote printing contracts.  Allegations suggested the Central Bank subsidiaries used foreign agents or intermediaries in various countries to pay or offer to pay bribes to foreign officials to secure the contracts to replace national paper currency with polymer (plastic) banknotes.  These proceedings are continuing and are subject to suppression orders by the Courts in Victoria hearing the charges.

The AFP has a number of current referrals involving potential foreign bribing.  Whether prosecutions occur in the future remains to be seen.

Current issues under review in Australia

The current anti-bribery regime in Australia still has many practical difficulties which are of concern, particularly in terms of advising and educating corporations on compliance with local and international laws.

The main issues of concern are:

1                     Regulatory Body

The AFP investigates foreign bribery. Any prosecution is conducted by the (CDPP).

There is no one identified organisation or agency which can be approached if a corporation wishes to self-report a potential offence. While a potential offence can be reported to the AFP, the present structure simply requires the AFP to investigate and then determine if a brief should be presented to the CDPP. It is only the CDPP who is authorised to offer any inducement to a potential defendant to cooperate.

A regulator modelled on the US DOJ or UK SFO would be better positioned to educate, enforce, facilitate and provide guidance to corporations. Presently, that does not exist in Australia.

2                     Facilitation Payments

This is regarded as one of the biggest risk areas.  There is confusion in understanding any real distinction between a facilitation payment and a bribe, particularly in relation to hospitality, travel and education allowances.   There is very little guidance regarding when these are acceptable commercial relationship activities and when they are considered to be a bribe.  This is exacerbated by virtue of the fact that there are differences in the foreign bribery laws around the world where the US permit facilitation payments and offer official “guidance opinions’ while in the UK, facilitation payments do not exist.

The authors consider that facilitation payments should be abolished but until that time, the best advice is to look to the UK Bribery Act as the ‘gold standard’ and as far as possible, ban them from within your organisation.

3                     Awareness of Foreign Bribery and Training

Awareness of the foreign bribery regimes outside of Australian Stock Exchange listed corporations is patchy at best.  There is a great need for corporations to continually educate their employees and third party service providers so that they can put in place robust procedure and processes.  Whilst some global companies now insist on anti-corruption clauses being included in contractual arrangements, it is by no means standard practice.

One need only look to the features of the recent investigation into Morgan Stanley in the US and the non-prosecution of the company in light of the rogue conduct of Mr Petersen in Chinese real estate speculation, to understand what a corporation must be able to demonstrate if it is to satisfy a regulator that it did all it could, in the circumstances, to prevent foreign bribery.

4                     Lack of Prosecutions

To date, there has been no judicial enforcement in Australia which has had the effect of sending a message to the market that non-compliance is not an option.

The first prosecution under the legislation has taken 12 years and is still ongoing.  The lack of prosecutions in Australia is not likely to be because Australian companies are compliant; rather, the better explanation appears to be that corporations:

(a)                are simply not recording facilitation payments in accordance with the law (to do so would essentially be a self-            admission with no protection and/or may expose relevant individuals to prosecution if the country they are dealing with does not allow for such payments);

(b)                are failing to self-report any potential foreign bribery;

(c)                are prepared to take a risk against prosecution, given the inherent complexity and cost associated with foreign bribery investigations; and

(d)                accept that such controversial payments (either as a bribe or a facilitation payment) are simply the reality of doing business in some ‘risky’ jurisdictions.

5                     Whistleblower Protection

Arguably, it is not considered culturally acceptable in Australia to ‘dob’ in a friend or colleague. However, recent research pioneered by Professor AJ Brown from Griffith University Queensland in conjunction with the University of Melbourne, suggests that over 80% of his sample considered it was more important to support whistleblowers for revealing serious wrongdoing than to punish them. The overall findings, released on 6 June 2012 (see www.newsroommelbourne.edu), suggest Australia is not a country where hostility to whistle blowers is the norm.

Currently, there is no incentive to be a whistleblower; monetary or otherwise and indeed, there can be severe, even criminal sanctions applied to certain individuals (Commonwealth employees) who blow the whistle.  There is a need for legislative reform around whistleblower protection as the Australian Public Interest Disclosure Bill presently being considered by the Australian Parliament offers limited protection.

The document states as follows.  “In September 2011, the Australian Government announced the commitment of $700,000 to develop and implement Australia’s first National Anti-Corruption Plan.  A key objective of the Plan is to strengthen Australia’s existing governance arrangements by developing a whole-of-government policy on anti-corruption.  The Plan will bring the relevant agencies together under a cohesive framework and strengthen the Government’s capacity to identify and address corruption risks.” 

Australia’s “FCPA-like” law (Division 70 of the Criminal Code Act 1995) currently states that a person is guilty of an offense of bribing a foreign public official if:  “the person provides a benefit to another person, offers or promises to provide a benefit to another person, or causes a benefit to be provided, offered or promised to another person AND the benefit is not legitimately due to the other person AND step 1 was carried out with the intention of influencing a foreign public official (who may or may not be the recipient of the benefit) in the exercise of the official’s duties, in order to obtain or retain business or obtain or retain a business advantage which is not legitimately due.”  Under the law, “two defenses are provided for the foreign bribery offense: (i) that the benefit was permitted or required by written law and (ii) that it was a ‘facilitating payment.’”

As relevant to the foreign bribery offense, the Australian government is reviewing “the treatment of facilitation payments under Australian law;” “the factors that influence whether a benefit is ‘legitimately due’ to the recipient;” and ”the current requirement to identify a particular foreign public official in order to establish an offence.”

As to facilitating payments, the document states as follows under the heading “international approaches.”  “The United States’ Foreign Corrupt Practices Act, on which the Australian law was modelled, includes a similar exemption to the offense of foreign bribery for facilitation payments. The United States Government has stated that it does not condone facilitation payments. The OECD has recommended that the United States review its policy.  The United Kingdom’s Bribery Act, which came into force on 1 July 2011, prohibits facilitation payments.”  The document also states as follows.  “The international movement towards criminalizing facilitating payments is demonstrated by the recent amendments to both UK and US bribery legislation.”   This statement is clearly wrong, there have been no recent amendments to the FCPA, although I agree with what seems to be the implication that the current FCPA enforcement agencies do not recognize the facilitating payments exception Congress put into the law.

The document states that the “government is considering whether to remove the defense of facilitating payments by repealing” that relevant section of the law.

Another issue the Australian government is reviewing is whether a particular foreign official must be identified in order to establish a bribery offense.  This same issue was disputed in both the Nexus Technologies and Africa Sting enforcement actions. 

As to this issue, the document states as follows.  “Under subsection 70.2 of the Criminal Code it is an offense to offer or provide an undue benefit to a person with the intention of influencing a public official in the course of their duties, in order to obtain business or an undue business advantage.  In some circumstances, it will be possible to establish that a bribe has been offered or provided to a person to induce a Government agency to grant business or an undue business advantage but it may be difficult to identify the specific official who will be influenced. For example, it may be possible to prove a person offered or provided a bribe to an agency in charge of granting public infrastructure contracts, but not possible to identify whether the payment is destined for the official directly responsible for granting contracts or another official who will direct their staff to grant a certain contract.  The Government therefore is considering whether to amend legislation so that, when proving that a benefit was offered or provided with an intention to influence a foreign public official, it is not necessary to prove an intention to influence a particular foreign public official.”

The Australian government is inviting submissions as to the above (and other issues) by December 15th.

For years, Canada and Australia have been hammered by various civil society organizations for its general lack of enforcement. For instance, Transparency International’s recent Annual Progress Report of the OECD Anti-Bribery Convention (here) noted that “Canada is the only G7 country in the little or no enforcement category, and [it] has been in this category since the first edition of [TI's] report in 2005.”  Australia likewise was in the little to no enforcement category and TI stated as follows.  “The continued absence of prosecution for the past decade under the Criminal Code, as well as the absence of cases reported under the taxation law for this type of bribery offence, makes it difficult to demonstrate that successful prosecution is feasible under the present system.”

Against this backdrop, it was noteworthy that Canada and Australia authorities recently brought enforcement actions.  This post summarizes the enforcement actions as well as recent developments in the U.K.

Canada

Niko Resources

On June 24th, it was announced that Niko Resources (an oil and natural gas exploration and production company headquartered in Calgary) agreed to resolve a CFPOA enforcement action.

The Agreed Statement of Facts (here) states that Niko “did, in order to obtain or retain an advantage in the course of business provide goods and services to a person for the benefit of Foreign Public Officials to induce the officials to use their position to influence any acts or decisions of the foreign state for which the official performs duties or functions, contrary” to the CFPOA. 

The conduct at issue focused on Bangladesh and Niko Resources (Bangladesh) Limited (an indirectly wholly owned subsidiary) and specifically how Niko Bangladesh “provided the use of a vehicle [a Toyota Land Cruiser] costing [$190,984 Canadian dollars] to AKM Mosharraf Hossain, the Bangladeshi State Minister for Energy and Mineral Resources in order to influence the Minister in dealings with Niko Bangladesh within the context of ongoing business dealings.”  In addition, the Statement of Facts states that “Niko paid the travel and accommodation expenses for Minister AKM Mosharraf Hossain to travel from Bangladesh to Calgary to attend GO EXPO oil and gas exploration, and onward to New York and Chicago, so that the Minister could visit his family who lived there, the cost being approximately $5000.”

According to the Statement of Facts, Canada’s investigation began after news stories surfaced concerning a possible violation of the CFPOA by Niko.

The total fine imposed on Niko was $8,260,000 plus a 15% Victim Fine Surcharge for a total of $9,499,000 (all Canadian dollars).  This would seem to be a very aggressive fine amount for providing a Toyota Land Cruiser to a Bangladeshi Minister and paying $5,000 of non-business travel expenses to the official.  The Statement of Facts states that the “fine reflects that Niko made these payments in order to persuade the Bangladeshi Energy Minister to exercise his influence to ensure that Niko was able to secure a gas purchase and sales agreement acceptable to Niko, as well as to ensure the company was dealt with fairly in relation to claims for compensation for the blowouts, which represented potentially very large amounts of money.”  The Statement of Facts further state that Canadian authorities were “unable to prove that any influence was obtained as a result of providing the benefits to the Minister.”

The Probation Order (here) in the case reads very much like a U.S. style plea agreement or NPA/DPA in the FCPA context.  Among other things, Niko agreed to continue its cooperation in the investigation, to implement a series of compliance undertakings, and to report to relevant Canadian authorities concerning its compliance and remediation.

In this Bulletin, Mark Morrision and Michael Dixon of Blake, Cassels & Graydon LLP noted that “a particularly significant aspect of this case is the amount and nature of the penalty imposed upon Niko” given that the only prior conviction under the CFPOA - in 2005 against Hydro Kleen - resulted in a $25,000 fine. The Bulletin notes that “the sentencing precedents submitted by the Prosecutor were U.S.Foreign Corrupt Practices Act (FCPA) cases and the authors state that “the court’s willingness to accept these precedents and impose a fine of this amount now sets the benchmark for CFPOA fines in Canada.”

For additional coverage of the Niko enforcement action, see here from The Globe and Mail. For a related development connected to the Niko enforcement action involving a former member of Canada’s Parliament, see here from The Globe and Mail.

In a press release (here), Niko Chairman and CEO Ed Sampson stated as follows. “What happened was wrong. We acknowledge this. We accept responsibility, and we appreciate the seriousness of the actions. As a result of these events we have taken extensive steps in all aspects of our organization. One such step is the creation of the position of Chief Compliance Officer who reports directly to our Board, to ensure that something like this doesn’t happen again.” Niko’s release notes that since 2009 it has “adopted a full anti-corruption compliance program, training program and processes for risk assessment due diligence and compliance monitoring and reporting around the world.”

Australia

Securency International, et al

For years there has been news of an investigation of Securency International and certain of its executives for alleged breaches of Australia’s criminal code which prohibit payments to foreign government officials to obtain a business advantage.  See here and here for the prior posts.

On July 1st, the Australian Federal Police commenced prosecutions against Securency International (“Securency”), Note Printing Australia Ltd (“NPA”) and a number of senior executives of those companies for criminal offences concerning the bribery and corrupting of various foreign public officials.  Criminal charging documents are not publicly available in Australia, but Robert Wyld of  Johnson Winter & Slattery (see here) provides this overview based on press reports.

“The event generated considerable publicity and banner headlines in Victoria where The Age has been prominent in investigating and following the story. The Federal Police commander, Chris McDevitt was quoted by The Age as saying that the case should send “a very clear message to corporate Australia” about avoiding bribery overseas.

The Securency allegations might be summarised as follows, taken from the news coverage of the events, noting that all corporations and individuals charged are innocent until proven guilty.

Securency and NPA have each been charged with criminal offences.  The CEO (Myles Curtis), the CFO (Mitchell Anderson) and a Sales Executive (Ron Marchant) of Securency together with the CEO (John Leckenby), the CFO (Peter Hutchinson) and a Sales Executive (Barry Brady) of NPA and each been charged with bribery offences contrary to sections11.5(1) and 70.2 of the Criminal Code.  The offences are alleged to have taken place between 1999 and 2005 and involved payments totalling nearly $10 million.  The conduct in question involved activity in Malaysia, Indonesia and Vietnam concerning the payment of moneys to consultants or others characterised as public officials in circumstances which resulted in the  award of contracts to Securency and NPA for the printing of foreign currency polymer banknotes.  Specifically,  in Malaysia, Securency and NPA secured a contract to print the 5 ringgit polymer banknotes through the services of an arms broker and a United Malays National Organisation MP and official and a former Malay central bank assistant governor has been charged with bribery by Malaysian authorities.  In Indonesia, Securency and NPA secured a contract to print 500 million 100,000 rupiah polymer banknotes through the services of a consultant, Radius Christanto who received nearly US$4.9 million in commissions.  In Vietnam, Securency secured a contract to print all Vietnamese currency on polymer banknotes, through the services of a local agent Anh Ngoc Luong (said to be a colonel in the Vietnam internal spy agency) and his company CFTD (whose directors were said to be relatives of Communist Party officials).  In  addition, in Nigeria, investigations are ongoing concerning up to $20 million that may have been paid to intermediaries to secure contracts.  Further investigations are ongoing in Europe, the UK and in the US involving the identified conduct and potentially, conduct in other countries.

To the extent that any offences result in convictions, the applicable penalties will be determined under the old Criminal Code regime which existed (and was heavily criticised by the OECD and by Transparency International) before the penalties were substantially amended in February 2010.”

U.K.

Macmillan Publishers

On July 22nd, the Serious Fraud Office (“SFO”) announced (here)  that an Order was made under the Proceeds of Crime Act  for Macmillan Publishers Limited (“MPL”)  ”to pay in excess of  £11 million in recognition of sums it received which were generated through unlawful conduct related to its Education Division in East and West Africa. ”  As noted in the SFO release, “the initial enquiry commenced following a report from the World Bank” (see here for a prior post discussing the World Bank debarment proceeding of the MPL.)   The SFO release goes into detail regarding the “ procedure based on the guidance contained within [the SFO's] published protocol document” that the SFO required MPL to follow and the release also sets forth  “a number of relevant features, which have informed the resolution” of the matter.   This SFO guidance will be of interest to those following SFO expectations in this Bribery Act era.  For more on the MPL enforcement action see here from Field Fisher Waterhouse.

Willis Limited 

On July 21st, the U.K. Financial Services Authority announced (here) a £6.895 million fine against Willis Limited for “failings in its anti-bribery and corruption systems and controls.”  The FSA release states as follows.  “Between January 2005 and December 2009, Willis Limited made payments to overseas third parties who assisted it in winning and retaining business from overseas clients, particularly in high risk jurisdictions. These payments totalled £27 million. The FSA investigation found that, up until August 2008, Willis Limited failed to: ensure that it established and recorded an adequate commercial rationale to support its payments to overseas third parties; ensure that adequate due diligence was carried out on overseas third parties to evaluate the risk involved in doing business with them; and adequately review its relationships on a regular basis to confirm whether it was still necessary and appropriate for Willis Limited to continue with the relationship.  These failures contributed to a weak control environment surrounding payments to overseas third parties and gave rise to an unacceptable risk that these payments could be used for corrupt purposes, including paying bribes. In addition, between January 2005 and May 2009, Willis Limited failed to adequately monitor its staff to ensure that each time it engaged an overseas third party, an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out. Although Willis Limited improved its policies in August 2008, it failed to ensure that its staff were adequately implementing them. Lastly, throughout the period, Willis Limited’s senior management did not receive sufficient information about the performance of Willis Limited’s relevant policies to allow them to assess whether bribery and corruption risks were being mitigated effectively. During the FSA investigation, Willis Limited identified as suspicious a number of payments totalling $227,000 which it made to two overseas third parties in respect of business carried out in Egypt and Russia.”

According to the FSA,  Willis’s “failings created an unacceptable risk that payments made by Willis Limited to overseas third parties could be used for corrupt purposes.”  The FSA release states that the fine is the  largest “in relation to financial crime systems and controls to date.”  For more on the Willis Limited enforcement action see here from Adam Greaves of McGuireWoods.  The FSA’s Willis Limited enforcement action is similar to a January 2009 enforcement action against Aon Limited (see here).

Amending the FCPA to include a compliance defense is one of the U.S. Chamber’s FCPA reform proposals (see here). In November 2010, Andrew Weissman, on behalf of the Chamber, testified in favor of a compliance defense (and other reform proposals) during the Senate’s FCPA hearing (see here for the prior post) and during the House hearing earlier this month (see here for the prior post), former Attorney General Michael Mukasey, on behalf of the Chamber, also testified in favor of a compliance defense (and other reform proposals).

During the House hearing, there appeared to be bi-partisan support for consideration of an FCPA compliance defense.

Even so, Greg Andres, testifying on behalf of the DOJ, stated that a potential FCPA compliance defense was “novel and risky” and that the “time is not right to consider it.”

Public debate on a potential compliance defense has thus far focused, from a comparative standpoint, on the United Kingdom and Italy.

The purpose of this post is to further inform the public debate on a potential compliance defense by highlighting various compliance-like defenses around the world in other countries that are signatories (like the U.S.) to the OECD Anti-Bribery Convention.

This post is further to my work in progress – Revisiting an FCPA Compliance Defense - and represents hours of research analyzing 38 OECD Country Reports.

The post provides an overview of compliance-like defenses in the following OECD Convention signatory countries: Australia, Chile, Germany, Hungary, Italy, Japan, Korea, Poland, Portugal, Sweden, and Switzerland. [The U.K. Bribery Act, set to go live on July 1st, also contains a compliance-like defense in Section 7].

A first reaction might be – only 12 of the 38 OECD member countries have a compliance-like defense.

However, this number must be viewed against the backdrop of the following dynamics: (i) in many OECD Convention signatory countries, the concept of legal person criminal liability (as opposed to natural person criminal liability) is non-existent; and (ii) in many OECD Convention signatory countries that do have legal person criminal liability, such legal person liability can only result from the actions of high-level executive personnel or other so-called “controlling minds” of the legal person.

Obviously if a foreign country does not provide for legal person liability, there is no need for a compliance defense, and the rationale for a compliance defense is less compelling if legal exposure can result only from the conduct of high-level executive personnel or other “controlling minds.”

When properly viewed against these dynamics, a compliance-like defense (whether specifically part of a foreign country’s “FCPA-like” law or otherwise generally part of a foreign country’s legal principles) is far from a “novel” idea, but rather common among OECD Anti-Bribery Convention signatory countries that – like the U.S. – have legal person criminal liability that can attach based on the conduct of non-executive officers or other “controlling minds.”

[The below information is based strictly on OECD country reports and is subject to the qualification that in many instances the most recent information concerning a particular country may be several years old. If anyone has more recent information concerning any particular country, how the compliance defense in a particular country has worked in practice, or any other relevant information, please leave a comment on this site or contact me at mjkoehle@butler.edu]

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Australia

Australian law implementing the OECD Convention entered into force on December 18, 1999.

Thereafter, a section of the Criminal Code on corporate criminal liability came into full force establishing an organizational model for the liability of legal persons. “Bodies corporate” are liable for offences committed by “an employee, agent or officer of a body corporate acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent authority” where the body corporate “expressly, tacitly, or impliedly authorised or permitted the commission of the offence”.

Pursuant to the Criminal Code, authorisation or permission by the body corporate may be established in the following ways: (1) the board of directors intentionally, knowingly or recklessly carried out the conduct, or expressly, tacitly or impliedly authorised or permitted it to occur; (2) a high managerial agent intentionally, knowingly or recklessly carried out the conduct, or expressly, tacitly or impliedly authorised or permitted it to occur; (3) a corporate culture existed that directed, encouraged, tolerated or led to the offence; or (4) the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision.

However, under the Criminal Code, “if a high managerial agent is directly or indirectly involved in the conduct, no offence is committed where the body corporate proves that it “exercised due diligence to prevent the conduct, or the authorisation or permission.”

Chile

Chilean law implementing the OECD Convention entered into force on October 8, 2002.

In December 2009, a separate Chilean law entered into force establishing criminal responsibility of legal persons for a limited list of offences including bribery of foreign public officials.

In order for a legal person to be held responsible for a foreign bribery offence, the following “three cumulative requirements” must be satisfied: (1) the offence must be committed by a person acting as a representative, director or manager, a person exercising powers of administration or supervision, or a person under the “direction or supervision” of one of the aforementioned persons; (2) the offence must be committed for the direct and immediate benefit or interest of the legal entity. No offence is committed where the natural person commits the offence exclusively in his/her own interest or in the interest of a third party; and (3) the offence must have been made possible as a consequence of a failure of the legal entity to comply with its duties of management and supervision. An entity will have failed to comply with its duties if it violates the obligation to implement a model for the prevention of offences, or when having implemented the model, it was insufficient.”

As to the final element, the OECD report states as follows. “The final cumulative requirement for responsibility stresses that the offence must have been made possible as a consequence of the failure of the legal person to comply with its duties of administration and supervision. The entity will have failed to comply with its duties if it violated the obligation to implement a model for the prevention of offences, or when having implemented the model, the latter was insufficient. It shall be considered that the functions of direction and supervision have been met if, before the commission of the offense, the legal person had adopted and implemented organization, administration and supervision models, pursuant to the following article, to prevent such offenses as the one committed.”

The minimum features of a prevention system under the law are as follows: identify the different activities or processes of the entity, whether habitual or sporadic, in whose context the risk of commission of the offences emerges or increases; establish protocols, rules and procedures that permit persons involved in above-mentioned activities or processes to program and implement their tasks or functions in a manner that prevents the commission of the indicated offences; identify procedures for the administration and auditing that allow the entity to impede their use in the listed offences; establish internal administrative sanctions, as well as procedures for reporting or pursuing pecuniary responsibility against persons who violate the prevention system; introduce the above-mentioned duties, prohibitions and sanctions into the internal regulations of the legal person, and ensure that they are known by all persons bound to apply it (workers, employees, and service providers).

The OECD report states – as to the minimum requirements as follows. “It also aims to introduce a system of self-regulation by companies. Having a code of conduct on paper will not be sufficient to avoid responsibility. If prosecutors can prove that the code does not meet the minimum requirements of or that it is not implemented, the company can be responsible for the offence.”

Under Chilean law, “the failure to comply with duties of management and supervision is an element of the offence rather than a defence. Therefore the burden of proof lies on prosecutors, i.e. it will be up to prosecutors to prove that the entity failed to comply with its duties of management and supervision.”

The OECD report notes as follows. “This will require prosecutors to prove that the company failed in the design and/or implementation of the offense prevention model including why, in the circumstances, the prevention model was insufficient. This would appear to also require the prosecutor to establish that this failure made perpetration of the offence possible.”

As noted in the OECD report, the Chilean “standard of liability is inspired from the Italian system of liability of legal persons” (discussed below).

Germany

German law implementing the OECD Convention entered into force on February 15, 1999.

German law establishes the liability of legal persons, including liability for the foreign bribery offence, under an administrative (i.e. non-criminal form) act.

Pursuant to the administrative act, “the liability of legal persons is triggered where any “responsible person” (which includes a broad range of senior managerial stakeholders and not only an authorised representative or manager), acting for the management of the entity commits i) a criminal offence including bribery; or ii) an administrative offence including a violation of supervisory duties which either violates duties of the legal entity, or by which the legal entity gained or was supposed to gain a “profit”.”

As noted in the OECD report, “in other words, Germany enables corporations to be imputed with offences i) by senior managers, and, somewhat indirectly, ii) with offences by lower level personnel which result from a failure by a senior corporate figure to faithfully discharge his/her duties of supervision.”

The OECD report states that the “standards for a violation of supervisory duties include consideration of factors such as whether the company has in place a monitoring system or in-house regulations for employees.”

Hungary

Hungarian law implementing the OECD Convention entered into force on March 1, 1999.

In 2004, a separate law was enacted specifying the individuals whose actions can trigger the liability of the legal person.

The OECD report states as follows. “The specific persons and additional conditions for liability are defined as follows: (i) the bribery is committed by one of the members or officers [of the legal entity] entitled to manage or represent it, or a supervisory board member and/or their representatives acting within the legal scope of activity of the legal person ; (ii) the bribery is committed by one of the members of the legal entity or an employee acting within the legal scope of activity of the legal person provided the bribery could have been prevented by the chief executive fulfilling his supervisory or control obligations; and (iii) the bribery is committed by a third party individual, provided that the legal entity’s member or officer entitled to manage or represent the it had knowledge of the facts.”

According to the OECD report, the relevant law does not provide any guidance as to the necessary degree of supervision to avoid liability for bribery.

Italy

Italian law implementing the OECD Convention entered into force on October 26, 2000.

Under Italian law, “criminal liability cannot be attributed to legal persons” however, “administrative liability may be attributed to legal persons for certain criminal offences (including foreign bribery) committed by a natural person.

The relevant administrative decree provides a “defence of organisational models” to a body which makes reasonable efforts to prevent the commission of an offence.

The OECD report states as follows. “… [A] body is not liable for offences committed by persons in senior positions if it proves the following. First, before the offence was committed, the body’s management had adopted and effectively implemented an appropriate organisational and management model to prevent offences of the kind that has occurred. Second, the body had set up an autonomous organ to supervise, enforce and update the model. Third, this autonomous organ had sufficiently supervised the operation of the model. Fourth, the perpetrator committed the offence by fraudulently evading the operation of the model.” The defence of organisation models operates as a full defence which completely exculpates a legal person.

The relevant administrative decree stipulates the essential elements of an acceptable organisational model described in the OECD report as follows. “First, the model must identify activities which may give rise to offences. Second, the model must define procedures through which the body makes and implements decisions relating to the offences to be prevented. It must also prescribe procedures for managing financial resources to prevent offences from being committed. Third, the model must oblige the internal organ responsible for supervision and enforcement to provide information to the body. Finally, the model must include a disciplinary system for non-compliance.”

Japan

Japanese law implementing the OECD Convention entered into force on February 15, 1999 .

“Under Japanese law, criminal responsibility of a legal person is based on the principle that the company did not exercise due care in the supervision, selection, etc. of an officer or employee to prevent the culpable act.

The burden rests on the legal person to prove that due care was exercised. Where a legal person raises the defence, a person must be identified as having exercised due care, etc., and the court must determine whether it was exercised properly having regard to the nature of the legal person and the circumstances of the case.”

Korea

Korean law implementing the OECD Convention entered into force on February 15, 1999.

Korean law establishes the criminal responsibility of legal persons for the bribery of a foreign public official, however, a legal person is exempt from liability where it has paid “due attention” or exercised “proper supervision” to prevent the offence.

The statute itself does not provide information about what constitutes “due attention” or “proper supervision.” A representative of the Supreme Public Prosecutor’s Office informed the OECD that “the exemption is triggered when a director or ‘superior person’ exercises due attention.” The Explanatory Manual published by the Ministry of Justice states that “it is difficult to standardize the extent of attention or supervision in deciding whether a legal person can be exempted from criminal punishment.” The Explanatory Manual further states that whether the exemption applies depends upon “general circumstances such as the motive and background that led to the bribery, intervention of exclusive members of the legal person, whether it was informed earlier, and how much effort was usually made by the corporation to prevent bribery, etc.” and that companies involved in international business must prevent violations of the law by all employees and executives of the company “through sufficient necessary management”.

Poland

Polish law implementing the OECD Convention entered into force on February 4, 2001.

Polish law provides “a noncriminal form of responsibility for collective entities.” Among the requirements for liability is the offence was committed “in the effect of at least absence of due diligence in electing the natural person [committing the act] or of at least the absence of due supervision over this person by an authority or a representative of the collective entity.”

According to the relevant Polish legislative history, “the perpetration of a prohibited act by a natural person will trigger liability of the
collective entity where the act occurred as a result of negligence on the part of the authority or representative of the collective entity.”

Portugal

Portuguese law implementing the OECD Convention entered into force on June 9, 2001.

Under Portuguese law relevant to corruption in international business transactions, legal persons can be liable for conduct committed “on their behalf and in the collective interest by natural persons occupying a leadership position within the legal person structure” or by “whoever acts under the authority” of such natural persons.

However, “[t]he liability of legal persons and equivalent entities is excluded when the actor has acted against the orders or express instructions of the person responsible.”

Sweden

Swedish law implementing the OECD Convention entered into force on July 1, 1999.

Under Swedish Law, only natural persons can commit crimes. However, pursuant to the Swedish Penal Code, a “kind of quasi-criminal liability is applied to an ‘entrepreneur’ (a general term meaning “any natural or legal person that professionally runs a business of an economic nature) for a ‘crime committed in the exercise of business activities.’”

However, one requirement under the Penal Code is that “the entrepreneur has not done what could reasonable be required of him for prevention of the crime.”

Switzerland

Swiss law implementing the OECD Convention entered into force on May 1, 2000.

Article 100quater of the Swiss Criminal Code requires “defective organisation as a condition for corporate criminal liability.”

In order to incur criminal liability, “the enterprise must not have taken all reasonable and necessary organisational measures to prevent the individual from committing the offence.”

Under Swiss law, the burden is on the prosecutor to furnish proof of defective organization and according to Swiss authorities contacted by the OECD “steps should be taken to assess whether employees have been sufficiently informed, supervised and controlled” and “the fact that an enterprise is organised in compliance with international management standards will not be sufficient to rule out all liability on its part; it will be one element to take into consideration among others …”. In the view of Swiss authorities, “ shifting the burden of proof in criminal cases would contravene Article 6 of the European Convention on Human Rights.”

Securency International (here) is a joint venture between the Reserve Bank of Australia, the country’s central bank, and Innovia Films (here), a Cumbria, England-based company that makes cellulose films for packaging and labels.

According to this article in the Sydney Morning Herald the “Reserve Bank is reeling after Federal Police and overseas law-enforcement agencies staged co-ordinated global raids yesterday to uncover evidence of corruption and bribery involving the bank note firm Securency.” Bribery is suspected to have occurred in several countries, including Vietnam, Nigeria, Malaysia and Indonesia. As the article notes, if criminal charges are filed, it would be Australia’s first foreign bribery prosecution.

The above linked Sydney Morning Herald article also has an informative five minute audio clip about the raid and the allegations against Securency International.

Will the U.S. get involved?

That depends if there is even jurisdiction.

Neither Securency or Innovia appear to be an “issuer” or “domestic concern.” But there is still the 78dd-3 prong of the FCPA which applies to “any person” (corporate or individual) that generally performs any act in furtherance of an improper payment scheme while in the territory of the U.S. Like most FCPA issues, the DOJ takes an expansive view of this jurisdictional element and prior enforcement actions have been based on use of the U.S. bank accounts, U.S. dollar-denominated financial transactions, and use of the U.S. mail and wires (such as e-mail) in connection with the improper payment scheme.

For more on expansive FCPA jurisdiction over non-U.S. companies, see this July 2010 Shearman & Sterling publication.