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

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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 2nd and 3rd 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.