Corruption and Enforcement III: Is Australia Anti-Bribery Compliant?

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In 1997, the Organisation for Economic Cooperation and Development (“OECD”) adopted the Convention on Combating Bribery of Foreign Officials in International Business Transactions (“Convention”) in recognition of the increasing prevalence of foreign bribery and to assist governments in combatting the same.

Australia ratified the Convention in 1999 and from June this year will be assessed on its compliance with the Convention. There is a perception that Australia has lagged behind other countries in its enforcement of the Convention and this is expected to be an area that the OECD Working Group finds lacking.  As part of the assessment process, the OECD Working Group was in Australia during the first week of June to take evidence from a broad range of stakeholders including regulators, lawyers, accountants and academics.

Australia’s assessment follows close on the heels of the OECD’s assessment of the United Kingdom. The United Kingdom has received much attention surrounding its implementation of the Bribery Act 2010, widely regarded as the current frontrunner of anti-bribery legislation, and will in many respects be a tough act for Australia to follow.  That said, the development of Australia’s first National Anti-Corruption Plan, the proposed criminalisation of facilitation payments and the recent Securency prosecution should not go unnoticed.

The Convention

The Convention requires all member countries to criminalise the bribery of foreign public officials so that under each country’s laws it becomes an offence to bribe, or to be involved in the act of bribery of, a foreign public official for the purpose of obtaining a business, or other improper advantage, in the conduct of international business.  The Convention also requires criminal penalties to be implemented by each member country in order to effectively discourage acts of bribery.

Although the Convention does not require countries to criminalise the use of facilitation payments (payments made to induce public officials to perform routine functions), there has been a shift away from the acceptability of such payments.  In 2009, the OECD recommended that member countries should:

  1. undertake to periodically review their policies and approach on small facilitation payments in order to effectively combat the phenomenon; and
  2. encourage companies to prohibit or discourage the use of small facilitation payments internally, recognising that such payments are generally illegal in the countries where they are made.

In 1999, by virtue of the Criminal Code Amendment (Bribery of Foreign Officials) Act 1999 (Cth), Australia inserted a new Division into its Criminal Code Act 1995 (“Criminal Code”) which makes it a criminal offence to bribe a foreign public official. The Division applies to bribery which occurs:

  1. within Australia; or
  2. outside of Australia if carried out by an Australian citizen, resident or corporation.

Under the Criminal Code, it is a defence if the alleged act of bribery comprised:

  1. lawful conduct in the jurisdiction in which it was made according to the written law of that jurisdiction; or
  2. a facilitation payment, or minor payment provided in return for expediting or securing the performance of a ‘routine government action’, and an appropriate record of the payment was created (“Facilitation Payments Defence”).

Under the Criminal Code, an individual found guilty of the offence of bribing a foreign public official may be imprisoned for up to 10 years and fined over $1 million dollars. A corporation found guilty of the offence may be fined up to $11 million, three times the value of the benefit obtained or 10% of the corporation’s annual turnover during the period in which the offence occurred.

Formal Evaluation

To promote the effective implementation of the Convention, each member country participates in a systematic evaluation process which is carried out by a specially formed OECD Working Group. The Working Group makes findings and provides recommendations to enhance each country’s compliance with the Convention. The process comprises three phases:

  1. an evaluation of the adequacy of each countries anti-bribery legislation;
  1. assessing how well the legislation is applied; and
  1. ensuring the Convention is being enforced.

All member countries have been through phase 1 and phase 2.

Overall, the Working Group’s 1999 phase 1 evaluative report on Australia’s legislation implementing the Convention found that the Criminal Code conforms to the standards set by the Convention.

In its 2006 phase 2 evaluation, the Working Group made 22 recommendations one of which related to clarifying the operation of the Facilitation Payments Defence.   As at 2008, the Working Group considered that 12 of the 22 recommendations had been fully implemented and eight partially implemented (including that which related to the Facilitation Payments Defence). The two recommendations that the Working Group considered had not been implemented as at 2008 related to raising awareness of foreign bribery as being a foundation for money laundering and increasing fines for foreign bribery to levels that will effectively discourage acts of bribery. 

Australia has since increased its maximum penalties for acts of bribery to those discussed above. This should help to alleviate the Working Group’s concerns in this area but these penalties may also be compared to those provided for in the United Kingdom’s Bribery Act 2010 which provides for unlimited fines.

Phase 3 evaluations began in 2010 and are due to be completed by 2014.

The Working Group’s evaluation of the United Kingdom

On 30 March 2012, OECD’s bribery Working Group published a report evaluating the United Kingdom's implementation and application of the Convention. During its phase 3 evaluation, the Working Group found that the United Kingdom has meaningfully improved its foreign bribery enforcement since its phase 2 evaluations.

The Working Group considered that the United Kingdom has made significant efforts relating to raising public awareness of the content of the Bribery Act 2010 as well as the offence of foreign bribery itself.   However, the Working Group considered that the United Kingdom needs to be more transparent when resolving cases. It is concerned that, to settle foreign bribery-related cases, the United Kingdom authorities are increasingly relying on civil recovery orders that require less judicial oversight and are less transparent than criminal plea agreements. The Working Group is also concerned that, in some cases, the United Kingdom’s Serious Fraud Office (“SFO”) has entered into confidentiality agreements that prevent the disclosure of key information after cases are settled.

As a result of the phase 3 evaluation, the Working Group outlined a number of recommendations to improve the United Kingdom's process of combatting foreign bribery which include:

  1. ensuring that resources allocated to foreign bribery cases are adequate;
  1. the SFO and the United Kingdom’s Financial Services Authority co-ordinating enforcement action where appropriate; and
  1. establishing clear procedures and criteria for communicating with companies concerning prospective and past conduct. The procedures should clearly distinguish between companies seeking advice and those who self-report wrongdoing.

The UK is to report (orally) on its implementation of the recommendations put forward by the Working Group within one year. It must then, within two years, submit a written report outlining the steps it has taken to implement the recommendations.

Australia’s turn

Australia is due to be assessed as part of the phase 3 evaluations from June 2012. How will it fare?

In September 2011, the Australian Government announced its intention to develop and implement Australia’s first National Anti-Corruption Plan (“Plan”), in order to coordinate and guide anti-corruption activities in Australia.  Currently, Australia’s approach to combating corruption is based on a multi-agency approach, which vests responsibilities for anti-corruption policies and initiatives with a number of different agencies. The Plan seeks to bring the relevant agencies together under a cohesive framework to strengthen the Government’s ability to identify and address corruption risks.

In view of the OECD Working Group’s concerns raised during phase 2, the Australian Government issued a consultation paper in November 2011 proposing the removal of the Facilitation Payments Defence from the Criminal Code. The outcome of the consultation paper is yet to be determined.  If the Facilitation Payments Defence is removed, consequential amendments will need to be made to Australia’s Income Tax Assessment Act 1997 (Cth) which currently treats facilitation payments as tax deductable.

Australia has done little in the way of investigation or prosecution in line with the objectives and requirements of the Convention and this will undoubtedly be an area of concern recognised by the Working Group.   The recent Securency prosecution, the hearing of which took place in Melbourne on 27 July 2011, marked the first ever bribery prosecution under the Criminal Code. The prosecution arose from allegations by a company insider in 2009 that Securency (a subsidiary of the Reserve Bank of Australia) paid nearly $50 million to foreign middlemen to bribe central banking officials in Malaysia, Indonesia and Vietnam to secure bank note supply contracts.  Following an investigation dubbed “Operation Rune”, the Australian Federal Police charged Securency and Note Printing Australia Limited and several of the companies’ former senior managers with bribing foreign officials under the Criminal Code.  While the Securency prosecution is a clear warning to Australian companies and executives engaged in business overseas that Australian authorities are making good on their promise to investigate and prosecute corruption offences, the OECD Working Group will undoubtedly want to see Australia doing more in this area.

Justin McDonnell, Partner and Natalie Caton, Senior Associate

King & Wood Mallesons

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