Foreign Bribery Update - April 2014

Articles Written by Robert Wyld (Consultant)

Introduction

This update covers a range of important developments in Australia and overseas in the area of foreign bribery policy, investigations and regulation in the first quarter of 2014. These developments will impact on Australian businesses working offshore and only reinforce the need to have and to implement a pro-active anti-corruption compliance framework within your business.

Please insert this Update behind the Updates tab in your copy of the JWS Foreign Bribery Guide.

The key issues that are covered in this Update include:

  • Australia and Asia Pacific developments
    • Australia's address to the G20 Anti-Corruption Roundtable
    • ASIC and whistleblower protections
    • ASIC and civil penalties
    • Australian foreign bribery investigations and prosecutions - media updates
    • Asia Pacific developments
  • US developments
    • FCPA Opinion 2014
    • Trends in Enforcement
  • UK developments
    • Sentencing Guidelines for fraud, bribery and money laundering
  • European Commission Anti-Corruption Report
  • Legislative introductions for foreign bribery laws - Brazil and Latvia

Australia & Asia Pacific developments

Australia and the G20 Anti-Corruption Roundtable

The Australian Government has been remarkably quiet in the foreign bribery space. A Consultation Paper into whether facilitation payments should be abolished (published in November 2011) appears to have died an unfortunate death by inertia.

It was refreshing to read that the Attorney General, George Brandis QC, in delivering his opening address to the G20 Anti-Corruption Roundtable, made it clear that corruption is and remains one of the greatest barriers to global growth and that all governments must address the systemic problems flowing from corruption.

The Attorney General highlighted three specific issues that warranted close attention by the Roundtable group - judicial integrity, foreign bribery and the transparency of legal structures and the identity of beneficial owners. While little was said on the detail, it is encouraging to see the topic of foreign bribery (whatever that entails) is firmly on the agenda while Australia chairs the G20 in 2014.

ASIC and whistleblower protections

On 18 February 2014, ASIC published its Information Sheet No. 52 entitled 'Whistleblowers and whistleblower protection'. ASIC's responsibilities are to regulate companies acting in contravention of the Corporations Act 2001 (Cth) (Act). ASIC's focus is on conduct which is disclosed to it which involves a potential contravention of the Act. The Act provides a statutory framework to protect whistleblowers (see Pt9.4AAA, sections 1317AA to 1317AE).

The key elements under the statutory whistleblower protection regime that must be satisfied are:

  • the whistleblower must be an officer or an employee of the company or a contractor or employee of a contractor which has a current contract to supply goods or services to the company the disclosure is about;
  • the disclosure must be to the company's auditor, a director, secretary or senior manager within the company, a person authorised by the company to receive whistleblower disclosures or ASIC;
  • the whistleblower must identify himself when making the disclosure;
  • the whistleblower must have reasonable grounds to suspect that the information disclosed indicates the company or company officers may have breached the Act (or ASIC's Act); and
  • the whistleblower must make the disclosure in good faith.

The tenor of ASIC's approach is that it still has limited resources, it prefers to focus on the disclosed conduct and it keeps emphasising that a whistleblower should seek independent legal advice. ASIC has been criticised in the past for responding very slowly at times to significant complaints. ASIC will now appoint a dedicated Liaison Officer to be in regular contact with the whistleblower. While a whistleblower may have protection from victimisation, any complaint about how a whistleblower is treated is a private matter between the whistleblower and the company.

In an Ethics Conversation hosted by the St James Ethics Centre in Sydney on 8 April 2014, the ASIC Chairman, Greg Medcraft indicated that while the protection of whistleblowers was important, he appeared less enamoured of the US whistleblower bounty scheme established under the US Securities Exchange Act. Mr Medcraft felt that such a scheme sat uncomfortably with the Australian culture of "not dobbing in a mate". At the same event, Rod Sims, the Chairman of the Australian Competition & Consumer Commission, was concerned about how Australian courts might treat an individual who had a financial interest in a prosecution and the impact that might have on a whistleblower's overall credibility. Perhaps the pioneering research work of Prof AJ Brown at Griffith University might help to debunk the myth of not dobbing in a mate - and encourage regulators to realise that the vast majority of Australians consider that whistleblowers who report serious misconduct should be both praised and protected. It remains to be seen how ASIC will act in the future towards whistleblowers.

ASIC and civil penalties

In March 2014, ASIC published its Report No. 387 entitled 'Penalties for corporate wrongdoing' which considered the penalties available to ASIC and whether they were proportionate and consistent with those for comparable wrongdoing in selected overseas jurisdictions. The key findings of the Report were as follows:

  • ASIC rated effective enforcement as critical to achieving its strategic priorities of fair and efficient financial markets with a range of penalties designed to deter contravention and promote greater compliance;
  • in relation to imprisonment and fines open to ASIC to seek through litigation:
    • the maximum fines are broadly consistent with other comparable jurisdictions save for the US;
    • other jurisdictions have greater flexibility to impose higher non-criminal fines;
    • other jurisdictions can seek the disgorgement of profit generated by the wrongdoing
  • within Australian legislation, there are examples where non-criminal fines can be imposed at a much higher amount than those available to ASIC.

ASIC has called for greater penalties to be available to it for corporate wrongdoing. While ASIC made it clear that it will pursue the sanctions and remedies best suited to each case on its merits, Mr Medcraft made it clear at the St James Ethic Centre Conversation that he wanted to target individuals as it was only through "scaring the hell out of people" faced with imprisonment, that he believed commercial behaviour might, in fact, change.

Australian foreign bribery investigations & prosecutions - media updates

The Securency banknote printing corruption prosecution continues to roll on slowly in Victoria. While the whole process is subject to suppression orders in Victoria, it is hoped significant public progress in the case occurs during 2014.

The Australian media has continued to follow the saga of an AFP investigation into the Middle East business activities of Leighton Holdings, its various entities and senior officers. While no criminal prosecution has occurred, the opening salvos in a securities class action in Victoria concerning non-disclosure to the market between aggrieved Leighton shareholders and the company suggests the case will continue to affect the company, currently under new Spanish management.

Asia Pacific developments

The Asia Pacific region is home to both many of the world's most active economies and to those where the perception of systemic corruption is the greatest.

Developments in China, as one of Australia's most significant trading partners, must be followed. From mid-2013, the Chinese Government started to target multinational companies in the pharmaceutical sector, in the "supply side" of corruption rather than its traditional focus on the "demand side" of corruption, being the local Chinese public official. This must ring warnings to all Australian business that they are not immune from Chinese Government investigation.

In addition, the role of the US - China Joint Liaison Group on Law Enforcement, may yet see an increase in parallel US and China investigations, although human rights issues may see such investigations undertaken only in limited cases.

In the Asia-Pacific Economic Cooperation (APEC) Bali Declaration in late 2013, APEC called for greater regional cooperation on corruption and collaboration between regulators. A new regional authority is to be established, called the APEC Network of Anti-Corruption Authorities & Law Enforcement Agencies (ACT-NET). The goal of this agency is, in part, "encouraging private sector stakeholders to implement APEC's high standard principles for codes of business ethics".

At the meeting of the APEC Anti-Corruption and Transparency Working Group held in Ningbo in China in February 2014, members agreed to further discuss ACT-NET's development and implementation during 2014. The goal of the ACT-NET was said to advance greater collaboration among law enforcement authorities in combating corruption, bribery, money laundering, and illicit trade.. Future meetings of ACT-NET will take place during 2014.

US developments

2014 FCPA Guidance Opinion No 1

On 17 March 2014, the Department of Justice (DOJ) issued its latest Opinion No. 14-01.

The Opinion was released at the request of a US financial services company, Requestor, who had concerns as to the payout terms for a founding shareholder in a foreign company, to be acquired by Requestor, who had left to become a senior official in a foreign government.

The interest in the Opinion is that the Requestor and the foreign shareholder agreed not to rely on their contractual rights on the terms for buying out the foreign shareholder. Rather, they agreed to an independent valuation of the value to be paid to the shareholder together with strict undertakings as to any future relationship between them and the official recusing himself from government decisions concerning the Requestor.

The Opinion made it clear that the DOJ did not regard business relationship per se as a problem under the FCPA, but rather whether any indicia of a corrupt intent existed. Such indicia included:

  • the transparency of the arrangement involving any foreign government and the general public;
  • conformity to local law; and
  • the existence of safeguards to prevent any improper use of a position by the foreign official.

The time it took to secure the Opinion was nearly 8 months. It might have been less but for the Requestor and the DOJ taking nearly 5 months to deal with the DOJ questions and for the final supply of information.

Trends in US Enforcement

Investigations and prosecutions continue. Companies continue to settle claims while the regulators continue to target individuals. Significant matters that have arisen include the following:

  • Alcoa - US$384m in January 2014 for improper payments to officials in Bahrain for the acquisition of raw materials and which involved alleged conduct against Alcoa of Australia;
  • Marubeni - US$88m in March 2014 (noting that in 2012, Marubeni resolved a US$55m FCPA enforcement action arising out of corrupt conduct at the notorious Nigerian Bonny Island project) for improper payments to officials in Indonesia on a power project;
  • Hewlett Packard - US$108m in April 2014 for improper payments to officials in Poland, Mexico and Russia to secure and maintain lucrative public sector IT contracts;
  • as against individuals - on 3 April 2014, the DOJ unsealed a criminal indictment against six individuals (from Hungary, the Ukraine, India and Sri Lanka) who participated in an alleged international conspiracy involving bribes of state and central government officials in India to allow the mining of titanium minerals to generate more than $500 million in revenues per year.

The Hewlett Packard case is interesting as the criminal prosecutions targeted only the Polish, Mexican and Russian subsidiaries. The Hewlett Packard parent company resolved the SEC civil books and records claim with a payment of approximately US$29m and interest (out of the US$108m total fines). In all cases, illegal payments were made through agents, intermediaries or entities associated with relevant foreign officials.

During February 2014, Kara Brockmeyer, the Chief of the FCPA Unit within the SEC's Enforcement Division outlined the trends and priorities for 2014. These trends included the following highlights:

  • the most common foreign bribery involves improper travel and entertainment expenses for foreign officials;
  • a singular lack of due diligence occurred in companies retaining third party intermediaries;
  • companies needed to put thought and analysis into their compliance programs and internal controls and to regularly test them;
  • while the SEC favoured companies self-reporting potential offences, they should take care in doing so and take experienced legal advice; and
  • the SEC is increasingly conducting parallel investigations with other US and foreign agencies and is investigating patterns of conduct within industries.

UK developments

For Australian companies with a connection to the UK and which are potentially subject to UK jurisdiction, the key development is clearer and perhaps harsher guidelines for courts in sentencing corporate offenders.

Sentencing Guidelines for fraud, bribery and money laundering

On 31 January 2014, the UK Sentencing Council published its 'Definitive Guideline for Fraud, Bribery and Money Laundering Offences by Corporate Offenders'. The Guidelines will be effective from 1 October 2014. Critically, the Guidelines state that "in some bad cases" it may be necessary, as an "acceptable consequence" to "put the offender out of business".

  • First - the court must determine the amount of compensation for any personal injury, loss or damage and where the offender's means are limited, to give priority to the payment of compensation over any other financial penalty;
  • Second - for confiscation, the court must consider such an order whether or not the prosecution seeks it, as a priority penalty save for compensation;
  • Third - the court must calculate an appropriate fine, applying the applicable offence level (or category) by reference to "harm" and "culpability":
    • "harm", involves a quantitative assessment, noting the bribery often involves true harm to commerce or markets generally, justifying a more expansive accounting for the fine value; while
    • "culpability" involves a qualitative assessment of suggested criteria, including:

a) the abuse of a position of market dominance or trust;

b) whether obstruction of justice or official corruption occurred;

c) the vulnerability of victims;

d) the existence of previously adopted preventive measures; and

e) the significance of the company's role in any concerted unlawful conduct.

Once this process has occurred, the Court must apply a designated "harm figure multiplier" to arrive at a range of fines and then consider whether any further factors warrant adjusting the overall penalty. As the Guidelines state, "the fine must be substantial enough to have a real economic impact which will bring home to both management and shareholders the need to operate within the law".

The Guidelines are by its language, meant to be prescriptive in stating what a court must do even though a court has discretion to tailor the penalty to the circumstances. The process is less mechanical than under the US Sentencing Guidelines and it remains to be seen how the UK courts apply the Guidelines over time.

European Commission Anti-Corruption Report

On 3 February 2014, the European Commission published its EU Anti-Corruption Report.

The Report made it clear that while Transparency International perceive corruption as relatively low across Western Europe and increasing in prevalence as you head east, it remains a real problem across all of Europe.

The key findings from the Report include:

  • 75% of companies say corruption is widespread in their country;
  • 43% of European companies see corruption as a problem doing business;
  • nearly 50% of companies see the only way to succeed in business in Europe is to have (and use) political connections;
  • nearly 33% of companies involved in public tenders say corruption prevented them from winning a contract; and
  •  the most common forms of corruption included:
    • favouring friends and family in business - 43%
    • favouring friends or family in public institutions - 43%
    • tax fraud and non-payment of consumer taxes (like the UK VAT) - 42%.

The EU recommended a much more focused approach to accountability, integrity standards, control mechanism in public authorities, managing conflicts of interest for and with public officials (on that point, see the US DOJ 2014 Opinion referred to above) and the effectiveness of enforcement and protections for whistleblowers. Europe is clearly not such a safe haven from corruption as Western Europe might like to see itself, so Australian companies should take care.

Legislative reforms on foreign bribery laws

Brazil

On 29 January 2014, Brazil enacted changes to its Clean Companies Act to create strict anti-corruption laws. Prior to these changes, Brazilian authorities could only pursue individuals for corruption. The Act now brings Brazil into compliance with the OECD Convention.

The significant changes which now apply include:

  • creating jurisdiction over Brazilian companies in Brazil or offshore, including Brazilian subsidiaries or agents of foreign companies and to foreign companies doing business in Brazil;
  • creating a criminal offence of bribing domestic and foreign public officials including fraud in connection with public procurement activities, but with no commercial bribery offence (such as in the UK);
  • there is no facilitation payments defence;
  • imposing strict liability on offenders, with prosecutors needing only to establish that the offending conduct was performed in the company's interest or to its benefit;
  • creating successor liability and in some circumstances, joint liability;
  • severe fines, within a range of between 0.1 and 20% of a company's gross revenue in the year prior to any government investigation, or if the gross revenue cannot be calculated, fines between R$6,000 to R$60,000,000 (or approximately US$3,000 and US$30,000,000); and
  • in relation to self-reporting, the Act allows for a company who self reports to be entitled to a "credit", reflecting the state of its internal controls.

The Brazilian economy is significant to Australia, with large and well-developed agricultural, mining, oil and gas, manufacturing and service sectors. Brazil is second to Australia as the world's largest iron ore exporter. Brazil is also the largest, or second-largest, exporter of beef, soybeans, orange juice, sugar and chicken. It is the world's second-largest producer and largest exporter of ethanol. Under the 2012 Australia-Brazil Strategic Partnership, leaders agreed to hold regular leaders' meetings, Foreign and Trade Minister consultations' occur at least every two years, and expand the bilateral senior officials' meetings to include defence representatives in a "Strategic Dialogue". The Strategic Partnership contains initiatives aimed at improving bilateral links, including education, resources and energy, science and technology and trade and investment as well as furthering multilateral and regional cooperation. For these reasons, Australian businesses in Brazil need to take heed of these changes and to ensure their ethical standards and internal controls are up to date.

Latvia

On 7 April 2014, Latvia completed the process to become a member of the OECD Anti- Bribery Convention. Latvia will become the 41st Party to the OECD Anti-Bribery Convention on 30 May 2014.

It is expected that Latvia will introduce laws consistent with the OECD Convention criminalising foreign bribery. While Australia's trade with Latvia is small compared to other, larger countries, there is (according to DFAT) sufficient trade, particularly in alcohol, soaps and cleansers, vehicle parts and measuring and analysis instruments to warrant Australian business being aware of these developments.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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