Foreign Bribery Update - August 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 to August 2014. These developments will impact on Australian businesses working offshore and only reinforce the need to have and to implement an ongoing, 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.

Important Developments

The key issues that are covered in this Update include:

  • Australia's agenda for the G20 November meetings
  • ASIC and whistleblower protections
  • New anti-money laundering amendments
  • Changes to computer search powers for Australian spy agencies
  • Australian courts and "super injunctions"
  • Australian foreign bribery investigations and prosecutions - media updates
  • New Zealand amendments to foreign bribery and other economic crime laws
  • Asia-Pacific Anti-Corruption Network
  • US and Canadian developments
  • The US and UK regulators on directors obligations, self-reporting and whistleblowers
  • UK developments

Australian developments 

Australia's G20 Anti-Corruption Agenda

The Australian Government has a significant opportunity to proactively shape the anti- corruption agenda at the forthcoming meeting of G20 countries in Brisbane in November 2014. Senior members of the Attorney General's Department (AGD) are leading the way, seeking to develop initiatives for consideration by all G20 countries.

The Action Plan of 2012 is due to expire in 2014. The AGD is focusing on three key priorities:

  • developing rules for the disclosure of beneficial ownerships;
  • combating foreign bribery; and
  • promoting judicial integrity.

There is a broadly held view that corporate or other structures are regularly used to engage in economic crime, including corruption, and transparency is required to identity the beneficial ownership of a particular entity. Together with targeting foreign bribery and corruption, the G20 governments regard these topics as of high priority. Each G20 country is to prepare a detailed self-assessment of their performance as against the OECD Convention criteria. Once principles are agreed upon, they will be made public by the G20 leaders.

In terms of any National Anti-Corruption Plan, promoted by the former Labor Government, the Plan appears to have died due to government inactivity and it is not clear whether it will be resuscitated. The public perception from the media is that the current government is not interested in any over-arching Commonwealth anti-corruption body. This is disappointing as history tells us that wherever governments make decisions worth significant money, the existence of corruption rears its head.

ASIC and Whistleblower Protections

The role of protections for whistleblowers is not going away despite the apparent lack of focus within ASIC to manage whistleblower complaints.

On 26 June 2014, the Australian Senate Economics Reference Committee released its report into the ongoing review of ASIC. The Committee made a number of key recommendations:

  • that ASIC establish an "Office of the Whistleblower";
  • that existing laws should be extended to cover anonymous disclosures;
  • the "good faith" requirement for protected disclosures under the Corporations Act 2001 (Cth) be repealed; and
  • the Government explore options to incentivise whistleblowers through a rewards-based system (as currently existing in the US under the Exchange Act).

It will be interesting to see how this last point develops. In the past, the Chairman of ASIC has publicly started he does not favour a scheme that rewards whistleblowers, believing that a reward will in some way corrupt the value of the evidence and undermine a whistleblower's credibility (although that has not been a problem in the US to date).

Anti-Money Laundering Reforms - New "know your customer" Rules

On 1 June 2014, amendments came into effect to the Anti-Money Laundering and Counter Terrorism Financing Rules Instrument 2007 (No 1). The Rules impose new "know your customer" and customer due diligence obligations on relevant institutions. The impact of these changes can be summarised as follows:

  • risk assessment procedures should be amended to include details of the purpose of a transaction and who is ultimately funding or benefitting from the transaction and the source of the funds;
  • enhanced due diligence on all parties, direct and indirect, to a transaction, understanding a customer and its management structure and the role of customer managers and representatives;
  • new criteria for PEPs, including classifying them as domestic or foreign, high or low risk and applying enhanced criteria to existing due diligence processes; and
  • a greater focus on reviewing and updating customer records.

There is no transition period for these Rules so they apply now. However, AUSTRAC has indicated it is unlikely to enforce non-compliance until 1 January 2016. All ATML processes should be carefully reviewed and updated.

ASIO, ASIS and Computer Search Powers

In July 2014, the Government introduced the National Security Legislation Amendment Bill (No 1). The Bill is designed to update the powers of the Australian Security & Intelligence Organisation (ASIO) to access data on computer networks.

The Bill proposes a raft of changes to the manner in which Australia's intelligence organisations can search and access computer-related data. The Bill contains an expanded definition of what constitutes a "computer" so that it now captures all or part of one or more computers, computer systems or computer networks. This allows access to a network or series of computers under, for example, one warrant to enhance surveillance processes.

Other changes focus on responding to technological advances, for example, allowing ASIO to deal with encrypted computers and to disrupt technology designed to alert a target of any covert monitoring, to grant immunity to ASIO officers involved in special operations and punishing any publication about any facts concerning a terrorism investigation.

For private companies, Schedule 4 to the Bill provides a mandate for "cooperation" between ASIO and the private sector, said to reflect existing practices used by ASIO in gathering covert evidence.

This focus on the ubiquitous "war on terror" and national security has resulted in the Australian Government mandating that telecommunication companies retain metadata information on calls and internet use and reversing the onus of proof if persons travel to certain countries or regions declared by the Government to be "terror-related war zones".

In addition, the Government is seeking to implement three far-reaching regimes:

  • authorising ASIO to question and detain any person, including those not suspected of any offence, to be held in secret for a week and prosecuted if a person fails to answer ASIO's questions;
  • the imposition of unlimited "control orders" to be imposed on any person; and
  • authorising preventive detention up to 14 days, in secret, without the right to speak to anyone other than an employer and one family member to confirm that they are "safe".

As the website Crikey noted (at www.crikey.com 12 August 2014), the retention of metadata is not new and indeed, a legislative scheme for its retention already exists. Chapter 3 of the Telecommunications (Interception and Access) Act 1979 (Cth) allows agencies to ask communications companies to preserve data and/or retain it on an ongoing basis without having to store data of every Australian. An agency does not even need a warrant to issue a preservation notice. We are left to assume that there may be practical difficulties as to why this mechanism is not good enough for our laws enforcement agencies. Perhaps the answer lies in the fact that crimes may go undetected for months, or years and agencies want the opportunity to trawl through historic electronic data.

These regimes were implemented nearly 10 years ago with automatic sunset clauses. The Government now wants to have them made permanent. The laws have been heavily criticised and Australia's Independent Monitor of Anti-terrorism laws, Bret Walker SC has recommended they be repealed. The Government has not accepted this advice. It remains to be seen however, how far the laws survive through an unpredictable Senate.

Australian Courts and Super Injunctions

Australia is a signatory to the OECD Anti-Bribery Convention. Article 5 of the Convention reads as follows:

Investigation and prosecution of the bribery of a foreign public official shall be subject to the applicable rules and principles of each Party. They shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.

This principle is reflected in the Prosecution Guidelines issued by the Commonwealth Director of Public Prosecutions (CDPP) where, in Annexure A to the Guidelines dealing with prosecutions for foreign bribery, it is made clear a prosecutor must not be influenced by the factors identified in Article 5 of the OECD Convention. It should be noted that the CDPP has issued Guidelines for Suppression Orders (as at May 2013). These Guidelines acknowledge that while the fundamental principle of open justice should prevail, circumstances involving "national security", "ensuring a fair trial" and the "protection of vulnerable witnesses" may justify suppression orders.

In June 2014, unbeknown to anyone outside a select group of litigants, the Victorian Supreme Court issued what is known as a "super injunction" in Australia's prominent foreign bribery case. This injunction prevents the media from reporting anything about the case, the terms of the order or the identity of various persons named in the order. These orders have now been published on the internet by WikiLeaks and have been republished across a range of Asian media. These types of orders, secured in secrecy and imposing draconian contempt penalties for any contravention, sit very uncomfortably with Australia's international obligations and the principle of open justice. Indeed, when the internet is free to publish such orders and they are republished across the regional media, one can only conclude that such orders are ineffective and are driven by unknown and unstated political or economic or other reasons. The only party that can explain the need for such orders is the Commonwealth Government, yet it remains conveniently silent, no doubt relying on that well-worn phrase "you may think that but I could not possibly comment".

Media Updates

The topics over the last few months in the Australian media have focused on the following:

  • the role of "super injunctions" issued by the Supreme Court of Victoria to prevent publication of names or any details of the long running foreign bribery case before the Courts in Victoria (see above);
  • ongoing corruption at a State level in NSW concerning the State (and Federal) Liberal party, political donations and the relationship between politicians, lobbyists and property developers;
  • the existing ICAC findings of corruption against prominent businessmen and a former NSW politician being upheld by the NSW Supreme Court with the applicants (bar one) failing in an attempt to have the ICAC corruption findings set aside (see Duncan v ICAC; McGuigan v ICAC; Kinghorn v ICAC; Cascade Coal v ICAC [2014] NSWSC 1018); and
  • the ongoing Royal Commission into corruption and financing within the construction industry and construction trade unions.

New Zealand Amends Anti-Corruption Laws and Penalties

The New Zealand Government has published the Organised Crime and Anti-Corruption Bill in Parliament to update its economic crime laws, to allow for a greater degree of international agency collaboration and to reflect the country's obligations under the OECD and United Nations Conventions.

The principal features of the Bill, in so far as anti-corruption laws are concerned, include the following:

  • authorising the NZ Police to share personal information with their international counterparts;
  • creating a criminal offence to accept a bribe from a foreign public official (attacking the demand side of corruption);
  • creating a criminal offence to accept a bribe for using one's influence over an official (referred to as "trading in influence");
  • clarifying the circumstances under which a body corporate commits the criminal offence of bribery and corruption;
  • making it clear that a foreign bribery offence can be prosecuted whether or not the conduct is an offence in the country in which the conduct occurred;
  • increasing the maximum penalty for imprisonment for a bribery and corruption conviction from 2 years to 7 years;
  • including bribery and corruption offences as a "crime involving dishonesty";
  • requiring companies to record facilitation payments (permitted under the NZ Crimes Act) in a consistent manner under the Companies Act; and
  • amending the Income Tax Act to ensure bribes are not tax-deductible.

These are important changes and while the maintenance of facilitation payments is still regrettable, the laws demonstrate the NZ Government's commitment to bringing its domestic laws into harmony with those of other OECD member countries.

Asia-Pacific Anti-Corruption Network

The recent meeting of the APEC Network of Ant-Corruption Authorities and Law Enforcement Agencies, or ACT-NET in Beijing announced the commencement of a new channel or platform for regulatory agencies to exchange information targeting large scale corruption and bribery in the Asia Pacific region. The secretariat will by initially hosted by China, based in Beijing and the Chinese Ministry of Supervision will manage the information sharing in an institutional capacity.
As Fu Kui, Vice Minister of China's National Bureau of Corruption Prevention said:

As domestic anti-corruption efforts intensify, corrupt officials flee abroad and remain at large by taking advantage of legal differences between our jurisdictions…this is a serious challenge to each economy's rule of law. By building a multilateral platform to strengthen work-level exchange and case cooperation, and expand channels for anti-corruption and law enforcement partnership, we could cut off the escape route of corrupt fugitives.

US & Canadian Developments

US & Canadian Developments

The key trends emerging from the US over the first half of 2014 can be summarised as follows:

  • the DOJ has been looking at an increasing number of repeat FCPA offenders, with the latest, Marubeni Corporation, being charged in 2012 and again more recently in March 2014 in connection with separate energy projects;
  • the DOJ and the SEC continue to pursue individuals for foreign bribery charges;
  • the US Court of Appeals for the 11th Circuit in US v Esquenazi issued a detailed ruling on the factors a Court should take into account in determining what constitutes an "instrumentality" of a foreign government under the FCPA, which as of 14 August 2014 is the subject of a petition for certiorari to the US Supreme Court, giving that Court the first opportunity to substantively consider the scope of the FCPA;
  • the US Court of Appeal for the District of Columbia held that attorney-client privilege applied to information gathered during an internal corporate investigation; and
  • key industry sectors that continue to see ongoing FCPA investigations (as reported by companies) are the financial services sector, life sciences, health and pharmaceutical companies and the oil, gas and energy sector.

Miller & Chevalier has recently published its informative FCPA Summer Review 2014. The firm has a long-standing experience in FCPA matters. They have compiled an interesting table to reflect the patterns of FCPA investigations from 2004 to 2014.

Table 1. Known FCPA Investigations initiated from 2004 to 2014 (July)

 

The table (right) reflects a continuing trend of regulatory FCPA investigations, although not quite reaching the frenetic rates achieved around 2012. This should reinforce the importance, for all Australian companies with potential exposure to US laws, to ensure they have in place robust and reliable anti-corruption compliance regimes that work which are not mere statements of ideal intent while business gets down and dirty making money the old- fashioned, almost entrepreneurial way.

Table 1 Note: Updated through July 22, 2014. Note that the initiation date attributed to each investigation is based on public disclosures and may change as additional information becomes available.

 

Whistleblower Developments

Returns for whistleblowers are continuing. On 31 July 2014, the SEC announced an award of US$400,000 to a whistleblower who reported an internal fraud to the SEC in circumstances where the company had failed to address the issue internally.

Two recent appellate judgments have focused on whistleblowers - the extent of protection for non-US based employees under the US regime and the basis of a "reasonable belief" that an employee has in reporting conduct contravening the law.

  • On 14 August 2014, in Meng-Lin Liu v Siemens AG, the US 2nd Circuit Court of Appeals ruled that the whistleblower provisions in the 2010 Dodd-Frank Act do not cover a non- US citizen employee reporting corrupt conduct by the employer where the employee is employed outside the US by a foreign company even through the foreign company is listed in the US. The Court took into account the opinion of the US Supreme Court in Morrison v National Australia Bank Ltd to hold that the anti-retaliation whistleblower protections had no extra-territorial application.
  • On 8 August 2014, in Nielsen v AECOM Technology Corporation, the US 2nd Circuit Court of Appeals ruled that the reasonableness of the employee's belief that the conduct (on which the employee blew the whistle) constituted a relevant violation of the law was both subjective and importantly objective. The Court held that an employee must demonstrate that the belief he or she held was based on "knowledge available to a reasonable person in the circumstances with the employee's training and experience."

Internal Investigations

Two recent appellate judgments in the context of internal investigation, improper commercial conduct and legal professional privilege, focus on how internal investigations are conducted, which directly impact how internal corruption investigations are established and conducted.

  • On 27 June 2014, in Kellogg Brown & Root Inc (No 14-5055, 2014 WL 2895939), a three panel bench of the US Court of Appeals for the DC Circuit held that attorney-client privilege applied to internal corporate investigations where one of the significant purposes of the investigation is for the company to obtain legal advice. In Australia, so long as the work undertaken can properly be characterised as being for the dominant purpose of the giving or receiving of legal advice, the communications created by the investigation will be privileged.
  • On 23 July 2014, in Wal-Mart Stores Inc v Indiana Electrical Workers Pension Trust Fund IBEW (No 614 of 2013), a five panel bench of the Supreme Court of the State of Delaware held, in the context of a potential suit by a shareholder against the company and the company executives for breach of fiduciary duty, that Wal-Mart was required to disclose to the shareholder internal privileged documents concerning the internal investigation into Wal-Mart's much publicised alleged scheme of illegal bribery payments to Mexican government officials at the direction of a former Mexican subsidiary. The Court directly applied the ruling in Garner v Wolfinbarger (430 F.2d 1093 (5th Cir. 1970) that subject to certain discretionary factors allows company shareholders in "invade the corporation's attorney-client privilege in order to prove fiduciary breaches by those in control of the corporation upon showing good cause."

Canadian Developments on Jurisdiction

One notable development from north of the US border is the decision by the Ontario Superior Court of Justice in Chowdhury v H.M.Q that Canadian authorities did not have jurisdiction over a foreign national alleged to have breached Canada's Corruption of Foreign Public Officials Act. While the Ontario Court accepted that Canada had jurisdiction over the offence, in light of the conduct in Canada, the Court held there was no automatic jurisdiction over a person.

Thus, as Mr Chowdhury, as former Bangladesh minister, had never been to Canada and had not committed any specific act in Canada, the mere allegation that he allegedly exerted influence over a construction project in favour of a Canadian company was insufficient to give rise to any Canadian jurisdiction over him. Whether this gives rise to a sigh of relief by foreign nationals being investigated by Canadian authorities will depend upon any ongoing appeal.

The US and UK Regulators on Directors, Self-Reporting and Whistleblowers

In recent public speeches in May and June 2014, the heads of the US SEC and the UK SFO each made important statements concerning the directions of their respective agencies. In speeches by the Chair of the US SEC, Mary Jo White (to the Annual ASIC Forum in March 2014 and the NYC Bar Association's Annual White Collar Crime Institute in May 2014), she highlighted some key concerns for the SEC:

  • the mutual assistance regime between regulators is of critical importance in successful investigations;
  • during the SEC's last fiscal year (2014-2014), the US regulators made over 700 requests for international assistance and in turn, responded to over 500 requests from foreign regulators;
  • the International Organisation of Securities Commissions is working on updated memoranda of understanding to broaden the types of international evidence to be obtained through streamlined procedures;
  • comprehensive and relentless enforcement is always of the highest priority (and in 2013, the SEC brought almost 700 cases, obtaining orders for penalties and profit disgorgement of nearly US$3.4 billion);
  • for the more serious and egregious offences, the SEC now has a new protocol requiring a public admission of wrongdoing, with defendants no longer being able to rely on the traditional "no admit/no deny" settlement protocol;
  • the US regulators will always focus on the individuals closest to the wrongdoing and work up and outwards, with no company or person, however big or important, being immune from prosecution (whatever the potential indirect consequences of a prosecution); and
  • a prime focus remains on the "gatekeepers" - lawyers, accountants, auditors, directors and other professionals who play a critical role in any financial transaction and who have a responsibility to protect companies, investors, shareholders and the community.


At the annual IBA Anti-Corruption conference held at the OECD in Paris in June 2014, the Director of the SFO, David Greene QC pointed to some critical issues for the SFO in responding to foreign bribery:

  • the SFO will act as a traditional prosecutor, focusing on serious financial crime that undermines the UK financial system or which is of high public interest;
  • in almost all cases of foreign bribery, the SFO will launch a formal investigation in order to implement its compulsive investigative powers, irrespective of whether a prosecution occurs;
  • the SFO encourages self-reporting but a company should do this on informed legal advice and with a willingness to be fully cooperative;
  • if a company seeks a Deferred Prosecution Agreement, to be offered at the SFO's invitation, it will need to approach the SFO very early, offer an early acknowledgment of liability and provide ongoing frank cooperation; and
  • the SFO does not expect a company or its lawyers to "know everything" when they first approach the SFO, but a company will need to demonstrate a willingness to uncover all potential improper conduct.

UK Developments

UK Developments

The latest developments out of the UK include the following:

  • in May 2014, the British Bankers Association published a comprehensive Anti-Bribery and Corruption Guidance for the banking sector which follows on from the April 2014 Anti-Corruption Guidance published by the Dutch Central Bank;
  • in June 2014, Transparency International UK published Countering Small Bribes, a guidance for dealing with small bribes including facilitation payments;
  • in June 2014, the UK Government announced a review of the UK's response to economic crimes with a focus on the relationship between prosecution efficiency and the relationship between regulatory agencies; and
  • in August 2014, the SFO's Innospec investigation and prosecution came to an end with the former CEO Dennis Kerrison (4 years imprisonment) and former sales director, Dr Miltiades Papachristos (18 months imprisonment) being convicted and sentenced for conspiracy to corrupt Indonesian public officials on offences pre-dating the UK Bribery Act, who now join the other two executives, former CEO Paul Jennings (2 years imprisonment and £5,000 towards prosecution costs) and former sales director David Turner (16 month suspended sentence, 300 hours unpaid work and £10,000 towards prosecution costs).

On 16 July 2014, the UK Supreme Court delivered an important judgment in FHR European Ventures LLP v Cedar Capital Partners [2014] UKSC 45. In 2004, FHR European Ventures purchased the issued share capital of Monte Carlo Grand Hotel SAM (which owned a long- term lease interest over the Monte Carlo Grand Hotel). The purchase was a joint venture between a number of claimants and FHR was the purchase vehicle. Cedar Capital acted as the claimants' agent in negotiating the purchase. Cedar Capital did not disclose the sum of €10m it received on the transaction. The appeal question before the Supreme Court was to determine on what basis FHR (as principal) could claim those monies (constituting a bribe or secret commission) from Cedar Capital (as agent).

The Supreme Court reviewed conflicting authorities and decided that bribes and secret commissions received by an agent should be treated as the property of the principal. The importance of this decision is that:

  • the principal's claim was of a proprietary nature not merely one for equitable compensation;
  • a proprietary claim would on the insolvency of an agent, rank in priority over other unsecured creditors; and
  • the principal can trace and follow his proprietary claim in equity.

As an indication of the Supreme Court's view on bribery, the following passage is an important indication of how the UK courts might look on bribery issues in the future:

Wider policy considerations also support the respondents' case that bribes and secret commissions received by an agent should be treated as the property of his principal, rather than merely giving rise to a claim for equitable compensation. As Lord Templeman said, giving the decision of the Privy Council in Attorney General for Hong Kong v Reid [1994] 1 AC 324, 330H, "[b]ribery is an evil practice which threatens the foundations of any civilised society". Secret commissions are also objectionable as they inevitably tend to undermine trust in the commercial world. That has always been true, but concern about bribery and corruption generally has never been greater than it is now - see for instance, internationally, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions 1999 and the United Nations Convention against Corruption 2003, and, nationally, the Bribery Acts 2010 and 2012. Accordingly, one would expect the law to be particularly stringent in relation to a claim against an agent who has received a bribe or secret commission.

Lastly, in May 2014, in a warning to all lawyers that they can be held liable for their conduct in foreign bribery transactions, the UK Disciplinary Tribunal of the Solicitors Regulation Authority disbarred Jeffrey Tesler, a British lawyer convicted of FCPA violations for helping KBR and three other companies bribe Nigerian officials. Tesler was convicted in February 2012 of conspiracy to contravene the FCPA, with orders for the forfeiture of more than
$148m and a 21 month term of imprisonment.

The scheme was a classic example of foreign bribery - Kellogg Brown & Root and three other companies formed a joint venture to build natural-gas facilities in Nigeria and Tesler and a Japanese company were alleged to have been engaged to help bribe Nigerian government officials in order to obtain valuable construction contracts. During the decade- long scheme, Tesler paid millions of dollars in payments on behalf of the joint venture, and in return the Nigerian government awarded the consortium more than $6 billion in contracts.

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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