Foreign Bribery Update: December 2018

Articles Written by Robert Wyld (Consultant)

This Update covers a range of important developments in Australia and overseas in the area of foreign bribery policy, commercial crime, investigations and regulation to 19 December 2018. The year’s highlights include modest legislative reform book-ended by the publication of all the Securency banknote printing foreign bribery cases which ended up with an inglorious end as the High Court of Australia strongly criticised investigation agencies for their egregious illegal conduct, throwing out several cases. These developments will impact on Australian businesses working offshore and reinforce the need to have and to implement an ongoing, pro-active anti-corruption compliance framework within your business.

Important Developments

The key issues that are covered in this Update include:

  • Australia – Securency Foreign Bribery Prosecutions Published with Mixed Results
  • Australia – ACIC and AFP: Illegal Use of Statutory Examination Powers
  • Australia – Financial Sector Royal Commission Interim Report
  • Australia – Substantial Reforms to Australia’s Corporate Penalties
  • Australia – Foreign Bribery, a Commonwealth DPA and Whistleblower Protection Reforms
  • Australia – Former Leighton CFO Guilty of False Accounting Charges
  • Australia – Commonwealth and NSW Modern Slavery Laws
  • Australia – Stagnating Money Laundering Reforms
  • Australia – Legislation to Target Encrypted Communications
  • Australia – New Commonwealth Integrity Commission: A New Dawn or a False Hope?
  • India – Reforms to Criminalise Corporate Bribery
  • Malaysia – Corporate Liability for Bribery and Corruption
  • Malaysia – IMDB Prosecutions
  • United Kingdom – Production of Offshore Documents to SFO by Foreign Entity
  • United Kingdom – Privilege and Internal Investigations, the ENRC Appeal
  • United Kingdom – Unexplained Wealth Orders and Azerbaijan
  • United States – Appointment of Corporate Monitors
  • United States – Limits on FCPA Extraterritoriality
  • United States – DOJ Changes Policy on Individual Accountability in Corporate Cases
  • International – IFBEC Guidelines on Model Business Courtesies and Hospitality
  • International – The Role of Compliance Programs
  • International – OECD Review on Demand Side Bribery

Australia – Securency Foreign Bribery Prosecutions Published with Mixed Results

On 29 November 2018, the Supreme Court of Victoria vacated all non-publication orders affecting the Securency foreign bribery prosecutions. This was as a result of the last accused, Christian Boillot, pleading guilty to one count of conspiracy. Mr Boillot will be sentenced separately.

In July 2011, the Australian Federal Police (AFP) and the Commonwealth Director of Public Prosecutions (CDPP) commenced criminal prosecutions against Securency International Pty Ltd (Securency) and Note Printing Australia Pty Ltd (Note Printing) together with several executives, alleging that they engaged in a conspiracy to bribe foreign public officials in numerous countries in order to secure valuable and very profitable banknote printing contracts for central banks, facilitated by various foreign intermediaries.

Over the last 7 years, the prosecutions were mired in lengthy committal hearings and legal arguments. Securency and Note Printing provided early pleas of guilty and were subject to pecuniary penalty orders pursuant to the Proceeds of Crime Act 2002 (Cth) forfeiting an amount reported in the media as in excess of AU$20 million.  The authorities secured success against the companies and some individuals who pleaded guilty to a variety of offences (and although convictions were recorded, no one was imprisoned), see:

  • CDPP v Note Printing Australia Pty Ltd and Securency International Pty Ltd [2012] VSC 302, see http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/vic/VSC/2012/302.html where:
    • Each company pleaded guilty to three charges of conspiring with others to bribe a foreign official, contrary to sections 11 (5) (1) and 70.2 (1) of the Criminal Code Act 1995 (Cth) Criminal Code);
    • The Indonesian conspiracy involved a contract to supply the 100,000 rupiah polymer banknotes between 1999 and 2001 with a total value of AU$13 million with benefits paid to foreign officials of approximately US$3 million;
    • The Malaysian conspiracy involved a contract to supply 160 million 5 ringgit polymer banknotes between 2001 and 2003 worth more than AU$15.2 million with AU$760,000 paid to a very senior Bank Negara Malaysian foreign official;
    • The Vietnamese conspiracy involved 7 contracts for the supply of polymer banknotes for Vietnamese currency with a total value of AU$76 million between 2002 and 2004, although the evidence of what benefits were paid to any foreign officials was not known;
    • The Nepalese conspiracy involved a contract for the supply of 50 million 10 rupee polymer banknotes between 2001 and 2004 with a contract value of AU$3.5 million although the evidence of what benefits were paid to any foreign officials was not known; and
    • The Court imposed fines totalling AU$480,000 on Securency and AU$450,000 on Note Printing (it should be noted the fines available for foreign bribery and conspiracy offences committed between 1999 and 2004 were substantially lower than they are today);
  • CDPP v Curtis [2017] VSC 613, see http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/vic/VSC/2017/613.html, where Myles Curtis, a former director and CEO of Securency pleaded guilty to:
    • One charge of conspiracy to bribe a foreign official in order to obtain or retain business in Indonesia and Malaysia contrary to sections 11 (5) (1) and 70.2 (1) of the Criminal Code and was sentenced to 2 years, 6 months’ imprisonment, to be released immediately on a recognisance order due to suffering chronic PTSD and severe depression; and
    • One charge of false accounting contrary to section 83 (1) (a) of the Crimes Act 1958 Vic and was sentenced to 6 months’ imprisonment, wholly suspended for 1 year;
  • CDPP v Radius Christanto [2013] VSC 521, see http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/vic/VSC/2013/521.html, where Mr Christanto, an Indonesian national and former agent of Securency (the first natural person to be sentenced under Australia’s foreign bribery laws), pleaded guilty to one count of conspiracy to bribe a foreign official, contrary to sections 11 (5) (1) and 70.2 (1) of the Criminal Code, and was sentenced to 2 years imprisonment, suspended for 2 years;
  • Queen v Ellery [2012] VSC 349, see http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/vic/VSC/2012/349.html, where David Ellery, the former CFO and company secretary of Securency pleaded guilty to one charge of false accounting contrary to section 83 (1) (a) of the Crimes Act 1958 Vic and was sentenced to 6 months imprisonment, wholly suspended for 2 years; and
  • CDPP v Gerathy [2018] VSC 289, see http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/vic/VSC/2018/289.html, where Clifford Gerathy, former senior director of business development for Securency (and a former bank officer employed by the Reserve Bank of Australia (RBA) and seconded to Note Printing and then Securency), pleaded guilty to one charge of false accounting contrary to section 83 (1) (a) of the Crimes Act 1958 Vic and was sentenced to 3 months imprisonment, suspended for 6 months.

The judgments referred to above contain the appropriate denunciation of bribery and its impact on society. In the Note Printing and Securency sentencing judgment, the first in Australia to enforce our foreign bribery offences, the Court said this (at [56]-[57]):

The prosecution says that the conduct had the potential to bring the reputation of Australia and the Reserve Bank into disrepute, and included the possibility of impeding Australia’s capacity to engage in legitimate foreign trade. I agree with the defence that such matters do not form part of the “injury, loss or damage resulting from the offence”; s 16A (2)(e) of the Crimes Act is concerned with actual (not potential) injury, loss or damage. But, the identity of the person acting corruptly (whether the offeror or recipient of the bribe) may be very relevant to the gravity of the offence. For example, where the corrupt person is the holder of a high public office, courts have long recognised that their conduct is particularly serious, because it has the capacity to destroy the integrity or reputation of a public institution.

By analogy, the fact that Securency and  Note Printing  were both subsidiaries of Australia’s central bank (which plays an important role in relation to national monetary policy, financial stability and the issuing of banknotes), means that their actions had the capacity to harm the reputation of the Reserve Bank itself, and of broader Australian interests. That does make the offending more serious than if they had been commercial entities with no such connection.

However, in the Christanto sentencing judgment, accepting that Mr Christanto was an Indonesian national, arrested and subject to extradition proceedings in Singapore and who voluntarily assisted the AFP in a substantial manner despite his serious ill health, at a level of detail the Court noted was not expected by the AFP, the Court noted the following (at [31]):

Your original agreement with Securency and its employees, and most of your activities in relation to the promotion of polymer banknotes, occurred prior to the introduction of the foreign bribery provisions. What had previously been legal suddenly became illegal on 17 December 1999. Your actions also occurred in a cultural context, in your own country, in which the payment of bribes in order to secure business was a commonplace occurrence. I accept that you were not aware that your activities after December 1999 might involve a breach of Australian law. Although ignorance of the law is not a defence, in sentencing you I have borne in mind the rather unusual circumstances of your offending.

This recognition of the culture of the acceptance of bribes is likely to become increasingly less relevant over time, given how many countries are toughening up their bribery and corruption laws.

The remaining 4 individual defendants all argued at the end of the committal process that the conduct of the Australian Criminal Intelligence Commission (ACIC) (then known as the Australian Crime Commission) and the AFP with the CDPP tainted by having illegally obtained evidence disclosed by the ACIC to the AFP and the CDPP, was sufficiently egregious (and illegal as far as the ACIC was concerned) so as to warrant the most extreme judicial sanction of a permanent stay of the criminal prosecutions.

As noted below, in CDPP v Brady & Ors [2016] VSC 334 (published on 29 November 2018), the Victorian Supreme Court stayed the prosecutions against the remaining accused on the basis of the illegal conduct which had the effect of fundamentally prejudicing the accuseds’ prospects of a fair trial and thus bringing the administration of justice into disrepute. The key trial judgment is at http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/vic/VSC/2016/334.html. The Court of Appeal, while supporting the findings of illegal behaviour by the authorities, set aside the stay, see DPP (Cth) V Galloway (A Pseudonym) & Ors [2017] VSCA 120 at http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/vic/VSCA/2017/120.html. The High Court of Australia reinstated the stay orders (see below).

Unlike the Australian Wheat Board (AWB) scandal with kickbacks paid to Iraq a decade ago, with the corporate regulator, the Australian Securities & Investments Commission (ASIC) taking a lead role in investigating the conduct of the company and its directors and officers, ASIC was nowhere to be seen. While ASIC appeared to be taking its financial sector enforcement failings on the chin and promising more before the Financial Sector Royal Commission (see below), the Australian media have been very critical of ASIC for doing nothing in the Securency matter, failing to investigate the conduct of Securency and Note Printing directors, which included former senior officials from the RBA (see https://www.smh.com.au/business/companies/seven-years-and-millions-of-dollars-later-australia-s-biggest-bribery-prosecution-finally-revealed-20181108-p50eut.html). It should be remembered that this systemic and illegal conduct took place under the watch of boards of directors some of who were RBA officials. The RBA consistently denied it knew anything about the affair, only for internal documents authored by former employees to suggest otherwise and when it all became public, the RBA called in the AFP to investigate, something it failed to do some two years earlier (see https://www.abc.net.au/news/2012-08-21/rba-officials-knew-of-corruption-claims/4213488). It is disappointing that in some cases, ASIC takes the front foot and as in the AWB case, pursued directors and officers over a long period, yet with the plea deals and evidence available in the Securency matter, it appears to have ignored it entirely. One can only ask why and the silence from ASIC is deafening!

At the end of a saga lasting not far short of 7.5 years, two companies pleaded guilty and some executives were sanctioned but with no jail time and the expenditure of a vast amount of taxpayer funds, the remaining prosecutions disintegrated before the High Court with findings of egregious illegal conduct with irreparable prejudice to the rights of an accused to a fair trial. This mixed result and the severe findings of the High Court should result in some serious soul searching and accountability by the ACIC, the AFP and to a lesser extent, the CDPP. This is not an edifying moment for Australia’s regulatory, investigative and prosecutorial agencies.

Australia – ACIC and AFP: Illegal Use of Statutory Examination Powers

On 8 November 2018, the High Court of Australia published its judgment in Strickland (a pseudonym & Ors v CDPP & Ors [2018] HCA 53 (see http://classic.austlii.edu.au/au/cases/cth/HCA/2018/53.html) which involved the exercise of statutory inquisitorial powers to compel the Securency suspects to attend a secret interview and to give evidence in circumstances where their right to a fair trial was at issue. This has been a serious issue previously before the High Court in X7 v Australian Crime Commission [2013] HCA 29 (26 June 2013); Lee (No 1) (2013) 251 CLR 196 and Lee v The Queen; Lee v The Queen [2014] HCA 20 (21 May 2014) (known as Lee No 2).

At the heart of the appeal before the High Court was a consideration of the conduct of an examiner under sections 24A and 25A of the Australian Crime Commission Act 2002 (Cth); and in particular:

  • Section 25A (9) and the circumstances where an examiner may direct that examination material must not be disclosed or may be only used by or disclosed to specified persons; and
  • Section 25A (9A) where an examiner must give such a direction (see above) if failure to do so would reasonably be expected to prejudice the examinee’s fair trial, if the examinee has been charged or such charge is imminent.

At first instance, the Trial Judge held that the ACIC, with representatives of the AFP, acted illegally and beyond power in examining the individuals pursuant to the ACIC’s statutory powers, disseminated the illegally obtained evidence within the AFP and the CDPP to a broad degree and, in the exercise of judicial discretion, granted a permanent stay of the prosecution. The Court of Appeal, while agreeing with the findings of illegal conduct with the examinations having been conducted for an improper purpose, set aside the stay order finding there was no irremediable prejudice suffered by the individuals. During the appeal, the CDPP agreed that the prosecution team had to be replaced (given the disclosure to it of illegally obtained information), yet the investigation team remained.

The High Court held, unanimously, that the ACIC had acted unlawfully and had acted at all times simply as a facility for the AFP to cross-examine the individuals under oath for the AFP's own purposes.  The majority of the Court held, consequently, that the prosecutions ought to be permanently stayed, as to allow them to proceed would bring the administration of justice into disrepute.  The majority held that the prosecution had derived a forensic advantage, which the examinations were expressly calculated to achieve, of compelling the individuals to answer questions that they had lawfully declined to answer and thereby locking them into a version of events from which they could not credibly depart at trial.  Given the wide dissemination of the examination product within the AFP and the Office of the CDPP, the forensic disadvantage and consequent prejudice to the fair trials of the individuals were incurable.

The leading judgment of Kiefel CJ, Bell and Nettle JJ made these remarks (at [98] and [101]):

There is an indeterminate element of incurable prejudice as a consequence of the ACC’s (the former initials of the ACIC, then known as the Australian Crime Commission) widespread, uncontrolled dissemination of the examination product to and within the AFP and the Office of the CDPP…in each of these cases the ACC…acted in disregard of the stringent statutory requirements mandated by Parliament for the protection of the liberty of the subject and to prevent prejudice to the subject’s fair trial…the common law right to silence is a fundament of the criminal justice system that applies at all stages of the process to all persons suspected of an offence, whether charged or not yet charged, and also at trial…any statutory provision that purports to restrict the common laws right to silence must be perspicuously expressed and strictly construed.

The High Court majority (5:2) found this was a rare and exceptional case where the defect in process was so profound as to offend the integrity and functions of the court and it was necessary to stay the proceedings in order to prevent the administration of justice falling into disrepute. This is a singular judicial rejection of attempts by the AFP and the ACIC (and indirectly the CDPP) to cut corners and to use the ACIC’s Star Chamber-like powers for improper, illegal purposes. The High Court has been warning investigators for some years about the need to carefully balance the inquisitorial statutory powers of the ACIC with individual rights to a fair trial. In this case, the investigators went too far and their conduct tainted the entire prosecution, including the conduct of the CDPP. This is a sad reflection on all those involved.

Australia – Financial Sector Royal Commission Interim Report

On 28 September 2018, the Interim Report of the Financial Services Royal Commission was tabled in by Australian Parliament. Its contents were a sad indictment on the honesty, integrity and ethical behaviour of businesses in the finance, banking, insurance and superannuation sectors and those giving advice to the public in relation to various financial products.

The Royal Commission asked why the conduct occurred and what could be done to avoid the conduct being repeated. This reminds us of the very question Commissioner Cole asked of AWB over a decade ago – why did it happen?

In 2018, Commissioner Hayne largely came to the same view Commissioner Cole did in 2006 – “too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained?”

Commissioner Hayne was scathing of the scant regard financial institutions had for the law. He was equally scathing of the corporate and prudential regulators, saying this:

When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done. The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court. Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct. Infringement notices imposed penalties that were immaterial for the large banks. Enforceable undertakings might require a ‘community benefit payment’, but the amount was far less than the penalty that ASIC could properly have asked a court to impose.

As to what ASIC was or was not doing in policing the financial sector, the Commissioner noted the following – “ASIC's starting point appears to have been: How can this be resolved by agreement? This cannot be the starting point for a conduct regulator". This hardly presents the picture of a robust regulator, indeed quite to the contrary.

As to the solution, the Interim Report raised some critical questions, with the answers perhaps to await the final report due in February 2019.

The law already requires entities to ‘do all things necessary to ensure’ that the services they are licensed to provide are provided ‘efficiently, honestly and fairly’. Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, ‘Do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain? 

Should the existing law be administered or enforced differently? Is different enforcement what is needed to have entities apply basic standards of fairness and honesty: by obeying the law; not misleading or deceiving; acting fairly; providing services that are fit for purpose; delivering services with reasonable care and skill; and, when acting for another, acting in the best interests of that other? The basic ideas are very simple. Should the law be simplified to reflect those ideas better?

All of the major financial institutions have had to make constant and grovelling mea culpas for their corporate misconduct made public. Share prices have dropped. Executives have lost their jobs and bonuses have gone. Class action litigation has started. Civil penalty and criminal prosecutions might well follow. Where this takes us on the traditional scope of directors’ duties is yet to be seen. The Chairman of the National Australia Bank, Ken Henry, offered these views under cross-examination by Counsel assisting the Commission:

Accountability to whom? I think this is a really important question…and a really important question, which I’m sure this Commission is reflecting on as you prepare your final report, is to whom should boards’ be accountable…in my view, the public tolerance of that model of accountability (boards answerable only to shareholders) has been pretty well eroded to zero. I would say that this is the principal reason – or anyway, one of the important reasons for a loss of trust in business.

How far the concept of social license might go in legal terms remains to be seen. Other commentators take a different approach, regarding the law as adequate and the Chairman of the Australian Competition & Consumer Commission, Rod Sims, quoted in the media as follows:

We don’t want companies to get confused so I think their duty should be just to the long-term interests of shareholders…(with responsibilities creating confusion and companies will)…lose the power of what companies bring to society, and they bring a lot.

Clearly the Royal Commission has some challenging concepts to tackle and to determine if the existing legal landscape needs changing or rather, just more proactive enforcement where contravening conduct occurs.

Australia – Substantial Reforms to Australia’s Corporate Penalties

As a result of the Financial Services Royal Commission and the egregious systemic conduct exposed to public scrutiny (long resisted and denied by the institutions and ignored by the regulators), the Australian Government was finally forced to act. On 26 September 2018, the Government released the Treasury Laws Amendment (ASIC Enforcement) Bill 2018.

In the Exposure Draft Bill Explanatory Materials, the following legislative reforms were outlined to enhance penalties for corporate misconduct available to ASIC, which had been seeking these increased penalties for a number of years without success:

  • Increase the maximum penalties, up to in some cases;
    • For individuals, 10 years imprisonment and fines up to 4,500 penalty units (currently AU$945,000 per offence);
    • For companies, the greater of a fine of up to 45,000 penalty units (currently AU$9,450,000 per offence), 3 times the value of the benefit derived or detriment avoided due to the contravention or 10 percent of the annual turnover of the company;
  • Expand the range of civil penalty offences;
  • Introduce criminal offences where there are existing strict and absolute liability offences;
  • Introduce a new formula to calculate the maximum financial penalty for criminal offences under the Corporations Act 2001 (Cth) (Corporations Act);
  • Introduce a new “objective only” test for dishonesty offences under the Corporations Act;
  • Subject all strict or absolute liability offences to a penalty notice regime;
  • Introduce disgorgement to civil penalty proceedings; and
  • Require courts to give priority to compensating victims over ordering financial penalties.

It is likely these reforms will secure bi-partisan political support and will be enacted in due course.

Australia – Foreign Bribery, a Commonwealth DPA and Whistleblower Protection Reforms

As a result of a spate of proposed legislative reforms, the Australian Government has been looking to introduce the following reforms:

  • Amendments to the Criminal Code to reform the foreign bribery offence and to introduce the strict liability corporate offence of failing to prevent foreign bribery due to the conduct of an associate;
  • Amendments to the Director of Public Prosecutions Act 1983 (Cth) to introduce a deferred prosecution agreement scheme for identified serious Commonwealth offences;
  • Amendments to the Corporations Act 2001 (Cth) and associated statutes to enhance private sector whistleblower protections.

On 6 December 2018, the Government published an Amended Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 which took up a number of the matters raised during the Parliamentary review process, (see https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=s1120). The Bill will return to the Parliament in early February 2019 for further consideration before it is enacted.

The key features of the amended Bill, without repeating the contents of the first draft Bill, covered in earlier Updates, are as follows:

  • An “eligible recipient” to whom a “protected disclosure” may be made is now a “senior manager” rather than a “supervisor” or “manager”, which narrows the group of more senior employees who are required to respond to a protected disclosure;
  • The protection of an “emergency disclosure”  (to a journalist or a politician) has the following new tests:
    • A substantial and imminent danger to a person’s health and safety, or the natural environment (without the 90 day period having passed from the first disclosure to a prescribed authority and first informing the prescribed authority of the intention to make the emergency disclosure); or
    • whether the disclosure is in the public interest (after the applicable 90 day period has passed);
  • most personal work-related grievances are excluded from the “protected disclosure” regime;
  • a whistleblower can seek compensation from a company that failed its duty to prevent a third person engaging in detrimental conduct (victimisation);
  • a company’s “due diligence” is now only a factor for a court to consider in making compensation orders (it is no longer a complete defence);
  • where termination of employment occurs, a court must consider the period of time a whistleblower is likely to be without employment; and
  • penalties are increased.

Listed and large proprietary companies must be aware that they will need to have in place a whistleblower policy compliant with the law, at the earliest, by 1 July 2019 or a later date depending on when the amendments are finally approved and the Bill becomes law.

Regrettably, the other reforms (for the foreign bribery offence and a deferred prosecution agreement scheme) have yet to be amended and published by the Government. It is hoped these reforms will be enacted without delay once Parliament resumes sitting in February 2019.

Australia – Former Leighton CFO Guilty of False Accounting Charges

On 27 October 2018, Peter Gregg, the former CFO of Leighton Holdings, a former CFO of Qantas and CEO of Primary Health, appeared in court at a criminal trial charged with two counts of contravening section 1307(1) of the Corporations Act 2001 (Cth) in that he allegedly engaged in conduct which resulted in the falsification of Leighton’s books arising out of a payment of $15 million from Leighton to a UAE entity.

On 12 December 2018, Gregg was found guilty of the two counts of falsifying the books of account at Leighton Holdings. Gregg will return to Court in late January 2019 for sentencing where he faces potential imprisonment for up to 4 years and/or fines up to AU$22,000. It remains to be seen whether Gregg will appeal his conviction and ultimate sentence.

According to media reports, the heart of the case turned upon unravelling a complex commercial transaction between Leighton Holdings and Welspun Infra Projects Pvt Ltd, majority owned by Indian Billionaire BK Goenka, the founder of Welspun and whether a particular agreement signed by Gregg in 2011, was to help Leighton legitimately buy steel or whether it was a sham and backdated in an attempt to justify a payment of AU$15 million to a Dubai-based company potentially on behalf of the Welspun Indian interests.

Russell Waugh was also charged with aiding and abetting Gregg as an intermediary in the signing of the agreement. The jury found Waugh not guilty.

This case reinforces a view that ASIC is increasingly prepared to take on some complex financial crime cases and that a jury can come to a finding of guilt or innocence notwithstanding complex financial evidence.

Australia – Commonwealth and NSW Modern Slavery Laws

On 21 June 2018, the NSW Parliament enacted the Modern Slavery Act 2018 (NSW). It is not yet in force.

On 28 June 2018, the Commonwealth Parliament introduced the Modern Slavery Bill 2018 and on 30 November 2018, the Commonwealth Bill passed the Senate and now returns to the House of Representatives before it becomes law.

The NSW Act requires companies’ subject to NSW law with an annual turnover of AU$50 million, to produce a “modern slavery statement”. If a company fails to prepare and publish the statement or provides false or misleading information in connection with the statement, it faces a penalty of up to AU$1.1 million. The Commonwealth Bill, somewhat surprisingly and to some public criticism, contains no offence provisions, no enforcement or review authority (in NSW it is the proposed NSW Anti-Slavery Commissioner) and sets the threshold reporting criteria for the modern slavery statement at AU$100 million. The NSW Act, as with the Commonwealth Bill, applies to one company or equally to each company in a group and the laws set out the type of information that must be disclosed in the statement to ensure disclosure occurs throughout a company (or corporate group) supply chain.

These laws are based upon a political decision that business should publish their positions on slavery to inform the markets and consumers. They are likely to be implemented in the future and differences between the laws, particularly concerning penalties, are likely to be resolved. Companies would do well to review their supply chain relationships ready for the expected requirement to publish their modern slavery statements.

Australia – Stagnating Money Laundering Reforms

With all the media publicity and eager politicians focusing on terrorism, national security, making the public safe and ever-increasing surveillance powers needed to justify an ever-increasing spy bureaucracy, you would think Australia is at the cutting edge of anti-money laundering laws and practices. The position however, is not all that clear-cut. Despite the recent court actions of AUSTRAC, taking Tabcorp and the Commonwealth Bank of Australia to task (as existing reporting entities) for reporting and disclosure failures, much needed reforms appear to be languishing or disappearing from the political “to do” lists for legislative reforms.

Let’s look at a brief timeline on recent events:

  • 2015 – The Financial Action Taskforce (FATF) described Australia as a haven for laundered funds, particularly from China;
  • 2016 (November) – the Australian Government issues a Consultation Paper on introducing the Tranche 2 reforms (to include real estate professionals, accountants, lawyers, trust and company service providers and high value dealers as “reporting entities” providing “designated services” under Australia’s anti-money laundering laws), with submissions and round-table discussions completed in 2017;
  • 2017 (May) – Transparency International ranked Australia as having the weakest anti-money laundering laws in the Anglosphere, failing on all ten criteria;
  • 2017 (June) – FATF placed Australia on a watch list for its failure to implement AML reforms;
  • 2017 (December) – the OECD urged Australia to implement the Tranche 2 reforms, noting the entire system of buying and selling property using cross-border funds was beyond the reach of regulators; and
  • 2018 (March) – the Australian Government, in a statement by the relevant Minister, indicated the Government was considering a cost-benefit analysis of introducing the Tranche 2 reforms, which would involve further statutory drafting work and responding to existing reviews.

The Tranche 2 reforms have been reviewed in 2008, 2010, 2012 and 2014. The result – no reforms, no updated legislation and no capture of significant entities through which significant funds flow in an almost undetected manner. While there is considerable criticism directed at the Government for these decade old delays, there are complex legislative drafting issues that should be sorted out before the traditional intermediaries or gatekeepers are brought within the scope of the AML laws. These reforms are important given the sheer volume of cross-border funds that flow into the Australian property market and that FATF will be reviewing Australia’s AML laws again in 2020.

Australia – Legislation to Target Encrypted Communications

The “war on terror and organised crime” (which can include foreign bribery, corruption, money laundering and other serious financial crimes) has turned its attention to the problems associated with encrypted communications. Mobile communications on encrypted apps are used by a vast number of the population for personal and business communications. Providers are often based outside Australia and communications travel across borders in a moment. The secure nature of encrypted communications mean that for many intelligence and law enforcement agencies, it is that much more challenging to secure access to real time communications for criminal activity or those communications after the event during a criminal investigation. The Australian Government has long criticised telecommunication companies for creating encrypted apps even though politicians themselves enjoy their use. The Government takes a rather simplistic approach to the privacy dilemma – trust us with access your information as if you have nothing to hide you have nothing to fear! However, that has not placated opponents to these reforms or indeed, those who distrust our national Government.

In September 2018, the Government published the Telecommunications and Other Legislation Amendment (Assistance and Access) Bill 2018, see the Explanation Memorandum and the draft Bill at https://parlinfo.aph.gov.au/parlInfo/download/legislation/bills/r6195_first-reps/toc_pdf/18204b01.pdf;fileType=application/pdf. These laws were passed on 6 December 2018, the last parliamentary sitting day for 2018, although it remains to be seen whether further amendments will emerge in early 2019.

The main features of the Bill are as follows.

  • A designated  communications provider, domestic or foreign, can provide voluntary assistance under a “technical assistance request” issued by a nominated agency;
  • The head of an interception agency can issue a “technical assistance notice” requiring the nominated provider to provide assistance that the decision maker is satisfied is “reasonable, proportionate, practicable and technically feasible”;
  • The Attorney General may issue a “technical capability notice” requiring a provider to do acts or things to ensure help is given to the interception agencies, where the Attorney General is satisfied that it is “reasonable, proportionate, practicable and technically feasible” and the Attorney General must have consulted with the provider before issuing such a notice;
  • The Bill provides compensation arrangements for providers in assisting agencies and immunity from civil suit in complying or purportedly complying with such notices;
  • It is a defence for a foreign provider not to comply with such notices if compliance would contravene any foreign laws of the country of the provider;
  • The penalties for non-compliance with the statutory notices are a civil penalty fine of 47,619 penalty units against a company (currently AU$9,999,990) and against a non-company, 238 penalty units (currently AU$49.980);
  • Any technical assistance notice or technical capability notice must not require a provider to implement or build systemic weaknesses (a concept not defined) in forms of electronic protection (a “backdoor” access to encrypted communications) nor can they prevent a provider from fixing an identified weakness or vulnerability; and
  • Where there is a warrant in force to permit the collection of evidence from electronic devices, any conduct which does not comply with a warrant or orders from a judicial offer can result in penalties of up to:
    • 5 years imprisonment for simple offences; or
    • 10 years imprisonment for “aggravated” conduct (non-compliance with an order related to an investigation into a serious crime) subject in both cases to the overall judicial discretion in determining a penalty on sentencing for a criminal offence upon conviction.

These are reforms the Government is keen to enact and will require careful attention by any provider, failing which the provider might be exposed to serious penalties. Business should also be aware that encrypted communications, traditionally relied upon in commerce, can by such mechanisms, be far more easily accessed by authorities, often before the target has any idea of covert surveillance. Business crime might be nimble and one foot ahead of the police, but the police are starting to persuade governments to give them access to real-time encrypted communications and to close the gap. While the Government portrays these reforms as targeting organised crime, terrorism, smuggling, sexual exploitation of children and cyber intrusions into computer systems, it can equally apply to your old-fashioned commercial bribery and corruption conduct previously believed to be beyond the reach of investigators. And the politicians rushing to sound strong on terror without much idea of the technological impact of forcing service providers to build weaknesses into communication apps is a Pandora’s Box that no politician understands let alone talks about. It is not surprising that aside from Australia’s patriotic media, there is considerable scepticism about these laws and the damage they may inflict across the Australian technology landscape in circumstances where politicians of all persuasion simply bow to intelligence and security officials who demand ever-more surveillance powers without accepting any sense of enhanced transparency and accountability in return.

Australia – New Commonwealth Integrity Commission: A New Dawn or a False Hope?

In December 2018, after the Australian Parliament had closed for Christmas, the Government published a Consultation Paper for a new Commonwealth Integrity Commission (CIC), see https://www.ag.gov.au/Consultations/Pages/commonwealth-integrity-commission.aspx. Submissions close on 1 February 2019 (which seems a remarkably limited in time to comment on a major integrity initiative given most of Australia is on holiday from just prior to Christmas to the end of school holidays at the end of January 2019).

The proposed CIC will consist of a:

  • a ‘law enforcement integrity division’ incorporating the existing structure, jurisdiction and powers of the Australian Commission for Law Enforcement Integrity (ACLEI) supervising a limited number of Commonwealth agencies which exercise significant coercive powers; and
  • a new ‘public sector integrity division’ with jurisdiction over other public service agencies, departments and Commonwealth companies and corporations together with parliamentarians and their staff; and
  • the structure of the CIC is be administered by a Commissioner with two divisional Deputy Commissioners, see the table below, with a proposed operating budget of AU$30 million per year with additional funding for establishment costs in the first year.

Foreign-Bribery-1.png

The key features of what is proposed by the Government are set out below.

  • The law enforcement division can:
    • Compel production of documents;
    • Exercise questioning and inspection powers and enter/search premises and seize evidence;
    • Hold hearings (public or private);
    • Make formal recommendations; and
    • Arrest individuals.
  • The public sector integrity division can:
    • Compel production of documents;
    • Exercise questioning and inspection powers;
    • Make formal recommendations; but
    • Cannot arrest individuals, cannot enter or search remises, cannot seize evidence and cannot hold public hearings.
  • The threshold for an investigation will be:
    • the law enforcement division: applying the threshold under the ACLEI Act, corrupt conduct that involves abuse of office, perversion of the course of justice or corruption of any other kind having regard to the duties and powers of the person under suspicion;
    • the public sector integrity division: where the Commissioner has a reasonable suspicion that the conduct in question constitutes a criminal offence (which will exclude misconduct or non-compliance under codes of conduct).
  • A range of corruption offences will be consolidated into Chapter 7 of the Criminal Code together with the following new offences (yet to be published in draft legislation):
    • The aggravated offence of “repeated public sector corruption”, where a person commits three or more offences (the underlying offences) in the new public sector division of the Criminal Code;
    • The aggravated offence of “corrupt conduct by a Senior Official”, applying to a member of the Senior Executive Service or equivalent position; and
    • The offence of “failure to report public sector corruption”, to apply to a senior public service official who has information that would lead a reasonable person to believe that an employee or agent of an agency has engaged in corrupt conduct being an offence under the new public sector division of the Criminal Code and the person did not take steps to report the conduct to an appropriate law enforcement authority.
  • The CIC will be able to examine entities or individuals in receipt of Commonwealth funds who are suspected of engaging in criminal conduct;
  • The referrals to the CIC will operate as follows:
    • The law enforcement division: referrals can be made by an agency head, another integrity agency, the Attorney General or a member of the public;
    • The public sector integrity division: there will be a mandatory referral obligation on heads of departments, agencies and Commonwealth companies and corporations, and referrals from another integrity agency, the AFP or on the public sector integrity Deputy Commissioner’s own motion, but not by members of the public (who must refer complaints to existing agencies) and the division will not take complaints from the public concerning Ministers, Members of Parliament or their staff.
  • The main purpose of the CIC will be to investigate allegations of corruption, as defined, (on referral) and present briefs of evidence to the AFP (for further action) or to the CDPP for consideration for prosecution. There will not be any findings of corruption at large (as with current State-based ICAC bodies); rather, referrals to independent prosecutors for a court to determine criminal liability.

A number of senior retired judges with considerable experience in investigating public sector corruption have been very critical of the proposed CIC model. David Ipp QC, former NSW ICAC Commissioner and appellate Judge, was reported in the media as saying the CIC was the “kind of integrity commission that you would have when you don’t want to have an integrity commission…it creates a wall behind which corrupt public officials can hide…(and was and is)…like a colander – it would be really good to make rice in it, it’s got so many holes.” The regime appears inconsistent with protecting whistleblowers, forcing them to report agency misconduct to the agency itself or some other body without the protection of any independent body. Geoffrey Watson SC, a leading criminal Senior Counsel involved in some of the pioneering work by the NSW ICAC (and subjected to significant litigation by the Obeid family attacking his credibility) is equally scathing, saying the proposed CIC has “fundamental flaws” some of which were “so obvious as to be laughable”.  Other commentators who have been critical of the NSW ICAC model with extensive public hearings, support the limited role of public hearings. However, there is considerable criticism for having one set of accountability rules for public officials (the law enforcement public officials) and another less transparent set of accountability rules for parliamentarians and their staff. There is no justification for treating them differently and it raises legitimate concerns as to why politicians want to be treated differently.

The CIC may of course not see the light of day as Parliament is scheduled to sit for less than 2 weeks in the first 5 months of 2019, due to the Government being in a minority, a looming national election due by May 2019, various independent politicians and the opposition Labor Party suggesting the proposed CIC is too weak and in need of strengthening and the Government’s proposed model looking like an ICAC when you do not really want a Commonwealth ICAC (the position the Government and the Opposition has adopted for years). What they all should appreciate is what the Financial Services Royal Commission has shown us – the public are demanding increasing transparency and accountability from those in power and if politicians deliberately exclude themselves from this transparency and accountability, the integrity of the proposed integrity commission may well be doomed from the outset. It is hoped some reforms occur to ensure, as a minimum, the commission is established that treats politicians and their staff no differently to law enforcement agencies, the public can lodge complaints directly with the CIC and should it be warranted (on the reformed NSW ICAC model), public hearings can occur.

India – Reforms to Criminalise Corporate Bribery

India has undertaken some significant changes to its anti-corruption laws, reflected in the Prevention of Corruption (Amendment) Act 2018. The changes take effect from 26 July 2018.

The key changes that businesses looking to operate in India need to be aware of include the following:

  • The offence of giving bribes - the giving or promising to give a bribe or "undue advantage" to a public servant is now a primary offence rather than being treated as a secondary offence and requiring the bribe taker to be prosecuted and punished.
  • A person will not be prosecuted if they are forced to give an undue advantage and they report the matter within 7 days from the date of giving the undue advantage.
  • The offence of bribery by commercial organisations – the Act now has an offence of bribery by commercial organisations and provides that a commercial organisation shall be punishable if any person associated with it bribes a public servant. Any director, manager, secretary or other officer of the commercial organisation that “consents or connives” in the conduct, that person shall be guilty of the offence and liable to imprisonment between 3 and 7 years and/or a fine.
  • The capacity in which the person performs services for the organisation is immaterial. So, if an Indian subsidiary, or agent or third party acting for or on behalf of a multinational company commits bribery, the parent company may also be held liable for the offence. In India, this means that overseas business working in India with Indian business who interact with public officials to secure licenses or approvals must carefully assess how the Indian entities perform their services.
  • If a company can prove it had “adequate procedures” in place to prevent bribery that will operate as a defence. No guidelines have yet been published by the Indian Government. It is hoped such guidelines are consistent with, for example, the Guidance issues by the UK Ministry of Justice under the Bribery Act, to ensure a level playing field for global business operations.
  • Liability of Management – the Act creates a specific offence where persons in a company (or other commercial organisation) may also be prosecuted.

These reforms are likely to encourage the Indian authorities to investigate and prosecute not only individuals (as it traditionally has done) but now companies and other organisations (which traditionally have not been subjected to the criminal law. It also means foreign business operating in India must pay closer attention to their supply chain, the conduct of third parties and revisit existing compliance frameworks to ensure they are up to date.

Malaysia – Corporate Liability for Bribery and Corruption

Malaysia has recently amended its Anti-Corruption Commission Act 2009 to introduce corporate liability for bribery and corruption.

The key changes that businesses need to be aware of include the following:

  • The financial penalties have been increased to at least ten times the value of the bribe or RM1 million (about US$240,000), whichever is higher;
  • Any director or manager of an organisation deemed to have been responsible, directly or indirectly, even to the extent of turning a blind eye or failing to act reasonably to prevent the conduct, could face the new financial penalties together with up to 20 years imprisonment;
  • If a third party acting on an organisation's behalf is involved in bribery, the organisation is liable, subject to an “adequate procedures” defence and the offence provision applies to executives, directors, employees and their agents - both in Malaysia and anywhere else in the world where the organisation conducts business.

To encourage Malaysian businesses to take proactive steps to identify and counter corrupt conduct, the Anti-Corruption Commission has released a Malaysian version of the ISO Anti-Bribery Management Systems standard, known as MS ISO37001. There is increasingly less scope for businesses in Malaysia to rely upon the “old way of doing business”. Foreign businesses operating in Malaysia should ensure their operations take account of these changes.

Malaysia – IMDB Prosecutions

You might be forgiven for thinking the IMDB saga was a dying story. However, once the current Government of Malaysia took power earlier this year after the former Prime Minister Najib Razak lost the election to Dr Mahathir Bin Mohamad, the winds of change are swirling around the country, engulfing the former Prime Minister, his wife and foreign businesses associated with 1MDB.

Mr Razak will be facing trial from 12 February 2019 to 29 March 2019 on up to 32 criminal charges of criminal breach of trust, power abuse and money-laundering offences over RM42 million linked to former 1MDB subsidiary SRC International Sdn Bhd. The Malaysian Attorney General stepped aside from prosecuting Mr Razak and an experienced former judge and private lawyer, Datuk Sulaiman Abdullah will lead prosecutors, undertaking the work, as the Attorney General noted, on a pro bono basis. Not only is Mr Razak facing serious offences; his wife, Rosmah Mansor, has also been charged with 17 counts of money laundering, accused of handling funds of about US$1.7 million from unlawful activities and failing to declare the amount for tax purposes. The authorities conducted raids at their homes during their investigations and found, according to media reports, cash in 26 currencies up to US$28.6 million, 457 handbags with Hermes bags worth alone US$12 million, 423 watches valued at US$19 million together with sunglasses, jewellery, brooches, tiaras, rings and bangles worth up to US$180 million. Both Mr and Mrs Razak have denied the charges and are defending the cases against them.

More recently, Malaysia has filed criminal charges against Goldman Sachs together with 4 individuals, two Goldman Sachs employees, relating to bond sales that Goldman Sachs arranged and underwrote for 1MDB in 2012 and 2013. The media are reporting that the Malaysia Attorney General has said that prosecutors will seek fines against Goldman Sachs and the accused individuals in excess of US$3.3 billion. That figure represents the amount allegedly misappropriated plus an additional US$600 million in fees that Goldman received for its work on the deals. Goldman Sachs has denied liability saying it will defend the charges.

Meanwhile, the US Department of Justice (DOJ) has not forgotten about the interesting characters at the heart, so it alleges, of the 1MDB saga. On 1 November 2018, Tim Leissner, a former chairman of Goldman Sachs in South East Asia pleaded guilty to FCPA and money laundering conspiracies in connection with funds taken from 1MDB. Leissner was ordered to forfeit US$43.7 million. One other Goldman Sachs former managing director, Ng Ching Hwa (Roger) Ng faces similar charges. They are yet to be sentenced. The most colourful character, the intermediary Low Taek Jho or Jho Low has been charged by the US and is wanted by the US, Swiss, Singaporean and Malaysian authorities. He is believed to be in China yet the Chinese authorities, themselves hot to trot on domestic corruption, seem strangely silent on his whereabouts. Jho Low has lost his $250 million yacht Equanimity, which is up for auction in Malaysia with the US filing a civil forfeiture order over the yacht in 2017. In addition, the UAE Abu Dhabi sovereign wealth fund, International Petroleum Investment Company (IPIC), is pursuing Goldman Sachs for damages before the courts in New York arising out of the bank’s alleged role in the scandal. The media are reporting that IPIC claims Goldman Sachs conspired with others to bribe former executives of IPIC and Aabar (an IPIC subsidiary), inducing them to "misuse the companies' names, networks, and infrastructures to further the criminal schemes and to personally benefit Goldman Sachs" and others, according to the court filing. It did not say how much in damages IPIC is seeking but it is expected to be a considerable sum.

Ultimately, it is refreshing that changes in governments do not result in allegations of grand corruption of this scale going unchecked as so often has happened in the past in numerous countries. The public in Malaysia changed governments as much to change history as to show their displeasure with rampant misconduct and self-interest that bedevilled the country.

United Kingdom – Production of Offshore Documents to the SFO by Foreign Entity

On 6 September 2018, in The Queen on the Application of KBR Inc v The Director of the Serious Fraud Office [2018] EWHC 2368 (Admin), the UK High Court held that the Serious Fraud Office (SFO) was able to compel a foreign company to produce documents located outside the jurisdiction, pursuant to s.2 (3) of the Criminal Justice Act 1987 (the CJ Act), where there was "a sufficient connection between the company and the jurisdiction" (see the judgment at).

This is the first time that a UK court accepted that compulsory disclosure powers exercisable by a UK criminal enforcement agency have extraterritorial application upon the proper construction of the relevant statute. The Court made it clear that the legislative purpose and mischief to which the statutory notice power was directed permitted no doubt as to an extraterritorial effect, with the SFO’s business being “top end, well-heeled, well-lawyered crime” with an international dimension often involving multinational groups conducting business in multiple jurisdictions through a branch or subsidiary structure (the structure did not matter).

The Court accepted that whether a foreign company had a sufficient connection with the UK was a question of facts and the circumstances, looking at the residence and place of business, the nature and purpose of the conduct, the nature and locality of the property of events, the circumstances of how the defendant (challenging jurisdiction) became involved and any benefits received from the impugned transaction. This test involved, in the Court’s opinion, a principled and careful balance between the facilitation of international criminal investigations and imposing excessive requirements on foreign companies. While the Court accepted that the mere fact that a foreign entity had a subsidiary in the UK, or that the foreign entity was cooperating with the SFO, was not of itself sufficient to establish the sufficient connection. What was sufficient was, in particular, the payment and approval process with the KBR group which involved the parent (offshore) entity and it was impossible to distance the parent from the transactions of the subsidiary under investigation by the SFO.

In terms of service, the Court found there was no statutory requirement to serve the relevant section 2 notice under the CJ Act. However, the Court accepted that it had to be simply delivered to a person on behalf of the foreign entity present in the UK (the employee was representing the foreign entity, not there coincidentally or on a personal frolic), the entity was present through its employee and the employee communicated the contents of the notice to the foreign entity. That was done at a meeting between the foreign entity, its lawyers and the SFO when the SFO suspected the foreign entity was seeking to quarantine documents outside the UK from the SFO.

The impact of this judgment is that the SFO is likely to use its notice powers more effectively against foreign (non-UK) entities where there is a clear indication that, for example, the payment and approval processes are part of a wider multinational group and which involve the parent or foreign entity in making decisions of substance on payments. This case is a good example of following the money trail between subsidiaries and parent entities with the result that the parent was inextricably involved in the conduct.

United Kingdom – Internal Investigations and Privilege, the ENRC Appeal

As has been well-publicised, the English Court of Appeal upheld an appeal in the long-running battle between the SFO and Eurasian Natural Resources Corporation (in SFO v Eurasian Natural Resources Corporation [2018] EWCA Civ, a copy of the judgment is at https://www.bailii.org/ew/cases/EWCA/Civ/2018/2006.html) about the production of potentially privileged, internal records created as part of an investigation into whether the company had contravened the UK Bribery Act 2010. In 2017, the High Court held there was no privilege over interview notes and materials generated as part of a review by forensic accountants, ruling that litigation was not reasonably in contemplation when the interviews took place or when the forensic work was done. While the company argued that an SFO investigation was contemplated, the High Court held that a criminal prosecution could not be in reasonable contemplation and thus, no privilege applied to the relevant communications.

The Court of Appeal ruled it was clear that prior to the creation of the documents, the company was aware of bribery allegations raised by a whistleblower, and anticipated that the SFO would commence an investigation. The overall context was that criminal prosecution was possible, and the documents were created for the dominant purpose of that litigation. The Court said there should be no distinction between contemplation of civil or criminal proceedings when considering the application of a substantive principle like privilege.

However, the Court of Appeal affirmed the law on legal advice privilege (in the much-criticised House of Lords judgment in The Three Rivers District Council v Governor and Company of the Bank of England [2004] UKHL 48) that employees of a company not empowered to instruct lawyers and receive their advice were not the lawyers' clients but merely third parties. Legal advice privilege did not apply to those communications.

Aside from the legal advice outlier with the Three Rivers case that needs to be reconsidered by the UK Supreme Court, the Court of Appeal ruling makes considerable sense and avoids a complex artificial distinction between civil and criminal investigations.

A useful summary of the findings by the High Court and the Court of Appeal on the types of communications that were the subject of the privilege dispute was published by Holman Fenwick Willem (at http://www.hfw.com/ENRC-v-SFO-Court-of-Appeal-Judgment-September-2018) see the table below.

Table showing the category of documents and the Commercial Court and Court of Appeal decisions on whether LPP applied to them:

Category Description Commercial Court decision Court of Appeal decision
1 Witness interview notes taken by external lawyers. Not covered by litigation privilege or legal advice privilege. LPP applies as were created for the dominant purpose of resisting or avoiding the SFO proceedings.
2 Reports generated by external forensic accountants. Not covered by litigation privilege. LPP applies, as the dominant purpose test was met.
3 Presentations by external lawyers for the purpose of advising and receiving instructions from the ENRC internal team. Covered by legal advice privilege.  
4

Documents including correspondence from an internal ENRC executive who was also a qualified Swiss lawyer.

Correspondence reports, and documents from the forensic accountants.

Not covered by litigation privilege. LPP applies, for all but the internal ENRC emails, as the dominant purpose test was met.

 

United Kingdom – Unexplained Wealth Orders and Azerbaijan

On 10 October 2018, reporting restrictions were lifted over the UK’s first unexplained wealth order (UWO) proceeding, highlighting once again the desirability of Western cities for those with ill-gotten gains to invest, or launder, their money. An UWO was introduced under sections 362A – 362R of the Proceeds of Crime Act 2002 and came into force on 31 January 2018 and was designed to target the recovery of the proceeds of crime and address money laundering, corruption and terrorism financing. The UWO scheme is particularly directed to “politically exposed persons” and allows an enforcement agency to issue an UWO where there reasonable ground for suspecting (1) the known sources of income would be insufficient to obtain the property and (2), the target is a PEP (or politically exposed person) and is suspected of being involved in serious crime in the UK or elsewhere or a person connected with the target is, has or was so involved (section 362B).

In National Crime Agency v Mrs Zamira Hajiyeva [2018] EWHC 2534 (Admin), the High Court declined to discharge unexplained wealth orders issued by the National Crime Agency (NCA) over assets claimed to be sourced from her husband, Jahangir Hajiyeva, who was formerly Chair of the International Bank of Azerbaijan (IBA). Hajiyeva was convicted in Azerbaijan for his part in the embezzlement of £109 million from the IBA (see https://www.bailii.org/ew/cases/EWHC/Admin/2018/2534.html).  

The assets that were the subject of the UWO included:

  • A house on Walton Street, 3 minutes from Harrods in West London, which was bought for £11.5 million in December 2009 by a British Virgin Islands (BVI) company, Vicksburg Global Inc;
  • Land on which Mill Ride Golf Club, near Ascot is located which Hajiyeva was alleged to have purchased in 2013 for £10.5 million, using a Guernsey company called Natura Limited;
  • Hajiyeva was registered as the beneficiary of a company which had used a £32.36 million loan to buy a Gulfstream jet, and Mrs Hajiyeva had sought a fast track to UK residency through the Tier 1 Investor visa system using assets in the UK with a value over £1 million; and
  • And the couple exhibited a pattern of spending that was not commensurate with their known lawful sources of income with Mrs Hajiyeva having spent £16 million at Harrods alone using credit cards issued by the IBA during a ten-year period.

The judgment is important as it demonstrates how the UWO scheme can cut through foreign criminal proceedings, however unfairly they may have been conducted (but not in flagrant deprivation of an individual’s rights or secured by torture inconsistent with the European Convention on Human Rights) and target assets and property of PEPs outside their home country holding assets in the UK.

United States – Appointment of Corporate Monitors

On 11 October 2018, US Assistant Attorney General Brian Benczkowski published a new Guidance for the US DOJ in terms of the selection, appointment and review of a monitor over a company in matters handled by the DOJ’s Criminal Division. The Guidelines can be found at https://www.justice.gov/opa/speech/file/1100531/download

Important features to note include:

  • The foundation principle is that the imposition of a corporate monitor is never meant to be punitive – it should only occur as necessary to ensure compliance with the terms of a corporate resolution and to prevent future misconduct;
  • The scope of a monitorship should be tailored to address the facts of a case and the concerns that created the need for a monitor;
  • The DOJ must consider the financial costs to the company, any unnecessary burdens to the operations of a business and the potential benefits to the public (and the company) of having a monitor in place; and
  • The selection criteria for monitors is updated with the DOJ making it clear that it will review any complaint on whether the monitor operates outside the scope of a mandate.

These views, while confined to the US, should be noted in Australia, given that the proposed Commonwealth Deferred Prosecution Agreement scheme contemplates the appointment of monitors. Australian business and lawyers should take note of the new Guidance.

United States – Limits on FCPA Extraterritoriality

On 24 August 2018 the US Court of Appeal for the Second Circuit in United States v Hoskins (Docket No. 16-1010-cr (2d Cir. Aug. 24, 2018) held that only foreigners who are:

  • US issuers and their agents; or
  • or US "domestic concerns" (including individual persons) and their agents; or
  • or foreign persons or businesses that engage in conduct within the US,

can be prosecuted for conspiracy to violate the Foreign Corrupt Practices Act or aiding and abetting a violation of the FCPA. The Court held that the US cannot use theories of complicity or conspiracy to ground an FCPA prosecution when a foreign national is not otherwise within the terms of FCPA’s jurisdiction. Mr Hoskins was a British National based in Paris at the time of the conduct said to contravene the FCPA. The Court struck out the conspiracy and complicity indictment while permitting the US to try and establish that Mr Hoskins was an agent of a US company. While this case may be of comfort to executives of US companies in subsidiaries based outside the US (in limiting the reach of the FCPA over foreign nationals), care must be taken on liability issues and executives might still face a variety of other potential offences, including money laundering, if the conduct warrants it.

United States – DOJ Changes Policy on Individual Accountability in Corporate Cases

On 29 November 2018, the US DOJ (by the Deputy Attorney General Rod Rosenstein), announced the following changes to individual accountability in corporate cases (often referred to as emanating from the “Yates Memo”) and the nature of credit given to a company that self-reported misconduct.

The material changes include the following so as to ensure investigations were not unnecessarily delayed and resources wasted:

  • for criminal cases:
    • companies need only identify individuals who were substantially involved in or responsible for criminal conduct; and
    • investigations will not be delayed merely to collect information about individuals not substantially involved or otherwise unlikely to be prosecuted;
  • for civil cases
    • identification is only necessary of wrongdoing by senior management or the board of directors; and
    • companies need only identify individuals who were substantially involved in or responsible for criminal conduct.

US commentators see the result of no credit, some credit or full credit as giving a welcome sense of discretion to prosecutors.

International – IFBEC Guidelines on Model Business Courtesies and Hospitality

During October 2018, the International Forum on Business Ethical Conduct (IFBEC) for the Aerospace and Defence Industry published its Model Business Courtesies and Hospitality Guidelines. The IFBEC is made up member companies of the Aerospace Industries Association of America and the Aerospace and Defence Industries Association of Europe. The Guidelines are at https://ifbec.info/wp-content/uploads/2018/10/IFBEC-MODEL-BUSINESS-COURTESIES-AND-HOSPITALITY-GUIDELINES_2018.pdf.

The Guidelines note that, while broadly speaking, modest courtesies, hospitality is not illegal and cash payments should never be made, companies should be guided by the application of the “4R rule”, so as to adapt business practices by applying the following principles:

  • Regulations – comply with all law, policies and procedures of the receiving organisation (business or government);
  • Reasonable – ensure all courtesies and hospitality is limited and reasonable (or proportionate) for the circumstances, taking into account:
    • The level and frequency of a courtesy or hospitality;
    • The context for the offer;
    • The status of the recipient;
    • The transparency of the transaction; and
    • The nature of the offer or invitation and the legitimate business purpose advanced by the offer or invitation;
  • Responsible – use common sense, experience and professionalism in determining whether to offer or accept hospitality or a courtesy; and
  • Records – document all courtesies and hospitality with full transparency.

While there is nothing new in these Guidelines, it is encouraging to see significant industry groups recommending ethical standards to its members. This is particularly important as many domestic laws dealing with foreign bribery and corruption (domestic or foreign) often are silent on the criteria for the offer or receipt of business courtesies and hospitalities.

International – The Role of Compliance Programs

As strict criminal liability spreads across countries, sanctioning companies for the conduct of others (associates) and requiring companies to know and control those in their supply chain, with the only defence often being proof of “adequate procedures” to prevent such conduct, the role of compliance programs becomes that much more important.

In a recent Global White Collar Crime Survey; anti-bribery and corruption published by White & Case with the University of Manchester (in the UK) (see https://www.whitecase.com/publications/insight/global-white-collar-crime-survey-anti-bribery-and-corruption), it seems clear that a solid 71% of respondents had anti-bribery policies in place with over 70% demonstrating support from senior management to support and reinforce anti-bribery initiatives run by compliance teams.

There were two interesting sets of statistics.

The first table below looks at who is likely to detect bribes.

A significant majority, 75% of respondents, found that their compliance personnel were detecting bribes and were seen as the first firewall against bribery and corruption.

foreign-Bribery-2.png

The second table looks at the interesting question of who to employees turn to when they suspect bribery.

foreign-Bribery-3.png

It seems that up to 88% of respondents found that employees would be most inclined to raise the issue of suspected bribery internally. This result is an encouraging reflection on companies that proactively respond to internal complaints. The history in Australia however, is perhaps more open to question, given the public record of poor corporate responses to whistleblowers and internal reporting. Still, the internal response and employees accepting it is to be encouraged. This is all the more important once the legislative reforms are introduced in Australia with the strict liability corporate offence of failing to prevent foreign bribery.

International – OECD Review of Demand Side Bribery

In December 2018, the OECD published a Foreign Bribery Enforcement Review on what happens to public officials on the receiving end of bribes.

The Review is at http://www.oecd.org/corruption/foreign-bribery-enforcement-what-happens-to-the-public-officials-on-the-receiving-end.htm.

Traditionally, authorities have focused on targeting the corporate supply side of corruption, penalising companies and individuals. Questions always arose as to whether countries were interested in prosecuting their own public officials. The key findings from the OECD Review are as follows:

  • Public officials are subjected to law enforcement actions in a considerable number of cases;
  • In just under 50% of cases the subject to the Review, the demand-side country became aware of the case almost simultaneously (within one month) of the supply sanction being imposed;
  • None of the demand-side countries detected the bribes of their public officials through formal or informal communications with the supply-side enforcement authorities;
  • The media was the most important source of detection for demand-side authorities; and
  • Where public officials were not sanctioned, it was often due to insufficient evidence, limitation time bars and in one case because “the effects of some offences on society were insignificant” and in another case, documents disappeared from the relevant Ministry.

It is encouraging that demand-side public officials are sanctioned. However, it is disturbing that demand-side countries seem to rely more upon the media in learning about bribery within their own public service than from information from authorities in supply-side sanctioning countries. Clearly there is more work to do here in encouraging demand-side countries to ensure those public officials who seek bribes are prosecuted and, if the laws are inadequate, to consider reforms to strengthen the ability of authorities to prosecute public officials who seek bribes.

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).

Related insights Read more insight

The continued saga of the Babcock & Brown liquidation

In a decision of the Federal Court handed down on 18 October 2019 in Masters v Lombe (Liquidator); In the Matter of Babcock & Brown Limited (In Liquidation) [2019] FCA 1720, Foster J held that...

More
Matters of interest – fixed or floating?

A recent decision of the Supreme Court of Queensland has highlighted the need to be vigilant when calculating pre-judgment interest, particularly in respect of long running litigation.

More
Class Action Update - Shifting Sands: Orders for defendants to produce insurance policies

We have started to see the Federal Court use its discretionary powers in respect of class actions to order defendants to disclose their insurance policies to plaintiffs.

More