This Update covers a range of important developments in Australia and overseas in the area of foreign bribery policy, investigations and regulation to 1 December 2015. These developments will impact on Australian businesses working offshore and only reinforces 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.
The key issues that are covered in this Update include:
For many years, the OECD, Transparency International Australia and experts have criticised Australia for failing to have in place any meaningful false accounting laws which can apply generally or in particular, to foreign bribery cases.
The United States Foreign Corrupt Practices Act (FCPA) and the US Securities Exchange Act have had substantial administrative accounting sanctions for many years. While the US criminal offences require a degree of intentional conduct, the US civil books and records and internal control offences do not – that is, they merely require listed entities to maintain books and records in a manner that a company would be reasonably expected to maintain. These laws have been particularly fruitful for the US authorities in prosecuting companies for foreign bribery related offences. The US Department of Justice (DOJ) focuses on the criminal offences while the US Securities and Exchange Commission (SEC) focuses on the civil administrative cases (the books and records and internal controls offences), often in parallel with the DOJ.
On 27 November 2015, the Australian Government finally addressed this glaring gap in our laws by introducing the Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Bill 2015 to Parliament. This Bill became law on 29 February 2016. The new laws are included in Part 10.9 – Accounting Records section in the Criminal Code Act 1995 (Cth) (the Criminal Code).
There are two primary offences
The essential elements of this offence (s490.1(1) Criminal Code) are as follows:
The essential elements of this offence (s490.2 of the Criminal Code) are as follows:
Section 490.1(2) sets out certain circumstances, one of which must apply for an offence under s490.1 or s490.2 of the Criminal Code.
The relevant circumstances are that:
The penalties for a contravention of s490.1, the intentional conduct offence, are:
The penalties for a contravention of s490.2, the reckless conduct offence, are:
The amendments define an “accounting document to mean “any account” or “any record or document made or required for any accounting purpose”.
In addition, it is not necessary that the prosecution prove that a defendant or any other person in fact received or gave a benefit or that loss was suffered by a person.
The Minister of Justice, when he introduced these amendments into Parliament, made it clear that these offences were being introduced in order to address Australia’s obligations under the OECD Foreign Bribery Convention. For many years, the OECD and Transparency International had criticised Australia for the lack of such laws.
The penalties are substantially more than any existing false or misleading account offences in the Corporations Act 2001 (Cth) (see s286, s1307 and s1309). The offences reflect the significant penalties applicable to the primary foreign bribery offence in the Criminal Code. However, these new offences are not predicated upon an underlying foreign bribery offence, so corporations need to be alive to the increasing likelihood that these offences will be used by the Commonwealth to prosecute companies and individuals for any conduct where false accounting has occurred, whether by intentional or reckless conduct. A Senate committee reviewed the laws and in a report published on 3 February 2016, the Senate made it clear that the laws should apply broadly and in respect of all the types of the financial crime cases where false accounting does exist.
As a practical example, in August 2012, David Ellery as the former Securency CFO, was convicted of one count of false accounting (pursuant to s83(1)(a) of the Crimes Act 1958 (Vic)) involving the dishonest falsification of an invoice for approximately $80,000, being money paid to a Malaysian intermediary for expenses purportedly incurred but in fact were not incurred. The intermediary told Securency that he had to “disburse certain expenses accrued” and this and other information was recorded in emails received by, sent to and copied to Mr Ellery. When a debit note was received from the intermediary, outlining certain “marketing expenses”, which Mr Ellery then processed with a request for payment, he knew, in the Court’s view, that no such expenses had been incurred. The Court found that Mr Ellery’s knowledge that what he was doing was dishonest by the later attempts to conceal what had actually occurred.
In this scenario, it is highly likely that an offence would have been committed under the false accounting offences. It is likely that Mr Ellery made an accounting document being the request to process the payment, or alternatively, he failed to alter the request for payment by refusing to pay it in circumstances when he knew the payment was not for any legitimate services and was not therefore legitimately due to the recipient (the Malaysian intermediary). Mr Ellery by his subsequent conduct in concealing the true nature of the transaction, intended (or even was reckless as to the effect which was) to conceal the fact that another person (the intermediary) had received a benefit that was not legitimately due to him and a person (Securency) had incurred a loss. Mr Ellery was an officer (and employee) of Securency carrying out his duties or functions, his conduct concerned matters or things outside Australia and the accounting document was kept for the purposes of a law of the Commonwealth (taxation laws as to expenses incurred by the company in generating income) or otherwise recorded the use of Australian currency.
These laws have the potential to apply far more broadly than might at first blush be anticipated. While the laws grew out of a concern to target foreign bribery and international corruption, the breadth of the drafting of the laws mean that they may apply to a much wider range of domestic and international commercial and financial transactions and give rise to unanticipated consequences, serious and criminal in nature, for those companies and individuals who engage in transactions where “accounting documents” (within the meaning of the law) play a critical part.
In March 2015, the Australian Government proposed amending the foreign bribery offence in section 70.2 of the Criminal Code to make it easier for prosecutors not to have to identify a particular foreign public official who was offered or in fact paid a bribe.
On 26 November 2015, the Crimes Legislation Amendment (Powers, Offences and Other Measures) Act 2015 (Cth) received the Royal Assent.
From 26 November 2015, for the purposes of the foreign bribery offence under section 70.2, it is not necessary for a prosecutor to prove that:
In September 2015, the Attorney General’s Department (AGD) has filed a multi-agency submission to the Senate Economics Committee’s review of Australia’s foreign bribery laws.
The following can be drawn from the AGD submission:
Overall, the AGD submission, while illuminating in certain respects in highlighting the inter-agency relationships (particularly as between the AFP and ASIC) is underwhelming on a number of levels. While the submission highlights the improved level of inter-agency cooperation, it fails to address anything of substance to the consistent calls for more clarity in the Government’s work in promoting foreign bribery awareness, it ignores calls for any resources guide for business, it fails to address the need to improve self-reporting by offering a better, more focused self-reporting process in the criminal law system (such as deferred prosecution agreements) and it is silent on facilitation payments. While the AGD may be reluctant to put forward ideas as policy, it fails to engage in any intellectual debate on these topics, preferring to remain silent. That is regrettable given the overwhelming call in the majority of submissions for action on these matters.
The Trans Pacific Partnership (TPP) has generated intense debate, enhanced by the reluctance of the Australian Government to clearly disclose to the electorate the benefits of the agreement, assuming there are indeed benefits over the longer term. Now the form of the agreement has been finally published by the US Government with the banner headline “Made in America - leveling the playing field for American workers & American businesses”.
Chapter 26 of the TPP focuses on Transparency and Anti-Corruption. There are a number of key messages from the TPP on Australia’s anti-corruption initiatives:
While Australia ticks many of these criteria, there is still work to be done in protecting whistleblowers who are, in general, treated with less than due respect by their employers (public or private sector) when they blow the whistle on improper or illegal conduct. While there is an obligation to enforce anti-corruption laws, the TPP is silent on enforcement obligations, resourcing issues and how sovereign countries will allocate public resources to the task. If the US Government considers a fellow signatory of the TPP is not enforcing its contractual obligations and US business interests suffer losses, the US Government may seek to enforce its rights under the TPP dispute mechanism in Article 28 and sue the other government. We have to wait and see how all this develops.
For many years, ASIC has been reluctant to support the notion that whistleblowers should be rewarded or receive compensation for blowing the whistle. This appears to reflect a view of Australian culture that you should not reward those who “dob in a mate”.
Greg Medcraft, the chairman of ASIC has recently expressed the view that some form of compensation should be offered to whistleblowers in recognition of the risks they took and damage done to their careers. Mr Medcraft was giving evidence to a Parliamentary Committee looking into whistleblowers. While he remained of the view that rewarding whistleblowers on the US model was inconsistent with Australian culture, it was time that whistleblowers who reported wrongs to the company should receive some form of compensation (out of any fine or penalties imposed on the company). ASIC may now be accepting the game-changing role that whistleblowers play (which is the case as far as the US SEC is concerned) in helping to change corporate culture.
As Mr Medcraft was quoted in the Australian media, it is not just a matter of having the right internal controls, “but equally, it is about having a situation where whistleblowers are…actually properly supported and compensated, potentially, for their lifetime earnings.” This willingness to proactively recognise the value of whistleblowers reflects the pioneering research of Prof AJ Brown at Griffith University who found that in a landmark survey between 2012 and 2014 at least 80% of respondents considered all whistleblowers needed proper protections and compensation for the courage to speak out about improper or illegal conduct.
These developments will be monitored.
On 30 November 2015, the UK Serious Fraud Office (SFO) announced the first Deferred Prosecution Agreement (DPA) entered into between the SFO and ICBC Standard Bank Plc, approved by a judgment published by Lord Justice Leveson at Southwark Crown Court.
In 2012, the Government of Tanzania wished to raise funds by way of a sovereign note private placement. A subsidiary of Standard Bank Group Ltd, Stanbic Bank Tanzania Ltd (Stanbic) and another entity obtained the mandate to raise those funds. In the process, Stanbic entered into an agreement with a Tanzanian company as a local partner, Enterprise Growth Market Advisors Ltd (EGMA) whose majority directors and shareholders were senior Tanzanian officials. As part of the terms of the placement, the fee payable to Stanbic was increased from 1.4% to 2.4% and the extra 1% was to be paid to EGMA. There was no evidence of any services provided by EGMA. In due course, Stanbic paid EGMA the 1% fee, represented by the sum of US$6 million which was then withdrawn in cash. It was only by the large regular cash withdrawals that officers of Stanbic raised concerns which were escalated to Standard Bank head office in South Africa and London.
Features of the how the Bank responded included:
The SFO indictment relied upon the offence of a corporation failing to prevent bribery pursuant to section 7 of the Bribery Act. The particulars of the offence were alleged to be that the Bank failed to prevent Stanbic or officers of Stanbic from committing bribery in order to obtain or retain business or an advantage by promising 1% of the placement monies to EGMA in circumstances where no or no reasonable consideration was received for the payment and the payment of the 1% amount was intended by Stanbic to induce Tanzanian officials to favour the Bank in granting it the placement mandate.
The Bank and the SFO submitted a Statement of Agreed Facts to the Court which set out in detail the relevant facts. They are summarised in the preliminary judgment dated 4 November 2015. Key findings that come out of the judgment include the following:
The Court’s preliminary judgment dated 4 November 2015, published on 30 November 2015 provides the benchmark analysis of the DPA scheme and its application, particularly focusing on the sentencing issues and the assessment of the applicable penalty.
Key points to note from the judgment include the following:
The terms of the DPA set out the following substantive provisions:
This case demonstrated that even where an international finance company sought to act through subsidiaries in high risk countries, it cannot afford not to have its own or group anti-corruption policies having a proper role in the organisation’s structure and applied to every transaction. While the Court accepted there was no evidence of intentional criminal conduct on the part of the Bank, its lack of internal compliance policies and delegating compliance responsibilities to local subsidiaries in a high risk country were key weaknesses. Critically, the Court noted that much of the evidence may never have come to light to the authorities.
In Australia, where the AGD submission to the Senate Inquiry remained silent on the desirability of a DPA model in Australia yet notes that foreign bribery prosecutions are costly, time-consuming and take at least 7 years to complete, this judgment and the important messages it sends to business, has cogently pierced that silence. One can only conclude that if the Bank was located in Australia and chose not to volunteer the evidence to the Australian authorities as there is no DPA scheme in Australia to encourage the very conduct that the Court gave real credit towards, the position might have been very different.
The last words should be left to Lord Justice Leveson:
I add only this. It is obviously in the interests of justice that the SFO has been able to investigate the circumstances in which a UK registered bank acquiesced in an arrangement (however unwittingly) which had many hallmarks of bribery on a largescale and which both could and should have been prevented. Neither should it be thought that, in the hope of getting away with it, Standard Bank would have been better served by taking a course which did not involve self-report, investigation and provisional agreement to a DPA with the substantial compliance requirements and financial implications that follow. For my part, I have no doubt that Standard Bank has far better served its shareholders, its customers and its employees (as well as all those with whom it deals) by demonstrating its recognition of its serious failings and its determination in the future to adhere to the highest standards of banking. Such an approach can itself go a long way to repairing and, ultimately, enhancing its reputation and, in consequence, its business. It can also serve to underline the enormous importance which is rightly attached to the culture of compliance with the highest ethical standards that is so essential to banking in this country.
In September 2015, the US Deputy Attorney General, Sally Yates published what is now known as the “Yates Memorandum”, in the form of instructions to US District Attorneys on focusing on holding individuals accountable for various crimes, including foreign bribery.
The key steps set out in that Memorandum, which need to be appreciated by all corporations, directors and officers, are the following:
This Memorandum may be nothing more than a restatement of the practices of the DOJ and the SEC. However, it is refreshingly stark in its message to directors and executives – be warned as all senior individuals involved in corporate crime will have their conduct closely examined.
In a recent ruling in United States v Saena Tech Corporation and United States v Intelligent Decisions Inc, Case 1:14-cr-00066-EGS dated 21 October 2015, the US District Court published a comprehensive judgment on the powers of the US Federal Courts to review Deferred Prosecution Agreements (DPAs) and their extension to cover individuals.
Key features to emerge from the lengthy ruling include the following:
This judgment is an interesting call to the US authorities to show more flexibility in dealing with individuals who have traditionally been excluded from DPAs and who have no choice but to plead guilty or to fight lengthy, expensive criminal prosecutions. Whether the US authorities take up this call remains to be seen.
On 4 November 2015, the SEC announced a whistleblower award totaling more than US$325,000 for a former investment firm employee who tipped the agency with specific information that enabled enforcement staff to open an investigation and uncover the extent of the fraudulent activity. The whistleblower provided a detailed description of the misconduct and specifically identified individuals behind the wrongdoing to help the SEC bring a successful enforcement action. The whistleblower waited until after leaving the firm to come forward to the SEC. Agency officials say the award could have been higher had this whistleblower not hesitated.
“Corporate insiders who become aware of securities law violations are encouraged to come forward without delay in order to prevent misconduct from continuing unabated while investors suffer more harm,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement. “Whistleblowers are afforded significant incentives and protections under the Dodd-Frank Act and the SEC’s whistleblower program so they can feel secure about doing the right thing and immediately reporting an ongoing fraud rather than letting time pass.”
Sean McKessy, Chief of the SEC’s Office of the Whistleblower, added, “This award recognizes the value of the information and assistance provided by the whistleblower while underscoring the need for whistleblowers to report information to the agency expeditiously.”
On 1 November 2015, the Ninth Amendment to the PRC Criminal Law took effect. The Amendment created additional grounds of liability and imposed harsher penalties for corruption offences. All businesses operating in China should be aware of these changes.
The important changes include the following:
All Australia and other businesses operating in China need to take account of the seriousness in which the current government is pursuing anti-corruption initiatives.
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