This update covers a range of important developments in Australia and overseas in the area of foreign bribery policy, investigations and regulation to 20 December 2017. 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.
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:
On 27 September 2017, in R v Jousif; R v I Elomar; R v M Elomar  NSWSC 1299, the NSW Supreme Court sentenced 3 individuals on charges of conspiring to bribe a foreign public official. Two of the offenders were brothers and directors of an engineering, construction and infrastructure company, Lifese Ltd while the third was a facilitator who held himself out as an expert in introducing companies to government and statutory authorities in Iraq. The two brothers were convicted and sentenced to 4 years imprisonment (with a 2 year non-parole period) and a fine of AU$250,000 each while the third offender, the facilitator, was sentenced to 4 years imprisonment (again with a 2 year non-parole period) and with no fine.
The case concerned the payment of approximately US$1 million to entities in Iraq for the purpose of ensuring that commercial contracts were secured in favour of the company. In passing sentence, the Court made the following observations (at - and ):
I infer that the offence is difficult to detect. None of the parties to a conspiracy to bribe has an interest in its disclosure. The victim is the nation state whose foreign public officials are to receive a benefit…It is important that the sentence includes an element of denunciation so that those Australians who carry on business overseas appreciate that bribery of foreign officials is as serious and as criminal as bribery of local officials and can never be excused, much less justified, on the basis of a business imperative…Each offender has deliberately flouted Commonwealth law and employed criminal means in the expectation of financial advantage. Their respective criminality is serious and warrants imprisonment to communicate “the censure of society”.
The first foreign bribery prosecution, the Securency bank note printing saga, will finally make it way to trial. The trial is listed to commence before the Supreme Court of Victoria in late January 2018. Assuming the extensive non-publication orders are dissolved for the hearing, then expect some close media scrutiny of the evidence as it unfolds.
In late 2016 and early 2017, ASIC charged Peter Gregg and Russell Waugh with engaging in conduct that resulted in the falsification of the company’s books in contravention of the Corporations Act 2001 (Cth). The trial of the two accused was listed to commence on 27 November 2017. On 29 November 2017, the trial was adjourned to 15 October 2018. Further updates will be provided as they become available.
On 7 December 2017, the Australian Government tabled before Parliament the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017. The reading of the Bill was adjourned to the first sitting of Parliament in the New Year, on 5 February 2018 and has been referred to the Senate Legal & Constitutional Affairs Legislation Committee to consider and report by 20 April 2018.
The Bill includes the following important reforms to Australia’s foreign bribery laws:
These reforms have been covered in the April 2017 Update. In reviewing the draft Bill, the following important developments should be noted in relation to the foreign bribery offence:
The Bill also outlines in more detail the statutory process for the operation of the Commonwealth DPA scheme for certain Commonwealth offences:
There are some transitional amendments to other laws, most notably the Income Tax Assessment Act 1997 (Cth) where the non-deductibility of bribes exists as an offence, the Crimes Act 1914 (Cth) in relation to factors to consider on sentencing and the DPP Act 1983 (Cth) in relation to authorising the CDPP to negotiate, enter into, administer, and issue directions or guidelines concerning the negotiations for, the entering into and the administration of a DPA.
Given that these proposed amendments have been on the Parliamentary table and under extensive public consultation for many months, it is hoped these reforms will be enacted in the first half of 2018 after further review by the Senate Legal & Constitutional Affairs Legislation Committee.
In September 2017, the Parliamentary Joint Committee on Corporations & Financial Services published its Report on whistleblower protections. The Report contained a number of important recommendations for reform including a wholesale review of private sector whistleblower protections.
On 23 October 2017, the Commonwealth Government published an Exposure Draft Treasury Laws Amendment (Whistleblowers) Bill 2017 for public consultation.
However, three important features from the Report not contained in the draft Bill are that:
On 7 December 2017, the Australian Parliament considered a revised whistleblower protections bill, the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017. This Bill contains the formal changes proposed to enhance whistleblower protections which are to be included in the Corporations Act 2001 (Cth).
The key changes set out in the December 2017 Bill are as follows:
While there are still some serious criticisms of the scope of the protections, particularly the high threshold test for disclosures to third parties, being “an imminent risk of serious harm or danger to public health or safety, or to the financial system if the information is not acted on immediately” (see section 1317AAD(1)(c) of the draft Bill), which may result in further amendments (see “Whistleblower laws need to be fixed”, Adele Ferguson, The Australian Financial Review 11 December 2017), the Bill remains a good start to tackle the long-standing deficiency of adequate and robust private sector whistleblower protections in Australia.
While the Bill remains under consideration, it is timely for all large listed and proprietary companies to revisit their internal policies and procedures to bring them into line with the expected changes, which have cross-party support in the Parliament. They will be required to have in place a whistleblower policy that reflects the new laws by 1 January 2019.
The importance of addressing these issues is highlighted by Prof AJ Brown who led the research project, Whistling While They Work 2 (in conjunction with ASIC). In the Project’s Preliminary Report published in July 2017, Prof Brown found out of 702 organisations surveyed, almost 23% reported “having no specific strategy, program or process for delivering support and protection to staff” with another 26.8% relying on “setting up such a strategy as needed, rather than having any standing support program”. The time for corporate complacency in the private sector over whistleblowers in Australia is fast disappearing.
During the second half of 2017, the Australian Senate Economics Reference Committee reactivated its review of Australia’s foreign bribery laws. While a report was to be published by early December 2017, that has now been pushed back to 7 February 2018.
In October 2017, the Australian Government announced a consultation process into the level of penalties for white collar crime. The ASIC Enforcement Review Panel published its Position Paper 7, Strengthening Penalties for Corporate and Financial Sector Misconduct, outlining key issues that it thought should be addressed by changes in the law. Consultation has closed and it is hoped reforms occur early in 2018.
The key issues include the following:
While substantially increased penalties have been on the horizon for some years, this is a consistent review to look at the spectrum of penalties open to ASIC in the corporate and financial sectors and will do much to give ASIC extra teeth, assuming it is prepared to press for such penalties to be imposed.
As of 31 October 31, 2017, facilitation payments will no longer be excluded from the bribery offence under Canada’s Corruption of Foreign Public Officials Act (the CFPOA).
While the proposal to abolish facilitation payments under Canadian law was first proposed in early 2013, the delay in its implementation was to allow businesses adequate time to amend their practices and procedures.
In December 2016, France enacted the laws known as Sapin II. which brought together offences from the US FCPA and the UK Bribery Act together with a scheme for deferred prosecution agreements (the “convention judiciaire d’intérêt public”).
On 14 November 2017, HSBC became the first company to agree to a DPA under the new regime. The High Court in Paris approved a €300 million settlement to resolve claims of unlawful banking, financial soliciting and aggravated money laundering. While French companies have generally been resistant to voluntarily disclosing illegal conduct and preferring to let cases meander slowly through the French judicial system, these new laws may result in a change of heart, particularly where cross-border risks suggest a more nuanced response to the inquisitive French magistrates.
Latin America, particularly Brazil and Argentina continue to power along in relation to anti-corruption initiatives. The Operation Car Wash in Brazil continues to ensnare foreign companies, business leaders and politicians.
On 8 November 2017, the Argentine Congress passed the Law on Criminal Liability of Legal Entities. Once the President signs the law, it will become effective 90 days after publication in the Official Gazette.
Under the new Law, a company will be criminally liable for certain corruption-related offences, including bribery, influence-trafficking, conduct incompatible with the exercise of public duties, illegal levies, unlawful enrichment of public officials and employees and false accounts. A company will be held liable for these offences by direct or indirect conduct. Liability may be avoided if the individual engaged in the conduct acted exclusively for his/her own benefit and with no benefit to the company. The Law allows the company to negotiate a resolution with the prosecutor (referred to as an Effective Collaboration Agreement or Acuerdo de Colaboración Eficaz) subject to certain conditions. This includes full disclosure of the company’s conduct and that of all relevant individuals.
On 14 November 2017, the OECD Working Group on Bribery released its 2016 Data on Enforcement of the Anti-Bribery Convention. While the report focused on the degree of international cooperation, it made some interesting findings:
Against this backdrop, on 19 December 2017, the OECD Working Group on Bribery published the Phase 4 Report on Australia and its performance in complying with the OECD Anti-Bribery Convention. The OECD recognised the substantial steps taken by the Australian Government to improve its framework for detecting and investigating foreign bribery (with 19 ongoing investigations and 13 referrals under evaluation), that enforcement had increased markedly since the 2012 Phase 3 Report and a number of legislative and institutional reforms have or are designed to strengthen the focus on targeting foreign bribery.
The Phase 4 Report makes the following recommendations for the future:
Overall, the Phase 4 Report illustrates that the Australian Government is recognising the importance of tackling foreign bribery and corruption, is strengthening Australia’s laws to prosecute companies and individuals, is recognising the importance of enhanced whistleblower protections (to promote the disclosure of illegal conduct) and ultimately, and this is where the test lies, to adequately resource and staff the AFP and the CDPP to go after foreign bribery in a manner now being adopted by their overseas counterparts.
As of September 2017, the Criminal Finances Act 2017 will be fully implemented in the UK.
Key features of the Act include the following:
The UK Treasury issued a Guidance on the corporate offence of failing to prevent the criminal facilitation of tax evasion. The Guidance sets out a principled approach similar to the Guidance under the Bribery Act, so the proactive measures expected from a business will come as no surprise.
On 10 April 2017, the UK Serious Fraud Office announced that a deferred prosecution agreement (DPA) had been entered into with Tesco Stores Ltd. The case involved certain accounting irregularities the subject of investigation by the Financial Conduct Authority.
Publication of the relevant judgments is stayed until the completion of the criminal trials of three individuals (Christopher Bush, who was managing director of Tesco's UK operations, the finance director Carl Rogberg and the food commercial director John Scouler). What can be reported is that the company will pay a “total exceptional charge of £235m in respect of the DPA of £129m, the expected costs of an FCA compensation scheme of £85m, and related costs” (see https://www.sfo.gov.uk/2017/04/10/sfo-agrees-deferred-prosecution-agreement-with-tesco).
Before and after President Trump was elected as US President, there was speculation that a new administration may change the course (and perhaps, the focus) of investigative agencies, away from corporate misconduct to other areas of interest. That appears, from some of the latest information out from well-respected US firms, not to be the case.
The Table above reflects the findings published by Miller & Chevalier in Washington DC, where the respected authors of their FCPA Autumn Review 2017 make the following observations:
Overall, the agencies' activity during the first ten months of the Trump administration indicates an absence of any significant departure from previous FCPA enforcement trends. Statements by senior DOJ and SEC officials relating to the statute continue to support robust anti-corruption enforcement. For example, following similar pronouncements from the DOJ during the first part of the year, the Chair of the SEC affirmed in early September 2017 that there is not going to be some "dramatic shift in priorities at the SEC" related to FCPA or other enforcement areas, and made similar statements in a congressional oversight hearing later the same month.
In public remarks in September and October 2017, DOJ officials, including Deputy Attorney General Rod Rosenstein, announced that both the "Yates Memorandum" (the controlling guidance for DOJ enforcement policy related to companies) and the FCPA "pilot program" were under review and that changes could be announced later in the fall of 2017. The results of that review have not been publicly reported to date, and some members of Congress and commentators have raised concerns that the contemplated changes could weaken the DOJ's enforcement posture. Given various statements by both DOJ and SEC officials, it is likely that any such revisions will reflect a continued focus on enforcement against individuals and actions that companies should take to show cooperation for purposes of the exercise of prosecutorial discretion and the application of mitigating factors. For example, in a speech to the U.S. Chamber of Commerce's Institute for Legal Reform on October 25, 2017, the Deputy Attorney General stated that, "[w]e are establishing a Working Group on Corporate Enforcement and Accountability, which will offer recommendations on promoting individual accountability and corporate cooperation," though he offered no further details.
This brings into focus the trends of US authorities against individuals. Again, the information from Miller & Chevalier is illustrative.
The Table above reflects the views of Miller & Chevalier, to the effect that the number of prosecutions against individuals, and the US Government desire to hold individuals accountable, will continue on.
On 29 November 2017, the Us Department of Justice (DOJ) announced that with some updates, its pilot program established in 2016 to encourage companies to self-report FCPA offences will be made permanent.
On 5 April, 2016, the DOJ published (through its Fraud Section) the Foreign Corrupt Practices Act Enforcement Plan and Guidance, under which companies could receive a reduction in criminal penalties of up to 50%, avoiding a compliance monitor and even a declination to prosecute (see the policy at https://www.justice.gov/criminal-fraud/file/838416). Under the amended program, companies may avoid paying any criminal penalties for FCPA offences and formal prosecution in certain circumstances, but will still have to disgorge profits obtained from the corrupt conduct and endure public disclosure of the conduct and the offence. In instances where the conduct does lead to prosecution, companies may still receive up to a 50% reduction in the low end of the penalty range established under the US Sentencing Guidelines and may forego the requirement of a corporate monitor. Even companies that do not self-report, but that later cooperate and remediate, may receive credit in the form of a reduced penalty. It is intended that the program will form part of the United States Attorneys’ Manual, guiding federal prosecutors on a broad range of topics and in particular, how to give credit to self-reporting companies.
In a speech to the 34thInternational Conference on the Foreign Corrupt Practices Act on 29 November 2017, the US Deputy Attorney General, Rodney Rosenstein made these observations, in announcing the updated program as new policy (see https://www.justice.gov/opa/speech/deputy-attorney-general-rosenstein-delivers-remarks-34th-international-conference-foreign):
Those cases and others like them reinforce the Department’s commitment to hold individuals accountable for criminal activity…Effective deterrence of corporate corruption requires prosecution of culpable individuals. We should not just announce large corporate fines and celebrate penalizing shareholders… I know that previous corporate fraud policies often were identified by the name of the Deputy Attorney General who wrote the memo. It is nice to be remembered. But one of my goals is not to be remembered for writing a memo. After spending nearly three decades trying to keep track of prolix memos, I want the Department to issue concise policy statements. Historical background and commentary should go in a cover memo or a press release. In most instances, the substance of a policy should be in the United States Attorneys’ Manual, and it should be readily understood and easily applied by busy prosecutors…So, the FCPA Corporate Enforcement Policy I am announcing today will be incorporated into the United States Attorneys’ Manual.
The new Policy makes it clear that the DOJ wants to incentivise companies to self-report and that the focus of the authorities will be on individual responsibility, or as the Deputy Attorney General observed, “…It makes sense to treat corporations differently than individuals, because corporate liability is vicarious; it is only derivative of individual liability”.
Over the last few years, it has become increasingly clear that while regulators and prosecutors want companies to voluntarily disclose their corporate misconduct and pay the price, one price that must be paid is letting individuals go. The conduct of individuals, as noted above on the US trends, is what attracts the eye of the prosecutor in holding accountable those responsible for corporate misconduct.
Here is an example of the recent activity where individuals have been charged and/or convicted or are in the process of contesting charges, not just in the US, but more widely:
This trend reinforces the need for individuals within companies (in particular, directors, executives and management) to proactively address their corruption and bribery risks. It is they that will be held accountable if things go wrong and their conduct comes under question. Prosecutors will not only ask you “what did you do?” but now, increasingly, they are asking “what should you have done?” and “why did you not do something?”
In April 2016, the world learned about a rather obscure law firm in Panama, Mossack Fonseca that had been attending to the offshore needs of clients (large and small companies, trusts, politicians, socialites and just the plain old-fashioned wealthy) for many years.
In late 2017, Panama moved to Paradise where a rich history of client dealings of a well-known Bermuda law firm, Appleby, was published, along with client information, for all to see. Both firms appeared to have suffered from cyber security failings as their confidential information was removed, downloaded by persons unknown (at least publicly) and presented to the International Consortium of Investigative Journalists. From Panama to Paradise – what does it all mean for business and lawyers and where are governments going?
We hear much from politicians and tax officials saying that companies should pay their “fair” or “right” tax. Indeed, in an interview with the Commissioner of the Australian Taxation Office, Chris Jordan, the current Head of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration, (focused on anti-tax avoidance practices), Mr Jordan told The Australian (on 30 November 2017) the following:
If the right tax is not collected from multinationals, it “deprives Australians of the funds needed for vital infrastructure and services” he says. “If you come here as a foreign company and you use our infrastructure, we’re a good marketplace for you – you should pay tax on the value you create here.”
The difficulty in all of this discussion is that the tax laws are created by politicians and governments and they have encouraged, condoned or otherwise permitted complex offshore structures to be used by business for entirely legitimate business reasons in reducing the amount of tax payable in one country or another. Taxpayers are required to pay what tax they are legally required to pay. It is governments that create the environment for business to engage in offshore commercial structures, often part and parcel of an increasingly global economy. While lawyers and accountants are often called upon to advise upon, create and structure offshore commercial activities, it is likely the vast majority of transactions are entirely legal. Whether it (the structure) is then used by the client for other, potentially illegal purposes, does not of itself make the conduct establishing the structures unlawful. It is worth remembering the sage words of Lord Tomlin in the Duke of Westminster’s case, highlighted so forcefully by Martin Kenny in his commentary published in the FCPA Blog (17 November 2017, at http://www.fcpablog.com/blog/2017/11/17/martin-kenney):
The intersection between law and morality is traditionally reserved for the most heinous of crimes. Lawful tax avoidance is neither immoral nor unlawful. It does not come close to that intersection. In Duke of Westminster v Commissioners of Inland Revenue  AC 1 (House of Lords), Lord Tomlin held that:
Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.
Added to this mix of ethics and law is the role that lawyers (external law firms and internal corporate counsel) play in establishing and advising upon such structures. While Mr Jordan might describe his former colleagues in the accountancy firms as having “been writing stories for so long, they’re starting to believe their (own) fairytales”, lawyers in many jurisdictions are under professional duties to either act in the interests of justice and the court or to their client as the primary duty. Where that duty is called into question by the client’s instructions or conduct, the lawyer ought to advise the client as to how he, she or it should act legally and absent any change, to cease acting. Whether there are reporting obligations on lawyers will depend upon domestic laws. Obligations to report suspicious transactions under anti-money laundering laws are common. However, the traditional duty of a lawyer to keep his client’s information confidential is a corner-stone of the role of the legal profession and the right of any client to receive frank legal advice without fear of its disclosure.
While lawyers want to maintain their ability to give fearless confidential advice, and clients no doubt the ability to pay only the tax they are legally obliged to pay, the power of social media and the public push for “fair” tax means disclosures about the tax affairs of the rich and famous (and infamous) will continue. Cyber security breaches will inevitably occur and information once considered safe is now less safe than ever. Lawyers and business need to appreciate that the risks of disclosure are greater now than ever before. The international regulatory landscape for business, for tax liabilities and the cause celebre of “punishing” multinationals for legally minimising their tax is not going away. Nor are the challenges faced by lawyers in how to give advice on transactions and structures that on one view are perfectly legal, yet on the other hand, offend against increasingly popular “ethics” of how business should behave.
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