Australian Senate to inquire into the effectiveness of Australia’s foreign anti-bribery measures
Posted: 13th July 2015 09:41Abstract
The Australian Senate is set to hold an inquiry into the effectiveness of Australian laws designed to tackle foreign bribery. Senator Nick Xenophon, who moved for the inquiry said that it is “widely known to be illegal for Australian companies and organisations to engage in bribery and corruption overseas. What this inquiry will examine is why cases are so hard to bring and rarely result in convictions.” In doing so, it will consider whether Australia should introduce provisions similar to those which have proven effective in the US and UK.
On 5 March 2015, Labor Senator Sam Dastyari gave a speech in the Australian Senate expressing concern that Australia is lagging behind the US and the UK when it comes to enforcement of foreign bribery laws. He referred to well publicised foreign bribery allegations involving some of Australia’s best known entities, such as BHP Billiton. The allegations regarding BHP related to bribes paid to Chinese officials in the lead up to the 2008 Olympics. The Senator’s concerns were somewhat prophetic as two weeks later, on 20 March 2015, BHP was charged with violating the US Foreign Corrupt Practices Act, in relation to this same alleged conduct.
BHP Billiton reached a settlement with the US Securities and Exchange Commission (SEC) whereby it agreed to pay a US $25 million penalty. In its press release, the SEC acknowledged the assistance provided by the Australian Federal Police in the conduct of its investigation. It is nevertheless puzzling that the AFP did not spearhead the investigation and that the matter was not prosecuted under Australia’s anti-bribery and corruption laws.
This is an issue that will hopefully be explored by the Economics Reference Committee as it conducts its inquiry into the effectiveness of Australian laws designed to tackle foreign bribery. The terms of reference adopted by the Senate demonstrate that the Economics References Committee intends to use the inquiry as an opportunity to:
· conduct a holistic review of Australia’s laws to tackle bribery and corruption and the effectiveness of the organisations that have responsibility for investigation and enforcement; and
· consider whether some of the measures that are utilised successfully in the US and UK should be introduced into Australia.
It is clear that Australia lags behind global best practice in both adequacy of laws and effectiveness of enforcement - we can expect to see recommendations for reform when the Committee presents its findings in mid-2016. Some of the probable recommendations include the following.
A new offence
Arguably, one failing of Australia’s current anti-bribery and corruption laws is that to establish corporate liability for a foreign bribery offence it is necessary for the prosecutor to prove that, at a minimum, the corporate culture of the organisation was such that it implicitly (or overtly) encouraged or condoned the impugned conduct. This is in stark contrast to the position in the UK (where it is an offence for a corporation to fail to prevent bribery from occurring) and the US (where the company is liable for acts of its employees and agents, and corporate culture for compliance is only relevant to the exercise of prosecutorial discretion). It is expected that the Senate Inquiry will examine whether Australia should follow the UK example.
Proponents argue that introducing a failure to prevent bribery offence in Australia would be desirable as it provides a very strong incentive for rigorous compliance in the corporate sector – where the most capacity to effect real change exists. This is because if a prosecutor can establish that a bribe has been paid by an employee, contractor, agent or associated entity of a company, then the company will have also be guilty of a criminal offence unless it can prove that it had (and had fully implemented) adequate policies and other measures in place to prevent that conduct from occurring.
From a policy perspective, the introduction of an offence of failing to prevent bribery makes sense because while a bribe-paying employee may receive some benefit from doing so, the real economic beneficiary is inevitably the employer. Similarly, the US provisions are straightforward and direct – if your employee or agent committed an offence, then you are responsible. Such provisions are much simpler to enforce.
Deferred prosecution agreements
In the context of bribery and corruption, a deferred prosecution agreement (DPA) is an agreement between a company and a prosecuting authority pursuant to which a company can avoid a bribery or corruption conviction by negotiating a proportional sanction with the prosecutor. Advocates of DPAs say that they are a useful tool for companies as they assist to create certainty, while also minimising the risk of corporate liability and the amount of any penalty. For prosecutors, DPAs offer quick results without the need for costly legal proceedings.
Both the US and the UK have regimes for DPAs. In those jurisdictions they are an important part of the “carrot and stick” approach to bribery and corruption compliance. The existence of such an arrangement is intended to promote early self reporting of potentially criminal conduct (in return for the “carrot” of certainty, lower penalties and lower costs of resolution). This is important as bribery and corruption matters are notoriously difficult to detect and investigate. The “stick” is that the failure to be proactive and self-report may mean that a prosecutor is more inclined to seek a criminal conviction and sanction.
In the US, DPAs have been commonplace for some time. In the UK, the procedures surrounding the use of DPAs have only been in place since 2014, but already the Serious Fraud Office has invited a number of companies to enter into DPA negotiations based on their cooperation and early disclosure of potential corrupt conduct.
Meanwhile in Australia, DPAs are not available and there is no guidance or clear incentive offered in related to self reporting. In its submission to the OECD for the follow up to the Phase 3 Report on implementing the OECD Anti-Bribery Convention in Australia that was published in April 2015, the Australian Government pointed out that cooperation with law enforcement is a matter that the court can take into account in sentencing. Evidently, this does not encourage self reporting in the manner that a DPA might. If it did, Australia may have seen more bribery and corruption matters before the Courts.
Even absent these potential reforms, well-advised companies should engage with law enforcement and other authorities (including the AFP and ASIC) to self-report incidents of bribery and corruption, director misconduct, and book-keeping issues as appropriate. But measures providing companies with more guidance and benefit from such positive engagement are long overdue and welcome.
Private sector whistleblower protection
The Senate Inquiry will also look at whether improved whistleblower protection is needed. Australia's current protection is limited to statutory protection for public sector whistleblowers and very limited protection for private sector whistleblowers - these consist only of the very narrow and limited protection offered by the Corporations Act, and those policies voluntarily offered by employers on an ad-hoc basis. Such policies, where available at all, vary in quality, with limited or unclear protection and terms that often work to discourage potential whistleblowers.
Australia’s private sector whistleblower protection is out of step with those offered in the US and the UK, and, once again, the inquiry will examine whether Australia should adopt measures similar to those in the US or UK. Both the US and UK have strong provisions protecting private sector whistleblowers. Since 2010, the US SEC has also had the power to reward whistleblowers with cash payments of between 10% and 30% of any penalty levied based on unique information provided by a whistleblower. That program has resulted in an increased flow of information to the authorities. There is no doubt that robust protection and rewards create a better safe-harbour and incentives for reporting improper conduct. There is room for debate about the proper structure of such protections and incentives - for example, an incentive system should encourage, if not require, an employee to report relevant information to the employer if adequate protections are offered. No doubt these are some of the matters the inquiry will examine in considering appropriate reform.
There is no doubt that the AFP has made some strides in its focus on and investigation of bribery and corruption. It has improved cooperation between various authorities, established and trained a dedicated team, and increased resourcing. Indeed, it has reopened some old investigations, and started many new ones - it has 14 current bribery and corruption investigations underway, some of which are publicly known and others that remain confidential. But a record of two convictions and many matters 'underway' suggests there is still much work to be done, and that law reform may be needed to provide an improved framework, particularly in relation to definition of the corporate offences.
The Economics Reference Committee is not due to deliver its report into the effectiveness of Australia’s anti-bribery and corruption regime until mid-2016. No doubt in the meantime, the AFP, ASIC and other authorities will continue to work hard to combat foreign bribery and corruption. If the inquiry is as thorough as it promises to be, it seems very likely that reform will be recommended, and that some of that recommended reform will be based on the more successful measures available in the US and UK. It must be noted, however, that a year is a long time in the life of the Senate - watch this space.