Australian boards and senior executives are expected to maintain oversight of risk and compliance issues including bribery, sanctions, human rights and anti-money laundering. In-house counsel perform a central role in supporting this oversight and maintaining compliance. In the first of a five-part series, Partners Rachel Nicolson and Peter Haig, Senior Associate Tim Farhall and Lawyer Shamistha Selvaratnam look at the key questions that Australian boards and senior executives should be asking themselves about anti-bribery regulation and compliance practice in 2017.
2017 is shaping up as a very busy year on both the law reform and enforcement fronts.
The Senate Economic References Committee report into foreign bribery is due by 30 June 2017, and we expect that the report will recommend significant reform to Australia's foreign bribery regime. Potential areas of law reform include:
- the removal of the facilitation payment defence;
- the introduction of measures to encourage self-reporting, including deferred prosecution agreements (DPAs) and plea bargains;
- changes around self-reporting, discussed further below; and
- improved guidance around the meaning of 'corporate culture' in the Commonwealth Criminal Code (important, as establishing a deficient 'corporate culture' is a means – so far untested – of attributing liability for foreign bribery to a corporation).
Anti-bribery policies and compliance programs will need to keep pace with these anticipated reforms. Regarding facilitation payments, many such programs are already ahead of the pace, outlawing such payments. This is notwithstanding that the facilitation payments defence – which may apply where a benefit is minor and related to a 'routine government action' – remains available under Australian law. The Senate Committee is widely expected to recommend the repeal of the facilitation payments defence.
It is also likely that enforcement activity will continue to rise. In April 2016, the Australian Federal Police (AFP) stated that it had 18 active foreign bribery investigations, and we expect the number has increased since then. The AFP is also part of the International Foreign Bribery Taskforce, enabling it to work collaboratively with specialist investigators from other countries to strengthen investigations into foreign bribery crimes. As a result of this increased activity, we expect to see the commencement of several prosecutions under Australia's foreign bribery laws this year.
Of course, Australia is only one jurisdiction. Companies must also stay up to date with developments across the global web of anti-bribery laws that may affect their business. For example, the US Department of Justice published guidance last month on how it evaluates compliance programs when investigating corporates, and, importantly, when determining whether to bring charges. In addition to having direct application to many companies, this guidance is likely to be influential in Australia.
New business opportunities should be assessed for bribery risks. It is important to understand whether a target asset or entity, potential joint venture partner or other similar opportunity brings with it legal or commercial risk as a result of past or ongoing improper conduct. 'Buyer beware' is essential here.
These risks can be managed effectively through effective anti-bribery procedures, particularly by conducting thorough, tailored due diligence that is subject to legal professional privilege. Importantly, such due diligence is not only essential to identify and manage anti-bribery risk, but is also expected by law enforcement authorities. Indeed the extent to which it has been performed, and its quality, may directly inform liability for historic or ongoing conduct.
The extent of this due diligence should be informed by the potential bribery risk posed, based on the location of the opportunity and the nature of operations or activities involved.
Commonly identified 'red flags' include
- the payment of large commissions to third parties;
- contracts being won without tender; and
- lavish gifts, entertainment or hospitality.
The presence of 'red flags' is not fatal. It does not mean that the company must not enter into the contemplated transaction. Rather, any 'red flags' or any other issues of concern should be identified and investigated, with any subsequent approval (and the reasons for it) recorded in a due diligence report.
Achieving – and being able to show – an appropriate and compliant corporate culture is one of the most pressing issues on the Australian regulatory landscape this year. In the bribery context, under the Criminal Code liability for actions of a director, officer, employee or agent can be attributed to a corporation where (among other grounds):
- the company's corporate culture directed, encouraged, tolerated or led to non-compliance; or
- the company failed to create and maintain a corporate culture that required compliance.1
Clearly a compliant corporate culture reduces the risk of bribery occurring in the first place. More than this, though, a compliant corporate culture minimises the risk that, should bribery occur (such as though the conduct of a rogue employee or agent), the bribery can be attributed to the corporation. Key steps include implementing:
- a robust, tailored anti-bribery policy;
- an effective compliance program, including training from the board down, for directors, officers and employees, particularly those at the coal face of bribery risk such as members of sales teams or those dealing with government relations; and
- a strong 'tone from the top', such that top-level management fosters a culture in which bribery is never acceptable.
The appropriate content of policies and compliance programs will vary with each company's risk profile.
In Australia, companies and individuals are generally not subject to a legal obligation to report criminal conduct.2 That said, the issue of self-reporting – that is, voluntarily reporting actual or suspected incidents of bribery in which a company is involved – is another key issue on the anti-bribery landscape in Australia for 2017. We wrote about this recently in our Focus: The Rolls-Royce bribery case and its implications in Australia.
Whereas other jurisdictions provide clear incentives for self-reporting and cooperating with authorities, such as DPAs and plea bargains, in Australia there is less guidance, less certainty and therefore less incentive to self-report. In 2017, however, this may change. We have already seen the AFP and Commonwealth Director of Public Prosecutions consultation on the Best Practice Guideline for Self-reporting of Foreign Bribery by Corporations, and await what will emerge from the consultation regarding DPAs and in the Senate Economic References Committee report.
As the law stands today, the decision to self-report requires careful consideration of the particular circumstances. Companies will need to consider the potential risks and benefits, including:
- the opportunity for input into the investigation process;
- the potential for the favourable exercise of discretion regarding the decision to prosecute and improved sentencing outcomes;
- reputational issues; and
- current uncertainty around process and outcomes following a self-report.
Companies must also be conscious of the fact that self-reporting is invariably a first step, and must be accompanied by ongoing cooperation with authorities to realise the potential benefits of the self-report. Such cooperation may span many years.
Gifts, entertainment and hospitality are all key elements of many legitimate business relationships. However, under Australian bribery laws, gifts, entertainment and hospitality are capable of constituting bribery in certain circumstances.
Context is key in determining whether or not the offer or receipt of gifts, entertainment or hospitality are acceptable. The circumstances of a particular benefit must be considered to determine whether it is likely to breach anti-bribery laws. That said, the fact that a particular benefit is perceived to be customary or necessary in the circumstances is irrelevant. So, while context may be key, not all of what is commonly considered 'context' by those on the ground in high-risk jurisdictions is in fact relevant.
To manage risk in this area companies should take positive steps to ensure that business development activities are appropriate, including through:
- implementing and enforcing a gifts, entertainment and hospitality policy;
- maintaining a gifts and benefits register; and
- implementing a monetary threshold requiring gifts or benefits exceeding the threshold to be approved by senior management.
Companies may be directly liable for improper conduct that is carried out by an agent. In fact, many significant prosecutions in foreign jurisdictions relate to bribes carried out by agents, particularly in higher risk jurisdictions.
Successful prosecutions can result even where the company does not have direct knowledge of the bribe. This is particularly the case where a company can be said to have been 'wilfully blind'. Importantly, a company will not only be considered to have been 'wilfully blind' when averting its gaze following a red flag having been identified. When using agents, a company must be 'eagle eyed', conducting sufficient due diligence even in the absence of any red flag, and implementing sufficient measures to ensure everything is above board.
Third party risks can be managed by, among other things:
- conducting due diligence on the third party's history, activities and reputation to identify any indications that the relationship might expose your company to allegations of corruption, bribery or violations of any related laws;
- incorporating contractual clauses addressing anti-bribery issues; and
- regularly monitoring and reviewing the practices of third parties for any suspicious conduct.
Such measures should be mandated – ideally in the anti-bribery policy - and their results documented.
- Criminal Code Act 1995 (Cth) sch 1 cls 12.2-12.3.
- An exception exists in New South Wales where in some circumstances it is an offence to fail to bring information concerning a serious indictable offence to the attention of authorities: s316 of the Crimes Act 1900 (NSW).