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Focus: Christmas comes early for the AFP and CDPP: Bill introduced to reform foreign bribery laws and introduce DPA scheme

8 December 2017

In brief: The Australian Government has introduced the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017 into the Senate, which, if passed into law, will significantly strengthen Australia's foreign bribery laws and introduce a Deferred Prosecution Agreement scheme for resolving corporate criminal misconduct. Partners Rachel Nicolson (view CV) and Peter Haig (view CV), Senior Overseas Practitioner Christopher Kerrigan and Lawyers Shamistha Selvaratnam and Emma Moore report.

 
 

How does it affect you?

  • The introduction of Deferred Prosecution Agreements (DPAs) will provide a significant incentive for companies to self-report and proactively 'cooperate' with Australian enforcement agencies in relation to serious corporate crime investigations.
  • If the Bill passes, DPAs will be available for a range of corporate crimes including foreign bribery, money laundering, false accounting, dishonest conduct in the financial sector and sanctions violations. Companies and other interested parties will be concerned about the degree of discretion vested in the Commonwealth Director of Public Prosecutions (Director) and will be keen to see guidance about when DPAs are likely to be offered and what, in practice, will be expected of companies.
  • The proposed amendments to the foreign bribery laws are significant, particularly the new offence of 'failure to prevent bribery' by an 'associate'. Under this offence, companies will face strict liability for bribery by 'associates' (including subsidiaries) if they do not have adequate procedures in place designed to prevent bribery of foreign public officials by their 'associates'. Companies will need to consider updating policies and procedures to ensure they reflect the new provisions and standards in the Bill (many of which are different to the US and UK equivalents). In this regard, the foreshadowed guidance regarding what constitutes 'adequate procedure' will be important.
  • Existing foreign bribery offences have been replaced with new provisions designed to remove evidentiary barriers faced in proving foreign bribery, potentially leading to more such cases being prosecuted.
  • The Australian Government has listened to feedback from consultation participants and dropped its proposed 'reckless bribery' offence.
  • The Bill will be considered in detail by the Senate early next year and is likely to have bipartisan support. We will keep you updated as it progresses through the parliamentary process, including when it is likely to come into force in 2018.

Background

As we reported earlier this year, the Australian Government consulted on a proposed model for a DPA scheme in Australia and proposed reforms to Australia's foreign bribery regime. We prepared submissions to the consultation in relation to changes to the foreign bribery laws and the consultation on the introduction of DPAs.

Earlier this week, the Australian Government introduced the Bill enacting some of those proposals into the Senate. The changes to the foreign bribery laws and the option of entering into a DPA in relation to foreign bribery (and other specified corporate criminal conduct) will reshape the corporate crime landscape in Australia.

Foreign bribery offences

The new offence: failure to prevent bribery by associates

As contemplated by the consultation paper, the Bill includes a new offence of 'failure to prevent bribery of foreign public officials'.1 Under this offence, an Australian company will commit an offence if an 'associate' of the company commits bribery for the 'profit or gain' of the company. The bribe by the associate may be paid anywhere in the world and does not itself have to be the subject of prosecution. This is a strict liability offence, but the company will have a defence if it can prove that it had in place 'adequate procedures' designed to prevent the commission of the offence by any of its associates.2

Guidance will be published by the Minister 'on the steps that a body corporate can take to prevent an associate from bribing foreign public officials' (ie to have 'adequate procedures').3 It is hoped that this guidance closely tracks equivalent UK guidance (for its similar 'failure to prevent' bribery offence)4 to avoid companies being expected to do different things to satisfy different authorities under the UK and Australian regimes.

As expected, this offence is similar to the UK offence of failure to prevent bribery. In some respects, the Australian Government's proposed offence is narrower than the UK's (for example, it only applies to bribery of foreign public officials, as opposed to private citizens). In other ways, it is broader.

Most notably, under the Bill, an Australian company will commit an offence if an associate pays a bribe for 'the profit or gain' of the Australian company. The term 'associate' has been defined broadly and encompasses all officers, employees, agents, contractors, and any person who performs services for or on the company's behalf.5 Importantly, the definition also includes subsidiaries and controlled entities,6 regardless of whether they are performing services for, or on behalf of, a company. The Australian Government has stated that the words 'profit or gain' are 'intended to cover the situation where a company benefits merely because it is the beneficial owner of a subsidiary company that commits the foreign bribery offence'.7

The definition of 'associate' is broader than in the equivalent UK 'failure to prevent' offence, which focuses on the nature of the relationship between the company and the associate, rather than its formal status. In order to be an 'associated person' under the Bribery Act 2010 (UK), a person must be 'performing services' for, or on behalf of, the company.8 In order for bribes paid by the 'associated person' to lead to liability for the company under the UK offence, the 'associated person'9 must intend to obtain or retain business, or an advantage in the conduct of business, for the company concerned.

In our consultation submission, we warned that the inclusion of the words 'profit or gain' and such a broad definition of 'associate' would, in effect, constitute a piercing of the corporate veil. It is likely to lead to many Australian companies imposing much greater oversight over their foreign subsidiaries' conduct and, in some instances, deciding that the risk of owning companies in some jurisdictions is too great. A particular area of focus for companies is likely to be joint ventures and the risk holdings in these ventures might generate.

Amendments to the existing offence: bribery of a foreign public official

Largely in keeping with the Australian Government's proposal in its consultation, the offence under s70.2 of the Criminal Code Act 1995 (Cth) (the Code) has been repealed and replaced with the following key changes:

  • The definition of foreign public official has been extended to include a candidate for political office.
  • The requirement that the foreign public official must be influenced 'in the exercise of the official's duties' has been removed.
  • The requirement that a person have a specific 'business' advantage in mind has been removed such that the offence now covers bribery to obtain a personal advantage.
  • The concept of giving a benefit and receiving an advantage that was 'not legitimately due' has been replaced with the concept of 'improperly influencing'. Legislative guidance in relation to this concept has been provided in a new s70.2A.
  • It is not necessary that the person offering or providing, or causing the offering or providing, intends to influence a particular foreign public official to obtain a particular business or a particular advantage. Nor is it a requirement that such business or advantage is actually obtained or retained.

Each of these changes was contemplated in the consultation paper. These changes are intended to 'remove undue impediments to successful investigation and prosecution of foreign bribery offending by broadening the offence, removing restrictive requirements and clarifying some requirements.'10 We anticipate that they will make proving bribery of a foreign public official significantly easier, potentially leading to more such cases being prosecuted.

In its consultation paper, the Australian Government also proposed to create a new separate foreign bribery offence for where a person is reckless (ie took an unjustified substantial risk) as to whether their conduct would improperly influence a foreign public official. The Government has taken on board the feedback received during the consultation from Allens and a number of other stakeholders and not included this proposed offence in the Bill.11

'The Bill does not remove the 'facilitation payments' defence. This defence arises when a minor payment is made to expedite a routine government action. An accurate record must be kept of the payment for the defence to apply. While retaining this defence is in line with the Government's position during consultation on these reforms, this is somewhat surprising given the strong trend to remove such defences in line with OECD guidance and broader analysis that such payments are very often in breach of the law of the country where they are made.

Introducing Australia's DPA scheme

The Bill introduces a DPA scheme12 by amendment to the Director of Public Prosecutions Act 1983 (Cth) (the DPPA), largely in line with the exposure draft summarised in our earlier Focus. Under the scheme, the Director may invite companies (but not individuals) accused of certain crimes13 to enter into confidential DPA negotiations.

We anticipate that the Commonwealth Department of Public Prosecutions (CDPP) will publish guidance on how DPAs will be negotiated, entered into and administered, as this will be key to providing companies with sufficient certainty to consider seeking a DPA (although the Bill merely provides that the Director may issue such guidance).14 The following table sets out the key elements of the DPA scheme.  

 

#

Incentives

Conditions

1.

No formal admission of guilt: While the DPA must include a 'statement of facts in relation to each offence specified in the DPA' and Director must be satisfied that there are reasonable grounds to believe that an offence has been committed and that entering into the DPA is in the public interest,15 companies are not required to admit guilt. The removal of the requirement for an admission of guilt is something we and others suggested in the consultation process.

Mandatory terms:16

  1. Statement of Facts relating to each offence;
  2. an end date for the DPA;
  3. requirements to be fulfilled;
  4. amount of financial penalty (which may be nil in exceptional circumstances);17 and
  5. circumstances which constitute a material contravention of the DPA.

2.

Lower penalty than if convicted: The Director may consider that a 'measurably' lower penalty is appropriate where the party to the DPA demonstrates a high level of cooperation with the CDPP and other relevant law enforcement agencies.18 Greater clarity as to the financial consequences of agreeing a DPA was something we suggested in our consultation submission to ensure that the benefits of proactive cooperation were clear from a financial perspective.

Menu of discretionary terms includes requirements to:19

  1. compensate victims of an offence specified in the DPA;
  2. donate money to a charity;
  3. forfeit any likely benefits (with the meaning of the Proceeds of Crime Act 2002);
  4. implement a compliance program or policies;
  5. cooperate in any investigation or prosecution relating to a matter specified in the DPA; and
  6. pay costs incurred by a Commonwealth entity relating to negotiating the DPA.

3

No prosecution if terms of DPA are complied with: A prosecution can be instituted if the Director, in his or her discretion, is satisfied there has been a material breach of the DPA,20 although this decision would be capable of being judicially reviewed. It can also be instituted if the person provided inaccurate, misleading or incomplete information to a Commonwealth entity in connection with the agreement or if the company knew, or ought to have known, that the information was inaccurate, misleading or incomplete.

The consultation exposure draft proposed that a mandatory term of a DPA should be an admission of guilt. This requirement received negative feedback from consultation respondents. In a major departure from the exposure draft, under the Bill, an admission of guilt is not a requirement of a DPA.21 This brings the Australian scheme into alignment with the UK regime. Whether or not a company agrees to admit guilt will ultimately be a matter to be negotiated.

Once a DPA is agreed, the DPA is approved by an 'approving officer' (ie a retired judge appointed by the Minister)22 and will be published on the CDPP's website within 10 business days, unless the Director considers it appropriate in the interests of justice to publish a redacted version of the DPA or not publish it at all.

The Bill lists a number of non-exhaustive factors that may be relevant to this determination, including the risk that the disclosure may prejudice an ongoing investigation or the fair trial of a person.23

The model chosen is in many ways a hybrid of the US and UK regimes. In the UK, a judge is involved in the supervision and approval of a DPA. In contrast, in the US, a judge only provides final approval of a DPA. Under the Australian regime, an approving officer has a narrow remit and only has the power to approve or not approve the DPA.24 The approving officer must assume that the information set out in the DPA is true and correct.25

The Bill provides that a DPA can be varied after it has been approved.26 If a company and the Director agree to a variation to the DPA, the Director must give the DPA as varied to an approving officer and the approving officer must decide to either approve or not approve the variation.

The Bill also restricts the admissibility of certain evidence against a company, namely, documents that indicate that the company entered into negotiations for a DPA and documents that were created solely for the purpose of negotiating a DPA.27 This restriction is limited if the Director is satisfied there has been a material contravention or if the inaccurate, misleading or incomplete information provision is triggered at the new s17A(3) of the DPPA.

Next steps

The significance of these proposed changes to Australia's foreign bribery laws means that not only will the Bill, if passed, shape future foreign bribery prosecutions; it will also guide internal corporate frameworks and policies with respect to best practice in foreign bribery safeguards and compliance. Self-reporting guidance from the CDPP and 'adequate procedure' guidance to be published should hopefully add further clarity to the foreign bribery framework.

The DPA scheme will be available for conduct occurring before, on or after the passing of the Bill.28 The DPA scheme will come into force the day after Royal Assent is received and will be available for conduct pre-dating its commencement. In contrast, the foreign bribery amendments will come into force six months after Royal Assent is received 29 and will only apply in relation to conduct engaged in on or after the amendments come into force.30 As foreign bribery can take some time to come to light and then be investigated, it may be that the impact of the DPA scheme will be felt more immediately. We anticipate that the CDPP will wish to expedite some ongoing investigations (in the foreign bribery space and elsewhere) to resolution via a DPA as soon as possible after the DPA scheme comes into force.

 

Footnotes
  1. Bill sch 1 item 8 (the new s70.5A of the Code).
  2. Bill sch 1 item 8 (the new s70.5A(5) of the Code).
  3. Bill sch 1 item 8 (the new s70.5B of the Code).
  4. Bribery Act 2010 (UK) s7.
  5. Bill sch 1 item 2 (an amendment of s 70.1 of the Code).
  6. A 'subsidiary' and the term 'controlled' have the meaning in the Corporations Act 2001 (Cth).
  7. Explanatory Memorandum, Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017 (Explanatory Memorandum) 17 [88].
  8. Bribery Act 2010 (UK) s8.
  9. The term used in the Bribery Act 2010 (UK).
  10. Explanatory Memorandum 6 [19].
  11. In our submission to the consultation, we considered that the Australian Government should not introduce this new offence for a number of reasons, including the introduction of the offence would be inconsistent with the legislative position in other jurisdictions, such as the UK and the USA, the offence would introduce considerable uncertainty for Australian corporations operating overseas and the UK and the USA have considered and rejected the introduction of a similar offence.
  12. Bill sch 2.
  13. The offences to which a DPA relate are specified in the Bill (see sch 2 item 7). The offences include offences  relating to foreign bribery, money laundering, market manipulation, dishonest conduct, false accounting, forgery and dealing in proceeds of crime, as well as sanctions violations. The Bill also specifies that DPAs will apply to the secondary offences of attempt, incitement and conspiracy under the Criminal Code Act 1995 (Cth).
  14. Bill sch 2 item 6.
  15. Bill sch 2 item 7 (the new s17D(3) of the DPPA).
  16. Bill sch 2 item 7 (the new s17C(1) of the DPPA).
  17. If the Director of the CDPP is satisfied that there are exceptional circumstances and it is not in the interests of justice to include such a penalty, Schedule 2, 17C(4).
  18. Bill sch 2 item 7 (the new s17C(3) and Explanatory Memorandum 24 [130].
  19. Bill sch 2 item 7 (the new s17C(2) of the DPPA).
  20. Bill sch 2 item 7 (the new s17A of the DPPA).
  21. Australian Government, A proposed model for a deferred prosecution agreement scheme in Australia (March 2017) 13.
  22. Bill sch 2 items 2 and 7 (an amendment to ss3(1) of the DPPA and the new s17G of the DPPA).
  23. Bill, sch 2 item 7 (the new ss17D(8) and (9) of the DPPA).
  24. Bill, sch 2 item 7 (the new s17D(3) of the DPPA).
  25. Bill sch 2 item 7 (the new s17D(4) of the DPPA).
  26. Bill, sch 2 item 7 (the new s17F of the DPPA).
  27. Bill sch 2 item 7 (the new s17H of the DPPA).
  28. Bill sch 2 item 18.
  29. Bill s2.
  30. Bill sch 1 item 10.

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