Australia: Corporate Crime, Fraud And Investigations (Part 1)

What to do when you suspect corruption: disclosure obligations and enforcement processes in the UK, the US, Australia and China

Bribery and corruption are an unfortunate part of business transactions the world over. Globally, it has been estimated that approximately US$1 trillion is paid in bribes on an annual basis in developed and developing countries. (As at 1 April 2012, US$1 was about EUR0.75).

Bribery is often thought of as a victimless crime, but that is far from accurate. Bribery and corruption discourage investment, distort markets, divert resources from where they are most needed, and can facilitate organised crime and terrorism. They run counter to the rule of law.

The international community has never been so hostile to bribery and corruption. International bodies such as Transparency International and the Organisation for Economic Co-operation and Development are encouraging nations to take a tougher stance on bribery by strengthening legislation and taking greater enforcement action against those engaging in criminal conduct. Enforcement action by authorities in the UK and the US is at an all time high. In addition, the UK recently introduced what has been hailed by many as the "gold standard" in anti-bribery legislation, in the form of the UK Bribery Act 2010 (Bribery Act), which has a broad scope and potentially extraordinarily wide extra-territorial reach.

What does this mean for businesses operating on local, national and global scales? Now more than ever, it is critical for companies to understand their anti-bribery and anti-corruption obligations under local and foreign law.

A discussion of all pieces of legislation relevant in this context is beyond the scope of this article (for example, anti-money laundering legislation, specific pieces of state legislation in the US and Australia, and so on). However, obligations and duties under each jurisdiction's key piece of anti-bribery legislation are discussed.

LEGISLATION

UK Bribery Act 2010

On 1 July 2011, the UK's new anti-bribery legislation, the Bribery Act, came into force. The Bribery Act substantially extends the UK's anti-bribery and anti-corruption laws, and is being hailed by the international community as the "gold standard" in antibribery and anti-corruption legislation.

The Bribery Act creates five principal offences, the first three of which expand the pre-existing law (sections 1, 2 and 6). It also introduces two new offences directed at corporate behaviour (sections 7 and 14).

Bribery of public officials is dealt with in two ways:

• Under section 1, it is an offence to bribe any person (which would include all UK domestic public officials) by directly or indirectly offering, promising or giving a financial or other advantage with the intention of inducing or rewarding improper performance of a relevant function or activity.
• Under section 6, it is an offence to bribe a foreign public (government) official, by directly or indirectly offering, promising or giving a financial or other advantage, with the intention of influencing the foreign public official in their official capacity in order to obtain or retain business, or an advantage in the course of business.

Under section 6, merely seeking to influence a foreign public official in the way he acts in his official capacity is sufficient to create the offence. There does not have to be any corrupt intent or an intention to induce or reward the foreign public official for improper performance.

In contrast to US and Australian law, facilitation payments are prohibited. However, an offence under section 6 is not committed if it can be shown that the foreign official in question is permitted or required to be influenced in his official capacity under the written law of the relevant jurisdiction.

For acts which take place overseas, UK prosecutors can assert jurisdiction if the person who pays the alleged bribe has a "close connection" with the UK, such as being a British citizen or a company incorporated in the UK.

The offence that is likely to have the most significant impact on businesses is the new corporate offence of failing to prevent bribery (section 7). This is a strict liability offence, which makes commercial organisations liable when a person associated with the organisation (such as an employee, agent or subsidiary) bribes another person (whether in the UK or overseas) with the intention of obtaining business, or an advantage in the conduct of business, for that organisation. This offence applies in relation to any acts of bribery, including the bribery of domestic or foreign public officials.

Local customs and business practices are irrelevant to whether a section 7 offence is committed. In the same way, the fact that the company itself had no knowledge of or involvement in the bribe is also irrelevant. A company only has a defence if it can show that it had "adequate procedures" in place that were specifically designed to prevent bribery. No other defence is available.

The corporate offence created by section 7 has a very wide jurisdictional reach and can be used against a non-UK incorporated company in respect of conduct occurring outside the UK as long as the company "carries on a business or part of a business" in the UK. The required extent of the business presence in the UK is as yet untested, but it could be as minimal as a listing on the London Stock Exchange.

The definition of "associated person" is very broad, and can include any individual or organisation which "performs services for or on behalf of" the company. This could include employees, subsidiary companies, agents, suppliers, consultants or contractors.

The penalties under the Bribery Act can be severe. Individuals found guilty of a contravention face up to ten years imprisonment, an unlimited fine, or both, while companies face unlimited fines. In addition, asset recovery proceedings can be brought against individuals and corporations to confiscate the proceeds of the criminal conduct.

US Foreign Corrupt Practices Act 1977

The relevant US legislation in this context is the Foreign Corrupt Practices Act 1977 (FCPA). The FCPA anti-bribery provisions apply to:

• US citizens.
• US companies.
• Issuers of securities in the US (including non-US companies).
• Anyone acting on behalf of the above.
• Any person on US soil.

Such persons are prohibited from making corrupt offers or payments of anything of value to any foreign official, foreign political party or candidate for political office where this is both:

• For the purpose of influencing the official to violate their duty, or to secure any improper advantage.
• In order to obtain or retain business.

This prohibition has three essential components:

• Corrupt payments. The scope of what constitutes "anything of value" is broad and has been interpreted by US federal enforcement authorities to include gifts, payments of travel expenses, offers of employment, shares, loans, and other items and considerations. To trigger liability, the person making the payments must do so with a corrupt intent, that is, the payment must be intended to induce a foreign official to misuse his official position in order to obtain or retain business.
• Foreign officials. The FCPA prohibits corrupt payments to foreign officials, as well as to foreign political parties or candidates for political office. The term "foreign officials" has been interpreted broadly to include:
• • foreign governments;
  • state owned enterprises (SOEs);
  • departments and agencies of a foreign government;
  • public international organisations;
  • officers or employees of the above;
  • any person acting in an official capacity.

  The FCPA applies to all public officials regardless of their rank.

• Obtaining or retaining business. A payment or promise to pay is only prohibited under the FCPA where it is intended to assist in obtaining or retaining business for or with, or directing business to, any person or company. US federal law enforcement authorities have interpreted the phrase "obtaining or retaining business" broadly to include "more than a mere award or renewal of a contract". US case law illustrates that "obtaining or retaining business" can include a wide variety of activities, including those designed to lower the cost of doing business, and could cover almost any kind of advantage, including an indirect monetary advantage or reputational advantage.

The FCPA's accounting provisions. Unlike the other legislation discussed in this article, the FCPA also contains specific accounting provisions which apply to "issuers". An "issuer" is a corporation which has issued securities that have been registered in the US, or a corporation required to file periodic reports with the Securities and Exchange Commission (SEC). The FCPA requires issuers to make and keep accurate books and records and to maintain and devise a system of internal accounting controls. Every issuer must make and keep books, records and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer. "Reasonable detail" is defined as a detail or degree of assurance as would satisfy prudent officials in the conduct of their own affairs. Every issuer is also required to devise and maintain a system of internal accounting controls. Failure to document payments made to foreign officials and/or payments made in such a way as to conceal the true nature of the payments can trigger liability under the accounting provisions.

Penalties. Different penalties may be imposed depending on the provisions of the FCPA that have been violated (the anti-bribery provisions or the accounting provisions) and whether criminal or civil proceedings are commenced.

In criminal proceedings for violations of the FCPA's anti-bribery provisions, individuals face up to five years' imprisonment and fines of up to US$250,000 (or up to twice the benefit sought or received, whichever is greater). Corporations may be fined up to US$2 million (or up to twice the benefit sought or received, whichever is greater). In civil proceedings, individuals and corporations face fines of up to US$10,000 and the court may also impose an additional fine equal to the gross amount of the cash advantage or a specified lesser amount (up to US$100,000 for individuals and up to US$500,000 for corporations).

In criminal proceedings for violations of the FCPA's accounting provisions, individuals can be imprisoned for up to 20 years and may face fines of up to US$5 million, while corporations face fines of up to US$25 million. In civil proceedings, individuals may be fined up to US$150,000 and corporations may be fined up to US$500,000.

Australian Criminal Code Act 1995 (Cth)

Australia's federal Criminal Code exists as a Schedule to the Criminal Code Act 1995 (Cth).

Division 70 of the Criminal Code prohibits bribery of foreign public officials by persons within Australia, on board an Australian aircraft or ship, or by Australian citizens, residents or companies wherever in the world they are (or are operating).

Section 70.2 prohibits providing, offering or promising a benefit, or causing a benefit to be provided or a promise or offer of a benefit to be made, to another person where the benefit is not legitimately due to them and where this is both:

• With the intention of influencing a foreign public official in the exercise of their duties.
• In order to obtain or retain business or a business advantage.

"Benefit" is defined in Division 70 to include any advantage, and is not limited to property.

"Foreign public officials" are defined broadly and include, for example:

• Employees, officials or contractors of a foreign government body.
• Individuals who are otherwise in the service of a foreign government body (including service as a member of a military force or police force).
• Members of the executive, judiciary or magistracy of a foreign country.
• Members or officers of the legislature of a foreign country
• Employees or contractors of public international organisations.

Division 141 of the Criminal Code prohibits bribery of Commonwealth public officials by any person, whether or not the criminal conduct occurs inside or outside Australia. Section 141.1(1) is similar (though not identical) to section 70.2. It prohibits:

• A person from providing, offering or promising a benefit to another person, or causing a benefit to be provided, or a promise or offer of a benefit to be made, to another person.
• With the intention of influencing a Commonwealth public official in the exercise of the official's duties.

Unlike section 70.2, there is no requirement to demonstrate that the benefit is not legitimately due to the recipient. Nor is there a requirement to demonstrate that there was an intention to obtain or retain business or a business advantage.

In contrast to Division 70, Division 141 penalises not only the provision of a bribe but also the receipt of a bribe by a Commonwealth public official. Therefore, any Commonwealth public official who dishonestly asks for, receives or obtains, or agrees to receive or obtain, a benefit for himself or another person, with the intention that either the exercise of his official duties will be influenced, or of inducing, fostering or sustaining a belief that the exercise of his duties will be influenced, is guilty of an offence.

"Benefit" is defined in Division 141 in the same way as in Division 70.

"Commonwealth public official" is defined broadly to include, for example:

• The Governor-General.
• A minister.
• A parliamentary secretary.
• A member of a House of Parliament.
• A Commonwealth judicial officer.
• An Australian public servant.
• A member of the defence force or the Australian Federal Police.
• Contracted service providers for the Commonwealth.

The penalties under the Criminal Code were toughened significantly in February 2010. Individuals found guilty of an offence under Division 70 or Division 141 now face up to ten years' imprisonment or fines of up to A$1.1 million (or both). (As at 1 April 2012, US$1 was about A$0.96). Corporations may now be fined up to the greatest of the following:

• A$11 million.
• Three times the value of the benefit that has been obtained directly or indirectly and that is reasonably attributable to the offending conduct.
• Where the court cannot determine the value of the benefit, 10% of the annual turnover of the company during the 12 months concluding at the end of the month in which the offending conduct occurred.

China's Criminal Law

In China, it has been an offence since May 2011 to provide bribes to foreign government officials and officials of public international organisations in order to obtain an improper commercial advantage. Specifically, Article 164 of China's Criminal Law prohibits persons from making payments in the form of property to a foreign public official or an official of an international public organisation in order to obtain an improper commercial benefit.

The penalties under Chinese law for bribing foreign public officials are the same as for engaging in criminal commercial bribery. For large bribes, an individual may be imprisoned for up to three years. For very large bribes, a prison sentence of between three and ten years may be imposed, as well as criminal fines. Corporations may also be subject to criminal fines, and key management personnel, as well as the individuals directly involved in the criminal conduct, may also be subject to individual sanction.

• Corporate Crime, Fraud And Investigations (Part 2)

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