Australia: Directors' duties and foreign bribery obligations

Key Points:

Personal liability for directors in connection with foreign bribery laws is a very real risk. D&O insurance is important, but will not cover all loss and exclusions can be problematic.

Compliance with foreign bribery laws is not only desirable and proper, but is an unavoidable cost of doing business in markets where corruption is widespread, particularly Africa and Asia.

Failure to meet the onerous obligations on directors raised by these laws can expose directors to criminal and personal liability.

The prospect of directors being individually pursued is high. The OECD recently strongly criticised Australia on its lack of enforcement and the AFP is now expected to be far more aggressive and to work closely with ASIC to pursue individuals and companies.

In particular, ASIC's involvement will have a dramatic effect on the exposure of corporate Australia to anti-bribery investigations, including to increase the focus on breach of directors' duties.

Australian Criminal Code: Personal criminal liability

Directors can face individual penalties of up to $1.7 million and imprisonment for up to 10 years for foreign bribery offences under the Criminal Code (Cth).

Criminal liability does not require direct involvement. Directors can be criminally liable for offences committed by employees or agents. Failure to ensure a company has a sufficiently strong corporate culture of compliance with foreign bribery laws can suffice.

Implementing an appropriate foreign bribery compliance regime is critical to demonstrate a culture of compliance. In most cases, a strong compliance regime will suffice to protect the company and directors from criminal liability. This was recently illustrated in the United States in the Morgan Stanley case.

Corporations Act: Breach of directors' duties

The onerous duties of directors was recently emphasised in the handing down of final penalties in the James Hardie litigation and ASIC has also publicly identified a number of high expectations it has of directors1, including relevantly that:

  • directors must understand the business of the company and how the company is run;
  • directors must apply an inquiring mind and be constructively sceptical; and
  • directors' responsibilities are not limited to their field of expertise and they must pay attention to company affairs that may be outside their knowledge and experience.

The position articulated in James Hardie and by ASIC, combined with OECD pressure on the AFP and ASIC, means that directors can expect to face increased scrutiny of their performance in meeting foreign bribery obligations.

If they fall short, directors may face ASIC prosecution and civil penalties of up to $200,000 under corporations law, or up to five years' imprisonment in extreme cases involving recklessness or dishonesty. For example:

  • failure to prevent a company committing a foreign bribery offence may amount to a breach of the duty to exercise care and diligence; and
  • personal involvement or being complicit in a foreign bribery offence could result in similar penalties, based on breach of a duty to not misuse their position or a failure to exercise duties in good faith and for a proper purpose.

Directors can be held personally liable for loss caused by breach of common law duties and also of the statutory duties outlined above. There is little doubt that breach of foreign bribery laws would also amount to a breach of directors' duties, capable of substantiating a damages claim.

Issues with foreign bribery compliance can result in substantial loss. For example, in the Wal-Mart bribery scandal in the US a shareholder class action has been filed alleging loss caused by the company's share price plummeting in response to allegations of systematic bribery and an internal cover-up by Wal-Mart and its directors. Shareholders have also brought 11 derivative actions against Wal-Mart's directors alleging breaches of directors' duties.

ASX disclosure rules

Given the possible severe consequences to a company of suspected or actual breaches of foreign bribery laws, it is not difficult to envisage circumstances where a director could become aware of information that may meet the threshold for continuous disclosure.

The difficulty and potential significance of any decision whether to disclose to the market should not be underestimated. It is not one that should be made lightly or without specialist legal advice.

If the wrong decision is made not to disclose, the company or directors could be liable for civil penalties for breach of the continuous disclosure rules. If a decision to disclose is made prematurely, the director may place the company at risk of unnecessary and expensive investigative action.

D&O coverage

Appropriate D&O coverage is critical. It will not cover penalties for a foreign bribery offence, but may indemnify legal fees related to investigating or defending allegations of foreign bribery and can also indemnify directors from personal liability for alleged breach of duties.

Legal fees, in particular, and potential consequential losses can be significant and must be considered in the context of ensuring adequate D&O insurance is in place. Careful scrutiny of potential exclusions is important.


Personal liability for directors, under criminal law and as a result of breach of director's duties, in connection with foreign bribery laws is a very real and significant risk.

The most important and cost-effective protection for directors is afforded by ensuring a strong corporate culture exists; supported by implementation of an appropriate compliance regime. It is also prudent to check D&O insurance cover, given the substantial costs of investigating or defending allegations and the potential for exclusions to affect indemnification.

Thanks to Felicity Waters and Eloise Mugford for their help in writing this article

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1 See Bruce Dodd, Director's Duties – The Regulator's View, Brief, vol.39, No. 11, December 2012, page 26

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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