Australia: Exposing illegitimate payments in Australia and overseas: Companies the focus of new false accounting offences

Last Updated: 28 March 2016
Article by Ula Strus

Exposing bribes and other illegitimate payments made or received by Australian companies is the focus of new federal 'false accounting' offences which came into effect on 1 March 2016.

The Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Act 2016 (Cth) amends the Criminal Code Act 1995 (Cth) (Criminal Code) to create two new offences of false dealing with accounting documents.

The new offences have been introduced to implement Australia's obligation as a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Convention). Article 8 of the Convention requires parties to create offences of false accounting for the purposes of concealing or enabling bribes to a foreign public official.

Substantial penalties apply to companies and individuals for breaches of the new false accounting laws. It is imperative that Australian companies and their directors, officers and employees are alert to the key aspects of the new laws as they will have a direct impact on business's operations, accounting protocols and risk mitigation strategies, both domestically and overseas.

False dealing with accounting documents

The new offences are contained in a new Division of the Criminal Code, titled 'Division 490 – False dealing with accounting documents'.

  1. The first new offence ( section 490.1) applies where a person:
    • makes, alters, destroys or conceals an accounting document; or
    • fails to make or alter an accounting document that the person is under a duty to make or alter,

with the intention that the person's conduct would facilitate, conceal or disguise the receiving or giving of a benefit that is not legitimately due, or a loss that is not legitimately incurred.

  1. The second new offence ( section 490.2) applies in the same circumstances as the first offence, but where recklessness (rather than intention) is the necessary fault element.

What is an "accounting document"?

"Accounting document", which is given a broad definition in the Criminal Code, means:

  • any account; or
  • any record or document made or required for any accounting purpose; or
  • any register under the Corporations Act 2001, or any annual financial report, half-year financial report or financial records (including invoices, receipts, orders for the payment of money, bills of exchange and cheques).

Significant penalties apply

Heavy penalties apply to persons found to be in contravention of the new false accounting laws.

Where the conduct is found to be intentional:

  1. For corporations, the maximum penalty is the greater of:
    • $18 million;
    • (where the court is able to determine the value of the benefit) three times the value of the benefit obtained by the corporation and any related entity from the offence; and
    • (where the court is unable to determine the value of the benefit) 10% of the annual turnover of the corporation during the 12 months ending at the end of the month during which the contravening conduct took place.
  1. For individuals (including company directors and officers), the maximum penalty is 10 years' imprisonment, a fine of $1.8 million, or both.

Where the conduct is found to be reckless, the penalties are half of the penalties for the offence to which the fault element of intention attaches.

The significant penalties imposed under the new provisions are intended to ensure Australia's compliance with its obligation under Article 8 of the Convention to provide effective, proportionate and dissuasive penalties for false accounting and to deter the conduct of false dealing with accounting documents 1.

Australian companies and directors take note

Certain aspects of the new false accounting offences are particularly relevant to Australian companies and their directors and officers, including those operating overseas. The following aspects should be considered carefully as they are likely to directly impact on business's operations, accounting protocols and risk mitigation strategies.

  1. Foreign subsidiaries of Australian companies not immune

The new false accounting offences apply within Australia and, in certain circumstances, overseas. Section 490.6 of the Criminal Code provides that the Attorney-General can authorise the commencement of proceedings under the news laws where the alleged conduct occurs in a foreign country and where the alleged offender is not an Australian citizen, an Australian resident or a corporation incorporated in Australia or a state or territory. As a result, a foreign subsidiary, director or employee of an Australian parent company is not beyond the reach of the new false accounting laws.

  1. Liability of Australian companies for conduct of subsidiaries

Liability for false accounting committed by a subsidiary of an Australian parent company, including a subsidiary domiciled overseas, could extend to an Australian parent company (or its director, employee, agent or officer) in some circumstances. Significantly, a parent company need not have intentionally committed the conduct which contravenes the new laws. If the lesser fault element of recklessness can be attributed to the parent, this will be sufficient for the purposes of a prosecution under the new laws.

For example, a parent company operating in a group of companies may be prosecuted for 'turning a blind eye' to false accounting in consolidated accounts, where that false accounting is caused, or contained in accounts provided, by a subsidiary.

  1. Application to both public and commercial dealings

Although the new offences have been introduced to implement Australia's obligations to combat false accounting for the purposes of concealing or enabling bribes to foreign public officials, the application of the new offences is likely to extend to the commercial sphere as well.

The provisions, as they are currently framed, do not specify that their application is limited only to illegitimate payments made or received in respect of foreign public officials. Rather, the provisions target false accounting of payments that are "not legitimately due". While it remains to be seen how the courts will interpret the new provisions, it may be that a wider interpretation will be preferred and the ambit of the provisions will be deemed to include transactions in respect of foreign public officials, domestic public officials and private business dealings.

Continued corporate vigilance is essential

The introduction of the new false accounting offences is part of a continuing focus on the part of the Australian government to combat bribery and corporate corruption. In this regulatory climate, companies must take steps to ensure their policies and procedures are compliant. In particular, now is the time for companies and their officers to review and update accounting policies, protocols and procedures, as well as undertake the necessary compliance training, in light of the significant ramifications associated with falling foul of the new false accounting laws.

Footnote

1 Explanatory Memorandum to the Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Bill 2015 (Cth), p 36.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Ula Strus
 
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