To appreciate just how much becoming embroiled in a foreign bribery scandal can impact companies within the property and construction sector in Australia, one only needs to look at the debacle which engulfed building giant Leighton Holdings (now CIMIC) with regard to its Iraq bribery scandal a few years back.

Having disclosed the discovery of potentially corrupt activity early in 2012, the company found itself the subject of persistent front page attention in late 2013 over what Fairfax Media alleged was poor corporate governance and a culture of rewarding incompetence and corruption. This is said to have led to the alleged backdating and inflation of contracts in Iraq along with what were also alleged to be questionable payments made to Indonesian police and army chiefs on the part of Leighton subsidiary Thiess.

The company suffered further headaches earlier this year after Bruce Munro, head of Thiess, departed amid allegations on the part of Indian police that Thiess promised a lucrative subcontract to Indian businessman Syam Reddy worth at least $90 million if the Indian businessman helped Thiess secure a multi-million dollar coal contract in the Indian state of Jharkhand.

That followed the infamous scandal involving the Australian Wheat Board (AWB), in which the Cole Royal Commission found that the AWB in 2006 paid kickbacks to the Iraqi government from 1999 onward in order to secure business under the oil for food program.

While civil charges against some former AWB directors and officers are ongoing, it should be noted that the Australian Federal Police dropped their investigation into criminal matters regarding that scandal in 2009 citing a lack of public interest in the case proceeding amid low chances of gaining a conviction. As of yet, no charges have yet been laid in regard to the Leighton affair.

The seriousness of foreign bribery cannot be understated, and Australia’s efforts to deal with the problem thus far have not been good. While Division 70 of the Criminal Code (which outlaws corrupt payments to foreign officials) has been in place more than 15 years, only two prosecutions have been brought forward to date – one involving a note printing subsidiary of a Reserve Bank of Australia and the other involving Sydney based construction outfit Lifese.

Four in 10 organisations participating in a recent Deloitte survey had operations in high-risk jurisdictions and 23 per cent indicated having experienced a bribery and corruption incident in the past five years. More than three quarters of those who had offshore operations had never conducted a corruption risk assessment, while four in 10 with offshore operations did not have (or did not know if they had) a formal compliance program in place to manage corruption risk.

Having been savaged in an OECD report only three years ago over a lack of commitment to meeting our obligations to the OECD Convention on foreign bribery, our nation has failed outright to address eight critical recommendations and has addressed a further nine only partially, the OECD said in a recent update. A national plan to deal with corruption issues originally scheduled for release in December 2012 is yet to materialise.

Not surprisingly, many of the 37 submissions put forward to the current Senate Inquiry into Foreign Bribery were scathing. In absence of further reform, Australia risks being seen as “not committed to fighting corruption,” Australian National University College of Law Associate Professor Dr Kath Hall wrote. Our foreign bribery regime legislation had been in need of ‘urgent makeover’ for some time, advisory and investment firm KordaMentha wrote, saying that enforcement efforts with regard to foreign bribery legislation had been “piecemeal and distinctly lacking in commitment.”

What, then, are the problems and solutions? While some suggest areas of the law itself need improvement, many say the larger part of the problem revolves around a lack enforcement associated with current laws – a phenomenon they suggest is demonstrated by the limited nature of prosecution activity to-date.

“That’s been the key thing, I think – a lack of enforcement,” KordaMentha director David Lehmann said. “Enforcement drives compliance when it comes to legislation. What I think really needs to change fundamentally is that we need a more proactive enforcement regime in Australia.”

Lehmann says much of what KordaMentha would like to see in terms of legislation revolves around that which would help uncover fraud and assist regulators in their enforcement efforts. While bribery itself can be difficult to prove, a ‘books and records’ provision similar to that in the US Foreign Corrupt Practices Act requiring companies to keep accurate accounts and adequate descriptions of transactions would create a disincentive to make corrupt payments, particularly if the penalties for a books and records violation is the same as the penalty for paying a bribe, Lehmann says.

Likewise, as in the United Kingdom, a failure to prevent bribery should also be a criminal offence, he says – with a defence available for companies who genuinely maintain reasonable levels of internal control and have adequate procedures and processes in place to ensure accountability. Encouraging people to come forward through the expansion of the scope of whistle-blower legislation within the private sector would also help, as would financial incentives for whistle-blowers.

Finally, in order to encourage companies who discover incidences of corruption to come forward, prosecutors should have a wider range of settlement options at their disposal, such as deferred prosecution or non-prosecution agreements.

Aside from this, a number of those who made submissions to the inquiry want an end to a defence which applies in the case of ‘facilitation payments’ involving minor benefits used to secure the performance of a routine government action. Better resourcing for both ASIC and the Australian Federal Police is also needed, many say.

In terms of strategies required to manage risks associated with foreign bribery, meanwhile, KordaMentha partner Stephen Helberg says it is important for individual companies to conduct thorough risk assessments, develop a strong corporate culture with integrity at its heart, conduct adequate levels of diligence when it comes to joint ventures or mergers and acquisitions or when engaging agents or intermediaries, and ensure employee incentive schemes do not unintentionally create an incentive to engage in illegal behaviour.

Australia’s laws relating to foreign bribery are under the microscope.

Strong action is needed to ensure that we, like the US and UK, are seen as seen internationally as a robust partner in the eradication of this illegal and unethical practice.