Anyone who doubts the impact which foreign bribery scandals can have upon companies in the property sector throughout Australia need only look at the offshore payments scandal which has dogged construction giant Leighton Holdings (now CIMIC) for years.
Leighton is not alone. In 2015, directors of Sydney-based construction company Lifese were charged with foreign bribery offenses over allegations of attempting to bribe Iraqi government officials in order to secure multi-million dollar contracts in that country.
Courtesy of a number of factors, the property and construction sector has a high risk- profile for foreign bribery and corruption. These factors include the need to interact with intermediaries and government officials, the high dollar value of contracts involved and the high corruption profile risk of some of the countries in which large companies from the sector operate. Indeed, Transparency International ranks public works contracts and construction as the highest risk sector out of 19 sectors in terms of bribes being paid.
Courtesy of proposed changes to Australia’s foreign bribery regime, however, the legal risk for companies and directors who fail to take appropriate steps to prevent this from occurring within their operations are likely to rise. Outlined in a consultation paper released in early April, the changes are designed to broaden the scope of conduct which is considered to be corrupt and increase the likelihood of successful prosecution for improper conduct. This will be achieved by the introduction of new offenses and the broadening and clarification of requirements relating to existing offenses.
In terms of new offences, an important change involves the provision of a new offense for failing to prevent foreign bribery. Based on the UK Bribery Act 2010, the proposed new offense would mean that companies will automatically be liable for prosecution in cases of bribery by employees, contractors and agents unless they are able to demonstrate that they took appropriate steps and had adequate controls in place to stop this from occurring.
Brought about by the degree of difficulty in establishing criminal liability for companies under the current provisions of the Criminal Code (because of the complex nature of foreign bribery), the new law essentially reverses the burden of proof and places the onus upon companies to prove that they undertook proactive and appropriate steps in order to prevent bribery from occurring within their operations.
A further new offense would apply in cases where a person recklessly engages in conduct which is likely to improperly influence a foreign public official in relation to the obtaining of a business advantage. If enacted, this provision would make a company liable for engaging in conduct which the prosecution might not be able to prove had the intention of improperly influencing a foreign official but which nevertheless was reckless in terms of creating a substantial and unjustifiable risk of improperly influencing the official in question.
In addition, other proposed changes would:
- extend the definition of a ‘foreign public official’ under section 70.1 of the Criminal Code to include candidates for office along with people who hold existing office positions
- extend the offence of bribery to cover that which is entered into for the purpose of obtaining a personal advantage rather than necessarily obtaining a business advantage
- remove the requirement under the current bribery offence for the bribery in question to have influenced a foreign public official ‘in their official capacity’ and instead cover any situation whereby a foreign public official has been bribed in any way irrespective of whether or not this took place within their official capacity.
These changes are important. The extension of the definition of foreign public official, for example, broadens the reach of anti-bribery law to cover benefits provided not just to those currently in public office but also those vying to be appointed to public office within the near future.
Expansion of the offence of bribery to cover personal benefits, meanwhile, will see people caught when they themselves obtain an advantage (such as the granting of individual work rights) rather than their company necessarily obtaining an advantage.
Finally, the removal of the requirement for a foreign official to have been acting within their official capacity addresses situations where the official in question is bribed to act beyond the scope of his or her duty and removes a need for the prosecution to establish the scope of duties of officials in question – a task which typically requires information from the foreign jurisdiction and may be problematic where that jurisdiction is uncooperative.
Richard Flitcroft, a partner at Corrs Chambers Westgarth, says risks when moving overseas arise largely out of having to deal with parties with whom companies may not have worked previously. When moving overseas, Flitcroft says that whilst companies in some jurisdictions are able to establish their own operations and employ their own workforce, those in other regions require use of joint ventures or local partners.
Once third parties become involved, he says, organisations experience a loss of control and become exposed to situations in which their own standard practices may not be followed. Even when employing workers directly, he says those employed will come from different cultural backgrounds in which practices which fall foul of our law may be accepted.
This, he says, creates a situation where organisations may not have their own controls and risk management procedures in place, or where if such controls are in place, these may not be consistent with regular ways of doing business within the jurisdiction in question. He says it is imperative for organisations to ensure that expected practices are in fact followed and that those on the ground are aware of these and are trained accordingly.
Critical to managing risk, Flitcroft says, are appropriate levels of diligence. He says large-scale firms often maintain a checklist from which to conduct a risk analysis upon both the country in question and the individual company and people concerned. This, he says, enables an assessment about the level of risk involved along with any measures such as extra contractual provisions which might be required in order to manage this.
It may also be useful for companies to put their own people on the ground and to conduct periodic audits of practices being followed, he said.
In light of the likely changes, Flitcroft said directors will also need to be aware about their responsibilities under the Corporations Act. In cases where the company fails to follow sufficient risk management strategies (particularly in light of what will be a strengthened regime), directors may further be found not to have met their duty to act with reasonable skill and care. In cases where companies do become caught up in scandals, meanwhile, any major share price impacts may prompt shareholder lawsuits as well.
Flitcroft says the importance of proactive risk management should not be underestimated.
“If you are a board and you have put in place a set of risk management analysis and procedures to ensure that you do as much as you can on an active basis all the way through the contract to ensure processes and procedures are complied with, then the likelihood if these changes go through of a corporation being found liable for a contravention is much lower than it would otherwise be,” he said.
“You’ve got to be positively thinking about everything that is happening all of the time.”
The proposed changes come amid broader efforts to strengthen Australia’s foreign bribery regime. In March, the government released a detailed proposal to enable deferred prosecution agreements, which essentially act as a ‘good behaviour bond’ and enable organisations to avoid conviction typically in return for acknowledging wrongdoing, agreeing to cooperate with investigations, incurring financial penalties and implementing a program of improvement. Work is also underway to improve whistle-blower protections.
Since 1999, Australia has been a committed party to the OECD Convention on Combatting Foreign Bribery of Public Officials in International Business Transactions. As part of that, section 70.2 of the Criminal Code specifies that it is an offense to provide benefits to another person which are not legitimately due to them and which are intended to influence the decision making of a foreign official in order to obtain a business benefit.
Courtesy of challenges in a number of areas, however, prosecution under this provision has proven to be problematic. Not least of these are the difficulty of obtaining evidence located offshore and bribery being easily concealed by being disguised as seemingly legitimate expenses such as agent fees. Accordingly, the government is looking to improve the effectiveness of the system and also to remove any unnecessary barriers to prosecution.
Flitcroft supports the proposed changes (which he would like to see go through as a package) along with broader whistle-blower protections and the introduction of deferred prosecution agreements. He applauds the heightened risk for directors and says it is important to have penalties which are applied against individuals as opposed to simply being levied on companies. Deferred prosecution agreements, meanwhile, will enable companies to come forward when they do uncover illegal behaviour, he said.
He dismisses concerns about anti-bribery efforts being imperialistic in nature.
“Some people may say that this is all getting in the way of doing business and that we are just culturally imposing our way of business upon the rest of the world,” Flitcroft said.
“To some extent that’s true, but it (foreign bribery legislation) also brings about efficiency. From an organisational point of view, you don’t have money being wasted and you are not doing things which expose you to penalties. Even on a more macro level, it is stopping corruption and an improper flow of payments happening in countries where money could be better directed to the benefit of that country.
“At a high policy level, it’s a good thing.”