Insights

07/04/17

A Carrot or a Stick: Consultation Papers on Corporate Crime

Key points

  • The Federal Attorney-General’s Department (AG) has released two public consultation papers outlining its proposed legislative reform to:
     
    • significantly amend the Commonwealth foreign bribery laws (the Foreign Bribery Paper); and
    • introduce deferred prosecution agreements (the DPA Paper).
  • The 2 consultation papers were released within days and follow from the Senate report regarding penalties for white collar crime.  The proposed legislative reforms reflect a political commitment to improving Australia’s record of enforcement and is the result of continued pressure by the OECD for Australia to demonstrate its efforts in combating bribery and corruption. 
  • If adopted, the proposals outlined in the 2 consultation papers will create additional bribery offences and provide regulatory and enforcement agencies with additional enforcement tools. For Australian corporations, it will undoubtedly result in increased risks of contravention and the possibility of successful enforcement action.

Foreign Bribery Paper

Key Proposals

Following a detailed review of the current foreign bribery regime, the AG highlighted a number of key challenges faced by regulatory and enforcement agencies in investigating and securing convictions for breaches of the Commonwealth foreign bribery laws (as contained in the Criminal Code (Cth)). 

The Foreign Bribery Paper outlines a number of proposals to overcome some of those difficulties through the following initiatives:

  • Clarifying that the foreign bribery offence is about ‘improperly influencing’ a foreign public official, rather than providing the foreign public official with a benefit that is ‘not legitimately due’: The Foreign Bribery Paper is critical of the current legal framework, which requires the prosecution to show that the bribe and the business advantage sought by providing the bribe is not legitimately due to either the receiver of the bribe or the provider of the bribe respectively.  This necessary threshold is described as having presented “challenges” to prosecutors (such as in having to prove what is or is not legitimately due to a foreign public official) and is not an element present in international foreign bribery laws.  The AG proposes to substitute the element of ‘not legitimately due’ with the concept of ‘improperly influencing’ a foreign public official to obtain or retain business or an advantage.  The Foreign Bribery Paper also canvasses a number of alternative tests which could be adopted, such as a ‘dishonesty’ concept.

  • Create a new foreign bribery offence based on recklessness: The AG highlights the challenges to prosecuting authorities in establishing that the provider of the bribe ‘intended’ to provide or promise a benefit, and also intended that this would influence a foreign public official.  The AG proposes to introduce a lesser offence which would only require that the provider of the bribe was reckless as to whether their conduct would improperly influence a foreign public official.  The proposed penalty for this offence is half that of the intentional offence, but the lower threshold of ‘recklessness’ will significantly increase the risks of contravention.

  • Create a new corporate offence of failing to prevent foreign bribery: A consistent criticism of Australia’s prosecution record relates to the perceived failure to take action against corporations. While the current laws contain provisions which extend corporate criminal liability to companies in certain scenarios, the AG notes the challenges experienced in establishing criminal liability given the complex nature of foreign bribery. The intention of this new corporate offence is to improve corporate compliance culture through making companies automatically liable for bribery, except where they can show they had proper internal controls and compliance frameworks in place to prevent bribery.  What is proposed is similar to the ‘Adequate Procedures’ defence established by the UK under their Bribery Act. 

Other Proposals

There were some additional proposals to help improve prosecutorial outcomes:

  1. extension of the definition of foreign public official to include candidates for office;
  2. extension of the offence to cover bribery to obtain a personal advantage;
  3. removal of the requirement that influencing a foreign official had to relate to the exercise of their official capacity; and
  4. clarification that the offence does not require the accused to have any specific business or advantage in mind, so that generally “currying favour” will be an offence.

These proposals reflect the Government’s desire to significantly improve its poor prosecution record.  Since these changes substantially broaden the scope of criminal actions and reduce the requirements to prove offences, they represent an increased risk to individuals and corporations.

DPA Paper

Key Proposals

The long mooted DPA model would see DPAs available, at prosecutor discretion, to companies (but not individuals) in cases involving serious Commonwealth corporate crime and would represent a potentially significant new addition to the federal enforcement toolkit.  In a nutshell, DPAs are agreements between a prosecutor and a company liable for prosecution, under which, in exchange for having the prosecution suspended or dropped, the company agrees to actions potentially including the payment of financial penalties and costs and agreements to implement corporate compliance programs.

The DPA paper lays out a model for how an Australian DPA regime might operate.  

  • DPA terms would be negotiated by the parties and will include a number of mandatory elements, such as including an agreed statement of facts, a formal admission of criminal liability for specified offences and an agreement to co-operate with any investigation. 
  • DPAs would require approval of a retired judge, who would assess whether the DPA was in the interests of justice and whether the terms were fair, reasonable and proportionate (by contrast, UK DPAs require approval from the court).
  • Where appropriate, independent monitors would be appointed at the company’s expense to ensure the company is meeting its obligations under the DPA and to report to the prosecutor. 
  • Where a company is found to have breached a DPA, the prosecutor could give the company a period to address the breach, seek renegotiation of the DPA, send the DPA to arbitration or commence prosecution.
  • DPAs would be publically available on the Commonwealth Director of Public Prosecution website, except where they would prejudice ongoing court proceedings.
  • Information gathered under a DPA would only be able to be used in subsequent criminal proceedings in the event of a material breach of the DPA or if the company or individuals provided false or misleading information under the DPA.  We note however that the DPA Paper is silent as to whether information disclosed by a company could be used in the prosecution of individuals.

The International Experience

The premise behind introducing a DPA regime in Australia is the hope that it could provide flexibility to law enforcement, and a significant incentive for companies to self-report foreign bribery and other corporate crime in Australia.  Australian regulatory and prosecuting authorities have acknowledged the absence of any incentives for corporations to self-report breaches (or potential breaches) and that this may be a contributing factor to Australia’s comparatively low prosecution record. 

As previously noted, DPAs are already in use in both the US and the UK.  Consistent in DPAs across both jurisdictions is the requirement that the company to agree to a statement of facts, and implementation of remedial or compliance measures.  In 2015, the UK implemented its first DPA, involving a Tanzanian subsidiary of Standard Bank, which provided no immunity from prosecution of conduct not disclosed. In 2010, a US DPA involving Wachovia Bank required the bank to pay a fine of US$50M, in addition to the forfeiture of US$100M in contravening transactions. 

Whether the introduction of a DPA regime in Australia would present a significant incentive for companies to self-report remains an open question. The likelihood of securing a DPA would have to be clearly set out in any DPA regime and there must be a significant level of comfort provided to corporations regarding the use of information provided to prosecutors in the event a DPA is not agreed, or not approved by a retired judge.  This is particularly critical in the class actions environment in which Australian corporations currently operate.  The proposed self-reporting DPA scheme falls short of the true prosecutorial immunity granted by the ACCC’s cartel immunity policy for example. 

What happens next?

Submissions in response to the Consultation Papers are due by 1 May 2017 and there is no guidance given in the consultation papers as to how quickly those proposals will translate to legislation.  The Gilbert + Tobin Corporate and Regulatory Investigations team will continue to monitor developments on these 2 critical proposals. 

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