December 2011
What is your exposure to
new anti-corruption legislation with global reach?
The first prosecutions in Australia, the launch of the UK Bribery Act
and investigations into phone hacking allegations serve as a warning to
Australian corporations. Regulators and enforcement bodies are devoting more
resources to foreign bribery and corruption investigations.
The Australian legislative landscape is set to
change as the Australian Government launched a discussion paper on 15 November 2011
which considers possible changes to Australia’s anti-bribery laws. The
proposed changes will strengthen our existing legislation and align it with
foreign laws and international standards. Justifying under-the-table payments
to government officials, agents and other third parties as "the only way
of doing business" is no longer acceptable. Such payments can now have
even more serious consequences for corporations and their executives.
Recent enforcement
activity
In the United States the Foreign Corrupt Practices
Act (FCPA) enforcement activity has dramatically increased in recent years.
FCPA enforcement actions by the US Department of Justice (DoJ) and the
Securities and Exchange Commission (SEC) nearly doubled from 40 during 2009 to
74 in 2010. [1]
Costs to an organisation subjected to enforcement
activity can be significant. The investigation process and the associated
adverse media coverage may continue for years. Organisations must consider the
potential reputational damage and the inevitable diversion of senior management
time in addition to any investigation costs and potential fines.
The table below outlines the largest FCPA fines,
highlighting the extraterritorial reach of the US legislation and the sectors
that have been impacted:
FCPA Actions
|
Rank
|
Year
|
Company
|
Sector
|
Country
|
Fine
(USD)
|
|
1
|
2008
|
Siemens
|
Engineering and
Construction
|
Germany
|
$800m
|
|
2
|
2009
|
KBR /
Halliburton
|
Engineering and
Construction
|
USA
|
$579m
|
|
3
|
2010
|
BAE
|
Aerospace and
Defence
|
UK
|
$400m
|
|
4
|
2010
|
Snamprogetti
Netherlands B.V / ENI S.p.A
|
Engineering and
Construction
|
Holland / Italy
|
$365m
|
|
5
|
2010
|
Technip S.A.
|
Engineering and
Construction
|
France
|
$338m
|
|
6
|
2011
|
JGC Corporation
|
Engineering and
Construction
|
Japan
|
$218.8m
|
|
7
|
2010
|
Daimler AG
|
Automotive
|
Germany
|
$185m
|
|
8
|
2010
|
Alcatel-Lucent
|
Telcos
|
France
|
$137m
|
|
9
|
2010
|
Panalpina
|
Logistics
|
Switzerland
|
$81.8m
|
|
10
|
2011
|
Johnson &
Johnson
|
Pharmaceuticals
|
USA
|
$70m
|
Source: Fines as per the Department of
Justice website and www.fcpablog.com
Fines as of April 2011
The UK joins the
fight
On 1 July
2011, the UK Bribery Act became law and has been described as one of the widest
reaching and toughest pieces of anti-bribery and corruption legislation in the
world. Aimed primarily at levelling the global playing field and stamping out
unethical business activities, it creates offences for business to business
transactions in the private sector as well as illicit payments to government
officials and agencies (the focus of most other anti-corruption legislation).
The main features of the UK Bribery Act are:
+
Organisations who undertake business in the UK may
be prosecuted for acts of bribery committed by its employees and any other
"associated persons" including subsidiaries, agents or service
providers;
+
So called "facilitation payments" are prohibited
(unlike the existing Australian and US legislation);
+
A failure to prevent bribery is an offence;
+
There is no maximum penalty; and
+
The principle defence is that an organisation has
"adequate procedures" in place to prevent bribery.
"Companies doing business abroad, particularly
in risky areas (those ranking low on the transparency international corruption
prevention index), will be required to pay close attention to the extent of the
new UK law. Even if not falling directly within its scope, other international
companies may well need to consider how the regulatory net is tightening."
- Michael Ahrens, Executive Director, Transparency
International Australia.[2]
Still, we are finding many Australian organisations
have not fully addressed their exposure to the foreign anti-corruption
legislation. It’s not just about "ticking boxes" to satisfy
regulators, the consequences of the bribery and corruption itself can be just
as damaging.
Prevention is
better than cure...
The UK Ministry of Justice (MOJ) published guidance
related to the types of "adequate procedures" that can reduce the
risk of bribery. The procedures are based on six general principles: [3]
+
Proportionality
+
Top Level Commitment
+
Risk Assessment
+
Due Diligence
+
Communication
+
Monitoring and Review
We agree with these principals, and in our view,
the following practical actions will help to ensure your program goes beyond
"setting up a defence" to actually reducing the risk of bribery and
corruption occurring in the first place:
+
Develop appropriate
policies – bribery and corruption policies should be
tailored to your operations, size, locations and industry. We have seen examples
where it has been just as detrimental to have too many (poorly understood)
policies as it is to have too few.
+
Raise awareness – implementing an awareness program for all employees, customers,
suppliers and other stakeholders. It has to start with the tone at the top and
follow with a "zero tolerance" message. "Doing whatever it takes
to win the contract" cannot include unethical behaviour.
+
Perform a risk assessment – start with a high level "health check" and then work
your way down to find the "ethical hot spots".
+
Unlock the insights from
within your data – for identified high risk areas, harness
the vast quantities of both internal and external data to identify "red
flags" such as suspect relationships, transactions or communications.
Internal data can be extracted from a variety of systems including supplier
master files, payment transactions, email, HR, OH&S, Powerful insights can
be made when combined with external data such as:
-
company, director and shareholder records;
-
property ownership;
-
court records;
-
media searches;
-
international watch lists, government sanctions
lists or other political and cultural data to identify high risk
-
locations or individuals (Politically Exposed
Persons); and
-
social networking sites to establish relationships
+
Undertake due diligence – enhance due diligence procedures to provide background and
integrity assessments of business partners and intermediaries and especially
acquisitions or joint ventures.
+
Communicate reporting
channels – develop reporting procedures and consider
making a whistleblower hotline service available to employees, contractors,
customers, suppliers and business partners.
+
Develop registers to
monitor transactions – implement systems and procedures to
capture specific transactions so that registers can be produced for internal
review and, if necessary external scrutiny.
+
Develop investigation
protocols – in the event of an allegation being made
or suspicion of a breach arising, conduct a thorough investigation.
Proposed changes to
Australian anti-bribery legislation
There are a number of proposed changes outlined in
the discussion paper, the most significant being the proposal to remove the defence
of facilitation payments. Under the current Australian legislation,
facilitation payments may be made if the value of the benefit was of a minor
nature, the purpose was to expedite or secure a routine government action and
the payment was recorded. If the facilitation payment defence is removed it:
+
Brings the Australian legislation into line with
the UK Bribery Act;
+
Removes the requirement to distinguish between a
bribe and a facilitation payment, and
+
Demonstrates a move towards criminalising facilitation
payments as required by international treaties – OECD and United Nations
Convention Against Corruption (UNCAC).
So where to from
here?
Anti-bribery and corruption legislation is being
strengthened and activity by local and foreign regulators and enforcement
agencies is only going to continue to increase. Getting it right can have
benefits that extend far beyond just ticking the right boxes to satisfy a
regulator. Avoiding the unwanted investigative costs and reputational damage
caused by bribery and corruption through proper risk management processes is
well worth the effort.
About McGrathNicol
Forensic
McGrathNicol Forensic provides legal firms,
corporates and Government with hands-on solutions to complex problems. Our firm
has six dedicated Forensic partners, with more than 300 people across Australia
and New Zealand.
Our Forensic team is among the most experienced in
Australia, which has been obtained from a leading involvement in many of
Australia’s most high profile corporate collapses, complex disputes,
corporate investigations and business interruption claims.
[1] http://www.prnewswire.com/news-releases/aggressive-fcpa-enforcement-a-dojsec-priority-127995108.html
[2] http://www.transparency.org.au/newsletters/11%20May%20TIA%20Newsletter.pdf
[3] The
principles are explained in more detail at:
http://www.justice.gov.uk/guidance/making-and-reviewing-the-law/bribery.htm