December 2011
How are
clients responding to the new anti-corruption legislation?
The first prosecutions in Australia, the
launch of the UK Bribery Act and ongoing investigations into bribery and corruption
allegations serve as a warning to Australian corporations. Regulators and
enforcement bodies are devoting more resources to foreign bribery and
corruption investigations and the Australian legislative landscape is set to
change. The Australian Government launched a discussion paper on 15 November
2011 on 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. Lawyers are being asked to provide expertise in
assessing the impact of the legislation on clients and recommending response
strategies and advisors with experience in investigating and identifying and
mitigating bribery and corruption risks.
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...
Rather than waiting
for the unwanted to occur, or be uncovered, increasingly corporate counsel are
instructing specialist lawyers to provide advice and develop policies and
procedures to effectively manage bribery and corruption risk. In addition,
Forensic specialists can assess current financial records, contractual
agreements and electronic information to determine whether procedures, books
and records are "adequate".
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.
Your clients should
ensure that they:
+
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 various data sources – for identified high risk areas, organisations 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?
One thing is
certain - 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