Abolishing the Exemption for Facilitation Payments – The New Reality of Doing Business

Planning for the removal of Australia’s facilitation payments’ defence may seem a little premature. After all, the Attorney-General’s current review of facilitation payments has been ongoing since November 2011 and is yet to yield any specific plan to bolster Australia’s anti-bribery laws. Though this may all change…very soon.

Several leading Australian mining companies have adopted the higher standards demanded by the UK Bribery Act. This approach seems to raise the expected ‘bar’ as it relates to professional ethical behaviour, whereby these companies are now ensuring that a culture of integrity is engrained in their activities. Their policies of zero-tolerance towards any form of bribery or fraud are evident in their involvement investigating and handling suspected breaches, developing procedures and communicating their anti-bribery approach.

This global commitment to fighting bribery and corruption is also a pressing issue for governments abroad. On 19 June 2013, the Parliament of Canada passed an Act to amend the Corruption of Foreign Public Officials Act (CFPOA)[1]. One of the six amendments includes eliminating the facilitation payments exception which will come into force on a date yet to be confirmed. This will allow companies time to adjust their policies and adapt to the new law. Similar to the existing Australian legislation, the current CFPOA states that payments made “to expedite or secure the performance by a foreign public official of any act of a routine nature” do not constitute bribes for the purposes of the Act[2]. Other amendments include increasing the maximum penalty for those found guilty of foreign bribery of up to 14 years in prison.

This Canadian Government’s new law signals both a proactive role and the country’s commitment to further deter and prevent Canadian companies from bribing foreign public officials.

It may also be in response to some shameful statistics compiled by Transparency International, namely that Canada is ranked the worst in the G7 nations. In the last review period, the number of bribery cases prosecuted in the United States was 227; Germany had 135 prosecutions; Switzerland had 35; France had 24; Italy had 18; the United Kingdom had 17 and Canada has had two[3].

Likewise, Australia seems to lack commitment to enforcing its foreign bribery laws. Since the introduction of Division 70 of the Criminal Code Act 1995 (Commonwealth) (CCA) in June 1999[4], there has been just a single case leading to prosecutions out of 28 referrals in those 14 years.

Currently, s.70.4 of the CCA provides that a facilitation payment will not amount to unlawful bribery if it can be demonstrated that the value of the benefit was minor; that the person’s dominant purpose was expediting or securing the performance of a routine government action of a minor nature; and as soon as practicable afterwards, the person made a record of the conduct.

Like Canada, Australia is a signatory to the UN Convention Against Corruption[5] (UNCAC) and the Organisation for Economic Co-operation and Development (OECD) Anti-Bribery Convention[6]. The UNCAC prohibits facilitation payments, while the OECD recommends that member countries review their policies to combat facilitation payments. The OECD released its Annual Report (Phase 3 – for activities undertaken in 2012)[7] in early June 2013 which criticises Australia for the third consecutive year.

The report states that “while the Working Group on Bribery welcomes Australia’s recent efforts, it has serious concerns that overall enforcement of the foreign bribery offence to date has been extremely low”[8]. The recommendations include raising awareness about the difference between a bribe and a facilitation payment.

Repealing the defence and outlawing facilitation payments is controversial. There are widespread beliefs that eliminating facilitation payments throughout the business and embedding a zero-tolerance approach in the company’s compliance framework may damage business prospects and place a company at a competitive disadvantage or create an uneven playing field. In addition, those who oppose the abolition of the defence argue that the removal could place billions of dollars of investment in projects at risk.

Proponents of the change argue that such reform will bring Australia in line with international best practice and eliminate inconsistencies with Australia’s domestic laws, the extra-territorial UK Bribery Act and the domestic laws of many of Australia’s major trading partners. It would also send a consistent message that Australia means business and that the Government is committed in its fight against bribery and corruption. In the United Kingdom, it can be seen that the Serious Fraud Office (SFO) has retracted its olive branch of providing advice and guidance for those who self-report. This was evident when the SFO removed its official guidance on facilitation payments, corporate hospitality and self-reporting from its website in September 2012 and has since sent out a clear message that it will be focusing on prosecuting serious fraud.

Australian business should be prepared for the abolition of the ‘facilitation payments’ defence and accept that this will be the new reality of doing business, which is a position many who operate across borders have already adopted.

Throughout 2012 and 2013, McGrathNicol found that there is a growing realisation among Australian Directors that they can be held personally accountable for the actions of their employees, agents and intermediaries even in countries where bribery is officially tolerated. However, many businesses remain unaware that they can be held accountable for any failings of their third-party suppliers and are risking significant prison terms and large fines by failing to examine whether their entire supply chain is meeting the same standards.

Whilst it is evident that corporate counsel, risk executives and the Board are increasingly devoting attention to a bribery and corruption program, we have found that many organisations are underestimating the reach of local and foreign anti-corruption legislation.

By taking the following practical actions to enhance anti-bribery and corruption programs, businesses can ultimately reduce the risk of bribery and corruption occurring in the first place, and operate effectively without having to rely on facilitation payments:

  • Work with your legal advisors to develop a compliance program to ensure that the business not only complies with
    local and applicable international legislation but with the spirit of that legislation.
  • Perform a bribery and corruption focused risk assessment with a particular focus on remote sites in known higher-risk jurisdictions.
  • Undertake financial and integrity due diligence.
  • Unlock the insights from within your data by collating and analysing information aimed at identifying indicators of potential bribery and corruption.
  • Review and develop your anti-corruption policy and procedures and in particular, your accounting and
  • Reporting procedures and controls. Implement a tailored strategy to phase out facilitation payments in preparation for the eventual removal of the current exemption.
  • Develop registers to monitor transactions.
  • Communicate reporting channels and investigation protocols.
  • Raise awareness and train staff and contractors.
  • Ensure there is access to experienced staff or external advisors.

Australian business should prepare for a future of increased enforcement, multi-jurisdictional investigations and a zero-tolerance position by Government and regulators at home and abroad. As Frank Vogl, Co-Founder of Transparency International said “the fervour and momentum for justice against corruption has never been greater in more countries than it is today”[9].

[1] Fighting Foreign Corruption Act 41st Parliament, 1st Session http://www.parl.gc.ca/LegisInfo/BillDetails.aspx?Language=E&Mode=1&billId=5960855 Accessed:23/06/2013
[2] Corruption of Foreign Public Officials Act S.C. 1998, c.34 (p.3) http://www.laws-lois.justice.gc.ca/PDF/C-45.2.pdf Accessed: 23/07/2013
[3] Anti-Bribery Progress: Indefinitely Delayed? Posted 23/05/2011 http://www.transparency.org/news/feature/anti_bribery_progress_indefinitely_delayed Accessed: 27/05/2013
[4] Criminal Code Amendment (Bribery of Foreign Public Officials) Act 1999, Act No. 43 of 1999, http://www.comlaw.gov.au/Details/C2004A00434/Html/Text Accessed: 20/04/2013
[5] United Nations Convention against Corruption, UNCAC Signature and Ratification Status as of 29/05/2013, http://www.unodc.org/unodc/en/treaties/CAC/signatories.html Accessed: 23/06/2013
[6] OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions:Ratification Status as of 20 November 2012, http://www.oecd.org/daf/anti-bribery/antibriberyconventionratification.pdf Accessed: 23/06/2013
[7] OECD Working Group on Bribery: Annual Report on Activities undertaken in 2012. Posted 10/06/2013 http://www.oecd.org/tax/crime/oecdworkinggrouponbribery-annualreport.htm Accessed: 23/06/2013
[8] OECD Working Group on Bribery: Annual Report on Activities undertaken in 2012 (page 45) Posted 10/06/2013 http://www.oecd.org/tax/crime/oecdworkinggrouponbribery-annualreport.htm Accessed: 23/06/2013
[9] Vogl, Frank Co-Founder of Transparency International (9 December 2012) It’s International Anti Corruption Day! What’s your message?
http://www.transparency.org/news/feature/20121209_feature_international_anti-corruption_day_2012 Accessed: 23/06/2013.