Punishment and Reward: Deferred Prosecution Agreements and Tough New Foreign Bribery Offences

Just one day before the end of the final Parliamentary sitting week for the year, the government has introduced new legislation that will establish a regime for Deferred Prosecution Agreements (DPA) and tough new foreign bribery offences.

When passed, the legislation will make it easier to prosecute individuals and corporations who engage in bribery overseas by simplifying the elements of the offence and widening the scope of conduct viewed as corrupt. A new offence aimed at corporations that don’t have adequate safeguards and procedures to prevent foreign bribery should leave the C-suite in no doubt as to the importance of reviewing internal policies.

But in a sign the government has no intention of dragging offenders through years of prolonged investigations and litigation – seven years being the average for foreign bribery offences – a new DPA framework will make it easier to settle disputes quickly and without the financial and reputational cost of a criminal trial.

In addition to foreign bribery offences, DPAs will be available for a number of serious corporate crimes contained in the Criminal Code, the Corporations Act, the Anti-Money Laundering and Counter-Terrorism Financing Act and the Autonomous Sanctions Act.

At the same time, the government also introduced a bill to enhance whistleblower protections and obligations on organisations. The combination of these three pieces of legislation will significantly increase the need for a review of a corporation’s risk register as well as the probability of regulator action in a wider range of areas.

SHOULD COME AS NO SURPRISE

The introduction of these reforms should come as no surprise. The government has been signalling for months its intention to give regulators greater powers to crackdown on Australian companies behaving badly overseas. The legislation also comes after an extensive consultation process, with feedback from earlier drafts of the Bill evident in the legislation introduced into the Senate this week.

These reforms are part of a broader process being implemented by the government to crackdown on corporate crime. They supplement false accounting rules introduced in 2016 and new whistleblower protections, which are expected to be passed in the New Year. These measures are all designed to meet Australia’s obligations under the OECD Anti-bribery Convention.

The Bill will be debated in Parliament between 5 February and 28 March 2018.

FOREIGN BRIBERY: WHAT’S NEW?

For those who have been following the process, a number of changes between the draft legislation and the Bill introduced into Parliament will be evident. The omission of a foreign bribery offence based on recklessness is an obvious and likely welcome example.

But the overall content of the Bill is unsurprising. As expected, two new offences will be created targeting individuals and corporations:

1. Bribing a foreign public official (section 70.5A); and

2. Failing to prevent bribery of a foreign public official (section 70.2)

In contrast to the existing provisions, obtaining or retaining business or a business advantage is no longer required. Any advantage, including personal – whether specific or not – will be enough to fall within the scope of the new offence.

Who is a foreign public official?

The definition of a foreign public official has been broadened to include candidates running for office. This change was supported during the consultation process, although there are still questions about when a person is standing or is nominated informally – at what point does a person informally declare they are standing for office? The public policy reasons for this change are obvious: bribing candidates to provide advantage once they have been elected has the same negative outcomes for governance and fair markets.

Improperly influencing

The new legislation prohibits the ‘improper influencing’ of a foreign public official.

The existing offence requires the Commonwealth prosecutor to demonstrate that a benefit or advantage conferred was ‘not legitimately due’. This approach is out-of-step with regimes in the USA, UK, Canada and New Zealand. It can lead to confusion when a payment is disguised as a legitimate business transaction.

This change divided opinions in the consultation process, with many submissions arguing that the lack of case law in Australia defining ‘improper influence’ means it will take some years to provide effective advice on the management of business activities. However, what is improper will be a matter for the trier of fact. The Bill outlines a non-exhaustive list of factors that can be considered, including an additional factor which was introduced after the consultation process - whether there has been dishonesty.

Corporations in the dock

The days of blaming a rogue employee when something goes wrong are over. The new offence of failing to prevent foreign bribery puts corporations squarely in the dock.

Under the new legislation, corporations that don’t have adequate safeguards and procedures to prevent foreign bribery can be held liable for offences committed by their associates – this can occur even when the associate has not been charged or convicted. The only defence is to prove that adequate safeguards and internal procedures were in place.

The concept of an associate includes an officer, employee, agent or contractor of the corporation. It also covers subsidiaries and entities that are controlled by the corporation, or any person or entity that performs services on behalf of the corporation – the corporate veil will not protect an organisation from the sins of the corporate family. The practical implication of this is that you need to look very closely at who you do business with and who does business on your behalf. Particular attention needs to be paid to your joint venture partners. A corporation’s only defence is to prove that it had adequate procedures in place designed to prevent the offence occurring. The burden of proof is on the organisation. Pushing your best practice procedures onto those you do business with – in a meaningful way which is monitored, rather than a “tick the box process” will have to become standard operating procedure.

With the legislation likely to come into effect in the second-half of 2018, the C-suite will need to focus on bolstering an organisation’s foreign bribery policies and procedures. The Minister is likely to publish guidance on what is expected. In the meantime, the International Standards Organisation’s Anti-bribery management system (ISO37001) is a good place to start.

Penalties

For individuals, the penalties are imprisonment for up to 10 years, and a penalty up to 10,000 penalty units ($210,100). For corporations the penalties are a fine or no more than the larger of: 100,000 penalty units ($2.1 million); three times the value of the resulting to the corporate family; or 10% of the annual turnover (not profit) in the 12 months prior to the conduct.

When will it start?

If this legislation is passed and assented to in the February-March 2018 sittings, it will apply from as soon as August 2018.

DEFERRED PROSECUTION AGREEMENTS: A NEGOTIATED OUTCOME

Deferred Prosecution Agreements (DPA) have been making headlines in recent years, with major multinationals such as BAE Systems and Rolls-Royce entering into DPA’s and agreeing to pay fines of around US$400 million and US$800 million respectively.

In both cases the offences related to contraventions of US and UK anti-bribery legislation.

The government released a consultation paper earlier this year, and has now released legislation to bring DPAs into effect. DPAs will allow the Commonwealth Director of Public Prosecutions (CDPP) to enter into a voluntary agreement with corporations – not individuals – to defer prosecutions in return for the organisation agreeing to a number of mandatory and optional requirements. If the company complies with the agreement, the CDPP won’t pursue the matter further.

What must be in a DPA?

The DPA should contain, at a minimum, the following mandatory elements:

• a statement of facts relating to each offence specified in the DPA;

• the last day for which the DPA will be in force;

• the requirements to be fulfilled by the person under the DPA;

• the amount of financial penalty to be paid by the person to the Commonwealth;

• the circumstances which constitute a material contravention of the DPA;

• that the person consents to the CDPP instituting a prosecution of the person on indictment for an offence specified in the DPA without the person having been examined or committed for trial;

• identification of the circumstances that will constitute a material contravention (so that DPAs don’t fall over and expose corporations to prosecution for minor, non-essential non-compliance).

An important departure from the March 2017 consultation model, is that entering a DPA will not require an admission of guilt. This is of real importance to corporations in these days of class actions.

Other elements which may also be included are:

• compensation for victims;

• a donation to charity or a third party;

• a forfeiture of benefits made from the offence outlined in the DPA;

• the implementation of compliance programs;

• the payment of the Commonwealth’s costs in negotiating the DPA.

Not off the hook

DPAs will not be a get out of jail free card for corporate wrongdoers. For a DPA to be accepted, the CDPP must be satisfied that it is in the public interest. DPAs will also need to be issued by an “approving officer” who must approve it if satisfied the terms are reasonable, appropriate and in the interests of justice.

Approving officers will be former judges appointed by the Minister for five year terms.

Where a company breaches a DPA, the agreed statement of facts from the agreement can be used as evidence in the Crown’s case. Documents created for the purpose of negotiating a DPA, however, will not be admissible.

DPAs will cover a range of serious corporate crimes including foreign bribery, fraud, money laundering, dealing with proceeds of crime, breaching sanctions laws, and a number of provisions in the Corporations Act (including the market misconduct and insider trading provisions).

For corporations, a DPA will give certainty that an investigation has come to an end, that their exposure to the regulator is known, and, by nature of the regulator’s approval, that their commitments to reform their culture and operations should be satisfactory.

There is another important benefit for corporations: if a DPA is complied with, then there will be no judicial finding that the corporation has engaged in any contravention of the law. This is important because such findings can often “debar” a corporation from taking part in foreign government tenders or in business operations and tenders with other organisations which may have very strict corporate governance standards. This was recognised in the Rolls-Royce case (paragraph [53]ff), where the Court, in approving the DPA, expressly considered the benefit to the company being able to continue conducting business.

When will it start?

The Deferred Prosecution Agreement framework should come into effect in early-mid 2018.