This article is Part Three in a series. Subscribe to Financial Services Updates to receive each part of this series. Please click here for Part One and here for Part Two. 

Why do we have a foreign bribery offence?

International pressures and the Convention

In 1999, foreign bribery was criminalised in Australia through the ratification of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the Convention). The Convention reflected the international drive for better national and multi-national cooperation to address the ever-increasing problem of bribery, by requiring Australia to take a ‘whole-of-government approach’ to the implementation of the Convention. This approach meant assessing, monitoring and evaluating the practices and structures in place to enforce implementation of the Convention, over a four-phase period.

Since the implementation of the Convention, and the successful integration of obligations during each phase, Australia has still been the subject of criticism for its perceived lacklustre approach to enforcement.  The popular perception among Australia’s international counterparts is that Australia appeared to have all the necessary laws in place to comply with the Convention, but in practice these laws were largely untested and little used.

Low prosecution rates

At each phase of the implementation, reports were published to detail the progress which had been made, to identify areas for improvement and to make any necessary recommendations. In 2012, the OECD reviewed Australia’s efforts and found that, although it had made positive changes, not enough had been done to criminalise, prosecute and penalise instances of foreign bribery. The OECD had noted serious concerns that overall enforcement of the foreign bribery offence to date had been extremely low. Australian companies Leighton Holdings (now CIMIC Group), BHP Billiton and Tabcorp have all had foreign bribery allegations made against them, and yet despite these cases being widely reported, there have been few prosecutions. One potential cause is the current requirement that the Australian Federal Police establishes that conduct occurring overseas by foreign incorporated subsidiaries, entities or agents, is attributable to an Australian company from both a conduct and knowledge point of view.

The Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017 (Cth) (Bill) removes this requirement and introduces a strict liability offence of failing to prevent foreign bribery.

Is this Bill the last piece of the anti-bribery and corruption puzzle?

Facilitation payments

Facilitation payments are, and have been for a while, a highly debated topic. Under the Criminal Code Act 1995 (Cth) (Code), a “facilitation payment” is, broadly, a payment of a minor nature made to a foreign official for the purpose of speeding up minor routine government action and is not considered a bribe.  A “facilitation payment” has remained a valid defence under the Code to bribery charges partly because of an alleged need of smaller companies who view facilitation payments as a method of maintaining effective and competitive relationships especially within the mining industry and those companies engaging with the developing world.

Notwithstanding that “giving a bribe” and “facilitation payments” are both defined in the Code, what is actually a “bribe” in practice remains a grey area. Notably, and unsurprisingly, what constitutes a payment of a “minor nature” and a “routine government action” is conceptually complex, and it can be hard to distinguish such payments from a payment which is caught by the Code as being considered a bribe. The Bill doesn’t directly modify the position in relation to facilitation payments, and so the assumption must be made that they remain a valid defence.

International movement to abolish facilitation payments

Both the OECD and the Convention allow the defence of a minor payment being a facilitation payment to an allegation of bribery. In 1997, the OECD took the view that such payments do not constitute payments made “to obtain or retain business or other improper advantage”, and that while there is an obligation on each member state to address corrosive use of facilitation payments, “criminalisation does not seem practical or effective”.

The fate of facilitation payments is currently in a state of flux. Conflicting historical views are slowly harmonising, and there is a strong international movement towards the complete removal of the payment structure. The OECD permits the payments, whilst international instruments such as the United Nations Convention against Corruption (UNCAC), a multilateral treaty ratified in Australia, prohibits them. The UNCAC is repeatedly recommending that Australia take steps to review the approach taken to facilitation payments by encouraging companies to discontinue their use. Echoing the UNCAC, the OECD now strongly urges Australian companies to “prohibit or discourage” the use of facilitation payments by policies and procedures which encourage ethical and compliant behaviour, but the ‘facilitation payment defence’ remains in the Code and can be relied on.

Socio-economic needs

When discussing the fate of facilitation payments, the reasons why companies continue using them should not be discounted, despite the growing pressures. The types of justifications that are often put forward by companies include:

  • foreign officials who receive facilitation payments do not have discretion regarding their receipt as they are often required by senior management to continue doing business
  • facilitation payments are often embedded routine payments and so there is less moral culpability
  • it is not possible to do business in some countries without paying a facilitation payment
  • to ban the facilitation payment structure altogether would likely harm Australian businesses by placing them at a competitive disadvantage.

Do these arguments really provide a legitimate reason to continue paying facilitation payments? The Australia-Africa Mining Industry Group (AAMIG) claims that prohibiting facilitation payments would disproportionately disadvantage smaller companies in terms of their delay appetite and ability to influence. They may be subjected to delays for extended periods of time which are currently overcome through routine payments, or they may lose their power to influence host country government officials to carry out their duties in a timely fashion. It is often the case that developing world host countries are affected by poverty, conflict and/or insufficient resources and so facilitation payments can be viewed as a ‘wage’ in the same vein as ‘tips’ are.  Many host countries, who are also developing world countries, do not have adequate resources to pay their civil servants sufficiently, if at all. This has led to those individuals and governments asking for additional modest support when doing business with developed world countries.

What is next?

It is inevitable that there will be legislative differences between Australia and its international counterparts, most notably with the UK, and occasionally those differences may appear to be glaring omissions on Australia’s part. These often reflect poorly on Australia’s perceived attempt to align its foreign bribery legislation in accordance with emerging international standards.

But is it right and fair to expect all countries to apply the same restrictions and controls when each countries diversity, geography, ethics and economic growth are all very different? What about the community expectation that corporations have a social responsibility to the global community? Could it be argued that foreign bribery exemptions such as the facilitation payments, if conducted in a transparent and fair manner, are a real and practical method of a corporation meeting those expectations?

At the beginning of this article, we quoted the Senate’s view that ALL bribery can skew competition. If we listen to Australian businesses, however, it is not as black and white.

What should you do?

The fight against bribery and corruption is, and should remain, an ongoing discussion for all corporations and boards. There is no doubt that if foreign bribery is not managed effectively, the risks posed to the corporation are substantial and potentially damaging. The requirement to manage is not restricted to ensuring that true bribery is prevented but can also relate to payments which could be considered bribes being conducted in an open and transparent way to ensure that they can be accurately defended on the basis of being facilitation payments.  

If you do not look at how you manage your risks associated with foreign bribery (and facilitation payments), and make appropriate changes, you may face an array of penalties which can and should be easily mitigated. The industry has been put on notice, and it would be prudent to start your compliance review process sooner rather than later to ensure that comprehensive internal compliance can be achieved before the Bill is assented.