What you need to know
- On 2 December 2019, the Federal Government tabled the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2019 (2019 Bill) in the Senate.
- The 2019 Bill introduces new offences which stand to significantly expand exposure to corporate criminal liability – including the introduction of a new "failure to prevent" foreign bribery offence.
- The 2019 Bill also introduces a Deferred Prosecution Agreement (DPA) scheme which will enable a corporation to negotiate outcomes for identified criminal conduct in certain circumstances.
The 2019 Bill is the latest in a flurry of developments aimed at strengthening Australia's corporate crime framework. Its objective is clear: to "address challenges associating with detecting and addressing serious corporate crime".
The 2019 Bill contains the following four main proposals:
- broadening the existing offence of bribery of a foreign public official (section 70.2 of the Criminal Code);
- introducing a new corporate offence of "failure to prevent foreign bribery";
- amendments to various "dishonesty" offences in the Criminal Code; and
- introduction of a DPA scheme.
How does the 2019 Bill differ from the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017 (2017 Bill)?
The 2019 Bill builds on the 2017 Bill, which lapsed at the end of the last Federal Parliament in June 2019. In particular, it introduces the proposed amendments to 'dishonesty' offences outlined at point 3 above.
It also slightly tweaks elements of the DPA model as was proposed in the 2017 Bill, for example, by not requiring a corporation to admit guilt and instead only requiring that certain facts "be agreed".
Broadening the offence of bribing foreign public officials
The 2019 Bill proposes to expand the offence of bribery of a foreign public official (section 70.2 of the Criminal Code), by:
- extending the definition of ‘foreign public official’ to include a candidate for public office;
- extending the offence to cover bribery to obtain a personal (i.e. non-business) advantage;
- replacing the requirement that a benefit and business advantage must be ‘not legitimately due’ with the concept of ‘improperly influencing’ a foreign public official; and
- removing the requirement that the foreign public official must be influenced in the exercise of the official’s duties.
New corporate offence of failure to prevent foreign bribery
The 2019 Bill creates a new offence for corporations of failing to prevent foreign bribery (proposed section 70.5A of the Criminal Code), similar to the corporate failure to prevent bribery offence introduced in the United Kingdom in 2010 (in effect from 1 July 2011).
Under the proposed offence, a company will be criminally liable where an "associate" (which is broadly defined to include an officer, employee, contractor, agent or other service provider) bribes a foreign public official for the profit or gain of the company, unless the company can demonstrate that it had "adequate procedures" in place to prevent the offence.
It is an offence of absolute liability. This means that, in the absence of demonstrating "adequate procedures" to prevent foreign bribery:
- the prosecution will not be required to prove fault elements (ie, recklessness or intention) on the part of the corporation; and
- the corporation is not entitled to a defence of mistake of fact.
The maximum penalty applicable to the offence is substantial: the greater of $21 million, 10 per cent of annual turnover, or three times the benefit gained from the conduct.
The offence stands to greatly increase the risk of companies being prosecuted for bribery offences. The potential significance of the offence is demonstrated by a number of high profile prosecutions in the UK under the similar UK failure to prevent bribery offence, including the £497.25 million settlement between the UK Serious Fraud Office and Rolls-Royce PLC for failure to prevent bribery and other offences.
What are "adequate procedures"?
The 2019 Bill proposes that the Attorney-General be required to publish guidance on the types of measures that are likely to constitute "adequate procedures" and therefore a defence to the "failure to prevent" offence (proposed section 70.5B of the Criminal Code).
The Commonwealth has released draft guidance for public consultation (here), with submissions sought by the end of February 2020. The draft guidance sets out the "five main factors" of an effective anti-foreign bribery compliance program:
- a robust culture of integrity within the corporation;
- demonstrated pro-compliance conduct by top level management and/or the board of directors;
- a strong anti-bribery compliance function;
- effective risk assessment and due diligence procedures; and
- careful and proper use of third parties.
Again, there is considerable similarity between this draft guidance, and the guidance issued by the UK Ministry of Justice for the equivalent UK failure to prevent offence (see here).
If the UK experience is anything to go by, establishing the "adequate procedures" defence will be a high bar to meet at trial. An "adequate procedures" defence was rejected in February 2019 in R v Skansen Interiors Limited, the only UK case to test it so far (see our alert here). Relevantly, that case established that, for the "adequate procedures" defence to be established, the compliance program must be fit for purpose (reflecting the size and risk profile of the company) and properly implemented.
Amendments to Dishonesty Provisions in the Criminal Code
The 2019 Bill includes a proposal to insert "dishonest" as a defined term in the Criminal Code, so that it has an objective meaning – that is, "dishonest according to the standards of ordinary people." This definition is to apply to a series of specified provisions of the Criminal Code.
This proposed amendment makes the definition of "dishonest" in the Criminal Code consistent with the definition in s 6 of the Corporations Act 2001. Section 6 of that Act was amended as part of the reforms enacted by the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 on 13 March 2019, following the Financial Services Royal Commission and calls for greater alignment of corporate conduct with 'community expectations'.
Deferred Prosecution Agreements
The 2019 Bill reintroduces a Commonwealth DPA scheme in Section 17A of the Criminal Code, as originally proposed in the 2017 Bill.
In essence, deferred prosecution agreements are agreements between prosecutors and a corporation that suspend criminal proceedings in exchange for compliance with agreed conditions. DPAs have long been a mechanism for resolution of corporate criminal charges in the United States, and have more recently been introduced in a range of other jurisdictions including the United Kingdom, France, Canada, Singapore and Japan.
The 2019 Bill contemplates that DPAs be available for a range of serious corporate crimes, including foreign bribery, money laundering, fraud, breaches of sanctions laws, and various criminal breaches of the Corporations Act. However, a DPA will only be accepted if the CDPP is satisfied that it is in the public interest, if approved by a retired judicial officer appointed for that purpose, and if it contains at least the following elements:
- a statement of facts relating to each offence specified in the DPA (but not an admission of guilt);
- 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; and
- that the corporation consents to the CDPP instituting a prosecution on indictment for an offence specified in the DPA without the corporation having been examined or committed for trial.
DPAs stand to provide corporations with a means to achieve greater certainty of outcome once criminal conduct is identified, relative to traditional prosecution processes. They have been viewed favourably by investigative agencies, who perceive them as providing incentives for corporations to self-report serious corporate crimes such as foreign bribery which are otherwise complex to investigate and prosecute.
However, with the added flexibility of the DPA comes added risks for a corporation, including the risk that the CDPP will not be willing to offer a DPA (even if a company self-reports), or the potential for class actions or other civil claims to be fuelled from the factual matters "agreed" under the terms of the DPA. These matters require that a company think carefully before agreeing to enter into a DPA.
DPAs are one of the many reform proposals currently being considered by the ARLC's Corporate Criminal Responsibility review (see our alert here).
What next?
The Federal Government is calling for submissions on draft guidance for "adequate procedures" by 28 February 2020. In the meantime, the 2019 Bill has been adjourned for debate in the Senate until 4 February 2019.
We will continue to provide further updates as the 2019 Bill progresses. Our team would welcome the opportunity to discuss how the proposed reforms may affect your company or to assist with preparing submissions on the adequate procedures guidance.
Authors: Rani John, Partner and Stephen Speirs, Senior Associate
