Carrot and stick: Tough new bribery laws introduced, but DPAs will be coming

What you need to know

• The Australian Government has introduced into Parliament tough new laws to combat bribery and other serious corporate crimes.
• The proposed offence of failing to prevent bribery will mean that a company is automatically liable for bribery of a foreign public official committed by an officer, employee, contractor, or third party service provider, unless the company can demonstrate that it had a proper system of internal controls and compliance in place designed to prevent the bribery from occurring. The offence will carry substantial penalties, with the maximum penalty per offence being the greater of $21 million or 3 times the benefit obtained through the bribery or 10% of the company's annual turnover.
• At the same time, under a deferred prosecution agreement scheme, companies that have engaged in serious corporate crimes such as bribery, money laundering or insider trading will be given the opportunity to do a deal with prosecutors to avoid prosecution and potentially reduce exposure to those financial penalties.

What you need to do

• Now is the time to review your organisation's anti-bribery policies, procedures and practices to ensure they meet international standards and effectively prevent bribery both within your organisation and by service providers outside your organisation.

• Companies facing potential prosecution for serious corporate crimes will need to give careful consideration to the benefits and risks of a deferred prosecution agreement before self-reporting to the criminal prosecutor or seeking a deferred prosecution agreement.

Following the release of two public consultation papers earlier this year (see our Regulatory Update dated 3 April 2017 and 6 April 2017, the Australian Government has now introduced the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017 to significantly strengthen Australia's anti-bribery and corporate misconduct laws.

We discuss below the key features of the proposed new laws, being:

• a new offence of failing to prevent bribery of foreign officials;
• amendments to the existing foreign bribery offence to remove potential impediments to a successful prosecution; and
• a deferred prosecution agreement (DPA) scheme.

New offence of failing to prevent foreign bribery

Under the new laws, 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 in place adequate procedures designed to prevent the offence.

This offence - which closely reflects the Bribery Act regime in the United Kingdom - will greatly increase the risk that companies will be prosecuted for bribery offences, even where a company has no knowledge of a bribe being paid by a third party service provider on its behalf. Ignorance is no excuse!
The offence will also carry substantial penalties, with the maximum penalty per offence being the greater of:

• 100,000 penalty units (which currently amounts to $21 million); or
• 3 times the benefit obtained through the bribery; or
• if the Court cannot determine the value of that benefit, 10% of the company's annual turnover for the 12 month period ending at the end of the month in which the associate committed, or began committing, the offence.

The potential significance of the offence is demonstrated by a number of high profile prosecutions in the UK, including the recent £497.25 million settlement between the UK Serious Fraud Office and Rolls-Royce PLC for failure to prevent bribery and other offences.

To assist companies in complying with the new laws, the Government will be required to publish guidance on the steps that can be taken to prevent an associate from bribing foreign officials – that is, what will constitute "adequate procedures". There are also existing international standards available, such as ISO:37001, that may assist your organisation.

However, it is important to bear in mind that every business is different and needs to be critically evaluated to identify key risk areas and develop effective controls.

Amendments to existing foreign bribery offence

The new laws also aim to improve the effectiveness of Australia's existing foreign bribery offence by removing possible impediments to a successful prosecution. In particular, the following key amendments are proposed:

• extending the definition of "foreign public official" to include candidates for office
• removing the requirement to show that the official was influenced in the exercise of his or her official duties
• replacing the requirement that the benefit or advantage must not be "legitimately due" with the concept of "improperly influencing" a foreign public official, and introducing a list of factors that may be considered when determining whether there was improper influence (including the nature of the benefit, whether the value is disproportionate to any consideration provided by the official, and the extent to which the benefit has been accurately documented)
• extending the offence to cover instances where the advantage sought is personal in nature, rather than limiting it to business advantages and
• clarifying that the accused did not need to have a specific advantage in mind to have committed the offence.

It is notable that the new laws do not include an offence of recklessly (as opposed to intentionally) bribing a public official, as had been proposed in the Government's public consultation paper earlier this year. Further, the Government does not propose to abolish the facilitation payments defence for "nominal bribes", which is not available in other jurisdictions such as the UK.

Deferred prosecution agreement scheme

If passed, the new laws will introduce a DPA scheme in Australia for the first time. A DPA is a voluntary settlement between a criminal prosecutor and a defendant company, whereby the defendant agrees to comply with certain requirements (such as compensating victims and paying a financial penalty) in exchange for prosecution being discontinued.

The key features of the DPA scheme proposed by the Government are:

• DPAs will only be available to companies, not individuals.
• DPAs will only be available for certain serious corporate crimes, such as bribery, fraud, insider trading and other market misconduct.
• The terms of a DPA will be determined by the Commonwealth prosecutor and the defendant, and may include the admission of criminal liability, imposition of financial penalties, and compensation to victims.
• A retired judge will consider whether the DPA is in the interests of justice and whether the terms are fair, reasonable and proportionate.
• If the retired judge approves the DPA, it takes effect and is made publicly available (although prior to approval, the fact that DPA negotiations have been taking place would typically be confidential).

• If approved (and provided there is no material contravention of the agreement), the prosecutor will grant an undertaking not to prosecute the company for the offence to which the DPA relates.

A DPA scheme will mean that companies are more likely to self-report serious misconduct to reduce their exposure to financial penalties, and the consequences of an extended investigation and prosecution. However, the risk that the prosecutor is not willing to offer a DPA, or that civil claims arising out of the same circumstances will be brought once a DPA is finalised, will mean that companies need to think carefully before seeking or agreeing to a DPA.

Act now to manage your risks

A Senate Committee inquiry into Australia's foreign bribery laws is due to report by 7 February 2018, and we expect will comment on the Government's proposed new laws. Subject to any amendment, we expect that Parliament will vote on the new laws during the first half of 2018.

Under the Bill, the DPA scheme is intended to commence the day after assent. The new offence of failing to prevent foreign bribery and amendments to the existing foreign bribery offence are intended to commence 6 months after assent, most likely by the end of 2018. 

It is already important for companies to have robust and up-to-date anti-bribery policies and procedures in place to reduce the risk of corporate liability. However, the impending introduction of a new offence of failing to prevent foreign bribery, combined with the broader scope of the existing foreign bribery offence, will further increase the risk of prosecution for bribery offences for companies or individuals who are unprepared. 

Companies should not wait to act until the new laws are passed, given that effective anti-bribery management requires cultural change that cannot happen overnight. In addition, past conduct will be relevant to a company's ability to secure a favourable DPA.

Ashurst is experienced in assisting clients to review and implement anti-bribery controls, including under the UK Bribery Act regime, as well as helping to respond to known or suspected instances of bribery and other serious corporate misconduct.

Part 2 and Part 3 of our recent ABC for In-House Counsel series outline in more detail the steps that you can take before or after an incident arises to reduce your organisation's potential exposure. Please don't hesitate to get in touch with the key contacts below if you would like any further information or assistance.

Authors: Alyssa Phillips, Partner; James Clarke, Senior Associate; and Melanie Wong, Lawyer.