The bribery and corruption landscape is
changing – the legislation is getting tougher, the prosecutions more frequent
and the penalties more severe.
Australian exporters who continue to deny that bribery and corruption
may impact them are leaving their businesses exposed. The payment of bribes to secure contracts in
foreign markets has not been regarded as an acceptable way to do business and
governments around the world are responding.
The
changing regulatory landscape
In 1997, the Organisation
for Economic Co-operation and Development (“OECD”) Anti-Bribery Convention
(“the OECD Convention”), a global anti-corruption initiative, criminalised
foreign bribery in countries that represent over
75% of world exports. The OECD Convention was borne
out of the principle that bribery of
foreign government officials in international business transactions poses a
serious threat to the export industry; it undermines economic development and
distorts international competition. Since 1997, we have seen legislation
and regulators driving change.
The last two years has seen sweeping changes
with the launch of the UK Bribery Act (2010), tougher penalties and sanctions
under the Australian Criminal Code and an increase in the USA’s Foreign Corrupt
Practices Act (FCPA) prosecutions. In
addition, in November 2011 a discussion paper was launched by Mr Brendan
O’Connor (the Minister for Justice) proposing the removal of the facilitation
payments defence from Australia’s bribery laws.
Recent
Australian enforcement activity
We have also seen an unprecedented level
of investigation in our own backyard:
Date
|
Issue
|
Why the bribes were allegedly paid?
|
July 2010
|
The Australian
Federal Police (AFP) charged two Reserve Bank of Australia subsidiaries
(Securency International and Note Printing Australia) over alleged bribes
paid to public officials in Indonesia, Malaysia and Vietnam.
|
The allegations
relate to the payment of bribes to secure polymer banknote contracts in the
regions.
|
March 2012
|
The AFP
launched an investigation into two former employees of Tenix Contracting (a
major defence contractor) over claims that bribes were paid to government
officials in the Philippines, Indonesia and other parts of Asia.
|
The allegations
relate to the payment of bribes to win shipbuilding and other military
contracts in Asia.
|
March 2012
|
Leightons
Holdings self-reported to the AFP allegations that one of its subsidiaries
had allegedly paid bribes to an official within Iraq’s largest state-owned
oil company.
|
The allegations
relate to the payment of bribes to secure contracts in Southern Iraq
|
In each case bribes have allegedly been
paid by individuals acting on behalf of reputable entities in order to secure
contracts in overseas markets. So what
are exporters to do? Working with
foreign agents to secure contracts is often required to set up and grow an
export business. Relying on local knowledge is key to securing contracts, and the
making of such payments is “just how
business gets done” in certain countries, isn’t it?
The new reality is this – the legislation has global reach, the regulators
are going to be relentless in prosecuting matters and in the case of the UK
Bribery Act the financial penalties have no limit and actions can be brought
against those who fail to adequately manage the risk. Australian exporters must
respond and that starts with identifying the risks and proactively managing
them, at times in countries where corruption is considered more likely to
occur.
Key
legislative requirements
From an Australian export perspective,
there are three key pieces of legislation exporters should familiarise
themselves with - the Australian Criminal Code Act (Cth), the US FCPA and the
recently enacted UK Bribery Act (2010). The extra-territorial reach of both the
FCPA and the UK Bribery Act means that Australian companies could be captured
not only by our own legislation, but by US and UK laws and the local laws
governing the country (or counties) where they operate. Exporters that are of the view that ‘it couldn’t happen to us’ may want to
rethink their position.
Case Study – FCPA in
action
What happened?
+ Panalpina World Transport (Holding) Ltd (“PWT”) was
headquartered in Switzerland and provided freight and logistic services for
customers within the oil and gas industry.
+ PWT operated in countries including Nigeria, Angola,
Azerbaijan, Brazil, Russia and Kazakhstan.
+ Between 2002 and 2007 PWT’s subsidiaries and
affiliates engaged in improper payments and bribes to foreign officials.
How
it happened?
+ Payments were made on behalf of PWT customers (as
defined in the FCPA) in order to avoid the customs process, reduce tariffs
payable and avoid the assessment of proper duties, avoid penalties for items that had been
improperly exported and to secure logistics contracts from overseas government
entities. In many instances PWT’s
customers knew of the bribes.
+ The bribes were paid to officials in order to cause
officials to overlook insufficient, incorrect or false documents and in certain
instances to circumvent local laws all together.
Why
it happened?
+ PWT had an inadequate compliance structure to deal
with such issues
+ A culture (within PWT and in some cases their
customers) that tolerated/encouraged such behaviours as a means of ‘getting
things done’ quickly and efficiently
+ The establishment of subsidiaries all around the
world, acting as agents for PWT led to wide spread systemic corruption issues
Outcomes
+ PWT as well as 5 oil and gas companies (customers of
PWT) have been the subject of investigations under the FCPA, the Department of
Justice and the US Securities and Exchange Commission.
+ The companies agreed to pay over US$156million in
criminal penalties.
+ Each company is required to implement and adhere to a
set of enhanced corporate compliance and reporting obligations.
+ The Nigerian operations of PWT were shut-down and
numerous senior executives (in various countries) lost their positions.
What
is the risk for exporters?
All Australian exporters face significant
challenges in setting up business in overseas markets – unfamiliar legislation,
diverse cultures, different local business customs, and foreign languages can
all present significant barriers to securing contracts – as a result Australian
businesses are often heavily reliant on local partners or agents to guide them
through the process and this is often when problems can arise. Without appropriate safeguards Australian
exporters can be left vulnerable by relying on the advice and services of their
local agents, JV partners or third party contractors.
The new UK Bribery Act (2010) prescribes that not only are there
severe penalties for bribes being made but organisations can also be penalised
for not doing enough to manage the risk.
The legislation makes reference to organisations needing to ensure
‘adequate procedures’ are in place to mitigate the risk. So what can you do as an exporter? Listed below are the ‘11 must-do’s’ that
exporters need to put on their ‘to do list’, to manage the risk and protect their
business if or when the regulator comes knocking…
What
should exporters do to manage the risk? The 11 must do’s
1. Understand
the legislation and how it applies to your business – obtain legal advice if
necessary
2.
Top level Commitment – a commitment that
begins at the board level and makes its clear your business has “zero tolerance”
when it comes to the payment of bribes or corrupt behaviour
3. Ensure
you have strong and well communicated policies in place; policies that all
employees, suppliers, contractors, agents and JV partners are aware of and
understand
4. Identify
the key risk areas in your export supply chain and prioritise these on the
basis of perceived likelihood or risk
5. Conduct
background checks on all organisations
and individuals that you deal with – suppliers,
contractors, agents and JV partners
6. Obtain
a legal review of all contracts and agreements before signing
7. Ensure
your business has strong financial controls and robust contract management
procedures - if something appears too good to be true, it probably is
8. Ensure
milestones of contracts are met and attend relevant meetings with suppliers,
contractors, agents and JV partners
9. Ensure
independent quality audits of suppliers, contractors, agents and JV partners premises
are scheduled and completed
10. Provide
ongoing training and management of staff sent overseas to secure contracts,
employ personnel or engage in negotiations on your behalf
11. Establish
a system for reporting suspicious behaviour.
Where
to from here
One thing is certain, combating bribery and corruption should be at the
forefront of all Australian exporters’ minds.
The risks are real and the consequences can be devastating. Foreign
bribery distorts competitive markets; undermines good governance and it has the
potential to put Australia’s reputation as an exporter at risk. Australian exporters who understand and
proactively manage the risk will go a long way in protecting themselves and the
markets into which they export. Getting
it right can have benefits that extend far beyond just ticking the right boxes
to satisfy a regulator; the future of your export business can depend on it.
Avoiding the unwanted investigative costs
and reputational damage caused by a bribery and corruption scandal through
proper risk management processes is well worth the investment. But should the
unthinkable happen, knowing who to turn to and how to manage the issue can be
just as important. Having safeguarded
your business from the risks, you and your advisers will be in a much better
position to deal with what ensues.
If you need any further information in
relation to any of the issues discussed above or any other advice in relation
to protecting your export business from the risks of bribery corruption please contact
us. Our national team has undertaken
investigations into bribery and corruptions allegations in Australia and around
the world, we are well placed to understand how issues can arise and how best
to manage the risks.
Matt
Fehon
Partner, Forensic
t: +61 2 9338 2680
e: mfehon@mcgrathnicol.com
o: Sydney
Sara Deady
Manager, Forensic
t: +61 2 9248 9943
e: sdeady@mcgrathnicol.com
o: Sydney
