Senate inquiry on foreign bribery - corporate culture to take centre stage

In brief

The Senate has this week referred a broad-ranging inquiry into foreign bribery to the Senate Economic References Committee. The terms of the reference provide for a substantial review of Australia's foreign bribery laws and enforcement regime, with a particular focus on corporate culture issues and facilitating enforcement outcomes. Partner Rachel Nicolson and Associate James Campbell report.

Background

On 24 June 2015, the Senate referred an inquiry into Australia's foreign bribery laws to the Senate Economic References Committee (see here and here). First proposed by Senator Sam Dastyari on 5 March 2015 (see here), and promoted by Senators Dastyari and Xenophon, the key issues referred to the inquiry focus on measures to strengthen current laws, in particular, measures related to the 'corporate culture' limb of corporate liability, as well as reducing current obstacles to enforcement and improving the effectiveness of enforcement agencies.

Strengthening current laws

The terms of reference for the inquiry suggest that the Committee will look at expanding and strengthening Australia's foreign bribery laws. In particular, it will examine:

• removing the 'facilitation payment' defence, under which small payments to foreign government officials for routine government actions are permitted as long as certain records are kept; and
• reviewing offences relating to making false book entries.

The penalties that can be imposed for contraventions are also to be reviewed, with a specific focus on whether people or companies convicted of foreign bribery offences should be barred from participating in government contracts or programs. The OECD's Working Group on Bribery has previously recommended that government agencies have clear policies concerning the exercise of their discretion to bar companies convicted of foreign bribery offences (see here). The terms of reference, however, suggest that a more absolute bar may be contemplated. This may increase pressure on organisations that do business with the government to take additional anti-bribery precautions.

The Committee will also examine whether the foreign bribery regime should be extended to company-to-company transactions, and to relationships with international sporting bodies. In an article published in The Australian on 28 May 2015, Senator Xenophon is reported as saying that this will almost certainly include the world soccer governing body FIFA.

Corporate culture

A particular focus of the inquiry will be the mechanism by which a company can be prosecuted for a foreign bribery offence if its corporate culture 'directed, encourage, tolerated or led to' non-compliance. The meaning of this provision has not been tested by courts, and there has been considerable uncertainty as to how it operates.

The Committee will examine giving official guidance to corporations about what corporate culture involves, and what a good compliance program should look like. Clarification to this area of the law will be welcome and may build on the 'three Cs' (communication, challenge, complacency) framework recently proposed by the Australian Securities and Investments Commission (ASIC) (see here and here). However, it will be important that the Committee's work is informed by pragmatic guidance from companies, so that the recommended threshold requirements do not create an impracticable or unduly onerous compliance burden.

To add weight to the corporate culture rule of attribution, the Committee will also look at creating personal liability for directors and managers who do not implement a corporate culture of compliance.

Removing obstacles to enforcement

The inquiry will examine a number of measures to lower the hurdles to enforcement of the foreign bribery offence. Senator Dastyari's speech of 5 March 2015 suggests that a number of changes to be considered may be modelled on provisions that apply in the United States and United Kingdom. In particular, this appears to relate to:

• measures to promote private sector whistleblowing, and incentives to report foreign bribery; and
• measures to encourage self-reporting, including civil resolutions, settlements, negotiations, plea bargains, enforceable undertakings and deferred prosecution agreements.

The inquiry will also examine extending the statute of limitations. The foreign bribery offence itself is not subject to a statute of limitations. However, related minor offences and civil investigations that may be undertaken by ASIC, for example, for potential breaches of directors duties, are subject to time limits. ASIC has previously highlighted¹ the dilemma that it faces in that, if it awaits the conclusion of criminal investigations into foreign bribery matters before commencing civil investigations, it can face difficulties completing its investigation within time (see here). It may be that the inquiry will consider whether time limits should be extended or suspended for civil investigations or for more minor related criminal offences, where a foreign bribery investigation is undertaken.

Finally, the inquiry will examine:

• 'standards of admissible evidence', which may include modifying the burden of proof on certain matters; and
• the liability of parent companies for subsidiaries and intermediaries, including joint ventures, which may be directed to strengthening rules concerning the attribution of the conduct or culture of offshore subsidiaries to Australian parent entities.

Improving the effectiveness of enforcement agencies

The final group of considerations for the inquiry relate to the operations of law enforcement agencies. The Senate will look at expanding its powers to obtain evidence by examining treaties, agreements and jurisdictional reach.

It will also examine the effectiveness of enforcement agencies themselves, including cooperation between agencies. The interactions of ASIC and the Australian Federal Police in relation to foreign bribery investigations have previously received substantial attention². More recently, the Australian Federal Police has established a Fraud and Anti-Corruption Centre as a forum for inter-agency cooperation. The sufficiency of that level of cooperation and the appropriateness of restrictions on the ability of the Australian Federal Police to involve other regulators in its investigations may be reviewed.

The inquiry process

The Committee is to report to the Senate by 1 July 2016. With that timing in mind, the key points concerning the inquiry process are that:

• The inquiry is likely to start accepting submissions from interested parties in the near future. Submissions may close around September or October 2015.
• Public hearings are likely to be held and may take place at the end of 2015 or early in the 2016 parliamentary year, based on the date of the referral and the reporting date.
• Senate committees generally invite witnesses to give evidence, but they also have the power to summon witnesses if necessary and compel them to answer questions. Witnesses can request private sessions and to be accompanied by counsel. Evidence given to a Senate committee is protected by parliamentary privilege and cannot be used in court. However, unless evidence is given in private session (and the Senate retains the privacy of the evidence), evidence is on the public record.
• Senate committees have the power to compel the production of documents, including documents that are the subject of an investigation by a public body. Senate committees can also require the production of documents that are subject to legal professional privilege, but will generally consider whether it is in the public interest to do so.
• At the conclusion of the inquiry and by 1 July 2016, the Chair of the Senate Economic References Committee must prepare a report to be tabled in Parliament. Minority or dissenting senators may also prepare reports to be tabled in Parliament.

Conclusion

The inquiry into foreign bribery will traverse a substantial number of issues, and will no doubt focus public debate on Australia's foreign bribery regime and the adequacy of corporate cultures of compliance.