For some time now, the Australian government has been reforming a number of aspects of the regulatory framework against improper corporate conduct. These reforms include the consultations on deferred prosecution agreements, possible changes to whistle-blower laws, and the prohibition of false accounting. Now, the Commonwealth Government's attention is turning to the foreign bribery regime, with significant changes likely to be on the way and major impacts for directors and corporations. The proposed reforms present a greatly increased risk for liability for both corporations and directors. It is important that these parties understand the changes and how they can ensure compliance in order to combat the risks. This post will discuss some of the key proposals.
Definition of a 'public official'
Under the changes, the definition of a 'public official' would be expanded to also include those persons running for office. The rationale for this is that often candidates for office are often targets of bribery by corporations, with the aim to obtain a benefit upon their election. By expanding the definition, any potential loophole or grey-area in the law will be removed.
The current legislation places a focus on demonstrating that a benefit was 'not legitimately due'. This can become confusing and opens up for bribes to be disguised as legitimate business transactions. Under the reforms, it would be prohibited to 'improperly influence' a foreign public official. The test for what this would constitute can be described as common sense—for example, an indicator of bribery would be a transaction where there is a significant disparity between the value of the benefit and the value of the goods or services provided, or where a benefit was provided without a legal obligation to do so. Further, for corporations there is an emphasis on implementing due diligence frameworks and systems to ensure prevention.
Creation of new offences
In a move to make it easier to establish criminal liability for corporations in instances of foreign bribery, the reforms propose to create two new corporate offences of recklessness and failing to prevent foreign bribery. The offence of recklessness would mean that intention would not be a requirement for a person to be guilty of an offence. Instead, it would merely be required that in their conduct they were reckless as to improperly influencing a foreign public official.
The offence of failing to prevent bribery means that corporations will be liable if they fail to prevent foreign bribery undertaken by their employers, agents and contractors. This extends to overseas operations. The burden will stand on the corporation to show that they had sufficient bribery prevention measures in place.
Foreign Companies in Latin America
Foreign companies operating in Latin America are faced with a difficult task because often their operations in the Region are small in comparison to their home country. With limited staff and limited knowledge of the different legal jurisdictions, gaps in policy and procedures tend to form and this is where the risk increases substantially for companies.
Harris Gomez Group specializes in working with foreign companies in Latin America and since the cost of compliance, particularly for small to medium companies can be a burden, we work with our clients to create cost effective solutions that focus on three areas:
Corporate Policies and Procedures
Companies need to have clearly articulated corporate standards. Simply copying and pasting the companies internal policies regarding bribery is not enough. They need to be adapted to the jurisdiction and provided in Spanish. They also need policies, an ethics code or business principles that give employees and the company's business partners clear direction about:
- Basic rules, standards and behaviors expected regardless of geography or circumstance.
- The company's fundamental values and principles.
- The company's position on bribery, corruption and facilitation payments.
- The company's rules on competition and antitrust and how they affect commercial operations and transactions.
- Policies and procedures for business entertainment and gifts.
- Policies and procedures for political and other donations or grants.
- Policies and procedures for conflicts of interest.
Monitoring, Controls, Reporting and Auditing
Monitoring helps the company to understand how well controlled its compliance risks are and to make informed judgments about where it should spend its resources.
- Review existing controls – against the backdrop of current regulations and the clients' core businesses – to suggest elements to add or improve and advise on issues.
- Provide examples of whistleblowing and hotline programs.
- Reviewing their monitoring and reporting processes.
Investigations, Disciplinary Actions and Sanctions
The control and reporting framework serves to identify compliance risks and potential problems. Once these issues arise, the company must respond by investigating, finding the facts, analyzing the legal exposure and resolving the issues.
- An investigation or disciplinary action should be conducted in compliance with relevant laws and regulations. Failure to do so can make the compliance risk worse or raise entirely new problems.
- Assitance with understanding the processes and procedures associated with a governmental investigation. In addition, developing and implementing a strategy to work most effectively with regulators when there is a possibility of an investigation.
- Consideration of local labor, privacy, data protection and other applicable law is very important in the investigation and disciplinary action processes.
The most important takeaway from the proposed changes is that a company will be automatically liable for foreign bribery committed by its employees, agents or contractors. This liability includes companies operating overseas. In terms of corporate governance, this means it basically becomes compulsory for corporations to have detailed compliance and due diligence procedures in place, otherwise they will lose the ability to mount a defence. There are severe penalties in place for the crime of bribery of a foreign official, with fines of up to $1.8 million and imprisonment for up to 10 years for individuals, and for corporations fines of up to $18 million or a fine with reference to the benefit derived from the improper conduct. Under the reforms, these penalties would stay the same but also become applicable to the new corporate offences of failing to prevent bribery and recklessness.
In practical terms, it is critical that companies begin to look over these procedures to make sure they would meet the new tests, and if they don't or companies are unsure whether they do, expert help should be sought out immediately.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.