A recent High Court decision and the re-introduction of proposed legislation to Parliament which will make it easier to prosecute bribery of foreign officials, both emphasise the importance of companies having adequate procedures in place to ensure that their employees and agents are not engaging in conduct which could expose the company to significant fines.
The Commonwealth Criminal Code allows penalties for foreign bribery by corporations to be calculated based on the greatest of:
- 100,000 penalty units – currently with a value of AUD 27.5 million
- If the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the conduct constituting the offence – three times that benefit.
- If the court cannot determine the value of that benefit – 10% of the annual turnover of the body corporate during the period of 12 months ending at the end of the month in which the conduct constituting the offence occurred.
In the case of the King v Jacobs Group (Australia) Pty Ltd, the initial trial judge had to determine the appropriate penalty for offences of conspiracy to cause the offer of a bribe to a foreign official in relation to three contracts. The initial trial judge determined that the value of the benefit was the:
- “net benefit” of the contracts i.e., the amount received under the contracts less the costs of performance (which was approximately $2.7 million);
- rather than the “gross benefit” being the amount of money received by the company for the contracts (which was approximately AUD 10 million).
At the time the value of 100,000 penalty units was only AUD 11 million so it was material to the maximum penalty which figure should be utilised in calculating three times the benefit.
The Court of Criminal Appeal of NSW agreed with the approach of utilising the net benefit in the calculation of the potential penalty.
The High Court has now determined that the “benefit” should instead be calculated based on the “gross” amount i.e., the full amount received under the contracts. As a result the matter has been remitted for redetermination of the appropriate penalty based on a maximum penalty of approximately AUD 30 million.
This decision means that corporations now face even greater potential fines for foreign bribery offences at a time when Parliament is currently considering legislative changes to make it easier to prosecute bribery offences. This includes the proposed introduction of a new corporate offence of failing to prevent foreign bribery. The new offence would make corporates automatically liable if their employees, contractors, or other associates engaged in foreign bribery, unless the corporate can show they had ‘adequate procedures’ in place.
What is a “benefit”
The term “benefit” appears in multiple provisions in division 70 of the Criminal Code in relation to bribery of public officials including in:
- Section 70.2(1), which makes it an offence to provide or offer to provide a benefit with the intention of influencing a foreign official in order to obtain or retain business; and
- Section 70.2(5), which sets out penalty provisions including the concept of 3 times the value of the benefit obtained.
Section 70.1 states that “benefit includes any advantage and is not limited to property. This means that bribes can include benefits such as offers of employment or education as well as gifts or hospitality.
A key part of the reason for the High Court’s decision was that construction of a statute should ordinarily result in the same meaning being given to the same words appearing in different parts of the statute, unless there is a reason not to. In this case, the High Court found no reason to depart from that approach and therefore, in considering how a benefit should be calculated for the purposes of the penalty provision, it also considered whether it would be appropriate to apply the gross or net approach when determining the value of the benefit actually being offered as the bribe. The analogy applied was, “If paying a bribe of $1000 to a corrupt recipient costs the corrupt provider $100 in delivery expenses, the value of the benefit provided within the meaning of s. 70.2(1)(a) is plainly $1,000 not $900”.
The High Court also took into account that a party who breaks even or makes a loss on a contract may still receive a benefit from the performance of the contract. If a party pays a bribe to win a contract which is intended to be a loss leader when entering a new market and is therefore not profitable, then a net benefit approach would mean there was no punitive effect of the “3 times benefit” provision.
Another key factor which the High Court relied on in its judgment was that a “long standing principle of interpretation is that statutory provisions should be interpreted, so far as possible, to be consistent with international law”. In this case, the High Court took into account that the relevant provisions had been enacted to implement the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions which requires penalties to be “effective, proportionate and dissuasive”. Clearly a penalty based on gross benefits is far more dissuasive than one based on net benefits.
Will the decision impact the calculation of other penalties?
A number of other corporate offences, including under the Corporations Act 2002 and the Consumer and Competition Act 2010, also have penalty provisions which include “3 times the value of the benefit” as one of the methods of calculation. Whilst this decision will be relevant to any future asset of penalties under those provisions, given the High Court’s reliance on the definition of bribery within the Criminal Code and the relevance of the OECD Convention it remains to be seen whether the same approach will be applied with the result of higher potential fines for those other offences.
Does your company have “Adequate Procedures” in place?
The Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023 (Cth) currently being debated in Parliament also has the potential to increase the risks for corporates in this area. In addition to a number of proposed amendments to the elements that need to be established for a prosecution, the Bill also introduces a new indictable corporate offence of failing to prevent foreign bribery. This will mean that if an employee, agent or other associate of the company engages in bribery of a foreign official, the company will also automatically have committed a criminal offence unless it can establish that it had ‘adequate procedures’ in place to prevent the commission of foreign bribery by its associates. This is the third time that Parliament will consider the introduction of this offence but equivalent provisions in the UK and other jurisdictions such a Malaysia have been in force for many years. Deferred prosecution agreements are no longer part of the proposed legislation.
This proposed offence would carry the same level of potential penalty as the provisions considered above.
Whilst further guidance on “adequate procedures” is expected to be published if the legislation is enacted, in the meantime, companies can refer our previous alert on the previous version of the proposed legislation in assessing whether their policies, procedures, training, monitoring and approach to due diligence are likely to provide sufficient protection to the company.