By Wietske Jarvis-Blees
Anti-bribery enforcement is on the rise and businesses need to prepare accordingly, industry experts have warned.
Bribery and corruption may not have featured all too prominently on the risk agenda of Australian businesses in the past, but that is changing, as bribery enforcement is on the increase. Traditionally it has been the U.S. Foreign Corrupt Practices Act and the UK Bribery Act that have instilled the greatest fear of prosecution for Australian businesses operating across jurisdictions. Recent messages suggest, however, that the Australian Federal Police are also ramping up the pressure at home — albeit starting from a low base.
Michael Turner, national coordinator for special references crime operations at the Australian Federal Police (AFP) in Canberra, told Compliance Complete that the AFP was taking a more active enforcement role on bribery.
He said this was partly driven by an increased public awareness of Australia’s domestic foreign bribery offences, which had led to an increased number of referrals being received by the AFP, as well as a response to recommendations made in the Phase Two and Three Reports on Implementing the OECD Anti-Bribery Convention in Australia.
Earlier this year, the OECD issued a clear warning that bribery enforcement in Australia was below par. While there had been 28 allegations of foreign bribery involving Australian companies and individuals since 2005, the Securency case that began in July 2011 was Australia’s only foreign bribery prosecution to date. In addition, the OECD found that several cases had been terminated prematurely and without full investigation.
“The lead examiners are seriously concerned that Australia’s overall enforcement of the foreign bribery offence to date has been extremely low,” the OECD said. It added that the AFP “may not have been fully exploring all potential avenues for exercising jurisdiction in foreign bribery cases.”
Among its recommendations, the OECD said it expected to see an increase in enforcement action by the AFP and for more use to be made of the corporate liability provisions of Australia’s anti-corruption laws.
Turner said the AFP had implemented a panel of experts comprised of investigators who have significant experience in investigating foreign bribery matters and have undergone specialist training in the area. He said this panel complimented the teams investigating foreign bribery matters, providing continuity of investigations and experience within the portfolio. In addition, the AFP had engaged private sector auditors, accountants, lawyers and businesses to increase awareness of foreign bribery legislation and encourage self-reporting.
Turner said the AFP currently had 12 foreign bribery matters under investigation. He said this number fluctuated regularly as investigations were accepted, rejected or finalised. However, he said the AFP could not comment on whether or not any of these cases were likely to result in a prosecution until the investigations had been completed.
Kickbacks and prosecutions
For Australian businesses, a growing focus on bribery means that, in addition to the increased enforcement action on bribery and corruption undertaken by UK and U.S. regulators, the risk of prosecution in Australia has also become a more serious possibility.
Frank O’Toole, investigations and risk leader for Deloitte Forensic in Sydney, said that while historically the U.S. FCPA had motivated most action by Australian businesses, the threat of local enforcement had emerged as a real issue.
“Historically it has definitely been offshore legislations such as the FCPA and UK Bribery Act that have generated more interest and more response from Australian businesses. However, these days the conversation is very much around our own legislation and with enforcement more actively pursued that has been where the real issue is,” he said.
Greg Golding, partner at King & Wood Mallesons in Sydney, agreed that bribery was increasingly becoming a priority for Australian businesses. “Attitudes have changed very significantly over the last 18 months and it has become very much a top of mind issue for both senior executives and boards of many Australian corporates,” he told Compliance Complete.
In practice, that is likely to require a significant overhaul for many organisations’ compliance regimes. A survey of 390 Australia and New Zealand-based companies, conducted by Deloitte between April and May 2012, showed that 34 per cent of organisations operated in ‘high risk’ jurisdictions. Of these organisations, 21 per cent had experienced a known bribery and corruption incident in the last five years, and 61 per cent of these occurred in the last 12 months. Of the 79 per cent that said they had not experienced a known instance of bribery and corruption, 48 per cent said they had never conducted a corruption risk assessment.
O’Toole said some firms laboured under the dangerous assumption that bribery and corruption risk did not apply to their business. This was borne out by the survey results, which found that 80 per cent of organisations with offshore operations said they either did not regard foreign bribery and corruption as one of the top five risks to their business in the next five years, or said the risk was not applicable to their organisation.
“Some organisations simply do not acknowledge the risk, which is typically driven by a combination of naivety and/or over-confidence. This is the ‘we have got good people, we have got good controls, we don’t pay bribes in this company so it is not a risk for us’ argument,” O’Toole said.
He said it was this attitude that frequently came back to bite firms. “It is mostly organisations I have had that conversation with that I have subsequently had a very different one with down the track. They are the ones that often find themselves in trouble,” he said.
Another common weakness frequently encountered by consultants reflected a lack of control and oversight over offshore operations. “A lot of these risks arise from situations where organisations have operations in high-risk parts of the world that are run as autonomous projects. They are not subject to proper oversight from head office, which does not have the information about questions, such as what parties the division is doing business with, who their suppliers are, who their agents are and who their consultants are,” O’Toole said.
Golding said that with the OECD’s expectations of increased prosecutions and an enhanced use of Australia’s corporate liability provisions, the lack of knowledge and management of bribery and corruption risks was something that corporations could no longer ignore. He said it was critical that firms put processes in place to actively mitigate this risk.
“It is fantastic to have policies in place, but in order to actually uncover this sort of behaviour there really needs to be proper internal processes — whether that is secure phone lines, compliance officers or whether that is regular internal audit reviews of high-risk jurisdictions. That is where the serious compliance comes in and companies are only just working that out,” Golding said.
While 48 per cent of companies stated that they did not have formal policy or compliance programmes in place to manage corruption risk, O’Toole said that many firms were now taking steps to address these issues.
“Many companies have started the process of implementing anti-corruption policies and are providing education and training to their people around those policies. In addition, we are noticing that firms are making more efforts to understand the risks in their remote operations, understand who they are doing business with and understand the transactional data in those local operations. These are probably the most important steps companies can take, because having the information is absolutely vital to managing the risk,” O’Toole said.
O’Toole said it was important that firms realised that taking bribery and corruption risk seriously could lead to significant cost savings if and when a risk materialised.
“It’s the old saying about a stitch in time saves nine. The benefits of an investment in an appropriate compliance framework will far outweigh the costs of being forced to respond to an incident if and when it occurs, while being on the front foot also sends a powerful message not just to suppliers and agents, but also to stakeholders including your shareholders and the regulators,” O’Toole said.
This article was written by Wietske Jarvis-Blees and originally published o n trust