On 1 March 2016 important legislative reforms relating to false accounting practices came into force in Australia. The introduction of these new offences will see a tougher regulatory regime coming into effect for the Commonwealth to pursue false accounting offenders, further strengthening Australia's foreign bribery regulation and enforcement regime and more closely aligning it with those of other jurisdictions such as the United States.
What you need to do
Directors, financial executives and other relevant company officers need to be alive to these changes as substantial criminal offences will apply to them individually where the company has engaged in illegal or improper transactions.
Companies should consider reviewing their current accounting protocols and implementing stricter protocols if necessary, as well as ensuring an appropriate bribery and corruption compliance regime is in place, particularly if they are operating in jurisdictions with a high level of perceived corruption.
New false accounting offences implement OECD obligation
The new false accounting laws are contained in Schedule 2 of the Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Act 2016, which amends the Criminal Code Act 1995 (Cth).
They were enacted to implement Australia’s obligation as a party to the Organisation for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Under Article 8, parties must create offences of false accounting for the purposes of concealing or enabling bribes to a foreign public official.
Previously, Australia has relied on section 286 (obligation to keep financial records) and section 1307 (falsification of books) of the Corporations Act 2001 (Cth), and similar offences existing at the state and territory level to combat false accounting.
How the new false accounting offences will work
The two new offences will criminalise conduct where a person either:
- makes, alters, destroys or conceals an accounting document, or fails to make an accounting document that the person is under a duty to make, with the intention that the person’s conduct would facilitate, conceal or disguise the receiving or giving of a benefit that is not legitimately due or a loss that is not legitimately incurred (intentional false dealing with accounting documents); or
- makes, alters, destroys or conceals an accounting document, or fails to make an accounting document that the person is under a duty to make if they are reckless to the fact that this conduct would facilitate, conceal or disguise the giving or receiving of a benefit that is not legitimately due or a loss that is not legitimately incurred (reckless false dealing with accounting documents).
"Accounting document" is defined broadly as:
- any account; or
- any record or document made or required for any accounting purpose; or
- any register under the Corporations Act 2001 (Cth), or any financial report or financial records within the meaning of that Act.
These new offences apply to companies, to any officer or employee of a company, any supplier of services to a company, and all Commonwealth public officials, both within Australia and overseas (in prescribed circumstances).
Significant penalties of up to $18m for false accounting
The prescribed penalties are proportionate to the differing fault element structure (intentional or reckless):
- if intentional: the greater of $18m fine, 3 times the value of the benefit or 10% of the annual turnover of the body corporate; or
- if reckless: the greater of $9m fine, 1.5 times the value of the benefit or 5% of the annual turnover of the body corporate.
- if intentional: 10 years' imprisonment and/or a fine of $1.8m; or
- if reckless: 5 years' imprisonment and/or a fine of $900,000.
Enforcement easier with a reduced evidentiary burden
The Australian Federal Police working with ASIC and the Serious Financial Crime Taskforce will be tasked with enforcing the false accounting offences.
The new provisions specify that it is not necessary for the prosecution to prove the giving or receiving of a benefit, or loss to another person, or that the accused intended that a particular person receive or give a benefit or incur a loss. The removal of the need to established actual payment or receipt of bribes significantly reduces the prosecution's evidentiary burden in establishing the false accounting offences.
Directors and officers the target, so tougher accounting safeguards needed
It is likely that the Australian authorities will follow the United States' lead and target financial directors, executives and managers of companies involved in illegal or improper financial transactions, regardless of whether the illegal or improper transaction/s were intentional. In effect, directors and company officers, who previously may have turned a blind eye to certain dealings, will no longer escape prosecution (where they have acted recklessly).
With these tough new provisions in play, companies should take the time to review and/or implement stricter accounting safeguards to prevent any adverse outcomes against company officers or the company itself. Implementing appropriate bribery and corruption compliance regimes is especially important if companies operate in jurisdictions with a high level of perceived corruption.