24 Jun 2011

International bribery crackdown

Andrew Morrison from our Litigation team talks to BRR Media about the increased regulator activity in combating bribery and corruption in international business dealings.


International bribery crackdown
David Bushby, BRR Media
Andrew Morrison, Partner, Clayton Utz

David Bushby
We're speaking with Andrew Morrison who's a partner in the commercial litigation group at Clayton Utz in Melbourne. Welcome to BRR Media Andrew.

Andrew Morrison
Good morning David.

David Bushby
Andrew, regulators across the globe are cracking down more than ever on bribery and corruption in international business dealings. With Australian businesses looking to trade in potentially lucrative yet high-risk markets the stakes are high, but so it seems are the risks Andrew.

Andrew Morrison
Yes David, companies in Australia with a multinational presence do face a unique set of challenges when doing work or trying to do work in high-risk countries offshore.

They must deal obviously with the political, economic, social climates in those countries often rife with corruption and civil unrest - that's a challenge in itself - but increasingly Australian companies are facing the prospect of potential regulatory action. There's an increased focus in the international community on holding multinational corporations and their directors accountable.

The US led that off with its work through the Department of Justice under the Foreign Corrupt Practices Act, we've got the UK introducing a brand new and very, very extensive bribery act and Australia has now for some 15 years had an extensive criminal code to deal with the bribery of foreign officials offshore.

The problem in Australia is for government that code has not resulted in any successful prosecutions. There's quite a lot of pressure for some runs on the board. I think Australian companies must factor that in when doing business offshore.

David Bushby
Just on that UK Bribery Act which you mentioned, it's a new one, and comes into force next month. There's a lot of interest in this new regime but by its name it's obviously not an Australian law so why should Australian companies be concerned about this?

Andrew Morrison
Well apart from the very sensitive nature of the provisions David it's a piece of legislation which has all the hallmarks of the steps being taken in the international community.

The courts in England, Wales and Northern Ireland will claim to have jurisdiction over bribery and corruption offences committed abroad by UK nationals or bodies incorporated under UK law. If companies have dealings where they have some presence in the UK or deal or hold UK companies or work with UK finance there is the possibility of an exposure.

It gets very complicated for those companies now under the Bribery Act because that legislation has added to the international armoury by holding that a business can be held to have negligently failed to prevent bribery by those acting on their behalf.

So for Australian companies operating offshore who have a connection in the UK where they fall under that regime, if they are connected with offshore bribery or corruption they may face claims of negligent conduct which is a little different to the strict criminal offences currently available here in Australia.

David Bushby
And will they be prosecuted in the UK or will they be prosecuted under UK law in Australia?

Andrew Morrison
They would be prosecuted in the UK if the long arm of the UK can reach the assets or the company and obviously the focus there will be on the UK connection. But Australian companies don't operate in a vacuum, most multinational companies, have extensive holdings offshore particularly where they're looking to tap into European finance markets.

David Bushby
Where do businesses most commonly fall foul of bribery or corruption laws?

Andrew Morrison
Look David, in my experience, most sophisticated Australian businesses operating offshore are well and truly alive to the risk of prosecution and very serious consequences if they, their employees, or agents that they're using, engage in bribery or corruption involving foreign government officials.

It's curious to find, however, that it's the simple things that trip companies up. One simple example: you are permitted under Australian law and US law, although questionably now under UK law, to offer what are called facilitation payments, payments of a minor nature to a government for a legitimate benefit. That is where you need to transact business through government: obtain a licence for example, or register a motor vehicle. The trouble is there is a very, very grey area between what is facilitation and what is minor bribery and corruption.

It's all too easy to slip over that and companies who don't have a clear policy in terms of dealing with those issues can find they have walked well and truly across the line and so that leads very quickly to the other grey area that we see, and that is a failure to keep proper records. It is amazing how many companies think that the way to manage their offshore interests is to not keep full records because it's not the sort of thing they want to put up in lights, but yet the best defences are available in terms of facilitation payments which are legitimate if you have kept clear, accurate business records of those dealings from the outset. To do that you've got to have proper procedures.

David Bushby
Well just on that, what would be your first steps that any business should take when looking to enter a high-risk market and what would you call a high-risk market?

Andrew Morrison
What is very clear is that Australian companies, mining companies working in Africa are very often cited for facing real challenges in dealing with the difference between legitimate and illegitimate government or government official demands.

Companies are now dealing very extensively in the former Soviet Union so in the satellite republics, companies dealing in Southeast Asia, in jurisdictions where historically small payments designed to carry rapid access to licences and government transactions and have been part of the culture, not part of our culture, are something to be watched out for.

When you asked me what are the first steps, it really is a question of due diligence. It really is a question of looking at the way in which your company operating offshore is likely to have to interact with governments in those countries.

What sort of interaction? Who will be doing it on your behalf? What policy do you have in place for your employees in terms of engagement with government? What authority do you give your agents and how do you police that? Probably most importantly, how do you demonstrate that you rigorously test the policies you have in place to approve or not approve payments or benefits that you offer to governments you're working with in relatively high-risk markets?

David Bushby
Some very useful insights there. We'll leave it there for now. Thank you again for your time today Andrew.

That was Andrew Morrison, partner in the commercial litigation group at Clayton Utz in Melbourne.

If you have any questions for Andrew please email [email protected].

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.