29 May 2010

Anti-bribery and corruption laws - protecting yourself home and away

When fraud or corruption is discovered in a company, that company has to deal with some very serious issues. Clayton Utz Litigation Partner Greg Williams explains the risks here and abroad for Australian companies - and how to build a corporate culture that prevents fraud, bribery and corruption in the first place.

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Anti-bribery and corruption laws - protecting yourself home and away
Greg Williams, Partner, Litigation

When fraud or corruption is discovered in a company, that company has to deal with some very serious issues, including:

  • investigation and remediation of the problem
  • the risk of criminal prosecution by regulators,
  • damage to the reputation of the company and its management,
  • damage to the share price, and
  • the risk of shareholder class actions.

As regulators around the globe have become increasingly aggressive in enforcing international anti-corruption law, and co-operating across international boundaries, it's more important than ever for Australian companies to understand the risks - and the ways they can protect themselves.

Starting at home, under the Commonwealth Crimes Act any company incorporated in Australia, or anyone who is a citizen or even just lives in Australia, can be prosecuted for corrupt conduct which occurs overseas.

A company may be liable for the actions of its employees if it can be shown that it had a corporate culture which encouraged or tolerated these actions.

But it's not just Australian law they need to worry about.

Under the American Foreign Corrupt Practices Act, the US authorities can also prosecute over conduct occurring outside the US which has some connection with the US.

The connection may include having a US presence, issuing shares on a US stock exchange, employing US citizens or using the "instrumentalities of US commerce".

The number of enforcement actions by US authorities has increased eight fold in the last five years.

The latest development, however, is the new Bribery Act in the United Kingdom, which may well be the toughest anti-corruption law in the world.

It criminalises bribery of a private person or a public official, whether it occurs in the UK or outside it, if the individual committing the offence is a British citizen or resident, or a company incorporated in the UK.

This might not sound unusual, given that Australia and the US both have laws which cover foreign conduct.

The really unusual element is the new offence of failure to prevent bribery.

Basically, your company could be prosecuted if your employee, or your agent, bribes another to obtain or retain business for you or to obtain or retain an advantage in the conduct of business for you.

And you do not have adequate procedures in place to prevent bribery.

This offence applies to any company, wherever incorporated, which carries on any part of its business in the UK - meaning that an Australian company carrying on business in the UK could be prosecuted for acts done by its employees, agents or subsidiaries in other countries, and without their permission.

Unlike US and Australian laws, the new UK bribery offences pertaining to the bribery of foreign public officials do not permit facilitation payments.

Indeed, it is not even necessary to have an "improper purpose" to commit an offence.

So what should you do?

If there's potential or actual corruption, or a fraud, in your organisation, you will need to get legal advice sooner rather than later - it will help you investigate the problem and take remedial action, without causing further damage to your company and its legal position.

However, the most important thing is to prevent it from arising in the first place.

The key is to build a corporate culture which does not tolerate corruption or bribery under any circumstances, and is particularly vigilant against special pleas from overseas that a bribe is required by local custom or tradition.

That means being scrupulous in all your dealings and record -keeping, understanding your obligations, and developing and implementing compliance programs, including training, benchmarking and best practice advice.

Critically, it means accountability for the implementation and enforcement of such a program from top to bottom of your organisation.