Tuesday, November 22, 2011

First Conviction under the UK Bribery Act

Munir Patel
(Reuters) - The first person to be convicted under new bribery laws was jailed on Friday November 18th, 2011, and lawyers said his sentence sent out a warning message to business.

Munir Patel, 22, a court clerk who worked at Redbridge Magistrates' Court in east London, had pleaded guilty to accepting 500 pounds to "get rid" of speeding charges by keeping the details off a court database.

He was given three years in prison for bribery offences and six years for misconduct in a public office, with the sentences to run concurrently, the Press Association reported.

"The sentencing ... demonstrates the significant sentences that the courts are willing to impose on individuals who commit an offence under the (Bribery) Act," said Angela Pearson, a partner with international law firm Ashurst.

"It is only a matter of time before the SFO (Serious Fraud Office) bares its teeth and prosecutes the first corporate or its directors under the Act. In the meantime, the business community collectively hold their breath."

The Bribery Act, which came into force in July, makes failure to prevent bribery - whether committed by staff, subsidiaries or "associated persons" anywhere in the world - a criminal offence.

It also clamps down on so-called "facilitation payments," often used to oil the wheels of business by speeding up services such as visa applications, and "disproportionate" hospitality.

Southwark Crown Court heard Patel had helped at least 53 individuals evade prosecution for driving offences, and that he had advised people on how to avoid being summoned to court.

His salary was 17,978 pounds, but the court heard that 53,814 pounds in cash was deposited in his bank account while another 42,383 pounds was transferred into the same account, both without explanation.

"It hardly needs saying that these were very serious offences," Judge Alistair McCreath said.

"A justice system in which officials are prepared to take bribes in order to allow offenders to escape the proper consequences of their offending is inherently corrupt and is one which deserves no public respect and which will attract none."
(Reporting by Michael Holden; editing by Andrew Roche)

Wednesday, November 16, 2011

Australia Considering Criminalizing Facilitation Payments

Customer pays for a beer in central Sydney 21/06/2011 REUTERS/Tim Wimborne

Lawyers have welcomed the government's plans to bolster Australia's anti-bribery laws and outlaw facilitation payments, saying the changes would bring the country into line with international best practice and address the "weakest link" in the existing legislation.

In a consultation paper (PDF) launched yesterday the government outlined its proposals to remove the facilitation payments defence from s70.4 of the Criminal Code Act 1995. The reforms would align Australia's laws more closely with the UK's Bribery Act 2010, which took effect in July and has banned facilitation payments for UK-linked companies.

Unlike the UK and U.S., Australia does not have dedicated anti-bribery legislation. In Australia the act of bribing a foreign public official is proscribed under Division 70 of the Criminal Code. The legislation ensures that a person can be prosecuted under Australian law for "offering or providing a bribe to foreign public officials for the purpose of obtaining business or an undue business advantage". Like the UK and U.S. legislation it has extra-territorial effect and covers activities anywhere in the world.

In addition, Divisions 141 and 142 of the Criminal Code make it an offence to bribe a Commonwealth public official or for a Commonwealth public official to solicit a bribe.

Breaches of the legislation carry a maximum penalty of 10 years in prison and A$1.1 million fines for individuals and A$11m million in fines, or three times the benefit gained, for corporations. If the value of benefits obtained through bribery cannot be determined, the penalty for a company is 10 percent of annual turnover in cases where that amounts to more than A$1.1 million.

Brendan O'Connor, the minister for home affairs and justice, said there were strongly divergent views in Australia about the case for an exemption for facilitation payments. He said the purpose of the consultation was to get feedback from stakeholders about the merits or otherwise of removing the facilitation defence.

"I hear anecdotal evidence about the need to retain the defence because it is a reality of doing business, especially in the Asia-Pacific region," O'Connor said at the launch of the consultation paper. "I also note that, internationally, the defence of facilitation payments is gradually being removed from the criminal laws of our international trading partners. Maintaining the defence in Australia could appear incongruous with the aid and assistance message we send out in the region."

O'Connor said the government was aware that banning facilitation payments might put Australian businesses at a competitive disadvantage or in a "difficult situation" if payments were solicited under duress. It might also create an uneven playing field between large and smaller businesses. On the other hand, he said, it might also create greater consistency with the laws of other countries, promote regulatory certainty for businesses that operate across jurisdictions and help to reduce corruption globally. The government was also mindful that international developments, such as the commencement of the UK Bribery Act in July, had turned the tide against the facilitation payments defence.

Industry support

Within the legal and consulting sectors, there has been strong support for the government's decision to review the facilitation payments defence and other aspects of Australia's anti-bribery statutes.

Rob Locke, partner at Ernst & Young in Sydney, said that the latest consultation was further evidence of the global trend to take a harder line on facilitation payments. He said: "It is a timely and healthy initiative and a further sign that there is a global rethink about facilitation payments."

Christopher Keane, special counsel at Middletons, described the facilitation payment defence as the "weakest link" in Australia's foreign bribery legislation. He said the justifications for the defence were "tenuous at best" and said that businesses would be unwise to rely on this as part of their anti-bribery compliance frameworks.

"It is a very limited and complicated defence and is frequently misunderstood, thus exposing Australian businesses operating offshore to criminal liability in circumstances where they might genuinely believe they are acting lawfully," Keane said.

In essence, Keane said that there were three fundamental problems with the facilitation payments defence. "First, the defence is inconsistent with Australia's domestic laws. Secondly, the defence is inconsistent with the extra-territorial UK Bribery Act and the domestic laws of many of Australia's major trading partners. Thirdly, the most effective way for companies to avoid criminal liability arising under any anti-bribery legislation is to encourage a strong culture of compliance, whereas the facilitation payment defence is at the top of a very slippery slope that leads to serious criminal conduct," Keane said.

In view of all these issues, Keane said he was advising clients that Australian businesses should eliminate facilitation payments regardless of the outcome of the current consultation. "The safest approach is to proceed on the basis that there is no such thing as a facilitation payment defence," he said.

Extra-territorial impact

For Australian businesses that have links to the UK, the decision on proscribing facilitation payments has already been made. According to consultants at KPMG, Australian businesses with operations in the UK have already had to take a harder line on facilitation payments. These firms, as well as Australian subsidiaries of UK parent companies, are not only subject to the Australian anti-bribery laws but also to the requirements of the UK Bribery Act.

David Luijerink, partner at KPMG Forensic, said that those businesses with links to the UK could already be found guilty of an offence under the UK laws if they were unable to prove they had adequate procedures in place to prevent people from committing bribery. This applied not only to the activities of their employees but also to third-party associates, such as business partners, agents and contractors.

Luijerink noted: "It is important to note that the Act also covers the actions of non-UK nationals or residents. This means that an Australian business that transacts with the UK could very well find itself facing charges over illegal conduct by a non-British employee or a contractor, or for failing to prevent a third-party supplier from paying or receiving a bribe, even if the misconduct took place in another country."

He added that, under the new legislative landscape, firms would not be able to claim they were ignorant of facilitation payments that were happening under their watch. "Businesses need to cultivate a deeper culture of compliance and be able to demonstrate that they have sufficient risk management practices embedded in the business to mitigate bribery risks. Citing corporate ignorance in this instance will offer no protection from the long reach of the Act," Luijerink said.

A recent report from KPMG, entitled the "Global Anti-Bribery and Corruption Survey 2011", revealed that one third of businesses in the UK and U.S. did not assess the risk of bribery or corruption. Of those with written anti-bribery and corruption policies, 40 percent did not distribute them to relevant third parties and 60 percent did not require third-party representatives to participate in anti-bribery compliance training.

The survey also found that most anti-bribery and corruption compliance programs lacked sufficient depth and breadth to offset any regulatory risk effectively.

Luijerink said: "The potential costs of involvement in bribery and corruption are not limited to economic costs but also extend to reputational harm, and businesses need to weigh up whether not complying with the Act is a risk they can afford."

Broader discussion

Consultants and lawyers have said that, in Australia, the reform of the anti-bribery laws will have to take into account all of these major international developments. As well as the facilitation payments issue, the review of Divisions 70 and 141 of the Criminal Code will also explore a number of related issues regarding the anti-bribery statutes. Under the existing laws, courts must disregard the value of a benefit when determining whether a benefit was "legitimately due". This is to ensure that bribery is an offence irrespective of the value of the benefit.

As an example, the consultation paper stated that there might be situations where a person would be legitimately due a moderate fee in return for providing a particular service connected with obtaining business. "However, in the same situation a very large fee may be highly improper and not legitimately due to the public official or other person," it stated.

The government is considering whether to change para 70.2(2)(b) to clarify that bribery is an offence irrespective of the value of the benefit offered or given.

The consultation has also looked at changing the laws to ensure that prosecutions can proceed where a recipient of a bribe cannot be identified. To achieve this, the laws would need to be changed so that it is not necessary to prove an intention to influence a particular official. This will ensure that the law covers circumstances where a bribe is paid but the particular official to whom the bribe was destined cannot be identified.

The consultation paper stated: "For example, it may be possible to prove a person offered or provided a bribe to an agency in charge of granting public infrastructure contracts, but not possible to identify whether the payment is destined for the official directly responsible for granting contracts or another official who will direct their staff to grant a certain contract."

The final significant reform would be to change the laws so that "dishonesty" was not a requirement of the domestic bribery offence. Under the foreign bribery laws (Division 70) there is an obligation to demonstrate that bribery was committed intentionally but not necessarily "dishonestly". The government has proposed to align the offences in Divisions 141 and 142 with Division 70 by removing the "dishonesty" requirement from these offences, which would assist with the harmonisation of domestic and foreign bribery offences.

The paper noted that "the requirement in Divisions 141 and 142 to prove dishonesty as well as bribery could make it more difficult to prosecute crimes of domestic corruption".

O'Connor said that stakeholders should make the most of the opportunity to improve Australia's anti-bribery laws and to bring them more closely into line with those in other jurisdictions.

"While we consider that we have strong laws to combat foreign bribery, we want to examine our legislation in light of international developments and hear from you about the reality of doing business beyond our shores," he said.

Responses to the consultation paper (PDF) need to be lodged by December 15, 2011.

(A$1 = US$1.01)