New false accounting offences bolsters bribery toolbox for Australian Federal Police

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Publication March, 2016


Introduction

Unlike most regulators responsible for bribery prosecutions, the Australian Federal Police have not been able to prosecute corporations for concealing bribery, corruption or loss to a person that was not legitimately incurred - until now.  New False Dealing with Accounting Documents offences came into effect on 1 March 2016.

Background

In 2013, the OECD’s phase III report in relation to Australia’s implementation of the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions recommended the creation of a false accounting offence.  Legislating for these offences has also followed submissions to the current Senate Committee on Foreign Bribery, which is yet to report.

The new crimes are similar to those found in the United States of America's Foreign Corrupt Practices Act 1977.  Experience in the United States of America, where regulators often prosecute for books and records offences as an alternative to bribery charges, suggest that bribery is often misdescribed in accounts as fees, gifts or entertainment.  Now the act of simply misdescribing bribes in an accounting document has been criminalized in Australia.

The new crimes may have significant consequences for Australian corporations, their employees and contractors (regardless of where they are domiciled or providing a service).

New offences – False dealing with accounting documents

Under the new Part 10.9 of the Criminal Code, it is now an offence for an individual or corporation to intentionally or recklessly facilitate, conceal or disguise in their accounting documents an occurrence of bribery, corruption or loss to a person that was not legitimately incurred.

Accounting documents are broadly defined as:

  • any account, record or document made or required for any accounting purpose;
  • any register under the Corporations Act 2001 (Cth); and
  • any financial report or financial records within the meaning of that Act.

Importantly, under section 490.5, proof that a benefit (not legitimately due) was actually received or given by the accused or another person is not required. This overcomes an evidentiary limitation that has historically been difficult for prosecutors to overcome. 

The new crimes also overcome perceived limitations in the Corporations Act accounting provisions.  In particular, the failure to accurately describe bribes in corporate accounts needed to be “material” to a company’s financial position to contravene the Corporations Act.  The new crimes say nothing about materiality thresholds. Compendious records of administrative expenses which are in aggregate above a materiality threshold but include bribes of whatever amount will contravene section 490.5, but may not have contravened section 286 of the Corporations Act, which states the obligation to keep accurate financial records.  

Jurisdiction

The new provisions have extra-territorial effect and apply to:

  • an Australian corporation;
  • an employee or officer of an Australian corporation;
  • a person engaged to provide services to an Australian corporation and acting in the course of providing those services; or
  • a Commonwealth public official,

regardless of whether the conduct occurs in Australia or in a foreign jurisdiction, or whether the accounting document is in Australia or in a foreign jurisdiction. The Attorney-General’s written consent is required in order to prosecute a foreign service-provider for an offence committed wholly in a foreign jurisdiction (but an arrest may be made or a charge laid before that consent is granted).   The extension of jurisdiction to international companies that contract to provide services to Australian companies around the world is significant given that such contractors would ordinarily be beyond the jurisdictional reach of Australian prosecutors.

Corporate liability

The Criminal Code provides that a corporation commits the new offence if the concealment was undertaken by its officers, employees or agents in the actual or apparent scope of their authority and the requisite mental element is made out (ie. intention or recklessness).

A corporation will have the requisite intent if a high managerial agent intentionally, knowingly or recklessly engages in the conduct or authorizes it. Corporations can have the necessary intent if a corporate culture exists that encourages or tolerates the offence.

A corporation that has exercised due diligence to prevent such concealment will not be found to have the necessary intent.

Penalty

A company found guilty of intentionally facilitating, concealing or disguising bribery can face a penalty of:

  • up to $18 million;
  • 3 times the value of the benefit obtained; or
  • 10 % of its turnover for the 12 months prior to committing the offence (whichever is greatest).

Individuals found guilty of an offence can face penalties of up to $1.8 million or up to 10 years’ imprisonment.  Penalties for recklessly facilitating, concealing or disguising bribery are lower but still substantial.

These penalties are significantly greater than those currently available for breaches of the accounting provisions in the Corporations Act.

What to do?

In light of these new provisions, Australian corporations will need to review yet again their anti-bribery and corruption policies, and to ensure that their corporate culture positively discourages the misdescription of expenditures in corporate accounts. They must take additional care in preparing and maintaining accounting books and records to ensure that all payments are properly described, and ensure that adequate compliance regimes, controls and protocols are in place to enable them to do so and to demonstrate that they are doing so.

International businesses that provide services to Australian corporations will need to do likewise.

Auditors will have to revisit their tests and corporate questionnaires to ensure that they are appropriate to the new environment.

We are yet to see how these new offences will be utilised by the Australian Federal Police.  It is likely that these are simply the first wave of amendments to Australia’s bribery laws arising from the Senate Committee on Foreign Bribery.  More changes are expected to flow from the committee’s report, which is due in July 2016.


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