This chapter outlines the following key issues raised in evidence to the committee:
Whether there is a need for the bill.
The proposed offence of failure to prevent foreign bribery.
Other amendments relating to foreign bribery.
The proposed deferred prosecution agreement (DPA) scheme.
The proposed amendments to the definition of 'dishonesty' in the Criminal Code Act 1995 (Criminal Code).
The chapter concludes by providing the committee's view.
The need for the bill
A number of inquiry participants expressed broad support for amendments in the bill, though some did so with certain qualifications or suggested amendments.
The Law Council of Australia (the Law Council) noted that the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has highlighted '[t]he need to continually review regulatory and enforcement frameworks as they apply to corporations'. The Law Council stated that it:
…supports measures that effectively address foreign bribery and corruption. Such measures assist in ensuring the integrity and transparency of international business contracts and preventing the exploitation of vulnerable economies and people.
The Australian Institute of Company Directors (AICD) welcomed the introduction of the bill into the Senate, and stated that '[f]oreign bribery and corruption causes significant harm to the governance of societies and economies abroad as well as distorting competition and the integrity of markets.'
The Uniting Church in Australia Synod of Victoria and Tasmania (the Synod) supported a recommendation that the bill be passed. It submitted:
Ideally, the passage of the legislation would include the amendments recommended [in the submission]. However, the Synod would prefer to see the legislation passed than have it continue to languish before the Parliament. Even as drafted, it will represent a significant and meaningful step forward in addressing foreign bribery.
The Australian Federal Police (AFP) outlined various operational and other challenges that it currently faces with regard to combatting corporate crime. It expressed its support for measures in the bill that:
…expand the scope of foreign bribery offences, place proactive obligations on corporations to prevent foreign bribery, encourage self-reporting and cooperation with law enforcement, and assist the AFP and other agencies to more effectively and efficiently investigate and disrupt economic crime. The AFP considers the amendments will enhance protection of Australian businesses from corruption, and support corporate cultures of integrity.
Ms Elizabeth Brayshaw, Assistant Secretary in the Security and Criminal Justice Branch at the Attorney-General's Department (the department), also submitted that the proposed amendments 'will enhance the tools available to law enforcement to tackle corporate crime and improve corporate compliance with laws'.
Some inquiry participants had concerns about the potential passage of this bill prior to the conclusion of the Australian Law Reform Commission's (ALRC) review into Australia's corporate criminal responsibility regime (the ALRC review). The final report of the ALRC review is due on 30 April 2020.
Professor Christine Parker and Professor Fiona Haines expressed hope that the bill could benefit from the ALRC review, submitting:
The ALRC review has specific questions it is addressing with regards to DPAs which is of direct relevance to this Bill and the ALRC scrutiny of extraterritorial enforcement of Commonwealth criminal law may also hold material of relevance in the case of bribery overseas. It would be of significant public benefit for the lessons from the ALRC Inquiry relevant to this Bill are included in its provisions.
The Law Council recommended the deferral of consideration of the proposed offence of failing to prevent foreign bribery until the ALRC makes final recommendations. Dr David Neal SC, Co-Chair, National Criminal Law Committee, Law Council, told the committee:
We would say at the moment, given that the ALRC is considering the issues to which this is inextricably linked, that it would be disastrous to start changing this legislation now with the prospect that it would change again after the ALRC recommendations, given that the situation, as I've already outlined, is already confusing enough.
Ms Brayshaw, representing the department, stated that the proposed amendments regarding foreign bribery offences and a deferred prosecution agreements (DPA) scheme 'have had the benefit of public consultation and have been largely supported'. She further explained:
We are confident in terms of those settings that we have put that they're appropriate to proceed now, noting there is a need to ensure that we are addressing foreign bribery and that we're able to combat that crime and support our operational agencies to have the wide range of tools they need to tackle what is often complex crime. At the heart of it, what we want to ensure is that criminals, whether they be natural persons or corporations, do not get away with crime. So our position is that, having had the benefit of those consultations and of the parliamentary committee's recommendations around the introduction of a DPA scheme, we think it's important to put those in place. The government will consider the ALRC report when it comes out and can be informed by that going forward.
The proposed offence of failure to prevent foreign bribery
A number of inquiry participants supported the creation of a new offence of failing to prevent foreign bribery, though some with qualifications.
In explaining the need for the new offence and the associated penalties, the department stated that the proposed maximum penalty:
…reflects the serious nature of bribery and corruption. It will ensure that the offence serves as an appropriate deterrent to companies being wilfully blind to corrupt practices within their business.
Certain key issues were discussed in evidence and are examined below.
The onus of proof
The AICD supported the 'policy intention' behind the proposed offence; that is, 'the provision of an appropriate deterrent to companies being wilfully blind to corrupt practices within their business'. However, it held 'serious concerns' about placing a legal burden on the defendant company to demonstrate that it had adequate procedures in place to prevent foreign bribery.
The AICD advanced that if the bill retains 'a reverse onus of proof, then the standard of proof imposed on the defendant should at least be reduced from a legal burden to an evidential burden'.
The Law Council similarly considered that 'any burden that is imposed on the defendant should be evidentiary rather than legal'. It also submitted that the offence 'should be redrafted so that the element of conduct (the omission of the accused corporation to have in place "adequate procedures") is clearly set out in the offence provision'.
Professor Liz Campbell compared the proposed '"adequate procedures" defence' to British legislation that includes 'a defence of reasonable prevention procedures'. She submitted:
One could argue that if the procedures have failed to prevent bribery they are, by definition, inadequate! Given the absence of judicial testing of these provisions in the UK, it remains unclear how we differentiate between adequate and reasonable procedures. Though one could question why the defences were not standardised in the UK, it seems to be the case that reasonableness is a less onerous standard. For clarity, I suggest that reasonable procedures be adopted in the 2019 Bill.
The department explained that the standard of proof the defendant would need to discharge in order to prove the defence would be the balance of probabilities. Moreover, it stated that 'the imposition of a legal burden on the body corporate creates a strong positive incentive to adopt measures to prevent foreign bribery'.
The department further submitted that:
…what constitutes 'adequate procedures' would be determined by the courts on a case-by-case basis. It is envisaged that this concept would be scalable, depending on the relevant circumstances including the size of the body corporate and the nature of its business and activities.
In addition, the bill would require the minister to publish guidance on the steps that a body corporate can take to prevent an associate from bribing foreign public officials. The government released draft guidance for public consultation in December 2019 and 'is working to finalise and publish the guidance with sufficient time before the commencement of the new corporate offence', noting that the offence would not commence until six months after the passage of the bill.
The meaning of 'associate'
The Law Council submitted that the proposed definition of 'associate' 'represents a very different approach to legal liability when compared with the current corporate criminal responsibility provisions under Part 2.5 of the Criminal Code'. It raised concerns that the proposal:
…creates a significant disparity between the application of the principles of criminal responsibility for natural persons and the application of principles of criminal responsibility for corporations and officers of corporations who have contravened Commonwealth laws. Of further concern, the proposed scheme appears to create the potential for a corporation to be held responsible for the acts of a range of individuals who may intentionally be acting against the interests of the corporation.
The AICD also suggested that the proposed definition of 'associate' is too broad:
This definition purports to pierce the corporate veil between a parent and subsidiary company on the basis of simple corporate ownership. However, the fact that a company is a subsidiary to another company is not justification, of itself, to impose liability. For example, in some corporate groups a parent company can have a very limited degree of influence or control over the day-to-day management of a subsidiary, despite being a majority shareholder.
The AICD submitted that it would be preferable to:
…limit the definition of 'associate' to those officers, employees, agents and contractors acting under delegation and/or within the actual or apparent scope of their authority, but exclude subsidiaries.
The Synod welcomed the broad definition of associate:
…to capture any person who provides services for or on behalf of another person, not limiting the definition to an officer, employee, agent, contractor, subsidiary or controlled entity.
The AFP supported the proposed new offence and explained the challenges it faces under existing arrangements:
Under the existing provisions, it is difficult to attribute liability to an Australian parent company for the acts of its overseas subsidiary. Even if technically the subsidiary company has committed the physical and fault elements required by section 70.2 [of the Criminal Code] the difficulty for law enforcement is that we cannot assert jurisdiction over the subsidiary, thus no criminal liability can be established. For example, because they are registered overseas and operate entirely outside the jurisdiction. The new 'failure to prevent' offence would make the Australian parent company liable for the acts of its overseas subsidiary, thereby ensuring that criminal conduct undertaken for the benefit of the Australian parent can be properly addressed. The new 'failure to prevent' offence will be likely to increase the incentives for companies to proactively undertake due diligence to prevent foreign bribery from occurring in the first place.
The department argued that 'the definition of associate should be cast broadly'. It explained:
The proposed definition of associate in the Bill includes any person who 'otherwise performs services for or on behalf of the other person [ie the corporation]'. The Department believes that this appropriately captures, in addition to the expressly listed categories of person, any natural or legal person who is effectively acting for or on behalf of the company.
Other amendments relating to foreign bribery
Several submitters expressed support for the proposed amendments to the existing offence of bribery of a foreign public official at section 70.2 of the Criminal Code.
The Law Council suggested that introducing the concept of 'improperly influencing' would create uncertainty and 'gives rise to difficulties as to how the courts, as the trier of fact and law, may interpret this provision in practice'. The Law Council pointed to the alternative concept of 'dishonesty', and recommended:
The fault element of intention for the offence contrary to proposed section 70.2 of foreign bribery should be accompanied with the requirement for the person to be acting with dishonesty, which should be elevated from being a factor that may be considered within proposed paragraph 70.2A(3)(f) to an element of the offence.
The AICD acknowledged that it has previously favoured a test of 'dishonesty', but recognised that 'certain forms of bribery do not always involve dishonesty and introducing the concept of "improperly influencing" would be appropriate'.
The department stated that the government, through its consultation processes, considered 'dishonesty' as an alternative to 'improper influence'. However:
On balance, the Department considers that the proposed approach of 'improper influence' is preferable. Some bribery does not involve dishonesty. For instance, where a company provides an open 'scholarship' to the child of a foreign public official. The scholarship is not necessarily intended to have a 'dishonest' influence, if it is done transparently. However, it could still be done with the intention of improperly influencing the foreign public official in favouring the company when business is being awarded.
The proposed deferred prosecution agreement scheme
The Synod commented on numerous specific elements of the proposed DPA scheme, many of which it supported. It welcomed the introduction of a DPA scheme, stating:
The Synod continues to cautiously support the introduction of such a scheme provided that it is designed to ensure individuals or corporations are held to account for serious criminal activity, while encouraging greater detection of such criminal activity.
The Synod also submitted that '[t]here is reason to be cautious about the introduction of a DPA scheme', and discussed certain instances in the USA and United Kingdom in which DPA's may have been ineffective to some degree. The Synod suggested that the effectiveness of Australia's proposed DPA scheme should be reviewed in five years' time.
The AICD also supported the introduction of a DPA scheme, and submitted that the proposal in the bill:
…strikes an appropriate balance between incentivising corporations to self-report and the need to hold corporations accountable for serious corporate crime. The implementation of a DPA scheme would also bring Australia into line with other jurisdictions such as the UK and USA.
However, the AICD also suggested two minor amendments to the scheme, including that the proposed limitations on the admissibility of documents (in subsequent court proceedings) should be extended to protect 'any information or document which is brought to the attention of a Commonwealth agency as an indirect result of information disclosed during DPA negotiations'.
Professor Campbell made suggestions about various aspects of the proposed DPA scheme, including that the bill 'should be amended to indicate that DPAs should not be available for recidivist corporate offenders'. She submitted that introducing DPAs may 'supplant individual criminal liability' by focussing on corporate rather than human actors, and proffered a 'major concern' relating to DPAs in general:
…[DPAs] could supersede and ultimately replace criminal prosecution and conviction. This would mean moving away from the stigma inherent in criminal conviction. Prosecution involves exposition and contestation of arguments, both in terms of putting prosecution to proof, as well as exposure of witness testimony, through cross-examination and media reporting as the trial proceeds. Indeed, it was the absence of this calling to account that Commissioner Hayne highlighted in the Final Report of the Banking Commission (2019: 4).
Professor Campbell also commented on the necessary conditions for a DPA scheme to be useful:
If DPAs are to be a useful addition to the legal landscape then there must be mutual incentives to agree one, as well as a possible alternative for the [Commonwealth Director of Public Prosecutions] to deploy. Even if prosecution is a last resort, it must be viable and feasible. The corporate incentive to agree to a DPA depends on the nature of the process and the possible penalty discount, when compared to the likelihood of conviction under in the conventional corporate criminal liability model. If there is no possibility of prosecution/conviction, then we may see corporate actors refusing to agree DPAs, and "taking their chances" in contested proceedings.
Professors Haines and Parker welcomed the introduction of a DPA scheme, subject to there being sufficient public transparency over DPAs. They suggested that the bill be amended to require, 'at a minimum', that the Director of Public Prosecutions publish the substantive reasons for not publishing a DPA, where this is deemed necessary.
The Law Council 'strongly supports the introduction of a DPA scheme in Australia', notwithstanding that the ALRC review is currently considering DPAs. It commented on various elements of the proposed scheme, and Mr Christopher Brown, Senior Policy Lawyer at the Law Council, told the committee:
There's public benefit to these schemes in ensuring that there is accountability for corporations that may not successfully be prosecuted so that they are still held to account and can still be obliged to provide compensation for wrongs that they may have engaged in. So it is a complex area, but, provided that the scheme has important safeguards and is particularly clear and transparent in how it applies, the Law Council considers it could be a useful measure.
Dr Neal SC of the Law Council acknowledged that DPAs would be available to corporate entities, but are 'not universally available' for others. However, he stated that 'given the difficulty of obtaining convictions against corporations, this is a measure which on balance is justifiable'.
The Law Council maintained that 'there should be clear, transparent criteria' for when a DPA might be entered into with a corporate offender. It referred to the Consultation Draft of the Deferred Prosecution Scheme Code of Practice (the Draft Code), published by the government in May 2018. The Draft Code lists a number of considerations regarding the public interest, and the Law Council suggested these criteria should be set out in the enabling legislation.
The AFP outlined the value of corporate cooperation during investigations:
The AFP's experience is that when companies genuinely cooperate in an investigation, evidence is obtained that would otherwise not be available to the AFP…and/or critical evidence is identified in a more efficient manner.
The AFP further explained how a DPA scheme supports this cooperation:
Where a company has a corporate presence in Australia as well as a country with a DPA scheme, such as the US or UK, our experience is that the company is more likely to cooperate with those law enforcement agencies. Cooperation with Australian law enforcement agencies would be reduced, as companies have less incentive to cooperate with agencies unable to recommend to prosecutors the option of a DPA.
The department submitted that the proposed DPA scheme is 'designed to address challenges experienced by law enforcement in detecting, investigating and prosecuting corporate crime'. The scheme would 'serve as an additional enforcement tool and not as a substitute for the robust investigation and prosecution of corporate criminals which will continue alongside introduction of the scheme'. As stated by Ms Brayshaw, representing the department, the Director of Public Prosecutions 'will still be able to undertake criminal prosecutions in circumstances where they're not satisfied that a DPA is in the public interest'.
Mr Branko Ananijevski, Director of the Criminal Law Section at the Attorney‑General's Department, referred to the success of DPAs in other jurisdictions such as the USA and the UK, including a DPA with Rolls-Royce in the UK that secured a financial penalty of 497 million pounds.
Regarding limitations on the admissibility of evidence produced throughout the DPA process, the department explained that the bill:
…balances the need to ensure that corporations are encouraged to speak openly and honestly during DPA negotiations with the need to ensure that corporations cannot exploit the DPA process to avoid being held to account.
Ms Brayshaw also stated that the proposed DPA scheme includes 'robust and effective safeguards'. Mr Ananijevski outlined some of these safeguards (which he said he understands do not apply in existing frameworks for enforceable undertakings):
The content of the DPA would be subject to external oversight. All DPAs would need to be approved by an external approving officer—that's a former judge—who must be satisfied that the proposed DPA is in the interests of justice and is fair, reasonable and proportionate. The scheme is also supported by a much more extensive legislative framework. Among other things, it establishes a list of certain compulsory terms and ensures that a DPA does not come into force unless it's in the public interest. Under a DPA, a company will also be required to admit to certain facts. If the company then materially contravenes a DPA, these admissions, we expect, will be able to be used as admissions of those facts.
Mr Ananijevski also explained that the bill would require the Director of Public Prosecutions to publish a DPA within 10 days, although there is 'some discretion, in very limited circumstances' not to publish.
Amendments to the definition of 'dishonesty'
Professor Jeremy Gans provided detailed comment on the proposed definition of 'dishonesty', contained in schedule 3 of the bill, and argued that:
…Schedule 3’s effects are sufficiently serious and uncertain, and its purported rationales sufficiently weak and wrong, that Schedule 3 should not be enacted without substantial further consideration.
Professor Gans advanced that while 'the second reading speech describes schedule 3 of the bill as a technical change', the proposed change 'isn't technical at all; it is substantive'. He explained that the bill would redefine dishonest to mean 'dishonest according to the standards of ordinary people', without any requirement that the defendant knows that their conduct was dishonest according to those standards.
Professor Gans submitted that the bill would broaden at least 58 current federal offences 'without any specific attention to whether the change (and penalty) is appropriate for that particular offence'. As examples, Professor Gans highlighted 'the "general dishonesty" offences' at sections 135.1 and 474.2 of the Criminal Code. He stated:
These sets of offences' terms (together) criminalise most interactions anyone has with the federal government or an internet service provider if the interaction is 'dishonest'. They expose every taxpayer, social welfare recipient, user of a government service and user of the internet to hefty penalties of up to 10 years imprisonment if anything they do with respect to those things falls within the definition of dishonesty.
Professor Gans argued that none of the rationales provided in the bill's explanatory material are 'cogent', and that the proposed change 'has nothing to do with corporate crime or the other parts of the bill'. Nonetheless, he stated:
This doesn’t mean that there is no plausible rationale for Schedule 3. The definition of dishonesty is much debated, including in recent years. It just means that the case hasn’t been made in the material accompanying the Bill.
The Law Council expressed concern that the proposed definition 'removes any requirement for the accused to have actual knowledge that he or she is engaging in dishonest conduct'. Dr Neal SC, representing the Law Council, told the committee:
We say that for the principles of the criminal law in general there needs to be an assessment of the moral culpability of a person who's going to be convicted of a dishonesty offence and sentenced, and that this should be premised on the offender knowing his or her conduct is dishonest according to the standards of ordinary people. That is reflected in the existing definition of dishonesty found throughout the Criminal Code and is the definition that the Law Council considers ought to be retained.
When asked for an example of conduct by a person that is dishonest according to the standards of ordinary people, but which the person did not know was dishonest by those standards, Dr Neal SC provided a hypothetical:
The best example that I have is not from a case but based on some cases. I'm caring for an elderly relative. They say, 'Don't deal with my money in a certain way.' The relative is not really able to make proper decisions about that. I then go and spend money on medical treatment for that person, thinking that that's in their best interest, even though I have been told not to do it. That case comes before a jury as an elder-exploitation type argument. The jury would be deciding not on the basis of what my subjective intention was but on the basis of objective standards of dishonesty in the community—a variable sort of concept. I might well be convicted after that fact in the trial of being dishonest. The case of Feely itself was an employee who was borrowing money from the till because they were short on the week's rent payment or the like. The employer had made it perfectly clear that they were not allowed to do that; it was against the business rules. That was what led to the case: here is someone who sincerely intends to return the money taken from the till, but it's contrary to the employer's directions about such a practice.
The Law Council also examined the explanatory memorandum, which states that the proposed definition aligns with the test endorsed by the High Court in Peters v The Queen (1998) 192 CLR 493, and stated that it:
…considers that it is important to distinguish that the decision in Peters was defining 'dishonesty' in a different context and for different applications other than in the Criminal Code which covers a far wider range of offences and context for the use of the term 'dishonest'.
Dr Neal, representing the Law Council, suggested it would be desirable if the definitions of dishonesty used by Australian jurisdictions had some uniformity:
Since these offences of dishonesty are widely used and generally used, it is clearly desirable, as a matter of principle, that there be a degree of uniformity about them. Secondly, as a practical matter, where Commonwealth offences and state offences are being tried in the same trial it's obviously desirable to have the same definition of the word 'dishonesty' where it's used liberally both in Commonwealth legislation and the state jurisdictions.
In contrast, Professor Gans remarked that 'the case for uniformity across Australia is sometimes overstated'. He stated that:
…there's not much point in harmonisation—that is, uniformity—unless you also debate which is the best approach. Harmonisation just for the sake of it is not a good approach unless you have an extra view that there's a better way to do things or, if there isn't a better way to do things, there's some other way to choose between competing approaches.
The AFP supported the proposed definition of dishonesty. It stated that, in its experience:
…the current test can be difficult to establish in the sophisticated and complex reality of corporate crime. Amending the test to be a single-step will enable the AFP to dedicate resourcing otherwise occupied in this space to other serious offending.
The department explained the purpose of the proposed definition:
…Schedule 3 of the bill is intended to bring the definition of dishonesty in the Criminal Code into alignment with the test endorsed by the High Court in the Peters case. We understand that there have been some submissions seeking further advice as to what the reasons were. In effect, the reason for the approach that's been taken to replace the current test is to bring it into line with modern jurisprudence, in terms of the High Court's position. It will also be consistent with the approach taken to amendments with the dishonesty offences that were introduced in the Corporations Act in 2019, and it will also respond to concerns that have been raised by operational agencies as to the difficulty in practice of adducing evidence in relation to the two-limb test.
Ms Brayshaw further explained practical difficulties with the existing definition:
The other issue prosecutors have raised with us is that, when you start to have dishonesty offences in the Corporations Act and the Criminal Code, having different tests in the same prosecution, that can create a complexity that makes it very difficult to run the case.
Moreover, Mr Ananijevski stated that the subjective element of the existing definition:
…which requires an investigating agency, a prosecuting agency, to either discover or lead evidence that a defendant actually knew that their conduct was not in line with the standards of ordinary, decent people, is problematic.
Mr Ananijevski also referred to comments that 'this move to a purely objective test would not include any sort of guilty mind', and explained:
That's certainly not the way the Peters test is applied. Although it retains an objective limits application, which is very subjective, it still looks at the knowledge, the beliefs, the intent of the accused and then assesses that objectively against the standards of ordinary, decent people. What it doesn't then require the prosecution to lead evidence of is that that person also knew that their conduct was against those standards. That is probably not a far cry from other offending, where you don't require proof that a person knew what they were doing was wrong.
When asked whether the department considered the 58 offences that would be affected by the bill, Ms Brayshaw replied that 'we did consider those offences and took on consultations with the AFP, the [Director of Public Prosecutions] and Home Affairs about the approach to the test'.
Corporate crime and foreign bribery can cause significant harm to the Australian people and economy. The committee strongly supports measures to combat corporate crime, such as those contained in the bill. The committee acknowledges that, as discussed in this report, there was broad support for this bill among inquiry participants.
The proposed amendments relating to foreign bribery will ensure that Australia's law enforcement agencies are able to effectively combat corporate crime. In particular, the proposed new offence of failure to prevent foreign bribery will ensure that companies cannot be wilfully blind to corrupt practices within their businesses.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry made significant findings regarding corporate conduct. The committee is pleased that the department reviewed the Royal Commission's final report against the proposed DPA scheme, and concurs with the department that the proposed scheme forms part of an appropriate response to the Royal Commission's final report.
The committee acknowledges some concerns regarding how the proposed DPA scheme would operate. However, the committee is satisfied that the proposed scheme contains appropriate safeguards to ensure that the public can have confidence in the system. The committee is also reassured by the department's advice that the DPA scheme would serve as an additional enforcement tool and not as a substitute for the robust investigation and prosecution of corporate crime.
The committee further considers that the proposed definition of dishonesty has been appropriately considered by the department and other government agencies. Evidence from the department and the AFP demonstrate that the proposed amendments are important to ensuring that Australia's law enforcement agencies can effectively prosecute dishonest corporate conduct.
The committee considers that the bill will make an important contribution to Australia's efforts to combat corporate crime.
The committee recommends that the Senate pass the bill.
Senator Amanda Stoker