Friday, 11 March 2016

This is the title of an article distributed by King & Wood Mallesons (KWM), Brisbane. KWM’s article is about the introduction of ‘…two new criminal offences relating to “false dealing with accounting documents” into the Commonwealth Criminal Code as part of its efforts to strengthen its anti-bribery and corruption enforcement framework.’

KordaMentha Forensic welcomes this development. We have long held the view that a ‘books and records’ provision should be included in Australian foreign bribery legislation. In, our submission to the Senate Economics References Committee into foreign bribery1, we recommended that:

A books and records provision should be incorporated into Australia’s foreign bribery legislation so that Australia’s obligations (like those of Canada) under Article 8 of the OECD Convention are also met. The offence should also provide for sanctions that are equivalent to the bribe paying offence in order to achieve deterrence and facilitate greater enforcement success.

Whilst not the same as the ‘books and records’ provisions of the Foreign Corrupt Practices Act (FCPA)2, which includes a requirement to maintain a system of internal accounting controls, the penalties for the new offence of falsely dealing with accounting documents mirror those of our foreign bribery offence3. An individual who is guilty of the new offence is liable to 10 years’ imprisonment or a fine of $1.8 million or both. Convicted corporations are liable for the greater of:

  • $18 million;
  • Three times the value of the benefit obtained from the offence by the corporation and any related corporations; or
  • 10% of the annual turnover of the corporation during the previous 12 months.

We lobbied for a books and records offence because investigating foreign bribery is difficult. The days of companies openly describing bribes in their books of account are gone. It’s not even a tax deduction anymore! Therefore, companies, or individuals working for companies, that continue to pay bribes to win or retain business will typically use descriptions (and there are many, limited only by imagination) that mask the true nature of the transactions.

The new offences allow regulators to be proactive in investigating foreign bribery. Cross-jurisdictional issues may make it difficult to prove the foreign bribery itself. But a mismatch between what is recorded in an entity’s accounting records on the one hand, and what is evident from its bank records, will often tell the tale.

Closely monitoring company announcements for news of bids or winning contracts overseas, particularly in jurisdictions known to be of high risk, would be a good starting point in identifying corporations whose books and records should be reviewed.

There are no provisions in the Commonwealth Criminal Code that refer directly to internal controls. But the new offences create a sensible motivation for companies to ensure that adequate controls are in place, both to prevent bribery and to discourage falsifying records to cover it up. The alternative would be to try and think of more innovative ways to circumvent the legislation. In our view, that would be a low-percentage strategy!

We look forward to seeing how the Regulators use the new legislation and the reaction to it by corporate Australia.

Further reading
For further reading on this topic, see David's article in our Forensic Matters publication.

In November 2015, Paul Curby and David Lehmann of our Forensic practice held round-table lunch discussions in Brisbane, Melbourne, Perth and Sydney to discuss issues related to foreign bribery and the Australian government's response to it. In the article, Paul and David present the combined results of anonymous voting polls by participants at each of the lunches.

1. Refer to Submission No. 22 on page 6.

2. The Accounting provisions of the FCPA are found at Section 13(b)(2)(A) of the Exchange Act (15 U.S.C. § 78m(b)(2)(A)), commonly referred to as ‘the books and records provisions’ and Section 13(b)(2)(B) of the Exchange Act (15 U.S.C. § 78m(b)(2)(B)), the ‘internal control provisions’. The books and records provisions require issuers to ‘make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer’. The internal control provisions require issuers to ‘devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are approved appropriately and assets are appropriately accounted for’. (See FCPA Resources Guide, Chapter 3).

3. Australian Criminal Code Act 1995, Chapter 4, Division 70, Section 70.2 – Bribery of foreign public officials.​