Friday, 25 October 2013

Queensland complies with COAG on criminal liability of directors

The final draft of the Directors’ Liability Reform Amendment Bill 2012 (Qld) (Bill) has eased concerns the State had been recalcitrant in its corporate law reform obligations, agreed as part of the National Partnership Agreement to Deliver a Seamless National Economy.  The agreement, consented to by the Commonwealth and all State and Territories on 7 December 2010, intended to achieve a nationally consistent approach to the imposition of personal criminal liability for directors and other corporate officers for corporate fault.

At the time, the Council of Australian Governments (COAG), agreed that personal criminal liability for officers was generally inappropriate, except in certain circumstances.  According to agreed principles, a directors’ personal criminal liability for the misconduct of a corporation should be confined to situations where:
  • there are compelling public policy reasons for doing so (such as the potential for significant public harm caused by the corporate offence)
  • liability of the corporation is not likely on its own to sufficiently promote compliance, and
  • it is reasonable in all the circumstances for the director to be liable considering:
    • clarity of corporate obligations
    • the director’s capacity to influence the conduct of the corporation, and
    • the steps that a reasonable director might take to assure corporate compliance.

The guidelines to the agreed principles also specified that reversing the onus of proof should only occur if supported by rigorous and transparent analysis.

Queensland Developments

While New South Wales in particular was quick to implement the COAG recommendations, the Queensland Bill was initially far less effective in achieving compliance with the COAG principles and guidelines.  The Australian Institute of Company Directors (AICD) estimated that if the legislation passed as originally formulated, there would still be in excess of 100 instances where directors or officers remain criminally liable for a corporation’s fault unless their lack of involvement in the contravention was established.

After further consultation with the AICD, the Queensland Attorney-General made numerous modifications to the Bill which was passed on 17 October 2013 (for implementation on 1 November 2013).  The modifications are based upon the Government’s decision that:
  • director’s liability provisions should generally not be included in state legislation
  • any case for an exemption to allow a director’s liability provision would need to be appropriately justified, and 
  • any exception made would not reverse the onus of proof.

The 103 pages of amendments to the original Bill mean that from 1 November, executive officers will only be liable for corporate offences if the prosecution proves that they:
  • did not take all reasonable steps to ensure the corporation not engage in conduct constituting on offence, or
  • authorised or permitted the corporation’s conduct constituting the offence, or
  • were, directly or indirectly, knowingly concerned in the corporation’s conduct.

While the liability provision applicable in any piece of legislation should be reviewed carefully, the changes implemented by this the new approach should be welcome.

A widely published corporate and commercial lawyer, Paul is a Consultant to McCullough Robertson on Corporate Advisory issues.

Friday, 4 October 2013

Corporate Australia not immune to corruption

Corruption affecting Corporate Australia is on the rise.  This week, reports surfaced about alleged widespread bribery and corruption at one of Australia’s largest companies. Allegations of improper conduct by two subsidiaries of the Reserve Bank of Australia (RBA) that were previously charged in Australia’s first ever prosecution of foreign bribery laws in 2011 were also reported.

It has been alleged that an ASX 100 company, paid a $42 million kickback to Iraqi officials in order to secure a $750 million oil pipeline contract.  The Australian Federal Police are conducting an ongoing investigation into a matter that was voluntarily reported by the company.

Two RBA subsidiaries were prosecuted for foreign bribery in 2011 for alleged payments made to government officials in Indonesia, Malaysia and Vietnam between 1999 and 2005 to secure banknote contracts.  However, further allegations of attempts to do business with Iraqi officials were reported this week.

The message for Corporate Australia is clear - companies operating in high-risk countries and sectors must take accountability and ensure appropriate measures are put in place to prevent, detect and respond to all forms of bribery and corruption.  A commitment to the issue at board level is essential to driving and embedding a culture of compliance.

Bribery of foreign public officials is strictly prohibited under the Australian Criminal Code Act 1995 (Cth). Australia is under international pressure to increase enforcement of its foreign bribery laws following a review of its implementation of the OECD’s Anti-bribery Convention in October 2012, no Australian company is immune to an investigation.

Companies should consider the following key practical elements when developing an effective anti-bribery and corruption compliance program, proportionate to the risk faced, ensuring it goes beyond a mere ‘paper-policy’:

  • recognised commitment from the board and senior management
  • undertaking ongoing risk assessments
  • performing risk-based due diligence on third parties and agents, joint venture partners and when conducting M&A activity
  • raising awareness of anti-bribery and corruption issues through risk-based training and communication, and
  • monitoring and reviewing of policies and procedures regularly to ensure their effectiveness.

The consequences of bribery and corruption are detrimental to any company’s business.  Even mere allegations can lead to significant reputational damage and a fall in a company’s share price.  Prosecution can result in significant fines and jail sentences for individuals.

Tiffany is a Senior Associate at McCullough Robertson