The media is awash with headlines of Walmart's expansion into Mexico and the way in which it is alleged to have secured its success through payments of as much as $24 million to secure construction permits and get around environmental concerns.
It is a familiar story in developing economies, but is also a timely reminder for Australian companies, many of which are looking to Asia to increase profit and shareholder return, that significant economic potential can come with significant exposure to corruption-related risks.
Thanks to a focus on the potential reach of the UK's new Bribery Act and some high-profile local investigations and prosecutions, Australian companies are well aware of corruption risks, but what does the future of enforcement hold and how can Australian companies prepare for it?
1. Undertake effective upfront and ongoing due diligence regarding business partners
Business partners of all kinds (not just agents) are a source of potential risk. They need to be the subject of effective due diligence. This includes sufficient upfront due diligence before entering an agreement (including in a joint venture context), as well as conducting ongoing due diligence in relation to the conduct of the business partner. This may extend to ensuring you have a right to conduct regular audits, that the business partner provides reports of all dealings with foreign officials and/or an annual certificate of compliance with your company's anti-corruption policies as well as relevant anti-corruption laws. Like all compliance systems, there is no pro forma checklist for such due diligence – what is required depends upon an assessment of the particular risks associated with the third party and the nature of their role. Effective due diligence will help both mitigate the risk of corruption, and assist in ensuring you have a due diligence defence in the event that a business partner engages in corrupt conduct.
2. Plan for removal of 'facilitation payment' defence
Businesses should be anticipating and planning for the removal of the current 'facilitation payment' defence in Australia's Criminal Code Act. Of course, if an Australian company is exposed to the UK Bribery Act, which does not include a defence for facilitation payments, prohibition of such payments will no doubt already have been implemented.
3. Implement and enforce controls in relation to corporate hospitality and donations
There is no de minimus test in determining whether a benefit is illegitimate – clearly a payment to a local mayor to get zoning maps changed will fall within Australian as well as overseas bribery legislation. But what of dinners and the occasional gift, or a donation to a local charity? These too may be captured. With gifts and entertainment being the subject of current investigations and prosecutions, we are unlikely in Australia to have any firm guidance on when corporate hospitality or gifts are 'legitimately due' – it therefore rests with each company to determine how best to manage these risks, but wherever you draw the line, it cannot be left solely to individual employee discretion.
4. Consider the merits of an internal investigation if issues arise
Internal investigations have clear advantages. They enable a company to identify the nature and extent of potential issues and take action against relevant people. They also enable an informed assessment of whether it is necessary or appropriate to engage with the regulators, and if so, to cooperate in an informed way. This may in turn, lead to leniency in respect of any proposed sanctions.
5. Recognise that any investigations/enforcement may be pursued by multiple regulators
International co-operation among regulators is now the norm. This co-operation however, should not be interpreted as regulators agreeing to restrict enforcement activities to a single country. To the contrary, regulators internationally are being scrutinised for their effectiveness in combating corruption and are building capabilities, as well as an appetite, for such investigations and their 'rewards'. No longer can it be expected that regulators will defer to US investigations. Companies need, therefore, to continue to be mindful of the international scope of these issues and the prospect of parallel investigations and regulatory action in multiple countries, and take this into account in any dealings with local and overseas regulators.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.