Publication

Transcription

Publication

Doing business in developing countries:
developments in anti-corruption law
Part 2
1
Doing business in developing countries: developments in anti-corruption law
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2
Contents
Doing business in developing countries:
developments in anti-corruption law
The global focus on corruption............................................................. 4
Brazil.................................................................................................... 5
Myanmar.............................................................................................. 7
Indonesia.............................................................................................. 10
Bangladesh.......................................................................................... 12
India...................................................................................................... 15
Papua New Guinea.............................................................................. 18
Top tips to reduce corporate exposure to corruption risks.................... 20
3
Issues paper
Anti-corruption law developments,
transparency initiatives & foreign investor
risks in developing country jurisdictions
In the Part 1 Issues Paper of May 2014 we examined the anti-bribery and corruption laws
in Australia, the United States of America (US) and the United Kingdom (UK).
This Part 2 Issues Paper examines legal
developments in anti-corruption law, related
transparency initiatives (or lack thereof), investment
risks (relating to corruption, transparency and
sovereign risk), and corruption cases in developing
country jurisdictions of importance to Australia,
namely Brazil, Myanmar, Indonesia, Bangladesh,
India and Papua New Guinea. This article has a
particular focus on developments affecting foreign
investment in the oil, gas and mining sector.
We provide some key pointers for companies
operating in developing country jurisdictions on how
to reduce corporate exposure to corruption risks.
unachievable if worldwide corruption is not curtailed.
According to the World Bank Economic Forum the
global cost of corruption equates to more than 5
percent of global GDP, or about $US2.6 trillion ($3
trillion). The World Bank estimates that $US1 trillion
globally is paid in bribes each year.
Transparency International’s Corruption Perception
Index (CPI) scores and ranks 175 countries and
territories from around the world on the perceived
level of corruption in the public sector, from 0, being
‘very corrupt’, to 100, being ‘very clean’. The 2014
CPI indicates that 58 per cent of the G20 countries
score below 50 out of 100.
The global focus on
corruption
In November 2014 leaders at the G20 meeting
in Brisbane committed to a crack down on global
corruption by endorsing a ‘2015-16 G20 AntiCorruption Action Plan’. The G20 member countries
have committed to taking action in the fight against
corruption in certain high priority areas including
combating bribery, improving public sector and
beneficial ownership transparency, enhancing
cross border investigation and enforcement, and
developing international best practices in high risk
sectors like the extractive industries, customs,
fisheries, primary forestry and construction.
The G20’s 2.1 per cent growth target is said to be
4
Brazil
Brazil ranks 69th out of 175 countries in Transparency
International’s 2014 CPI (a score of 43). Corruption
is regarded as a serious problem in Brazil and the
country loses 1.38% to 2.3% of its GDP in kickbacks
and bribes.1 In 2013, the Brazilian populace, weary
of ongoing government corruption took to the streets
in mass protests and Brazil took steps to enact a
landmark new anti-corruption law. The new law took
effect on 29 January 2014 (Clean Company Act,
Law no. 12.846/2013) (Law). The new Law (which
has some correlations to the US Foreign Corrupt
Practices Act 1977 and the UK Bribery Act 2010)
was a key recommendation of the Organisation for
Economic Cooperation and Development’s (OECD)
Working Group on Bribery.
The Law applies to foreign companies doing business
in Brazil (those established in Brazil with offices,
agents or branches and those that are determined
to be de facto in Brazil, even if only temporarily) and
to Brazilian companies. The Law applies to bribery
of Brazilian officials as well as foreign officials. Like
the UK law, facilitation payments are illegal. These
are payments made to secure routine governmental
action of a minor nature that does not result in the
obtaining of a business advantage (e.g processing
visa applications or providing police protection),
although the definition of the term does vary
1 OECD Working Group on Bribery, Phase 3 Report on Implementing the
OECD Anti-Bribery Convention in Brazil, October 2014, 9.
5
between jurisdictions. They are also referred to as
‘grease payments’.
In any case, the penalties for breach of the Law are
severe. According to Transparency International,
under the new Law:
• a company found guilty of corruption can be fined
up to 20% of its gross revenues and subject to
the publication of the condemnatory decision;
• if gross revenue is not able to be ascertained,
then alternative fines may range from US$3
million to US$30 million (however, the penalty
imposed will never be lower than the benefit
obtained due to the illegal act);
• leniency agreements may be executed with
companies who self report violations. If an
accused has cooperated effectively and
voluntarily with an investigation, there is an ability
to enter into ‘cooperation agreements’ (under
a separate law) which can result in sentence
reductions.
As expected, sanctions are applied according
to the peculiarities of the case and the severity
and nature of the offence. In applying sanctions,
certain mitigating factors may be taken into account
such as whether the organisation had appropriate
existing internal controls, ethics and compliance
programs, provided incentives to staff for reporting
irregularities, and engaged in effective enforcement
of its anti-corruption policies.
The OECD Working Group on Bribery completed its
report in October 2014 on Brazil’s implementation
of the Convention on Combating Bribery of
Foreign Public Officials in International Business
Transactions and noted that the Law is a significant
step in the effort to fight foreign bribery provided it
can be enforced effectively. The Working Group
recommends Brazil clarify the procedure to
establish liability and impose sanctions, follow up
on the ‘arsenal’ available to authorities to encourage
self reporting, including co-operative and leniency
arrangements, and adopt comprehensive whistleblower protection mechanisms for private sector
employees who report bribery. 2
Brazil’s public procurement sector has long had
a problem with systemic corruption. This is well
illustrated in a huge corruption scandal involving
the tender for, and construction of, a regional
courthouse in the 1990s. The government awarded
a major public works contract and proceeded to pay
some R$226 million from 1992 to 1998. Subsequent
audits would later reveal that perhaps as little as
one quarter of the total sum paid was actually
spent on construction costs, leaving the balance
unaccounted for. Numerous irregularities were
found with respect to the construction contract and
bid process. Over 100 law suits (civil, criminal and
administrative) in Brazil, Switzerland and the United
States have eventuated from the scandal and a
Senator was disqualified from public office. Many
of these legal proceedings are yet to be resolved.3
for oil projects and construction companies paid
bribes worth about 3 percent of the value of the
projects to obtain contracts. The illicit funds were
then distributed among senior Petrobras executives
and channelled to political parties in Ms Rousseff’s
coalition. In early February 2015, Petrobras’ CEO
was forced to resign. Due to Petrobras’ status as a
company listed on the New York Stock Exchange,
the US Securities and Exchange Commission (SEC)
and Department of Justice are also investigating the
corruption allegations.5
In 2012 the US SEC charged Indianapolis-based Eli
Lilly and Company with violations of the US Foreign
Corrupt Practices Act for improper payments made
by its subsidiaries to foreign government officials
to win business, including Eli’s Brazilian subsidiary
which allowed one of its pharmaceutical distributors
to pay bribes to government health officials to
facilitate US$1.2 million in sales of a Lilly drug to
state government institutions.6
Brazil does have appropriate laws and penalties
in place to combat corruption, and whilst federal
authorities investigate allegations of corruption, there
are inconsistencies with the level of enforcement
among individual regions within Brazil. Foreign
businesses have reported corruption being most
problematic in business dealings with authorities at
a municipal level. 7
In more recent times, Brazil’s state run oil company,
Petrobras (Brazil’s largest corporation), has become
embroiled in a graft scandal which implicates
President Rousseff (who was the company’s
chairperson from 2003 to 2010) and other officials
within her government. In December 2014, Brazil’s
prosecutor-general was preparing to indict company
executives on bribery and money laundering
charges relating to various illicit dealings between
former executives of Petrobras, contractors and
politicians in Ms Rousseff’s government. The
scandal involves claims that significant bribes
were paid in order to win contracts with Petrobras,
with one ‘third-tier’ executive at Petrobras earning
approximately US$120 million in bribes during
his tenure with the company.4 Another former
executive testified that Petrobras inflated budgets
2 OECD, Brazil closes legal loophole on foreign bribery: OECD hopes this
will now translate into stepped up enforcement, OECD Anti-Corruption
Division, 29 October 2014, <http://www.oecd.org/newsroom/brazilcloses-legal-loophole-on-foreign-bribery-oecd-hopes-this-will-nowtranslate-into-stepped-up-enforcement.htm>.
3 Kevin Davis, Guillermo Jorge, Maria Machado, Transitional AntiCorruption Law in Action: Cases from Argentina and Brazil (January
2015), <http://www.law.nyu.edu/sites/default/files/upload_documents/
Transnational%20anti-corruption%20law%20March%202014_
NYU%20Colloquium%20(2).pdf >.
4 Simon Romero, ‘Brazil graft scandal threatens Rousseff’, Australian
Financial Review, 9 December 2014, 14.
6
5 Simon Romero, ‘Petrobras executives resign’, Australian Financial
Review, 6 February 2015, 30.
6 US Securities and Exchange Commission, ‘SEC Charges Eli Lilly and
Company with FCPA Violations’, (2012) < https://www.sec.gov/News/
PressRelease/Detail/PressRelease/1365171487116#.VNMYgv6KCig>.
7 US Department of State, Department of State: 2014 Investment Climate
Statement – Brazil (June 2014) <http://www.state.gov/e/eb/rls/othr/
ics/2014/226920.htm>.
Myanmar
Myanmar ranks 156th out of 175 countries in
Transparency International’s 2014 CPI (a score of
21). A new Anti-Corruption Law came into effect on
17 September 2013. The objectives of the relatively
new law includes eradicating bribery, taking
effective action against those that commit bribery
and enhancing economic development through
greater transparency. The law covers active and
passive bribery in Myanmar by citizens, permanent
residents and foreigners. The law includes specific
offences relating to the illicit enrichment of public
officials through bribery and other corrupt activities.
The maximum terms of imprisonment for those
found guilty of corruption range from seven years
for non-officials, 10 years for public servants and
up to 15 years for politicians. Each sentence also
includes an associated fine. An Anti-Corruption
Commission was established in 2014 to enforce the
law.
However, corruption remains a serious barrier to
foreign investment in Myanmar. Foreign companies
operating in Myanmar confront the following
corruption risks:
• a lack of transparency of asset ownership and
revenue flows in the oil, gas and mining sectors.
For example, the government granted a Chinese
state owned enterprise an oil and gas pipeline
concession but no information is available on the
7
terms of those contracts8 (however this sector is
subject to Extractive Industries Transparency
Initiative (EITI) reforms – see below);
• a lack of transparency in the investor approvals
process, which is opaque, bureaucratic and
complex. Considerable discretion is granted to
the Myanmar Investment Commission (MIC),
who approves foreign investment applications,
and this creates opportunities for corruption by
officials. Investors are often faced with corrupt
conduct when seeking investment permits;9
• cronyism is widespread with privatisations
resulting in state owned assets being sold
(cheaply) to persons with military or senior
government connections;
• systemic corruption exists within the judiciary
where bribes are more or less required in
order to secure a successful outcome in court
proceedings. Illicit payments or ‘tea money’ is
requested at nearly every step of the judicial
process (from stenographers and clerks to
judges), with the majority of the corruption a
product of judicial officers’ poor salaries and
working conditions;10
8 Marie Chene, U4 Expert Answer, ‘Overview of corruption in Burma (Myanmar)’, Transparency International No. 349, 1 October 2012, 4.
10 Thomas Fuller, ‘Myanmar’s Opening Up Hasn’t Loosened Graft in Courts,’ The New York Times (online), 24 October 2014, < http://
www.nytimes.com/2014/10/25/world/asia/myanmars-opening-uphasnt-loosened-graft-in-courts.html?_r=1>.
• the absence of a land tenure system has resulted
in no protection of real property rights, with
incidences of ‘land grabbing’ by army owned
companies or politically powerful operations
with connections to the military increasing, with
those displaced receiving little compensation.
According to Transparency International, a new
law enacted in 2012 to address this issue still
allows the ‘confiscation of agricultural land on
any pretext associated with a state project or the
national interest’.11 Further, there is no legislative
guidance on what is appropriate landholder
compensation which has led to ongoing disputes
between mining companies and local occupiers
of land. The new Foreign Investment Law (FIL)
allows foreign investors ‘a right to lease or use
land for up to an initial 50 years’ (extensions are
available) depending on the type and volume of
investment. However, the extent of application of
the law is unclear. Investors are often confronted
with corrupt conduct when negotiating land and
real estate leases with government officials.12
In October 2014, the government released a
draft national land policy which may eventuate
into a codified framework for land tenure
management;13
• expropriation of foreign investor assets by
the government is still a concern. Whilst the
FIL does provide express safeguards against
nationalisation of investments approved by
the MIC, there are still no safeguards against
indirect expropriations (without compensation)
or protection for private foreign businesses from
‘predatory practices by regime linked cronies’.14
Myanmar is gradually opening up to foreign
investment, however the rule of law is weak and
is unlikely to be strengthened in the short term.
Laws regarding private enterprise and banking are
severely undeveloped. That said, regulatory reforms
initiated by President Thein Sein are underway
with respect to foreign investment and mining.
The quasi-civilian government has sole rights for
resource exploration and development but allows
private sector involvement.15
The new FIL came into force on 31 January
2013, the object of which is to encourage 100%
foreign investment in certain industries, and the
establishment of joint ventures with state owned
enterprises (SOEs) in other sectors (where a
13 Trevor Wilson, ‘Myanmar’s reforms are more than show’, Australian Financial Review, 2 February 2014, 13.
14 US Department of State, Department of State: 2014 Investment
Climate Statement – Burma (June 2014) <http://www.state.gov/e/eb/
rls/othr/ics/2014/226926.htm>.
15 Mark Wood, ‘Mining & Resources - Myanmar Overview,’ (Speech
delivered at Austrade Brisbane, 11 February 2014).
8
maximum of 80% foreign ownership is allowed).
However, foreign investments are still not allowed
in many sectors (such as small and medium scale
mining or operating power plants less than 10
megawatts).16 For investments in the mining, oil
and gas sector, foreign companies must enter a
joint venture with an SOE, namely the Ministry
of Mines and Myanmar Oil & Gas Enterprise,
respectively. The FIL provides ‘guarantees’ that a
foreign business will not be nationalised or have
its permit suspended before the expiry of the
contract term without sufficient cause.17 However,
there is considerable ambiguity as to how the FIL
will be applied in practice and the MIC can make
exceptions to the law ‘in the interest of the State’.
Whilst the broad discretion granted to MIC may
be beneficial to foreign investors (i.e., allowing
approval for investment in sectors which are
normally restricted), it also creates uncertainty and
opportunities for corruption (amongst the officials
tasked with recommending to government certain
foreign investor proposals).
In 2012, Myanmar commenced a process to
amend its 1994 Mining Law (Mining Law). The
Mining Law lacks transparency, and this has
created significant sovereign risk issues for foreign
investors. The proposed amending law is still under
review (and in a state of flux). The existing Mining
Law is a major disincentive to investment in that it
mandates the Myanmar Ministry of Mines act as
non-equity partner in projects but be entitled to
around 30% of minerals extracted, plus taxes and
royalties. However, a bigger concern for investors
is the requirement that the miner gain permission
from the Ministry in order to move from one stage
of the mining process to another.18 This poses an
unacceptable level of risk for the foreign miner
who may proceed to make significant capital
expenditures during the exploration phase but fail
to gain the necessary legal approval to proceed
to production. The proposed amendments seek to
address many of these concerns by drafting the law
according to internationally recognised standards.
A further reform to benefit the mining sector is
Myanmar’s acceptance as an EITI candidate on 2
July 2014. EITI is a central part of the government’s
reform agenda, in particular with respect to public
financial management reforms, and aims to provide
access to reliable data about extractive industry
revenues in a country where such figures remain
Climate Statement – Burma (June 2014) <http://www.state.gov/e/eb/
rls/othr/ics/2014/226926.htm>.
17 Foreign Investment Law, Law No. 21/2012 (Myanmar), Chapter XIII,
ss 28, 29.
18 Tim McLaughlin and Soe Than Lyn, ‘Mining Law to get an overhaul,
officials say’, The Myanmar Times (online), 13 October 2013, <http://
www.mmtimes.com/index.php/business/8442-mining-law-to-get-anoverhaul-officials-say.html>.
largely unknown. For example, companies will have
to disclose what they have paid in taxes (and other
payments) and the government must disclose what
it has received. These two sets of figures are then
compared and reconciled. A multi-stakeholder group
in Myanmar is now developing a work plan for the
EITI to set the objectives and priorities for EITI
implementation and associated activities. Myanmar
will have to produce EITI reports (the first is due in
January 2016) that discloses exact revenues from
the extraction of its natural resources.19 To prepare
for delivery of EITI reports, Myanmar is exploring
appropriate mechanisms by which to disclose the
beneficial owners of extractive companies operating
in Myanmar. This is an important development as
historically joint venture arrangements between
private companies and SOEs in Myanmar have
been devoid of any accountability or transparency.
Despite the corruption risks, Myanmar holds
significant potential for Australian resource
companies due to its wealth of natural resources.
The country is rich in oil and gas, gemstones, metals
(copper, gold, silver, lead, tin, tungsten, antimony)
and industrial minerals. Australian companies that
have been or are involved in exploring for minerals
in Myanmar include Mineral Commodities, Tigers
Realm Group and Eumeralla Resources.20
19 Extractive Industries Transparency Initiative, Extractive Industries
Myanmar, (December 2014), <https://eiti.org/Myanmar>.
20 Daniel Clery, ‘Mining & Resources - Myanmar Overview,’ (Speech
delivered at Austrade Brisbane, 11 February 2014).
9
Indonesia
term of imprisonment of up to 20 years.22
Indonesia, a populous nation of over 239 million
people, ranks 107th out of 175 countries in
Transparency International’s 2014 CPI (a score
of 34). Indonesia has ratified the UN Convention
Against Corruption. Indonesia’s President elect,
Joko Widodo, won the July 2014 election on an antigraft platform to bring about a clean and effective
government. He took the unprecedented step of
asking the Corruption Eradication Commission
(KPK) to screen his nominated ministers. The KPK
subsequently raised concerns about eight ministerial
candidates forcing Widodo to find replacements.21
A 2013 report by Control Risks notes that many dayto-day corruption risks exist for foreign investors in
Indonesia. Predominantly, these arise from routine
interactions with government officials whereby the
official may request a facilitation payment, or a
contract kick-back, or per diems for site inspections.
To further complicate matters, Indonesia has a
decentralised system of governance whereby
regulatory decision making is devolved to provincial
and local level government officials which provides
such officials with considerable opportunities to
demand illicit payments from companies when
processing routine applications.23 Control Risks
provides that it is standard when companies
apply for work visas that they will be expected to
make between 10 to 14 facilitation payments in
cash to officials (anywhere between US$600 and
US$5,000) per application. Such payments (usually
made through third party agents) are a key source
of expected income for officials and in most cases
are not recognised as illegal.24
Despite anti-corruption laws regulating the conduct
of politicians, civil servants, the public at large and
the strong anti-corruption work of the KPK, there
has been no tangible reduction in corruption levels
in Indonesia. It is therefore a challenging jurisdiction
in which to operate. Foreign companies with well
known ‘zero tolerance’ anti-corruption policies face
difficulties in determining whether certain payments
are legal under Indonesian law. There is no
facilitation payments exception under Indonesian
criminal law but such payments are widely used.
This is despite the fact that giving or receiving a
bribe is a criminal act, attracting fines and a possible
21 Ben Bland, ‘Widodo cabinet selections vetoed by anti-corruption
commission,’ Financial Times (online), 23 October 2014, <http://www.
ft.com/cms/s/0/8f124c60-5a6c-11e4-be86-00144feab7de.html>.
10
22 Control Risks Group Limited, Anti-Corruption in Indonesia (2013
Report) at 4, 5, <http://www.controlrisks.com/~/media/Public%20Site/
Files/Oversized%20Assets/indonesia_whitepaper_2013.pdf>.
Report) at 4, 5, <http://www.controlrisks.com/~/media/Public%20Site/
Report) at 5, <http://www.controlrisks.com/~/media/Public%20Site/
Foreign companies operating in the mining sector
are particularly likely to be exposed to requests for
illegal payments from officials when applying for
mining related permits, approvals and certificates
in the relevant central and district level government
departments and from the Indonesian police.25
reports detailing the fiscal regime applicable to the
sector, project level reporting of revenue streams,
information on oil allocation to the government as
part of production sharing arrangements, data on
where companies operate and the size of financial
contributions made to the government.29
Another challenge facing foreign miners in
Indonesia is the changing regulatory landscape
that has emerged in recent years. In 2012, the
Indonesian government issued a regulation
requiring foreign companies holding mining leases
to divest majority equity to an Indonesian participant
(a tier of government or Indonesian company) after
10 years of production. While mining companies
operating in Indonesia have historically been
subject to divestment obligations under Contracts
of Work (with the Indonesian government), many
now argue that 10 years is insufficient time to make
an adequate return on investment. Further, there is
uncertainty as to whether the mandatory divestment
provisions apply only when existing Contracts of
Work expire (and require renegotiation), or whether
the government can force renegotiation during an
existing term.26 Investor concerns have also arisen
in the oil and gas sector where the government has
indicated that expiring production sharing contracts
operated by foreign companies will be transferred to
domestic interests rather than extended. 27
In recent times, the KPK has worked cooperatively
with international anti-corruption counterparts
(including with US and Australian regulatory
agencies). In 2010, Innospec Inc., a specialty
chemical company in the USA and UK, settled
charges against it relating to acts of bribery in Iraq
and Indonesia with total disgorgement and criminal
fines of $40.2 million. In conjunction with its illegal
conduct in Iraq, Innospec had in place several
schemes to pay bribes to Indonesian government
officials to win contracts with state owned oil and
gas companies. Bribes were funnelled through
an Indonesian agent.30 KPK commenced its own
investigations into Innospec Inc. The KPK is also
working with its Australian counterparts in the
case of Securency International and Note Printing
Australia, which involved the bribery of officials
in Indonesia to secure contracts for printing the
companies’ signature plastic polymer banknotes for
the Indonesian central bank.31 The KPK has been
involved in numerous domestic anti-corruption
investigations, implicating high profile figures such
as the former head of Indonesia’s Constitutional
Court, Akil Mochtar.32 He was subsequently given
a life sentence for accepting bribes and money
laundering.
In 2015, the KPK and Widodo’s administration will
focus on corruption in Indonesia’s oil and gas sector
which is the largest contributor to state income
making up an estimated 12% of state revenue in
2014. This follows on from an investigation into the
mining sector in 2014 that uncovered tax fraud worth
US$2.33 billion by several large mining firms.28
That said, Indonesia has made significant progress
with respect to improving transparency in its large
and complex extractive industries sector, and is
now an Extractive Industries Transparency Initiative
(EITI) compliant country (as from 15 October 2014).
Indonesia’s EITI compliance means citizens of
Indonesia have access to extensive information
about how Indonesia’s natural resources are
governed. Indonesia is required to publish EITI
Report) at 6, <http://www.controlrisks.com/~/media/Public%20Site/
26 Simon Butt and Luke Nottage, ‘Divestment of foreign mining interests in
Indonesia’, East Asia Forum -Economics, Politics and Public Policy in
East Asia and the Pacific, 13 May 2012, <http://www.eastasiaforum.
org/2012/05/13/divestment-of-foreign-mining-interests-in-indonesia/>.
Climate Statement – Indonesia, (June 2014), <http://www.state.gov/e/
eb/rls/othr/ics/2014/226611.htm>.
28 Reuters, ‘Update 2 – Indonesia’s graft watchdog to target energy
sector in 2015’, Reuters Online, 27 November 2014, <http://www.
reuters.com/assets/print?aid=USL3NOTH29Z20141127>.
11
Indonesia, (January 2015), <https://eiti.org/indonesia>.
30 U.S Securities and Exchange Commission, Securities & Exchange
Commission v. Innospec, Inc, Litigation Release No. 21454
(December 2014), <http://www.sec.gov/litigation/litreleases/2010/
lr21454.htm>.
31 TRACE International, ‘Guilty Plea by former Securency executive;
corruption charges pending against others,’ TRACE Blog (online), 26
July 2012, < http://traceblog.org/category/indonesia/>.
32 Peter Alford, ‘Jakarta rocked by justice chief Akil Mochtar’s arrest for
bribery’, The Australian, 4 October 2013, <http://www.theaustralian.
com.au/news/world/jakarta-rocked-by-justice-chief-akil-mochtarsarrest-for-bribery/story-e6frg6so-1226732545588?nk=97357ffc65d2d
4bda4ad176728c4407d>.
Bangladesh
Bangladesh ranks 145th out of 175 countries in
Transparency International’s 2014 CPI (a score of
25). The country is a party to the UN Convention
Against Corruption (since 2007). In 2012, a
Transparency International Bangladesh survey
found that 63.7 percent of households reported
having to pay bribes in order to access basic services.
This is despite the fact that various Bangladeshi
laws criminalise domestic acts of passive and active
bribery, extortion, using public resources for private
gain, and other corrupt activities.
The Prevention of Corruption Act 1947 provides
specific offences for public servants who accept
bribes, misappropriate public funds, or use their
position to obtain or attempt to obtain, any valuable
thing or pecuniary advantage. The maximum term of
imprisonment is seven years and a fine. Whilst the
government has made progress in prosecuting clear
cut corruption cases, law enforcement authorities
lack the resources to tackle more complex cases
involving corruption and money laundering through
foreign jurisdictions.33
33 US Department of State, ‘2012 International Narcotics Control
Strategy Report Volume II: Money Laundering and Financial Crimes
Country Database – Afghanistan through Columbia,’ Bureau of
International Narcotics and Law Enforcement Affairs, 30 May 2012,
<http://www.state.gov/j/inl/rls/nrcrpt/2012/database/191290.htm>.
12
Unfortunately, Bangladesh is a problematic
jurisdiction for money laundering (including with
respect to terrorist financing) and in line with
international efforts, the government is making
concerted efforts to further strengthen these laws.
Bangladesh is a founding member of the Asia
Pacific Group on Money Laundering which is a body
enforcing international standards in the region. The
Money Laundering Prevention Act 2012 (Act) (and
related laws) holds both companies and individuals
liable for offences such as bribery, counterfeiting
currency and documents, fraud, black marketing,
insider trading and market manipulation. The Act
criminalises the transfer of ill gotten gains overseas,
and the conversion of assets with the intent to hide
the source of the earnings.34 The offence of money
laundering attracts a term of imprisonment ranging
from four to 12 years, and a fine and illegally gained
property can be forfeited. Companies may have
their business registration cancelled. The Bank of
Bangladesh is given significant powers under the
Act, and a special financial intelligence unit within
the Bank can provide intelligence to domestic and
overseas law enforcement agencies on suspected
money laundering, terrorist financing and other
suspicious transactions.
34 Sofia Wickberg, U4 Expert Answer, ‘Overview of corruption and
anti-corruption in Bangladesh’, Transparency International, No. 353,
(online) 7 November 2012, <http://www.u4.no/publications/overviewof-corruption-and-anti-corruption-in-bangladesh/>.
The US State Department warns that whilst
Bangladesh has made progress in addressing
corruption and has an Anti-Corruption Commission
(ACC) in place, there are legitimate concerns
with respect to the current government’s efforts to
curb the independence of the ACC (by requiring
the ACC to seek permission from the government
before investigating state officials).35 The ACC was
established under the Anti-Corruption Commission
Act 2004 to investigate corrupt individuals in an
independent and impartial manner but in practice
it is systematically subjected to political influence.36
Companies must be aware that corruption is
particularly endemic in public procurement, customs
and tax collection and regulatory approvals. With
respect to public procurement, in a bid to curb the
estimated US$3 billion a year lost to corruption
in this sector, the government enacted a Public
Procurement Act in 2006 and Public Procurement
Rule. However, subsequent amendments to the
laws have been criticised by the World Bank
(and others) for being inconsistent with good
procurement practices, such as allowing the award
of contracts for work through lottery and without prequalifications, to ruling party activists and people
close to the government.37
Foreign companies operating in Bangladesh
confront the following business and corruption risks:
• significant petty corruption with respect to
customs administration where officials routinely
exert their power to influence the tariff value of
imports and to expedite and delay import and
export processing at ports. Chittagong Port
(which handles over 80% of imports/exports)
is considered one of the most inefficient and
corrupt ports in Asia;38
• widespread corruption in public procurement
where laws governing conflicts of interest are not
enforced, and government officials often favour
well connected companies and individuals
when awarding contracts. Unfortunately, recent
amendments to procurement laws facilitate (not
reduce) corruption by significantly relaxing the
basic requirement that bidders have the requisite
work experience and financial qualifications in
35 US Department of State, ‘2013 Investment Climate Statement –
Bangladesh Report’ (February 2013) <http://www.state.gov/e/eb/rls/
othr/ics/2013/204599.htm>.
37 Shakeel Ahmed Ibne Mahmood, ‘Public procurement and corruption in
Bangladesh confronting the challenges and opportunities’ (2010) 2(6)
Journal of Public Administration and Policy Research 103, 105-106.
38 Business Anti-Corruption Portal, Bangladeshi Customs Administration
(January
2015),
<http://www.business-anti-corruption.com/
country-profiles/south-asia/bangladesh/corruption-levels/customsadministration.aspx>.
13
order to submit tender bids, and requiring that
tender prices be capped;
• use of facilitation payments to do business is
widespread;
• systemic corruption in the judiciary and law
enforcement sectors. The main causes of
corruption in the judiciary relate to the poor
working conditions and salaries for judicial
officers, lack of accountability mechanisms and
political interference in the judicial process.
Bribery is the most common form of corruption,
where bribes are paid to expedite the hearing
of trials and influence verdicts. Critically, the
lack of effective judicial and alternative dispute
resolution procedure impedes the enforcement
of contracts and the resolution of disputes;39
• a lack of transparency in regulatory processes
encourages rent-seeking opportunities;40
• antiquated real property laws can unduly
complicate land and property transactions, and
land registration records are historically prone
to competing claims. A bona fide purchaser can
therefore never gain complete security of title. 41
In 2011, the Canadian government, pursuant to
its foreign anti-bribery laws fined Canada based
Niko Resources Ltd CDN $9.5 million for bribing
Bangladeshi officials. Two sets of illegal benefits
were provided through Niko’s local subsidiary to
the Bangladeshi Minister of Energy: a $190,984
SUV vehicle and payment of a trip to Calgary for
business, and on the way, a side trip to New York
and Chicago to visit relatives (the total value of
those benefits were in the range of $196,000). The
bribes were intended to guarantee the award of gas
purchase and sale agreements with the Bangladeshi
government.
In conjunction with the fine, the Canadian court also
imposed on the company a three year probation
order to ensure that it established and implemented
an effective internal compliance programme for
preventing and detecting foreign bribery, namely:
• a written policy against violations and compliance
standards and procedures applicable to all
directors, officers, employees, and outside
parties acting on behalf of the company; and
Bangladesh Report’ (June 2014) <http://www.state.gov/e/eb/rls/othr/
ics/2014/228770.htm >.
Bangladesh Report’ (June 2014) <http://www.state.gov/e/eb/rls/othr/
ics/2014/228770.htm >.
• explicit policies and control systems regarding
gifts, entertainment expenses, customer travel,
political contributions, charitable donations, and
sponsorships.
The compliance order was the first of its kind
imposed by a Canadian court under Canada’s antibribery laws.
Another Canadian company has become embroiled
in a corruption scandal involving Bangladeshi
government officials. The ‘Padma Multipurpose
Bridge Project’ case involving SNC-Lavalin Group
aptly illustrates the rampant corruption affecting
Bangladesh’s public procurement sector, most
notably in the construction industry.42 In 2012,
the World Bank decided to cancel its $1.2 billion
International Development Association credit in
support of this major infrastructure project when it
became apparent that SNC-Lavalin executives had
bribed Bangladeshi government officials in order
to win a public tender related to the construction
of the bridge. The remedial actions taken by the
Bangladeshi government to address the corruption
allegations proved unsatisfactory to the World Bank.
The case has led to prosecutions under Canada’s
foreign anti-bribery laws, debarment of SNC Lavalin
Group from bidding on World Bank development
projects, and investigation of Bangladeshi public
officials by the ACC.
42 David Theis, ‘World Bank Statement on Padma Bridge’, World Bank
Press Release (online), 29 June 2012, <http://www.worldbank.org/
en/news/press-release/2012/06/29/world-bank-statement-padmabridge>.
14
India
India ranks 85th of 175 countries in Transparency
International’s 2014 CPI (a score of 38). India is
emerging as a significant market for Australian
companies, however challenges exist when doing
business in India due to widespread problems with
corruption in all sectors of Indian society. The fight
against corruption featured prominently in Prime
Minister Narendra Modi’s 2014 election campaign.
Narendra Modi’s anti-corruption agenda has
instigated a cultural shift for many Indian companies
where graft is a normal part of doing business.
Examples of the corruption and business risks faced
by companies operating in India include:
• Demands for operational bribes: small bribes or
facilitation payments made to support the smooth
operation of company business. Common
examples include demands from government
officials to process licence applications or from
customs officers to expedite the clearance
of goods. Non-payment of such bribes may
often result in delay and inconvenience to the
company concerned.
• Commissions to commercial agents: many
foreign companies are told on entering the Indian
market that they will need to use the services of
a commercial agent and are expected to pay a
commission of 10% of the contract value.
15
• Low transparency: procurement practices
lack transparency and local regulations can
be amended without consultation and their
application can be inconsistent and nontransparent.43
• Business hospitality: business hospitality and
gifting is widely accepted and even expected in
Indian business dealings.
• Inefficient dispute resolution process: foreign
investors face a lack of ‘sanctity of contracts’ as
it takes on average, nearly four years to resolve
a commercial dispute in India (the third longest
average rate in the world).44
India is making efforts to combat bribery and
corruption with the introduction of a range of
legislative measures covering public procurement,
the protection of whistle blowers and domestic and
foreign bribery. The widely anticipated Lokpal and
Lokayuktas Act 2013 came into force in early 2014.
This law provides for the establishment of a federal
anti-corruption body to inquire into complaints of
corruption against certain public servants (including
former and current Prime Ministers, members of
parliament, officers of companies established by an
43 Australian Trade Commission, Doing business in India, managing
business risks – bribery and corruption, Australian Trade Commission
(Discussion Paper, October 2013), <file:///H:/Doing-business-in-IndiaBribery-and-corruption.pdf>.
44 US Department of State, ‘2014 Investment Climate Statement
– India Report’ (June 2014) < http://www.state.gov/e/eb/rls/othr/
ics/2014/228298.htm >.
act of parliament, and officers of organisations partly
financed by the government). The law provides
for the prosecution of public servants for offences
punishable under India’s Prevention of Corruption
Act. India has also amended its money laundering
laws to expand the definition of what constitutes
money laundering.
The Prevention of Corruption (Amendment) Bill
2013 (Bill) was introduced on 19 August 2013 and
seeks (amongst other things) to amend India’s
Prevention of Corruption Act to make ‘giving a bribe’
to a public servant, (to induce or reward the public
servant to perform improperly any public function),
a specific offence. The existing law does not deal
with the ‘supply side’ of corruption directly. The
minimum punishment for the offence is three years,
extendable to seven years imprisonment and a
fine. Importantly, the Bill also introduces corporate
liability for a commercial organisation if a person
associated with it bribes a public servant intending to
obtain business or a business advantage. Company
officers can face similar terms of imprisonment and
a fine. As provided under UK anti-bribery law, the
defence of ‘adequate procedures’ is available if the
company can prove they had adequate procedures
designed to prevent personnel from engaging
in corrupt conduct.45 The enactment of this Bill is
pending.
The Prevention of Bribery of Foreign Public Officials
and Officials of Public International Organisations
Bill 2011 was introduced to Parliament on 25 March
2011 (as a requirement for India’s ratification of the
UN Convention Against Corruption). The proposed
law provides a mechanism to deal with bribery of
foreign public officials (FPO) and officials of public
international organisations (OPIO).
The Bill criminalises the following acts:
• acceptance or solicitation of bribes by FPO
and OPIO for acts or omissions in their official
capacity;
• offering or promising to offer a bribe to any FPO
and OPIO for obtaining or retaining business;
• abetment or attempting either of the above acts.
Any person who commits offences under the law
shall be liable for imprisonment between six months
and seven years and a fine. The proposed law has
extra-territorial reach as it empowers the Indian
Central Government to enter into agreements with
other countries in order to carry out cross border
45 The Prevention of Corruption (Amendment) Bill, 2013 (Republic of
India), 69th Report, Department Related Parliamentary Standing
Committee on Personnel, Public Grievances, Law and Justice,
Parliament of India, Rajya Sabha, February 2014.
16
investigation and enforcement actions.46 The
progress of this Bill appears to have lapsed, and
it will have to be re-introduced into Parliament.
Until recently, a significant impediment to fighting
corruption in India has been the lack of adequate
whistle blower protections. The Whistle Blowers
Protection Act 2011 commenced on 9 May 2014
and is thus a step in the right direction. The law
provides a mechanism to register complaints of
allegations of corruption or wilful misuse of power
against a public servant and provides protections
against victimisation for the whistle blower.47
Another long overdue development is India’s
enactment of the Companies Act 2013 which hopes
to significantly improve corporate governance in
India. The law aims to facilitate more transparent
and efficient corporate behaviour by better
regulating a variety of areas, including:
• Corporate audit procedures: the law seeks
to provide for more stringent rules regarding
the appointment, role and responsibilities and
liability of auditors, the content of financial
statements and the composition of corporate
boards (i.e., publicly-listed companies must
have at least one third of its total number of
directors as ‘independent directors’). Notably in
the context of anti-corruption, auditor’s reports
are required to indicate whether a company has
adequate internal financial controls in place and
the operating effectiveness of such controls.
Auditors have an obligation to report to the
government if they have any reason to believe
an offence involving fraud is, or has been,
committed by company officers or employees.
• Enforcement actions: the law provides for the
multi-disciplinary Serious Fraud Investigation
Office as the sole authority to investigate
corporate crimes (which are complex in nature,
involve a public interest component, and if
investigated may lead to a clear improvement in
law and procedure). Fraud related offences are
now extensively dealt with under the law and the
penalties clearly prescribed.
• Corporate social responsibility (CSR): the law
seeks to define norms for mandatory corporate
philanthropy for companies that exceed certain
net worth, turnover or profit thresholds to
clarify what is acceptable CSR spend. The law
46 The Prevention of Bribery of Foreign Public Officials and Officials of
Public International Organisations Bill, 2011 (Republic of India), 50th
Report, Department Related Parliamentary Standing Committee on
Personnel, Public Grievances, Law and Justice, Parliament of India,
Rajya Sabha, March 2014.
47 PRS Legislative Research, The Whistle Blowers Protection Bill, 2011
(January 2015), <http://www.prsindia.org/billtrack/the-public-interestdisclosure-and-protection-of-persons-making-the-disclosuresbill-2010-1252/>.
specifies that these companies will be required
to spend at least 2% of the average net profits of
the immediately preceding three years on CSR
activities.48 Public reporting of CSR expenditures
is mandatory and directors of companies who
fail to report may face personal liability.
The enactment of this new law is a cause for optimism
because it may become an important mechanism in
the fight to tackle corporate corruption.
In recent times in India, the Second Generation
(2G) telecom spectrum corruption scandal involved
illegal awards by the government on a ‘first come,
first serve basis’ of 122 2G licences to private
telecom companies at discount prices. In 2012, the
Supreme Court of India struck down all the licences
granted by the Minister under this policy on the basis
that an auction/competitive tender process was the
correct and only method by which to allocate public
resources. The licence cancellations led to the
Indian government and many foreign companies,
(involved in joint venture arrangements with Indian
telecoms conglomerates), suffering major financial
loss.
In an interesting case development, US regulators
are investigating Walmart India for alleged violations
of US Foreign Corrupt Practices Act (FCPA). The
on-going US bribery investigation into Walmart’s
Mexico operations has led the company to review
and reinforce its FCPA compliance program in
other countries, including India. The Mexican
bribery scandal relates to allegations that company
officials in Mexico bribed local officials to allow a
rapid expansion of stores in the country, including
the location of a store near an ancient pyramid site
(despite zoning changes which aimed to limit urban
development). Further, Canada’s first individual
prosecution under its foreign anti-bribery laws
relates to an attempt by a Canadian executive to
bribe Indian government officials. The executive
was convicted in May 2014 for his leading role in a
conspiracy to bribe India’s Minister of Civil Aviation
and certain Air India officials in order to facilitate
the award of a contract to a Canadian company to
supply facial recognition software. The company
failed to win the tender however the Canadian court
found it enough that the executive ‘conspired’ to
provide a financial benefit to a foreign public official.
48 Control Risks Group Limited, India’s Companies Act – Big step
ahead, but with challenges, Integrity Matters, Issue 12, March 2014
(December
2014),
<http://www.controlrisks.com/en/newsletters/
integrity-matters/issue-12/india-company-act-in-detail>.
17
Papua New Guinea
Papua New Guinea (PNG) is a very corrupt country,
with more than 40 percent of PNG’s national budget
lost to corruption. PNG ranks 145th out of 175
countries in Transparency International’s 2014 CPI
(with a score of 25; equal to Bangladesh). PNG is
rated as the most corrupt nation in the Pacific, a
product of corruption being institutionalised at the
highest levels of PNG’s socio-political order.
Since 2007, PNG has been a party to the UN
Convention Against Corruption (Convention),
however the country’s implementation of the
Convention is unsatisfactory.49 Bribery of foreign
officials is not criminalised in PNG. PNG’s Criminal
Code Act 1974 contains anti-bribery provisions
criminalising domestic acts of bribery including
those which make it an offence to bribe a member
of the public service and to accept bribes. The PNG
judiciary is largely seen to be independent (although
corruption does persist at lower levels) but it suffers
from inadequate financial and human resources.
Unfortunately, this situation has led to a lack of
enforcement of the law and judicial backlogs, with
many public officials evading prosecution for abuse
of power and corruption.
49 Sofia Wickberg, U4 Expert Answer, ‘Papua New Guinea: overview of
corruption and anti-corruption,’ Transparency International – U4 AntiCorruption Resource Centre (online), 1 March 2013, <http://www.
u4.no/publications/papua-new-guinea-overview-of-corruption-andanti-corruption/>.
18
Some examples of the business and corruption
risks faced by companies operating in PNG include:
• Demands for small bribes: a poorly functioning
public sector encourages widespread use of
bribes, facilitation or ‘grease payments’ to speed
up administrative processes (e.g the issuing
of permits or licences), avoid inspections, or
allow the use of false declarations (etc). This
is particularly problematic in the area of natural
resource management (such as in the mining,
petroleum and forestry sectors).
• ‘Wantok’ (mutual assistance to kin): ‘Wantokism’
plays a central role in the social, economic
and political life in PNG, and seeks to transfer
clan loyalties and traditional norms into the
modern political system. This process creates
significant opportunities for corruption namely,
kin being nominated for positions of influence
within government, endemic corruption in the
government procurement tendering process,
and the embezzlement of state funds.50
• Contractual repudiation: a difficult relationship
exists between the extractive industries sector
and local populations due in part to PNG’s
system of customary land ownership (over
50 Sofia Wickberg, U4 Expert Answer, ‘Papua New Guinea: overview of
corruption and anti-corruption,’ Transparency International – U4 AntiCorruption Resource Centre (online), 1 March 2013, <http://www.
u4.no/publications/papua-new-guinea-overview-of-corruption-andanti-corruption/>.
90% of land is owned informally by indigenous
communities) and high levels of corruption
among officials in the Department of Lands. The
Department does not often adequately consult
or engage with indigenous populations during
the pre-project development approval process.
This has the capacity to result in opposition
to projects already approved, pressuring the
government to take action against investors and
repudiate contractual arrangements. 51
PNG Prime Minster, Peter O’Neill has stated he
is committed to tackling endemic corruption in
the country. However, his sudden dismantling of
Taskforce Sweep in June 2014 on the grounds
that it had become ‘politically compromised’ (after
the Prime Minister himself became the subject of
serious corruption allegations) is not encouraging.
Taskforce Sweep was the country’s main anticorruption body and was set up in 2011 with the
assistance of the Australian Federal Police to fight
cross border corruption with an anti-corruption
taskforce. The work of the Taskforce led to the
April 2014 conviction by the PNG National Court of
politician Paul Tiensten to nine years imprisonment
with hard labour for misappropriating AU$4 million of
public funds. It is said to be the harshest sentence
handed to a corrupt public official since PNG’s
independence.52 As at November 2014, PNG police
were investigating 15 members of PNG’s parliament
for corrupt activities. Maprik MP John Simons was
charged with 38 official counts of corruption relating
to state monies paid to construction and rental car
companies owned by Mr Simons.53
Following the axing of Taskforce Sweep, the
government set up a temporary anti-corruption
body (the Interim Office for Anti-Corruption) chaired
by retired Australian judge, Justice Graham Ellis.
This body is a precursor to the formal establishment
of PNG’s Independent Commission Against
Corruption (ICAC). The legislation (a Constitutional
amendment)54 to develop the framework for ICAC
passed in February 2014 however the Organic
Law must be passed in Parliament before ICAC
will become operational. As at 19 January 2015,
PNG’s Government Chief Secretary Sir Manasupe
Zurenuoc indicated that the Organic Law for
ICAC was tabled on the floor of parliament when
51 Elizabeth Stephens, ‘World Risk Review – Papua New Guinea Country
Risk Report April 2014’, World Risk Review, JLT Specialty Limited,
April 2014 (online), <www.worldriskreview.com>.
52 Bal Kama, ‘A victory over corruption in PNG’, The Lowy Interpreter
(online), 4 April 2014 <http://www.lowyinterpreter.org/post/2014/04/04/
A-victory-over-corruption-in-PNG-paul-tiensten.aspx?p=true>.
53 ABC Radio National, ‘Ten per cent of Papua New Guinea MPs under
corruption investigation’, 11 November 2014, (Liam Cochrane).
54 Constitutional Amendment (No. 40) (Independent Commission Against
Corruption) Law 2014 (Republic of Indonesia).
19
parliament resumed sitting on 10 February 2015. 55
The amendments to the Constitution provide
that ICAC will be independent and headed by a
commissioner and two deputy commissioners. The
purpose of ICAC is to contribute, in cooperation
with other agencies, to preventing, reducing and
combating corrupt conduct. Thus, it will complement
the work of the existing Ombudsman Commission
and the police but not subsume their functions. The
key functions of ICAC56 will include:
• considering complaints regarding alleged or
suspected corrupt conduct and investigate (if
appropriate) as well as investigate on its own
initiative;
• if of the opinion that an offence has been
committed, referring the matter to the public
prosecutor or police;
• exchanging information on alleged or suspected
corrupt conduct with law enforcement agencies
in PNG and overseas;
• cooperating and coordinating with other public
and private sector agencies in research,
development and education on corrupt conduct
and anti-corruption strategies (etc).
• the ICAC initiative is in conjunction with
proposed new laws to protect whistle-blowers
and encourage freedom of information.
In other developments, the PNG Government is
now participating in the global Extractive Industries
Transparency Initiative (EITI) with its admission as
a candidate country on 19 March 2014. This is an
important step in improving transparency in revenue
flows to government from resources companies in
PNG (considering that mineral exports account for
around 70% of PNG’s export earnings and the oil
and gas sector has attracted large scale investment
in recent times). Pursuant to the EITI, PNG has
to commence disclosing payments and other data
about its extractives sector, including information on
licence holders, allocations and production data. It
will be required to publish its first EITI Report within
two years of becoming a candidate (by 19 March
2016).57 Thus, the PNG Government’s commitment
in working towards meeting the EITI standard
means companies operating in PNG’s extractive
industries sector can expect improvements in the
transparency of business dealings with government.
55 Online Editor, ‘PNG Parliament to consider anti-corruption law next
month’, Pacific Islands News Association (online), 19 January 2015.
< http://www.pina.com
fj/?p=pacnews&m=read&o=134295509154bdc3f4dc78bdb5b183>.
56 Constitutional Amendment (No. 40) (Independent Commission Against
Corruption) Law 2014, (Republic of Indonesia).
Papua New Guinea, (December 2014), < https://eiti.org/papua-newguinea>.
Top tips to reduce corporate
exposure to corruption risks
We provide below some tips for companies
proposing to, or currently operating in, a developing
country jurisdiction.58 These takeaways can be read
together with the recommendations provided in our
May 2014 Issues Paper.
Tip 1:
Corruption risk assessments
It is critical that companies develop appropriate risk
management strategies to navigate successfully
the challenges of operating in a developing country.
It is advisable to undertake a detailed corruption
risk assessment given the higher prevalence of
corruption.
Any risk assessment should involve not only desk
top research (and an assessment of reports from the
internal audit function), but in-depth discussions with,
including the surveying of, personnel in-country that
have regular interactions with government officials
as part of their job. This research will yield important
information on gaps in existing corporate policies,
procedures and training within the organisation with
respect to activities in the relevant jurisdiction.59
When the inherent risk factors have been identified,
each risk should be rated so company resources
can be allocated most effectively (i.e., rate both the
probability that the risk will occur and the potential
impact it may have on the business). It is then
important to identify mitigating controls for each risk
which are commensurate to the probability of the
risk arising.
Anti-corruption risk assessments are best
documented in detail in a company risk register.
The register can be used to document the rating for
each risk and well as the anti-corruption programs
and controls that mitigate that risk. A company may
find ‘heat maps’ an effective tool to summarise the
results of a corruption risk assessment. A corruption
risk ‘heat map’ sets out the risks identified by the
company, placing them according to their likelihood
and potential impact on a background of colours,
with each colour representing a different overall level
of risk (i.e. high, medium and low risk respectively).
58 Many of these tips are derived from guidance contained in the AntiCorruption Ethics and Compliance Handbook for Business (2013)
published by the OECD, UN Office on Drugs and Crime, and the World
Bank.
59 Control Risks Group Limited, ‘Anti-Corruption in Indonesia’ (2013
Report) 9 <http://www.controlrisks.com/~/media/Public%20Site/Files/
Oversized%20Assets/indonesia_whitepaper_2013.pdf>.
20
Overall, a risk assessment is an on-going and
dynamic process. To be truly effective, it needs
to be performed periodically (e.g, annually). It
is important to revisit a risk assessment if the
company enters new markets, or is subject to a
merger or reorganisation. Further, without the
active and enthusiastic involvement of executive
level management in the risk assessment process
it will have no practical impact on the operation of
a company.
Tip 2:
Charitable donations
Many companies undertake genuine corporate
social responsibility initiatives in developing
jurisdictions, such as providing improvements to
sanitation, health services or building schools.
However, problems can arise where companies are
asked to make donations to support charities run by
local partners but fail to ascertain how the funds will
be managed and who runs the charity in question.
It is important to undertake adequate due diligence
on the charity and its management structure.
Companies need to ensure, at the very minimum,
that all donations and sponsorships are made
public and that the recipients have a legitimate
social purpose.
Tip 3:
Selection and use of third party agents and
business partners
Without careful selection of third party intermediaries
(whether they be local partners, suppliers, agents,
distributors or subcontractors) there is heightened
risk that the intermediary may not act in the best
interests of the company.
All third parties should be subject to a thorough
due diligence process. If a third party is engaged,
contractual documentation will ideally contain:
• a detailed description of the company’s anticorruption policies and a stipulation that the third
party is not to engage in any corrupt practices;
• a provision allowing the company’s independent
auditor to audit the books and records of the
third party agent/business partner to verify its
compliance with the law and company rules;
• (if there is a heavy reliance on third party agents)
a process by which the company can monitor the
activities of the agent by making it a requirement
that the agent provide monthly reports detailing
its activities (and any payments made) and
a requirement for the agent to sign an annual
certification to the effect that it has not violated
laws relating to anti-corruption or company
policies;
• anti-bribery and business ethics provisions.
These can be based on Australian foreign bribery
laws and/or the laws of the jurisdiction in which
the company predominantly operates;
• provisions stipulating the penalties and sanctions
for misconduct and an ability of the company to
terminate the contract in event the third party
agent or business partner engages in corrupt
activities; and
• a provision noting that, under no circumstances,
will any agents’ remuneration be paid in cash.
It is preferable to minimise dependence on third party
intermediaries however this is not always possible.
Only hire third parties to the extent appropriate
for the regular conduct of company business and
do not pay them more than what is appropriate
remuneration for the services being performed.
Tip 4:
Communicating externally
Clear and unambiguous external communication of
corporate anti-corruption policies to prospective and
current business partners, agents and government
officials is vital if operating in developing countries
because corruption is often ingrained in the
business culture. Thus, companies that take a
strong and visible stance on corruption can dissuade
prospective or current agents of the company from
engaging in illicit conduct.
Tip 5:
Company training (in-country)
All employees, contractors, secondees and
agents working in-country in a developing country
jurisdiction or working in high risk roles (such as
procurement, marketing or project approvals)
should be subject to more in-depth anti-corruption
training compared to personnel based in Australia
and not undertaking high risk functions.
It is important to use ‘real life’ examples, case
studies, role plays and quizzes in training packages
for in-country staff. Company personnel who
have regular interactions with foreign government
officials are well placed to train other staff on how to
best handle situations where bribes may be sought.
It may be preferable to conduct training in English
as well as the in-country language to enable local
employees to pose questions and obtain answers in
their local language.
21
By way of example, an anti-corruption training
session could cover the following topics:
• in-country case studies that highlight corruption
risks and the need for personnel to properly
assess risk, identify red flags, and report
concerns as soon as practicable;
• the consequences for the individual and a
company that engages in prohibited conduct or
whose third party business partner does so, on
its behalf;
• the way that personnel can promote a culture of
ethics in the organisation;
• company anti-corruption policies and guidelines
on gifts or entertainment offered, provided or
received from government officials;
• the importance of accurate record keeping;
• the identity of the persons nominated as
compliance specialists within the organisation
and the procedures available for whistle blowers;
• relevant anti-corruption laws, including Australian
law, the UK Bribery Act and the US Foreign
Corrupt Practices Act.
Tip 6:
Gifts, entertainment, travel and hospitality
Gift giving and hospitality are seen as important
to doing business in many developing country
jurisdictions, especially in India. Thus, it is critical
that company policies clearly define the acceptable
monetary limits for gifts, entertainment, travel and
hospitality and the approval levels required for
internal sign-off. There must be a process in place
to record the details of all such expenditures by
employee and/or client.
Key points:
• gifts should be given openly and transparently,
properly recorded in company books, permitted
under local law, and appropriate for the context
in which they are given (not extravagant).
• hosting and entertainment expenses must be
‘reasonable’ and reflect a desire to cement good
relations and show appreciation.
• promotional expenditures should be for the
purpose of improving company image, better
presenting products and services, or establishing
cordial relations.
• travel expenses for foreign officials must be limited
to those required as part of business operations
and reasonable in the circumstances. For
example, it would be acceptable for a company
to pay for flights and modest accommodation on
site for a government official in order for them to
undertake workplace health & safety inspections
at a remote production site in the PNG highlands
(in a context where such inspections are a legal
requirement in order for the company to remain
in operation).
Tip 7:
Whistle blowers
It is important to establish a secure and accessible
‘whistle blower’ procedure so staff are encouraged
to raise concerns regarding corruption as early as
possible and without the risk of reprisal or fear of
discriminatory action. All bona fide reports should
be investigated.
A company should provide personnel with guidance
on how (and when to) seek urgent advice if they find
themselves in difficult situations ‘out in the field’. A
company must have designated personnel that staff
can contact to raise any concerns. These personnel
require adequate training on how to handle both the
concerns raised and the whistle blower. Training can
also cover a variety of other issues including topics
such as the key reasons individuals keep silent, the
complex in-field situations personnel face, and the
relevant laws protecting whistle blowers.
Larger organisations who operate in numerous
jurisdictions may wish to put in place an ethics/
compliance ‘hotline’ as a confidential and anonymous
reporting mechanism where employees, agents,
distributors and/or suppliers can report concerns
and obtain advice on potentially unethical actions
or other situations that may affect company
interests. Any bona fide reports are subject to
internal review and are prioritised according to their
potential impacts on the company. The benefits of
implementing an ethics hotline is that it engenders a
stronger culture of anti-fraud and ethical behaviour
within the organisation which may in turn lead to a
reduction in company employees and stakeholders
engaging in misconduct.
Tip 8:
counsel to assist in this process. Where complex
investigations need to be carried out in developing
country jurisdictions, the company may wish to
engage local legal counsel and the services of
a professional investigative firm which can more
easily accomplish tasks such as the securing of
company servers, interviewing personnel in-country,
conducting a forensic IT investigation for collection
and preservation of all electronic evidence and
asset tracing.
If the company is, for example, a subsidiary of
a US or UK based parent, and the allegations of
misconduct are very serious, the parent company
board must be fully briefed on developments and
investigation outcomes. The board can then make
an assessment of the facts and decide whether it
is necessary or not to self-report to the US or UK
regulators.
If the investigation reveals that the person or
persons have engaged in corrupt conduct, the
company must consider appropriate disciplinary
measures (including termination) and take
appropriate corrective action to prevent further or
similar incidents from occurring. It may be a good
opportunity to review and evaluate the company’s
anti-corruption program to assess whether
improvements are required.
With respect to a targeted investigation into company
activities by anti-corruption regulators, the company
should fully co-operate with the regulator. The
company must have a clear procedure for personnel
to follow in event that a regulator makes inquiries
or commences an investigation. It is advisable that
all company communications with the regulator be
funnelled through a nominated person, such as inhouse legal counsel, in order for legal professional
privilege to be appropriately maintained.
Author
Addressing violations – internally and externally
with authorities
If internal allegations arise implicating an employee,
partner, agent or contractor in corrupt activity, a
key challenge for a company is to ascertain the
veracity of the allegations and whether there have
been any violations of the relevant anti-corruption
laws. The company needs to proceed quickly,
collecting information through interviews with
employees and investigative evaluation of company
documents and other sources, while making sure
that legal professional privilege is protected at all
times. It is often advisable to retain outside legal
22
Audine Bartlett
Senior Associate
+61 7 3000 8331
@ abartlett@carternewell.com
Brisbane
Level 13, 215 Adelaide Street
Brisbane QLD Australia 4000
GPO Box 2232
Brisbane 4001
Phone +61 7 3000 8300
Email cn@carternewell.com
Sydney
Level 6, 60 Pitt Street
Sydney NSW Australia 2000
Phone +61 2 9241 6808
Melbourne
280 Queen Street
Melbourne VIC Australia 3000
(Via Agency)
23

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