Doing business in another country requires sensitivity to local mores. But, as a decade-long case involving a major Australian engineering firm shows, this can never include bribing foreign officials.
The High Court’s recent decision in R v Jacobs Group (Australia) Pty Ltd [2023] HCA 23 concerned the company formerly known as Sinclair Knight Merz Pty Ltd (SKM). In September 2020, SKM pleaded guilty to three counts of conspiring to bribe foreign officials, first in the Philippines between 2000–05 and then in Vietnam between 2006–12. The High Court’s decision concerned the proper basis for calculating the maximum fine for its offences.
The penalties point is interesting. But for directors, the SKM case is important for two other reasons. First, 24 years after bribing foreign officials became an Australian crime, it draws attention to the legal and ethical reasons why engaging in corrupt conduct can never be tolerated. Second, the board’s response after illegal conduct was uncovered provides a compelling real-life example for directors confronting a similar crisis.
The conspiracies
Justice Christine Adamson’s judgment in R v Jacobs Group (Australia) Pty Ltd [2021] NSWSC 657 explains what occurred, based on the statement of facts agreed between the company and the Australian Federal Police (AFP) as part of the plea.
The offending involved SKM’s overseas development assistance (SODA) division, a small operations centre in its water and environment business unit. SODA provided project management and technical services for engineering projects run by AusAid and for public works projects in developing countries funded by the World Bank and the Asian Development Bank (ADB). Between January 2000 and June 2012, SODA tendered for and was awarded contracts to provide engineering project management services for public works projects in the Philippines and Vietnam, funded by loans from either the ADB or World Bank.
In 2012, an internal due diligence process conducted (for other reasons) by SKM’s lawyers uncovered that SODA employees and agents, with the knowledge of two senior officers of the company, had bribed officials in those two countries to secure the contracts.
The bribery laws
Bribing foreign officials has been a Commonwealth crime since 1999. When the offences were introduced, the then Attorney-General described them as “very much one of the consequences of globalisation. We live in a time of unparalleled social and cultural interactions, which demand that we have an international perspective in relation to our ethical and value systems as well as the conduct of business... [This] will convey a message to the world and the Australian community that Parliament takes the problem of bribery seriously.”
The offences are contained in the Commonwealth’s Criminal Code and implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which the High Court described as “a very significant response by the international community to the problem of transnational corruption”. Reasons put forward by the government for supporting the OECD convention were that bribery “distorts attempts at international competitive bidding, bribes themselves are non- productive and are therefore paid from profits, and bribes distort trade in that contracts are not based on merit and can lead to production of poor- quality goods and services”.
An OECD review of the law, conducted in 2006, concluded that the penalties were inadequate and recommended that Australia increase the fines “to a level that is effective, proportionate and dissuasive, in light of the size and importance of many Australian companies as well as MNEs (multinational enterprises) with headquarters in Australia”. In response, the parliament increased the maximum penalty for a corporate offender to the greatest of 100,000 penalty units (currently $31,300,000), three times the value of the benefit obtained that is reasonably attributable to the conduct constituting the offence, and (if the court cannot determine the value of that benefit) then 10 per cent of the company’s annual turnover.
The board’s response
Bribery at home or overseas is a serious criminal offence. In SKM’s case, it was uncovered through routine due diligence inquiries conducted in connection with another project. This left the board with some hard choices to make — and quickly. SKM immediately commissioned an investigation by its lawyers. The board (excluding conflicted directors) received a working draft of their report in late August 2012. As Justice Adamson says, the “findings of the report demonstrated to its readers that the company, which many had believed to be a professional, ethical company, had engaged in conduct which, if proved to the requisite standard, was criminal”.
What happened next was key. The parent company board “voted unanimously to self-report... to the AFP, the World Bank, ADB and AusAid and, to that end, to waive legal professional privilege on the report and provide it to these entities”.
In the proceedings, SKM’s lawyer gave evidence as to why the directors decided to self- report. He said they had “determined: (i) the matters the subject of the [report] were sufficiently serious to warrant self-reporting; (ii) it was the correct moral and ethical approach to take; and (iii) it was in the best interests of the company and its shareholders to make the self-report. The self- report was made by the... directors with the knowledge that doing so may result in criminal proceedings being brought against the company and former or current employees who were involved in the conduct and who appeared to have acted unlawfully.”
As Justice Adamson observed, “the Philippines conspiracy and the Vietnam conspiracy were paradigm examples of the type of conduct which the convention and the legislation... was designed to criminalise and prevent. Those individuals involved can be taken to have known that what they were doing was criminal. They took elaborate steps to hide their offending from those outside the inner circle within the company so that it would not be detected by the company’s usual compliance procedures. The offending conduct continued... for about a decade.”
From 2012, SKM’s lawyers carried the can on the criminal investigation, with the AFP apparently under-resourced to progress it. Even so, it took almost six years for charges to be laid.
Justice Adamson concludes that, “Corporate offenders engaged in offences related to foreign bribery, including conspiracies, who need only be concerned that the AFP will detect their criminal conduct, are hardly likely to be deterred by the prospects of detection because of the features of the crime... which make it, absent inside knowledge, almost impossible to detect and very difficult to prosecute. But those who work for corporations with an ethic such as the company’s in the present case, have every reason to fear detection since the gamekeeper, in that scenario, is in a position to monitor the poacher.”
Dr Pamela Hanrahan is a consultant at Johnson Winter Slattery.
This article first appeared under the headline 'Business & Bribery’ in the February 2024 issue of Company Director magazine.
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