Australia strengthens foreign bribery laws: New ‘failure to prevent’ offence

Strengthened laws aimed at combatting foreign bribery passed Federal Parliament last month, introducing a new ‘failure to prevent foreign bribery’ offence for Australian organisations. The laws come into effect in September this year. We take a look at what directors need to know.

On 29 February 2024, the Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023 (Cth) passed Federal Parliament.

The reforms have been seven years in the making. Previous iterations of the legislation, introduced in 2017 and 2019, underwent extensive consultation and received bipartisan support, but lapsed due to two federal elections.

The legislation amends the Criminal Code 1995 (Cth) (Criminal Code) to introduce a new ‘failure to prevent bribery of a foreign official’ offence for companies and makes a number of changes to strengthen the existing foreign bribery offence.

The new laws will see a fundamental shift in the way organisations can be prosecuted for bribery in Australia, including a greater risk of exposure to automatic criminal liability. We take a look at the key changes and what directors can be doing now to prepare.

New failure to prevent offence

Modelled on similar provisions in the UK Bribery Act 2010, the legislation establishes a new criminal offence for Australian bodies corporate which fail to prevent foreign bribery for the profit or gain of the company by an associate – attracting penalties of $31.3 million or higher.

An ‘associate’ is defined broadly and includes all officers, employees, agents, contractors, subsidiary entities in a corporate group and any person who performs services for or on behalf of the company.

The new offence applies to Australian bodies corporate across a broad range of sectors, including ASX listed, private companies, government entities and not-for-profits (including both incorporated associations and companies limited by guarantee).

Importantly, the offence will apply on a strict liability basis, meaning there is no requirement to show fault on the part of an organisation. It will be unnecessary to prove that the bribe was authorised by the company, or that the company intended for the bribe to be paid. The only defence available will be if a company can show it had ‘adequate procedures’ in place to prevent the bribery offence.

Principles-based guidance is expected to be published by the Attorney-General’s Department on ‘adequate procedures’ that a company can take to prevent foreign bribery by an associate. Importantly, there will be no ‘one size fits all approach’. What will be considered ‘adequate procedures’ will be determined by a court based on factors such as an organisation’s size, sector and operational context (including geographical locations). Organisations will be required to tailor effective and proportionate procedures to prevent bribery from occurring within their organisation. 

Existing foreign bribery offence strengthened

The legislation also makes a number of changes to strengthen the existing foreign bribery offence to address challenges that Australian law enforcement has experienced in pursuing prosecutions. These amendments are intended to enable investigations to look at a broader range of activities and benefits by:

• Extending the offence to include bribery to obtain ‘a personal advantage’ as well as business advantage;
• Removing the requirement that a foreign official must be influenced ‘in the exercise of their official’s duties’ - instead it will be enough to show that a person intended to influence that official; 
• Extending the definition of ‘foreign public official’ to include an individual standing or nominated as a ‘candidate for office’; and
• Replacing the requirement that a benefit and business advantage must be ‘not legitimately due’ with the concept of ‘improperly influencing’ a foreign public official.

No Deferred Prosecution Agreement Scheme – A missed opportunity?

Unlike previous iterations of the legislation that have been before Parliament and lapsed, disappointingly the amendments do not include a Deferred Prosecution Agreement Scheme.

A DPA Scheme accompanies foreign bribery laws in other jurisdiction, such as the UK and US, to incentivise organisations to self-report foreign bribery when it is detected and to cooperate with law enforcement authorities.

A DPA Scheme in Australia would have allowed the Commonwealth Director of Public Prosecutions to enter into a voluntary agreement with organisations to defer prosecutions subject to a range of conditions, including ongoing investigation, payment of financial penalties, admission to agreed facts or implementing a program to improve future compliance.

Doing so would offer greater certainty of outcome and make it easier for organisations (but not individuals) to settle disputes quickly and voluntarily, without the need for the financial and reputational costs associated with criminal proceedings

This is particularly critical in the context of the new failure to prevent foreign bribery offence, where an organisation may become aware of bribery or corruption by one of its associates in a foreign jurisdiction and face automatic liability.

The AICD’s submission on the reforms strongly encouraged Government to re-consider the inclusion of a DPA Scheme in the legislation. However, Government has confirmed it will only consider the introduction of a DPA Scheme after the laws have been given time to operate.

Last minute amendments to the legislation saw the inclusion of a statutory review mechanism 18 months after the laws come into effect. This provides an opportune time to revisit the introduction of a DPA Scheme and the AICD will continue to engage with Government on these measures.

What does this mean for boards?

The new laws will come into effect on 8 September 2024. To prepare, boards should critically review their organisation’s current approach to detecting and preventing foreign bribery and corruption.

Key questions directors can be asking now include:

• Risk management– what is our organisation’s approach to identify, assess, and mitigate foreign bribery risks within and outside the organisation? Has external expertise been sought to support management?
• Due diligence– does the organisation apply bribery related due diligence measures for associates and prospective associates (including prior to entering into new markets, business relationships or transactions, seeking tenders for work or necessary approvals from foreign government entities)?
• Leadership focus– does the board and management play an active role in the implementation and promotion of the organisation’s anti-bribery policy and procedures (including effective review of procedures, critical decision-making and overseeing breaches of policies and disciplinary measures)?
• Communication and training– are bribery prevention policies, procedures and training communicated throughout the organisation and made accessible to all associates, including contractors?
• Confidential reporting and investigation– is there a confidential reporting mechanism that allows internal and external stakeholders to raise concerns about bribery risks, report instances of bribery and request advice?
• Monitoring and review of compliance systems– what regular monitoring and testing of the effectiveness of the anti-bribery policies and procedures is undertaken currently? Has an external assessment been conducted?
• Role of contractors– how reliant is the organisation on contractors to operate overseas, and how does the board and management gain confidence that they are acting lawfully? Will legal agreements need to be reviewed in light of the new laws?