Pulvirenti and Bray: Time to remove Australia’s facilitation payment defense?

The Australian Senate on March 28 released its long-awaited report on foreign bribery. The report supports recent government proposals to introduce Deferred Prosecution Agreements and a corporate “failure to prevent corruption” offense, while also strengthening whistleblower protections.

However, it challenges existing government policy on one crucial issue: it calls for the abolition of the exception under Australia’s anti-bribery law for facilitation payments.

Section 70.4 of the Australian Criminal Code currently excludes facilitation payments from the foreign bribery offence. Echoing the FCPA, it defines these as payments “for the sole or dominant purpose of expediting or securing the performance of a routine government action of a minor nature.”

The Senate report argues that this approach is unacceptable. It calls for “a transition period to enable companies and individuals to adjust their business practices and procedures.” Thereafter, foreign facilitation payments should, for legal purposes, be treated as bribes.

Depending on the government’s response, it will take time to draft new legislation. Nevertheless, the report sends a clear message to Australian companies. To the extent that they still make facilitation payments in their international business transactions, they need to get ready for change.

The report was issued by the Senate Economics References Committee. The committee began its inquiry in May 2015, and after federal elections in July 2016, was reconstituted in October 2016. It received written and oral testimony from a wide variety of government, business and civil society representatives.

In its analysis, the committee noted that the OECD had highlighted the “corrosive” impact of facilitation payments and, since 2009, had called on member states to review their policies in order to “combat the phenomenon.” The U.S. and New Zealand retain their own facilitation payments exceptions. However, other comparative countries — notably the UK and Canada — do not. Moreover, many businesses and regulators struggle to determine whether specific transactions meet the Australian Criminal Code’s definition of facilitation payments. Australian law firm King & Wood Mallesons stated that this was “one of the more conceptually complex [issues] arising from Australia’s anti-bribery legislation.” Such questions of definition have never been tested in an Australian court.

Despite these problems, the committee heard from a number of witnesses who want to keep the exception. For example the Australia–Africa Mining Industry Group (AAMIG) argued that smaller companies operating in high risk markets “do not have the political capital to influence host-country Government officials to carry out their duties.” On a similar note, the Export Council of Australia argued that small and medium enterprises are at a “specific disadvantage” when faced with such demands, and abolishing the facilitation payment defense would have a “disproportionately adverse effect” on them.

However, the majority of witnesses called for the repeal of the defense. The International Bar Association cited an address by Justice Terence Cole which stated: “The laws which permit such payments and make them tax deductible blur the bright line between permissible and impermissible conduct.” Robert Wyld of the law firm Johnson Winter & Slattery argued that facilitation payments should be banned with “no exceptions.”

Representing the Commonwealth Director of Public Prosecutions (CDPP), Shane Kirne quite correctly explained that few companies kept records of facilitation payments to a standard that would meet the Criminal Code’s strict reporting requirements. In more colourful language, he added that companies were “not likely to put ‘bribe to a foreign official’ in the expenses account.”

Many business representatives concurred with such views. BHP Billiton pointed out that by the international nature of its business, it was already subject to UK and other laws barring facilitation payments. Woodside Petroleum said that a policy of permitting such payments “helps to maintain an environment in which bribery can take root and flourish.” Our view, which was conveyed to the committee during the inquiry, is that facilitation payments are bribes and should be treated accordingly. To do otherwise sends a mixed message to business and the community.

The committee’s overall conclusions are clear. It accepts the view that facilitation payments are “not materially different” from small bribes. It is “deeply concerned and disappointed” that the government has yet to take legislative action in this area. Now this needs to change.

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Mark Pulvirenti, above left, is a Control Risks Partner based in Sydney, and testified to the Senate Economic References Committee. Mark leads Control Risks’ Compliance, Forensics and Intelligence practice for the Australia Pacific region.

John Bray, right, is a Director at Control Risks’ Singapore office