Many Australian businesses who deal with customers based in the US and UK will be faced with contract clauses requiring compliance with the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act.
There is a lot of doubt and disagreement about the way that these laws apply to conduct outside the home jurisdiction and whether Australian businesses should accept these contract clauses.
Here are some key points to know if you are confronted with a clause like this.
Anti-bribery and corruption (ABAC) laws focus on 2 key areas:
- corruption of public officials; and
- bribery in the private sector.
Australia has its own anti-bribery and corruption (ABAC) requirements. Specific requirements include:
- State and Territory legislation applying to bribery of public officials and private individuals;
- Criminal Code (Commonwealth) offences for bribery of Commonwealth officials;
- Criminal Code offences for bribery of foreign officials (with some application to overseas conduct); and
- false accounting offences where a business falsely records bribes as legitimate expenses.
Australian laws also catch “grease” payments, also known as facilitation payments. These are payments to public officials to speed up or smooth out an approval which would have happened anyway, and are distinguished from payments to change an outcome. Grease payments are only permitted if they meet certain criteria, including prompt, accurate records.
We are expecting further tightening of Australian ABAC requirements when the Crimes Legislation Amendment (Combatting Corporate Crime) Bill is implemented, most likely later this year.
The FCPA catches all US entities including their overseas subsidiaries; US subsidiaries of overseas entities; overseas entities which issue securities in the US; and overseas entities which take steps towards the corrupt conduct in the US.
It covers corrupt gifts and payments to foreign public officials – defined very broadly – for the purpose of obtaining or retaining business.
Foreign public officials would include, for example, a doctor in a state hospital, or a government official who also acts in a private capacity where the corrupt conduct occurs.
There is no materiality threshold so small gifts are caught – the test is the purpose of the payment or gift.
Controversially, the FCPA does not apply to grease payments, on the basis that they do not change the outcome. These may still be prohibited under the local laws where the conduct takes place.
The Bribery Act covers the bribery of any person to obtain or retain business or a business advantage. Unlike the FCPA it applies to private sector as well as public sector conduct.
The Bribery Act covers both making and taking bribes, and a foreign public official is defined more narrowly than in the FCPA.
It applies to overseas conduct of UK firms and their subsidaries and emphasises a compliance culture with strict liability corporate offences (that is, there is no requirement to prove the company meant to commit the offence).
There is no exception for grease payments, but the Ministry of Justice has released guidance suggesting that prosecutors will exercise discretion where the company:
- has a clear policy;
- has issued guidance to staff;
- is monitoring compliance;
- is recording gifts;
- is taking proper action to inform local governments; and
- is taking practical steps to curtail grease payments.
Where does this leave Australian suppliers?
Both US and UK companies (and their Australian subsidiaries) are obliged to do supplier due diligence to avoid liability for ABAC issues. For the FCPA, for example, this is understood to include doing business with reputable third parties who are acting in compliance with the FCPA, and this leads to contractual requirements for compliance in Australian supply contracts.
Many Australian companies are naturally reluctant to agree, in a contract, to be caught by overseas legislation that would not otherwise apply to them. It is important to recognise, though, that the customer may have very limited discretion on these issues, meaning that these clauses can be a negotiation roadblock.
Possible compromises to offer include:
- compliance with your own ABAC policies;
- compliance with the Criminal Code and applicable State and Territory legislation;
- compliance with detailed obligations stated in the contract which equate to, but don’t refer to, the overseas legislation; or
- an obligation to assist the customer with its own compliance.
If, as will often be the case, the customer insists on an express reference to the overseas legislation, then you’ll need to review the detail against your existing legal obligations and your own ethics policies.
If you would like advice on a specific ABAC clause, contact us.