Beating business bribes

Business Asia, Sept 30, 1999 by Stephanie Fahey

New Australian legislation has significant moral and competitiveness repercussions for Australian companies doing business internationally. Professor STEPHANIE FAHEY(*) comments

To bribe or "grease the hand" of foreign public officials will soon be a serious offence that could bring criminal prosecution and a possible 10-year jail term.

On June 3, 1999, Australian parliament passed a new legislation, The Criminal Code (Bribery of Foreign Public Officials) Act 1999.

The Act targets Australian businesses or their joint-venture partners caught bribing officials with the intent to obtain or influence business decisions.

The legislation is a result of Australia's December 1998 signing of the Organisation for Economic Cooperation and Development (OECD) convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Signed by several OECD countries and non-member countries, the convention signals, on the surface, a concerted effort by developed countries to combat international corruption and level the competitive playing field for all companies. This morally repugnant practice is now being equated as a new form of barrier to global trade and an obstacle to real economic benefits.

Yet one finds a formidable driver behind the war against corrupt international practices -- the US multinational corporations.

In 1977, US President Jimmy Carter signed the Foreign Corrupt Practices Act (FCPA) to address what was perceived as "open and flagrant participation in the corruption of foreign governments by US corporations".

The US was the only country to impose penalty on the "supplyside" -- the payer, not the recipient -- of transnational bribery. This legislation has had a profound impact on the way US business is conducted internationally.

The FCPA prohibits the bribery of foreign public officials and mandates strict compliance and reporting requirements.

On the one hand this satisfies the US government's need for moral business practices. On the other, the act creates a competitive disadvantage for firms bidding for international projects.

For instance, in 1995, US trade representative Mickey Kantor estimated losses to American business, as a result of the FCPA, at a staggering US$45 billion in lost contracts alone. The stakes are indeed high!

Australia's new legislation not only imposes unprecedented obligations on Australian companies but it will also transform the way firms conduct business transactions in Asia.

To add intensity to the government's anti-corruption effort, the Australian Taxation Office will no longer allow tax deductions for "bribes".

The reality now is that Australian business will have until the end of 1999 to comply and modify their systems and procedures.

Understanding the far-reaching implications, complexity and impact of the Act on business is imperative.

According to expert adviser on foreign corrupt practices, Paul Carter of PricewaterhouseCoopers, "the Act is more stringent than the FCPA in requiring that records be kept of expediting payments. Compliance with record keeping requirements may be difficult in practice and there is every risk that most companies will be unable to satisfy the requirements to qualify for exemption, and comply with the legislation".

According to legal experts, the offence not only applies to Australian residents, citizens and companies incorporated in Australia, but also equips the Attorney-General with the power to prosecute non-Australian citizens.

The need to conduct investigative due diligence before hiring local agents, representatives, consultants or entering mergers, acquisitions or joint ventures becomes crucial.

Issues such as gift giving, dinners and entertainment, an important and essential way of doing business in Asia, will come under the kaleidoscope of criminal prosecutors as we anticipate significant prosecutions at home.

Like the US experience, the Australian Act will necessitate the creation of new compliance programs, employee training and monitoring mechanisms.

Given the Act's requirements, company directors will have difficulty avoiding this unpleasant issue. Having a company code of ethics will no longer be a defence that company directors can use.

(*) Professor Stephanie Fahey is director of the Research Institute for Asia and the Pacific (RIAP), University of Sydney. RIAP recently initiated the Bribery of Foreign Public Officials Program.