While Australia’s ranking in Transparency International’s Corruption Perceptions Index has recently gone up to 13/180 (indicating that Australia is progressively tackling corruption), bribery of foreign public officials by corporate Australia remains alive and well.
A company which bribes or conspires to bribe a foreign public official, is liable to face a significant fine – not to mention other consequential damage such as to reputation and share price.
In The King v Jacobs Group (Australia) Pty Ltd  HCA 23, the High Court of Australia clarified how ‘the value of the benefit’ obtained by the company as a result of the offence should be calculated, for the purpose of calculating the penalty.
Background facts in Jacobs
The respondent (Jacobs Group) secured three construction project contracts by bribing a foreign public official. The relevant contracts had been wholly performed and all money due under them had been paid to the respondent.
Jacobs Group pled guilty to three charges of conspiracy to bribe and bribery, and agreed that the contracts had been secured either directly or indirectly through bribery.
The issue in dispute was the measure of (or methodology for calculating the) ‘value of that benefit’ derived from the bribery.
The penalty regime for bribery of a foreign public official
Section 70.2(5) of the Criminal Code Act 1995 (Cth) sets the ceiling of the fine no greater than:
- 100,000 penalty units (or $11 million at the time of writing);
- If the court can determine the value of the benefit the company and any related entity has obtained – 3 times the value of that benefit, or
- If the court cannot determine the value of that benefit – 10% of the annual turnover during the period of 12 months ending on the month in which the bribery took place.
What is the value of the benefit?
The respondent argued that the ‘value of the benefit’ should be “the amount it received for performing its obligations under” certain contracts “less the costs it paid to third parties to enable that performance” (excluding the costs forming part of the bribery). This is the ‘net benefit’ approach.
Under the net benefit approach, the benefit received by the respondent would have been approximately $2.6 million and three times this would be less than the $11 million ceiling (maximum penalty points). Therefore, in this case, the maximum fine available under section 70.2(5)(a) would be $11 million.
The Crown’s argument
The Crown argued that the ‘value of the benefit’ the respondent received was the total gross amount it had received from performing its obligations (without subtracting for any costs it paid to third parties). This is the ‘gross benefit’ approach.
Under this gross benefit approach, three times the benefit received would be approximately $30 million, setting the ceiling for the fine at $30 million.
Both the primary judge and the Court of Criminal Appeal agreed with the respondent’s net benefit approach. The High Court granted the Crown leave to appeal.
High Court judgment – Appeal Allowed
The joint High Court judgment found that the context and purpose of section 70.2(5) was to increase the fines for bribing a foreign public official so that the fines became “effective, proportionate, and dissuasive”.
Their Honours clarified that proportionality was not focussed on the relationship between the benefit obtained by the offender and the size of the penalty. Rather, by looking to the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions which section 70.2(5) was implementing, “proportionate” means proportionate to the gravity of the infringement. The benefit to the offender is only one aspect of gravity.
Their Honours defined “benefit” as including “any advantage” and not any advantage less the disadvantages or burdens which the offender simultaneously incurred. It includes, but is not limited to, the receipt of money. Other advantages which may or may not be able to be valued is a company engaging in a loss leader strategy in a new and foreign market. For another company, the cashflow may itself be an advantage, regardless of costs and losses.
Consistent with the context of the OECD Convention is the recognition that if a bribery offence secures an advantage, the whole advantage as well all the costs incurred (both external and internal) are tainted by illegality. If the offender incurred costs to third parties in performing its obligations under the contract, that does not decrease the harm to the “foreign country’s governance which has been corrupted, Australia’s reputation or the integrity of international commerce.”
Further, allowing section 70.2(5)(b) to mean net benefit would generate unnecessary inconsistency and there may be differing views on what the maximum fine should be by characterising different costs as being “tainted” by the corruption or free from corruption.
Therefore, the Court found that the Crown’s approach was correct, and the benefit gained was to be calculated on a gross rather than net basis.
- The minimum maximum fine a company will face for bribing a foreign public official is $11m, but could be far higher on a ‘value of the benefit’ basis.
- The methodology for calculating the value of the benefit means that costs associated with gaining the full advantage secured by the criminal conduct cannot be offset against the benefit in determining the maximum fine. Therefore, the cost-benefit analysis approach to bribery is likely to be futile. Companies may be liable for the gross benefit – meaning, after costs, bribery is a cost incurring exercise rather than a profit-making activity.
- Companies should ensure that they have adequate procedures in place to prevent bribery, with proactive and obvious buy-in from the board and management.
- Companies should also ensure that staff are trained about what amounts to bribery, and as to the company’s anti-bribery and corruption policies. Ensure that new starters receive this training, as well as refresher training for existing staff.
- Take all appropriate steps to ensure that consultants, contractors and agents do not engage in bribery, for which the principal company could be liable.