Organised Crime and Anti-Corruption Legislation
The Organised Crime and Anti-Corruption Legislation Bill (Bill) passed into law in November 2015 by way of 15 amendment Acts.
The Bill, which was introduced in 2014 with the aim of strengthening the law to combat organised crime and corruption and improving New Zealand’s ability to collaborate with its international counterparts, was passed with the support of all parties except for New Zealand First. The legislative changes were intended to enable New Zealand to ratify the United Nations Convention Against Corruption (UNCAC), which occurred in November 2015.
The passing of the Bill brings with it a range of changes with respect to the law against corruption, particularly for businesses operating abroad. This article looks at what these changes are, and what they mean for New Zealand businesses.
New Zealand’s anti-corruption laws
New Zealand’s anti-corruption laws are primarily found in the Crimes Act 1961 and the Secret Commissions Act 1910.
Under the Crimes Act, it is an offence to corruptly give, offer or agree to give any bribe to a person with intent to influence a public official in respect of any act or omission by the official in his or her official capacity. This applies to judges, Members of Parliament, Ministers and law enforcement personnel (see Part 6), along with foreign public officials (section 105C). The Secret Commissions Act contains bribery and corruption-style offences relevant to the private sector.
What are the changes?
The main changes made by the respective amendment Bills and/or Acts are as follows, and bring New Zealand further into line with international best practice.
• Companies can now be held vicariously liable for the acts of their employees (Crimes Act section 105C(2A)). Where an employee, acting within the scope of his or her authority as an employee of the company, bribes a foreign public official and does so with the intent to benefit the body corporate or corporation sole, the company can be held vicariously liable for the offence. Under the Crimes Act, an “employee” is broadly defined and includes an agent, director, or officer of the company. If a company can show that it has taken “reasonable steps” to prevent the commission of the offence, it may have a defence (section 105C(2B)). The onus is on the company, however, to raise and establish this defence.
• The penalty for bribing a foreign public official has increased. Under the Crimes Act, courts can impose both a fine (not exceeding either $5 million or three times the value of that commercial gain (if any)) and/or a term of imprisonment (of up to seven years) where a person is found to have bribed a foreign public official (sections 105C(2D) and (2E)).
• The penalty for offences under the Secret Commissions Act (i.e. for domestic corruption in the private sector) has also increased (section 13). A person who commits an offence against the Act is also liable to imprisonment of up to seven years.
• The previous exception for bribery of foreign public officials where the act was lawful in the country of the foreign official has been repealed (former section 105E, now replaced).
• Facilitation payments, or “grease” payments, are still legal under the Crimes Act (see section 105C(3)) – despite opposition from civil society (including from Transparency International New Zealand (TINZ)). That means that a small payment to a foreign public official that is paid to ensure or expedite performance of a “routine government action” is not considered a bribe under New Zealand law. This exception under the Crimes Act has, however, been narrowed.
What is a facilitation payment?
A facilitation payment is a small payment to a foreign government official to speed up a routine government action to which the payer is already entitled. Examples of routine government actions include processing visa papers, unloading or loading cargo, obtaining a permit or licence needed to enable a person to conduct business in that jurisdiction, or the provision of utility services such as phone, power and water.
A routine government action in relation to the performance of any action by a foreign public official, however, does not include (as per section 105C(1) of the Crimes Act):
• a decision about whether to award new business;
• a decision about whether to continue existing business with a particular person or body;
• a decision about the terms of new business or existing business; or
• a decision that is outside the scope of the ordinary duties of that official.
The exception now also excludes any action that provides an undue material benefit to a person who makes a payment or an undue material disadvantage to any other person.
It is also now a requirement for companies to keep a record of their facilitation payments (Companies Act section 194(1A)).
Advice for clients operating abroad
In light of the increased legal liability and the potential for businesses to be held vicariously liable for their employees’ actions, now is a good time for businesses to take proactive steps to identify and respond to risks of foreign bribery in their organisations.
A Deloitte survey conducted in 2015 of about 270 public and private sector organisations across New Zealand and Australia found that, of organisations operating in high-risk jurisdictions, 35 per cent experienced offshore bribery and corruption in the past five years, up from 21 per cent in 2012. Just 31 per cent had a comprehensive understanding of the relevant legislation (see Deloitte “Bribery and Corruption Survey 2015 Australia & New Zealand: Separate the wheat from the chaff” (2015), pages 8-9).
No compliance programme can eliminate all risks but having a robust system in place, rather than feigning ignorance of potential risks, will serve you better in a court of law. The following steps can help minimise the legal and reputational risks associated with doing business overseas:
1. Governance - A company or organisation’s board must be committed to combating bribery. Senior executives must be held accountable for operating in an ethical manner, and any compliance or ethics programme needs to be anchored at the board level to be taken seriously.
2. Conduct a risk assessment - Start with TINZ’s “Corruptions Perception heat map” (https://www.transparency.org/cpi2014/results). It will give an indication of how corrupt the public sector is in the geographical area in which your business is operating. Have confidential conversations with employees such as country managers, procurement, sales and finance staff in those countries.
People on the ground generally know more about what is going on than the people miles away in the head office. New Zealand Trade and Enterprise is also a source of knowledge, based on its work with over 700 exporters.
3. Develop a policy - Your company needs a clear policy not only on facilitation payments, but also with respect to bribes, gifts, fraud, conflicts of interest, charitable contributions and political donations. Ideally, businesses will adopt a policy that prohibits bribes of any kind, including facilitation payments.
While the use of facilitation payments may increase the immediate ease of doing business in foreign places, these payments promote a culture of corruption which in the long-term is detrimental to the company as the line between what is legal and illegal becomes blurred.
4. Conduct training regularly - Make sure employees understand what they should do in given situations. A good place to start would be the TINZ free e-leaning tool developed with Business New Zealand and the Serious Fraud Office (http://www.transparency.org.nz/Anti-Corruption-Training).
5. Accountability - This is the most important part. Staff need to know that, if they engage in unethical behaviour, there will be serious consequences including for senior management involved in any scheme.
6. Reporting mechanism - Employees need to know to whom to turn if they have questions or if they want to raise a concern. Many larger companies use external ethical hotlines, but internal mechanisms can work as well. Any reporting mechanism should include appropriate protections for staff that make any reports.
7. Communicate - Continuous communication to employees about your programme is important. Once it is embedded, start communicating it to your agents, distributors, business partners and suppliers.
8. Monitoring and assurance - Once implemented, it is important that any compliance programme is not forgotten about, but constantly monitored by management to ensure that it is working.
9. Due diligence - Incorporate bribery and corruption risks into your due diligence process before engaging with all intermediaries, and ensure adherence to your policy is binding in all contractual agreements.
Developing a programme does not have to be complicated and the above steps can be used by both large and small companies. It is also critical that management ensures there is an open culture where employees feel comfortable about raising concerns, and feel those concerns are being addressed.
The Ministry of Justice has released guidelines which encourage businesses to eliminate facilitation payments given the risks involved in using them (“Saying No to Bribery and Corruption – A Guide for New Zealand Businesses” and “Facilitation Payments and New Zealand’s Anti-Bribery Laws”). It has also released guidance on how to create an effective fraud and corruption compliance programme (http://www.justice.govt.nz/policy/criminal-justice/bribery-and-corruption).
Building a compliance programme does not need to be complicated but it should be in proportion to your risk profile, have top-level commitment and identify the main risks to your organisation. TINZ has been working with various players, including business, over the years to develop tools and best practice for combating bribery and corruption (see for example its “Corruption Assessment toolbox” http://www.transparency.org/whatwedo/tools/gateway_corruption_assessment_toolbox/0). See also TRACE International “The High Cost of Small Bribes” (2015).
Why advise your clients on this?
Corrupt conduct overseas damages the reputation of New Zealand business as operating with a high degree of honesty and integrity.
In addition to reputation, companies that engage in foreign bribery and/ or facilitation payments increase the risk of financial penalties and/ or imprisonment, not only in relation to New Zealand legislation, but potentially overseas legislation as well. For example, non-compliance with the US Foreign Corrupt Practices Act has resulted in heavy penalties for both US and non-US based companies and organisations. The UK Bribery Act also affects any New Zealand companies with offices or operations in the UK. Both Acts cover any foreign bribery acts committed in third countries.
International enforcement is also improving. For example, China is taking a harder stance on corruption and New Zealand’s Serious Fraud Office is showing a willingness to pursue foreign corruption cases – at present there are four ongoing investigations. With respect to the former, it pays to remember that, while facilitation payments remain legal under New Zealand law, they are illegal in almost all countries where they are made (as they would be if they were made in New Zealand).
So the best advice to give to your clients developing a compliance programme: a bribe is a bribe no matter what the amount.
Transparency International New Zealand (TINZ) actively promotes the highest levels of transparency, accountability, integrity and public participation in government and civil society in New Zealand, the Pacific Islands and the world. TINZ is a member of Transparency International, the international organisation leading the movement to eradicate corruption and bribery wherever they occur.