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Managing Corruption Risk in the APAC Region: Strategies for Protecting Your Company

July 21, 2016

Presenters: Murray Thornhill – HHG Legal Group Selwyn Black – Carroll & O’Dea

Vasanth Rajasekaran– Seth Dua & Associates

Association of Corporate Counsel www.acc.com

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Managing Corruption Risk in the APAC Region:

Strategies to Protect Your Company

Murray Thornhill Director, Commercial and Litigation HHG Legal Group

Responsible Agencies

Australian Federal Police (AFP) Investigates and prosecutes various federal crimes, including fraud against the Commonwealth, foreign bribery, corruption by government employees and complex identity crime. Commonwealth Director of Public Prosecutions (CDPP) Prosecutes federal crimes.

Australian Securities and Investments Commission (ASIC) Investigates particular breaches of the Corporations Act 2001 (Cth) and issues regarding publicly listed companies and market integrity. Australian Competition and Consumer Commission (ACCC) Responsible for enforcement of fair trading and consumer protection laws.

The multiagency Serious Financial Crime Taskforce (SFCT) investigates corruption and foreign bribery. The SFCT comprises:

•  Attorney General's Department (AGD)

•  Australian Federal Police (AFP)

•  Australian Taxation Office (ATO)

•  Australian Border Force (ABF)

•  Australian Criminal Intelligence Commission

•  Australian Transaction Reports and Analysis Centre (AUSTRAC)

•  Australian Securities and Investments Commission (ASIC)

•  Commonwealth Director of Public Prosecution (CDPP)

Inter-agency Response

Legislation and Penalties Commonwealth Criminal Code • 70.2 Bribing a foreign public official

Penalty: For individuals - Up to 10 years imprisonment and/or a fine of up to $1.7 million For companies - Up to $17 million or 10% of annual turnover or 3 times the value of benefits obtained, whichever is greater.

• 141.1 Bribery of a Commonwealth public official

142.1 Corrupting benefits given to, or received by, a Commonwealth public official

Penalty: For individuals - Up to 10 years imprisonment and/or a fine of up to $1.7 million For companies - Up to $17 million or 10% of annual turnover or 3 times the value of benefits obtained, whichever is greater.

Legislation and Penalties Corporations Act 2001 (Cth) •  Section 596 - Frauds by officers of companies Proceeds of Crime Act 2002 (Cth) •  Benefits obtained from use of foreign bribery could be forfeited to the Government.

Recent Developments False Accounting Offences • Since 1 March 2016, Australia has introduced new offences in relation to the use of false accounting methods to facilitate or conceal illegitimate benefits or losses. • These new offences work together with the requirement under the Corporations Act 2001 (Cth) to keep financial records (and not falsify books). Senate Committee • Following the 2016 election, all Senate Committees of the former federal parliament have been disbanded including the National Integrity Commission (‘NIC’) which was expected to report to the Senate on 22 September 2016. Consultation for Deferred Prosecutions

• Federal Justice Minister Michael Keenan has previously expressed a desire for Australia to move towards deferred prosecutions. • The deadline for public comment to a draft public consultation paper titled “Consideration of a Deferred Prosecution Agreements scheme in Australia” concluded in May 2016.

Australia’s Response to Corruption •  The Fraud and Anti-corruption Centre was

established in February 2013

•  Australia has been criticised for lack of enforcement of anti-corruption laws

•  The AFP is reported to currently have more than 30 investigations into bribery and corruption in Australian businesses

•  Australia has been referred to as a “dumping ground” of dirty money sourced from Asia

•  Since 1999, the AFP has commenced about 30 investigations. Only two have led to prosecutions, both of which are ongoing

•  Recently the AFP commenced investigations into betting company Tabcorp in respect of allegations of paying bribes in Cambodia to secure a gaming licence

Impact on APAC Region

•  ‘Anti-corruption’ clauses have not been tested in Australian courts

•  It is uncertain whether anticorruption clauses can be effectively used to:

–  terminate a contract; or as

–  a defence or mitigation to bribery and corruption prosecutions.

•  Regardless, anti-corruption clauses and internal systems may be taken into account in respect of potential prosecutions

•  It remains good practice to include anti-corruption clauses in contracts and it is still widely done

Efficacy of Anti-corruption Clauses

•  “Prevention is better than the cure”. •  However, where contracts cannot be amended companies should :

–  educate employees about the risk and indicators of bribery and corruption

–  implement whistle-blower policies and minimum record keeping standards

–  issue a company policy guide and company statement about corruption and bribery offences under Australian law

–  issue an open letter about the company’s commitment to anti-corruption to third parties

–  require third parties to attend in house conferences or obtain third party certification on their compliance with their obligations

–  require suppliers to issue itemised invoice

–  conduct regular audits of payments and invoices

–  seek clarification and advice where payments are suspicious

Remedying Failures at the Contractual Stage

Managing Corruption Risk in the APAC Region:

Strategies to Protect Your Company An Australian Perspective

Presented by Selwyn Black, Partner

Ph: +61 9291 7100 Fax:+61 9221 1117 Website: codea.com.au Sydney, Canberra, Newcastle, Parramatta , AUSTRALIA Copyright Selwyn Black 2016

E-Government

•  Already implemented in various APAC regions •  Use of information and communication technology

(ICT) by government agencies to transform relations with citizens, businesses and government organisations

Governance “Governance is the way [an organisation] is managed and the way authority is exercised and controlled. It influences how the priorities of the organisation are set and achieved, how financial and reputational risk is monitored and assessed, and how performance is improved and managed”

Example 1: Price Mark Up

•  Payments by supplier to someone in company/organisation

•  Prices marked up

Example 1: Possible Responses

•  Competitive Tendering •  Benchmarking of costs and sharing of benchmarking

amongst organisations/companies

•  Internal systems of control

•  Audit

•  Suppliers to certify no arrangements

Example 2: IT Contract

•  Relationship too familiar

•  Ignorance of requirements

•  Over servicing


•  Obtain independent assistance on specifications/needs

•  Tenders

•  Maintain clear separation of roles

•  Avoid dependency on 1 supplier •  Monitor contracts – clear responsibilities and capable

staff

Example 3: Cheating Regulator

•  Trying to trick government regulator on environmental requirements


•  Create culture of compliance

•  Encourage whistleblowing

SPECIFIC RECOMMENDATIONS

1. Obtain auditor’s advice on internal systems of control and implement that advice

2. Who to tell – a complaints mechanism

3. Have strict procedure for signing contracts including internal sign- offs

4.  Requirement for directors’/council members’ approval to have any dealings with family/related parties, with directors/council being fully informed.

5. All positions advertised and open externally

FINAL OBSERVATIONS

•  A proper system may assist in mitigating penalties

•  Good systems reduce negligence /criminal risk to officers/directors and organisation/company

PREVENTION DIDN’T WORK –

WHAT NOW?

Media relations – a test of credibility

LEGAL STRATEGY Co-operate or fight regulator?

PR versus legal risk How do you get the real facts?

Carroll & O'Dea Lawyers SYDNEY AUSTRALIA

Phone + 61 2 82267359 Fax + 612 9221 1117

Website: codea.com.au

Copyright Selwyn Black 2016

CORRUPTION CONTROL MEASURES IN APAC COUNTRIES – INDIAN PERSPECTIVE

Atul Dua | Senior Partner

www.sethdua.com To accompany you is our commitment

v  THE INDIAN PENAL CODE, 1860 v  PREVENTION OF CORRUPTION ACT, 1988 (INCLUDING THE

AMENDMENT ACT) v  FOREIGN CONTRIBUTION REGULATION ACT, 2010 v  REPRESENTATION OF PEOPLE’S ACT, 1951 v  ALL INDIA CIVIL SERVICE (CONDUCT) RULES & CENTRAL CIVIL SERVICE

(CONDUCT) RULES v  THE WHISTLE BLOWERS ACT, 2011 v  THE LOKPAL AND LOKAYUKTAS ACT, 2013 v  COMPANIES ACT, 2013 v  BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND

IMPOSITION OF TAX ACT, 2015 v  BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988 v  PREVENTION OF MONEY LAUNDERING ACT, 2002

ANTI-‐CORRUPTION LAWS IN INDIA

LATEST DEVELOPMENTS IN INDIA

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 • Provides for separate taxation of undisclosed income in relation to foreign income and assets.

• One-‐time compliance opportunity to declare undisclosed assets situated overseas by paying 60% as tax and penalty thereon. Compliance window stands open from June 1, 2016 to September 30, 2016.

• Aims at curbing down black money, or undisclosed foreign assets and income and imposes tax and penalty on such income.

The Lokpal and Lokayuktas Act, 2013 • Constitution of Lokpal for the Union and Lokayukta for States. • Enquiry into allegations of corruption against certain public functionaries. • Making false complaint will be punishable upto one year and a bine up to one hundred thousand rupees (INR 1000).

SCOPE OF ANTI-‐CORRUPTION CLAUSE IN CONTRACTS

v  Inclusion of Anti-‐Corruption clauses in contractual agreements among business partners, consultants and vendors is becoming more and more common. Many of these contractual arrangements will include requirements on compliance with anti-‐corruption laws, rights to terminate, seek indemnity, etc.

Objective of including Anti-‐Corruption Clauses v  To protect Company’s interest against corrupt behaviour of business partners and

ensuing smooth functioning of work. v  To ensure adherence to applicable laws, rules and regulations. Remedy in case of breach of Anti-‐Corruption Clauses v  Issuing adequate warnings against party in breach of Anti-‐Corruption provisions. v  Ensuring indemnity against breach of Anti-‐Corruption provisions


v  Provision for providing damages v  Right to conduct Audit on the other party. v  Termination of Contract. v  Providing effective dispute resolution mechanisms. Importance of Integrity Pact v  An agreement between concerned parties not to exercise any corrupt

practices or inbluence on any aspect of the contract. v  Bidder commits to prevent corrupt practices, unfair means & illegal activities

at any stage of the bidding process or during pre & post contract stage. v  No bribe, commission, fees, inducement to its advantage in the bidding

evaluation, contracting and implementation of the contract. v  Declaration of no previous transgression in the last three years. v  Breach of any provision of the integrity pact attracts grounds for cancellation

of the contract.


Non – Compliance

Consequences

Breach of Integrity Pact

•  Debarment of the bidder for an appropriate period of time

•  Denial or loss of contract •  Forfeiture of the bid security and performance bond •  Liability for damages to the Ministry of Defence and the competing bidder

PREVENTIVE SYSTEMS -‐ E-‐GOVERNANCE IN INDIA

Importance of E-‐Governance in India v  Introduces transparency in data, decisions/actions, rules, procedures and performance

of government agencies. v  Builds accountability for access the information through internet. v  Entry point for simplibication of rules & reengineering processes. v  Makes decision traceable. v  Provide documentation to citizens for follow up. v  Automates processes to take away discretion. v  Introduces competition among different department of government services. Government Initiatives for promoting E-‐Governance in India v  Project BHOOMI entails a computerization of 20 million records of land in the state

of Karnataka. Keeps a check to be kept on all ofbicials in regard to the registration of land and ownership deeds. Ensures greater accountability and reduced corruption.

PREVENTIVE SYSTEMS -‐ E-‐GOVERNANCE IN INDIA v  Project GYANDOOT (Madhya Pradesh) aimed at improving the dissemination

amongst the rural populace. Digital access to land ownership records, online auction facility for seeds, agricultural goods.

v  Andhra Pradesh’s ‘SMART’ Government project is another successful approach to tackle corruption through E-‐ Governance.

Introduction of Central Public Procurement Portal v  A single access point for information related to procurements made by various

Government Ministries and departments. v  Aims to provide transparency to the procurement process & initiate a move

towards adopting ‘electronic procurement solutions.’ v  Reaches a wide base of bidders, minimizes human discretion during

procurement cycle & provides access to a complete audit and evidential data pertaining to procurement process. (E.g. Gujarat and Andhra Pradesh )

ANTI–CORRUPTION INVESTIGATION AGENCIES Institution Main Functions Central Vigilance Commission (CVC)

To undertake an inquiry or cause an inquiry or investigation to be made into any transaction in which a public servant is suspected or alleged to have committed an offence under the Prevention of Corruption Act, 1988 (PCA).

Central Bureau of Investigation (CBI)

Anti-‐corruption division of the CBI deals with cases of corruption and fraud committed by public servants of all Central Govt. Departments, Central Public Sector Undertakings and Central Financial Institutions.

Enforcement Directorate (ED)

To undertake survey, search, seizure, arrest, prosecution action etc. against offender of PMLA offence.

Lokpal (Ombudasman) Constitution under the Lokpal and Lokayukta Act, 2013. Enquiry into allegations of corruption against certain public functionaries.

REMEDIAL STEPS AND INITIATIVES TO CURB CORRUPTION

Key Acts Features – Prosecution/Criminalization on Corruption Indian Penal Code, 1860 (IPC)

•  IPC debines “public servant” as a government employee. •  Unlawful buying/bidding for property attracts imprisonment upto 2 years or with bine or both.

•  Criminal breach of trust by a public servant attracts life imprisonment or imprisonment upto 10 years with bine.

The Prevention of Corruption Act, 1988

•  Taking gratibication by public servant in respect of an ofbicial act or to inbluence public servants is liable to punishment between 6 months to 5 years with bine.

•  Accepting valuable thing without paying or paying inadequately from a person in ofbicial capacity attracts punishment between 6 months to 5 years with bine.

The Prevention of Money Laundering Act, 2002

•  Any person party to any process connected with any property obtained through criminal activity of crime and projects such proceeds as untainted property attracts Money Laundering.

•  Imprisonment for 3 to 7 years with bine upto INR 500,000 •  Every banking company, binancial institution and intermediary shall maintain/verify record of all transactions.

Right to Information Act, 2005 (RTI Act) v  Intention to increase government accountability and transparency in

bureaucratic procedures. v  Citizens have a right to access information under the control of public

authorities. v  “Information” as debined means any material in any form (records/documents)

including electronic form. Includes information relating to private body which can be accessed by a ‘public authority’.

Remedial Steps in Defence Procurement Procedure, 2016 (DPP) v  An Integrity Pact shall be executed by all suppliers for contracts exceeding USD

15m (approx). v  All suppliers shall declare inter alia that he is the OEM and has not engaged any

individual or birm to the award of the contract. v  Provides for contract cancellation, forfeiture of bid security, performance

guarantee bonds, black listing etc. if the bidder violates any of the conditions/ commitments/undertaking/provisions of the contract.


Prosecution/Criminalization (Investigation Process). v  India’s well-‐established statutory, administrative and judicial framework for criminal

trials is governed under The Code of Criminal Procedure, 1973 (Cr.P.C.), The Indian Penal Code, 1960 & The Indian Evidence Act, 1872 (IEA)

v  The conviction rate under PCA has been very poor. Most of the times the accused are acquitted

Some causes for delay during investigation/trial process are: v  Apathy and inaction on the part of the police in registering the FIRs and taking up the

investigation v  Hesitant to proceed with the investigation against important/inbluential persons v  Sanctions for prosecution under PCA are unduly delayed by the Governments.


Registration of F.I.R. Under Section 154 of

Cr.P.C.

Investigation by Police

Framing of charges/Serving of Notice to Accused

Filing of Charge-‐Sheet

before Magistrate on discovery of offence

Initiation of Trial

No Extradition Treaty with tax havens/many countries.

Enforcement and Execution of Judgment delivered in India in many countries.

Cumbersome Process by Interpol for issuing Red Alert.

No International Convention for retention of illegally procured proceeds in other countries.

Lengthy and Cumbersome Judicial Process.

Any adverse order passed by the enforcement agencies are frequently challenged till the binal appeal stage starting from District Court to High Court to Supreme Court.

LOOPHOLES – RETENTION OF ILLEGALLY PROCURED PROCEEDS

Scope of exemptions from disclosure of information that are available under RTI Act should be reduced.

Place greater power in the hands of the CVC in terms of ordaining the penal provisions of the aid act, rather than of a mere recommendatory nature.

Strengthening legal and regulatory framework and capacity building of the institutions of accountability as well as enforcement agencies.

Enactment of specibic legislation to curb corruption in private sector.

Reduction in excessive bureaucracy procedures & regulation.

Stringent provisions for protection of whistle-‐blowers and witnesses.

Need to is required for bringing India’s anti-‐corruption laws in line with the mandatory requirement of United Nations Convention Against Corruption (UNCAC).

REMEDIAL STEPS – ALL IS NOT LOST

The important question before the Double-‐Bench of Supreme Court of India was:

“Whether the Chairman, Directors and Of5icers of Global Trust Bank Ltd. (a private bank before its amalgamation with the Oriental Bank of Commerce), can be said to be public servants for the purposes of their prosecution in respect of offences punishable under Prevention of Corruption Act, 1988 or not ?”

v The Court opined that “The debinition of public duty in Section 2(b) of the POCA, indeed, is wide. Discharge of duties in which the State, the public or the community at large has an interest has been brought within the ambit of the expression ‘public duty’. Performance of such public duty by a person who is holding an ofbice which requires or authorize him to perform such duty is the sine qua non of the debinition of the public servant contained in Section 2(c)(viii) of the POCA. v The Court opined that by virtue of the provisions of Section 46A of the Banking Regulation Act, 1949, the prosecutions launched against the accused (Chairman, Directors) are maintainable in law and ofbice bearers/employees of a Banking Company (including a Private Banking Company) were “public servants”

(Emphasis Supplied)

THE GLOBAL TRUST BANK CASE (2016)

The logos etc. used in the presentation are for information only and not for any commercial exploitation. We do not claim any rights over the same. This Presentation provides certain general information existing as at the time of production and does not purport to identify any development pursuant to the production of the presentation. Accordingly, this presentation should neither be regarded as comprehensive nor sufficient for the purposes of decision-making. Seth Dua & Associates does not undertake any legal liability for any content in this presentation. The information provided is not and nor is it intended to be an advice on any matter and should not be relied on as such. Professional advice should be sought before taking action on any of the information contained in it. Without prior permission of Seth Dua & Associates this document may not be quoted in whole or in part or otherwise referred to in any documents.

© 2016 Seth Dua & Associates All Rights Reserved.

Seth Dua & Associates Solicitors & Advocates

Delhi Of5ice

601, 6th Floor, DLF South Court Saket, New Delhi – 110 017, India

Tel. : +91 11 416 44400 | Fax : +91 11 416 44500

Mumbai Of5ice 1105, 11th Floor, Raheja Centre,

Free Press Journal Marg, Nariman Point, Mumbai 400 021, Maharashtra, India

Tel. : +91 22 2282 4329 / 30

Website : www.sethdua.com

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