House of Representatives

Explanatory Memorandum

Circulated by authority of the Attorney-General, the Honourable Robert McClelland MP

Schedule 8 - Penalties for bribery

GENERAL OUTLINE

This Schedule amends the Criminal Code Act 1995 (the Criminal Code). The amendments increase the penalties for the offences of bribing a foreign public official (section 70.2 of the Criminal Code) and bribery of a Commonwealth public official (section 141.1 of the Criminal Code). The amendments ensure that penalties for these offences are sufficiently high to deter and punish bribery in the domestic and international spheres.

The existing penalty for both offences is 10 years imprisonment. Section 4B of the Crimes Act 1914 allows the court to impose, instead of, or in addition to, a penalty of imprisonment, a pecuniary penalty calculated in accordance with the formula under that section. In the case of both offences, this equates to a maximum fine of $66,000 for an individual and $330,000 for a body corporate.

These penalties have been criticised as insufficient. The Organisation for Economic Cooperation and Development (OECD), in the Phase 2 review of Australia's implementation of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the Convention) in 2006, considered the penalties were not 'effective, proportionate and dissuasive' as required by the Convention.

Items 1 - 6

Item 1 of Schedule 8 repeals the penalty of 10 years imprisonment for the offence of bribing a foreign public official at section 70.2 of the Criminal Code 1995 (the Criminal Code).

Item 2 of Schedule 8 repeals the notes at the end of subsection 70.2(1) of the Criminal Code. Existing Note 2 is no longer necessary in light of the changes being made to the penalty. As a result of the removal of existing Note 2, Note 1 is no longer needed, but the substance of existing Note 1 is retained under the new Note at the end of subsection 70.2(1) of the Criminal Code.

Item 3 of Schedule 8 inserts new penalties at the end of section 70.2 for individuals and bodies corporate found guilty of the offence of bribing a foreign public official.

The penalty for an individual will be a maximum of 10 years imprisonment, a fine of 10,000 penalty units ($1,100,000), or both. The inclusion of a significant monetary penalty for individuals is to deter bribery of foreign public officials where the existing financial penalty may be perceived as "a cost of doing business" when international transactions worth millions of dollars occur.

The ratio between the term of imprisonment and penalty units is inconsistent with other provisions in the Criminal Code where, generally, there is a ratio of five penalty units for every month of imprisonment. As explained above, however, the existing fine of $66,000 for an individual is not 'effective, proportionate and dissuasive.' The increased pecuniary penalty will ensure Australia's compliance with OECD recommendations, as well as promoting good governance, the rule of law and confidence in government.

The maximum penalty for a body corporate will be the greatest of the following:

(a)

100,000 penalty units ($11,000,000)

(b)

three times the value of any benefit that was directly or indirectly obtained and that is reasonably attributable to the conduct constituting the offence (including any body corporate related to the body corporate)

(c)

if the court cannot determine the value of the benefit under paragraph 70.2(5)(b), 10% of the annual turnover of the body corporate during the 12 months ending at the end of the month in which the conduct constituting the offence occurred.

This formulation is based on the penalty available under section 76 of the Trade Practices Act 1974 (the TP Act) in relation to breaches of Part IV of the TP Act.

The amendments mean that a body corporate found guilty of bribing a foreign public official will face a maximum penalty of at least a $11,000,000 fine, an increase of $10,650,000 from the existing fine of $330,000. This increase will have a significant deterrent effect on those bodies corporate tempted to bribe a foreign public official.

The temptation to bribe a foreign public official increases with the size of a potential transaction/benefit. The alternative sanctions available under subsection 70.2(5) have the effect of penalising a body corporate proportionately to either the benefit obtained, or 10% of the annual turnover of the body corporate, so that the risk of being successfully prosecuted for this offence outweighs the potential benefit from the transaction/benefit procured through the bribe.

The corporate multiplier outlined in subsection 4B(3) of the Crimes Act 1914 , does not apply to this corporate penalty because a contrary intention is expressed that the penalty for a body corporate is 100,000 penalty units.

Subsection 70.2(6) explains what the annual turnover of a body corporate is. It is the sum of all the supplies the body corporate and any body corporate related to the body corporate have made or are likely to make, with some exceptions. Those exceptions include supplies made between related bodies corporate, input taxed supplies, supplies that are not for consideration and supplies that are not made in connection with an enterprise that the body corporate carries on. Those exceptions are necessary because otherwise the assessment of a body corporate's annual turnover would not be accurate.

Subsection 70.2(7) clarifies that expressions used in subsection 70.2(6) that are also used in the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) have the same meaning in 70.2(6) as they do in the GST Act.

Subsection 70.2(8) provides guidance on how to determine whether two bodies corporate are related to each other. This concept is relevant to determining a penalty amount under paragraph 70.2(5)(b) and subsection 70.2(6).

Subsection 70.2(8) states that the question of whether two bodies corporate are related to each other is to be determined in the same way as for the purposes of the Corporations Act 2001 . Section 50 of the Corporations Act provides that two bodies corporate are related where one body corporate is a holding company, or a subsidiary or a subsidiary of a holding company of another body corporate.

Item 4 of Schedule 8 repeals the penalty of 10 years imprisonment for the offence of giving a bribe to a Commonwealth public official under subsection 141.1(1) of the Criminal Code.

Item 5 of Schedule 8 repeals the penalty of 10 years imprisonment for the offence of a Commonwealth public official receiving a bribe under subsection 141.1(3) of the Criminal Code.

Item 6 of Schedule 8 inserts new penalties at the end of section 141.1 for individuals and bodies corporate found guilty of the offences of bribing a Commonwealth public official and a Commonwealth public official receiving a bribe.

The penalty for an individual will be a maximum of 10 years imprisonment, a fine of 10,000 penalty units ($1,100,000), or both. The inclusion of a significant monetary penalty for individuals is to deter bribery of Commonwealth public officials where the existing financial penalty may be perceived as "a cost of doing business" when transactions worth millions of dollars occur. Bribery damages good governance and undermines the rule of law and confidence in the government.

The ratio between the term of imprisonment and penalty units is inconsistent with other provisions in the Criminal Code where, generally, there is a ratio of five penalty units for every month of imprisonment. As explained above, however, the existing maximum fine of $66,000 for an individual is not 'effective, proportionate and dissuasive.' The increased pecuniary penalty will ensure Australia's compliance with OECD recommendations.

The maximum penalty for a body corporate will be the greatest of the following:

(d)

100,000 penalty units ($11,000,000)

(e)

three times the value of any benefit that was directly or indirectly obtained and that is reasonably attributable to the conduct constituting the offence (including any body corporate related to the body corporate)

(f)

if the court cannot determine the value of the benefit under paragraph 141.1(6)(b), 10% of the annual turnover of the body corporate during the 12 months ending at the end of the month in which the conduct constituting the offence occurred.

This formulation is based on the penalty available under section 76 of the TP Act in relation to breaches of Part IV of the TP Act.

The amendments mean that a body corporate found guilty of bribing a Commonwealth public official will face a maximum penalty if at least a $11,000,000 fine, an increase of $10,650,000 from the existing maximum fine of $330,000. This increase will have a significant deterrent effect on those bodies corporate tempted to bribe a foreign public official.

The temptation to bribe a Commonwealth public official increases with the size of a potential transaction/benefit. The alternative sanctions available under subsection 141.1(6) have the effect of penalising a body corporate proportionately to either the benefit obtained, or 10% of the annual turnover of the body corporate, so that the risk of being successfully prosecuted for this offence outweighs the potential benefit from the transaction/benefit procured through the bribe.

The corporate multiplier outlined in subsection 4B(3) of the Crimes Act, does not apply to this corporate penalty because a contrary intention is expressed that the penalty for a body corporate is 100,000 penalty units.

Subsection 141.1(7) explains what the annual turnover of a body corporate is. It is the sum of all the supplies the body corporate and any body corporate related to the body corporate have made or are likely to make, with some exceptions. Those exceptions include supplies made between related bodies corporate, input taxed supplies, supplies that are not for consideration and supplies that are not made in connection with an enterprise that the body corporate carries on. Those exceptions are necessary because otherwise the assessment of a body corporate's annual turnover would not be accurate.

Subsection 141.1(8) clarifies that expressions used in subsection 141.1(7) that are also used in the GST Act have the same meaning in 141.1(7) as they do in the GST Act.

Subsection 141.1(9) provides guidance on how to determine whether two bodies corporate are related to each other. This concept is relevant to determining a penalty amount under subparagraph 141.1(6)(b) and subsection 141.1(7).

Subsection 141.1(9) states that the question of whether two bodies corporate are related to each other is to be determined in the same way as for the purposes of the Corporations Act. Section 50 of the Corporations Act provides that two bodies corporate are related where one body corporate is a holding company, or a subsidiary or a subsidiary of a holding company of another body corporate.