23 February 2012

Anti-bribery and the mining push into developing countries

2011 was an active year for law enforcers on the foreign bribery and corruption front.

Australian business found itself in a new era – where law enforcers around the world have been pursuing bribery and corruption issues with renewed vigour and increased cross-jurisdictional co-operation. If they weren’t before, Boards are now asking their managements teams whether their companies are doing enough to manage bribery risk and how it is being dealt with in commercial arrangements ranging from ongoing contractual arrangements to one-off acquisitions. 2011 also marked the commencement of the UK Bribery Act – with a number of far reaching consequences, including that many payments that in the past may not have been bribery will now certainly constitute bribery under the UK law. The end of 2011 also flagged that some payments, which in the past would not have been bribery under Australian law, soon may be.

Any Australian business that operates in countries where demands for small payments to lubricate regulatory and other public processes is common are now faced with a risk to the business, its employees and its directors, and a dilemma in how they deal with business transactions in these countries going forward. The dilemma is underscored by mind boggling penalties for getting it wrong.

Toward the end of 2011, the Attorney General’s Department released a Public Consultation Paper inviting comment on the Government’s review of Australian anti-bribery legislation, with particular focus on the treatment of facilitation payments under Australian law.

Presently, if a charge is brought in relation to a payment made to a foreign public official that would otherwise be classified as a bribe under Australian law, it will be a complete defence if the payment was a ‘facilitation payment’.

To be a facilitation payment, the value of the payment must be minor, it must have been paid for the dominant purpose of securing or expediting a routine government function which itself is of a minor nature, and as soon as practicable after the payment a record (which satisfies particular legal requirements) must be made – the most difficult of these being that the payor must effectively obtain a receipt from the foreign official.

In March 1999, the Howard Government amended the Commonwealth Criminal Code to include the offence of bribing a foreign public official. In relation to the facilitation payments, the Government said: “Small payments are something left for local officials to stamp out and it is not appropriate or practical for foreign governments to be concerning themselves with expensive international prosecutions. This approach reflects what is provided for in the Convention and is similar to legislation in the USA and Canada.” [Senate Hansard, 10 March 1999]

For the next 12 years not much happened under Australian anti-bribery laws. That was until the charges laid on 1 July 2011 in the Securency matter. Prior to then, Australian law makers and enforcers had been subject to polite but consistent criticism about a lack of action. In around October 2012 the UN Working Group on Bribery in International Transactions is due to release its ‘phase 3’ report on Australian bribery laws. In broad terms the report will comment on the degree to which Australian laws have been enforced since their introduction. It is likely that Australia will be in for further criticism about a lack of action.

It is against that background that the Federal Government’s ‘assessment of Australia’s anti-bribery laws’ can be better understood. That it will focus on a defence which has never been (and never had to be) invoked is curious.  It can’t be that the prospect of potential defendants invoking the defence has scared off prosecutors. After-all, the recording keeping hurdles imposed in an Australian context mean that the defence will rarely be satisfied. Further, a similar defence is available in USA, and that country is by far the most active, and successful, in enforcing its bribery legislation. The defence is rarely raised by defendants in USA prosecutions for foreign bribery. More likely, the impetus for the Federal Government’s assessment is the renewed emphasis on bribery of foreign officials brought about by the commencement of the UK Bribery Act, and anticipated criticism in the form of the UN’s phase 3 report.

Just how this fits with the Federal Government’s encouragement of Australian business to move into new offshore markets, particularly Africa, is unclear. The World Bank estimates that half of the 10 fast growing economies over the next 5 years will be in Africa. Presently, Australian business reportedly has 665 projects in 42 African countries, with 220 of these being commenced in the passed 20 Months. Meanwhile, in October 2011 Foreign Minister Kevin Rudd launched a $30 million initiative to foster mining development in Africa. This can be contrasted with a public survey of conducted by Transparency International in 2010 – 2011 of more than 6,000 people across the Democratic Republic of Congo, Malawi, Mozambique, South Africa, Zambia and Zimbabwe, the results of which included that 62% of those surveyed considered that corruption had increased in their countries, and 56% actually admitted to having paid a bribe to one of 9 service providers (ie government services) in the previous 12 months. Alarmingly, the police were considered the most corrupt institution in each of the countries.

Regardless, Australian business finds itself in this new era. In the context of the Public Consultation Paper released last 2011, Australian business should now consider that, to the extent the facilitation payments defence ever had any life under Australian laws, it will soon be dead. In response to the UK Bribery Act and these latest developments, many of Freehills’ clients are updating their Codes of Conduct to explicitly outlaw such payments by their employees and others. Any Australian business operating in countries where demands for such payments are common, including fast emerging African economies, should certainly act to prohibit the making of such payments. Business impacts of refusing such demands will also need to be anticipated and planned for. To do otherwise risks the employee, the business and its directors committing criminal offences punishable in Australia (irrespective of where the facilitation payment is made).

16 February 2012

Industrial unrest: coming to a mine-site near you!

Since the Federal Government's Fair Work Act came into effect in 2009, the mining industry has seen a steady increase in industrial activity. This is hardly surprising as the new legislation gives significant new rights to unions and compels mining companies to bargain with unions in most circumstances.

While much of the mining industry has relied on industrial agreements made under the old legislation, 2012 will see many of these agreements nearing their expiry date and a new round of industrial bargaining commence. Most of the major mining houses will be negotiating agreements with unions in 2012 under this new legislation. For this reason, mining companies will need to be well advanced in their planning and implementation of forward industrial strategies.

An example of the challenges of the new bargaining regime is the BMA negotiations which have been ongoing in the Bowen basin coal fields for more than 12 months. These negotiations will continue in to 2012 with a likely coordinated campaign of industrial action across all of the companies coal mines. 

In addition to the increase in industrial bargaining throughout the mining industry, 2011 saw the announcement of a large number of new mining projects across all tiers of the sector. These developments are likely to exacerbate the labour shortages already being seen in the boom mining states of Western Australia and Queensland. Initial resourcing strategies have led to an increase in the number of employees commuting from other states and territories and an increase in the use of foreign labour. 

Foreign labour will continue to be a contentious issue, with mining unions recently staging protests in Perth in relation to the use of foreign labour by major resources companies operating in Western Australia. The government’s new Enterprise Migration Agreement scheme will be available to larger players in the industry, however these agreements will require detailed consultation with relevant unions at an early stage in the planning process. The current consultation protocols include a requirement for project owners to provide manning plans and other detailed commercial information to unions as part of this initial consultation process. This, combined with the powers provided to industrial organisations under the Fair Work Act, will further feed the strength of mining unions in Australia during 2012.

Finally, the Federal Government has appointed a committee to review the operation of the Fair Work Act. The terms of the review have caused some concern among employers, including those in the mining industry. This review may lead to changes to the legislation—it will be important to monitor those changes and plan for their implementation.

14 February 2012

CEO Michelmore on dancing with the Dragon

Andrew Michelmore, CEO of Minmetals Resources Limited (MMR), treated those who attended Tuesday night’s AMPLA Twilight Seminar at Freehills to a thought-provoking presentation.

MMR is not your everyday company. Its management team is based in Melbourne, it is listed on the Hong Kong Stock Exchange and its major shareholder is the state-owned China Minmetals Corporation. MMR is a rare example of China investing in Australia’s human capital and it has strived to achieve a strong ‘east-west’ partnership that can stand the test of time.

Throughout his presentation, Michelmore spoke in detail about MMR’s explorations and operations, its journey since acquiring Minerals and Metals Group (MMG) at the end of 2010 and its ambitious strategies moving forward into 2012. However, it was Michelmore’s thoughts about Australia’s future relationship with China that really captivated his audience.

According to Michelmore, the centre of economic gravity is shifting from the West back to the East. Interestingly, he noted that apart from the 19th and 20th centuries, the Asian region has led the global economy since the beginning of the Common Era. Michelmore stated that he believes China is going to achieve huge economic growth in the coming years, but went on to emphasise that Australia has what China needs to help them grow. For that reason, a strong partnership with China is mutually beneficial and could be lucrative for Australia.

Michelmore’s message is simple. We can’t fight China. We need to work with Chinese companies, on equal terms, in what must be a win-win scenario for both parties. This is what MMR has tried to achieve and it appears to have reaped the benefits.

Significantly, Michelmore believes that it is important to fight the incorrect perception that Chinese companies collude with each other. He affirmed that, in reality, the exact opposite is true. Chinese companies fiercely compete with each other, in contrast to the collusion believed to be characteristic of Japanese companies back in the 1960s and 1970s.

Ultimately, Australia needs foreign investment and China is a crucial strategic partner moving forward. MMR is one of the leaders in fostering this relationship and tries to use it to create a competitive advantage over its competitors.

Michelmore’s presentation was not limited to China. He explained some of the obstacles that confront his company in Laos, where unexploded bombs from the Vietnam War need to be cleared. He also stressed the importance of building trust and keeping one’s promises in Africa, a region where many companies fall into the trap of painting all countries with the same brush.

Michelmore is an industry leader. His insights on how to avoid cultural clashes are alarmingly simple. All that is required, he suggests, is the ability to “step into the other person’s shoes,” to understand that others see the world through different eyes and to embrace diversity genuinely and wholeheartedly. One couldn’t help but leave Michelmore’s presentation feeling that this mantra could equally apply to many other areas of life outside the corporate world.

Freehills would like to thank Andrew Michelmore for his insightful presentation.