The maximum monetary penalty for a company which bribed, or conspired to bribe, a foreign public official should not include a deduction for costs incurred in performing the contracts, according to the High Court of Court of Australia (HCA) following its decision in The King v Jacobs Group (Australia) Pty Ltd  HCA 23 handed down on 2 August 2023.
In doing so the Court rejected a ‘net benefit’ approach to the calculation of monetary penalty pursuant to section 70.2(5) of the Criminal Code Act 1995 (Cth).
This decision reinforces the significant monetary penalties that may apply to businesses found to have committed a foreign bribery offence, consistent with the OECD Convention requirement that penalties should be “effective, proportionate and dissuasive” .
The HCA allowed an appeal from a judgment of the Court of Criminal Appeal of NSW, that sought clarification of the proper construction of section 70.2(5) of the Criminal Code, which sets the maximum penalty for the foreign bribery offence as the greatest of:
- 100,000 penalty units (at the time of the relevant offence, this was $11 million);
- three times the value of the benefit obtained that is reasonably attributable to the conduct constituting the offence; and
- if the value of the benefit obtained cannot be determined, 10% of the annual turnover during a 12-month period.
The issue before the HCA was whether for the purpose of section 70.2(5) the value of the benefit that Jacobs Group (Australia) Pty Ltd (Jacobs Group) obtained as a result of the foreign bribery offence was the gross monetary amount it received in performing the contracts secured as a result of its unlawful conduct, or whether the value of the benefit was a ‘net value’ calculated after deduction of the costs, expenses or other outgoings incurred in performing the contracts.
At first instance, the Supreme Court of NSW construed the ‘benefit’ as the net benefit that Jacobs Group had gained from the conduct, rather than the gross value of the contracts it had obtained through bribery. Justice Adamson allowed Jacobs Group to deduct costs it had incurred in performing the contract when calculating the maximum available penalty, therefore reducing it from approximately $30.4 million to $11 million. The NSW Court of Criminal Appeal refused the Crown’s appeal.
In interpretating section 70.2(5), the HCA considered the section in the context of Australia’s international obligations, in particular the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and Related Instruments (OECD Convention). The Court noted the Preamble to the OECD Convention which gave context to the offence, that any advantage secured by a bribery offence “is tainted by the illegality, as are all costs incurred (external and internal)”.
The HCA unanimously held (with Edelman J delivering a separate judgment) that on its proper construction of s 70.2(5)(b), the value of the benefit means the whole advantage provided or secured by the bribery offence. As a consequence no deduction should be made for any costs incurred for performing the contracts derived from the illegal conduct.
In this matter, it was therefore determined that the maximum monetary penalty was an amount in excess of $30 million, rather than an amount of approximately $11 million as originally assessed. As can be seen, the construction adopted by the HCA had a very significant consequence for the maximum penalty to be applied in this case.
The approach taken by the HCA arguably goes further than the approach taken in some international jurisdictions, like the USA, where corporate offenders are often required to make disgorgement of profits, but where business expenses associated with legitimate business activities may be deducted.
In a previously published Insight, we considered the proposed amendments to foreign bribery laws in the Commonwealth Criminal Code that were re-introduced into Federal Parliament earlier this year.
The Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023 (Cth) proposes a number of notable changes to strengthen the legal framework for prosecuting Australian companies for foreign bribery offences. These changes are likely to result in increased prosecutions of Australian businesses alleged to have been involved in corrupt conduct overseas. In this regard we highlighted an intended offence for companies which fail to prevent bribery, where organisations may only escape liability if they establish that they have ‘adequate procedures’ (such as an effective compliance program) in place.
Application to other Commonwealth laws
This HCA decision may also have consequences for monetary penalties arising from contravention of other criminal and civil penalty provisions of Commonwealth laws where the penalty is assessed by reference to the value of a ‘benefit’ directly or indirectly obtained from the offending conduct. This may be so, both in relation to penalties imposed by the courts and in the negotiation of monetary penalties by regulators or prosecuting authorities.
Businesses must identify exposure risks
It is of the upmost importance that Australian businesses identify any risk of exposure to foreign bribery that exists within their business and sector as a whole and to take steps to prevent breaches of foreign bribery laws.
Policies and processes should also be reviewed regularly to ensure that they represent good industry practice and are appropriate for the organisation’s operations and risk profile. If coupled with a good compliance culture, they can be highly effective at avoiding the risk of foreign bribery and/or ensuring that the company is insulated from prosecution under Australia’s foreign bribery laws.
The King v Jacobs Group (Australia) Pty Ltd  HCA 23 at .
For example: Liu v. Securities and Exchange Commission 91 U.S. (June 23, 2020).
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.