By Gareth Vaughan
The Organisation for Economic Co-operation and Development (OECD) has raised "serious concerns" about New Zealand's efforts to combat bribery.
In a phase three report on implementing the OECD anti-bribery convention in New Zealand, the OECD has raised concerns about "outdated perceptions" that New Zealanders and New Zealand companies don't engage in bribery. It says these perceptions could undermine detection efforts.
"While the (OECD) Working Group on Bribery welcomes New Zealand’s recent efforts to implement the Convention, it has serious concerns about the lack of enforcement of the foreign bribery offence," the report says.
Although it's illegal for a New Zealander to bribe a foreign public official, it's not illegal for the public official to receive it. This is an issue the Government plans to address in its upcoming Organised Crime and Anti-Corruption Legislation Bill.
"Since becoming a Party to the Convention in 2001, New Zealand has not prosecuted any foreign bribery cases," the OECD says. "Only four foreign bribery allegations have surfaced. New Zealand opened its first investigations into two of these allegations in July 2013."
"The Working Group recommends that New Zealand significantly increase its efforts to investigate and prosecute foreign bribery, including by providing practical training to law enforcement authorities on the foreign bribery offence. It further recommends that New Zealand continue to routinely and promptly coordinate with foreign law enforcement authorities and make efforts to obtain evidence from abroad."
"The Working Group is also very concerned that a number of key recommendations from Phase 2 (dating from 2008) remain unimplemented. In particular, it reiterates its earlier recommendation that New Zealand broaden its criteria for the liability of legal persons to allow for the effective prosecution of such entities for foreign bribery," the OECD report says.
The OECD says the small number of foreign bribery allegations raises concerns over the levels of awareness, reporting and detection in New Zealand.
"There are further concerns that outdated perceptions that New Zealand individuals and companies do not engage in bribery may undermine detection efforts. However, as the Serious Fraud Office (SFO) agrees, the low number of allegations is not a reflection that New Zealand is immune from foreign bribery," the OECD report says.
"The low number of cases and allegations are not necessarily a reflection that New Zealand citizens or companies do not engage in foreign bribery. Rather, it may be linked to a lack of awareness of the offence or effective means of detection."
Tax deductible bribes?
And, the OECD says, New Zealand should "promptly ensure that under no circumstances are foreign bribe payments tax deductible."
Here, the OECD says that, seven years after its phase two evaluation, New Zealand hasn't addressed any of the weaknesses identified in its regime of non-tax deductibility of bribes. It urges New Zealand to proceed with plans to amend legislation to ensure no foreign bribe payments covered under criminal law are tax deductible, including bribes paid through intermediaries, bribes paid for the purpose of obtaining an advantage for a third party, and bribes paid to foreign public officials for acts or omissions in relation to the performance of official duties.
The report also provides details on the four allegations of New Zealand individuals and/or companies involved in bribery of foreign public officials.
Case #1 - Asia Case: In 2012, the SFO evaluated an allegation of foreign bribery made by an individual following a public presentation on doing business in Asia. The allegation referred to a New Zealand citizen who allegedly paid bribes to public officials of an Asian country in order to gain business. The SFO states that a formal investigation was not opened because the allegation was based on hearsay, and “could not be supported by evidence, nor were potential avenues of evidence identified.”
Case #2 - April 2013 Case: In April 2013, on the last day of the on-site visit, the SFO informed the evaluation team that it had just received a complaint of alleged foreign bribery committed by a New Zealand citizen or company. The allegation involves a New Zealand citizen, primarily domiciled in another State Party to the Convention, having paid bribes to officials in an African country. The SFO opened a formal investigation in July 2013. The case remains at the investigation stage.
Case #3 – Import/Export Company Case: In July 2013, the SFO opened its second investigation into possible foreign bribery related to a fraud investigation involving a New Zealand company. The allegation relates to the payment of bribes over a number of years by the company to officials in an Asian country in order to secure access to markets. The investigation was opened on the basis of a newspaper report. The SFO states that the case remains at the investigation stage.
Case #4 - Technology Company Case: This case alleges that senior management of a (non-New Zealand) company routed foreign bribe payments to public officials of another State Party to the Convention through a network of shell companies, including in New Zealand. The SFO states that it has not investigated the allegations because there is no information available as to who may be behind the shell company. Information on this case is publicly available and has been reported in the press; however, according to the SFO, the information available is insufficient to make a MLA request. New Zealand has also not received any MLA requests on this case. During the on-site visit, the SFO indicated that it has not made informal contact with law enforcement authorities in the two Convention parties involved to obtain more information. In October 2013, the SFO provided an update that they have approached one of the parties to the Convention, though outside of the MLA process.
The SFO declined to comment on any of the four cases.
The OECD does note some positive developments. It welcomes the establishment of a new civil-based asset confiscation scheme, and the creation of the Police Asset Recovery Unit. It also commends New Zealand for adopting a "comprehensive" whistleblower protection law and for efforts made to encourage and facilitate whistleblowing. It also welcomes the entry into force of the new Anti Money Laundering and Countering the Financing of Terrorism Act, and recent steps to review the mutual legal assistance framework to make sure requests from other countries are effectively addressed.
Shell company concerns
The OECD report also addresses the vexed issue of so-called New Zealand shell companies. Many such companies registered in New Zealand have been linked to serious crimes overseas.
"Recently, New Zealand shell companies have been reported as being fronts for international laundering of drug money, fraud and terrorism," the OECD says.
Given the ease with which shell companies can be established in New Zealand, and the role these companies might potentially play - and have played - in transnational crime, the availability of an effective corporate liability regime in New Zealand is described as being particularly crucial.
"The serious deficiencies of the current corporate liability regime and/or of the possibility for New Zealand to exercise jurisdiction over these companies creates a serious loophole in the joint effort of the Parties to the Convention to fight transnational bribery. This issue has become of particular relevance to foreign bribery with the Technology Company Case, currently on-going in another State Party to the Convention, and which allegedly involves foreign bribe payments made through New Zealand shell companies."
"Discussions with the SFO and representatives of the legal profession during the (OECD's) on-site visit highlighted the impact of the identification theory where it comes to establishing the liability of shell companies. Under the current regime of corporate liability, in the absence of a resident director in New Zealand, no legal action is in practice undertaken against the shell company itself. This is the reason why, in the above mentioned Technology Company Case, the SFO stated that it has not investigated the allegations, as no information is available as to who may be behind the shell company," the OECD report adds.
The OECD notes the Companies and Limited Partnerships Amendment Bill, introduced to Parliament in October 2011, will require all companies to have at least one director resident in New Zealand, or in a country with which New Zealand has reciprocal arrangements for the enforcement of low-level criminal fines.
"This will provide an identifiable individual with a substantive connection to the company who can be questioned about activities of the company and who can, in certain circumstances, be held to account," the OECD says. "While the Bill addresses the issue of the nominee directors, it does not directly address the issue of the liability of the shell companies themselves and the liability of their corporate beneficial owners."
Commerce Minister Craig Foss told interest.co.nz last month the Government's move to force New Zealand registered companies operating overseas to have a New Zealand resident director appears to be having the desired effect of reducing illegal activity by some of these companies.
'NZ has zero tolerance approach to domestic corruption & takes same approach to investigating foreign bribery'
In a statement issued this morning Justice Minister Judith Collins said the OECD report focuses on a single criminal offence being bribery of foreign public officials in international business transactions. It does not assess New Zealand’s enforcement of domestic bribery or other corruption offences, Collins said.
“As we know from recent cases, New Zealand has a zero-tolerance approach to domestic corruption, and takes the same approach to investigating foreign bribery, when it’s reported," Collins said.
Collins also said she expects to introduce the Organised Crime and Anti-Corruption Legislation Bill to Parliament before the end of the year.
"The Bill puts in place many of the measures at the heart of the ongoing ‘All of Government Response to Organised Crime’ strategy. This will include measures to tackle crimes such as money laundering, identify theft, human trafficking and corruption," said Collins.
"This Bill will help ensure New Zealand maintains our reputation as a responsible international citizen and that our domestic law enforcement agencies have the tools they need to fight all forms of organised crime. We’re sending a clear message to international and domestic criminals - New Zealand will not tolerate their activities.”
“It’s also important to consider bribery and corruption within the big picture of organised crime, which undermines public safety, national security, economic development and good governance," Collins added.
(Update adds comments from Judith Collins, plus SFO's no comment. Also clarifies that whilst it is illegal for a New Zealander to bribe a foreign public official, it's not illegal for the public official to receive it.).
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