Debarment regimes exclude companies from public procurement opportunities following conviction of specified offences. Wendy Wysong, Tim Grave and Madeleine Parker discuss how though the regulation landscape is largely discretionary in the Asia-Pacific, these regimes are only likely to strengthen.
Countries throughout Asia-Pacific are starting to exclude companies from public procurement opportunities following convictions for corruption, money laundering and fraud. With the region’s well-publicized emphasis on enforcement and the increasing scrutiny of corporate activity comes additional pressure on governments to “get it right.” Nowhere is this issue more relevant than in relation to public procurement. Scandals across the Asia-Pacific region, particularly in relation to corruption in the infrastructure and energy sectors, continue to shape the approach authorities take in awarding new public contracts to companies.
Debarment Legislation: Far And Near
In reaction to public procurement scandals, legislation is being drafted across the region to restrict companies from bidding on, or being eligible to work on, public contracts following a conviction of specified offences. Companies and company directors need to be cognizant of these evolving legislative regimes, both within their own jurisdiction and further afield, and be prepared for any new developments. Failing to get ahead of the issue today can lead to forfeiture of valuable opportunities in the future.
Guidance can be taken from well-established debarment regimes in the United Kingdom and the United States. The United Kingdom has both mandatory and discretionary exclusion for companies convicted of certain offences under, for example, the Companies Act, as well as the Fraud Act. Included in this legislation, however, is a “self-cleaning” regime whereby a company may be able to overcome any such exclusion if it can show it has implemented procedures to remedy prior misconduct and prevent future misconduct.
In the United States, there are regulatory regimes for exclusion from public bidding including in respect of violations of the Foreign Corrupt Practices Act (FCPA). The Federal Acquisition Regulations (FAR) set out a wide range of conduct that can result in a company or contractor being excluded from participating in public contracts. Similar legislation exists at the state level.
Across the Asia-Pacific region, the debarment regulatory landscape is generally not so prescribed and is largely discretionary. For instance:
- In Australia, where public procurement may – depending on the nature and location of a project – be governed by either federal or state procuring authorities, the approach to debarment varies. States such as Victoria are explicit in their anti-corruption obligations in reviewing tenders, but other states are less clear. In 2018, the Senate Economics References Committee (in their report on foreign bribery) recommended a federal debarment framework.
- In Japan, the “guidelines in disqualification of a firm or individual from competing for a contract” (Debarment Guidelines) were updated in June 2019 to further enhance how the Sanction Board of the Japan International Cooperation System (JICA) handles debarments.
- In China, tendering authorities have the ability to consider past conduct of bidding entities, among other things, in determining whether to award them with a contract.
Adding to the complexity of these varying legislative regimes is the potential cross-debarment practices of multilateral development banks, including the World Bank, the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstructions and Development and the Inter-American Development Bank Group. These banks have joined the “Agreement of Mutual Recognition of Debarments” so that a company or person debarred by one multilateral bank may also be debarred by other multilateral banks.
The availability of deferred prosecution agreements in certain jurisdictions adds further complications. In addition to avoiding jail time or other consequences of criminal conviction, an incentive for entering into a deferred prosecution agreement, particularly for big-name infrastructure players, has been to avoid the potential for debarment. As recently as 2019, Justice Davis of the United Kingdom, in approving a deferred prosecution agreement with a subsidiary of an international conglomerate, extensively considered the potential for debarment of the parent company, its subsidiaries and other group members, had a DPA not been entered into.
Confronting The Challenges
What is clear from recent developments is that debarment regimes are more likely to strengthen, rather than loosen, in the coming years, and companies need to ensure they recognize and adapt to the changes.
The underlying conduct that debarment regimes seek to deter is naturally the first aspect to consider for any business. Having a robust and continuously reviewed compliance regime and providing a secure mechanism for whistleblowers are instrumental steps and should be non-negotiable in today’s regulatory landscape.
Key to ensuring your company and key stakeholders are protected in this area is adequate due diligence. This not only applies to due diligence of your contractors or other entities you engage with, but also in respect of your own officers, operations and key personnel on a regular basis. Without mechanisms for continuous internal assessment and the development of internal plans for addressing issues as and when they arise, any crisis management will be impeded from the outset.