Will the FCPA Go Down Under (Again)?

This article was republished with permission from Tom Fox’s FCPA Compliance and Ethics Blog.

We do not often have the chance to go “down under” at the FCPA Compliance and Ethics Blog. However, there is a case brewing that may have some implications for the Foreign Corrupt Practices Act (FCPA), as well as for Australian anti-corruption law based on the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Under the Australian criminal code, it is illegal to provide or offer to someone (directly or indirectly) a benefit not legitimately due that person with the intention of influencing a foreign public official in the exercise of their duties in order to obtain or retain business or a business advantage.

Allegations around improper payments hit Elmer Funke Kupper, the now former chief executive of the Australian Securities Exchange (ASX), who resigned his position amid allegations of foreign bribery at a gaming company where he was previously in charge. According to the Financial Times, in a piece entitled “Funke Kupper resigns as ASX CEO amid Tabcorp bribery probe,” Peter Wells reported that Funke Kupper resigned to focus his attention on defending himself in the investigations around Tabcorp’s (his former company) alleged payment of $200,000 to a family member of the President of Cambodia to obtain gambling licenses to operate in that country.

The Sydney Morning Herald has written extensively on the burgeoning scandal. One article, “Tabcorp’s murky Cambodian adventure,” states that Tabcorp was interested in breaking into a growing online gambling market in Cambodia in anticipation of betting on the (then) upcoming 2010 World Cup in South Africa. Given what we now know about not only the corruption around the South African bid, but also the unusual betting pattern around those games, it is no wonder a large bookmaking entity would want to increase its share of the take.

There were clear red flags present at the start of the process. First was the country involved, Cambodia, which in 2009 came in with a score of 2 on Transparency International’s Corruption Perceptions Index — 158th out of 180 countries ranked. This ranking was largely due to corruption involving two critical factors about doing business in Cambodia: the problem of direct barriers to entry and an iron-fisted ruler who controls that process.

Another red flag was that any foreign company needed local support and a government-approved license to set up shop in one of the world’s most corrupt countries. Still another was that any such “company should have been in little doubt that success would require the approval of Hun Sen or at least senior members of his court.” Cambodian analyst Sebastian Strangio was quoted in the Herald piece as saying, “Prime Minister Hun Sen’s family occupies a dominant position in the Cambodian political system, and as such enjoys a huge amount of control of the Cambodian economy. Its business interests range into just about every section of the Cambodian economy. Dozens of companies control these business interests, often under the control of Hun Sen’s children or his wife.” Strangio went on to add, “Payments to facilitate services, payments to gain access are pervasive in Cambodia. They dominate at the grassroots of society and they run all the way up to the top levels of government.”

How does the FCPA play into an alleged bribe paid by an Australian company, through a Cambodian agent, to the family member of Cambodian government official? Because the payment is alleged to have been made through the U.S. banking system. The Herald reported, “The process included a large payment made in 2010. Tabcorp allegedly authorized the transfer of $A200,000 [approximately $150,000] to an account in the United States controlled by the Cambodian consulting firm. Sources close to U.S. law enforcement agencies say these funds were then sent on to Cambodia at the direction of the firm linked to Hun Sen’s sister.”

The article noted that the newspaper’s “investigation can reveal that Tabcorp reached out to a consulting company connected to one of Hun Sen’s sisters. One of Hun Sen’s nephews, who served in Cambodia’s military, is understood to have also helped facilitate this arrangement.” Further, the article reported that its “investigation has confirmed that some senior staffers within Tabcorp raised, and documented, reservations about the legality of the $200,000 transaction.” It did not cite any of those documented reservations in the article. Finally, there is no evidence that Tabcorp ever received the license, only that the payment was made.

Credit Lyonnais Securities Asia (CLSA), an Asian equity broker and investment group, was quoted in another Herald article, “Tabcorp may face $120m charge over Cambodian probe: CLSA,” as saying the cost to Tabcorp could be quite substantial. While CLSA believed the company was only looking at a fine of A$17 million, they noted that the company, as a gambling concern, had to maintain and reapply for licenses on a regular basis. The article noted, “CLSA also said the privatization of the West Australian TAB could be delayed depending on the government’s view of whether the AFP probe creates issues for Tabcorp bidding for the asset. Tabcorp was seen as the front-runner for the pending sale of Australia’s last state-owned TAB, given its existing relationships in the state, but CLSA said questions around its suitability could lead to a delay.”

Finally, a CLSA representative was quoted as saying, “Tabcorp, some would say, is critical to the WA Government securing a full price. But in our view, it may be difficult for the WA Government to issue Tabcorp a license even though there is the possibility that Tabcorp could fail the ‘suitable person’ test in Victoria is very remote in our assessment. It is remote, but no less present, and this matter could drag out for perhaps two years. We thus believe that the WA government may consider delaying the tender of this license.”

Of course, the U.S. fine and penalty could be quite high as well, particularly if there were money-laundering allegations through a U.S. bank, in addition to any FCPA fines and penalties assessed.

So while the first casualty has been the head of the Australian national stock exchange, there may well be more to come.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business advice, legal advice or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author gives his permission to link, post, distribute or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at [email protected].