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 Foreign Corrupt Practices Act (FCPA) implications as well as Australian anti-corruption law that is 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 that is not legitimately due to 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 (FT), in a piece entitled “ASX head resigns amid Tabcorp bribery probe”, Peter Wells reported that Kupper resigned to focus his attention on defending himself in the investigations around his former company’s, Tabcorp, 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. In one article, written by several reporters, entitled “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 the unusual betting pattern around those games, it is no wonder a large book making 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 with a score of 2 on the Transparency International-Corruption Perceptions Index (TI-CPI), coming in at number 158 out of 180 countries ranked. This ranking was largely due to corruption involving two critical factors about doing business in Cambodia, which are the double problem of direct barriers to entry, coupled with an iron fisted ruler who controls that process.
The first was that any foreign company “needed local support and a government-approved licence to set up shop in one of the world’s most corrupt countries.” The second 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.” Cambodia analyst Sebastian Strangio was quoted in the Herald piece for the following, “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 grass roots 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 US banking system. The Herald reported, “The process included a large payment made in 2010. Tabcorp allegedly authorised the transfer of $A200,000 [approximately $150,000] to an account in the United States controlled by the Cambodian consulting firm. Sources close to US 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 to 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, entitled “Tabcorp may face $120m charge over Cambodian probe: CLSA”, that the cost to Tabcorp could be quite substantial. While CLSA believed the company was only looking at a fine of A17 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 privatisation 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 for the following, “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 licence 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 licence.” Of course, the US fine and penalty could be quite high as well, particularly if there were money-laundering allegations through a US 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.
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