R v Jacobs Group - seeking redemption in a self-report of bribery

What you need to know

• Jacobs Group (Australia) Pty Ltd (Jacobs Group) had pleaded guilty to three counts of conspiring to cause bribes to be offered to foreign public officials, contrary to provisions of the Criminal Code Act 1995 (Cth) (Criminal Code). The offences related to conspiracies to pay bribes to foreign public officials in the Philippines and Vietnam. When the conduct came to the attention of Jacobs Group's board, the company self-reported the conduct to the Australian Federal Police (AFP).
• In sentencing Jacobs Group, the sentencing judge applied generous sentencing discounts, given Jacobs Group's exemplary post-offence conduct. That included providing extensive assistance to investigating and prosecuting authorities, and implementing a wide-ranging internal remediation program.
• In July 2022, the New South Wales Court of Criminal Appeal (CCA) unanimously dismissed the Crown's appeal against the sentence imposed on Jacobs Group. It upheld Jacobs Group's argument that in determining the maximum penalty applicable to one of the offences (relevant to assessing the sentence to be applied), 'benefit' should be read as 'net benefit' (the net income the company gained from the offending conduct), as opposed to the 'gross benefit' (in this case, the total value of the contracts awarded).
• While the CCA identified some errors in the sentencing process, it determined not to exercise its discretion to vary the sentence. The case is a useful illustration of the availability of significant sentencing discounts where a corporation co-operates promptly and candidly by self-reporting discovered criminal conduct to authorities.

What you need to do

• When the board of a company is informed of potential criminal conduct including bribery, it should act swiftly to commission an independent investigation and act upon its recommendations.
• If the report confirms likely criminal conduct, the company should consider whether to voluntarily alert authorities to the probable commission of a criminal offence, and to provide ongoing cooperation in any investigation or prosecution that may follow.
• The company should also consider appropriate remediation in light of the offending coming to light. That might include changing operational and oversight arrangements, and overhauling anti-bribery and corruption policies and training programs.
• The combination of self-reporting, ongoing cooperation with authorities and internal reform will help demonstrate to a Court that the company is dedicated to eradicating bribery and corruption, and assist in securing sentencing discounts in the event it is charged and convicted of offences.

Background

Sinclair Knight Merz Pty Ltd (SKM) was an Australian consulting and engineering firm involved in infrastructure projects both in Australia and internationally.

Between 2000 and 2012, SKM was involved in two conspiracies in the Philippines and Vietnam. Both conspiracies involved employees of SKM's overseas development assistance businesses (the SODA business unit) paying bribes to foreign public officials in order to facilitate the awarding of public infrastructure project contracts to SKM. SKM employees embarked on a complex scheme to conceal the bribes by making payments to third party companies, and receiving fake invoices for services which were not in fact rendered. The conduct was known to and approved by senior persons at SKM, although concealed from the company more widely.

Jacobs Group acquired SKM in 2013, after the conduct had ceased.

Identification and reporting of bribery to authorities

The conduct came to the attention of persons outside those involved in the offending, and the company's external lawyers, in the course of vendor due diligence being conducted for proposed merger or acquisition activity.

The external lawyers and an accounting firm were engaged by the company to conduct an extensive investigation of the conduct. That investigation culminated in a privileged draft report, provided to the company's board (excluding conflicted directors) in August 2012. The draft report concluded that various of the company's employees had paid money to third parties, intending the money to be paid as bribes to foreign public officials.

The non-conflicted directors unanimously voted to self-report the findings to the AFP, to waive legal privilege in the draft report, and to make it available to the AFP. That was done in late August 2012.

The company continued to assist the AFP over a six year period in relation to the AFP's investigations concerning it and the relevant individuals involved in the criminal conspiracies. This assistance included providing business records on over 13 occasions, arranging for the AFP to interview relevant employees, preparing draft witness statements and providing factual analyses. The assistance continued after the company was charged, along with relevant individuals, in May 2018.

The company also met with counsel for the Commonwealth Director of Public Prosecutions (CDPP) to discuss the Crown's case against the individuals accused, and provided the CDPP with privileged material and business records. It undertook to continue to cooperate and assist in the prosecution of the accused individuals.

The company also reported the findings of its investigation to a number of other authorities, including the World Bank, Asian Development Bank, AusAid, and ASIC.

Internal reforms

In addition to self-reporting, the company took a number of remediation steps. These included:

• suspending and then terminating relevant individual employees who had participated in the conduct;
• operational changes to management and oversight of the SODA business unit that had been involved in the conduct, and changing approval processes for all payments by that unit;
• introducing a new Code of Conduct which explicitly prohibited the offering of inducements to public officials;
• introducing a requirement for the completion of a bribery and corruption risk assessment before committing to new projects;
• upgrading various internal policies, including the company's whistleblower, donations and gifts and entertainment policies. It also introduced new policies which discouraged the use of agents, and required the screening of all new suppliers and sub-consultants for bribery and corruption risk. The company also engaged an independent monitor to review the changes made to its policies;
• updating and expanding existing bribery and corruption training programs for staff; and
• modifying internal audit practices to more closely scrutinise non-financial risks such as bribery and corruption.

The sentencing outcome

On 3 September 2020, Jacobs Group pleaded guilty to three offences of conspiring to cause bribes to be offered to foreign public officials, contravening sections 11.5(1) and 70.2(1)(a)(iv) of the Criminal Code.

The company was sentenced by Justice Adamson in the New South Wales Supreme Court on 9 June 2021.¹ She found that while each of the offences committed fell within the mid-range of objective seriousness for an offence, this was mitigated by the fact that the company had self-reported the offending to authorities, and that the self-reporting was motivated by remorse and contrition rather than fear of discovery. The sentencing judge also found that the conduct was not widespread, and effectively limited to the SODA business unit. She accepted evidence from the AFP that it was unlikely to have become aware of the conduct absent the company's self-reporting, and that the company's post offence conduct was "best practice" and "of the highest quality".

The offending by SKM occurred both prior to and post 20 February 2010. That was the date on which amendments to s 70.2(5) of the Criminal Code came into force, increasing the maximum penalty for the offences in question. Section 70.2(5) provides that, where it is possible to determine the value of the benefit that a company obtained from the offending, the maximum penalty is the greater of $11,000,000 or three times the value of that 'benefit'. The sentencing judge treated 'benefit' as meaning the net benefit the company gained from the conduct, rather than the gross value of the contracts procured as a result of the conduct. That meant the maximum penalty was treated as $11 million rather than approximately $30 million.

Owing to Jacob Group's 'exemplary' post-offence conduct, the sentencing judge applied the following discounts on sentencing:

• a discount of 25% from the fine that would otherwise have been imposed for each offence, for the company's guilty plea; and
• a further combined discount of 40% for Jacob Group's past assistance to law enforcement agencies, and undertaking to provide future assistance.

The overall penalty imposed on Jacobs Group was $1.35 million.

Decision on appeal

Grounds of Appeal

The Crown appealed the sentence. The key issues on appeal included:

1. whether the sentencing judge erred in her interpretation of the word 'benefit' contained in s 70.2(5)(b) of the Criminal Code and consequently made an error in identifying the maximum penalty for certain conduct post-dating the 20 February 2010 amendment;
2. whether the sentencing judge erred in relation to certain of the post 20 February 2010 conduct, by failing to take into account that the fine imposed would be treated as a cost of doing business (particularly as it was less than the agreed net benefit obtained as a result of the offending conduct); and
3. whether the sentencing judge constructively failed to take into account the factor of general deterrence in relation to all three charged offences.

Court of Criminal Appeal's findings

In a unanimous decision, the CCA dismissed the Crown's appeal.² It held that:

• The sentencing judge did not make an error in her construction of s 70.2(5)(b) of the Criminal Code. Specifically, the CCA found that 'benefit' should be read as 'net' benefit, not gross benefit. That is, benefit should be calculated by reference to what the company 'in fact gained from the conduct'.
• The sentencing judge did not fail to take into account a material consideration by not expressly stating that the penalty imposed in relation to certain of the post 20 February 2010 conduct was less than the agreed net benefit derived from the offence.
• Justice Adamson did make an error by allowing the desirability of encouraging self-reporting of corporate misconduct to effectively be counted twice: firstly, when determining the starting points for the fines to be imposed, and second, when allowing a sentencing discount. Effectively, this operated as a form of double-dipping.
• In particular, in relation to certain offences, the CCA found that the penalty imposed suggested that the importance of general deterrence was given effect to in name only by the sentencing judge, with the result that the sentencing process miscarried in relation to that offending, with an inadequate penalty imposed.
• Notwithstanding those errors in the sentencing process, the CCA ultimately concluded that it should not exercise its discretion to vary the sentence. The fact that an error had been identified in the sentencing process was not of itself enough to justify a new sentence being imposed.

Lesson for corporations confronted with evidence of bribery

While the CCA rejected the approach taken by Justice Adamson in recognising that self-reporting of bribery and assistance afforded to law enforcement were factors that ought to be taken into account to both determine the starting point of the sentence to be imposed, and as matters entitling the offender to specific sentencing discounts, no issue was taken with those matters being relevant, as a matter of principle, to the mitigation of sentence that might otherwise be imposed for foreign bribery offences.

The approach taken by Jacobs Group, following the identification of potential criminal conduct, is a useful guide for other corporations faced with similar circumstances, particularly:

• the prompt retention of independent external lawyers to investigate suspected instances of criminal misconduct;
• the decisions of the board of directors to self-report the conduct to authorities and provide ongoing assistance and cooperation to law enforcement and prosecutorial authorities, notwithstanding the risk of criminal sanction; and
• committing to remediation steps to address the conduct (and seeking to prevent any repeat of it), including by overhauling relevant policies and procedures and making appropriate operational changes.

Authors: Rani John, Partner; Peter Richard, Counsel; and Phimister Dowell, Associate.

_{1.   R v Jacobs Group (Australia) Pty Ltd [2021] NSWSC 657.
2.   R v Jacobs Group (Australia) Pty Ltd [2022] NSWCCA 152.}