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Saturday, April 24, 2010

Australia is sliding down the international corruption ladder

IF, AS an Australian citizen, you perform an act of bribery offshore, you can be fined $1 million, jailed for 10 years and your company can be fined $10 million, which all sounds very proper except that nobody has ever been prosecuted.

Offshore corruption is suddenly on the agenda. Just as we recovered from the Stern Hu affair - where an Australian citizen working for miner Rio Tinto got 10 years' jail for corruption - BHP is being investigated over bribery allegations in Cambodia.

But you won't find Australian regulators doing anything here. The Rio scandal was uncovered by officials in China. The BHP case was started by America's powerful Securities and Exchange Commission.

We have the Commonwealth Criminal Code (2001), which opened up offshore jurisdictions to Australian regulators.

And it's true the fines were lifted to the million-dollar level just a few months ago - they used to be tiny - $66,000 for individuals and $300,000 for companies.

But unless you have someone enforcing the law, the bad guys go about their business undeterred. In effect, it means that if you have a brown paper bag of unmarked bills under a full moon on the beach at Far Away Island you don't really have to worry about the ''Australian'' regulator. As for the local regulator … they might just be coming down the beach to meet you.

It is logical to assume that if giant Australian companies are getting into trouble, then a host of smaller operators might usefully be monitored.

This is not conjecture; it's a safe assumption based on what has just occurred in the US where last year the Department of Justice revealed that the number of ''offshore corruption'' cases it is working on has tripled in two years. ''It's a remarkable increase in the volume of investigations,'' says Michael Ahern, executive director of Transparency International (Australia), an organisation that tracks offshore corruption.

A decade ago Australia was the top-ranked ''clean'' country in the world by Transparency International. Today it has fallen to eighth place.

Australia's worsening record in offshore corruption relates largely to the Australian Wheat Board scandal in Saddam Hussein's Iraq, which involved government kickbacks.

But the ranking is likely to deteriorate further with the Rio case and - potentially - BHP'S ''Cambodia'' case, news of which broke only in recent days and relates to alleged bribery at a former bauxite operation.

The BHP case has prompted questions about both the significance of the event and the manner in which the corporation - for all its stated ambitions to be a top-class corporate citizen - disclosed the bad news at the bottom of a production report.

''Disclosure is crucial,'' says James Thier, of Australian Ethical Investments. ''Australians have a relatively good reputation in this area. The essential issue is the policy of the companies themselves, and it could always be better.''

Although recent events have pointed towards Asia and China, the global flashpoint for offshore corruption is in Africa, where the volume of mining and exploration activity has reached unprecedented levels. And Australians are coming up against other ''offshore players'', especially China, where attitudes to bribes can differ.

Australia might not score as well as we might like in the Transparency International tables or on the OECD's offshore bribery scorecard. In fact, at the OECD we are classified as having ''little or no enforcement'', along with such countries as Mexico and Turkey. But it's worth noting that under the OECD agreement - the 2009 convention on combating bribery of foreign public officials - China is not even on the list because it has not signed up.

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