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Are NZ and Australia as ethical as they appear?

by Trevor Treharne

Australia and New Zealand are perceived as low-corruption bastions of ethical corporate conduct by global standards. However, is this reputation hubris built on self-denial?

Australia and New Zealand are perceived to be among the least corrupt nations in the world. Australia was ranked 11th in Transparency International’s 2014 Corruption Perceptions Index (CPI), ahead of the likes of Germany, UK and US. New Zealand performed even better, ranking second in the world behind star pupils Denmark. However, Deloitte’s Bribery and Corruption Survey 2015 report found that Australian and New Zealand organisations continue to encounter bribery and corruption incidents and many remain ill-equipped to identify, manage and prevent them.

Some 23% of organisations surveyed had experienced one or more known instances of domestic corruption in the past five years. Report author Frank O’Toole, partner, Deloitte Forensic Australia, says corrupt behaviour is more prevalent than most people think.

“We assume that because we are Australians or New Zealanders that we behave in a right and proper way. Even a cursory read of media reports, however, reveals enough material to challenge this assumption,” O’Toole says.

“The AFP [Australian Federal Police] has also said it is pursuing 14 active investigations. While this number may appear small, these are only the cases that have been detected and made their way to law enforcement. The real question is how many are not being referred, and how many do not we know about?”

So is our reputation for moral superiority and incorruptibility a self-deceptive smokescreen? “I do think that we [Australia] are less moral than many other countries, and I have long wondered about our reputation for honesty,” says Peter Bowden, a moral philosopher at the University of Sydney.

“My reasons for thinking this way go beyond the skulduggery in the NSW Labor Party, and repeated in the illegal actions of the NSW Liberal Party in the donations by developers. They lie in Australia’s failure to introduce effective whistleblowing laws.”

Bowden refers to the recently established Public Interest Disclosure Act 2013, the legislation for whistleblower support at the federal level, which was passed in Australia much later than almost 30 other countries.

“When it [the Act] passed it exempted blowing the whistle on wrongdoings by ministers. It also covered only the public service. We have no effective protection system for whistleblowers in the private sector. We have state legislation but it does not seem to be very effective. The main weaknesses are incomplete coverage by the legislation and weak or reluctant investigative capabilities.” Bowden says the main reason for weaknesses in state and federal legislation appears to be lack of investigative effort by the authorities.

Gary Gill, head of forensic, KPMG, agrees that while Australia and New Zealand are routinely cited as among the world’s least corrupt countries, this reputation is questionable.

“One only has to look at the number of bribery and corruption allegations over the past five years or so, including some of the very well-publicised matters that have been investigated by the NSW ICAC (Independent Commission Against Corruption) in recent times, to realise that corruption is a big issue [in Australia and New Zealand],” says Gill.

Gill says Australia and New Zealand do not seem to prosecute bribery and corruption with the same vigour as the US, UK and China. “The ICAC in NSW, and other similar state bodies, do pursue allegations of bribery and corruption with vigour, and there have been plenty of findings by ICAC of corrupt conduct in particular, but the findings do not always result in criminal prosecutions,” he says.

Gill says OECD’s working group on bribery, which issued a report in April 2015 giving Australia a “pass mark” for its implementation of anti-bribery measures, has said more law reform is needed to boost prosecutions.

“It [the OECD report] suggested strengthening sanctions and enforcement for false accounting offences [in Australia], and introducing rules that could bar companies found to have bribed foreign officials for bidding on government work,” says Gill.

“It also wants Australia to widen its whistleblower protections to safeguard private and public sector employees, and encourage greater self-reporting and plea bargaining by companies.”

Gill indicates that a KPMG study of Australian companies on overseas bribery in 2009 showed that nearly half of respondents did not have anti-bribery and corruption compliance programs in place.

“A more recent study found the same result — nothing much has changed in the last five years. Australian companies have been slow to adapt — our approach to compliance regulatory, reputation and operational risk.”

Gill adds that at a time when one of Australia and New Zealand’s major trading partners, China, is stepping up its efforts to deal with corruption, we cannot afford to be seen as a “soft touch” in addressing the problem.

AJ Brown, program leader for Public Integrity & Anti- Corruption at Griffith University’s Centre for Governance & Public Policy, says while the Australia and New Zealand public have a generally low tolerance for corruption, this is only because we have a relatively low exposure to most gross forms of corruption.

“We tend to be fairly complacent because we tend not to believe that corruption is very entrenched, or we assume that other people or institutions will pick it up without us having to do anything as individuals,” Brown says. “The main reason why we [Australia and New Zealand] are routinely cited as less corrupt, relative to other countries, is that we are relatively very wealthy and have relatively healthy democratic and governance institutions of long standing with a lot of stability,” he says.

“We also do have plenty of our own corruption, and corruption risks, as demonstrated by a wide range of scandals – not least, the breathtakingly audacious corruption of someone like [former politician] Eddie Obeid, and the many associated with him. However, it is generally less obvious and less pervasive than in many countries.”

Lee White FCA, CEO of Chartered Accountants Australia and New Zealand, is unconvinced that some arguments which challenge Australia and New Zealand’s low corruption reputation carry much weight, including those around the tardy introduction of Australia’s whistleblowing legislation.

“Whistleblowing is incredibly important, but that is only a small avenue by which to gauge the larger element of our country’s performance in this space [around corruption], so I am not particularly concerned by that,” says White. “It [the whistleblowing regulation] is important legislation, and it is necessary, but it is a secondary element of some more important parts to general societal wellbeing.”

White stresses that legislation generally comes in response to an incident, event or some form of problem either in society or business: “Not often do you find rules coming in advance of problem.”

As Australia and New Zealand progress with their approach to corruption, and the supporting legislation around the issue, Bowden believes the solution to corruption is to follow the lead of the US with a False Claims Act and related rewards-type legislation.

In the US, persons filing under the False Claims Act stand to receive a portion, usually about 15 to 25%, of any recovered damages.

In 2014, an anonymous whistleblower received US$30 million from the US Securities and Exchange Commission for crucial information that helped investigators uncover a “difficult to detect” ongoing fraud.

“The False Claims Act recovers much of the loss to the government and levies fines. The US has recovered billions through this legislation,” says Bowden.

Whichever side of the coin you accept — Australia and New Zealand are in corruption denial or they are genuinely deserving of their low corruption reputations — it seems inevitable that regulation will tighten its grip around the neck of corruption.

In New Zealand, Transparency International has welcomed the Organised Crime and Anti Corruption Legislation Bill that, if passed, will bring the law into line with international conventions and allow the ratification of the UN Convention Against Corruption. In Australia, Transparency International has called for the creation of a strong federal anti-corruption body with greater powers than its state counterparts.

How much is seized in that regulatory grip, namely in the form of increasing corruption prosecutions in Australia and New Zealand, will go some way to settling the debate of corruption denial versus that wholesome reputation.

This article was originally published in the June 2015 issue of Acuity.


Action on corruption

In a new thought leadership paper, Chartered Accountants ANZ explores the question: Are Australia and New Zealand corrupt? While both countries enjoy a good reputation with regard to corruption, the paper warns that we must act against complacency. Changing trading patterns are likely to influence the way we do business and what is considered corrupt. The paper contains ten calls to action for multiple stakeholders including business, policy makers and regulators. See charteredaccountants.com.au/futureinc.


“I saw the worst in people”: US$1.7b Whistleblower

After 30 years with Japanese optics giant Olympus, Michael Woodford was appointed CEO in September 2011. Two weeks later the company’s first ever non-Japanese CEO was dismissed. Woodford had taken the top job and immediately started asking pressing questions around some dubious Olympus acquisitions.

“Olympus had bought three Mickey Mouse companies,” explains Woodford. “It had bought a mail order face cream company, a company making plastic plates for microwaves and some recycling business all for US$1 billion – Olympus is a high-tech optical digital company.

“They then paid US$700 million for advice from some unknown consultancy based in the Cayman Islands and all the money went to the Cayman Islands. It was not subtle, clever or complex fraud – a child would have known.”

The Wall Street Journal described the scandal as “one of the biggest and longest-running loss-hiding arrangements in Japanese corporate history”. It wiped 75-80% off the company’s stock market valuation and involved several resignations and arrests.

In June 2012, Woodford was awarded £10 million in an out-ofcourt settlement with Olympus over his dismissal. “Because I had worked for the company for 30 years, some [colleagues] had become friends. Some of them were there when my children were born and were very close, yet an hour after I was dismissed, phone calls went unanswered, emails went unanswered, text messages went unanswered.

“People move away and it’s very haunting to see,” says Woodford. “I’ve got a very cynical and jaundiced view of human nature and I saw the worst in people, not just the Japanese, but my colleagues around the world.”

Woodford says that, while no firm would say “let’s do bad things”, it is individuals who become corrupt and greedy. “It comes down to organisations recognising that it’s good business to run a firm ethically and with ethical standards and there is demonstration of that in the market.

“One particular scandal can actually do a lot of damage to a business and to the long-term value of that business.”