Australia’s business community awoke last week to the shocking headlines in Fairfax newspapers that Leighton Holdings and its subsidiaries stand accused of bribery and corruption in the acquisition of international contracts.
And the stories continue, with The Age and The Sydney Morning Herald reporting today an enquiry in 1994 found former Leighton boss Wal King “not of good repute”.
Reputation is key to any business and where there are serious allegations like these, there are often huge consequences.
Further revelations have since been made about the CEO of the company’s international division setting up a company to compete directly with Leighton. If true, this would be a clear breach of duty by an officer.
A week ago Leighton Holdings was Australia’s 38th largest company, by market capitalisation. After these allegations, company stock fell by 10%, then a further 4% by the week’s end.
The immediate share market reaction – shares fell $2 to $16.54, wiped $550 million from the company’s value. That’s the direct impact on the company and its shareholders (including superannuation funds and other financial institutional investors).
And there could be long-term damage done, with Leighton tenders for a variety of construction contracts around the world. If politicians call for a freeze or review of these contracts, the company’s business model could be put at risk.
What does the law say?
The laws involved in these types of accusations and allegations are complex and involve a number of government agencies and regulators, covering domestic and international law enforcement.
The Commonwealth Criminal Code 1995 was amended in 1999 by the Criminal Code Amendment (Bribery of Foreign Public Officials) Act. This amendment to the Criminal Code was to bring Australia in line with similar laws in the USA and UK.
There is a growing global awareness of such complex white collar crimes. In 2013 the AFP established a dedicated Fraud and Anti-Corruption team, to build on the work of the Foreign Bribery Panel of Experts and the new International Foreign Bribery Taskforce. They are the lead agency in this particular investigation.
It is unrealistic to think that this is an easy area of law to police, particularly when you think of the sums of money involved. In respect of the Leighton company’s allegations, just one transaction had a $87 million inflated contract through a Monaco based business (Unaoil) for a construction contract worth $750 million.
The parties involved in such alleged transactions would know they are against the law and as such have every incentive to keep the transactions complex and secret. It is for the AFP, working with other international; agencies to find the truth and produce the necessary evidence for a conviction in an Australian criminal court of law.
The AFP will move at one speed, the corporate regulator, ASIC at another. From November 2011 to February 2013, the company could have made a number of disclosures to the stock exchange, which would have had a materially impact on the share price.
If the AFP is able to provide evidence of criminal behaviour by the company and its executives, there could be criminal – or more likely – civil penalty actions for breach of officers duties (as found in sections 180 to 184 Corporations Act 2001 (Cth)).
This type of litigation can often takes up to a decade to resolve through the various appeal courts. The collapse of HIH Insurance in 2001, to the tune of $5 billion, took five years to wind through the NSW Supreme Court and the Court of Appeal.
Only then was there criminal prosecution of Ray Williams and Rodney Adler.
The more recent James Hardie High Court decision, relating to the misleading and deceptive media release on fully funded asbestos claims, also took about a decade.
But there was no dishonesty in James Hardie, merely a breach of civil duty to take reasonable care. Those directors are still suffering reputational damage as the company tries to rebuild its image.
The Leighton scandal – with specific bribery and corruption issues – looks a little like the recent oil-for-grain contracts case with the AWB.
While officers were found in breach of the law, they received very minor penalties. And while the RBA subsidiary was found to be bribing for contracts, there were no harsh penalties, even with clear evidence.
Reputation goes to the heart of every business and every professional executive, as such the country, as well as the Leightons’ shareholders have a right to expect high quality corporate governance. Doing the ‘right thing’ by acting honestly and competently, is expected as a minimum. The damage to Leighton’s reputation could last for the next five to ten years.