Australia’s new “Failure to Prevent Bribery” Legislation: Lessons from the 2012 Morgan Stanley & Garth Peterson FCPA Case
This article explores how an effective compliance program protected Morgan Stanley from Peterson’s FCPA breaches and how such a program can serve as a potential due diligence defence under Australia’s new legislation
Australia’s recent enactment of “failure to prevent bribery” legislation signals a significant step in the nation’s fight against corruption. This legislation holds corporations accountable for bribery offenses committed by their employees, agents, or subsidiaries, emphasising the importance of robust compliance measures. This article explores how an effective compliance program protected Morgan Stanley from Peterson’s FCPA breaches and how such a program can serve as a potential due diligence defence under Australia’s new legislation.
The Morgan Stanley/Garth Peterson FCPA Case:
In 2012, Morgan Stanley found itself entangled in a bribery scandal involving Garth Peterson, former managing director for Morgan Stanley’s real estate business in China. According to court documents, Peterson conspired with others to circumvent Morgan Stanley’s internal controls in order to transfer a ownership interest in a Shanghai building to himself and a Chinese public official with whom he had a personal friendship.
Morgan Stanley’s internal policies, which were updated regularly to reflect regulatory developments and specific risks, prohibited bribery and addressed corruption risks associated with the giving of gifts, business entertainment, travel, lodging, meals, charitable contributions and employment. Morgan Stanley frequently trained its employees on its internal policies, the FCPA and other anti-corruption laws. Between 2002 and 2008, Morgan Stanley trained various groups of Asia-based personnel on anti-corruption policies 54 times. During the same period, Morgan Stanley trained Peterson on the FCPA seven times and reminded him to comply with the FCPA at least 35 times.1
Morgan Stanley’s anti-corruption chief, Raja Chatterjee, discussed the “unprecedented and important” decision of the Department of Justice (DOJ) not to prosecute Morgan Stanley for Peterson’s FCPA violations. They believe that, by declining to prosecute Morgan Stanley, the DOJ has made a statement that “compliance matters” and that an effective compliance program can be a mitigating factor in an FCPA investigation.2
Importance of Compliance Training:
A comprehensive compliance training program was used to educate Morgan Stanley employees, including Peterson, on the company’s anti-bribery policies, legal obligations, and ethical standards. By raising awareness about the risks and consequences of bribery, employees are better equipped to resist, recognise, and report unethical behaviour.
Compliance training plays a crucial role in reinforcing the organisation’s values and promoting a culture of integrity. Through interactive eLearning, with case studies and real-life examples, employees internalise the importance of ethical conduct and understand their role in upholding the company’s reputation and credibility.
Effective compliance training empowers employees to speak up and report suspicious activities without fear of retaliation. By providing clear channels for reporting misconduct and whistleblower protections, employees are more likely to act as the first line of defence against bribery and corruption.
Regular training allows organisations to monitor employee compliance with anti-bribery policies, update them on changes in regulations, and identify areas for improvement. By tracking participation rates, quiz scores, and other data points, organisations can assess the effectiveness of their training programs and address any gaps or deficiencies promptly.
Compliance Training as a Due Diligence Defence:
Under Australia’s new “failure to prevent bribery” legislation, companies can potentially leverage compliance training as a due diligence defence. A well-documented and implemented training program demonstrates the organisation’s commitment to preventing misconduct and can serve as evidence of adequate and proactive efforts to combat bribery.
Key Considerations for Australian Companies:
Tailored Training Programs: Australian companies should develop tailored compliance training programs that address specific bribery risks inherent in their industry, geographic locations, and business operations. Training content should be regularly updated to reflect changes in laws, regulations, and emerging threats.
Senior Management Support: Leadership endorsement and active participation in compliance training initiatives is essential for fostering a culture of compliance throughout the organisation. Senior management should lead by example and prioritise ethical behaviour in all business dealings.
Continuous Evaluation: Compliance training is an ongoing process that requires regular evaluation and refinement. Australian companies should solicit feedback from employees, monitor training effectiveness, and adapt strategies to address evolving bribery risks.
Integration with Compliance Management Systems (CMS): Compliance training should be integrated with broader CMS to provide a holistic defence against bribery allegations. ISO 37301 is an international standard for compliance management systems (CMS). It provides guidelines for establishing, developing, implementing, evaluating, maintaining, and improving an effective and responsive compliance management system within organisations. Companies should use the data gained from their learning management systems to continually enhance and improve their compliance training programs in line with the guidance in ISO 37301.
The 2012 Morgan Stanley/Garth Peterson FCPA case serves as a cautionary tale about the perils of inadequate compliance measures and the pivotal role of compliance training in preventing bribery and corruption. As Australia implements its new “failure to prevent bribery” regime, companies must prioritise robust compliance training programs to mitigate risks, uphold ethical standards, and empower staff to speak up. By investing in employee education, reinforcing organisational values, and integrating compliance training with due diligence processes, Australian companies can strengthen their anti-bribery defences and foster a culture of integrity and transparency.
Notes
GRC Solutions’ resources for corporate compliance
GRC Solutions offers an extensive suite of corporate compliance online training and related services. Listed here.
And we list our financial crime online training and services here.
It includes our popular Anti-Bribery and Corruption compliance training.
All of this training can be quickly and economically customised to suit the particular requirements of your business and of the particular job roles of your staff. See our article on the importance of targeted training here.