AWB: Corporate culture on trial

A PREVIOUSLY unused Commonwealth Criminal Code Act 2005 clause on corporate culture could be called on following the Cole Inquiry’s investigation into the Australian Wheat Board (AWB) and the UN Oil-for-Food Program.

Under the section, companies can be found to have formed an intention to commit a crime if their ‘corporate culture’directed, encouraged, tolerated or led to non-compliance with the law.

This leaves the way open for HR managers to be found vicariously liable and implicated where criminal activity is found to have occurred.

Commissioner Terence Cole said in late January that he would allow questioning during the inquiry aimed at uncovering a culture of corruption.

“It does seem to me that there are a large number of prospective offences under the Commonwealth Code that will have to be considered by this inquiry, and in relation to a significant number of them the culture of the organisation may be a material matter,”he said.

Corporate culture is defined in the Act as “an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place”.

The development has potential ramifications for senior managers of Australian corporations because they could be held accountable for the criminal activity of their staff under Federal law.

“The Code arose out of the fact that in the late eighties and early nineties, the Hawke, then Keating Governments were trying to revisit the ridiculous situation we have in Australia where every one of the states has responsibility for criminal law and the Federal Parliament have very little unless it had to do with offshore activities and importation,” said Rick Sarre, professor of law and criminal justice at the University of South Australia.

“In other words, the Constitution says that most criminal offences are governed by State and Territory law and that’s fine while you have some continuity between them, but we don’t,” he said.

“So what the Federal Parliament decided to do was draft a criminal code back in 1992.”This was passed by Parliament in 1995 and promptly forgotten about.

“The reason it is never called upon is because there are so few criminal laws that would apply to Federal Prosecution … As Cole now reminds us, if you have an offshore corporation dealing with kickbacks to the Iraqi regime you now potentially have an exercise of Part 2.5 of the Code.”

In the case of AWB, if “Cole finds that (former chairman of AWB) Trevor Flugge and a few other people deserve to be prosecuted, he may encourage prosecutorial authorities to investigate prosecuting under Part 2.5 of the Code.

“If that is the nature of his recommendations then it would be a strong recommendation for the Feds to come in and say ‘we can’t actually find any of these hapless individuals individually guilty, but under Part 2.5 what we can say is that AWB, as a result of its culture, allowed this criminality to occur’.

“They can punish the corporation and by punishing the corporation you then punish its leaders,” Sarre said.

It’s possible that AWB may be found guilty of a corporate culture that allows law breaking to be overlooked.

“If criminal acts emerged from that then those responsible for allowing that culture to emerge are now directly culpable as if they were doing the act themselves,” he said.

In future, HR and HR managers in Australian corporations could then be implicated in criminal proceedings as well.

“HR departments should be quaking in their boots if they thought that they might have written a whole bunch of things down saying we do this, this and this because unless there is evidence they actually are doing it then they could be vulnerable, vicariously liable to the actions of the people whose sloppiness they did not control.”