Facilitation payments present risky business for super funds

Super funds will benefit from company bans on facilitation payments, a partner at law firm Baker & McKenzie has claimed following an anti-corruption conference this month.

Mini VandePol, head of Bakers' Asia-Pacific dispute resolution practice, told SuperReview that super funds have a "tremendous interest" in listed companies adopting a zero-tolerance approach to facilitation payments, even though they are permitted under Australian law.

VandePol said many Australian companies are unsure of the distinction between a facilitation payment and a bribe, heightening the risk of an investigation that could translate into millions of dollars in fines and an irreversible drop in share price.

"Every time there is a bribery investigation or prosecution announced, or a settlement reached, it impacts directly on the sharemarket ... shares sometimes dip irretrievably and sometimes bounce back only after the company has spent enormous amounts of time and money and resources on fixing the problem," she said following the panel discussion.

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Another risk to companies is the threat of a shareholder class action if a facilitation payment is not properly recorded and disclosed to the ASX, VandePol continued. She cited the class action against the Australian Wheat Board, which settled in 2010 for $39.5 million, as a cautionary tale of an organisation that, despite having avoided sanctions over allegations of bribery, paid a hefty price for allowing facilitation payments.

"Super funds, as the most powerful shareholders, want proper disclosure from companies and ... good compliance programs," said VandePol.

A 2011 report released by the Australian Council of Superannuation Investors revealed that the exposure of large listed Australian companies to the risks of involvement in bribery and corruption offshore has increased over recent years. Consequently, more large Australian companies (59 %) prohibit bribery than five years ago. However, only 16 per cent of ASX 100 companies prohibit facilitation payments.

"Given the clear increase in exposure and the increased scrutiny and penalties imposed, investors should be concerned as to how well companies they are invested in are prepared to prevent their employees from becoming involved in corrupt practices," the report stated.