ARE AUSTRALIA AND NEW ZEALAND CORRUPT? charteredaccountantsanz.com/futureinc Chartered Accountants Australia About Dr Lisa Marriott and New Zealand Dr Lisa Marriott is an Associate Professor of Chartered Accountants Australia and New Taxation at Victoria University of Wellington’s Zealand is made up of over 100,000 diverse, School of Accounting and Commercial Law. talented and financially astute professionals Lisa is a Chartered Accountant and a member who utilise their skills every day to make a of Chartered Accountants Australia and New difference for businesses the world over. Zealand. Lisa has publications in a range of international refereed journals and is the Members of Chartered Accountants Australia author of The Politics of Retirement Savings and New Zealand are known for professional Taxation: A Trans-tasman Perspective. Lisa integrity, principled judgement, financial discipline was recently awarded a Royal Society of and a forward-looking approach to business. New Zealand Marsden Grant to investigate the We focus on the education and lifelong learning different treatments of tax evasion and welfare of members, and engage in advocacy and fraud in the New Zealand justice system. Lisa thought leadership in areas that impact the has worked in industry in the private sector in economy and domestic and international the United Kingdom and in the New Zealand capital markets. public sector. For the past eight years, Lisa We are a member of the International Federation has worked in academia. of Accountants, and are connected globally through the 800,000-strong Global Accounting Alliance and Chartered Accountants Worldwide which brings together leading Institutes in Australia, England and Wales, Ireland, New Zealand, Scotland and South Africa to support and promote over 320,000 Chartered Accountants in more than 180 countries. Copyright © August 2015 Chartered Accountants Australia and New Zealand. All rights reserved. DISCLAIMER This document was prepared by Chartered Accountants Australia and New Zealand with the assistance of Dr Lisa Marriott. The information in this document is provided for general guidance only and on the understanding that it does not represent, and is not intended to be, advice. Whilst care has been taken its preparation, it should not be used as a substitute for consultation with professional accounting, tax, legal or other advisors. Before making any decision or taking any action, you should consult with an appropriate specialist or professional. Chartered Accountants Australia and New Zealand. Formed in Australia. Members of the organisation are not liable for the debts and liabilities of the organisation. ABN 50 084 642 571 0415-45 FOREWORD In Australia and New Zealand we Regulation alone doesn’t appear have long traded on our reputations to be the solution. I encourage you for high ethical standards. They are to consider the “suggestions for the reputations that have supported way forward” discussed in the paper. strong positions in the global economy. Don’t think of them as answers, but This latest paper from future[inc] as catalysts for stimulating debate. questions whether or not we deserve We need to be more proactive in our squeaky clean reputations, and the fight against corruption and what we should be doing to protect send the message that we take them. Not only do reports indicate that the issue seriously. rates of corruption in our two countries Rethink what you thought you knew may be rising, we are also doing more about corruption. business with countries that have Read on and join the debate. different ethical frameworks from our own. With reference to data and case Fred Hutchings studies from both New Zealand and President, Australia, and from the public and Chartered Accountants ANZ private sectors, the paper looks at what our areas of weakness are, what anti-bribery and corruption tools we have in place, and whether they are being used effectively. charteredaccountantsanz.com/futureinc 4 ARE AUSTRALIA AND NEW ZEALAND CORRUPT? CONTENTS 05 06 10 SUMMARY INTRODUCTION WHAT DO WE KNOW ABOUT CORRUPTION? 22 31 34 WHAT DO WE KNOW WHAT SHOULD WE CONCLUSION ABOUT CORRUPTION BE DOING ABOUT IN AUSTRALIA AND CORRUPTION? NEW ZEALAND? 36 REFERENCES 5 future[inc] SUMMARY Australia and New Zealand perform well in Relying on our historic reputation as global measures of corruption, and both of “fair dinkum” countries is no longer enough. our countries trade on reputations for honesty We need to not only be better in reality at and integrity. However, rates of corruption addressing corruption than other countries – are reported to be rising and we are trading we also need to be perceived to be better. increasingly often with countries that are Our two countries need to be more considered to be highly corrupt. Additionally, proactive in the fight against corruption. despite our positive survey rankings, Australia In this report, we examine what we are and New Zealand have been subject to harsh currently doing to mitigate corruption in criticism in recent years for what is perceived Australia and New Zealand and what to be a lackadaisical approach to corruption. we should be doing. We then present ten How justified are our good reputations? options for consideration; our aim is to Countries such as the United Kingdom start a broad debate on corruption and (UK) have been lauded by international the role of Australia and New Zealand in organisations for initiatives such as the the international context. Bribery Act 2010, a tough anti-bribery and corruption law. We need to consider how Australia and New Zealand are currently perceived in the domain of global corruption and how we wish to be perceived in the future. 6 ARE AUSTRALIA AND NEW ZEALAND CORRUPT? We set out to ask not only are we corrupt? But also how corrupt are we? And perhaps more importantly, what are we doing about it? INTRODUCTION Global reports suggest that rates of corruption are low in Australia and New Zealand. Is this view warranted? A brief look at newspaper headlines would suggest not. Cases already reported in the media in 2015 include the payment or receiving of bribes,1 misconduct in public office,2 and undisclosed gift-giving and receiving.3 The Australian media has reported over the past few months that “Australia’s slide into corruption must be stopped”, while New Zealand’s media recently labelled the Minister of Justice as the “Minister of Corruption.”4 We have even become accustomed to media reports about corruption on the sports field, including recent accusations of bribery and match fixing in football and cricket. 7 future[inc] FIGURE 1: CORRUPTION IN AUSTRALIA AND NEW ZEALAND increase in fraud, bribery and % corruption over $1 million in 82 Australia and New Zealand5 % % PwC survey respondents + report experiencing 33 57 6 OF NEW ZEALAND OF AUSTRALIA economic crime in 2014 increase in losses due to economic % crime in Australia and New Zealand 300 between 1997 and 20127 fraud, bribery and corruption incidents in Australia and 194,454 New Zealand in 20128 What should we be paying more attention Before we start, we need to clarify what to: statistical rankings or national reports? we mean by “corruption.” The definition of We set out to ask not only “are we corrupt?” corruption used by the Asian Development but also “how corrupt are we?” And Bank is “Behaviour on the part of officials perhaps more importantly, “what are in the public or private sector in which they we doing about it?” improperly and unlawfully enrich themselves or those close to them, or induce others to do so, by misusing the position in which they are placed.” This definition of corruption is also used by the New Zealand Serious Fraud Office. CORRUPTION: the abuse of public The victims of corruption may be individuals, or private office for personal gain. private sector organisations or public sector institutions. Corruption may be considered a subset of fraud, and incorporates a broad range of activities (see Figure 2). For the purposes of this paper we consider financial crime to be a subset of corruption. 8 ARE AUSTRALIA AND NEW ZEALAND CORRUPT? FIGURE 2: ASPECTS OF CORRUPTION9 Illegal gratuities Purchasing Invoice schemes kickbacks Conflicts Bribery of interest CORRUPTION Sales Bid rigging schemes Economic extortion But what impact does corruption have The issue of corruption – and what can on the Australian and New Zealand general be done about it – needs to be debated. public and our businesses? Perhaps the Can we be comforted by our positions in most important financial incentive to international rankings, or do we need to minimise corruption is the reduction of determine for ourselves whether the level reputational risk. In the private sector, a of corruption in our society is acceptable? strong reputation means lower costs of Are we doing enough to combat corruption doing business, a lower cost of capital, and in Australia and New Zealand? easier access to international markets.10 Corruption can impact on employee morale, business relations and an organisation’s share price. The public sector also benefits when corruption is minimised: government resources are increased and greater investment can be made in health, education and other services. 9 future[inc] FINANCIAL CRIME is the foundation for most serious crime.11 JULIE READ DIRECTOR AND CHIEF EXECUTIVE OF THE SERIOUS FRAUD OFFICE IN NEW ZEALAND. 10 ARE AUSTRALIA AND NEW ZEALAND CORRUPT? WHAT DO WE KNOW ABOUT CORRUPTION? We know an issue has become significant It is difficult to measure corruption when it has a day named after it, and accurately. As will be seen, many reports even its own acronym. The United Nations are based on perceptions of corruption, has an annual designated “International rather than absolute measures. These Anti-Corruption Day” – 9 December – perception surveys are seen as the most aimed at raising awareness of corruption.