Thursday, 16 August 2007
International Trade Integrity Bill 2007
The International Trade Integrity Bill 2007 arises from the recommendations of the Cole commission in relation to the Australian Wheat Board and the UN oil for food program in Iraq. This bill exposes the government’s complete lack of credibility on this issue. When Labor raised the need to tighten these laws, the Treasurer and the Assistant Treasurer said that it was not necessary. In the arrogant manner we have come to expect, they said: ‘The opposition don’t know what they are talking about. The laws are fine.’ This bill now implements several of the things we were calling for a long time ago. This is a story we have come to expect. The Labor Party raises an issue and says it is in need of reform. The government comes in and says: ‘You don’t understand the issues. You don’t understand what you are talking about.’ It dismisses it with a great deal of arrogance and then quietly comes back 12 months or two years later and introduces the exact legislation that Labor was calling for.
The bill amends the Charter of the United Nations Act 1945, the Customs Act 1901, the Criminal Code Act 1995, and the Income Tax Assessment Act 1997. The bill seeks to improve and strengthen the enforcement of all UN sanctions and to combat foreign bribery. It contains information-gathering and handling provisions to improve agencies’ ability to administer UN sanctions. It introduces new offences for individuals or companies that provide false or misleading information in connection with a United Nations sanctions regime, import or export goods prohibited by UN sanctions or otherwise act in contravention of a Commonwealth law that enforces a UN sanction in Australia. It provides for amendments to the Income Tax Assessment Act, which I will turn to in a little while.
This bill is overdue and it follows the recommendations from the Cole inquiry, which itself was limited in its scope by the government. It is a necessary first step in combating international bribery. As the honourable member for Hotham said in his speech in the second reading debate, other issues have been identified by the OECD in their Australia: Phase 2 report on the application of the convention on combating bribery of foreign public officials in international business transactions and the 1997 recommendation on combating bribery in international business transactions. That raised a series of issues. For example, the phase 2 report highlighted the issue of there being no formal requirement for auditors to specifically look for instances of foreign bribery or report indications of foreign bribery. The OECD was unconvinced by the Australian Taxation Office’s view, and I quote:
... the payment of foreign bribes is not a significant occurrence in Australia. Accordingly the claiming of tax deductions for such payments has not been identified as a risk worthy of specific targeting in the ATO’s Compliance Program 2004-2005.”
Of course the AWB was paying $300 million, and claiming a $90 million or thereabouts tax deduction. So I agree with the OECD’s lack of reassurance that foreign bribery is not a priority for the ATO.
This bill amends a number of acts, as I said earlier. The amendments to the Charter of the United Nations Act 1945 create a new offence for individuals and corporations engaging in conduct that contravenes a UN sanction in force in Australia and provides for increased penalties for breaches. Furthermore, they introduce strict liability for corporations which engage in conduct that contravenes a UN sanction in force in Australia, including in relation to UN counterterrorism financing sanctions. The bill creates a new offence for people or corporations who knowingly or recklessly provide false or misleading information in connection with the administration of UN sanctions. Amendments to the Customs Act 1901 introduce new criminal offences for importing or exporting goods sanctioned by the United Nations without valid permission, and introduce a new criminal offence for providing information that is false or misleading in a material way, or omits particular material, in an application for permission to import or export UN-sanctioned goods.
I would like to particularly focus on the tax measures included in this bill. Provisions regarding the bribery of foreign officials are contained in amendments to the Criminal Code Act 1995 and the Income Tax Assessment Act 1997. The amendments to the Criminal Code Act 1995 clarify the circumstances in which a payment to a foreign official is not a bribe. In future, a payment to a foreign public official will only be allowed if it is required by the written law of the country or place that governs the foreign official, regardless of the outcome of the results of payment or the alleged necessity of a payment. No deduction is available for bribes paid to public officials in the course of running a business. A bribe is defined as an amount incurred in providing a benefit that is not legitimately due to another person where the amount is incurred with the intention of influencing a public official. In the case of bribes to public officials, two extra factors are considered in determining whether a payment is a bribe. A payment to a foreign public official is not a bribe (a) where the provision of the benefit does not contravene the law of the foreign country or (b) where it is a facilitation payment—a payment incurred for the sole or dominant purpose of securing the performance of a routine government action of a minor nature. This is important as it was an area of some controversy in relation to the Cole royal commission. Bribes to Saddam Hussein were regarded as not being a breach of Iraqi law because Saddam Hussein was of course a dictator and any bribe paid to him was regarded as not being illegal in Iraq and therefore not having legal implications in Australia. That is a clear loophole in the law.
The incredible thing is that a royal commission can find that the AWB deceived the Australian government and the United Nations by paying kickbacks and recommend that former executives face charges and yet those kickbacks were not bribes under Australian law and are legitimate tax deductions. I think Australian taxpayers are very disappointed that $90 million of their money has been given to AWB as a tax deduction. Amendments to the Income Tax Assessment Act 1997 align the definition of a bribe with that in the Criminal Code. The amendments provide that payments to foreign public officials are tax deductible only where the benefit paid is expressly required or permitted by written law, regardless of the results of payment or the alleged necessity of the payment. Failure to obtain the advantage sought by the bribe will not be relevant in determining whether a benefit paid is a bribe to a foreign official. The definition of facilitation payment in the Income Tax Assessment Act 1997 will also be aligned with the definition in the Criminal Code Act 1995. Facilitation payments are tax deductible and are not a bribe to a foreign official. The amendment means that under the tax law and Criminal Code an amount paid to a foreign public official is not a bribe only if the value of the benefit is minor in nature and incurred for the sole or dominant purpose of securing or expediting the performance of a routine government action of a minor nature. Currently the tax law makes no requirement that the value of the benefit be of a minor nature for a payment to be regarded as a facilitation payment.
This is something that the Labor Party has been talking about for some time. My predecessor as shadow Assistant Treasurer, the member for Hunter, moved amendments to the Income Tax Assessment Act 1997 to make this happen. He moved amendments on 28 March 2006 to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006. The amendments provided that a payment under the Income Tax Assessment Act 1997 would not be a bribe if the value of the benefit was minor in nature and the payment was recorded consistent with the Criminal Code. The government—which has now introduced this bill—voted against that amendment. So there is a real inconsistency here. Labor’s amendments align the definition of ‘facilitation payment’ in the Income tax Assessment Act 1997 with the definition in the Criminal Code. The Assistant Treasurer rejected Labor’s amendments to align the two definitions. He was asked a question without notice in this House on 27 February 2006. My predecessor, the member for Hunter, asked whether the government would support Labor’s amendments. The Assistant Treasurer replied:
... there was no need to follow on from such a stupid question as the member for Lilley put before—
That previous question was to the Treasurer.
This smacks of desperation by a desperate leader and a desperate opposition in relation to the Cole inquiry.
He was further dismissive, saying:
… there is no capacity under Australian law for a company to claim a deduction for a payment that is considered to be a bribe in another country.
That completely misses the point that the member for Hunter was making.
In another question, on 28 November 2006, requesting the Treasurer to accept Labor’s plan to align the definitions, the Treasurer also dodged the question. He stated that a bribe is not tax deductible under law—something we already know. He responded:
The Commissioner of Taxation has full power in relation to this matter. The question, unfortunately, is based on a false premise.
I know there have been some issues raised in recent days about the Treasurer’s credibility, and here is another one. The government come in and say: ‘The Labor Party do not know what they are talking about. You don’t understand; you’ve got a false premise; it’s ridiculous; it’s silly.’ Then, 12 months later, their bill quietly adopts the very thing that the Treasurer and the Assistant Treasurer were called on to do, in this House by the Labor Party, more than 12 months ago. So this is a matter of credibility. Whenever the government come in here in their arrogant fashion and say, ‘You don’t know what you’re talking about; you don’t understand the basic principles of taxation and the basic principles of tax law,’ let us remember the harmonisation of facilitation payments under the Criminal Code and the taxation act.
I am glad to see that the government have realised that they were wrong and have quietly adopted Labor’s policy on this matter. I do not intend to harp on it because we do welcome it, but it is only appropriate that I put it on the record that the former shadow Assistant Treasurer consistently called for the sorts of actions we are seeing in this bill today and was ridiculed in question time by those opposite. Today, they are the ones who deserve ridicule.
We welcome this bill. It is better late than never. It should have been done 18 months ago when the Labor Party called for it to be done. We have little faith in the credibility of the government when it comes to matters such as this. They fail the test of being vigilant in relation to matters such as this, because if they were they would have been doing this 18 months ago when the Labor Party called on them to do it. I support the second reading amendment that has been moved by the member for Hotham. I commend that to the House and commend the bill to the House.