CHAPTER 4

CORRUPTING BENEFITS

Subject Paragraph

A – INTRODUCTION 1

Reasons for outlawing corrupting benefits 6

B – EXISTING LAWS REGULATING CORRUPTING

BENEFITS

11

Blackmail and extortion 12

Secret or corrupt commissions 14

Overseas approach 19

C – INADEQUACY OF EXISTING LEGAL

FRAMEWORK

29

D – REFORM TO EXISTING LEGAL FRAMEWORK 42

Disclosure of benefits made to registered organisations 44

Corrupting benefits offence in relation to officers of registered

organisations

53

Subject Paragraph

Prohibition on payments by employers to employee

organisations or their officials

58

A – INTRODUCTION

1. Paragraph (h) of the Terms of Reference required the Commission to

inquire and report into:

any bribe, secret commission or other unlawful payment or benefit arising from contracts, arrangements or understandings between an employee association, or an officer of an employee association, and any other party.

2. A number of case studies examined whether such payments or benefits

had been made. In particular:

(a) Chapter 3.2 of the Interim Report considered the legality of

payments made by Thiess to the Australian Workers’ Union

Workplace Reform Association Inc.

(b) Chapter 1 of Volume 2 of the Report examines payments

totalling $3,200,000 by a number of employers in the

maritime industry at the direction or request of the Maritime

Union of Australia (MUA) or its officials. These included

payments made to the MUA, payments made to a separate

entity established by officials of the MUA and also a payment

to a political candidate, who happened to be the Assistant

Secretary of the Western Australian Branch of the MUA. The

Chapter concludes that the payments were not made by

employers completely voluntarily for legitimate purposes.

They were made to secure industrial peace from, or to keep

favour with, the MUA. In some cases the payments had to be

made repeatedly.

(c) Chapter 6.2 of Volume 3 of the Report deals with Halafihi

Kivalu, who was formerly a senior official and long-term

employee of the ACT Branch of the Construction, Forestry,

Mining and Energy Union (CFMEU). During the course of

hearings in Canberra in July 2014, Halafihi Kivalu conceded

receiving approximately $100,000 from two employers. He

contends that these payments were gifts. Following his

giving evidence a number of other employers came forward

and made allegations concerning payments that they had

made to Halafihi Kivalu. After the hearings Halafihi Kivalu

was charged. The matter is presently before the criminal

courts of the ACT. Accordingly no conclusions were

expressed in this Report concerning the lawfulness of Halafihi

Kivalu’s conduct.

(d) Chapter 7.2 of Volume 3 deals with the affairs of George

Alex and Darren Greenfield. The principal issue addressed in

Chapter 7.2 is whether cash payments were made to Darren

Greenfield, an organiser with the CFMEU NSW, for

favouring businesses associated with George Alex and Joseph

Antoun. During 2013 regular cash withdrawals of $2,500

were made from a bank account held by a scaffolding

business called ‘Elite’. These payments were referred to

within Elite as ‘Union payments’. A substantial body of

documentary evidence, principally text messages between

George Alex and others, demonstrates that cash payments in

the amount of $2,500 were made by George Alex and Joseph

Antoun to Darren Greenfield.

(e) Chapter 7.3 of Volume 3 of the Report deals with donations

and enterprise agreement. The central issue in this Chapter is

whether the CFMEU NSW improperly obtained or managed

donations from various companies. It has been found that a

number of persons including persons within the CFMEU

NSW may have committed a number of criminal offences

against the Charitable Fundraising Act 1991 (NSW). This

Report and all relevant materials have been referred to the

Minister ministering the Charitable Fundraising Act 1991

(NSW) in order that consideration be given to conducting an

inquiry pursuing to Division 1 of Part 3 of that Act into all of

the CFMEU NSW’s practices concerning charitable

fundraising.

(f) Chapter 7.4 of Volume 3 of the Report examines the payment

in 2006 by the Thiess Hochtief Joint Venture operating the

Epping to Chatswood Rail Project of $100,000 to the

Building Trades Group Drug & Alcohol Committee. In truth,

this was a disguised payment to the CFMEU NSW. The

finding is that the payment may have been a secret

commission in contravention of s 249B of the Crimes Act

1900 (NSW).

(g) Chapter 8.1 of Volume 3 of the Report makes findings that in

2013, David Hanna, then Secretary of the Builders’

Labourers’ Divisional Branch of the CFMEU in Queensland,

received free work and materials in relation to his house at

Cornubia from Adam Moore and Mathew McAllum, then

employees of Mirvac. The finding made is that each of David

Hanna, Adam Moore and Mathew McAllum may have

committed criminal offences against the Criminal Code 1899

(Qld).

(h) Chapter 10.2 of Volume 4 of the Report makes findings that

in 2010, the Australian Workers’ Union (AWU) Vic Branch

and Cleanevent entered into an arrangement pursuant to

which Cleanevent would make a payment of $25,000 per

annum for three years to the AWU, in exchange for the

AWU’s agreement to extend the operation of a Workchoices-

era enterprise agreement beyond its nominal expiry date. The

agreement to make the payment was recorded in a side letter

that was not disclosed to the National Office of the AWU or

to Cleanevent employees. The finding made was that Cesar

Melhem and the AWU may have committed criminal

offences of soliciting corrupt commissions in contravention of

s 176 of the Crimes Act 1958 (Vic).

(i) Chapter 10.3 of Volume 4 of the Report concerns an

agreement by the Thiess John Holland joint venture to make

payments of $100,000 per year plus GST to the AWU Vic

Branch over the life of a road construction project. The

payments were made in accordance with falsified invoices

that disguised the payments as being in respect of services

that were, for the most part, not delivered by the AWU Vic

Branch. The finding made was that Cesar Melhem and the

AWU, and John Holland Pty Ltd and Julian Rzesniowiecki,

may have committed criminal offences in relation to corrupt

commissions in contravention of s 176 of the Crimes Act

1958 (Vic).

(j) Chapter 10.5 of Volume 4 of the Report concerns three

payments made by ACI of about $160,000 between 2003 and

2005 described as being made in respect of ‘Paid Education

Leave’, and further payments of $5,400 between 2008 and

2012 described as being made in respect of ‘Membership

yearly fees’. Findings are made in respect of the former

payments that Cesar Melhem and the AWU, and Mike

Gilhome, may have committed criminal offences in relation

to corrupt commissions in contravention of s 176 of the

Crimes Act 1958 (Vic).

(k) Chapter 10.6 of Volume 4 of the Report concerns six

payments of $4000 made to the AWU in 2003-2004 by

Chiquita Mushrooms. The finding was that these payments

may have been corrupt commissions procured by Frank Leo

and the AWU and offered by Chiquita Mushrooms in

contravention of s 176 of the Crimes Act 1958 (Vic).

3. These case studies – which involved different unions in different states

at different times – throw up two recurring and often overlapping

patterns of conduct:

(a) A person – usually an employer of workers – makes, offers or

agrees to make a payment or provide a benefit to a union,

union official or to an entity associated with a union, in order:

(i) to avoid expressly or impliedly threatened conduct

by a union or union official which, if it occurred,

would be harmful to the person; or

(ii) to obtain a favour for the person in connection with

the union’s affairs.

(b) A union official obtains or solicits a payment or other benefit

for himself or herself, or the union or an entity associated

with the union, in return for which the union official agrees:

(i) not to engage in threatened conduct which if it

occurred would be detrimental to the person –

usually an employer – from whom the payment is

obtained or solicited; or

(ii) to provide the person making or agreeing to the

payment or benefit with a favour in connection with

the union’s affairs.

4. The legal characterisation of such payments or benefits given or

received depends on the particular circumstances of the case. Some

can be described, at least in ordinary language, as ‘bribes’, others as

‘secret commissions’, others as ‘blackmail money’, others still as

payments for industrial peace.

5. These payments all have a tendency to ‘corrupt’ a union official, in the

sense that they have a tendency to cause a union official to exercise

improperly the official’s duties and powers, or have a tendency to

cause a union official to act unlawfully. For the purposes of this

Chapter, it is convenient to describe all such payments and benefits as

‘corrupting benefits’. Commonly, the benefit will be in the form of a

payment of money. However, particularly in the construction industry,

benefits can be provided in kind, such as the provisions of free building

work or materials.

Reasons for outlawing corrupting benefits

6. At this point, it is worth summarising briefly a number of reasons why

a democratic society claiming to be governed by the rule of law should

adopt measures that seek to eliminate the giving and receiving of

corrupting benefits.

7. First, the making of corrupting payments increases the cost of

employers and other persons doing business, which consequently:

(a) where the cost of the payment is simply passed on, leads to an

increase in prices for consumers; or

(b) where the cost of the payment cannot be passed on, acts as

competitive disadvantage for the business making the

payment.

These payments are inherently anti-competitive.

8. Secondly, corrupting benefits undermine the proper performance by

union officials of their duties and responsibilities.

9. Thirdly, such payments reward and can entrench the power of

dishonest union officials.

10. Fourthly, the seeking and making of corrupting benefits fosters a

particular culture within the unions and their officials that seek, and the

employers and their executives that confer, such benefits. It is a

culture that is antithetical to the rule of law. Threatening and bullying

behaviour by union officials is rewarded. Genuine safety and

industrial issues are ignored to the advantage of employers. The

payments reinforce a culture of unlawfulness within unions. They

reinforce an attitude that union officials are above the law. They

reinforce equivalent perversity amongst employers and their

executives. If unchecked, the culture comes to taint and impact the

wider society. Corruption becomes more normal in business to

business dealings, in the dealings of business with bureaucrats, in the

dealings of business with politicians, and in the dealings between

citizens and institutions capable of conferring desirable privileges and

positions like educational institutions and employers. Corruption

distorts markets. It makes money, not work or talent, the passport to

success. It may even creep into the dealings of litigants with courts.

Eventually it pollutes every business, social and personal relationship.

B – EXISTING LAWS REGULATING CORRUPTING BENEFITS

11. Several existing legal provisions attempt to deal with the solicitation

and making of corrupting benefits. The provision of a payment or

benefit might in some circumstances give rise to a fraud-type criminal

offence such as obtaining financial advantage by deception. However,

the main relevant criminal laws are those concerning blackmail and

secret commissions. There are also relevant rules of civil law.

Blackmail and extortion

12. Each State and Territory has legislation outlawing blackmail or

extortion. For present purposes these are synonymous.1 Although that

legislation varies between jurisdictions, in substance it criminalises the

making of an unwarranted demand with menaces. Thus, where a union

official demands a payment or other benefit with menaces, which may

include an express or implied threat of adverse action, the union

official may commit the criminal offence of blackmail or extortion, if

the demand is unwarranted.

13. Apart from the criminal liability, there is also considerable overseas

authority that a person who threatens to do an unlawful act and thereby

intimidates another into doing some act which causes that other person

loss (e.g. making a payment) may be civilly liable for damages for the

tort of two-party intimidation.2 It does not appear to have been

resolved whether such an action is available in Australia, although in

2014 the Victorian Court of Appeal reaffirmed the existence of the tort

1 Criminal Code 2002 (ACT), s 342 (blackmail); Crimes Act 1900 (NSW), s 249K (blackmail); Criminal Code (NT), s 228 (blackmail and extortion); Criminal Code (Qld), s 415 (extortion); Criminal Law Consolidation Act 1935 (SA), s 172 (blackmail); Criminal Code (Tas), s 241 (blackmail); Crimes Act 1958 (Vic), s 87 (blackmail); Criminal Code (WA), ss 397–398 (demanding property with threats with intent to extort or gain). 2 Rookes v Barnard [1964] AC 1129 at 1182-1183 and 1205; D & C Builders v Rees [1966] 2 QB 617 (CA) at 625; Huljich v Hall [1973] 2 NZLR 279 at 285. See generally H Carty, An Analysis of the Economic Torts (OUP, 2nd ed, 2010), pp 157-158.

of three-party intimidation in Australian law.3 Even if such a civil

action for two-party intimidation did exist in Australia, instances of

litigation are likely to be relatively uncommon: a person intimidated

into making a payment or conferring a benefit is usually unlikely to

have the inclination to commence legal action against the person doing

the intimidating.

Secret or corrupt commissions

14. Each of the States and Territories have laws criminalising the giving or

taking of what are variously described as secret commissions, corrupt

commissions, corrupt benefits, corrupt rewards or bribes.4 Until 2000,

there was also a separate Secret Commissions Act 1905 (Cth) but that

was repealed and replaced with more modern provisions dealing with

‘corrupting benefits’ in the Criminal Code (Cth).5 However, the

provisions in the Criminal Code (Cth) only deal with bribery of

Commonwealth public officials and foreign public officials.

15. Unfortunately, the laws differ from jurisdiction to jurisdiction.

Maximum penalties range from 3 years in the Northern Territory to 21

years in Tasmania.

3 Construction, Forestry, Mining and Energy Union v Boral Resources (Vic) Pty Ltd (2014) 318 ALR 107 at [59] (VCA).4 Criminal Code 2002 (ACT), ss 356-357 (bribes and corrupting benefits); Crimes Act 1900 (NSW), s 249B (corrupt commissions or rewards); Criminal Code (NT), s 236 (secret commissions); Criminal Code (Qld), ss 442B–BA (secret commissions); Criminal Law Consolidation Act 1935 (SA), ss 150 (bribes); Criminal Code (Tas), s 266(1) (secret commissions); Crimes Act 1958 (Vic), s 176 (secret commissions); Criminal Code (WA), ss 529–530 (corrupt rewards).5 For an overview of the reasons for this change, see the Explanatory Memorandum to the Criminal Code Amendment (Theft, Fraud, Bribery and Related Offences) Bill 1999 (Cth).

16. The laws in New South Wales, Queensland, Victoria and Western

Australia are similar. They apply in respect of ‘agents’. A typical

example is s 249B of the Crimes Act 1900 (NSW), which relevantly

provides:

249B Corrupt commissions or rewards

(1) If any agent corruptly receives or solicits (or corruptly agrees to receive or solicit) from another person for the agent or for anyone else any benefit:

(a) as an inducement or reward for or otherwise on account of:

(i) doing or not doing something, or having done or not having done something, or

(ii) showing or not showing, or having shown or not having shown, favour or disfavour to any person,

in relation to the affairs or business of the agent’s principal, or

(b) the receipt or any expectation of which would in any way tend to influence the agent to show, or not to show, favour or disfavour to any person in relation to the affairs or business of the agent’s principal,

the agent is liable to imprisonment for 7 years.

(2) If any person corruptly gives or offers to give to any agent, or to any other person with the consent or at the request of any agent, any benefit:

(a) as an inducement or reward for or otherwise on account of the agent’s:

(i) doing or not doing something, or having done or not having done something, or

(ii) showing or not showing, or having shown or not having shown, favour or disfavour to any person,

in relation to the affairs or business of the agent’s principal, or

(b) the receipt or any expectation of which would in any way tend to influence the agent to show, or not to show, favour or disfavour to any person in relation to the affairs or business of the agent’s principal,

the firstmentioned person is liable to imprisonment for 7 years.

17. In some circumstances, a union official will be an ‘agent’ within the

meaning of the statutes.6 The solicitation or receipt of the payment by

a union official which would tend to cause the official to exercise his

or her duties improperly may give rise to criminal liability under these

provisions. Likewise, the payment by an employer may give rise to

criminal liability on the part of the employer.

18. Turning to civil remedies, the solicitation or receipt of bribes or secret

commissions by a union officer involving a breach of the officer’s

fiduciary duty will expose the officer to claims for compensation, or to

an obligation to account, and in some circumstances also an obligation

to hold the bribe or commission on trust for the fiduciary’s principal. 7

Where an employer induces a union official to breach his or her

fiduciary duty, or knowingly assists the union official to breach his or

her fiduciary duty as part of a dishonest and fraudulent scheme, the

employer may be civilly liable to the union.8

6 See R v Gallagher [1986] VR 219 (CA); R v Gallagher (1987) 29 A Crim R 33 (CA).7 See generally Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [188]-[193], [569]-[584] per curiam. 8 See generally Royal Commission into Trade Union Governance and Corruption, Interim Report (2014), Vol 1, ch 2.1, pp 44–45 paras 19–20 and particularly Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 (FC) at 356-357 [242]-[246] per curiam and Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 (CA) at [3], [6], [140] (Leeming JA, Barrett, Gleeson JJA agreeing).

Overseas approach

19. It is also useful to summarise briefly the approach taken to corrupting

benefits in some comparable foreign jurisdictions.

20. Both New Zealand9 and Canada10 have similar laws to those in the

Australian jurisdictions outlawing blackmail/extortion and secret

commissions.

21. Until relatively recently, the United Kingdom had laws similar to those

in the various Australian jurisdictions. Blackmail was, and still is,

outlawed by s 21 of the Theft Act 1968 (UK). Bribery of public

officials was prohibited by the Public Bodies Corrupt Practices Act

1889 (UK). And The Prevention of Corruption Act 1906 (UK)

prohibited the giving and receiving of secret commissions to ‘agents’

in very similar terms to the current laws applying in the various

Australian jurisdictions.

22. However, in 2010, the United Kingdom dramatically reformed its

bribery laws introducing a single Act, the Bribery Act 2010 (UK), to

deal with bribery in both the private and public sector. That Act

commenced from 1 July 2011 and repealed both the Public Bodies

Corrupt Practices Act 1889 (UK) and The Prevention of Corruption

Act 1906 (UK). A significant justification was that the existing

criminal laws had not been seriously updated for over a century, were

complex and potentially difficult to apply.

9 Secret Commissions Act 1910 (NZ); Crimes Act 1961 (NZ), s 237 (blackmail).10 Criminal Code (Can), ss 346 (extortion), 426 (secret commissions).

23. The Bribery Act 2010 (UK) introduced two general bribery offences.

Broadly speaking, one involved bribing another person and the other

involved receiving a bribe. In general terms, the legislation abandoned

the previous model of requiring an agent and principal relationship in

favour of a model based on an intention to induce the improper

exercise of a ‘relevant function or activity’. The expression ‘relevant

function or activity’ is defined broadly and includes functions in

connection with business or employment or performed by or on behalf

of a body of persons.

24. The United States too has a variety of general laws prohibiting

blackmail, extortion and bribery. In addition, the United States has

specific provisions intended to prevent corrupt payments by employers

to ‘labor organizations’.

25. The Taft-Hartley Act11 makes it a crime, among other things, for an

employer:

to pay, lend, or deliver or agree to pay, lend, or deliver, any money or other thing of value –

… (2) to any labor organization, or any officer or employee thereof, which represents, seeks to represent or would admit to membership, any of the employees of such employer who are employed in an industry affecting commerce…

26. There are a number of exceptions to the prohibition including

payments or other benefits:

(a) to a person who is also employed by the employer for work

done by that person;

11 29 USC § 186(a).

(b) in satisfaction of a judgment or settlement;

(c) with respect to the sale or purchase of an article or

commodity at the prevailing market price in the regular

course of business;

(d) deducted from the wages of employees in payment of

membership dues of the labor organization, provided that the

employer has a written assignment of the wages from the

employee; and

(e) to a variety of trust and worker entitlement funds.

27. It is also a crime for any official of a ‘labor organization’ to request,

demand, receipt or accept or agree to do so any payment from an

employer that would be unlawful.

28. The maximum penalties under the statute are:

(a) in respect of payments or benefits whose value does not

exceed $1,000 – a $10,000 fine or imprisonment for one year,

or both;

(b) in respect of payments or benefits whose value exceeds

$1,000 – a $15,000 fine or imprisonment for five years, or

both.

C – INADEQUACY OF EXISTING LEGAL FRAMEWORK

29. On the basis of the case studies referred to above, the existing criminal

laws do not appear to operate as much of a deterrent to employers

giving and union officials taking bribes, secret commissions and other

unlawful payments, particularly in the building and construction

industry. The cases studies considered are spread over time and place

and involve a range of unions. They do not involve a rogue union

official or employer, or even a rogue union.

30. Rather, history appears to be repeating itself:

(a) In 1982, the Winneke Royal Commission found that Norman

Gallagher, the Secretary of the Australian Building

Construction Employees and Builders’ Labourers Federation

(BLF) and State Secretary of the Victorian Branch of the

BLF, and various other officials of the BLF had received

secret commissions in the form of work done, and materials

provided, in relation to the construction of various beach

houses.12 Norman Gallagher was subsequently tried and

convicted,13 as were a number of building developers who had

provided the work and materials. On the findings in Volume

4 of this Report, there are clear factual similarities between

those events and the construction of a house for David Hanna,

the Secretary of the BLF in Queensland.

12 Royal Commission into the Activities of the Australian Building Construction Employees’ and Builders’ Labourers’ Federation, Report (1982), pp 31-36, 246-251, 274-275.13 His first conviction was overturned by the Victorian Court of Appeal and a new trial was ordered: R v Gallagher [1986] VR 219. At his second trial, he was convicted again, and his application for leave to appeal against conviction was dismissed: R v Gallagher (1987) 29 A Crim R 33 (CA).

(b) The 1992 Gyles Royal Commission found a number of

corrupt or improper payments made by employers and others

to officials associated with the New South Wales Branch of

the Building Workers’ Industrial Union.14

(c) In 2003, the Cole Royal Commission also identified several

instances of employers making improper payments to or at

the direction of unions which were described as donations.15

In many instances donations were made to maintain industrial

harmony or achieve industrial objectives. These donations

were either made for the direct benefit of the union (for

example, for the purposes of a union picnic day16) or for the

benefit of a third party (for example, a bereavement fund for

families of deceased workers or a charity17). Some of these

payments were disguised through the use of false invoices

and false contracts. The Cole Royal Commission also

identified the purchase of ‘casual tickets’ on building sites in

Western Australia whereby a builder would make payments

to a union for ‘casual tickets’ in the hope of avoiding

impliedly threatened unlawful industrial action.18 Payments

for ‘casual tickets’ were payments to a union notionally to

pay for persons to join the union in circumstances where the 14 See Royal Commission into Productivity in the Building Industry in New South Wales, Report of the Hearings Part II Illegal Activities (1992), ch 2, pp 37-68.15 Royal Commission into the Building and Construction Industry, Final Report (2003), Vol 9, pp 221-228.16 Royal Commission into the Building and Construction Industry, Final Report (2003), Vol 9, pp 226-227; Vol 13, pp 239-250, 253-254.17 Royal Commission into the Building and Construction Industry, Final Report (2003), Vol 9, p 204; Vol 13, p 262.18 Royal Commission into the Building and Construction Industry, Final Report (2003), Vol 3, p 207; Vol 7, pp 237–238, 245–246, 311–312.

persons had not joined the union. Again, there are parallels

with the matters considered in Chapters 10.2 and 10.9 of

Volume 4 of this Report.

31. Why has the existing legal framework not proved especially effective

at deterring corrupting benefits? There are several reasons.

32. First, the substantive criminal laws relating to secret commissions

differ significantly between jurisdictions both in terms of the elements

of the offence and the penalties. Moreover, the substantive criminal

laws in many jurisdictions do not apply well to officers of registered

organisations.

33. One issue is that the provisions in many jurisdictions turn on the

identification of an ‘agent’ and ‘principal’ and the principal’s ‘affairs

or business’. Although these terms are capable of application to

registered organisations, they are not well suited to that purpose.

Further, a union official may be at the same time an agent for the

union, an agent for the members of the union as a whole, and an agent

for some sub-class of the members of the union.19 This can lead to

confusion as to who the official’s principal is for the purposes of a

charge, and the scope of the principal’s ‘affairs or business’.

34. Another difficulty is that there is a conflict of authority between

Victoria and Queensland on the one hand20 and New South Wales and

Western Australia on the other21 about the meaning of the word

19 R v Gallagher [1986] VR 219 (FC).20 R v Gallagher [1986] VR 219 (FC); R v Nuttall [2010] QCA 64.21 R v Turner (2001) 25 WAR 258; Mehajer v R [2014] NSWCCA 167.

‘corruptly’ in the various sections. In the latter two jurisdictions, it has

been said that in addition to the payment being made or received with

various mental elements, the payment must be ‘corrupt’ according to

ordinary concepts. That adds further complexity to the operation of the

provisions.

35. Another complexity with the provisions was highlighted in Victoria

Police’s submissions in response to the Discussion Paper:22

… [T]o establish an [sic] SC [secret commission] offence, it is necessary for the agent to receive the SC without the authority of the principal. For example, where union officials, particularly at senior ranks, receive gifts and benefits from companies, it could be a possible defence that this was not ‘secret’, as everyone at the ‘union’ received a benefit.

36. Where the official is an agent for the member or a sub-class of the

members, there may also be complexities if it is alleged that some, but

not all of the members, were aware of the payment.

37. Secondly, the investigation of blackmail, extortion and secret

commission offences is inherently difficult. Blackmailers do not report

their crimes to police. Nor, generally, do those being blackmailed.

They fear the repercussions that will occur if they report the matter to

authorities. Both those who pay and those who receive secret

commissions have an interest in keeping the payment secret. Further,

there is a general culture of silence within many unions which means

that individuals fear reporting corruption. Without individuals who are

willing to assist the police, it is difficult for prosecutions to be

instituted.

22 Victoria Police Law Reform Submissions, 10/9/15, p 15, para 1.2.14.

38. Further, as Victoria Police noted in its submissions to the

Commission:23

There is also a large disincentive for companies who have been coerced into making corrupt payments, as the price of industrial peace, to come forward and take action against the union or union official who have demanded the payment. When companies take such action, it takes a long time before any penalties are meted out to those responsible. Companies take pragmatic decisions to succumb to demands made, rather than face costly and prolonged civil proceedings or continuous work stoppages.

39. Thirdly, employers and unions are adept at disguising corrupt

payments or benefits as membership fees, donations or payments for

services. Chapters 7.4, 10.2, 10.3, 10.5, 10.7, 10.8, 10.9 and 10.10

provide useful examples. Again, this adds to the challenge of

investigating and prosecuting existing criminal laws. Currently, the

Fair Work (Registered Organisations) Act 2009 (Cth) (FW(RO) Act)

does not require unions to disclose separately donations and other

payments made by employers to the union. Trade unions which are

affiliated with a registered political party are presently required to

lodge annual returns with the Australian Electoral Commission

disclosing payments from persons, where the total amount received is

in excess of $13,000.24

40. Fourthly, traditionally at least there appears to have been a reluctance

on the part of police to become involved with ‘industrial relations’

matters.

41. Fifthly, particularly in the construction industry where delays or

stoppages to a project can have a financially crippling effect, and can

23 Victoria Police Law Reform Submissions, 10/9/15, p 16, para 1.2.2.24 See Commonwealth Electoral Act 1918 (Cth), s 314AEA. The disclosure threshold specified in the legislation is $10,000 but it increases each year with inflation.

have it almost instantaneously, the cost to a business of making a

payment to a union or union official will often be much less than the

cost of refusing to make the payment. Accordingly, in the absence of

any real likelihood that the business will be exposed to a criminal

penalty, or will suffer damage to its reputation if the payment is

exposed, it is in the business’s commercial interests to make the

payment to the union or union official.

D – REFORM TO EXISTING LEGAL FRAMEWORK

42. The problems are longstanding. They are inherently intractable. There

is no ‘victim’ to complain. There is every incentive to preserve

secrecy. It is naïve to think that there is an easy or obvious solution to

the problem of corrupting benefits. Some of the matters identified in

the previous section invite broader reform, particularly in the context

of the building and construction industry. Law reform in that area is

considered in Chapter 8 of this Volume.

43. Below, three more targeted reforms are considered. In summary, it is

recommended that:

(a) Registered organisations and branches be required to disclose

certain payments made to them.

(b) A Commonwealth corrupting benefits offence in relation to

officers of registered organisations be enacted.

(c) Employers be prohibited from making any payments to an

employee organisation excluding certain limited classes of

payment.

Disclosure of benefits made to registered organisations

44. One relatively simple mechanism that may help to discourage the

making and receiving of corrupting benefits is increased disclosure in

relation to payments to unions. As was observed in the Final Report of

the Cole Royal Commission:25

Union representatives would be less likely to suggest or promise that industrial unrest or some other adverse consequence would be averted if a ‘donation’ is made to the union if they know that such donations must be included in statements of the organisation that might be scrutinised by a third party. Clients and contractors would be more likely to resist inappropriate demands for payments if they know that such payments will come to the attention of a regulatory body.

45. The Discussion Paper sought submissions on whether registered

organisations, and any relevant entities, should be required to disclose

publicly information in respect of all payments to them exceeding a

monetary threshold.

25 Royal Commission into the Building and Construction Industry, Final Report (2003), Vol 1, p 132.

46. In their submissions to the Commission, both the Australia Industry

Group and Master Builders Australia supported recommendations 145

and 147 of the Final Report of the Cole Royal Commission.26 Those

recommendations were as follows:27

Recommendation 145

The Building and Construction Industry Improvement Act require registered organisations, as soon as practicable after the end of each financial year, to lodge with the Industrial Registrar a statement showing the following particulars in relation to each donation exceeding $500 received by the organisation during that financial year:

(a) the amount of the donation;

(b) the purpose for which the donation was made; and

(c) the name and address of the person who made the donation.

Recommendation 147

The Building and Construction Industry Improvement Act require clients, head contractors and subcontractors to promptly notify the Australian Building and Construction Commission of any request or demand that a donation exceeding $500 be made to, or at the direction of, a registered organisation or an official, employee, delegate or member of a registered organisation.

47. Recommendation 148 was that substantial civil penalties apply where

it is proved that a person failed to comply with their disclosure

obligations.

48. Despite supporting a provision requiring the disclosure of donations,

the Australian Industry Group argued strongly that it was not

appropriate to require public disclosure of all payments made to 26 Australian Industry Group Law Reform Submissions, 21/8/15, p 11; Master Builders Australia Law Reform Submissions, 21/8/15, pp 44-4527 Royal Commission into the Building and Construction Industry, Final Report (2003), Vol 1, pp 132-3.

registered organisations above a monetary threshold. It argued that this

put employer organisations at a competitive disadvantage if they had to

disclose their pricing or payments made under commercially sensitive

agreements.28

49. Another related argument is that disclosure of all payments to

registered organisations would be administratively burdensome. For

example, if the disclosure threshold was set too low, it would require

disclosure of many membership contributions to an organisation.

Further, if organisations were required to disclose all payments the

usefulness of the disclosure for exposing inappropriate payments

would be limited.

50. On the other hand, the obvious difficulty with any proposal to limit

disclosure to donations only is that, as various case studies considered

by the Commission demonstrate, unions and employers have a

proclivity to disguise what are truly donations as membership

payments for persons who are not members or payments for services

that are never provided or that are provided at an inflated price or that

are undesired.

51. The Australian Labor Party has recently announced its policy in

relation to ‘Better Union Governance’ which includes the reduction of

the disclosure threshold under the Commonwealth Electoral Act 1918

(Cth) from $13,000 to $1,000. It is not clear, but it would appear to

involve disclosure by registered political parties as well as entities

associated with those parties (which would include many but not all

trade unions) of all payments made to them over $1,000. Discussion

28 Australian Industry Group Law Reform Submissions, 21/8/15, pp 11-12.

here of that proposal would go well beyond the Commission’s Terms

of Reference.

52. However, a $1,000 threshold appears sensible at least in relation to

loans, grants and donations. Having regard to the consideration

identified in paragraph 49, it is recommended that a higher disclosure

threshold be imposed for payments other than loans, grants or

donations. The disclosure should be in the form of a financial

disclosure statement considered in Chapter 2.

Recommendation 39

The Fair Work (Registered Organisations) Act 2009 (Cth) be amended to

require reporting units to lodge an audited financial disclosure statement (see

Recommendation 10) providing details in respect of (a) loans, grants and

donations (including in-kind donations) made to reporting units in excess of

$1,000 and (b) other payments made to reporting units in excess of $10,000.

Corrupting benefits offence in relation to officers of registered organisations

53. The Discussion Paper raised for consideration the introduction of

Commonwealth criminal provisions outlawing the giving or receiving

of benefits that corrupt union officials, with significant penalties both

for those who give such payments and those who solicit such

payments.29 A suggested possible approach was to adapt, to the

particular context of registered organisations, State laws concerning

29 Royal Commission into Trade Union Governance and Corruption, Discussion Paper - Options for Law Reform, 19/5/15, p 98.

secret and corrupt commissions along with existing Commonwealth

criminal laws prohibiting the bribery of foreign public officials30 and

the giving and receiving of corrupting benefits in relation to

Commonwealth public officials.31

54. Given the widely varying State criminal laws concerning secret

commissions, and the potential complexities identified with applying

those laws to officers of registered organisations, it is recommended

that the Federal Parliament enact a standalone corrupting benefits

provision in the Fair Work Act 2009 (Cth)32 in relation to officers of

registered organisations. As with current laws, the provision would

criminalise both the giving of a corrupting benefit and the soliciting or

receiving of a corrupting benefit. The provision would ensure that

there is a uniform, clear and relatively simple regime applying

throughout Australia.

55. What penalty for contravention would act as an effective deterrent?

Having regard to the size of some of the companies involved in making

corrupting payments, it would have to be substantial. The penalties for

those who bribe foreign public officials provide a useful guide. An

individual found guilty of the offence is liable to imprisonment for ten

years, or a fine not exceeding 10,000 penalty units (currently $1.8

million). A body corporate found guilty of the offence is liable to a

fine which is the greater of:33

30 See, eg, Criminal Code (Cth), s 70.2.31 See, eg, Criminal Code (Cth), s 142.1.32 It would seem appropriate to include the provision in a new Part 3-7 of the Fair Work Act 2009 (Cth). 33 Criminal Code (Cth), s 70.2(5).

(a) 100,000 penalty units ($18 million);

(b) where the value of the benefit provided can be determined,

three times the value of the benefit; and

(c) where the value of the benefit provided cannot be determined,

ten percent of the annual turnover of the body corporate.

56. In the Discussion Paper, it was suggested that it might be appropriate

to introduce a specific defence to a person who gives or receives a

benefit under duress. Further reflection suggests that that is

unnecessary. The general defence of duress available under the

Criminal Code (Cth) would apply.34

57. In drafting any such offence, it would be prudent, given the divergence

as to its meaning in the existing authorities, to avoid using the word

‘corruptly’ in the elements of the offence, and to state expressly what

fault element is required to establish the offence. A provision for

consideration is set out in Appendix 1 to this Volume of the Report.

Recommendation 40

Legislation be enacted amending the Fair Work Act 2009 (Cth) to include a

provision criminalising the giving or receiving of corrupting benefits in relation

to officers of registered organisations, with a maximum term of imprisonment of

ten years.

34 Criminal Code (Cth), ss 2.2(2), 10.2.

This recommendation is reflected in the model legislative provisions in

Appendix 1 to this Volume of the Report.

Prohibition on payments by employers to employee organisations or their officials

58. Introducing disclosure requirements and improving the clarity of

existing criminal laws are measures which are unlikely, on their own,

to have a significant effect in discouraging or preventing the giving and

taking of corrupting benefits. The provision of corrupt payments and

other benefits by employers to unions or union officials has been a

recurring problem in Australia that has been identified by successive

Royal Commissions over more than 30 years. It is insidious. It is

immensely damaging. Not only is the criminal activity involved

longstanding. It is also clandestine because both employers and union

officials have an interest in keeping it quiet.

59. A broader approach is recommended which takes account of these

facts.

60. Seeking simply to prohibit payments made or received with a

particular intention has consequent difficulties of investigation and

proof. Instead it is recommended that, subject to certain exceptions, all

payments by employers to a relevant union or officials of that union be

outlawed. The employers covered are those employing persons who:

(a) are members of the relevant union and whose industrial

interests the union is entitled to represent; or

(b) are entitled to be members of the relevant union and whose

industrial interests the union is entitled to represent.

61. What are the justifications for this approach? They include the

following:

(a) History shows that there has been a particular problem of

employers giving bribes and secret commissions to unions

and union officials. The material before the Commission

shows that that problem is continuing.

(b) Even with a clearer corrupting benefits provision, the

difficulties of investigation and proof will remain.

(c) Outside certain specific categories of payment there are few,

if any, legitimate reasons why employers should make

payments to unions or union officials.

(d) A blanket prohibition (except for certain categories of

payment) will be easier to police and enforce.

62. It is recommended that the prohibition be a criminal offence, albeit

with a lower penalty than the corrupting benefits offence. The

corrupting benefits offence would be available where it can be shown

that a person, which may be someone other than an employer, has

intended to bribe or obtain a favour from a union official, or where an

official solicits a bribe. The prohibition on employer payments would

not require any proof of an intention to bribe. Accordingly, a lower

penalty is appropriate.

63. Obviously, there would need to be categories of permissible payment

or benefit. The Taft-Hartley Act in the United States, considered

above, provides a useful starting place. In principle, the categories of

permissible benefits in the Australian union context would include:

(a) deductions from employee wages to pay membership dues for

persons who are genuinely members of the union (i.e. have

already signed up to be members of the union);

(b) genuine wage claim payments i.e. payments to a union

receiving the payment solely as agent for a group of

employees in settlement of a claim or dispute between the

employees and the employer;

(c) payments to a union to be used solely for a charitable or

benevolent purpose;

(d) genuine payments for goods or services provided by the union

in the ordinary course of business at the prevailing market

price; and

(e) payments made pursuant to a court order, judgment or award.

There may be other categories of legitimate payment.

64. It would also be necessary to adopt strict safeguards to ensure that

employers and unions could not circumvent the restrictions, for

example, by disguising a bribe as a charitable donation which finds its

way into union coffers.

65. Currently, reporting units are required to include a note in their annual

general purpose financial report concerning their wage claims activity

for the year.35 However, given that unions are collecting money on

behalf of workers it would seem appropriate that there be additional

accounting requirements similar to those imposed in relation to trust

accounts.

66. Similarly, there is current legislation in many States and Territories

regulating the collection of charitable monies, and preventing the

person collecting the monies from misusing it.36 However, Chapter 7.3

of this Report identified numerous possible breaches of the relevant

New South Wales legislation by the CFMEU. It may, therefore, be

prudent to introduce to the FW(RO) Act provisions dealing with how

charitable monies are dealt with by registered organisations.

67. It is not intended to deal comprehensively or prescriptively with the

safeguards that would need to be introduced. Rather, it is intended

simply to raise for consideration the proposition that safeguards would

be needed.

Recommendation 41

Legislation be enacted amending the Fair Work Act 2009 (Cth) making it a

criminal offence for an employer to provide, offer or promise to provide any

35 This is as a consequence of the reporting guidelines issued under s 255 of the FW(RO) Act: see Fair Work Commission, Reporting guidelines for the purposes of section 253, 13/6/14, pp 7-8.36 Charitable Collections Act 2003 (ACT); Charitable Fundraising Act 1991 (NSW); Collections Act 1966 (Qld); Collections for Charitable Purposes Act 1939 (SA); Collections for Charities Act 2001 (Tas); Fundraising Appeals Act 1998 (Vic); Charitable Collections Act 1946 (WA).

payment or benefit to an employee organisation or its officials. Certain

legitimate categories of payment should be permitted, subject to strict

safeguards. An equivalent criminal offence should apply to any person

soliciting, receiving or agreeing to receive a prohibited payment or benefit. A

two year maximum term of imprisonment should apply to the commission of

these offences.

This recommendation is reflected in the model legislative provisions in

Appendix 1 to this Volume of the Report.