Key points

• On 23 March 2017, a new report, ‘Lifting the fear and suppressing the greed’: Penalties for white-collar crime and corporate and financial misconduct in Australia (Report) was released by the Senate Economics References Committee (Committee).
• The Report recommends significantly higher penalties and other financial consequences for individuals and companies that engage in corporate and financial misconduct or ‘white-collar crime’.
• White collar crime includes fraud, bribery, insider trading, embezzlement, money laundering, forgery or cybercrime. 
• The Report’s recommendations are very likely to be introduced into legislation.  Companies implicated in ‘white collar’ criminal conduct engaged in by their employees will be exposed to significant new risks.

Overview of Committee inquiry and Report

On 25 November 2015, the Senate referred an inquiry into “the inconsistencies and inadequacies of current criminal, civil and administrative penalties for corporate and financial misconduct or white-collar crime” to the Committee.  The Report represents the culmination of that inquiry, which considered a number of recent inquiries and reports addressing the issue of penalties, received 139 submissions (including from key regulatory and enforcement agencies) and which involved a public hearing in December 2016.

Key Recommendations

The Committee conducted a detailed examination of the enforcement or regulatory ‘toolkit’ available to regulatory and enforcement agencies, including the range of criminal penalties (such as custodial sentences) and civil or administrative penalties (such as banning or disqualification orders, monetary penalties or infringement notices) available to regulators.

There was general agreement that maximum penalties in non-criminal cases are inadequate and disproportionate to the severity of the offence, community expectations and international standards.

The Committee recommended that this be addressed through the following initiatives:

• Increase the civil penalties under the Corporations Act for individuals and companies.  While criminal penalties in Australia for white-collar crime are largely comparable with those in foreign jurisdictions, our civil penalties are significantly lower.
• Civil penalties calculated as a multiple of the benefit gained or loss avoided or a % of the annual turnover of the corporate body.  This method of calculation is already used for determining penalties for certain white-coller criminal offences such as bribery. 
• ASIC to have disgorgement powers.  Evidence to the Committee suggested that there needs to be mechanisms for taking the profit out of white collar crime.  The Proceeds of Crime Act 2002 (Cth) provides a mechanism to recoup wrongful gains in criminal cases.  There is a need for ASIC to be given a disgorgement power to force companies to forfeit gains in civil cases. 

Other recommendations

There were some additional recommendations for improved procedures:

• In response to challenges raised by regulatory and enforcement agencies in successfully prosecuting offences, there should be greater clarity regarding evidentiary standards (in particular, the ‘balance of probabilities’ standard) and procedural rules applicable in civil penalty proceedings involving white-collar offences.
• In response to submissions made that banning information should be made publicly available to improve fairness and accountability and also to promote general deterrence, the accessibility and usability of the banned and disqualified register should be enhanced.
• In response to submissions made by ASIC that introducing a broader infringement notice regime would provide a useful enforcement tool to respond to misconduct at the ‘lower end’ of the scale of misconduct, ASIC should have the power to issue infringement notices to respond to breaches of the financial services and managed investments provisions of the Corporations Act.

Impact on corporations

If adopted, the recommendations will introduce the most serious consequences ever faced by companies that do not have adequate policies and procedures to monitor compliance with the Corporations Act and the Criminal Code.

Some of the recommendations overlap with the work of a number of other inquiries.

• The ASIC Enforcement Review Taskforce (the Taskforce) was established by the Minister for Revenue and Financial Services in October 2016.  Its mandate is to review ASIC’s enforcement regime and assess the adequacy of its existing regulatory tools.  The Taskforce is dues to report to government sometime in 2017.
• The Productivity Commission’s review of the enforcement and administration arrangements underpinning the Australian Consumer Law (the ACL Review).  The ACL’s mandate is to assess the effectiveness of the ‘one ACL law, multiple ACL regulators’ model in supporting a single national consumer policy framework.  The ACL Review report was given to the government on 29 March 2017 and will be released to the public shortly.

While it remains to be seen precisely which of the Committee’s recommendations will be adopted by Parliament, it is likely that the Report will lead to legislative reform aimed at strengthening the implementation and enforcement of civil and criminal prohibitions under the Corporations Act.