On 23 March 2017, the Senate Economics References Committee (Committee) released its long-awaited report titled 'Lifting the fear and suppressing the greed': Penalties for white-collar crime and corporate and financial misconduct in Australia (Report).  The Report considered the inconsistencies and inadequacies of current criminal, civil and administrative penalties for corporate and financial misconduct, and “white-collar crime” in Australia.

The Report concluded that there are “serious inadequacies and inconsistencies in the current penalty framework in Australia”, and makes six recommendations as to how to improve this regulatory framework.

Several of these recommendations are largely procedural or technical in nature, but there are more substantive and important recommendations in the area of pecuniary penalties.

Recommendation 1: Greater evidentiary and procedural clarity

Several inquiry participants raised serious concerns about the difficulty of proving white-collar offences, particularly in civil proceedings.  The Committee acknowledged these concerns and concluded that there is a “lack of clarity” as to the meaning and application of the “balance of probabilities” standard and the applicable procedural rules in civil proceedings commenced by ASIC and other regulatory bodies.  The Committee has recommended that the Government implement reforms that will provide greater clarity as to the evidentiary standards and procedural rules applicable in civil proceedings involving white-collar offences.

Recommendation 2: Greater transparency regarding banning and disqualified orders

The Committee acknowledged the importance of banning orders (contained in section 920A of the Corporations Act) and disqualification orders (contained in sections 203B, 206C and 206F of the Corporations Act) as part of ASIC’s regulatory toolkit, but has questioned the adequacy of ASIC’s register of persons who are, or have been, subject to a banning or disqualification order.  Only some of the information on the register is free-of-charge.  Further, people can only search for banned and disqualified persons if they are aware of the name of the person that they are searching for.  The Committee has recommended that ASIC consider ways of improving the accessibility and usability of the banned and disqualified persons register to improve transparency and send a signal to the market that ASIC is taking administrative enforcement action seriously.

Recommendation 3: Make infringement notices available to respond to breaches of the financial services and investment provisions

In its submission to the Committee, ASIC noted that while infringement notice regimes are part of ASIC’s enforcement ammunition in relation to breaches of market integrity rules and continuous disclosure obligations they are not currently available for breaches of the financial services and managed investment provisions of the Corporations Act.  ASIC submitted that a broader infringement notice regime would provide a useful tool for ASIC to respond to misconduct at a “lower end of the scale” where: (a) a higher volume of cases are expected; (b) an assessment of the conduct depends on relatively straightforward and objective criteria; and (c) a penalty must be imposed as soon as possible to be effective.  The Committee has agreed with ASIC’s submission, saying that there is value in the Government making infringement notices available for breaches of the financial services and managed investment provisions of the Corporations Act, such as for a breach of an AFS licence.

Recommendation 4: Increasing civil penalties for individuals and bodies corporate

For individuals, the maximum penalty for an offence under the Corporations Act is $200,000, while for bodies corporate the maximum penalty is $1,000,000.  ASIC compared these maximum penalties to penalties in similar jurisdictions, including Canada, Hong Kong, New Zealand, UK and the US, and submitted to the Committee that Australia’s white-collar penalties are “very much at the lower end of the scale”.  The Committee considered this evidence overwhelming and has recommended that the maximum non-criminal penalties be increased, having regard to the level of non-criminal penalties in other jurisdictions for similar offences.  While the Committee was reluctant to specify any particular amount, it said that a fivefold increase may be appropriate.

Recommendation 5: Multiples of benefit penalties

The Committee has recommended that the Government introduce civil penalties in respect of white-collar offences to be set as a multiple of the benefit gained or, where the benefit cannot be determined, as a percentage of the annual turnover of the corporate body in the period that the offending occurred.  This would ensure that the penalty imposed on corporations is proportional to the wrongful gain obtained by the body corporate and that the penalty is sufficiently high to deter and punish financial crime, and promote good governance, the rule of law and confidence in corporate practices.

Recommendation 6: Introduce disgorgement powers for non-criminal matters

A central theme of the evidence submitted to the Committee was that efforts to tackle white-collar crime must take profit out of the crime.  While the Proceeds of Crime Act 2002 (Cth) provides a mechanism for recouping a wrongful gain in criminal cases, there is currently no comparable power of ASIC to force the forfeiture of gains when someone has committed a civil offence.  The Committee has said that the lack of disgorgement powers in non-criminal matters represents a significant gap in ASIC’s enforcement toolkit and has recommended that the Government address this gap by introducing disgorgement powers in relation to non-criminal matters.

Conclusion

It was encouraging that the Senate Standing Committee did not adopt an overly knee-jerk reaction in more contentious areas, such as custodial sentences for white-collar crime.  While there is clear emotional appeal in harsher penalties, the evidence time and time again shows that incarceration rarely has the desired deterred effect when it comes to white-collar crime.

Still, there is no doubt a public mood that reform in this area is required.  Many of the submissions made to the Committee were from individuals who had suffered loss – often their entire life savings - as a result of conduct which, even if not strictly criminal in nature, was clearly unacceptable.  They make sobering reading.

ASIC chairman Greg Medcraft once described Australia as a “paradise” for white-collar criminals.  He later qualified that statement, saying that ASIC’s intent was to ensure it did not become that kind of place. If the Government and ASIC take the Committee’s recommendations on board, this could well provide a step in the right direction.