This overview was first published in the Chambers Global Practice Guide: White-Collar Crime.
Reform of White-Collar Criminal Regulation
Over the past decade or so, Australian regulators and prosecutors have faced sustained criticism over the approach they have taken to the investigation, enforcement and prosecution of white-collar offences. In particular, it has often been suggested that they are too slow to act, and too reluctant to prosecute or commence proceedings for white-collar offences, especially against large, institutional companies (such as banks).
In 2018, a wide-scale investigation of these issues in the context of the financial services sector was undertaken by a former judge of the High Court of Australia, Kenneth Hayne, known as the Royal Commission into the Banking, Superannuation and Financial Services Industry (the “Financial Services Royal Commission”).
Arising from the Financial Services Royal Commission and broader criticisms, there has been an increased interrogation of the adequacy with which corporations and their officers are held accountable for serious corporate misconduct (including criminal conduct) and a growing sense that penalties must be set at a level sufficient to deter corporate misconduct and so as not to be capable of being regarded as an “acceptable cost of doing business”.
This backdrop has given rise to various recommended and proposed legislative reforms and higher levels of enforcement activities against individuals and corporations, including in the financial services and consulting sectors. However, not all of the proposals from the Financial Services Royal Commission have been implemented, with several of the reforms failing to pass through the Australian Parliament before the change from the Liberal/National coalition government (which had been in power for a decade) to a Labor government in the May 2022 Federal Election. Some, but not all, of the reforms have been picked up by the Labor government in bills it has introduced to parliament.
In 2023, the government has also signalled additional reforms arising from a new focus on accounting, audit and consulting firms. This follows a Senate Committee Inquiry that commenced in March 2023 into the management and assurance of integrity by consulting services, which was the result of an investigation by the Tax Practitioner’s Board into a Big Four accounting firm for sharing confidential government information in relation to Australia’s forthcoming anti-avoidance tax laws. The final report is due on 30 November 2023. The proposals for reform are in their early stages, and it remains to be seen which, if any, make their way into the statute books, and if so, what form they take.
This paper describes some of the key matters of note arising from shifts in the strategic focus of key Australian regulators and notable outcomes in white-collar crime prosecutions over the past 12 months.
Recent and Proposed Legislative Reforms
Financial Accountability Regime (FAR)
A suite of bills was introduced by the former coalition government in October 2021 in response to the recommendations of the Financial Services Royal Commission that the existing Banking Executive Accountability Regime (BEAR) be repealed and replaced with a new FAR. The suite of bills sought to strengthen the accountability, key personnel, deferred remuneration and notification obligations measures in place under the BEAR and to extend them beyond the banking sector to the insurance and superannuation sectors. The bills were passed by Parliament on 5 September 2023 and are expected to receive Royal Assent in late September.
The FAR has a variety of mechanisms for enforcement once a contravention or likely contravention has been established, which align with those in place under the BEAR to ensure continuity and consistency of approach. Enforcement mechanisms under the FAR include directions powers, disqualification, enforceable undertakings, injunctions, civil penalties, and some limited criminal offences relating to non-compliance with an investigation or request for information from the Australian Prudential Regulation Authority (APRA) or Australian Securities and Investments Commission (ASIC).
The FAR will apply to the banking industry from approximately late March 2024 (six months after Royal Assent), and to the insurance and superannuation sectors from approximately late March 2025 (18 months after Royal Assent).
Deferred Prosecution Agreement (DPA) scheme
The former coalition government, while it was in power, made two unsuccessful attempts to introduce a DPA scheme. There has been no indication since the 2022 Federal Election as to whether the new Labor government will make a third attempt to introduce a DPA scheme. It is notable that, when the Senate Legal and Constitutional Affairs Legislation Committee (the “LCAL Committee”) reviewed the first unsuccessful coalition government DPA bill (introduced in 2019), two Labor Senators on the LCAL Committee, in their report on the bill, contended that whilst there may be a place for a DPA scheme in Australia, the particular DPA scheme proposed in the bill was “too weak” and could not supported in its proposed form.
New offence of failure to prevent foreign bribery and reform to existing foreign bribery offence
The 2019 bill referred to above also sought to amend Australia’s foreign bribery offence provisions, including to introduce a corporate offence of failure to prevent foreign bribery, although the opposition to the proposed DPA scheme in the bill meant that those amendments also failed to pass through Parliament.
Since then, in June 2023, the Labor government has introduced new proposed legislation pursuing the amendments to the foreign bribery offence provisions. The new bill, the Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023, includes some key changes to the amendments that had been proposed in the 2019 bill. Most significantly, the proposed crime of failure to prevent foreign bribery in the 2023 bill has been changed to an “absolute liability” offence, meaning there is no requirement to prove fault nor any available defence of honest and reasonable mistake of fact. However, an “adequate procedures” defence has been introduced, whereby corporations can avoid liability by demonstrating they had adequate procedures in place to combat bribery (reflecting similar provisions in the UK and elsewhere). Like the 2019 bill, the 2023 bill also includes amendments to the existing foreign bribery offence provisions designed to improve their effectiveness, responding to criticisms that the existing provisions are overly prescriptive and difficult to use. The bill is currently before the House of Representatives and had its second reading on 8 August 2023.
National Anti-Corruption Commission
A key election campaign policy of the Labour government was the introduction of a National Anti-Corruption Commission. It commenced operations on 1 July 2023 under the National Anti-Corruption Commission Act 2022. Its aim is to prevent, investigate and publicly report on serious or systemic corrupt conduct involving Commonwealth public officials. The inclusion of private contractors providing goods and services to the Commonwealth under Commonwealth contracts within the definition of “public official” has the implication of including companies, their directors, officers, and employees within the NACC’s investigative purview.
Between its commencement on 1 July 2023, and close of business on 4 September 2023, the NACC received 813 referrals of potential serious or systemic conduct, of which 323 have been assessed by the NACC as outside its jurisdiction, either because they did not involve a Commonwealth public official or did not raise a corruption issue. The NACC has indicated that approximately 11% of the referrals it has received relate to matters well publicised in the media.
Amendments to AML/CTF Act
Included in an “omnibus” amendment bill on criminal law and law enforcement are various technical amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF).The amendments are intended to strengthen and modernise various aspects of the regime and to assist the Australian Transaction Reports and Analysis Centre (AUSTRAC) in fulfilling its functions efficiently. The amendments: (i) clarify the application of civil penalties for failing to enrol with AUSTRAC within 28 days of commencing to provide a designated service; (ii) clarify the existing secrecy and access framework for certain sensitive AUSTRAC information to make clear that the information cannot be inappropriately disclosed for the purposes of, or in connection with, court or tribunal proceedings; and (iii) introduce new provisions authorising the AUSTRAC CEO to use computer programs for certain decision-making and the exercise of certain powers. The bill was introduced to Parliament on 29 March 2023 and was passed by both houses on 4 September 2023. It received Royal Assent on 13 September 2023.
Potential regulatory reforms for the consulting industry
The wider investigation into the consulting industry is in its early stages and the end shape of any legislative reform is far from certain. However, on 6 August 2023 the government announced a package of reforms focused on three “priority areas for action” in “tax adviser misconduct”: (i) strengthening the integrity of the tax system; (ii) increasing the powers of regulators; and (iii) strengthening regulatory arrangements so that they are fit for purpose. Significant proposed reforms include increasing maximum penalties for advisers and firms who promote tax exploitation schemes from AUD7.8 million to over AUD780 million and various improvements to the regulatory frameworks of both the Australian Tax Office and the Tax Practitioners Board aimed at increasing their respective powers. There may well be further significant legislative reforms in this space in the future.
Recent Regulatory and Enforcement Activity
Australian Securities and Investments Commission (ASIC)
ASIC has adjusted its enforcement approach in recent years, shifting away from the “why not litigate” strategy that it had adopted following the Financial Services Royal Commission, towards a more nuanced approach that employs other enforcement tools and places greater emphasis on protecting consumers in the uncertain post-COVID-19 economic environment.
In August 2023, ASIC published its Corporate Plan 2023–27, in which it revealed that its strategic priorities for the next four years include the following.
- Product design and distribution – reducing the risk of harm to consumers of financial, investment and credit products caused by poor product design, distribution and marketing, especially by driving compliance with design and distribution requirements.
- Sustainable finance – supporting market integrity and efficiency through supervision and enforcement of governance, transparency and disclosure standards to reduce harm from greenwashing, while engaging closely on climate-related financial disclosure requirements.
- Retirement decision-making – protecting consumers as they plan and make decisions for retirement, with a focus on superannuation products, managed investments and financial advice.
- Technology risk – focusing on the impacts of technology in financial markets and services, driving good cyber-risk and operational resilience practices within companies and financial markets infrastructure, and acting to address digitally enabled misconduct.
These priority areas are aligned with a number of ASIC’s recent regulatory, investigation and enforcement activities. ASIC’s enduring enforcement priorities are the following.
- Misconduct that damages market integrity, including insider trading, continuous disclosure breaches or failures, market manipulation and governance failures.
- Misconduct that impacts First Nations peoples.
- Misconduct involving a high risk of significant consumer harm, particularly conduct targeting financially vulnerable consumers.
- Systemic compliance failures by large financial institutions that result in widespread consumer harm.
ASIC has outlined its 2023-specific priorities including greenwashing, poor design and distribution of financial products, pricing promises in insurance and protecting vulnerable consumers from predatory lending practices or high-cost credit.
Reflecting those priorities, some of ASIC’s key regulatory actions for the period 1 July 2022 to 30 June 2023 have included the following.
- In February 2023, ASIC launched its first court action in relation to alleged greenwashing conduct, in the form of civil penalty proceedings in the Federal Court of Australia against a superannuation provider for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.
- In March 2023 ASIC published Report 758 Good practices for handling whistleblower disclosures (REP 758). The report aims to help entities improve their arrangements for handling whistle-blower disclosures, and ensure the arrangements are effective and encourage people to speak up. Report 758 sets out the good practices ASIC observed in a review of seven entities’ whistle-blower programmes from a cross-section of industries.
- Also in March 2023, ASIC took action for the first time over alleged breaches of the whistle-blower provisions, in the form of civil penalty proceedings in the Federal Court against an ASX-listed company, its managing director, chief commercial officer, former chair, and former director and deputy chair for engaging in conduct alleged to have harmed a whistle-blower.
- ASIC will be working closely with APRA to implement the FAR by providing guidance, engaging with industry and developing effective registration and other processes subject to the passage of legislation.
- ASIC also intends to monitor financial reporting and audits by using data and natural language processing to enhance its ability to identify risks. It will also continue to focus on disclosures by directors in their operating and financial reviews, particularly in relation to their risk management strategies and future prospects.
In the period between 1 January 2023 to 30 June 2023, as a result of ASIC’s enforcement activities, 18 individuals were charged with criminal offences and 124 individuals were charged with strict liability offences. Compared with the reporting periods in the preceding 18 months, this is a notable increase in the number of individuals charged with strict liability offences and a modest decrease in the number of individuals charged with criminal offences. However, the overall number of individuals charged in both categories of offence has remained broadly consistent over the past 24 months.
Australian Competition and Consumer Commission (ACCC)
In August 2023, the ACCC published its Corporate Plan 2023–24. The Corporate Plan confirmed that, alongside its enduring priorities of cartel conduct, anti-competitive conduct, product safety, consumers experiencing vulnerability or disadvantage, and conduct impacting First Nations people, the ACCC’s competition compliance and enforcement priorities for 2023–24 include:
- consumer, product safety, fair trading and competition concerns regarding environmental claims and sustainability;
- scam detection and disruption;
- consumer and fair trading issues related to manipulative or deceptive advertising and market practices in the digital economy;
- unfair contract terms in consumer and small business contracts;
- competition and consumer issues arising from the pricing and selling of essential services, with a focus on energy and telecommunications;
- competition issues relating to digital platforms;
- promoting competition and investigating allegations of anti-competitive conduct in the financial services sector, with a focus on payment services; and
- exclusive arrangements by firms with market power that impact competition.
These priority areas are aligned with a number of the ACCC’s recent regulatory, investigation and enforcement activities, including the following.
- In July 2023, the ACCC published draft guidance to improve the integrity of environmental and sustainability claims made by businesses and protect consumers from greenwashing. The draft guidance aims to address conduct identified by the ACCC’s recent greenwashing internet sweep, which found 57% of businesses reviewed were making potentially misleading environmental claims.
- In August 2023, following the ACCC instituting civil cartel proceedings against an ASX-listed company and its former general manager, the Federal Court ordered the company to pay a AUD57.5 million penalty for attempting to fix prices for products supplied in Australia. The next highest cartel penalty imposed by the Federal Court was a AUD46 million penalty against Yazaki Corporation, ordered in May 2018.
- On 10 November 2023, legislation will come into effect establishing a civil penalty regime for unfair contract terms in certain standard form contracts and expanding the class of contracts covered.
AUSTRAC continues to increase its presence and prominence in the white-collar regulatory landscape, following funding boosts from the Australian government in 2020–21.
AUSTRAC enhanced its regulatory powers in February 2023 by signing Memoranda of Understanding (MOU) with two British regulators, the Financial Conduct Authority and HMRC. The MOUs will enhance engagement with the agencies on regulatory issues, allowing the exchange of regulatory information and could result in joint anti-money laundering and counter-terrorism financing supervision with the latter agency.
The following significant AUSTRAC enforcement activities can be noted.
- In November 2022, AUSTRAC commenced civil penalty proceedings in the Federal Court against The Star Pty Limited and The Star Entertainment QLD Limited for alleged non-compliance with Australia’s anti-money laundering and counter-terrorism financing laws. The action followed an industry-wide AUSTRAC compliance campaign that began in September 2019 and led to an enforcement investigation into The Star Pty Limited being opened in June 2021.
- In July 2023, Crown Melbourne and Crown Perth were ordered by the Federal Court to pay a AUD450 million penalty over two years, as well as AUSTRAC’s costs, after AUSTRAC launched civil penalty proceedings against them for breaching of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. The parties filed joint submissions in May 2023 for the payment of this penalty, and as part of the settlement, Crown admitted that it operated in contravention of the AML/CTF Act, including that Crown Melbourne and Crown Perth’s AML/CTF programmes were not based on appropriate risk assessments, did not have appropriate systems and controls to manage their risks, and were not subject to appropriate oversight by their boards and senior management.
A recent judgment of significance on foreign bribery offending is the High Court of Australia’s decision in The King v Jacobs Group (Australia) Pty Ltd formerly known as Sinclair Knight Merz  HCA 23. Sinclair Knight Merz pleaded guilty to three counts of the offence of conspiracy as a body corporate to bribe foreign officials.
The appeal considered the correct approach to setting the maximum available penalty for the offending, and the High Court held that the maximum penalty must be set with reference to the “gross” value of the benefit obtained from the offending as opposed to the “net” value. This is consistent with established authority holding that, where commercial profit is the motivating factor in corporate offending, penalties must be fixed with a view to ensuring they are not regarded as an “acceptable cost of doing business”. As a consequence of the decision, corporate foreign bribery offenders are more likely to pay higher penalties. The decision may also have relevance to other criminal and civil penalty provisions regulating corporate conduct given that similar statutory language is used.