Senate releases report into penalties for white collar crime

The Senate Economics References Committee has released its report on ‘Penalties for white-collar crime and corporate and financial misconduct in Australia’ (Report). The Senate referred the inquiry to the Committee on 25 November 2015 in response to a motion by the Australian Greens. The Committee was initially due to report on 27 July 2016, but was delayed due to the Australian general election on 2 July 2016.

The Report makes 6 recommendations, but also makes some interesting observations about the white collar crime landscape, drawing on submissions from the various regulators (outlined below).

Recommendations

1. The government should consider reforms so that relevant evidentiary standards and rules of procedure for civil penalty proceedings involving white-collar crime are clarified: The Committee rejected the view of some inquiry participants that evidentiary standards should be lowered, just because particular crimes or civil offences are difficult to prove, but accepted there was a lack of clarity on the meaning and application of ‘balance of probabilities’ in the civil penalty context (see [3.49]). 
2. ASIC should consider ways to enhance the accessibility and usability for its banned and disqualified persons register, in order to create greater transparency regarding banning and disqualification orders: This recommendation was made in response to comments by the Centre for Corporate Law and Securities Regulation that it would increase the fairness and accountability of the use of ASIC’s powers and promote deterrence (see [5.20]-[5.23]). Almost all of the inquiry participants were of the view that banning orders and disqualification orders were a useful part of the enforcement regime.
3. The government should consider extending ASIC’s power to issue infringement notices for breaches of the financial services and managed investments provisions of the Corporations Act 2001 (Cth): The Committee rejected the views of the Law Council of Australia who, echoing the concerns of the Australian Law Reform Commission, opposed the use of infringement notices in relation to white-collar crime on the basis that “it is lazy regulation” and “does not involve a finding of culpability” (see [5.31]-[5.32]). On the contrary, the Committee was of the view that infringement notices “provide a valuable enforcement tool for responding to less serious instances of corporate and financial misconduct” (see [5.32]).
4. The maximum penalty amounts for relevant offences under the Corporations Act 2001 (Cth) should be increased to reflect those applicable in other countries: The view of the Institute of Public Affairs to set penalties on a principled basis by reference to what penalties are intended to achieve rather than merely what occurs elsewhere in the world was disregarded (see IPA submission, p 4). Rather, the Committee came to the view that there is “overwhelming evidence and support for increasing the current levels of civil penalties for white-collar offences in the Corporations Act” and that the penalty amounts should be set in consideration of those applicable in other jurisdictions (see [6.52]).
5. The government should provide for civil penalty provisions to be calculated by reference to a multiple of the benefit gained or the loss avoided from committing the offence.
6. ASIC should be granted disgorgement powers.

There was widespread support among the inquiry participants for Recommendations 5 and 6.

Observations

The Committee reported that it is satisfied that ASIC and other enforcement agencies have sufficient flexibility to pursue both criminal and non-criminal actions, and endorsed a submission by the AFP that the availability of administrative and civil penalties is as important as criminal penalties in combating white-collar crime.

On the position of corporate liability, the Committee noted the submissions of the AFP that Australian companies that are willing to co-operate with investigations may still face charges, limiting the incentive for corporations to self-report (see [3.34]). The AFP (and other regulators) strongly favour the introduction of Deferred Prosecution Agreements, which is currently the subject of consideration by the Attorney General’s Department. In addition, the AFP also made submissions about the difficulty in gathering evidence to support a case against a corporation through the corporate culture provisions of the Criminal Code. The AFP say this is “especially the case where a body corporate has in place formal policies that … are not intended to be taken seriously”(see [3.45]).

The Committee acknowledged the views of many victims of white collar crime offences that custodial sentences were currently too low, however the Committee was of the view that the current maximum sentences available in Australia were comparable to those in other countries and were “broadly speaking” appropriate (see [4.64]). The Committee rejected the views of some inquiry participants (such as those of the Institute of Public Affairs and Professor Bagaric of the Centre for Evidence-Based Sentencing) that the general deterrence of custodial sentences does not work. The Committee was of the belief that custodial sentences “have an important role in deterring and punishing white-collar crime” (see [4.17]-[4.18], [4.47] and [4.65]).

The Committee expressed “strong reservations in relation to the introduction of mandatory sentencing for white-collar offences”, noting the concerns of the Commonwealth Director of Public Prosecutions that they may reduce the likelihood of people entering guilty pleas (see [4.66]).

What can we expect to see?

The Report was presented to the Senate on 23 March 2017 and awaits the Government’s response.

Reform is currently under separate consideration in relation to whistle-blowers, deferred prosecution agreements and foreign bribery laws. ASIC has also strongly argued for increased penalties for some time now. We anticipate that this report will provide further impetus and continue to drive political focus on corporate crime reform.

For further information see our predictions for 2017 here and here.