Australia: ‘Lifting The Fear And Suppressing The Greed'

Last Updated: 15 May 2017
Article by Janette McLennan and Sarah Sharp

Australian Senate Committee recommends expansive reform to civil penalty regime

The Senate Economics References Committee (the Committee)  has recommended sweeping changes to the civil penalties regime contained in the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commissions (ASIC) Act 2001 (Cth) to respond to perceptions that the current framework is too weak to properly regulate and deter corporate crime and breaches of regulatory provisions.

The report and its context

The Committee published its report'Lifting the fear and suppressing the greed': Penalties for white-collar crime and corporate and financial misconduct in Australia on 27 March 2017. The broad impetus of the report, with accompanying public consultation process, is to resolve perceived procedural and remedial inadequacies in the regulation of corporate misconduct so as to bring Australia into line with community expectations and impose monetary penalties consistently with other jurisdictions.

This article will consider the recommendations that directly relate to the application of the civil penalties regime for corporate regulatory breaches, including in relation to increasing penalty amounts.1 Any increase to the quantum of penalties will increase potential exposures for directors, officers and companies. A natural flow on from that is an increased exposure to Directors' & Officers' liability (D&O) insurers where such losses are capable of being indemnified.

The quantum of civil penalties

A primary recommendation of the report is that the quantum of civil penalties that can be imposed on individuals and bodies corporate be increased. Penalties are currently capped at:

  • AUD 200,000 for individuals (introduced in 2001);2
  • AUD 1 million for bodies corporate (introduced in 2004).3

The current cap levels have not been altered since their introduction and are not indexed to inflation.

Many submissions to Tthe Committee noted that Australia's penalty system imposes penalties that are materially lower than equivalent foreign jurisdictions.  Following a breach of continuous disclosure obligations by an individual, Canada allows an administrative penalty equivalent to AUD 1.05 million, Hong Kong permits the equivalent to AUD 1.12 million, and the United Kingdom does not apply a cap.4 These figures are almost identical for insider trading, market manipulation, misleading and deceptive conduct, and inappropriate financial advice.5

Further, penalties levels under the Corporations Act are lower than analogous penalties in more recent legislation. For example, an individual who conducts unlicensed credit activity may be liable for AUD 360,000 penalty under the National Consumer Credit Protection Act 2009 (Cth).6 

Although ASIC did not propose a particular cap, the Australian Shareholders Association (ASA) suggested a cap of AUD 5 million for a body corporate and AUD 1 million for an individual as appropriate. The ASA argued that a cap of AUD 200,000 for contraventions by individuals is too low when contrasted against current executive remunerations levels.

While tThe Committee recommended that the scale of civil penalties be expanded, it declined to identify appropriate numerical limits. The Committee did suggest that "and that in doing so [increasing penalties] it should have regard to non-criminal penalty settings for similar offences in other jurisdictions". Perhaps the implicit import of the recommendation is that the government consider setting penalties for individuals at approximately AUD 1 million to bring the Australian regime in line with Canada and Hong Kong.

Disgorgement powers

ASIC submitted that penalties are sometimes considered a "cost of business" by companies – a loss that may be strategically incurred to unlock greater profits or loss-avoidance. Therefore, ASIC proposed that deterrence measures should be focussed towards negating financial benefits flowing from contravening conduct.

To this end, The Committee recommended that the government introduce disgorgement powers for ASIC in non-criminal matters. In this context, disgorgement is "the removal of financial benefit (such as profits illegally obtained or losses avoided) that arises from wrongdoing."7 Although the Australia and New Zealand corporate regulators lack disgorgement powers in non-criminal matters, Canada and Hong Kong do provide for such powers in certain circumstances.8

Submissions proceeded in the context that Australia lacks a non-criminal equivalent to the Proceeds of Crime Act 2002 (Cth), which allows the Commonwealth Director of Public Prosecutions or the Australian Federal Police to trace and recoup proceeds generated by indictable Commonwealth offences.9

The Committee further recommended that the government provide for civil penalties in respect of white-collar offences to be set as a multiple of the benefit gained or loss avoided, as is the approach in New Zealand, Singapore and the United States.

Implications for Directors' & Officers' liability

Any increase in the quantum of penalties would create an increased exposure to D&O insurers. Further, the prospect of the introduction of disgorgement powers is likely to result in an increase in the complexity of calculating an appropriate penalty, which would likely require complex evidence to quantify gains and losses. 

The Committee deferred to the ASIC Enforcement Review Taskforce to suggest the precise quantum of penalties to be implemented in any legislative reform. The taskforce is expected to provide its recommendations to the government prior to October 2017. Therefore, while this report may spark momentum towards legislative reform, the extent of its impact will remain unclear for some time. However, the report is an important litmus test for potential political and public support for increasing ASIC's regulatory powers. Companies and insurers should monitor this space closely for relevant legislative reform.

Footnotes

1 Clyde & Co have also published an examination of anti-bribery structures recently proposed by the Australian Government.

2 Corporations Act 2001 (Cth) ("Corporations Act") s. 1317G (1); (1B) (b); (1F) (a)

3 Corporations Act s. 1317G (b) (b); (1F) (b)

4 Other countries set a figure approximate to AUD1 million, or allow a multiple of the gain made or loss avoided by breach: see below. The figures stated for Canada and Hong Kong in Australian dollars were calculated by the Committee based on the daily exchange rate published by the Reserve Bank of Australia as at 31 December 2013.

5 These figures were submitted in Australian Securities and Investments Commission (ASIC) Submission 49, Senate inquiry into penalties for white-collar crime (April 2016), pp. 9 – 10

6 National Consumer Credit Protection Act 2009 (Cth) s. 31 sets the cap at 2000 penalty units.

7 Report, p. 80 [6.32]

8 A notable exception is for breaches of continuous disclosure obligations.

9 See Report, p. 80

With contribution from Andrew Bell.

'Lifting The Fear And Suppressing The Greed'

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Janette McLennan
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions