Australia: "Lifting The Fear And Suppressing The Greed": The Upwards Criminal Enforcement Trend In Australia, Recommended Penalty Reform And What This Means For Insurers And Insureds

Last Updated: 14 September 2017
Article by Janette McLennan and Sarah Sharp

Market Misconduct

In Australia the corporate regulator, the Australian Securities and Investments Commission (ASIC), can institute criminal proceedings or civil penalty proceedings against directors and officers for a range of breaches of the Corporations Act 2001 (Cth) (the Corporations Act). This is the central piece of legislation which governs the duties of those who direct or manage corporations in Australia (beyond the common law and equity) and it imposes a range of sanctions against those who misinform the market and for general corporate misconduct.

In recent times, there has been a spike in criminal prosecutions instituted by the regulator in Australia against individual directors and officers, along with a steady continuation of enforcement action taken by way of civil penalty proceedings. This is a trend we expect to continue. Whilst both enforcement options are instituted in order to establish a contravention of the general law and to obtain the imposition of an appropriate penalty, it has often been said that a civil penalty action is "quasi-criminal". However, the High Court of Australia has recently confirmed that "a civil penalty proceeding is precisely calculated to avoid the notion of criminality as such"1. Irrespective of the form in which such claims are brought, insurers will continue to have to grapple with 'the old chestnut' of whether a conduct exclusion is enlivened, which is a question that depends on an examination of the nature of the conduct and factual findings ultimately made.

We set out below a statistical analysis of these regulatory litigation trends, against the background of the Senate Economics References Committee Report released on 27 March 2017: 'Lifting the fear and suppressing the greed: Penalties for white-collar crime and corporate and financial misconduct in Australia' (the Senate Report).

At this stage it is not clear which recommendations from the Senate Report will be progressed in the Australian Parliament, but significant reform is expected. We expect harsher financial penalties and other sanctions to be imposed on individuals and corporations – particularly for civil penalty offences - to bring Australian enforcement into line with community expectations and trends in global markets.

Lifting the Fear and Suppressing the Greed

The Senate Report is focused on penalties for white-collar crime and corporate and financial misconduct in Australia. It is the product of a referral from the Upper House of the Parliament of Australia for an inquiry into inconsistencies and inadequacies of current criminal, civil and administrative penalties for corporate and financial misconduct or white-collar crime.

A key recommendation from the report is that the Australian Federal Government gives consideration to increasing the current level of civil penalties for market misconduct offences. That recommendation is predicated upon submissions received from the public expressing the view that current monetary penalties are inadequate. A central submission relied upon by the Committee in relation to the inadequacy of penalties was of the Australian Shareholders' Association, which pointed to the disparity between the maximum civil penalty of AUD200,000 for individual directors and officers for breaches of duty on the one hand, and executive remuneration levels on the other. It was also found that current civil penalty levels are out of step with international equivalents.2

Regulatory Litigation Trends

The penalty regime found in the Corporations Act is important to assist in promoting investor confidence and market integrity. ASIC has said that on average it has 96 matters under investigation at any one time.3 Not all of those matters proceed to enforcement action through the Courts. Before going down a civil penalty or criminal prosecution route (the most severe enforcement tool), ASIC has a number of enforcement avenues available to it which range in severity, including education programs, enforceable undertakings and infringement notices. These tools may enable stakeholders to engage with the regulator at an early stage to reach a swift and inexpensive resolution compared with Court action.

Not all matters are capable of such an early resolution. The table below sets out the number of civil penalty matters against individuals that have been commenced by ASIC compared with the number of criminal prosecutions referred to the Director of Public Prosecutions in the past three years,4 up to the end of the first quarter in 2017:

The data demonstrates that Australia has had its fair share of corporate scandals in recent years, and that criminal penalties have overtaken civil penalties as the primary vehicle by which the regulator seeks to combat white collar crime. In those cases, the standard of proof (beyond reasonable doubt) is higher, and as such, only the clearest of cases are likely to be confined to such a vehicle.

The criminal matters in the above table overwhelmingly capture traditional white collar-crime. This was considered in the Senate Report as "financially motivated non-violent crimes committed by businesses or individuals acting from a position of trust or authority."5 They include matters such as insider trading, fraud, engaging in phoenix activity, dishonest use of position to gain an advantage, the making of false and misleading statements to ASIC, individuals acting as directors whilst disqualified, embezzlement, falsifying books and records and so on.

However, the table also includes matters where the regulator has a choice to make as to the vehicle with which to pursue a penalty. For example, ASIC has for many years been keen to ensure market integrity by taking action to deter and punish those involved in making a misleading disclosure to the Australian Securities Exchange (ASX)6 and/or the non-disclosure of material information7 to the market in contravention of the ASX listing rules.8 Whilst both are civil penalty offences, individual directors can also be pursued criminally for aiding, abetting, counselling or procuring the commission of an offence by the corporation which they manage or direct.9 Such matters are also included in the above analysis.

One observation we can make is that following the regime introduced into the Corporations Act in 2004 allowing ASIC to issue an infringement notice and impose a financial penalty to avoid future action by ASIC, there were very few cases in which ASIC pursued a director for a criminal penalty for breaches of the continuous disclosure requirements. However, that has started to change.

For any individual that has committed an offence of aiding and abetting a continuous disclosure breach, and leaving aside the possibility of a term of imprisonment being imposed, there is no discretionary Court ordered disqualification (as may be the case when civil penalties are pursued). If convicted, the individual will be automatically disqualified from managing a corporation for a period of five years.10 This compares with discretionary disqualification where a director or officer is pursued for a civil penalty breach.

In civil penalty matters generally (irrespective of whether they involve the continuous disclosure provisions of the Corporations Act), the Court is able to exercise a discretion, with orders ranging from life disqualification to much less (for example, between a few months and 3 years).11 Factors which tend toward longer periods of disqualification involve large financial losses combined with dishonesty and intent to defraud. From the insurer's perspective, these are the cases that are easiest to decline cover, but at the other end of the spectrum (e.g. disqualifications of up to three years), the factors can be quite different in terms of personal gain (or lack thereof) and contrition / remorse. These cases can involve contravention over a short period of time, which results from negligent conduct by the corporation or an individual, rather than deliberate or reckless conduct.12 In those cases, an insurer may (depending on the nature of the claim, factual findings and specific policy terms and conditions) be required to indemnify.

The more difficult cases are those which attract the benefit of cover for part of the claim. Those are the ones in which insurers and the insured may find themselves having to consider and attempt to negotiate on what would be a fair and equitable allocation of defence costs. These costs can be financially crippling for the individual defendant and may also involve the insurer having to secure assets at an early stage in case it needs to exercise a clawback right.

Predicted Reforms and Impact on Insurers/Insureds

Significant reform is expected following release of the Senate Report. In the words of the Committee:

"Providing an overall assessment of the adequacy and consistency of current penalties for white-collar crime and misconduct is not straightforward. Just as the types of wrongdoing that might be considered white-collar crime and misconduct are extremely varied, so too are the penalties available in relation to that wrongdoing. However, the committee agrees that, broadly speaking, there appear to be serious inadequacies and inconsistencies in the current penalty framework."13

Those inconsistencies are illustrated by the broad discretion for disqualification in civil penalty matters and the automatic disqualification consequences in certain criminal matters, with the potential for a civil penalty contravention to be met with a longer disqualification period.

One clear expectation we have is that the reform process will address current perceived inadequacies in the penalty framework, including increased financial penalties for non-criminal matters (currently only AUD200,000 for an individual and AUD1million for a corporation). No specific penalty amount has been recommended by the Senate Committee, but it has urged the Australian Parliament to have regard to penalties in other jurisdictions for similar offences.14 The current flexibility for ASIC to pursue civil and criminal proceedings will also remain but tougher civil penalties could equate to an increase in civil penalty actions.

Any increase in the quantum of penalties will also have the consequence of increasing exposures for insurers if such penalties are capable of being indemnified. In the regulatory litigation environment, insurers will continue to have to engage proactively with conduct exclusions and advance defence costs along the way.

This article was written with the assistance of Matthew Blake, paralegal.


1. Joint judgment delivered by French CJ, Kiefel, Bell, Nettle and Gordon JJ on 9 December 2015 in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate; Construction, Forestry, Mining and Energy Union v Director, Fair Work Building Industry Inspectorate [2015] HCA 46.

2. Other recommendations made in the Senate Report relate to increasing clarity around evidentiary thresholds in litigation procedure in civil penalty proceedings, enhancing accessibility to registered of banned and disqualified individuals and increasing ASIC's disgorgement powers where misconduct has resulted in illegal gains by a company or individual.

3. ASIC's Market Integrity Report: July to December 2015.

4. These are the matters we are aware of sourced from public records. The statistics do not include enforcement proceedings commenced against corporations. For the purposes of our current analysis we have focused only on individual directors and officers.

5. As above.

6. See sections 1309(1) and 1311(1) Corporations Act.

7. Information is material if a reasonable person would expect it to have a material effect on the price or value of the entity's securities.

8. See section 674(2) of the Corporations Act.

9. See s 11.2 of the Criminal Code.

10. Section 206B of the Corporations Act.

11. See ASIC v Adler (2002) 42 ACSR 80.

12. See ASIC v Chemeq Limited [2006] FCA 936 and French J's non-exhaustive list of influential factors in considering penalty.

13. Senate Report, para 2.47.

14. Senate Report, para 6.52.

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

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

Janette McLennan
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”

Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.