Australia: Costello's Announcement Reinforces Need For 'Culture Of Compliance'
Last Updated: 4 February 2005

Freehills Competition Partner Bob Baxt stated today that the announcement by the Treasurer that criminal sanctions would be introduced into the Trade Practices Act enhances the need for a "culture of compliance" to be introduced and enhanced by all Australian companies. Whilst the details of the proposed regime are not yet clear the extraordinary penalties that may be available to the ACCC in the future in dealing with cartel behaviour emphases the need for companies to engage in strategic planning immediately in relation to compliance. Four matters make this investment initiative vital:

  • Companies that have a very good compliance record and are shown to be compliant corporate citizens will not only avoid potentially very costly mistakes, but will also be recognised as market leaders in their industry. These companies will feel less pressured in the context of the operation of corporate regulation or investigations that may occur – either on the part of the ACCC, the Australian Stock Exchange or otherwise.
  • Regulators such as the ACCC are increasingly seeking to ensure that, not only corporate entities, but responsible individuals are prosecuted when the law is contravened. The prospect of criminal convictions and custodial sentences for certain breaches of Trade Practices law brings into sharp focus the personal responsibilities being placed upon executives and directors.
  • Equally important is the increased focus upon directors and other controllers of companies who fail to introduce and maintain effective compliance programs. Recent cases have shown that, where companies have failed, or there has been evidence that the companies have engaged in practices that may not be regarded as within the of the law, the spotlight may turn to the directors and officers responsible to ensure legal compliance. In the extreme case, shareholders could seek to recover damages from relevant directors alleging it was their failure to act with proper care that lead to the company committing the offence.
  • The dishonesty element in the offence will undoubtedly be the subject of much debate. However, it does make it all the more important to have compliance programs rigorously applied, in order to pre-emptively deal with the evidentiary issue of honesty. An important part of a "no dishonesty" defence for directors and officers may be that they had taken all reasonable steps to stamp out the conduct in question by implementing effective compliance policies. The currency and status of the program could be a two-edged sword in this regard. A compliance program that falls into disuse could provide evidence of culpability.

Professor Baxt indicated that one of the key challenges for law firms going forward in 2005 and beyond was to ensure that this message is delivered to their clients in an effective manner to assist them to plan their strategies accordingly.

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