ASIC Enforcement Review: Strengthening Penalties for Corporate and Financial Sector Misconduct

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The Australian Securities & Investments Commission ASIC Enforcement Review Taskforce (the taskforce) recently released a positions paper ‘Strengthening Penalties for Corporate and Financial Sector Misconduct‘ (the positions paper) which it seeks public comment on. Today we summarise that report, setting out the positions that ASIC seeks feedback on.

ASIC Corporate & Financial Misconduct
ASIC Corporate & Financial Misconduct

Background to ASIC Enforcement

Concerns have been raised in a number of quarters that the penalties regime in legislation administered by ASIC is not fit-for-purpose, does not reflect the seriousness of some offending, and is inconsistent with the penalties for offending of similar seriousness in other financial contexts (such as penalties for insider trading). For further elaboration on these concerns see our previous piece Financial crime doesn’t pay – three ways in which wrongdoers may soon be hit in the pocket

In response to such concerns, the task force was established, charged with looking at the adequacy of civil and criminal penalties for serious misconduct and the possibility of alternative enforcement mechanisms.

The positions paper

In the positions paper, the task force has come up with seven positions that it seeks comment on. We consider each in turn.

Position 1:

The maximum term of imprisonment for criminal offences in ASIC-administered legislation should be increased

ASIC lists a whole raft of offences in Annexure B of the report that could have their penalties increased. Many have a suggested increase from five to ten years. Many others have a suggested increased from two years to five (see positions paper, p85).

Position 2:

The maximum fines for all criminal offences (other than the most serious class of offences) in ASIC-administered legislation should be calculated by using the following formula:

Maximum term of imprisonment in months multiplied by 10 = penalty units for individuals, multiplied by a further 10 for corporations (see positions paper, p30)

A penalty unit is used to describe the amount of a fine under Commonwealth laws (see section 4AA of the Crimes Act 1914). Currently, one penalty unit is $210. The amount is reviewed every three years.

Position 3:

The maximum penalty for a breach of section 184 should be increased to reflect the seriousness of the offence

Section 184 of the Corporations Act 2001 sets out offences applicable to the directors and officers of a corporation based on dishonesty, recklessness and/or bad faith in carrying out their duties. For example, section 184(2) sets out the offence of a director or officer using their position dishonestly with the intention of directly or indirectly gaining an advantage for themselves.

Increasing the penalty from a maximum term of imprisonment of five years to ten years or a fine would better reflect the seriousness of the offending and align the penalty with comparable State-based offences (see positions paper, p34)

It would also align the penalty better with the maximum penalties for offences of similar seriousness in the Corporations Act 2001 such as dishonest conduct in the financial services context (s1041G) and “cheating” in a markets context (such as. section 1041A market manipulation and section 1043A insider trading).

Position 4:

The ‘Peters test’ should be used for all dishonesty offences under the Corporations Act (see positions paper, p34)

Currently, there is no consistent definition of dishonesty for offences under commonwealth law. The ‘Peters test’ applies an objective definition of “dishonest according to the standards of ordinary, decent people”.

Position 5:

Remove imprisonment as a penalty for strict and absolute liability offences

Strict and absolute liability offences are offences which can be committed inadvertently (see positions paper, p37). In general, it is considered inappropriate for offences without a fault element to be subject to possible sanctions of imprisonment.

Position 6:

Introduce an ordinary offence to accompany a range of strict and absolute liability offences as outlined in Annexure C of the positions paper

In line with the justification for position 5 above, it is arguable that some existing strict and absolute liability offences should be subject to significant penalties, where the offender is acting deliberately, or otherwise at fault (see positions paper, p38). Suggested ordinary offences subject to significant penalties would include deliberate offending against certain financial reporting and auditing obligations (sections 286, 307A and 989CA).

Position 7:

Maximum fines for strict and absolute liability offences should be a minimum of 20 penalty units for individuals and 200 penalty units for corporations
Currently, some strict and absolute liability offences have fines which are below this threshold. The taskforce considers these penalties too low and that they do not represent an adequate level of deterrence to would-be offenders (see positions paper, p38).

The positions paper is available on the Treasury website. Submissions for the consultation close on 17 November 2017.

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