Last month, in the midst of hearings for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission), the Commonwealth Government (the Government) announced increased penalties for corporate and financial misconduct. These were not a direct response to the Royal Commission, but rather a response to the Australian Securities & Investments Commission (ASIC) Enforcement Review Taskforce (the taskforce). Then on May 4, the Government announced a range of changes as part of its response to the Senate Economics References Committee (the Committee) inquiry into white-collar crime. We take a look at the increased penalties for white-collar crime.
Following on from our recent discussion of compliance in the corporate and financial services area (in particular see https://www.compliancequarter.com.au/six-questions-every-director-should-be-asking-about-compliance/ and https://www.compliancequarter.com.au/the-importance-of-culture-not-spend-in-compliance/), it is essential that all corporations and operators in the financial services sector are aware of upcoming changes proposed by the Government.
When we last discussed the Taskforce in November 2017 (see https://www.compliancequarter.com.au/asic-enforcement-review/, a range of positions were being consulted on, many of which have now found their way into Government policy. The Government has agreed to the following:
- An increase in penalties for the most serious criminal offences under the Corporations Act for both individuals and corporations, including:
- A maximum penalty increase to 10 years’ imprisonment for individuals;
- An increase in maximum financial penalties for corporations to the larger of $9.45 million or three times benefits, or 10% of annual turnover.
- An expansion in the range of breaches subject to civil penalties as well as maximum civil penalty increase to the amount of the greater of $1.05 million (for individuals, from $200,000) and $10.5 million (for corporations, from $1 million), or three times the benefit gained or loss avoided, or 10% of the annual turnover (for corporations).
ASIC will also have a new remedy available to apply the court to strip wrongdoers of profits illegally obtained, or losses avoided from breaches resulting in civil penalty proceedings.
There will also be an expansion of ASIC’s powers, including:
- An expanded ability to ban individuals from performing any role in a financial services company where they are found unfit, improper, or incompetent;
- A strengthened power to refuse, revoke or cancel financial services and credit licences where the licensee is not fit or proper; and,
- Harmonisation of search warrant powers providing greater flexibility to use seized materials, and giving ASIC access to telecommunications intercept material.
The Committee Report
There were a number of recommendations in the Committee report that were similar to recommendations in the taskforce report that the Government agreed to implement, including:
- making infringement notices available for penalising poor conduct in a wider variety of cases;
- amending the Corporations Act 2001 to increase the current level of civil penalties, both for individuals and bodies corporate having regard to penalty settings for similar offences in other jurisdictions;
- providing for civil penalties in respect of white-collar offences to be set as a multiple of the benefit gained or loss avoided;
- introducing disgorgement powers for the Australian Securities and Investments Commission with respect to non-criminal matters.
There were a couple of areas where the Government did not agree with the Committee’s recommendations, including:
- Evidentiary standards in civil proceedings. The Government did not agree that the evidentiary standard (balance of probabilities) and rules of procedure for white-collar offences should be altered to increase the prospect of successful proceedings. The Government noted that, if there were to be a change, as part of uniform evidence legislation, NSW, Victoria, ACT, Tasmania, Northern Territory Governments would have to agree to the change;
- Banning and Disqualification. The Government did not agree the accessibility and usability of the banned and disqualified register needs to be enhanced (e.g. enhancing the search function beyond queries on individuals. The Government did note, however, that it is currently considering the modernisation of Business Registers, including ASIC registries. This may lead to improvements in the accessibility of the registers.
We will update you on these proposals when the legislation has been drafted. It is likely that there will be consultation on an exposure draft incorporating these changes. It is also likely that a range of other amendments to the ASIC and Corporations Acts will be proposed in the wake of the Royal Commission. As ever, please contact the team here if you would like to know more or discuss this article.
Enforcement Review: all of the Strengthening Penalties for Corporate and Financial Sector Misconduct.
 For coverage of recent matters before the Royal Commission see https://www.compliancequarter.com.au/three-financial-services-compliance-lessons-from-the-royal-commission/.