Previously, we discussed some core areas where financial professionals need to think about their own compliance, including compliance with the law and professional obligations. What exactly will happen though, to people and organisations that are in serious breach of their obligations?
Recent cases suggest that regulatory agencies and the courts will deal severely with serious non-compliance. For example, in March the Federal Court agreed that Tabcorp would be required to pay a $45 million civil penalty for breaches of anti-money laundering and counter-terrorism financing laws. Referring to this case, the CEO of the Australian Transaction Reports and Analysis Centre (AUSTRAC), Paul Jevtovic commented:
“There was a serious failure in the corporate governance and the size of the penalty reflects a significant and extensive non-compliance”.
A take-home message, perhaps, is that Government regulators and the courts will crack down on not just explicitly ‘criminal’ conduct, but also less-reprehensible conduct such as not having proper systems in place. Rather than pursuing criminal proceedings in these cases it is common for the regulator to pursue a ‘civil penalty’ where an organisation or individual can be liable for wrongdoing even if their behaviour has not reached a ‘criminal’ level.
This toughened approach has been backed by a recent Senate Economic References Committee report (also released in March) concerning ‘penalties for white-collar crime and corporate and financial misconduct in Australia’. Below we set out three changes to the civil penalty regime that have been recommended by the Senate Committee. It remains to be seen if these will be adopted by the Government.
1) The Australian Securities & Investments Commission (ASIC) may be able to issue more infringement notices
If an organisation breaches market integrity rules or continuous disclosure obligations, they can be issued an infringement notice. This is a kind of ‘speeding ticket’ for low to-medium level non-compliance that requires the payment of a fine. If not complied with ASIC can then begin court proceedings. Infringement Notices are not currently an option for dealing with breaches of the financial services and managed investments provisions of the Corporations Act 2001. The Committee recommended that the Government extend the applicability of infringement notices into these areas.
2) The size of civil penalties may increase
The Tabcorp case demonstrates in some cases (such as breaching anti-money laundering laws), civil penalties can be sizable and therefore act as an effective deterrent. However, the maximum civil penalty for breaches of the Corporations Act 2001, which provides the general regulatory environment for corporations, is only $1 million. The Senate committee has recommended increasing this (though not by any specific amount) in order to deter those who might be willing to ‘wear the cost’ of such a penalty.
3) ASIC may be given ‘disgorgement’ powers in relation to non-criminal proceedings
Under current law, if an individual or organisation financially benefits from a crime, and is convicted of that crime, that benefit can be taken off them via a process under the Proceeds of Crime Act 2002. But there is no equivalent power for an individual or organisation that has profited from wrongdoing, but been subject to a civil penalty. The Committee recommended that the Government introduce ‘disgorgement’ powers for ASIC, allowing them to recover ill-gotten gains in such cases.