Introductory Info
Date introduced: 24 October 2018
House: House of Representatives
Portfolio: Treasury
Commencement: Schedules 1 to 4 commence the day after the Act receives Royal Assent.
Purpose of
the Bill
The purpose of the Treasury Laws Amendment (Strengthening
Corporate and Financial Sector Penalties) Bill 2018 (the Bill) is to strengthen
the criminal and civil penalties for financial sector misconduct that apply
under the Corporations
Act 2001, the Australian
Securities and Investments Commission Act 2001 (the ASIC Act),
the National
Consumer Credit Protection Act 2009 (the Credit Act), and the Insurance Contracts
Act 1984. Taken together these Acts are referred to as the ASIC
administered legislation throughout this Bills Digest.
Structure of
the Bill
The Bill as originally introduced consisted of four
schedules:
- Schedule
1 amends the penalty provisions under the Corporations Act
- Schedule
2 amends the penalty provisions under the ASIC Act
- Schedule 3 amends the penalty provisions under the Credit Act (including
the National Credit Code) and
- Schedule
4 amends the penalty provisions under the Insurance Contracts Act.
The Government successfully amended the Bill in the House
of Representatives to add a fifth schedule which would further amend the
penalty provisions of the Corporations Act, the Credit Act and
the Insurance Contracts Act contingent on the passage of a number of
other Bills.[1]
Background
A number of reviews have considered the existing powers
and penalties that the Australian Securities and Investments Commission (ASIC)
has at its disposal to deal with misconduct and crimes in the financial sector.
These reviews, which are discussed below, have consistently supported the need
to enhance the penalty regime for financial market misconduct; however, they
have also noted that increased penalties alone are not sufficient to deter and
prevent the type of financial sector misconduct that has occurred in recent
years. ASIC also needs to utilise its powers, and pursue these penalties more
effectively.
Sufficiency
of ASIC’s existing penalties
The final report of the Financial System Inquiry (FSI)
established by the Government in 2013 noted that the penalties that apply to
financial sector misconduct in Australia are low by international standards and
are unlikely to act as a strong deterrent. It recommended stronger penalties be
examined and disgorgement[2]
penalties be considered:
... the maximum penalties in Australia for contravening laws
governing financial sector conduct are low by international standards. For
example, ASIC cannot seek disgorgement of profits in relation to civil
contraventions. As such, current penalties
are unlikely to act as a credible deterrent against misconduct by large firms. While
the Inquiry recommends substantially higher penalties, it does not believe that
Australia should introduce the extremely high penalties for financial firms
recently seen in some overseas jurisdictions.[3]
The Senate Standing Committee on Economics conducted an inquiry
into the Performance of ASIC in 2014. It similarly considered that there was
merit in reviewing the penalties available to ASIC and having disgorgement as
an option:
ASIC's enforcement role is one of its most important
functions. ASIC needs to be respected and feared. It needs to send a clear and
unmistakeable message, backed-up and continually reinforced by actions, that
ASIC has the necessary enforcement tools and resources and is ready to use them
to uphold accepted standards of conduct and the integrity of the markets. To
assist ASIC with this, the penalties currently available for contraventions of
the legislation ASIC administers should be reviewed to ensure they are set at
appropriate levels. Monetary penalties may also need to become more responsive
to misconduct, with multiple of gain penalties or penalties combined with
disgorgement considered [emphasis added].[4]
ASIC
enforcement review
In response to the recommendation of the FSI, the
Government announced the establishment of the ASIC Enforcement Review Taskforce
on 19 October 2016.[5]
Among its terms of reference was a requirement to examine ‘the adequacy of
civil and criminal penalties for serious contraventions relating to the
financial system (including corporate fraud)’ and ‘the adequacy of existing
penalties for serious contraventions, including disgorgement of profits’.[6]
The Taskforce issued a consultation paper entitled Strengthening
Penalties for Corporate and Financial Sector Misconduct and sought
submissions from interested stakeholders during the period 17 October to
17 November 2017.[7]
The final report of the taskforce (Taskforce Report) was
released in December 2017.[8]
The Taskforce Report supported arguments that the ‘quantum’ of penalties
available for corporate and financial sector misconduct were insufficient and
the ‘pathways’ to apply these penalties were too narrow.[9]
The Taskforce Report made a number of recommendations in
relation to penalties, including:
-
increasing the maximum imprisonment penalties for criminal contraventions
of ASIC administered legislation[10]
- increasing the maximum pecuniary penalties for criminal acts.
These pecuniary penalties should be based on formula calculated with reference
to the maximum available term of imprisonment[11]
-
increasing civil penalty amounts[12]
and expanding the types of misconduct to which civil penalties may be applied[13]
- expanding the set of provisions which are subject to ASIC’s
infringement notice regime[14]
- removing imprisonment as a punishment for strict and absolute
liability offences and introducing a number of ordinary offences to complement
these strict and absolute liability offences[15]
- making disgorgement remedies available in civil penalty
proceedings brought by ASIC[16]
and
- amending the Corporations Act to require courts to give
priority to compensation.[17]
Government response
The Government released its response to the Taskforce Report
on 16 April 2018.[18]
The Government agreed to the recommendations of the taskforce in relation to
penalties and this Bill seeks to implement those recommendations.
ASIC’s
approach to enforcement
The Commissioner, Kenneth Hayne, wrote in the interim
report of the Royal Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry (the Banking Royal Commission) that there is
value in expanding penalties for market misconduct, but also argued that the
benefits will depend on the extent to which ASIC seeks to apply them:
ASIC pointed to gaps in its powers. The ASIC Enforcement
Review Taskforce has recommended that ASIC’s powers be expanded and some
penalties increased. Final adoption of those recommendations has been said to
depend upon the recommendations made by this Commission. At this point, it is
enough to say that there appears to be good reason to make the several changes
recommended but that the effect of making those changes depends entirely upon
the way in which the provisions are implemented. In particular, increased
penalties for misconduct will have only limited deterrent (or punitive) effect
unless there is greater willingness to seek their application [emphasis
added].[19]
In this regard, Commissioner Hayne was highly critical of
ASIC’s past approach to seeking penalties for financial sector misconduct. He
noted that ASIC has rarely sought to have civil penalties applied and ASIC has
not commenced criminal proceedings against any financial institutions, only
individuals:
When deciding what to do in response to misconduct, ASIC’s
starting point appears to have been: How can this be resolved by agreement?
This cannot be the starting point for a conduct regulator.
When contravening conduct comes to its attention, the regulator must always ask
whether it can make a case that there has been a breach and, if it can, then
ask why it would not be in the public interest to bring proceedings to penalise
the breach. Laws are to be obeyed. Penalties are prescribed for failure to
obey the law because society expects and requires obedience to the law [emphasis
added]...[20]
And further:
...When banks have disclosed, or ASIC has otherwise learned of,
misconduct, ASIC has almost always sought to negotiate what will be done in
response. Very often, remediation of customers has taken centre stage.
Sometimes ASIC has used its banning powers to have one or more individual
excluded from further participation in the industry. Rarely has ASIC gone to
court to have the defaulting party penalised. The criminal prosecutions that
have been brought have all been directed at individuals. Civil penalty
proceedings have seldom been brought. Enforceable undertakings have
been negotiated and agreed on terms that the entity admits no more than that
ASIC has reasonably based ‘concerns’ about the entity’s conduct. ASIC has
issued infringement notices. But by paying the infringement notice the entity
makes no admission. It is not taken to have engaged in the relevant
contravention. Yet, ASIC and the Commonwealth are prevented from starting a
civil or criminal proceeding in relation to the contravention that caused ASIC
to issue to the infringement notice.[21]
[emphasis added]
In the final report of the Banking Royal Commission,
Commissioner Hayne made recommendations about ASIC’s approach to enforcement,
particularly in relation to the litigation of criminal and civil contraventions
of the ASIC administered legislation. The Commissioner recognised that ASIC is
in the process of reforming its enforcement function (partly in response to the
findings of the Commissioner’s interim report). However, the Commissioner
recommended that ASIC’s progress in reforming its enforcement function be
closely monitored and, if necessary, further consideration should be given to
developing a specialist agency to undertake ASIC’s litigation function.[22]
The Commissioner also made recommendations in relation to
ASIC’s use of infringement notices which are pertinent to this Bill. While not
commenting specifically on this Bill, the Commissioner recommended that ASIC’s
enforcement policies be redrawn to recognise that ‘infringement notices should
principally be used in respect of administrative failings by entities’ and that
‘the use of infringement notices for provisions that require an evaluative
judgment will rarely, if ever, be appropriate’.[23]
Further, he considered ‘that beyond purely administrative
failings, infringement notices will rarely be the appropriate enforcement tool
where the infringing party is a large corporation’.[24]
This recommendation is notable in relation to this Bill which seeks to broadly
expand ASIC’s infringement notice regime, including to additional matters which
would require the element of evaluative judgment highlighted by the
Commissioner. Further discussion of this issue is included in the ‘Key
provisions and Issues’ heading in this Bills Digest.
Committee
consideration
Senate
Standing Committee for the Selection of Bills
The Senate Standing Committee for the Selection of Bills
decided that the Bill should not be referred to a committee for inquiry.[25]
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
(the Scrutiny Committee) considered the Bill in its Scrutiny Digest of 14 November 2018.[26]
The Scrutiny Committee raised two issues with the Bill, namely:
- a number of the proposed offences in the Corporations Act
involve a reversal of the evidential burden of proof and[27]
- the application of strict and absolute liability offences that
have a financial penalty that is higher than generally considered appropriate.[28]
Reversal of
the evidential burden of proof
The Scrutiny Committee noted that a number of the civil
penalties that the Bill proposes to insert within the Corporations Act
have offence-specific defences which place the evidential burden on the
defendant to prove that the particular defence applies. The Guide to Framing
Commonwealth Offences, Infringement Notices and Enforcement Powers states
that offence-specific defences are generally only appropriate where the details
of the defence are peculiarly within the knowledge of the defendant or it would
be significantly more costly or difficult for the prosecution to disprove than
the defendant to establish the defence.[29]
The Scrutiny Committee sought an explanation from the
Treasurer about why it was considered appropriate for the Bill to apply
offence-specific defences where:
- there is a failure to lodge a notice with ASIC under a
notification provision of the Corporations Act
- a
defective disclosure document or statement is provided or
- certain
recommendations or offers are made in relation to a managed investment scheme.[30]
The Treasurer’s response to the Scrutiny Committee’s
request was that the Bill does not seek to amend the offence-specific defences
for these contraventions but rather modernises the provisions and adds
additional civil penalties for these contraventions.[31]
In its Scrutiny Report of 15 December 2018 the
Scrutiny Committee requested that the Treasurer’s explanation be reflected in
the Explanatory Memorandum.[32]
Beyond this, it had no further comment on the explanatory material provided by
the Treasurer.[33]
Strict and
absolute liability offences
The Scrutiny Committee noted and welcomed that the Bill
seeks to remove imprisonment as a penalty for a number of strict and absolute liability
offences within the Corporations Act, the ASIC Act and the
Credit Act.[34]
However, the Scrutiny Committee also noted that the new
maximum financial penalty amounts applied to replace these imprisonment
penalties are higher than is considered generally appropriate for strict and
absolute liability offences.[35]
The Scrutiny Committee sought to draw its concerns to the attention of the
Senate to determine whether the applied penalties are appropriate.[36]
The Revised Explanatory Memorandum to the Bill provides
justification for the penalty amounts on the basis that the penalties should
act as a significant deterrent for financial and corporate misconduct.[37]
Policy
position of non-government parties/independents
The Australian Labor Party (ALP) generally supports the
intent of the Bill. Shadow Minister for Financial Services, Clare O’Neil indicated
the ALP’s support for higher penalties for corporate and financial sector
misconduct:
All in all, the ASIC review task force produced a set of
recommendations that we are generally supportive of. We're generally supportive
of strengthening penalties in the way that's being done in this Bill...[38]
The ALP moved amendments in the House of Representatives which
would, if adopted, increase some of the penalties proposed by the Bill. The ALP
moved two proposed amendments in both the House of Representatives.
-
the first would remove the proposed 1 million penalty unit cap on
civil penalties for body corporates that are calculated based on ten per cent
of the turnover of the body corporate[39]
- the second would increase the maximum term of imprisonment for
some criminal offences in the Bill from the ten years proposed in the Bill to
15 years.[40]
Speaking in relation to the first of the proposed amendments,
Ms O’Neil argued that the proposed cap would benefit larger financial
institutions:
For reasons that aren't clear to Labor, the government has
decided to effectively undermine the fairness of the cap on civil penalties of
10 per cent of turnover, by effectively reducing the exposure of larger
institutions. I want to be really clear, firstly, that Labor supports the 10
per cent of turnover limit for penalties. We don't support the additional
restriction of one million penalties cap in the Bill.[41]
In relation to the second of these proposed amendments Ms
O’Neil stated that it was appropriate to apply increased penalties following
the findings of the Banking Royal Commission:
There is a very good and very simple reason why it's
appropriate to increase penalties above and beyond what was advised in the ASIC
Enforcement Review. The ASIC Enforcement Review occurred in 2017. It was before
the Banking Royal Commission. I don't think there's a person in this chamber
who has not been disgusted and shocked by the things that have come out of that
Royal Commission. It is abundantly obvious that the way that criminal law is
framed at the moment at the federal level is not preventing people from
engaging in what are breathtaking breaches of the law.[42]
The proposed amendments were negatived in the House of
Representatives.[43]
Identical amendments have been tabled by Senator Deborah O’Neill in the Senate.[44]
The ALP has also questioned whether the proposed removal
of imprisonment penalties for strict and absolute liability offences is
appropriate, in light of ASIC’s concerns about this element of the reforms:
I [Ms Clare O’Neil MP] just want to note that there has been
quite substantial debate about the government's Bill, which would seek to
remove the custodial option from the absolute and strict liability offences.
One of the most concerned parties about this aspect of the Bill is ASIC, who is
meant to be enforcing these remedies. ASIC raised concerns, through the ASIC
Enforcement Review, about what is proposed by the government in this Bill....
I just want it noted for the debate
and discussion that will occur about this Bill that we have here our corporate
regulator actively opposing the solution that the government has put forward. I
think that's going to warrant some further conversation in the Senate.[45]
Senator Whish-Wilson of the Australian Greens has also
tabled a proposed amendment (in similar terms to that of the ALP) to remove the
proposed penalty unit cap.[46]
Position of major
interest groups
There has been a considerable amount of consultation on
the different aspects of this Bill, including consultation undertaken as part
of finalising the recommendations of the Taskforce’s review[47]
and Treasury’s consultation on the draft Bill and draft explanatory materials.[48]
To date, the submissions on the draft legislation have not been published by
Treasury. Submissions from the Australian Institute of Company Directors (AICD)
and the Consumer Action Law Centre are available from their websites.[49]
Some of the specific issues raised during these
consultations are discussed in the ‘Key Issues and provisions’ section of this
Bills Digest.
Financial
implications
According to the Revised Explanatory Memorandum to the
Bill the proposed changes are not expected to have any financial impact.[50]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[51]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights considered
the Bill in its Scrutiny Report of 27 November 2018 and stated that
the Bill does not raise human rights concerns either because the Bill does not
engage or promotes human rights, and/or permissibly limits human rights.[52]
Key issues
and provisions
About
penalties and offences
A failure to observe a provision of a Commonwealth statute
is referred to as a contravention. Contraventions may give rise to a criminal
offence or a civil penalty.
Criminal
offences
A criminal offence is the benchmark against which other
sanctions are measured. The key characteristic of a crime, as opposed to other
forms of prohibited behaviour, is the repugnance attached to the act, which
invokes social censure and shame.[53]
The Criminal Code Act
1995 contains the Criminal Code (the Code). Chapter 2 of the
Code entitled ‘General Principles of Criminal Responsibility’ contains a
comprehensive statement of principles that apply not only to all offences
enacted in the Code but to all of the Commonwealth offences committed on and
after 15 December 2001—unless the relevant legislation specifies that
other provisions apply.[54]
The principles in Chapter 2 of the Code cover matters such as:
- elements
of an offence
- circumstances
in which there is no criminal responsibility
- extensions
of criminal responsibility
- corporate
criminal responsibility and
- proof
of criminal responsibility.
The standard of proof for a criminal offence is ‘beyond
reasonable doubt’. The penalties for a criminal offence may be a fine or a term
of imprisonment, or both. The Crimes Act 1914
is also relevant in that it deals with the amounts of penalties, including the
method of calculating the penalty for a person or body corporate.[55]
Civil
penalties
In addition to criminal offences, Commonwealth statutes
may contain civil penalties. Currently, a civil penalty is generally assessed
by reference to the seriousness of the contravention rather than by reference
to the quantum of loss or profits flowing from the contravention.[56]
In civil penalty proceedings under the Corporations Act, the court may
relieve a person either wholly, or partly, from liability if the person has
acted honestly and having regard to all the circumstances of the case the
person ought fairly to be excused for the contravention.[57]
A civil penalty is an amount owing to the Commonwealth and
payable—in the case of the ASIC administered legislation which is the
subject of this Bills Digest—to ASIC on the Commonwealth’s behalf. It is
treated as a civil judgment debt.[58]
The standard of proof for a civil penalty is ‘on the
balance of probabilities’. Civil penalties provide an additional or alternative
enforcement option, especially where there may be difficulty in proving the
necessary fault element to establish a criminal offence.
What the Bill
does
The Bill seeks to make a number of proposed amendments to
penalty provisions within the ASIC administered legislation which are
largely consistent with the recommendations of the Taskforce. The Bill proposes
to amend the ASIC administered legislation to:
-
introduce increased penalties for criminal offences,
including increased maximum imprisonment and financial penalties
- the
Bill introduces a proposed formula for calculating the maximum financial
penalties for criminal offences that explicitly links it to the potential
imprisonment term or to the turnover of the body corporate
- the
Bill also removes imprisonment as a possible penalty for strict and absolute
liability offences
-
increase the maximum financial penalties that apply to civil
offences and expands the range of offences subject to civil penalties
-
expand the infringement notice regime across the ASIC
administered legislation
-
introduce disgorgement (called relinquishment in the Bill)
as a potential civil penalty
- clarify that courts are to prioritise the compensation of
victims over the application of financial penalties.[59]
Criminal offences
The Bill seeks to increase a number of potential imprisonment
and financial penalties for criminal offences under the ASIC administered
legislation.
The majority of penalties for criminal offences under the Corporations
Act are listed in the table in Schedule 3 of the Act—although some are
referenced in the relevant offence provision. The penalties for offences under
the ASIC Act, the Credit Act and the Insurance Contracts Act
are set out in the offence provisions.
Increased imprisonment penalties for criminal offences
The Bill proposes higher imprisonment and financial penalties
for offences across the ASIC administered legislation. The Bill proposes to
increase the criminal penalties under the Corporations Act primarily by
repealing the table in Schedule 3 of the Corporations Act and replacing
it with a new table of penalty provisions. Where penalties are amended in the ASIC
Act and the Credit Act the Bill seeks to amend the specific penalty
provision.
The Explanatory Memorandum includes Table 1.1 and Table
1.2, which list the proposed maximum imprisonment term for a number of offences
across the ASIC administered legislation (with the exception of the Insurance
Contracts Act). Due to the large number of penalties listed, this
information is not duplicated here.
Table 1.1 lists offences for which increased imprisonment
terms of up to five years are proposed to apply.[60]
Table 1.2 lists thirteen offences under the Corporations
Act for which the maximum imprisonment term will increase to ten years,
aligning these penalties with the maximum penalties for the most serious
misconduct under the Corporations Act.[61]
Offences which currently carry a maximum imprisonment penalty of ten years in
the Corporations Act include entering into agreements or transactions to
avoid the payment of employee entitlements (section 596AB of the Corporations
Act), market manipulation (section 1041A of the Corporations Act)
and insider trading offences (section 1043A of the Corporations Act).
Additionally, a number of offences for which there were no
existing imprisonment penalties would have maximum penalties of imprisonment
applied. For example, there is a significant increase in the penalties for
making false and misleading statements in a license application (subsection
1308(8) of the Corporations Act) where the maximum penalty would
increase from five penalty units (currently $1,050[62])
to five years imprisonment.[63]
Formula for applying pecuniary penalties for criminal
offences
The Bill also proposes to introduce a formula into the Corporations
Act, the ASIC Act and the Credit Act to calculate possible
additional fines for criminal offences where imprisonment is the only penalty
specified. These financial penalties can be applied instead of imprisonment or
in addition to imprisonment.[64]
These formulas link financial penalties to the maximum
term of imprisonment applicable to the offence. Higher pecuniary penalties
apply for more serious criminal conduct (with terms of imprisonment of ten years
or more).
The maximum pecuniary penalty amounts for criminal
offences proposed under each Act are as follows:
For
individuals
If the maximum term of imprisonment is less than ten years,
then the maximum financial penalty that can be applied to an individual is the
number of penalty units equal to the term of imprisonment in months multiplied
by ten.[65]
If the maximum term of imprisonment is ten years or more,
then the maximum pecuniary penalty that can be applied is the greater of:
- 4,500
penalty units ($945,000) or
- if the court can assess the benefit derived and detriment avoided
as a result of the criminal offence, three times that amount. [66]
Example – potential pecuniary penalties for criminal
offences committed by an individual
Under subsection 206A of the Corporations Act, a
person commits an offence if they are disqualified from managing corporations
but continue to make decisions or seek to influence or guide decisions within
a corporation. Currently the maximum penalty applied to this conduct is 50
penalty units or imprisonment for one year, or both.[67]
The Bill proposes to increase the penalty to a maximum
term of imprisonment of five years.[68]
However, the amendment in item 110 of the Bill operates so that where
the penalty for an offence is a term of imprisonment only, a fine may be
applied in addition to, or instead of, a term of imprisonment. The maximum
fine will be determined in accordance with the individual fine formula
set out in proposed subsection 1311B(3) of the Corporations Act.
As the proposed imprisonment term is less than ten years,
the penalty applicable to an individual who commits this
offence would be a term of imprisonment of five years and/or 600 penalty
units (currently $126,000). This is calculated as 60 months (five years
expressed in months) times ten.
|
For body corporates
If the maximum term of imprisonment is less than ten years
for the offence then the maximum financial penalty that can be applied to a
body corporate is the maximum penalty that applies to individuals multiplied by
ten.[69]
If the maximum term of imprisonment is ten years or more,
then the maximum financial penalty is the greatest of:
- 45,000
penalty units
- if the court can assess the benefit derived and detriment avoided
as a result of the criminal offence, three times that amount and
-
ten per cent of the annual turnover of the body corporate for the
12 month period ending in the month that the body corporate committed, or began
committing the criminal offence.[70]
Penalties for
absolute and strict liability offences
The Bill proposes to remove imprisonment as a potential
penalty for strict and absolute liability offences across the ASIC administered
legislation.[71]
This is achieved by amending Schedule 3 of the Corporations Act, and amending
the individual provisions in the ASIC Act and the Credit Act.
Although the Insurance Contracts Act contains some strict liability
offences, none of those offences carries a penalty of imprisonment. That being
the case, there are no equivalent amendments to that Act made in the Bill.
In lieu of these penalties of imprisonment, the Bill
proposes to increase the available pecuniary penalties for such offences. The
Explanatory Memorandum to the Bill argues that the increases are consistent
with the other pecuniary penalty increases in the Bill and, in the absence of
potential imprisonment terms, necessary to ensure that the penalties continue
to act as a strong deterrent.[72]
The Bill proposes amending the penalties for strict and
absolute liability offences committed by individuals in the following manner:
- Offences that currently have no imprisonment term, and pecuniary
penalties of less than 20 penalty units ($4,200) would have the associated
pecuniary penalty increased to 20 penalty units for individuals and 200 ($42,000)
penalty units for body corporates.[73]
-
Offences that currently have no imprisonment term but have
pecuniary penalties of greater than 20 penalty units will stay the same for
individuals, but the new body corporate fine formula applies, so that the fine
for body corporates will be ten times the associated pecuniary penalty for
individuals.[74]
- Offences which currently have an associated imprisonment term
will have that imprisonment term removed but would be subject to increased
pecuniary penalties of up to 180 penalty units ($37,800) for individuals and ten
times that amount for body corporates.[75]
The specific penalty amounts for strict liability offences
which have pecuniary penalties of more than 60 penalty units applied for
individuals and 300 penalty units for body corporates are listed at Table 1.5
of the Explanatory Memorandum.[76]
The Bill also introduces a number of new ordinary criminal
offences (fault-based offences) to complement some of the strict and absolute
liability offences within the Corporations Act. Currently, the strict
and absolute liability offences within the Corporations Act depend
entirely on the physical elements of the offence (that is, whether the person
did something, or did not do something). There is no differentiation in the
penalty if the prosecution can establish that the person or body corporate
knowingly, or recklessly committed the offence.
The Bill sets out new ordinary offences (fault-based
offences) with penalties including from two to five years imprisonment and/or
additional pecuniary penalties where the prosecution can prove that the offence
was committed intentionally or recklessly. These new offences are summarised in
table 1.7 of the Revised Explanatory Memorandum to the Bill.[77]
Stakeholder
views
Increased
criminal penalties
Stakeholders who made submissions to the Treasury
consultation on the Bill (and earlier consultations) generally supported the
intent of increasing criminal penalties for market and financial sector
misconduct.
In its submission to the Taskforce, ASIC indicated that it
supports the increases to maximum imprisonment penalties, and in particular the
elevation of the maximum term of imprisonment for serious offences to ten years.[78]
However, ASIC indicated that it does not think that the increased maximum criminal
penalty fines go far enough. ASIC submitted that the proposed formula for
pecuniary penalties should be based on 15 times the imprisonment term in months
for individuals and be multiplied by a further 15 for body corporates.[79]
Commenting on the draft legislation, the Australian
Institute of Company Directors (AICD) stated that it supports increases in
maximum imprisonment terms for offences which involve an element of dishonesty
or deliberate misconduct but believes that current imprisonment terms for
conduct which does not involve dishonesty are sufficient and should not be
increased:
The AICD supports increases to the maximum imprisonment terms
and financial penalties for offences involving dishonesty or deliberate
misconduct, noting the court oversight involved.
However, in respect of offences that do not involve any
element of dishonesty, there should be no increase to these imprisonment terms
as proposed, as the existing maximum terms adequately reflect the gravity of
the conduct involved.[80]
In contrast, the Consumer Action Law Centre (CALC)
supports the increases in the maximum criminal penalties for offences under the
ASIC administered legislation but remains concerned that courts may not seek to
apply these maximum penalties:
...we note that Australian courts have adopted techniques and
principles from criminal law in the setting of penalties, and that this can
lead to the setting of lower penalties. For example, courts commonly adopt
“instinctive synthesis” of various factors in the setting of penalties. Such an approach appears to eschew rational
thought for mystery, relying on judicial knowledge and expertise in reaching
the appropriate penalty rather than reflecting community standards and
expectations or the seriousness of the conduct. A particular concern with this
approach is that it is rarely considered appropriate for a court to commence
with the maximum penalty and proceed by making a proportional deduction from
that maximum. This may limit the
effectiveness of law reform that increases maximum penalties alone.[81]
CALC argues that the legislation should be amended to
require a court to consider both the deterrence effects of any applied
penalties and whether or not they meet community expectations.[82]
Penalties for
absolute and strict liability offences
ASIC has stated that it does not support the
removal of imprisonment as a potential penalty for strict and absolute
liability offences:
We consider that to remove imprisonment as a possible
sanction from strict liability provisions would undermine the important work
that we do in prosecuting these offences. A key consideration for ASIC in our
activities is deterrence and the removal of these sanctions would undermine
that objective.[83]
In contrast, the AICD strongly supports the removal of
imprisonment for strict and absolute liability offences and supports the
introduction of new ordinary offences that allow for imprisonment penalties to
be imposed by a court for more serious and intentional breaches of these
offences.[84]
Civil
Penalties
The Bill also increases a number of civil penalties across
the ASIC administered legislation and adds a number of new
contraventions that may be subject to civil penalties.
Currently section 1317E of the Corporations Act
provides that if a court is satisfied that a person has contravened a civil
penalty provision, it must make a declaration of the contravention. The
provisions that are civil penalty provisions are listed in table form in that
section.
The Bill repeals and replaces section 1317E. Proposed
section 1317E of the Corporations Act (at item 114 of Schedule
1 to the Bill) specifies a larger number of civil penalty provisions for
which ASIC may apply to the court for a declaration of contravention. The civil
penalties for contraventions of the ASIC Act, the Credit Act (including
the National Credit Code) and the Insurance Contracts Act are
listed under the specific provisions of the relevant Act. Where an
additional civil penalty is proposed these changes would be made through
changes to the specific provision.
Table 1.8 of the Explanatory Memorandum to the Bill
outlines the new civil penalty provisions that would be introduced by the Bill
across the ASIC administered legislation.[85]
Maximum
pecuniary penalty amounts for civil contraventions
The maximum pecuniary penalty amount that may be applied
by a court (called a pecuniary penalty order) for a contravention of a civil
penalty provision within the ASIC administered legislation is specified in each
of the Acts, as follows:
For
individuals
Under the Corporations Act the proposed maximum
pecuniary penalty that can be applied to an individual for a contravention of a
civil penalty provision is the greatest of:
- 5,000
penalty units ($1.05 million) or
-
if the court can assess the benefit derived and detriment avoided
as a result of the contravention, three times that amount.[86]
Under the ASIC Act, the Credit Act and the Insurance
Contracts Act the maximum pecuniary penalty that can be applied for a
contravention of a civil penalty provision is the greater of:
- the
penalty specified for that civil penalty provision or
-
if the court can assess the benefit derived and detriment avoided
as a result of the contravention, three times that amount. [87]
For body
corporates
Under the Corporations Act, the ASIC Act,
the Credit Act and the Insurance Contracts Act the maximum
proposed pecuniary penalty for a contravention of a civil penalty provision by
a body corporate is the greatest of:
-
ten times the penalty applicable to an individual, which in the
case of the Corporations Act is 50,000 penalty units ($10.5
million) or
-
if the court can assess the benefit derived and detriment avoided
as a result of the contravention, three times that amount or
- ten per cent of the annual turnover of the of the body corporate
for the 12 month period ending in the month that the body corporate committed,
or commenced the civil contravention
- this
penalty based on turnover is capped at a maximum amount of one million penalty
units ($210 million).[88]
Stakeholder
views
The AICD supports the expansion of the civil penalties
regime, however, it argues that the court should only be able to calculate a
penalty with respect to a company’s turnover if the amount of benefit derived and
detriment avoided as a result of the contravention cannot be easily determined.[89]
The CALC supports the increase in civil penalties but is
not convinced that the one million penalty unit cap is justified, arguing that
a larger penalty may be appropriate for larger corporation:
...we are not convinced there is a strong policy justification
for introducing a maximum limit on civil penalties of 1 million penalty units
(currently $210 million). Setting a maximum does not recognise that there are
very large differences in sizes of banks, insurers and superannuation funds,
and that a penalty in excess of this amount may be appropriate in the context
of very large corporations.[90]
As discussed above, the ALP and the Greens have moved amendments
to the Bill that propose to remove the one million penalty unit cap that
applies to civil penalties for body corporates based on their annual turnover.
The one million penalty unit cap was recommended by the
Taskforce.[91]
The Taskforce argued that the cap is consistent with the maximum applicable
penalty under the Bank Executive Accountability Regime.[92]
Infringement
notice regime
The ASIC Act, the Credit Act and the Corporations
Act contain additional enforcement tools—being the right to issue infringement
notices or penalty notices.[93]
The Bill proposes to repeal section 1313 of the Corporations Act
which contains the penalty notice regime.[94]
To replace this penalty notice regime item 113 of Schedule 1 to the Bill
inserts proposed Part 9.4AB—Infringement notices for other alleged
contraventions into the Corporations Act so that the enforcement
powers under that Act are consistent with those in the ASIC Act and the Credit
Act.
ASIC may issue an infringement notice whenever ASIC has
reasonable grounds to believe that a person has contravened an ‘infringement
notice provision’.[95]A
penalty under an infringement notice is payable to ASIC on behalf of the
Commonwealth. ASIC can utilise infringement notices as an alternative to
initiating legal proceedings for a contravention of the aforementioned
provisions. However, ASIC is under no obligation to issue a notice in lieu of
proceedings. If a penalty under an infringement notice regime is paid, then no
further civil or criminal action can be taken and the payment is not considered
an admission of guilt.[96]
The penalties that ASIC can seek by issuing an
infringement notice under the ASIC Act are outlined in the table in proposed
subsection 12GXB(2) (inserted by item 17 In Schedule 2 to the Bill)
and range from six to 12 penalty units for an individual ($1,260 to $2,520) and
30 to 60 penalty units for a body corporate ($6,300 to $12,600).
The maximum infringement notice penalty that ASIC can
currently apply for a contravention of a civil penalty provision of the Credit
Act is one fortieth of the maximum civil penalty for that contravention.[97]
The maximum infringement notice that can currently be applied for an offence
under a criminal provision of the Credit Act is one fifth of the maximum
penalty for the offence.[98]
Proposed
changes to the Infringement notice regime
The Bill seeks to harmonise the existing infringement
notice powers across the ASIC Act, the Credit Act and extend it
provisions of the Corporations Act which are currently subject to a
penalty notice regime.[99]
The offences and provisions of the Corporations Act that would be
subject to the new infringement notice provisions are all strict and absolute
liability offences, and certain prescribed offences and civil penalty
provisions.[100]
The additional offences and civil penalty provisions will be prescribed in
regulations under section 1364 of the Corporations Act. The maximum penalty that may be applied
under an infringement notice under the Corporations Act would be:
- for a single contravention of an offence provision—half
the maximum penalty that a court could impose on the person for that
contravention[101]
- for multiple contraventions of an offence provision—the
amount applicable to a single contravention multiplied by the number of
contraventions[102]
- for a single contravention of a civil penalty provision—12
penalty units for an individual and 60 penalty units for a body corporate[103]
and
-
for multiple contraventions of a civil penalty provision—the
amount applicable to a single contravention multiplied by the number of
contraventions.[104]
The existing infringement notice regimes in the ASIC
Act and the Credit Act would continue to operate with the regime
being expanded to all strict liability offences under the Credit Act and
some minor amendments to ensure harmonisation across the ASIC administered
legislation.[105]
Additionally, section 33C of the Insurance Contracts Act—which relates
to the obligation of insurers to provide Key Fact Sheets to prospective
customers—would become an infringement notice provision.[106]
The contraventions under the Corporations Act, the
Credit Act (including the Credit Code) and the Insurance Contracts Act
for which ASIC would be able to issue infringement notices are summarised at Table
1.9 of the Explanatory Memorandum.[107]
Appropriateness
of penalty amounts
The Attorney-General’s Department’s A Guide to Framing
Commonwealth Offences, Infringement Notices and Enforcement Powers (the
Guide) provides guidance for the drafting of enforcement provisions, including suggesting
appropriate maximum amounts payable under infringement notices. The Guide
states that generally the amount payable under a notice should be one-fifth of
the maximum penalty for both natural persons and body corporates, and that this
amount should generally not exceed 12 penalty units for a natural person and 60
penalty units for a body corporate.[108]
However, the Bill proposes that the amount payable under infringement notices
issued in relation to offences under the Corporations Act and the Insurance
Contracts Act be 50 per cent of the maximum penalty amount.[109]
The revised maximum penalties proposed exceed the limits suggested in the
Guide. For example, a body corporate that failed to lodge an annual report to
ASIC under subsection 319(1) of the Corporations Act could be subject to
an infringement notice of 600 penalty units, ten times greater than the amount
recommended by the Guide.
Further the proposed penalties that can be applied under
the infringement notice regime of the Credit Act are 50 penalty units
for individuals and 250 penalty units for body corporates.[110]
These penalties also exceed the amounts recommended by the Guide.
The Senate Committee for the Scrutiny of Bills drew the
Senate’s attention to this inconsistency with the Guide.[111]
In line with the justification provided for the high
maximum penalties for strict and absolute offences, the Explanatory Memorandum
to the Bill indicates that the high amounts payable under infringement notices
acts to serve as a deterrent and to prevent infringement notices becoming a ‘cost
of doing business’.[112]
Stakeholder
views
ASIC has indicated that it supports the expansion and
harmonisation of the infringement notice regime.[113]
The AICD raised concerns about the expansion of the
infringement notice regime, arguing that these powers should not be applied to
the more serious offences within the ASIC administered legislation:
The AICD considers all the provisions proposed to be subject
to the infringement notice regime to be subject to the infringement notice
regime as relatively serious offences...
A breach of these more serious offences is not a minor
matter, and should be prosecuted in a court...[114]
Although not specifically considering the content of this
Bill, the Banking Royal Commission raised the issue of ASIC’s current use of
the infringement notice regime, arguing that ASIC often uses its infringement
notice powers instead of initiating civil penalty proceedings and does not
require the companies issued with these notices to make an admission of guilt.
It further notes that by issuing an infringement notice, ASIC and the Commonwealth
are precluded from pursuing further civil or criminal actions:
ASIC has issued infringement notices. But by paying the
infringement notice the entity makes no admission. It is not taken to have
engaged in the relevant contravention. Yet, ASIC and the Commonwealth are
prevented from starting a civil or criminal proceeding in relation to the
contravention that caused ASIC to issue to the infringement notice.[115]
The expansion of the infringement notice regime and the
increase in infringement notice penalties, without a change in ASIC’s approach
to enforcement, could undermine the intent of the increased civil and criminal
penalties proposed by this Bill.
Further, as previously discussed, the Banking Royal
Commission argued that it would be rarely appropriate to apply infringement
notice penalties to contraventions that involve an element of evaluative
judgment. Several of the provisions to which the Bill seeks to extend the
infringement notice regime would likely require some level of evaluative
judgment.
Disgorgement
penalties
What is
disgorgement?
The Bill proposes amendments that would allow courts to
apply a ‘relinquishment order’ to address a contravention of the various civil
penalty provisions of the Corporations Act, the ASIC Act and the Credit
Act.
Disgorgement, or ‘relinquishment’ in the language of the
Bill, can be defined as:
... the removal of financial benefit (such as profits illegally
obtained or losses avoided) that arises from wrongdoing, or the act of paying
these monies, on demand or by legal compulsion. For example, any profit made by
wrongdoing is 'disgorged' from those involved in the wrongdoing in addition any
penalties that are imposed.
Disgorgement is a vehicle for preventing unjust enrichment.
This means that disgorgement orders can offer significant deterrent value by
reducing the likelihood that wrongdoers can consider penalties to be merely a
business cost. [116]
Disgorgement provisions currently exist in the Proceeds of Crimes
Act 2002, where the Commonwealth can seek forfeiture of
property, financial benefits or profits obtained as a result of alleged
criminal offences.[117]
However, ASIC does not currently have the ability to seek
a disgorgement penalty in civil penalty proceedings.[118]
The Taskforce recommended that a general disgorgement remedy should be made
available in civil penalty proceedings bought by ASIC under the Corporations
Act, the Credit Act and the ASIC Act.[119]
The amendments to the Bill provide for a court to issue a
relinquishment order to pay ASIC (on behalf of the Commonwealth) an amount
‘equal to the benefit derived and detriment avoided because of a contravention
of a civil penalty provision’.[120]
A court may make a relinquishment order:
- on its own initiative, during proceedings before the court or
- following an application from ASIC, so long as it is not more
than six years after the alleged contravention.[121]
A relinquishment penalty may apply in addition to any
civil penalty imposed by the court.[122]
A court cannot impose a relinquishment order against a person who has been
convicted of a criminal offence, and any relinquishment order is stayed if
criminal proceedings are commenced.[123]
However, criminal proceedings may be commenced regardless of whether a relinquishment
order has been made against a person.[124]
Stakeholder views
The Consumer Action Law Centre supports the availability
of relinquishment orders within the Bill. However, it argued that the amounts
relinquished should be paid to consumers as compensation for misconduct, rather
than as a penalty paid to the Commonwealth:
Consumer Action strongly supports the Bill's amendments to
enable courts to make a relinquishment order if there has been a contravention
of a civil penalty provision. A relinquishment order would enable
‘disgorgement’ of financial benefits that arise from misconduct and is a
vehicle for preventing unjust enrichment. We consider that such orders can
offer significant deterrence by reducing the likelihood that wrongdoers can
consider penalties to be merely a business cost...
Consumer Action suggests, however, that the court be given
the power to award these amounts directly to consumers in appropriate
circumstances, not just to the Commonwealth.
[125]
The Australian Finance Industry Association also argued
that disgorgement remedies could be used to compensate consumers raising
concerns that actions for compensation may be pursued notwithstanding the
application of a disgorgement penalty:
We envisage where a disgorgement remedy is being sort that it
is likely that there will be parallel proceedings for compensation. Any amount
received under a disgorgement remedy should be made available to satisfy
compensation orders. Otherwise a defendant could be penalised more than once
for the same offence and this may result in amounts being ordered against that entity
not aligning with the nature of the wrong doing.[126]
Priority to
compensation
The Bill also makes amendments which require a court to
give preference to compensating victims for losses suffered as a result of a
contravention of the Corporations Act over applying civil penalties.[127]
This preference already exists in the ASIC Act and the Credit Act.[128]
The Bill would require that the relevant court consider
the impact that making a pecuniary penalty or relinquishment order would have
on the amount of compensation that may be available and give preference to
compensation and refunds.[129]
The Bill also amends the existing arrangements in the ASIC Act[130]
and the Credit Act to ensure they are consistent across the three Acts.[131]
Application
provisions
The new penalties for criminal offences and civil penalty
provisions re applicable to alleged contraventions that occur wholly on or
after the commencement of the Bill.[132]
The amendments made in relation to infringement notices
apply to infringement notices issued on or after the commencement of the Bill.
However, these infringement notices may be issued for an alleged contravention
that occurred prior to commencement.[133]
Schedule 5 –
contingent amendments
Proposed Schedule 5, which was added to the Bill
through Government amendments in the House of Representatives, adds a number of
other criminal and civil penalty amounts that are contingent on the
commencement of legislation that is currently before Parliament or which has been
recently passed by Parliament.[134]