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Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012

Introduced into the House of Representatives on 29 November 2012
Portfolio: Treasury

Committee view

1.1        The committee seeks clarification from the Minister as to the applicability of article 14 of the International Covenant on Civil and Political Rights (ICCPR) to the proposed civil penalty provision before forming a view on the compatibility of the bill with human rights.

Overview

1.2        This bill is introduced with the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012.[1] It amends four Acts to:[2]

• provide for civil and criminal penalties for persons who promote a scheme that has resulted, or is likely to result, in the illegal early release of superannuation benefits;
• require that superannuation benefits that are rolled over into self-managed superannuation funds (SMSFs) are captured as a designated service; and
• provide for administrative directions and penalties for contraventions relating to SMSFs.

Compatibility with human rights

1.3        This bill is one of a number of bills which gives effect to the Government’s Stronger Super package. An explanatory memorandum dealing both with this bill and the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012[3] was presented to the Parliament. The explanatory memorandum included separate statements of compatibility relating to the two bills.

1.4        A separate statement of compatibility for each of the schedules to the bill is provided within the body of the explanatory memorandum. By seeking to protect the superannuation savings of individuals, the bill promotes the enjoyment of a number of human rights, including the right to just and favourable conditions of work (article 7 of the International Covenant on Economic, Social and Cultural Rights (ICESCR)), the right to social security (article 9 of the ICESCR),[4] and the right to an adequate standard of living (article 11 of the ICESCR). 

1.5        Human rights concerns arise from the introduction of a new civil penalty provision and a related criminal offence, both of which proscribe the promotion of a scheme that has resulted, or is likely to result, in the illegal early release of benefits.

Inclusion of a new ‘civil penalty’ provision (Schedule 1)

1.6        Schedule 1 proposes the insertion of a new section 68B into the Superannuation Industry (Supervision) Act 1993 that will prohibit a person from promoting a scheme that has resulted, or is likely to result, in the illegal early release of benefits. This is stated to be a civil penalty provision and thus takes effect within the framework of Part 21 of the Superannuation Industry (Supervision) Act 1993. The effect of that Part is that a person who commits such an act may be subject to the civil penalty provisions, or may be subject to criminal prosecution for an offence arising out of the same conduct if the person) has acted ‘dishonestly, and intending to gain, whether directly or indirectly, an advantage for that, or any other person’ or ‘intending to deceive or defraud someone’.

1.7        The statement of compatibility states that the schedule does not engage any of the applicable rights or freedoms,[5] and that it ‘is compatible with human rights as it does not raise any human rights issues.’[6]

1.8        However, Part 21 of the Superannuation Industry (Supervision) Act 1993 gives rise to a number of human rights concerns, applicable in the case of the new section 68B but also in relation to a range of other conduct that is already identified as civil penalty provisions of section 193 of that Act. The fact that the new section 68B will subject a previously unregulated form of conduct to that regime enlivens scrutiny of Part 21.

1.9        In proceedings commenced by the Regulator or a delegate, a court may make a declaration that a person has committed a violation of a civil penalty provision (here the illegal early release of superannuation funds). The court may also, but is not obliged to, impose a pecuniary penalty on the person. However, the court may not impose such a penalty ‘unless it is satisfied that the contravention is a serious one’.[7] In hearing a civil penalty application, the court is to apply the rules of evidence and procedure applied in civil proceedings.[8]

1.10      However, Part 21 of the Act provides not only for civil penalty proceedings, but also for the institution of criminal proceedings against a person who engages in the same conduct ‘dishonestly, and intending to gain, whether directly or indirectly, an advantage for that, or any other person’ or ‘intending to deceive or defraud someone’. Furthermore, it is open to a court hearing criminal proceedings to make a declaration that a person has contravened a civil penalty provision, to make a civil penalty order imposing a financial penalty, and to order compensation to a superannuation entity which has suffered loss, where the court does not proceed to a conviction.[9] Where a court in criminal proceedings convicts a person of an offence, the court may also order the payment of compensation to a superannuation entity which has suffered loss.[10] If a person has been proceeded against for a civil penalty, a criminal prosecution may not be brought subsequently in relation to the same conduct. If a person is prosecuted for an offence, the person may be proceeded against for a civil penalty order, where the person is not convicted in the criminal proceedings.

Civil penalty order as a ‘criminal charge’

1.11      The issue arises whether, notwithstanding its classification as a ‘civil’ penalty, the imposition by the court on the person of a penalty of up to 2,000 penalty units (equivalent to $340,000 as from late 2012[11]) following a finding by a court that the person has engaged in the prohibited conduct, involves the determination of a ‘criminal charge’ within the meaning of article 14 of the International Covenant on Civil and Political Rights (ICCPR). If that were so, then the guarantees that apply in criminal proceedings – including the requirement that the case be proved beyond reasonable doubt – would apply.

1.12      In determining whether the imposition of a penalty for particular conduct involves determination of a ‘criminal charge’, international jurisprudence has identified the following factors to be taken into account: the classification of the act in domestic law, the nature of the offence, the purpose of the penalty, and the nature and the severity of the penalty. Classification as ‘civil’ under Australian law is not determinative. Where a prohibition is general in application, where the penalty is punitive and intended to deter (rather than award compensation for loss), and any financial penalty is significant, it may well be classified as involving a criminal charge and penalty for the purposes of article 14 of the ICCPR.

1.13      Given the significant sum that may be imposed by way of maximum penalty, the fact that it can only be imposed in ‘serious’ cases, the deterrent and punitive effect of such orders (with the possibility of a separate order for compensation), and the entwining of the civil penalty regime with the criminal regime,  there are grounds for classifying the imposition of such penalties as involving the determination of a ‘criminal charge’ to which the rules of evidence and procedure appropriate to a criminal trial should be followed.

1.14      The statement of compatibility notes that the Attorney-General’s Department ‘have been consulted in the use of a civil penalty provision for this measure’,[12] but no further details are given of whether any consideration was given to the possibility that the application of Part 21 to the new section 68B involves the determination of a criminal charge in cases in which a penalty could be imposed.

1.15             The committee intends to write to the Minister to seek clarification as to whether the imposition of a civil penalty for a violation of new section 68B in proceedings under Part 21 of the Superannuation Industry (Supervision) Act 1993 would involve the ‘determination of a criminal charge’ within the meaning of article 14 of the ICCPR and, if so, whether the application of the rules of evidence and of the procedure applicable in civil proceedings is inconsistent with that article.

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