Monetary penalties and disgorgement
A large number of inquiry participants expressed the view that current
monetary penalties for white-collar crime and misconduct are currently
inadequate, particularly in respect of non-criminal matters. This chapter
considers arguments made in relation to the current settings of monetary
This chapter also considers arguments for multiple of gain
penalties—that is, allowing monetary penalties to be set as a multiple of the
benefit gained or loss avoided from the misconduct in question—and the
possibility of introducing a mechanism for disgorgement alongside other
Adequacy of current maximum monetary penalties
Inquiry participants generally agreed that maximum monetary penalties in
non-criminal cases are currently inadequate.
ASIC highlighted the relatively low level of maximum penalties for
non-criminal matters in the Corporations Act. For individuals, the maximum
penalty of $200,000 for individuals was introduced in 2001; for body
corporates, the maximum penalty of $1 million was introduced in 2004. Neither
of these maximum penalties has been increased since their introduction. ASIC
made the obvious point that these penalty levels 'have not kept pace with
inflation', and added they 'are proportionately low given the seriousness and
impact of civil penalty matters'.
In its submission, ASIC provided a comparison of civil and
administrative monetary penalties for individuals across various jurisdictions
(Canada, Hong Kong, New Zealand, Singapore, the United Kingdom and the United
States). Australian penalties for various white-collar offences are very much
at the lower end of the scale, and indeed in most instances the lowest among
the jurisdictions compared.
ASIC also compared the civil penalties in the Corporations Act with the
maximum penalties available for similar offences in the ASIC Act and National
Credit Act. Maximum penalties under those pieces of legislation are set at a
maximum $360,000 for individuals and $1.8 million for body corporate.
ASIC noted that one of the factors it considers in determining its
enforcement approach in a particular matter is the market impact of an
investigation and an enforcement outcome. In cases where only low civil
penalties were available (or low criminal penalties in criminal matters), ASIC
advised that this might weigh against it pursuing a particular course of
ASIC explained that increasing the maximum civil penalties available
would better enable the courts to impose penalties proportionate to the
severity of the offence and in line with community expectations, even in cases
where the maximum penalty was not imposed:
Historically, the courts have tended to apply civil penalties
well below the maximum possible, reducing their impact and creating gaps
between the levels of sanction the community expects should be handed down and
what is given in practice. The reasons for this are complex and vary from one
case to another (in itself reducing consistency), but often discounts are
applied or the seriousness of the matter is not considered as warranting the
maximum penalty (although it is unclear what level of seriousness would warrant
the maximum penalty). Legislated maximum penalties should be set so as to take
into account the worst cases, thus allowing reasonable penalties to be imposed
in other cases.
ASIC advised the committee that, while it considered maximum civil
penalties of $200,000 for individuals and $1 million for corporations too
low, it was not advocating an increase to a specific level:
We certainly have advocated in this submission for increased
penalties in the civil penalty regime, without being specific. I think it is a
matter that is probably best left to the task force [ASIC Enforcement Review
Taskforce] to do, which will assess those penalties both domestically and
internationally to see whether they are consistent.
Other inquiry participants also pointed to the apparent inadequacy of
existing monetary penalties for non-criminal matters in the Corporations Act, and
were prepared to make a submission on what an appropriate level of penalty
might be. For example, Mr Golding from the Law Council of Australia suggested that
Australia should not move to the level of penalties imposed by the United
States, but that Australia's maximum penalties 'are low in international terms
and should be reviewed upwards'.
Mr Golding told the committee that while it considered the civil penalty regime
'extremely effective and a very useful addition to the regulatory enforcement
pyramid', it supported:
...an increase in the maximum penalties that can be imposed for
a civil penalty prosecution. Currently it is $200,000 for individuals and $1
million for corporations. It has been at that level since the introduction of
the civil penalties regime in 1994. It has not kept pace with inflation and it
certainly has not kept pace with community expectations around that area. So we
would support, particularly in the area of corporate penalties, an increase to
that $1 million threshold.
Mr Stephen Mayne, Director of the ASA, also argued that civil penalties
were too low, suggesting that instead of the current maximum penalties of
$200,000 for individuals and $1 million for corporations, penalties of
$1 million for individuals and $5 million for corporations would be
The ASA explained that existing civil penalties were particularly low
when considered in relation to the levels of remuneration directors within the
corporate sector typically receive. It noted that the maximum civil penalty for
directors and officers who breach their directors' duties is $200,000, which it
suggested was low given the amounts CEOs and non-executive directors were
We believe that unless the $200,000 penalty is increased to
reflect the potential gravity of the offence, courts will continue to be
reluctant to impose anything more than a normal penalty (if any) on directors
breaching their duties, even though shareholders may have suffered severely as
Dr Overland also told the committee that she supported ASIC's call of
increased maximum civil penalties in the Corporations, suggesting that the
penalties were 'very low'.
Setting civil penalties as
multiples of the benefit gained
In addition to being low, ASIC noted that civil penalties in Australia cannot
currently be set as multiples of the benefit gained, as is the case in some
While ASIC did not suggest a specific multiple that should apply to
civil penalties, a number of witnesses (as noted below) discussed the
possibility of introducing a multiple of three times the benefit made or loss
avoided. As ASIC noted, provision for setting civil penalties at three times
the benefit gained would be consistent with penalty settings in several other
jurisdictions. Moreover, similar provisions already for certain criminal
offences in the Corporations Act (specifically, certain market misconduct
offences) and in other Australian legislation.
Several witnesses expressed support setting civil penalties as a
multiple of the benefit gained. For example, Dr Zirnsak, JIMU, told the
committee that he supported the idea of setting penalties at three-times the
value of ill-gotten gains.
In its submission, the Uniting Church (JIMU) recommended that civil penalties
for white-collar crime should be increased where necessary to ensure that
persons committing the crime are not able to financially profit from the crime.
The Uniting Church (JIMU) submitted:
Currently civil penalties for white collar crime can be less
than the proceeds of the crime which means that white collar criminals still
end up ahead financially, unlike other countries where the penalties can
include the sum of the gain plus a penalty of triple the amount of damages.
Such a large penalty may prevent potential white collar criminals from
committing an offence.
Noting that civil penalties for insider trading were low by
international standards, Dr Overland recommended increasing these penalties 'to
a maximum of $765,000 or three times the profit made or loss avoided, whichever
is greater'. The increase, she suggested, would be consistent with monetary
penalties available for criminal convictions of insider trading (which also
carries a maximum penalty of 10 years imprisonment), and reasonably consistent
with fines available in foreign jurisdictions. Dr Overland further recommended
that the ability to impose fines at multiples of the profit earned or loss
avoided, as currently applied in criminal proceedings, should also apply to
The ASA also argued in support of penalties set as multiples of the
wrongful gain. It submitted:
In our view, these penalties should at a minimum be at least
the amount of the wrongful gain, and have the potential to be proportionately
higher (for example, up to 10 times the financial benefit). Where there is no
clear quantifiable wrongful gain, ASIC should have the power to order that the
wrongdoer pay a penalty, for example up to $5 million for a body corporate and
$1 million for an individual.
The NSW Young Lawyers Business Law Committee also explained that having
fixed civil penalties made it harder to prevent offenders from profiting from
The lower degree of flexibility in the non-criminal regime
[in Australia, as compared to other jurisdictions] means that it may not always
be possible to ensure a wrongdoer does not profit from their conduct, since the
maximum fine that may be imposed may be substantially lower than the financial
benefit obtained as part of the conduct.
Although not addressing civil penalties specifically, the Tasmanian
Small Business Council referred to alleged incidences of financial misconduct
by Australian banks, and submitted that monetary penalties must be
'proportionate to the amount of wrongful gains by banks and bankers that have acted
deceitfully and dishonestly'.
Monetary penalties for criminal
Some inquiry participants also suggested that the maximum monetary
penalties available in criminal matters involving white-collar crime were
In its submission, ASIC argued that while criminal penalties in
Australia for white-collar crime were broadly consistent with those available
in comparable foreign jurisdictions (including the maximum fines available),
Australia had 'significantly lower fines available' to punish particular contraventions,
including those related to continuous disclosure obligations and unlicensed
Professor Adams, Dr Hickie and Mr Lloyd QC, who as noted in chapter four
registered doubts regarding the efficacy of imprisonment for white-collar
criminals, suggested that penalties needed to focus on the 'hip-pocket' of
By definition the motive of a white collar criminal is
financial gain. The 'hip-pocket' argument as a major goal of sentencing of a
white collar criminal must be correct. The integrity of business institutions
and probity in individual and corporate enterprises can only be enhanced by
sentencing options which include the imposition of large and effective fines
together with retrieving the proceeds of crime from a white collar offender.
Professor Adams, Dr Hickie and Mr Lloyd QC noted that while the level of
fines in Australia for white-collar offending had increased (particular in
relation to cartels) they did not allow for the imposition of the level of
fines that apply in the United States, which can run into the tens of millions
of dollars. They submitted that:
...the most effective sentence to be imposed upon a white
collar criminal would be, if appropriate, the imposition of a short custodial
term of imprisonment together with the imposition of a higher level of fine and
a thorough application of proceeds of crime legislation. In this way, the
purposes of sentencing, in particular personal and general deterrence, would be
achieved. Consideration should also be given to extended parole periods and
conditions of parole aimed at limiting the offender's ability to re-offend and
aimed at the offender 'giving back' to the community such as the imposition of
an intensive correction order and/or some form of community service when
released on parole.
The BFCSA, which as noted in chapter 4 argued that white-collar
criminals should be exposed to higher custodial sentences, suggested that fines
and other monetary penalties represented 'pocket money' to the wealthy, and
thus were inadequate as a deterrent 'for the determined and serious white-collar
criminal'. Moreover, the fines typically issued were 'not in line with the
tragic loss and damage we see every day in the mortgage scams and associated
It might be noted, however, that the BFCSA was not arguing for higher monetary
penalties for criminal offences per se, but rather a shift from the use of
monetary penalties to stronger custodial sentences for white-collar offenders.
Multiples of benefit penalties for
While some submitters expressed concern about the level and type of
monetary penalties that can be imposed in criminal matters, it is worth noting
here that the committee also received evidence highlighting the value of
multiple of benefit penalties that currently apply in relation to certain
For corporate bodies, certain criminal offences in the Criminal Code,
such as domestic bribery offences, foreign bribery offences and false
accounting offences, can be punished through the application of a monetary
penalty set as a multiple of the benefit gained or, where the benefit cannot be
determined, as a percentage of the annual turnover of the corporate body in the
period the offending occurred. This approach, the Attorney-General's Department
...allows for flexibility in determining penalties for white-collar
crime, ensuring that the penalty imposed on corporations is proportional to the
wrongful gain obtained by this corporate body. This means of calculating the
maximum penalty for a corporation helps to ensure that the penalty imposed is
sufficiently high to deter and punish financial crime and promote good
governance, the rule of law and confidence in corporate practices.
Limitations of monetary penalties in cases involving bankruptcy
The Australian Financial Security Authority (AFSA), which has
responsibility (inter alia) for administering and investigating offences under
the Bankruptcy Act 1966, submitted that it had:
...received feedback from personal insolvency practitioners to
the effect that the penalties imposed by the courts for offences under the
Bankruptcy Act do not effectively deter bankrupts and others from committing
offences under the Act.
AFSA noted, in this regard, that fines were regularly being imposed upon
offenders under the Bankruptcy Act who:
...in the majority of cases, are or have been in financial
difficulty and have sought relief through the bankruptcy process. The
imposition of a fine in such circumstances presents practical difficulties in ensuring
the penalty is complied with in a timely manner, as a person who is an
undischarged bankrupt is likely to face difficulties in raising funds to pay a
AFSA therefore submitted that alternative penalties, such as Community
Service Orders/Community Protection Orders, 'may provide a more appropriate
sentence outcome for bankrupts who are prosecuted for offences under the
Bankruptcy Act than the imposition of fines'.
AFSA noted that such a sentence is currently available under the Crimes Act
A central theme of the evidence received by the committee was that
efforts to tackle white-collar crime must take the profit out of the crime.
While the Proceeds of Crime Act 2002 (POC Act) provides a mechanism for
recouping a wrongful gain in a criminal case, there is currently no comparable
power to force the forfeiture of gains when someone has committed a civil
offence. A number of submitters recommended introducing a disgorgement power
that would apply in non-criminal matters.
Disgorgement, as ASIC explained, refers to:
...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.
ASIC further explained that disgorgement provides 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.
This section of the report briefly summarises the powers that currently
exist to recoup the gains of white-collar crime and misconduct—including under
the POC Act—and in turn considers arguments in relation to the introduction of
a disgorgement power.
The related question of compensation for victims of white-collar crime
and misconduct is not addressed in any detail in this chapter, or elsewhere in
this report. However, the committee notes that this matter will be considered
as part of the committee's current inquiry into consumer protection in the
banking, insurance and financial services sector.
Proceeds of Crime Act 2002 (POC
The Attorney-General's Department explained that, where an individual
retains a wrongful gain after the imposition of a fine under offences within
Criminal Code (set out in the Criminal Code Act 1995), it is open to the
CDPP and AFP to recoup this wrongful gain by bringing a forfeiture order under
the POC Act.
The POC Act provides 'a comprehensive scheme to trace, investigate, restrain
and confiscate proceeds generated from Commonwealth indictable offences,
foreign indictable offences and certain offences against State and Territory
law'. POC Act proceedings are civil proceedings, and do no impose a criminal
Significantly, the POC Act, in addition to allowing for proceedings
where a conviction has been secured ('conviction based forfeiture'), also
allows for proceedings independent of the prosecution process or even where
there has been no criminal conviction. The Attorney-General's Department
explained that this system enables Australian authorities to better target the
assets of individuals suspected of white-collar crime, particularly those at the
top of criminal organisations. These individuals, the Attorney-General's
Department further explained, had the resources to distance themselves from
individual criminal acts, 'thereby evading conviction and placing their profits
beyond the reach of conviction-based laws', and that:
Generally, before assets can be seized under the
non-conviction scheme in the POC Act, it must be established that the asset is
the proceeds or an instrument of crime and that the asset was under the
effective control of a person. The POC Act also contains a range of restraining
orders and freezing orders which are designed to prevent an individual from
disposing of an asset before a forfeiture application is resolved.
A number of inquiry participants highlighted the importance of mechanisms
to remove the proceeds of crime from white-collar criminals. The AFP, for
instance, submitted that the confiscation of criminal assets 'is a vital tool
in taking the profit out of crime and preventing the reinvestment of criminal
profits into further criminal activity'.
The AFP advised that it can pursue asset confiscation, including in cases
involving 'white-collar' offending such as insider trading and fraud, through
the joint Criminal Assets Confiscation Taskforce (CACT), which combines the
expertise and resources of the AFP, ACC and ATO.
ASIC noted that in criminal matters it can brief the AFP and the CDPP to
bring an action to confiscate the proceeds of crime under the POC Act. 
However, ASIC also told the committee that, because it did not have access to
disgorgement powers itself, and because it was required to go to the AFP or
CDPP to seek action under the POC Act, this sometimes made recovery actions
more difficult. Such actions needed to align with the AFP's or CDPP's priorities,
and while those agencies have generally been 'very supportive' of ASIC's
requests to take POC Act actions, there may be cases where ASIC sees 'a
pressing need for disgorgement [but] other agencies may not'.
ASIC placed more emphasis still on the fact that it does not have any
equivalent disgorgement powers for civil penalty proceedings.
The issue of a disgorgement regime that would apply in non-criminal matters is
Arguments for a disgorgement regime
for non-criminal matters
Whereas monetary penalties, as ASIC explained, might sometimes be
considered a 'cost of business'—particularly when those penalties are not set
in reference to any benefit gained or loss avoided—disgorgement provides a
means of removing the financial incentive to engage in misconduct.
ASIC compared the disgorgement powers available in Australia in
non-criminal cases—or, more precisely, the lack of such powers—with those
available in comparable economies in Report 387 (as referred to in
chapter 2). ASIC noted that in all the other jurisdictions it considered,
regulators or the courts have the ability to remove the financial benefit
obtained from corporate wrongdoing in non-criminal settings. The mechanism for
disgorgement, ASIC further explained, varied among jurisdictions. However, the
'fundamental feature of disgorgement in all jurisdictions is that the illegal
profits gained or losses avoided are removed from the wrongdoer'. This is
achieved, ASIC noted, by:
- having legislated maximum penalties that are a multiple
of the financial benefit obtained from the wrongdoing (New Zealand, Singapore
and the United States);
- taking into account the financial benefit obtained from
the wrongdoing when determining the quantum of penalty that should be imposed
(Hong Kong and the United Kingdom); or
- having a disgorgement power that is distinct from the
ability to impose non-criminal penalties (Canada, Hong Kong, the United Kingdom
and the United States).
In contrast to other jurisdictions, in Australia maximum non-criminal
penalties for corporate wrongdoing are fixed amounts, meaning that it 'may not
be possible for ASIC or courts to remove the financial benefit obtained from
corporate wrongdoing in non-criminal settings even if the maximum penalty is
ASIC produced a table in its submission comparing the availability of
disgorgement powers across jurisdictions in relation to non-criminal
Table 6.1: Availability of
disgorgement in non-criminal proceedings
|| Insider trading
|| Market manipulation
|| False statements
|| Unlicensed conduct
|| Inappropriate advice
| Hong Kong
| New Zealand
| United Kingdom
| United States
Source: Australian Securities and Investments Commission, Submission
49, p. 11.
ASIC has raised the need for disgorgement powers in relation to
non-criminal matters on a number of occasions, including in Report 387.
In its submission to this inquiry, ASIC argued:
Having access to disgorgement increases the flexibility
regulators have to address wrongdoing efficiently and effectively. Disgorgement
orders can offer significant deterrent value by removing the benefits gained
from the wrongdoing and reducing the likelihood that wrongdoers can consider
penalties to be merely a business cost.
ASIC's call for the creation of a disgorgement power in non-criminal
cases was supported by a number of inquiry participants. For example, Dr
Zirnsak, JIMU, suggested ASIC's lack of disgorgement powers was a 'gap' in the
system that should be rectified. In this connection, Dr Zirnsak emphasised that
taking the profit out of crime 'acts as a massive deterrent' to criminal
Dr Overland, referring specifically to penalties for insider trading,
also suggested the lack of a disgorgement power in relation to civil penalties
was out of step with other jurisdictions, including Canada, Hong Kong, New Zealand,
the United Kingdom and the United States. Dr Overland also noted the deterrent
effect of the confiscation of profit made or losses avoided for those who might
engage in insider trading.
The Law Council of Australia also expressed support for disgorgement
remedies 'as an additional penalty that can be imposed in a civil penalty
context'. Australia, it observed, was 'quite out of step by international
comparison' in this regard. 
The ASA submitted that in cases of white-collar crime, 'where a financial
benefit is gained by the wrongdoer, including in non-criminal proceedings, and
profits made or losses avoided should at a minimum be disgorged'.
Mr Stephen Mayne, appearing on behalf of the ASA, told the committee that
disgorgement powers was one of the more obvious reforms that would assist ASIC
better fulfil its enforcement role.
NSW Young Lawyers submitted that an examination of the disgorgement
arrangements in comparable jurisdictions revealed that the:
...utility, flexibility, effectiveness, and overall appeal of
disgorgement in relation to white collar crime offences not only has a remedial
function but also an important deterrent function.
It is worth noting here that in addition to arguments put in favour of
disgorgement powers for ASIC in non-criminal matters, the Attorney-General's
Department advised the committee that the matter is being considered by the
ASIC enforcement review taskforce.
Significantly, no inquiry participant made a case against allowing for
disgorgement in non-criminal matters.
The committee considers there is overwhelming evidence and support for
increasing the current levels of civil penalties for white-collar offences in
the Corporations Act. The committee is reluctant to specify a particular
penalty amount, and notes that the ASIC Enforcement Taskforce may be better
placed to comment on this matter. Nonetheless, the committee suggests that the
government should have regard to the level of non-criminal penalties in other
jurisdictions for similar offences, and in this connection notes that the
fivefold increase (or greater) suggested by some witnesses would not be
inconsistent with penalty settings in foreign jurisdictions.
The committee notes the importance of multiples of benefit penalties in
ensuring that white-collar offenders are not able to profit from their crimes
and misconduct. In this respect, the committee considers there is a need to
introduce multiple of benefit penalties in relation to non-criminal offences.
The committee agrees that the lack of disgorgement powers in
non-criminal matters represents a significant gap in ASIC's enforcement
toolkit. Noting that this is a matter that the ASIC Enforcement Taskforce is
likely to address, the committee nonetheless considers that the government
should move to address this gap and introduce disgorgement powers in relation
to non-criminal matters.
The committee recommends that the government amend the Corporations
Act 2001 to increase the current level of civil penalties, both for
individuals and bodies corporate, and that in doing so it should have regard to
non-criminal penalty settings for similar offences in other jurisdictions.
The committee recommends that the government provide for civil penalties
in respect of white-collar offences to be set as a multiple of the benefit
gained or loss avoided.
The committee recommends that the government introduce disgorgement
powers for the Australian Securities and Investments Commission in relation to
Senator Chris Ketter
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