CHAPTER 4
Penalties and Offences
Introduction
4.1
The committee received evidence about the proposed penalties and
offences contained in the bill. While the Department submitted that the new
penalties and offences were required to discourage inappropriate conduct, some
submitters, like the Australian Council of Trade Unions (ACTU) and the Maritime
Union of Australia (MUA), suggested that the penalty increases contained in the
2012 Act were appropriate. Submitters argued that the criminal law already
deals with the issues raised by the Department and that the new offences were
overly harsh.
4.2
The bill proposes to both increase the quantum of civil penalties and to
introduce criminal offences in relation to certain intentional or reckless
breaches of officers' duties.[1]
These penalties would apply to existing and proposed offences. The bill also specifies
that where a 'serious contravention' is proven; a significantly higher penalty
amount applies.
Civil penalties
4.3
The Department's submission details the proposed amounts for the civil
penalties, and the division of the offences into three tiers:
Certain civil penalty provisions under the RO Act have
not been amended and retain the existing penalties, namely 60 penalty units for
an individual ($10,200) or 300 penalty units for body corporate ($51,000).
These civil penalties apply to provisions dealing with less serious
contraventions.
Civil penalties for breaches of provisions requiring the
lodgement of financial or other information with the ROC are raised to a
maximum penalty of 100 penalty units for an individual ($17,000) or 500 penalty
units for a body corporate ($85,000). In light of similar provisions under the
Corporations Act, the penalty reflects the serious nature of the offences and
reinforces the importance of transparency and good governance.
A breach of officer's financial management duties and new
disclosure obligations will also carry the maximum penalty of 100 penalty units
for an individual ($17,000) or 500 penalty units for a body corporate ($85,000)
but where such a breach constitutes a 'serious contravention' a maximum penalty
of 1200 penalty units for an individual ($204,000) or 6000 for body corporate
($1,020,000) may be imposed.[2]
4.4
The Department suggested that the civil penalties under the current
legislation were comparatively low, and were being increased to match those
contained in the Corporations Act.[3]
The Department noted the concerns of some stakeholders with respect to the
proposed civil penalties:
Whereas some stakeholders pointed out that the higher range
of penalties under the Corporations Act only applied to larger corporations,
the approach taken with these reforms was to align with the existing registered
organisations framework, which does not (and never has) distinguished between
organisations on the basis of membership or revenue or other considerations.[4]
4.5
The Minister also contended that the Government has a 'very clear
mandate' to implement the Policy for Greater Accountability and Transparency
of Registered Organisations as a matter of extreme urgency,[5]
also arguing that:
The core principle behind the legislation is straightforward:
as far as practicable there should be no difference in penalty between a
company director who rips off shareholders and a union boss who rips off union
members.[6]
Tier one offences
4.6
These penalties apply to breaches of officers' civil and financial
management duties under clauses 285 to 288, the obligations introduced to
disclose material personal interests and remuneration, payments made by
organisations or branches of organisations, general duties and restrictions on
voting on certain matters.[7]
Tier two offences
4.7
These penalties apply to breaches of provisions relating to the
lodgement of financial or other reporting information with the Commissioner, as
well as the making of declarations.[8]
Tier three offences
4.8
These penalties apply to breaches of the 'least serious' civil penalty
provisions including, 'lodging certain documents with the FWC and other
administrative tasks such as removing non-financial members from the
organisations register.[9]
4.9
The Minister argued that while penalties were tripled under the 2012
changes, the inappropriate conduct of officers of registered organisations,
together with their financial responsibilities necessitate harsher penalties to
act as a deterrent for inappropriate behaviour.[10]
4.10
In its original submission to the Legislation Committee inquiry, the MBA
stated its support for amendments to the RO Act that would ensure reporting
requirements are met and increasing penalties for late filing and
non-compliance, suggesting that the increased penalties would act as an
effective deterrent for inappropriate or illegal conduct.[11]
They MBA also supported the government's attempt to:
...deter malfeasance by creating new penalties for registered
organisations, their officers and employees who do not act in good faith, or
use their position or information, to directly or indirectly create a financial
gain for themselves or someone else to the detriment of the registered
organisation.[12]
Criticism of the increased
penalties
4.11
Ai Group, the ACTU, MUA and the South Australian Wine Industry
Association (SAWIA), among others, criticised the proposed increased penalties,
on the basis that the penalties were too extreme for officers who were in many
cases volunteers, and whose responsibilities to the organisation's membership
are completely different to those of a trading corporation. The aforementioned
argued that corporations and registered organisations serve completely
different purposes, and that to align penalties for inappropriate use of
shareholders (or members' funds) was unnecessary.
4.12
Ai Group, in its submission argued that unlike company directors who are
paid a salary, many union and employee association representatives are
volunteers in their capacity as officers of registered organisations.[13]
They further argued that while directors are well remunerated on the
expectation of returning value on shareholder investments, officers of
registered organisations are volunteers, and that this is a significant
distinction when examining whether Corporations Act penalties are appropriate:
This fundamental difference between a commercial operation
existing to return value on investment and an organisation that is designed to
accept membership subscriptions to provide a service to the members is critical
is assessing the type of regulation and the type of control necessary.[14]
4.13
The MUA were of the view that the proposed increase in penalties was
inappropriate, given the increases in penalties that took effect from 1 January
2014 (under the 2012 Act). The MUA criticised the inclusion in the bill
of the 'serious' contravention, noting its circular definition and that while
it was based on a provision in the Corporations Act: '(that) the
definition in the other Acts provides a threshold for setting penalty amounts, not
as a guide to setting the highest possible penalty that would otherwise apply.'[15]
4.14
Motor Trade Association of South Australia (MTA) was critical of the
proposed penalties, submitting that it had significant concerns about the new
penalty amounts proposed in the Bill, including large fines for relatively
minor non-compliance offences.
Our concern... [is] the massive increase ($85,000) for failing
to respond to a member request for statement of membership (within 29 days).
The latter penalty is, superficially, a minor potential breach compared with
more serious offences under the Fair Work Act 2009 which gave rise to
lower penalties. In this context the previous and significant breaches by one
registered organisation, should not target all activities of other organisations
in an extreme way. The measures should deter repeat offenders and if necessary,
provide punitive measures for repeat offences.[16]
4.15
SAWIA acknowledged that review of the registered organisations framework
is necessary (and justified), it argued that the unlawful conduct of some
officers of an organisation does not justify the imposition of disproportionate
monetary penalties proposed by the bill.[17]
The National Electrical and Communications Association also opposes the
proposed penalties, submitting that the penalties would be excessive to medium
sized employer organisations.[18]
4.16
In criticising the proposed penalties, the ANMF submitted:
The proposal to substantially increase financial penalties
(sometimes tenfold) is short-sighted and hairy-chested and can only be intended
to present the government as a “tough cop on the beat”.[19]
Serious contravention
4.17
The Department submitted that the concept of a 'serious contravention'
was introduced to align the responsibilities of officers of registered
organisations to those found in the Corporations Act:
The concept of a serious contravention was introduced to
reflect the approach to penalties that apply to a director's duties under
sections 180 – 183 of the Corporations Act. The serious contravention concept
is modelled on s 1317G of the Corporations Act.
The serious contravention test also applies to breaches of
the new disclosure obligations including material personal interest disclosures
and in relation to a directions contravention (see item 7 of Schedule 1 to the
Bill).[20]
4.18
The Department's submission defines the term 'serious contravention', as
relating to a contravention that:
-
Materially prejudices the interests of a branch, or the members
of the organisations or branch, or
-
Materially prejudices the ability of the organisation or branch
to pay creditors; or
-
Is serious.[21]
Penalty amounts without a 'serious
contravention'
4.19
Offences would increase to the following amounts when no 'serious
contravention', as set out in clause 6 of the bill, is applicable:[22]
|
|
Individual
|
Body corporate
|
|
Tier one
|
100 penalty units ($17,000)
|
500 penalty units ($85,000)
|
|
Tier two
|
100 penalty units ($17,000)
|
500 penalty units ($85,000)
|
|
Tier three
|
60 penalty units ($10,200)
|
300 penalty units ($51,000)
|
4.20
The Explanatory Memorandum explains that serious contravention penalty
amounts only apply to tier one offences.[23]
Penalty amounts with a 'serious
contravention'
|
|
Individual
|
Body corporate
|
|
Tier one
|
1200 penalty units ($204,000)
|
6000 penalty units ($1,020,000)
|
|
Tier two
|
N/A
|
N/A
|
|
Tier three
|
N/A
|
N/A
|
Support for the inclusion of
'serious contravention'
4.21
The Minister agreed that the alignment of the maximum penalties of
company directors and registered organisation officers was appropriate.[24]
Criticism of the inclusion of
'serious contravention'
4.22
The MUA criticising the inclusion of the 'serious contravention'
definition' suggesting that it would be used to dramatically increase the
penalties that could be imposed on organisations and individuals. The MUA noted
that:
...the definition is somewhat circular and whilst based on
similar provisions in the Corporations Act 2001 (Cth) the definition in
that legislation acts as a threshold not as a guide to setting a higher penalty
that would otherwise apply.[25]
4.23
The criticism of the circular definition of a serious contravention was
also a prominent theme in the Legislation Committee's inquiry. Mr Stephen
Smith, Director, Ai Group, gave evidence the public hearing in Melbourne on 26
November 2013 that the use of the serious contravention in the bill was not
appropriate:
Mr Smith: It is a direct lift out of the Corporations
Act. But despite that, we think, again, it is not very sensible to define a
serious contravention as a contravention that is serious. It adds nothing to
the definition, so we would prefer that that aspect be removed. The other two
elements of the definition are much clearer.[26]
4.24
Numerous submitters criticised the inclusion of the serious
contravention definition from the Corporations Act, suggesting that it
was only included to provide the Commissioner with the issue of higher fines.
Submitters suggested that the penalty amounts could have the effect of
encouraging fines (within the Commission) and the application of the serious
contravention provision for financial reasons.
4.25
The ACTU was critical of the inclusion of the provision, submitting:
...in the Corporations Act, the provision conditions whether
any pecuniary penalty may be awarded at all. In the Bill, it is proposed that
penalties be available irrespective of whether the conduct concerned meets the
definition of a 'serious contravention' – the function of the definition in the
Bill is to make a higher level of penalty available.[27]
4.26
The ACTU noted that where the definition is met, penalties of up to 1200
penalty units will be available, in contrast to 100 penalty units when it is
not met.[28]
Further, the penalty applicable to serious contraventions ranges from $204,000
to $1,020,000 for individuals and bodies corporate respectively.[29]
These amounts were criticised by the ACTU as excessive and 'clearly
inconsistent with the expressed policy.'[30]
The ACTU submitted that:
In addition, the enforcement framework in the RO Act permits
registered organisations to commence proceedings for compensation for losses
suffered by breaches of civil penalty provisions, and permits (with the
regulator's permission), union members to prosecute civil penalty matters
against their union. These provisions operate in an overall framework designed
to ensure democratic control.[31]
Committee view
4.27
The committee shares the concerns that the serious contravention
provision is only included for the purpose of increasing the penalty that could
be levied against an individual or body corporate. The committee is satisfied
that the changes, made by the previous government in the 2012 Act, were
sufficient in addressing the issues raised in the Minister's submission.
4.28
The committee is not persuaded by the Department's evidence that the 'serious
contravention' definition is needed in the RO Act, noting the circular nature
of the definition, that does little to clarify what a serious contravention
under the bill is.
4.29
The committee is persuaded by evidence from submitters, that the attempt
to copy powers under the Corporations Act, specifically the 'serious
contravention' provision, is inappropriate given the different functions of
corporations and registered organisations.
New criminal offences
4.30
The bill proposes to insert new criminal offences relating to the
execution of an officer's financial management duties, criminal offences regarding
good faith, use of position and use of information for officers.[32]
These offences have been modelled on s 184 of the Corporations Act.[33]
Numerous submitters criticised these clauses, submitting that the Criminal Law
already provides for protection of registered organisations from malfeasance of
senior officers with financial responsibilities.
4.31
Clause 290A proposes the introduction of numerous offences relating to
officers and employees of organisations and branches, and that failure to
exercise powers or discharge duties in good faith, and for a proper purpose.[34]
The clauses would also prevent an officer or employee, 'using their position to
gain advantage for themselves or someone else; and using information obtained
while an offer or employee to gain an advantage for them or someone else.[35]
4.32
The Department explained that the effect of the clause would be to
ensure that any officer convicted of a new offence will not be eligible to be
an officer of an organisation or to stand for election to office of a registered
organisation. Specifically, with respect to providing false statements or
information:
A penalty of 100 penalty units or two years imprisonment, or
both, may be imposed upon a person who intentionally or recklessly fails to
comply with a notice issued by the Commissioner in relation to an
investigation, who provides a false statement or information to the
Commissioner, or who fails in accordance with the new investigation and
information gathering powers, to:
-
Answer a question;
-
Explain a matter about the content of document or to which a
document relates;
-
Explain where documents may be found , and who last had
possession, custody or control of the documents and where that person may be
found; or
-
Identify property of an organisation and explain how the person
has kept account of the document.[36]
4.33
Numerous submitters argued that the criminal offences were inappropriate
given the coverage in Commonwealth, State and Territory criminal laws that
already make the most serious offences in the bill a crime, and can already be
dealt with. Ai Group that in the inclusion of criminal offences in the bill is
inappropriate, noting that, 'The criminal law applies to officers of registered
organisations like other citizens, including a wide range of offences such as fraud,
theft etc.'[37]
4.34
Ai Group reiterated its concerns with respect to the proposed offences
and penalties in the bill, that:
If the proposed criminal penalties and proposed massive
financial penalties for breaches of duties are included in the RO Act, this would
operate as a major disincentive to existing voluntary officers of registered
organisations continuing in their roles, and would deter other people from
holding office.[38]
4.35
The addition of criminal offences in the bill was strongly criticised by
other submitters, including the MUA, who suggested that the higher penalty
amounts and investigative powers would together act as a deterrent to
individuals who may seek office in a registered organisation.[39]
The MUA also said that these factors would seriously interfere with the
operation of registered organisations in Australia,[40]
as they would discourage participation in registered organisations.
Committee view
4.36
The committee does not agree with the Department's view that new
offences are required t in the bill, or the contention that the Criminal Law is
unable to prosecute wrongdoing. The committee agrees with submitters, that the
inclusion of criminal offences in the bill constitutes unnecessary duplication
of existing crimes legislation. The committee also agrees that the actions of
the few should not be used as an excuse to enact draconian measures on
registered organisations and their membership.
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