Sydney Law Review Article by Samuel Walpole and Matt Corrigan
Abstract
Traditional criminal law evolved to address morally unacceptable conduct by individuals, before expanding into regulatory contexts. Classical models of corporate criminal responsibility sought to apply the individual-focused criminal law to corporate defendants. At the same time, contemporary corporations act increasingly in ways distinct from natural persons: through systems, patterns of behaviour, policies, procedure, and culture. This has led to increasing interest in the framing of offences that are better tailored to the way in which corporations act in reality. Building on the recommendations of the Australian Law Reform Commission in its Corporate Criminal Responsibility Report, this article considers a novel type of offence — one that criminalises systems of conduct or patterns of behaviour by corporations. We argue that system of conduct offences have the potential to enhance corporate criminal law’s effectiveness, and to serve as an alternative to traditional approaches to corporate criminal liability in appropriate contexts.
Article originally published in Law Letter, the magazine of the Tasmanian legal profession (2020 – Spring-Summer Law Letter – Issue 140).
Introduction
“Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?”[1]
On 10 April 2019, the Attorney-General of Australia, the Hon Christian Porter MP asked the ALRC to inquire into Australia’s regime of corporate criminal responsibility. The Final Report – Corporate Criminal Responsibility – was tabled in Parliament on 31 August 2020. The Final Report contains 20 recommendations to simplify and strengthen the scheme of corporate criminal responsibility in Australia.
The Final Report constitutes the first comprehensive review of corporate criminal responsibility since the Criminal Code Act 1995 (Cth) was enacted. The Final Report is wide-ranging, covering issues including the theoretical conception of corporate criminal responsibility, theories of effective regulation, individual liability for corporate wrongdoing and offences for transnational crime. This article discusses key recommendations of the Report in relation to attribution, specific offences targeting corporate misconduct, and the sentencing process for corporations.
Attribution
Attribution seeks to answer one of the most difficult questions produced by applying the criminal law to corporations. What constitutes the conduct and state of mind of corporations?
One of the earliest approaches from the common law anthropomorphises corporations. The “identification theory” supposes that there are a select few individuals that constitute a corporation’s ‘directing mind and will’, and many others, who constitute no more than the mere ‘limbs’ of the body.[2]
However, as corporations have become larger and more complex, it becomes very difficult to think of any one individual as representing its “directing mind and will”. The reality of modern corporate decision making is that it is often not readily reduced to an easily identifiable “senior” individual but is the result of a much broader array of processes, inputs and individuals.
The Criminal Code[3] deals with attribution under Part 2.5, described as “arguably the most sophisticated model of corporate criminal liability in the world”.[4] In particular, the provisions which enable state of mind to be proven through corporate culture have been described as “truly innovative”,[5] “[extending] the breadth of Australia’s corporate liability regime far beyond any other jurisdiction”.[6]
However, Part 2.5 has been excluded from multiple Commonwealth statutes.[7] In fact, Part 2.5 has been very rarely used, resulting in extremely limited judicial guidance. Here, Tasmania has been at the forefront. The case of R v Potter & Mures Fishing Pty Ltd provided critical insight into the corporate culture provisions. Significantly, Chief Justice Blow noted the difficulties with the definition of corporate culture:
First of all, it’s curious that corporate culture is defined, not in terms of the entire corporate culture of a company, but it is defined in terms of aspects of what one might ordinarily think of as the corporate culture of a company.
So one rule amounts to corporate culture. One policy amounts to corporate culture. I say that because the definition begins ‘Corporate culture means an attitude, policy, rule, course of conduct or practice’.[8]
R v Potter & Mures Fishing Pty Ltd is still the only case to consider these provisions. Accordingly, the ALRC’s recommendations emphasise how Part 2.5 might practically operate.
Corporations should be responsible for the conduct of individuals based on the relationship that exists between them, rather than whether those individuals had a certain job title or job description. For instance, the requirement that individuals be acting with “actual or apparent authority” ensures that corporations are not held accountable for rogue employees.
Moreover, where the state of mind of corporations is determined through considering individuals; the class of individuals should not be limited to the most senior members of management. The ALRC recommends that it should be possible to consider employees, officers or agents, reflecting the disaggregation of managerial responsibility across large corporations. Further, corporations should have a defence of having taken “reasonable precautions” to ensure that corporations are properly blameworthy before criminal responsibility is established.
Specific Offences
Is attribution the only legal means of holding corporations criminally responsible for misconduct? Arguably, more tailored offences offer a better way forward.
Indeed, offences which specifically address corporate misconduct already exist in the United Kingdom, with the “failure to prevent” model in relation to foreign bribery and the facilitation of tax evasion, and in Australia, with duty-based offences in work health and safety legislation.
However, the criminal law lacks specific offences directed towards corporate wrongdoing. In particular, corporations may continually contravene civil penalty provisions without facing any consequences beyond civil regulation, that is, the imposition of financial penalties. Corporations may view these financial penalties as simply “the cost of doing business”, and therefore, lack any kind of incentive to improve their compliance systems.
As a recent example, the 2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, identified the systematic charging of fees to thousands of clients for ongoing advice services that were not in fact delivered, over a period of several years.
Accordingly, the ALRC recommends that there should be new criminal laws that address systems of conduct or patterns of behaviour that result in multiple contraventions of civil penalty provisions. While this is novel in the realm of criminal law, it draws upon the emerging body of jurisprudence on the ‘system of conduct or pattern of behaviour’ concept used in existing civil regulatory provisions.[9]
Sentencing
For individuals, the most serious sentencing option – imprisonment – results in the deprivation of liberty. Corporations, however, have “no soul to be damned, and no body to be kicked”.
At the present, corporations are typically sentenced under the criminal law by means of financial penalties. However, financial penalties can lack the necessary deterrent effect required under the criminal law. Financial penalties are often imposed several years after the offending took place, and disproportionately affect shareholders, employees and third parties who were not connected with the corporation at the time of the offending. Moreover, financial penalties fail to promote the restoration of relations between the community, the corporation and any victims.
As a result, the ALRC recommends that new penalty and sentencing options be introduced; giving courts flexibility to address sentencing objectives such as just punishment, deterrence, rehabilitation, protection of the community, denunciation, and the restoration of relations. In particular, the ALRC recommends non-monetary penalties such as requiring the corporation to review its compliance program, to take internal disciplinary action, or to implement internal reforms. These non-monetary penalties could be in addition to, or in appropriate circumstances, instead of financial penalties.
However, a combination of non-monetary penalties and financial penalties may remain insufficient to properly address corporate misconduct. For instance, the situation may be that the corporation was specifically established for a criminal purpose.
Accordingly, the ALRC recommends that courts should have the power to dissolve or wind up corporations that have been convicted on indictment of a Commonwealth criminal offence. For corporations, dissolution would be the equivalent of imprisonment for individuals. Accordingly, this power should only be exercised if the court is satisfied that dissolution represents the only appropriate sentencing option in all the circumstances.
Conclusion
Corporate Criminal Responsibility underscores a renewed focus on the protection of consumers from flagrant misconduct and increasing regulation in the field of corporate wrongdoing. The Final Report follows in the footsteps of significant works including the 2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and the 2017 ASIC Enforcement Review Taskforce.
The Attorney-General, the Hon Christian Porter MP, has indicated that the Australian Government will now carefully consider each of the recommendations with a view to seeking opportunities for future law reform. The Final Report is available online at https://www.alrc.gov.au/publication/corporate-criminal-responsibility/.
[1] As was said by Baron Thurlow LC: John C Coffee, ‘“No Soul to Damn: No Body to Kick”: An Unscandalized Inquiry into the Problem of Corporate Punishment’ (1981) 79 Michigan Law Review 386, 386.
[2] See Tesco Supermarkets Ltd v Nattrass [1972] AC 153.
[3] As contained in the Schedule to the Criminal Code Act 1995 (Cth).
[4] Jonathan Clough and Carmel Mulhern, The Prosecution of Corporations (Oxford University Press, 2002) 138.
[5] Tahnee Woolf, ‘The Criminal Code Act 1995 (Cth) — Towards a Realist Vision of Corporate Criminal Liability’ (1997) 21 Criminal Law Journal 257, 262.
[6] Olivia Dixon, ‘Corporate Criminal Liability: The Influence of Corporate Culture’ (Sydney Law School Legal Studies Research Paper No 17/14, University of Sydney, February 2017) 2.
[7] Including Chapter 7 of the Corporations Act 2001 (Cth) and the Competition and Consumer Act 2010 (Cth).
[8] R v Potter & Mures Fishing Pty Ltd (Transcript, Supreme Court of Tasmania, Blow CJ, 14 September 2015).
[9] See Australian Consumer Law (n 2) s 21(4); Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(4)(b).
On Wednesday 18 November Matt Corrigan (ALRC General Counsel) and Tess Van Geelen (ALRC Legal Officer) presented to the UN Global Compact Network Australia (UNGCNA) on mandatory human rights due diligence in the Australian legal landscape. Over 90 business and legal professionals registered to attend the UNGNCA’s event, Mandatory Human Rights Due Diligence: In Conversation with the Australian Law Reform Commission. The ALRC presentation was informed by the Australian Law Reform Commission findings in the Corporate Criminal Responsibility Inquiry, which was tabled in Parliament in August 2020.
Human Rights Pulse Article by ALRC Legal Officer Tess Van Geelen
In early September, the second revised Draft of an international treaty on business and human rights was released by a working group established by the UN Human Rights Council (the OEIGWG). At regional and national levels, a number of states have also taken decisive steps towards better regulating the human rights impacts of business. Despite these promising developments, however, recent controversies – such as Rio Tinto’s destruction of the sacred 46,000 year old Juukan Gorge rock shelters in Western Australia – have given new urgency to the need for more effective regulation of the human rights impacts of business.
In a recent report, the Australian Law Reform Commission (ALRC) recommended that the government introduce a ‘failure to prevent’ offence for certain transnational crimes that may be committed by corporations, including slavery, human trafficking, and crimes against humanity. The ALRC further suggested the Australian Government should review the broader business and human rights framework, and consider mechanisms such as human rights due diligence in order to give full effect to the state’s obligations under international human rights law. This article outlines the ALRC’s recommendations in light of international treaty developments and the Juukan Gorge tragedy, highlighting the urgent need for substantial reform in this space.
Australia Considers New Approaches to Corporate Criminal Liability
Today’s guest post is from Matt Corrigan and Samuel Walpole, respectively General Counsel and Legal Officer at the Australian Law Reform Commission (ALRC).
The growth of multinational corporations in both size and number has raised concerns in many jurisdictions about the State’s capacity to hold corporations liable for crimes committed in the course of their business activities, including (but not limited to) bribery of foreign officials. One of the challenges of using the criminal law to address corporate misconduct is that the traditional criminal law evolved with “natural persons” (that is, real people) in mind.
LinkedIn article by Sarah Fulton
Latest report from the Australian Law Reform Commission sets out the ways in which directors and senior executives can – and should – be held responsible when companies break the law.
In Chapter 9 of its Final Report on Corporate Criminal Responsibility, the Australian Law Reform Commission (ALRC) takes a deep dive into how directors and executives of Australian companies may be held personally liable for corporate misconduct. And while it doesn’t recommend a major overhaul – yet – it welcomes a government proposal aimed at strengthening accountability at the top of some of Australia’s largest companies.
LinkedIn article by Phoebe Tapley
ALRC report calls for greater creativity and flexibility in corporate sentencing.
Commonly cited purposes of sentencing an offender include:
- denouncing the conduct of the offender;
- ensuring that the offender is punished justly for the offence;
- deterring the offender and others from committing the same or similar offences;
- promoting the rehabilitation of the offender;
- protecting the community by limiting the capacity of the offender to re-offend; and
- promoting the restoration of relations between the community, the offender, and the victim.
However, when the offender is a corporation, which has ‘no soul to damn, no body to kick’, are these purposes still pertinent, or even feasible?
LinkedIn article by Tess Van Geelen
Latest ALRC report calls for a ‘failure to prevent’ offence for transnational crimes, and a holistic review of the business and human rights framework.
In Chapter 10 of its recent Final Report on Corporate Criminal Responsibility, the Australian Law Reform Commission (ALRC) recommended that the Government consider introducing a ‘failure to prevent’ type offence for certain extraterritorial offences, modelled on the failure to prevent foreign bribery offence that is currently before Parliament. The ALRC also suggested that the Government undertake a holistic review of the regulation of transnational crime and corporate human rights impacts, and set out a roadmap for doing so.
LinkedIn article by Samuel Walpole
In its Final Report on Corporate Criminal Responsibility, the ALRC recommended that there be a single legislative method for attributing criminal responsibility to corporations. This article considers how the theoretical foundations of corporate criminal law are intimately linked with principles of attribution, and explains how the two options for reform recommended by the ALRC conceptualise corporate fault.
In this podcast series you will hear from several members of the Australian Law Reform Commission team discussing key issues raised in the Corporate Criminal Responsibility Final Report.
Each of the short interviews will unpack the current landscape and the final recommendations made by the ALRC.
Listen to all podcast in the series, or scroll down to find a specific episode.
The report, Corporate Criminal Responsibility (Report 136, 2020) was delivered to the Attorney-General on 30 April 2020 and tabled in Parliament on 31 August 2020.
Listen on YouTube:
1. Overview
The Hon Justice SC Derrington provides an overview of the Corporate Criminal Responsibility Inquiry. Read more in Chapter 1 of the Final Report.
2. The Data
ALRC Legal Officer Sophie Ryan explains the role of data in the ALRC’s law reform process, the data presented in the Final Report and access to criminal justice data more broadly. Read more in Chapter 3 of the Final Report.
3. Attribution
Matt Corrigan, General Counsel at the ALRC explains why the legal mechanisms of attribution require reform. Read more in Chapter 6 of the Final Report.
4. The Model
ALRC Legal Officer Samuel Walpole discusses the theoretical foundations of corporate criminal responsibility and how we might achieve a principled use of criminalisation in corporate regulation. Read more in Chapter 4 of the Final Report.
5. Specific Offences
Matt Corrigan (ALRC General Counsel) and Samuel Walpole (ALRC Legal Officer) delve into the details of specific offences. Read more in Chapter 7 of the Final Report.
Read specific offences script.
6. Individual Liability
Sarah Fulton (ALRC Senior Legal Officer) explains the ALRC’s reasoning around individual liability. Read more in Chapter 9 of the Final Report.
Read individual liability script.
7. Sentencing
ALRC Legal Officer Phoebe Tapley discusses how the recommendations ensure that sentencing processes and penalties for corporations are responsive to the nature of corporations and corporate wrongdoing. Read more in Chapter 8 of the Final Report.
8. Transnational Crime
ALRC Legal Officer Tess Van Geelen explains the regulation of transnational crime and some of the ways that Australian companies can be held responsible for their involvement in offshore human rights violations. Read more in Chapter 10 of the Final Report.