Seminar Series – Corporate Criminal Responsibility

24, 26, 27 February, 2 March 2020
Perth | Melbourne | Sydney | Brisbane

Join fellow stakeholders to deep dive into the inquiry of Australia’s corporate criminal responsibility regime prior to the completion of the ALRC’s Final Report.

The ALRC is holding a series of seminars in Perth, Melbourne, Sydney and Brisbane to provide an update and to encourage additional feedback into the current inquiry. Presentations will focus on the Discussion Paper, released in November, which sought input from stakeholders about Commonwealth corporate criminal law.

The seminars will be led by a panel of judges, academics and practitioners focusing on the ALRC’s proposed model of corporate regulation, the attribution of criminal responsibility to corporations and individual liability for corporate fault, while also discussing other aspects of the proposals.

The interactive seminars present the opportunity to highlight key issues identified in submissions received, indicate the ALRC’s potential direction following those submissions and to seek further feedback on the position the ALRC may adopt in its Final Report.

To confirm your attendance please register here:

  • Please select your preferred seminar location.

Perth Seminar

24 February 2020 | 5.00pm-7.00pm | State Library of WA, 25 Francis Street, Perth

UWA Law School Logoco-hosted with the University of Western Australia

Panel:
The Hon Justice SC Derrington, President, Australian Law Reform Commission
Professor Elise Bant, The University of Western Australia
Paul D Evans, Quinn Emanuel Urquhart & Sullivan
Rebecca Faugno, The University of Western Australia
Joe Longo, Senior Advisor, Herbert Smith Freehills


Melbourne Seminar

26 February 2020 | 5.00pm-7.00pm | Monash University Chambers, Lonsdale Street, Melbourne

co-hosted with the Transnational Criminal Law Group, Monash University

Panel:
The Hon Justice SC Derrington, President, Australian Law Reform Commission
The Hon Justice RJ Bromwich, Part-Time Commissioner, Australian Law Reform Commission
Professor Liz Campbell, Monash University
Professor Jonathan Clough, Monash University
Michael Wyles QC, Barrister


Sydney Seminar

27 February 2020 | 5.00pm-7.00pm | Federal Court of Australia, 184 Phillip Street, Sydney

Panel:
The Hon Justice SC Derrington, President, Australian Law Reform Commission
The Hon Justice RJ Bromwich, Part-Time Commissioner, Australian Law Reform Commission
Dr Penny Crofts, University of Technology Sydney
Dr Olivia Dixon, The University of Sydney
Dean Jordan SC, Barrister


Brisbane Seminar

2 March 2020 | 5.00pm-7.00pm | Federal Court of Australia, 119 North Quay, Brisbane

Panel:
The Hon Justice SC Derrington, President, Australian Law Reform Commission
The Hon Justice RJ Bromwich, Part-Time Commissioner, Australian Law Reform Commission
Dr Vicky Comino, The University of Queensland
Lincoln Crowley QC, Barrister
Justin McDonnell, Partner, King & Wood Mallesons

2020 Seminar Series Corporate Criminal Responsibility Leaflet

Download 2020 Seminar Series Corporate Criminal Responsibility

On 15 November, the ALRC released a Discussion Paper as part of its Corporate Criminal Responsibility Inquiry. In the Discussion Paper, the ALRC proposed reforms to individual liability for corporate criminal conduct. The proposals are set out in Chapter 7 of the Discussion Paper, and a shorter summary is available here.

These proposals respond to stakeholder concerns that the current regulatory framework undermines genuine efforts at compliance by individual corporate officers, while simultaneously failing to hold errant senior executives to account.

One of the key objectives of these proposals was to ensure that senior executives – including the CEO, CFO, and heads of department – can be held accountable for corporate misconduct, in light of their critical role in managing the conduct of the corporation (or the parts for which they have oversight). Compared to directors, who are already subject to considerable regulation, ‘C-suite’ executives (and those senior executives immediately below them) are less likely to be held responsible for corporate misconduct, despite often being in a position of greater influence over the day-to-day operations of corporations.

In preparing the Discussion Paper, the ALRC considered various approaches to individual liability for corporate misconduct that might address this gap, including variations on managerial liability, deemed liability, and a ‘failure to prevent’ approach. The ALRC also considered an approach modelled on the Banking Executive Accountability Regime (BEAR), which commenced in 2018 and applies to Authorised Deposit-taking Institutions (ADIs), which are licensed financial and banking institutions.[i] Given the infancy of that regime and the reservations expressed by stakeholders, the ALRC did not pursue that approach in the Discussion Paper.

However, the ALRC considers it may be helpful for stakeholders reviewing the Discussion Paper to revisit the BEAR approach, particularly in light of the decision earlier this week by the Australian Prudential Regulation Authority (APRA) to commence an investigation into possible breaches of the BEAR by directors and senior officers of Westpac.[ii] To the ALRC’s knowledge, this is the first such investigation of a corporation or its officers under the new regime, and as such will be closely watched.

 

What has the ALRC proposed?

The ALRC’s proposals would make an executive officer liable for a civil penalty where they were in a position to influence the conduct of a corporation in relation to an offence, and they cannot prove that they took reasonable measures to prevent that offence.

 

What is the BEAR?

Under the new regime, ADIs must identify ‘accountable persons’ within the corporation, and provide documentation identifying these persons and their respective responsibilities to the regulator (APRA). An ‘accountable person’ is any person who, as a result of their position in the ADI or a subsidiary, has actual or effective senior executive responsibility for management or control of the ADI, or a significant or substantial part of the operations of the ADI or group.[iii]

The Act additionally sets out various responsibilities that may be identified with an accountable person, such as senior executive responsibility for anti-money laundering, compliance, internal audit, or overall risk controls.[iv] ADIs must ensure that all aspects of their business operations are covered by one or more accountable persons, and that those persons have clear lines of responsibility.[v]

The regime sets out specific obligations for accountable persons in the performance of their responsibilities (which are similar to the obligations of the ADI itself under the regime). These include:

  • Acting with honesty and integrity, and with due skill, care, and diligence;
  • Dealing with APRA in an open, constructive, and cooperative way; and
  • Taking reasonable steps in conducting their responsibilities to prevent matters from arising that would adversely affect the prudential standing or reputation of the ADI.[vi]

‘Reasonable steps’ include – but are not limited to – implementing or overseeing:

  • Appropriate governance, control, and risk management;
  • Safeguards against inappropriate delegations of responsibility; and
  • Appropriate procedures for identifying and remediating problems that do or may arise in relation to the matter.[vii]

 

How does the BEAR relate to the ALRC’s proposals for individual liability?

There are some clear overlaps between the BEAR and the ALRC’s proposals, including the obligation of senior executives to take reasonable steps or measures to prevent misconduct by the corporation and to ensure that appropriate compliance and risk-management procedures are in place. Both approaches also reflect an expectation that senior executives act with honesty and due diligence, though these standards are incorporated in different ways.

The ALRC has proposed a form of functional managerial liability, in which any senior officer who was in a position to influence misconduct in practice may be civilly liable unless they can prove that they took reasonable measures to prevent the misconduct. The BEAR, in contrast, adopts a hybrid form of liability that is both positional and functional: accountable persons are identified based on their position in the ADI, but liability arises in relation to the functional responsibilities of that person in the corporation.

Another key distinction is that while the BEAR creates stand-alone duties for accountable persons, the ALRC proposals would deem an executive officer liable where they have failed to prevent an offence by the corporation. The ALRC’s proposed liability model is tied to the corporation committing one of a specified set of serious offences. In that way, it is narrower than the BEAR, which creates standalone duties and does not expressly require the ADI to have committed an offence in order for an accountable person to be in breach. At the same time, the ALRC’s proposed model may in fact be broader than the BEAR, as liability may attach to a broader range of corporate misconduct, and not just matters that would affect the prudential standing of an ADI.

Finally, in terms of enforcement, the BEAR provides that an accountable person found in breach of their obligations may be disqualified by APRA from acting as an accountable person. This may have serious consequences in preventing a person from taking on senior roles within an ADI. APRA may also make orders for reduction of an accountable person’s variable remuneration (bonuses). Only the ADI itself may be liable for pecuniary penalties.

The ALRC’s proposals, on the other hand, would make an executive officer liable for a civil penalty where they were in a position to influence the conduct of a corporation in relation to an offence, and they cannot prove that they took reasonable measures to prevent that offence. Additionally, where the officer has done so knowingly, intentionally or recklessly, they may be criminally liable.

 

Could the BEAR provide an alternative model for individual liability?

The BEAR has attracted a mix of supporters and detractors in its short life. In the Final Report of the Financial Services Royal Commission, Commissioner Hayne recommended that the BEAR should be extended to the superannuation industry, noting that:

Those responsibilities should either already be identified or, at least, be readily identifiable. If that is correct, and it should be, preparation of accountability statements and accountability maps, though a burden, should not be a large burden. Performance of the obligations would then entail no reporting or recording beyond what prudent administration would require anyway.[viii]

However, early consultations raised concerns about the regime’s replicability beyond ADIs, particularly where business risk is not subject to prudential oversight. Concerns were also expressed about the administrative burden imposed by the regime.

While the current investigation by APRA into the conduct of senior executives at Westpac is unlikely to be concluded before the ALRC is due to report to the Attorney-General in April 2020, that investigation will nonetheless be closely watched, as it may provide valuable insight into the potential appropriateness or otherwise of extending the BEAR to non-financial corporations.

 

[i] Banking Act 1958 (Cth).

[ii] Australian Prudential Regulation Authority, APRA launches Westpac investigation and increases capital requirement add-ons to $1 billion, APRA (17 December 2019), <https://www.apra.gov.au/news-and-publications/apra-launches-westpac-investigation-and-increases-capital-requirement-add-ons>.

[iii] Banking Act 1958 (Cth) s 37BA(1).

[iv] Banking Act 1958 (Cth) s 37BA(3).

[v] Explanatory Memorandum, Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 (Cth), [1.11]–[1.13].

[vi] Banking Act 1958 (Cth) s 37CA. The responsibilities of ADIs are set out in s 37C.

[vii] Banking Act 1958 (Cth) s 37CB.

[viii] Financial Services Royal Commission, Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (2019) 265.

When sentencing an offender key objectives 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.

Each of these objectives may be relevant to sentencing corporate offenders. However, the ALRC has found that there are limitations on the ability of courts to pursue relevant objectives when sentencing corporations. This blunts the force of the criminal law as a regulatory tool for addressing corporate wrongdoing.

In Chapter 10 of its recent Discussion Paper on Australia’s corporate criminal responsibility regime, the ALRC makes proposals to improve the process and outcomes of sentencing corporations. The ALRC proposes to enhance the court’s sentencing toolkit by:

  • providing for a range of non-monetary penalty options for corporations; and
  • strengthening the information base available to courts when sentencing corporations.

The ALRC suggests that court-imposed penalties should be supplemented by a national debarment regime, which would limit the involvement of criminally convicted corporations in contracting for government work.

Proposals also aim to promote consistency between the processes of sentencing and imposing civil penalties on corporations.

Finally, the ALRC invites stakeholder views on the desirability of reforms to maximum penalties for corporations and improving the availability of compensation for victims of corporate wrongdoing.

Figure 1 provides an overview of the effect of the ALRC’s proposals and questions on sentencing. The proposals relating to non-monetary penalties and statutory guidance on sentencing corporations are discussed in more detail below.

Figure 1: Overview of proposals and questions from Chapter 10 of Discussion Paper (Sentencing Corporations)

Expanding the court’s sentencing toolkit for corporate offenders

The ALRC proposes to equip the court with a general power under the Crimes Act 1914 (Cth) to make a range of non-monetary penalty orders when sentencing corporations that have committed a Commonwealth offence (Proposal 15).

The desirability of a general power to make non-monetary penalty orders stems from the well-known limitations of monetary penalties for corporations. Setting monetary penalties at a level that deters corporations is a fraught exercise, and the costs of monetary penalties are liable to be passed on to parties who were not involved in the wrongdoing (consumers, employees, shareholders). Furthermore monetary penalties are poorly adapted to promoting the sentencing purposes of rehabilitation and restoration, and may be viewed as insufficiently denunciatory.

Empowering courts to impose non-monetary penalties in addition to or, in appropriate instances, instead of monetary penalties would strengthen the court’s ability to impose a sentence that best promotes the aims of sentencing in respect of the corporation and offending in question. A centralised source of power to make these orders promotes consistency and avoids unnecessary duplication across statutes.

Figure 2: Overview of proposed non-monetary penalty options (Proposal 15) 

Each of these orders could be imposed by the court for any relevant sentencing purpose. This differs from existing provisions, which confine the imposition of non-monetary penalty orders to ‘non-punitive’ purposes.[ii]

Where court supervision of these orders would be inappropriate, an independent monitor might be appointed to supervise compliance with the orders, and report to the court as required.

The ALRC also proposes the introduction of an equivalent power to make non-monetary penalty orders for corporations in respect of civil penalty provision contraventions (Proposal 16). The proposed provision would be located in the Corporations Act 2001 (Cth). The power to make orders dissolving a corporation would be excluded from this provision.

These proposals are not novel. The ALRC has made similar recommendations in previous reports.[iii] As has the New South Wales Law Reform Commission.[iv] There is also precedent for the availability of these types of orders in overseas jurisdictions (namely, the US, UK, and Canada).

Statutory guidance on sentencing corporations

The ALRC proposes further amendments to the Crimes Act 1914 (Cth) and the Corporations Act 2001 (Cth) to facilitate the provision of consistent and appropriately adapted statutory guidance on sentencing and imposing civil penalties on corporations.

Existing statutory guidance on the factors relevant to sentencing Commonwealth offenders (Crimes Act 1914 (Cth) s 16A(2)) is primarily targeted to sentencing natural persons. While a number of the existing statutory factors may be relevant to sentencing corporations, others will not apply and, more critically, s 16A(2) does not provide for a number of factors that are highly relevant to sentencing corporations. The courts have instead drawn on the case law relating to imposing civil penalties on corporations to fill the gaps in the existing statutory guidance.

The ALRC proposes the introduction of a non-exhaustive list of statutory factors for courts to consider when sentencing corporations for a Commonwealth offence (Proposal 13, see below). Consideration of these factors would be mandatory to the extent that they are relevant and known to the court.

In addition to the introduction of specific guidance for sentencing corporate offenders, the ALRC reiterates previous recommendations for wholesale reform of s 16A(2).[v] Implementation of these recommendations would involve restructuring the statutory guidance on sentencing Commonwealth offenders to:

  • introduce separate provisions setting out the purposes and principles of sentencing;
  • provide a non-exhaustive list of eight broad categories of factors relevant to the purposes and principles of sentencing, with examples of the types of factors under each category; and
  • separately require the court to consider factors pertaining to the administration of the federal criminal justice system (such as guilty pleas and cooperation with authorities).

The ALRC also proposes the introduction of guidance for the imposition of civil penalties on corporations (Proposal 14). As there is currently no general statutory guidance on the imposition of civil penalties, introducing a list of factors relevant to imposing civil penalties on corporations that merely mirrors Proposal 13 is not possible. The ALRC’s proposed list of factors for the imposition of civil penalties on corporations therefore incorporates the corporations-specific factors identified in Proposal 13, in addition to the types of general factors that are currently furnished by s 16A(2) in the criminal context.

In the absence of an effective legislative scheme for civil penalties, it is beyond the scope of the ALRC’s current inquiry to recommend a statutory provision that would govern both individuals and corporations. Nonetheless, the ALRC has previously recommended the introduction of such a legislative scheme, which would have incorporated a provision governing the civil penalty setting process for individuals and corporations.[vi] The ALRC reaffirms its view that this would be a sensible approach.


[i] Carol Beaton-Wells and Brent Fisse, Australian Cartel Regulation: Law, Policy and Practice in an International Context (Cambridge University Press, 2011) 458–9.

[ii] Competition and Consumer Act 2010 (Cth) s 86C; Australian Consumer Law s 246; and Australian Securities and Investments Commission Act 2001 (Cth) s 12GLA.

[iii] Australian Law Reform Commission, Same Crime, Same Time: Sentencing of Federal Offenders (Report No 103, 2006) rec 30-1; Australian Law Reform Commission, Principled Regulation: Federal Civil & Administrative Penalties in Australia (Report No 95, 2002) recs 27–1, 28–3. See also Australian Law Reform Commission, Compliance with the Trade Practices Act 1974 (Report No 68, 1994) [10.9].

[iv] New South Wales Law Reform Commission, Sentencing Corporate Offenders (Report 102, 2003) rec 4.

[v] Recommendations 4–1, 5–1, 6–1, and 6–8 from Australian Law Reform Commission, Same Crime, Same Time: Sentencing of Federal Offenders (Report No 103, April 2006).

[vi] Australian Law Reform Commission, Principled Regulation: Federal Civil & Administrative Penalties in Australia (Report No 95, 2002) rec 29-1.

On Monday 2 December 2019, the ALRC launched the report of the Future of Law Reform project at a well-attended and high-spirited event in the Commonwealth Law Courts building in Brisbane. President of the ALRC, Justice Sarah Derrington, outlined the origins and purposes of the project, reflecting on the ALRC’s longstanding commitment to public involvement in law reform. Inaugural Chairman of the ALRC, the Hon Michael Kirby AC CMG, spoke about what constitutes an ideal ALRC inquiry topic, and emphasised the need for champions of law reform. 

The Australian Law Reform Commission (ALRC) is today releasing a report suggesting an ambitious agenda for law reform over the next five years. The report will be launched by the current ALRC President, the Hon Justice Sarah Derrington, and the inaugural ALRC Chairman, Hon Michael Kirby AC CMG, in the Commonwealth Law Courts Building in Brisbane.

The report highlights five areas of law suggested for an ALRC review. If accepted by the Attorney-General, the report could map out the work of the ALRC over the next five years.

The five law reform topics identified by the ALRC are:

  • principle-based regulation of financial services;
  • automated decision making and administrative law;
  • defamation;
  • press freedom and public sector whistleblowers; and
  • legal structures for social enterprises.

The Hayne Royal Commission identified an urgent need to simplify the law in order to regulate more effectively the financial services industry. Legislation needs to identify more clearly the principles underlying specific provisions, to ensure the intent of the law can be understood and followed. An ALRC inquiry could make a significant contribution by demonstrating how this could be achieved in practice. This would build on the ALRC’s current inquiry into Corporate Crime.

Automated decision making is increasingly common in our society, including in government departments. Algorithms and artificial intelligence may present opportunities for more efficient and accurate government decisions, but have also been the subject of controversy. An ALRC inquiry could examine whether the law could better safeguard fair and transparent outcomes.

Defamation laws have struggled to come to terms with modern developments in technology and communications. There is also ongoing debate about the appropriate balance between freedom of expression and the protection of reputation. In recent years, federal courts have increasingly handled defamation disputes, traditionally the work of state courts. By conducting an independent federal defamation inquiry, the ALRC could build on the work of other government-led reviews.

Press freedom and protections for whistleblowers have been hotly debated in recent months. An ALRC inquiry could shed light on whether any changes to the law may be required to appropriately protect press freedom, and whether changes are needed to make laws protecting public sector whistleblowers clearer and more effective.

Social enterprises are organisations that seek to make money, but are also committed to social or environmental goals. It has been suggested that existing legal structures fail to reflect the needs of social enterprises. An ALRC inquiry would examine whether new corporate structures should be introduced.

President of the ALRC, the Hon Justice Sarah Derrington, said, “It is the first time the ALRC has formally sought the views of the Australian public on future inquiry topics. Their input has enriched the process and given a real sense of the legal issues that concern them. We gratefully acknowledge the many individuals who have voluntarily contributed their time and expertise to this project.”

Justice Derrington further noted, “In suggesting these five inquiry topics, the ALRC is not pre-judging the merits of any particular views, but is setting out areas of contention that could benefit from further examination.”

The process of preparing the report has involved extensive research and consultation. The ALRC released two preliminary research papers, held six public seminars and webinars around Australia, conducted an online survey and received over 400 responses, involved law students from two universities in research, and held a number of consultations with stakeholders including government departments.

The report highlights that the best inquiry topics are those that play to the particular strengths of the ALRC, including independence from government, impartiality, legal expertise, and a transparent consultative process.

The full report is available for download.

All media enquiries should be directed to: Matt Corrigan, General Counsel, matt.corrigan@alrc.gov.au, 0427 658 595

 

 

In its Discussion Paper on Australia’s corporate criminal responsibility regime, the ALRC proposes a simplified method for attributing criminal responsibility to corporations.   What follows is a short summary and explanation of the key principles underlying that proposal.

The law treats corporations as ‘people’. Therefore, the prohibitions imposed on people are usually applicable for both humans and corporations.  

Corporations, by their very nature, operate, act, and think through human actors. 

A key difficulty for imposing criminal liability upon corporations is that generally a corporation commits acts or omissions through humans.  So, for a corporation to be held responsible for a crime, the elements of the crime (physical/conduct and mental/fault) are typically committed by a relevant person and attributed to the corporation.

The Australian Commonwealth law contains essentially three methods of attribution:

  1. Part 2.5 of the Criminal Code;
  2. a smorgasbord of statutory attribution provisions, which generally have common characteristics (the ALRC refers to this as the ‘TPA Model’ in the Discussion Paper); and
  3. the common law.

The TPA Model applies to 88% of the legislation reviewed by the ALRC and is therefore clearly the most common statutory attribution method across the Commonwealth. The ALRC considers that Part 2.5 is a narrower attribution method as the prosecution must prove that either a ‘high managerial agent’ had the requisite state of mind or the corporation otherwise permitted or authorised the conduct. In contrast, while the statutory attribution methods vary, the TPA Model typically attributes conduct of directors, employees or agents, acting within the scope of their actual or apparent authority, to the corporation.

Simplicity

The ALRC considers that there should be one single statutory method of attribution under Commonwealth law. Multiple attribution methods create complexity and uncertainty.[1]

The ALRC considers that the proposed single method of attribution should combine aspects of the current attribution methodology under Part 2.5 and the TPA Model. In addition, the ALRC proposes two key principled changes:

  1. attributing conduct and fault from ‘associates’; and
  2. incorporating a due diligence defence.

Substance over form: ‘associates’

  • The ALRC proposes attribution based on the substance of the relationship between the person and the corporation rather than the title or role of the person:

associate: any person who performs services for or on behalf of the body corporate 

  • A broad definition of associates is appropriate to reflect the nature of contemporary corporate business, which may utilise a variety of legal structures to operate (for example, contractors and subsidiaries, rather than just employees or agents).

  • Importantly, liability only attaches to conduct engaged in for or on behalf of a corporation; the company would not be responsible for all behaviour of persons who are working for or who are otherwise merely associated with the company.

  • Fault can also be proved by reference to the conduct of the corporation as a whole, that is if a corporation ‘authorised or permitted the conduct’. This preserves the language which precedes the corporate culture provisions in Part 2.5. Thus it remains open to a prosecutor to prove that a corporation authorised or permitted the conduct, by reference to a particular corporate culture.

The importance of blameworthiness: the due diligence defence

  • In considering the principles underpinning corporate attribution, it is the ALRC’s view that it is essential that corporations be culpable before they are criminally responsible. Pure vicarious liability on the basis of conduct of certain individuals is insufficient.

  • Where fault is being attributed from an individual, a corporation should be afforded a defence to prove a lack of culpability, by proving (on the balance of probabilities) that the corporation is not blameworthy (i.e. that it took reasonable steps to prevent the conduct).
  • Given corporate criminality only attaches to conduct which is engaged in by individuals acting on behalf of a corporation, if the corporation wants to assert that it should not be responsible for the actions of those humans, then it is appropriate for the burden of proof should rest on the corporation.

The prosecution must still prove, beyond reasonable doubt, that the person acted for or on behalf of the corporation. 

  • Corporations should have an overarching duty to exercise due diligence to prevent criminal activity being carried out in the course of their business activities, by their associates.
    • This does not mean that a corporation is responsible for the associate’s personal conduct, or that a corporation is prima facie guilty if any criminality occurs in the course of business. Rather, it the ALRC’s view that a corporation should take reasonable steps to ensure that their business is conducted in accordance with law.

  • Ordinarily, under the criminal law it is not appropriate to impose a legal burden upon a defendant. However, corporations are not humans. The same concerns which give rise to necessary criminal law protections for humans do not exist for corporations.
    • A corporation does not require the same protections as an individual (due primarily to its inability to be incarcerated and access to greater resources than an individual).
    • The very nature of corporations is such that it would be almost impossible for a prosecutor to find and bring evidence of the due diligence of a company.
  • Importantly, the due diligence defence provides protection to corporations from the actions of rogue ‘bad apples’. The legal consequences should be very different for a corporation where a rogue call centre operator breaching both company procedures and the law to maximise their sales commission, and a situation where call centre operators are encouraged to maximise sales in breach of the law and where there is no internal sanction for sales completed in breach of the law.[2]

A principled simplification

  • As the TPA Model applies to 88% of the legislation reviewed, a proposal to replace the TPA Model with Part 2.5 of the Criminal Code, would result in a significant narrowing of the attribution of the criminal law to corporations.
  • To date, the ALRC has received no evidence to suggest this would be appropriate. There is no suggestion of a proliferation of successful prosecutions of companies under the TPA Model. To the contrary, it would appear that the public perception of corporate crime (and the evidence presented at the Royal Commission) far outweighs the number of prosecutions of corporations.

The ALRC invites submissions on all of the proposals made in the Discussion Paper, including the appropriateness or otherwise of the proposed attribution method, and encourages submissions that include a suggested attribution method.

 

[1]  As a consequence the ALRC is also not in favour of specific failure to prevent offence at this stage.

[2] See the Freedom Insurance Case Study cited in When Should Officers be Liable for Corporate Crime?(ALRC paper, 19/11/2019).

Research and consultations in the course of the ALRC’s Inquiry into Corporate Criminal Responsibility have highlighted the important role played by senior management in ensuring compliance throughout the different parts of a corporation. While corporations can be ‘a person’ under law, they are also made up of individuals – some of whom have authority and capacity to direct conduct on behalf of the corporation.

Stakeholders have expressed concern that the current regulatory framework establishing individual liability for corporate conduct both undermines genuine efforts at compliance, while simultaneously failing to hold errant senior corporate officers to account.

In particular, the ALRC is concerned that the current framework does not adequately address the responsibility of senior officers that oversee business models predicated on unfair or exploitative practices.

The ALRC agrees with the view that directors may not be the most appropriate focus with respect to compliance in the day-to-day activities of corporations, and as such does not propose any changes to directors’ liability. In contrast, the proposals focus on those senior officers (CEOs, CFOs, heads of department, etc) who are in a position to influence the day-to-day conduct of corporations.

The current law

In order to better understand the current regulatory framework applying to individuals in the context of corporate misconduct, the ALRC reviewed a set of 25 key Commonwealth statutes that are relevant to corporations. Of those, the ALRC identified 26 provisions in 18 statutes that currently make an individual (typically an officer or executive officer) liable for an offence committed by the corporation.

This type of liability is distinct from accessorial liability, in that the officer need not be directly or indirectly involved in the conduct constituting the contravention. It is also distinct from directors’ duties, which set out specific positive obligations for persons engaged in the position of director.

Instead, these lesser-known managerial liability provisions make an officer liable for a contravention committed by the corporation as a result of the officer’s position within the corporation.

An array of inconsistent liability provisions

Many of these managerial liability provisions create deemed (direct) liability, under which the individual is deemed – based on their position in the corporation – to have engaged in the conduct and is liable accordingly. Others make an individual liable for a separate offence of failing to prevent a contravention by the corporation.

 

For the purpose of analysis, the ALRC identified four categories of managerial liability, and found a wide spread of each throughout the 18 statutes reviewed. (These categories are explained in detail in the Discussion Paper and Appendix I.)



Section 8Y of the Taxation Administration Act 1953 (Cth), for example, applies to a ‘person (by whatever name called and whether or not the person is an officer of the corporation) who is concerned in, or takes part in, the management of the corporation’. That section provides that, where a corporation commits a taxation offence, such a person ‘shall be deemed to have committed the taxation offence and is punishable accordingly.’

In contrast, the Environment Protection and Biodiversity Conservation Act 1999 (Cth) creates a separate offence where an executive officer, who was in a position to influence the conduct of the body corporate in relation to conduct that contravened a provision of the Act, failed to take ‘all reasonable steps to prevent’ the contravention. Unlike the provision under the Tax Act, this offence also includes a fault element, requiring that the individual had knowledge of the contravening conduct, or was reckless or negligent as to whether the conduct would occur.

Less than a third of the managerial liability provisions identified by the ALRC require proof of fault on the part of the officer to be held liable. Most only require that the person who engaged in the conduct (individual or corporate) satisfied the relevant fault element.

A streamlined approach

The ALRC considers that some form of deemed liability – as presently exists in 18 Commonwealth statutes – may be an important tool in ensuring that those individuals who have a key role in encouraging and overseeing compliant conduct within a corporation are personally responsible for that conduct, and therefore improve corporate compliance with the law. Accordingly, the ALRC is attracted to models that posit liability based on an individual’s capacity to influence the criminal conduct that occurs, rather than the person’s formal title or designation. The ALRC considers that there is value in rationalising the current variety of managerial liability provisions into one common formulation, to be applied wherever it is appropriate.

Importantly, the proposals do not introduce a new kind of liability – they simply harmonise 26 distinct existing sources of liability and propose a more general application. This would make it easier for officers to understand and comply with their obligations.

Who may be liable under the proposed approach?

The proposals are framed to ensure that liability only attaches to officers in a position of sufficient influence and involvement in the day-to-day affairs of the corporation such that they should be expected to meet certain standards in the prevention of misconduct within the parts of the corporation under their management.

That is, the proposals reflect the position that senior managers – including the CEO, CFO, and heads of department – have greater capacity to ensure compliance throughout the corporation than the board of directors per se, whose role is one of governance, more than management.

This represents a narrowing of liability compared to the current deemed liability provisions, many of which purport to impose liability on any ‘officer’ of the corporation, which could potentially include both directors and lower level employees.

Under the proposed approach, liability would only attach to persons who meet the threshold requirement of ‘being in a position to influence the conduct of the body corporate in relation to the contravention’. Where prosecutors can prove that an officer was in such a position of influence with respect to a contravention by a corporation, that officer may be civilly liable, unless they can prove that they took ‘reasonable measures to prevent the contravention’.

The approach provides a clear defence for officers who genuinely endeavour to prevent misconduct in the parts of the corporation that they manage, in that they need only demonstrate that they took ‘reasonable measures’ to prevent the misconduct. Under the current law, we should already expect that any senior corporate officer is taking reasonable measures to ensure compliance in the parts of the corporation that they manage. Accordingly, the proposals do not involve any new form of liability, or impose any new obligations or burden on officers in relation to corporate fault.

Limitation on criminal liability

Under Proposal 10, individuals will only be criminally liable for the conduct of the corporation where they:

  • meet the threshold requirement of being in a position to influence the conduct of the body corporate in relation to the contravention;
  • failed to take reasonable measures to prevent the contravention; and
  • did so intentionally, knowingly, or recklessly.

Compared to many of the existing managerial liability provisions – such as s 8Y of the Tax Act – this offers clearer protection for officers who have acted honestly and genuinely attempted to ensure compliance throughout the parts of the corporation over which they have influence.

Questions for further consideration

This issue is the subject of ongoing consideration by the ALRC, and submissions from the public are very welcome. In particular, in the Discussion Paper the ALRC asked whether these proposals should apply to ‘officers’, ‘executive officers’, or some other category of persons, and whether there are any existing deemed liability provisions in particular statutes that should not be replaced by the common formulation proposed, for any reason.

In its Discussion Paper on Australia’s corporate criminal responsibility regime released on 15 November 2019, the ALRC proposes a new model of corporate regulation that aims to achieve more appropriate and effective regulation of corporations. Central to this is the adoption of a principled distinction between the use of criminal and civil regulation.

A lack of principle exists in the current regulatory regime

The existing ‘regulatory pyramid’ said to underpin corporate regulation in Australia is focused on particular enforcement mechanisms, as illustrated below:

 

Sanctions are meant to ascend in order of the seriousness of the contravention, with the criminal law reserved for the most egregious contraventions. The ALRC’s research has revealed, however, that Commonwealth law as it exists in the statute book does not reflect these principles. For example:

  • There is a proliferation of criminal offences.
  • Criminalisation is not reserved for the most serious breaches of the law, and many minor regulatory breaches constitute criminal offences. [1]
  • There is a significant degree of overcomplexity and duplication in existing offence provisions.
  • There is a lack of principled distinction between offences and civil penalty provisions.
  • Infringement notices are available for a range of criminal and civil contraventions, including those that require an evaluative judgment.

The combined effect of these shortcomings is an overregulation by the criminal law of low-level contraventions and a lack of recourse to the criminal law with respect to serious contraventions. The latter point was also identified by the Financial Services Royal Commission.[2] The result is a significant regulatory burden (for both corporations and regulators) that does not achieve principled regulation in any meaningful sense – thus diluting the efficacy of corporate criminal responsibility and undermining the rule of law.

Rebalancing criminal and civil regulation

The ALRC’s model recalibrates the regulatory pyramid for corporations into one focused on the nature of the contravention. Unlawful conduct by corporations would be divided into three categories (in descending order of seriousness):

  • criminal offences
  • civil penalty proceeding (CPP) provisions; and
  • civil penalty notice (CPN) provisions.

As illustrated in the proposed new pyramid below, the primary form of regulation under the model would be civil, rather than criminal:

The ALRC proposes that the same conduct would not be prohibited by both a criminal offence and a CPP provision, unless the criminal offence captures a greater level of wrongdoing (such as by requiring proof of a fault element).  The majority of minor regulatory contraventions that are presently criminal offences would become CPN provisions and be removed from the court system. Infringement notices as they currently exist would be abolished and notice-based enforcement would only be available for a contravention that is a CPN provision. It would not be available for a criminal offence or a CPP provision.

In terms of the volume of criminal offences, the model reduces the exposure of corporations to criminal sanctions. In doing so, it seeks to make corporate regulation more effective – by strengthening the force of the criminal law through reserving criminalisation for contraventions that could properly be considered to be criminal, and improving upon the civil penalty system.

Principled criminalisation

The ALRC takes the view that the existing distinction between criminal and civil regulation of corporations lacks a principled basis. The ALRC considers that the criminal responsibility of a corporation is only justified when the contravention captured by the offence is such that the condemnatory and expressive effect of the criminal law (and the additional deterrence that results from such characteristics of the criminal law) is necessary over and above the deterrent effect of a civil penalty.

This conclusion (together with the principles set out below) has been reached following a detailed review of the theoretical literature about the nature of the criminal law and, as this is an inquiry primarily into the criminal responsibility of a corporation itself as an entity, of the differing scholarly justifications for allowing criminal responsibility to attach to a corporation itself.[3] Given that a corporation has “no soul to be damned, and no body to be kicked”, the key question in criminalising conduct by a corporation itself is how to distinguish liability for a criminal offence from civil regulation. The ALRC suggests that this can be done through ensuring the “distinctively moral voice”[4] of the criminal law is retained in this context.

To achieve principled criminalisation, the ALRC proposes that a contravention of a Commonwealth law by a corporation should only be designated as a criminal offence when:

  • the contravention by the corporation is deserving of denunciation and condemnation by the community;
  • the imposition of the stigma that attaches to criminal offending is appropriate;
  • the deterrent characteristics of a civil penalty are insufficient; and
  • there is a public interest in pursuing the corporation itself for criminal sanctions.

In recognition of the debates about what makes something sufficiently wrongful to be properly characterised as a crime, these principles are necessarily broad. They do not adopt an essentialist position on that debate. Instead, they focus on the distinctive characteristics of the criminal law. They are designed to guide decision making by drafters and policy-makers, rather than dictate any fixed outcome.

Reform of civil penalty provisions

Under the ALRC’s model, civil contraventions would be designated either:

  • as a civil penalty proceeding provision when the contravention involves actual misconduct by the corporation (whether by commission or omission) that must be established in court proceedings; or
  • as a civil penalty notice provision when the contravention is prima facie evident without court proceedings.

The distinction ensures that contraventions that require an evaluative judgment and the proper decision making process of judicial adjudication to properly establish liability cannot be enforced through CPNs.

The changes brought about by the model can be illustrated through considering several example contraventions:

For contraventions that would attract a CPN, the operation of the proposed CPN scheme is as follows:

This is broadly similar to how infringement notices operate currently, though CPNs will be available for a different range of contraventions.

Escalating across the criminal and civil divide

In removing low level offences from the criminal sphere, the ALRC appreciates that  there is a need to be able to escalate particular contraventions across the criminal and civil divide in appropriate circumstances. In recognition of this, the model would include the adoption of two ‘escalation mechanisms’ for:

  • repeated contraventions; and
  • flouting or flagrant disregard of a civil prohibition.

The proposed regulatory model for corporations in operation

A summary of the operation of all features of the proposed model in their totality can be seen in the graphic below:

The ALRC invites submissions upon all of the proposals made in the Discussion Paper, including all aspects of its proposed model.

[1] Eg, a failure to inform ASIC of a change in registered office hours or a failure to place an ACN on certain company documents are criminal offences: see Corporations Act ss 153, 145(3).

[2] Commonwealth of Australia, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report: Volume 1 (2019) 433.

[3] Chapter 2 of the Discussion Paper outlines the theoretical rationale for corporate criminal responsibility in detail. Chapter 3 then analyses the current state of Commonwealth law, with Chapter 4 drawing Chapters 2 and 3 together to propose the new regulatory model.

[4] AP Simester and Andreas von Hirsch, Crimes, Harms and Wrongs: On the Principles of Criminalisation (Hart Publishing, 2011) 4.

The Australian Law Reform Commission (ALRC) today released a Discussion Paper, Corporate Criminal Responsibility (DP 87).

Building on the work of the Hayne Royal Commission, the ALRC has found that Commonwealth criminal law as it applies to corporations is impenetrably complex and in need of significant reform. There is an overregulation by the criminal law of low-level contraventions and a failure to effectively use the criminal law for serious contraventions.

As a result, there is no principled regulation in any meaningful sense — diluting the efficacy of corporate criminal responsibility and undermining the rule of law.

If to be labelled a criminal is to have any sting, the criminal law must be exclusively focused on serious morally reprehensible conduct, and yet:

It is a criminal offence for a corporation to fail to notify ASIC of a change in office hours.

The ALRC seeks stakeholder submissions on 23 proposals for reform to the Commonwealth’s corporate criminal law regime, and asks 11 questions on particular areas of reform. The Discussion Paper addresses a number of aspects of corporate criminal liability, including:

• the principled division between criminal offences and civil penalty provisions;
• the method for attributing criminal liability to corporations;
• individual liability for corporate offences;
• deferred prosecution agreements;
• penalties and the sentencing process;
• illegal phoenix activity (deliberate liquidation with the intent to avoid creditors and continue operations through a new entity); and
• the implications of the transnational nature of business and extraterritorial offences.

President of the ALRC, the Hon Justice Sarah Derrington, said, “These proposals seek to simplify and provide a coherent regulatory framework that achieves principles-based regulation.”

This Inquiry comes at a time of renewed focus on protecting Australian consumers from egregious conduct by corporations. Corporate regulation must both improve corporate behaviour and be alive to the impact that corporations have on the health of the Australian economy as a whole. Accountability for misconduct must be necessarily balanced with the need to ensure that corporations have flexibility to innovate.

On 10 April 2019, the ALRC received Terms of Reference from the Attorney-General, the Hon Christian Porter MP, to conduct the first comprehensive review of Australia’s corporate criminal responsibility regime since the enactment of the Criminal Code. Over the past 7 months, the ALRC has conducted nearly 60 consultations across industry, regulators and legal professionals.

The ALRC is seeking submissions to the Discussion Paper until 31 January 2020.

The Final Report is due to the Attorney-General on 30 April 2020.

Corporate Criminal Responsibility (ALRC DP 87) and summary reports are available for viewing or free download at

https://www.alrc.gov.au/publication/discussion-paper-87/

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