Ensuring appropriate and effective regulation of corporations:  A recalibration of Australian corporate regulation

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.