ASIC Publishes its Report on Penalties for Corporate Wrongdoing – a Springboard From Which to Kick Some Regulatory Goals?

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By George Gilligan, UNSW

SYDNEY: 24 March 2014 - On 20 March 2014 the Australian Securities and Investments Commission released Report 387 Penalties for corporate wrongdoing (Report). For the purposes of the report the ASIC defines corporate wrongdoing as: ‘..misconduct that occurs in the corporate, financial market or financial services sectors. This type of misconduct generally breaches corporate, financial market or financial services laws. It may involve the misuse of a professional position or information obtained in a professional capacity.’ This is a significant report by the ASIC and its key purpose is to:

‘..outline the penalties available for a range of corporate wrongdoing under legislation administered by ASIC to enable consideration of whether they are proportionate and consistent with those for comparable wrongdoing:

(a) in overseas jurisdictions (i.e. Canada (Ontario), Hong Kong, the United Kingdom and the United States); and

(b) within the Australian context (i.e. across other domestic regulators and legislation administered by ASIC).’

The Report seeks to achieve these twin purposes by comparing maximum penalties for similar types of corporate wrongdoing under different legislation and deduce from this comparison how the penalties available to ASIC compare internationally and whether these available penalties are: ‘..proportionate and consistent.’  The report further directs this comparison by examining penalties for: i) different types of market misconduct such as market manipulation, insider trading and making false statements to the market: and ii) financial services misconduct such as fraud, unlicensed conduct, false or misleading representations and inappropriate advice.

It is worth noting that the latter issue is an exceptionally hot potato in Australia currently due to the current Coalition Commonwealth Government’s proposals to dilute some of the advice requirements imposed upon financial advisers by the previous Labor Government’s Future of Financial Advice (FoFA) reforms. Interestingly the chair of the Financial Planners Association (FPA), Mr Matthew Rowe, who represents approximately half of Australia’s financial planners, is publicly opposing the proposed changes to financial advice requirements. There has also been strong criticism of the Commonwealth Government’s proposals regarding financial advice from consumer groups such as National Seniors Australia and academic commentators.

Returning to the report, the central conclusions made by the ASIC are that:

  • ‘..both the maximum terms of imprisonment and fines available in Australia are broadly consistent with those available in the overseas jurisdictions surveyed; and
  • non-criminal monetary penalties—including administrative penalties and disgorgement—are not as widely available and are lower in Australia when compared with the overseas jurisdictions surveyed.’

Regarding maximum imprisonment terms, of the four overseas jurisdictions surveyed three are largely comparable with Australia but in the United States (US) there is a marked difference. For example, the maximum term for disclosure offences in Australia is 5 years, but in the US it is 20 years, and for unlicensed conduct offences in Australia the maximum is 2 years and in the US again it is 20 years.

Even more marked perhaps are the differences between the ASIC and comparable regulatory actors in the other jurisdictions surveyed regarding regulatory capability to hand down civil and administrative penalties for individuals. For example maximum civil penalties in Australia for insider trading are $Aus200,000, where they are unlimited in Hong Kong and the United Kingdom (UK), in the US the greater of $Aus1,100,000 or three times the benefit gained, and in Canada $Aus1,050,000. There are similar discrepancies between the ASIC and the other jurisdictions regarding market manipulation, disclosure, false statements, unlicensed conduct and inappropriate advice. However, some Australian regulatory agencies do have greater flexibility and capacity than the ASIC in these areas:

‘For example, for cartel conduct, the Australian Competition and Consumer Commission (ACCC) can seek a civil penalty that is the greater of $10 million, three times the value of the benefits obtained that are reasonably attributable to the contravention or 10% of the annual turnover of the company (including related entities).’

Australia also seems to be out of regulatory step with the other jurisdictions in terms of the ASIC’s capacity to impose disgorgement penalties in non-criminal proceedings regarding the wrongdoing behaviours surveyed. In fact the ASIC has no capacity to require disgorgement of profits and other financial benefits gained whereas in the US disgorgement can be required across all the categories surveyed, Canada in all but disclosure, the UK all but unlicensed conduct, and Hong Kong all but disclosure and unlicensed conduct. Prima facie there would seem to be a good case for the ASIC to have access to such penalties. However, as discussed below it is important not only to document the availability of penalties and their maximums, but also to articulate the actuality of such penalties in practice in these jurisdictions in terms of their incidence and intensity.

An important element of any debate about penalties, whether in the corporate area or other parts of the legal system is what are the philosophical motivations underpinning systems of punishment. There are five widely accepted penal goals or as they are sometimes described, rationales for punishment: Incapacitation; Deterrence (including both general and individual deterrence); Rehabilitation; Restoration; and Retribution. They may be accorded slightly different labels in different jurisdictions and/or analytical commentaries. For example the New Zealand Ministry of Justice lists its five rationales and goals of sentencing as: Just Deserts (Retribution and Denunciation) and Proportionality; Deterrence; Incapacitation; Rehabilitation; and Restitution. Different jurisdictions and different regulatory actors may place different levels of emphasis upon various of these punishment goals. For example, there has been an increasing emphasis in the US on incapacitation allied with reduced belief in that country on the efficacy of rehabilitative strategies. The most high-profile manifestation of this is the three strikes and you are out policy summarised by the US Department of Justice in these terms:

 ‘Under the federal "Three Strikes" provision, which is now codified at 18 U.S.C. § 3559(c), the defendant receives mandatory life imprisonment if he or she: is convicted in federal court of a "serious violent felony" and has two or more prior convictions in federal or state courts, at least one of which is a "serious violent felony." The other prior offense may be a "serious drug offense."’

A similar emphasis on incapacitation in the US helps to explain the significantly higher maximum penalties available for corporate wrongdoing discussed earlier in comparison to those available in Australia. The ASIC lists the various types of regulatory tools available to it as: enforcement; education; policy advice; guidance; surveillance; and stakeholder engagement. Within its enforcement toolkit the ASIC lists its main available types of action: punitive (e.g. imprisonment, fines); protective (e.g. disqualification, banning orders); preservative (e.g. injunctions, freezing orders); corrective (e.g. disclosure); compensatory (e.g. damage recovery); and negotiated (e.g. enforceable undertakings). It can be seen that various of the sentencing rationales discussed above will be more influential in various of the enforcement responses available to the ASIC. For example, rehabilitation, individual deterrence, general deterrence and restoration priorities are influential in many enforceable undertakings imposed by the ASIC. However, it may be harder to discern the influence of discrete enforcement goals in certain other ASIC enforcement actions. This uncertainty is partially explained by the lack of comprehensive data surrounding the ASIC’s overall enforcement activities.

The ASIC acknowledges that it is more than ten years since there was a comprehensive review of its penalties regime. The penalties report can act as a springboard for further ASIC-oriented research in a number of areas. These might include, over for example a review period of the last five and/or ten years, examination of:

  1. What are the actual penalties that the ASIC has handed down for corporate wrongdoing and is there consistency regarding offences and ASIC penalties handed down over these periods?
  2. What are the actual penalties that Australian courts have handed down for corporate wrongdoing and is there consistency within individual jurisdictions on sentences allocated?
  3. Are there jurisdictional differences within Australia regarding the incidence and intensity of these recorded penalties?
  4. Given that the ASIC in this report has looked at the maximum penalties available in the four overseas jurisdictions of Ontario, Hong Kong, the UK and the US, what are the actual sentences that courts in those jurisdictions have handed down for corporate wrongdoing?
  5. What are the jurisdictional differences between them and Australia in terms of incidence and intensity?
  6. Are there differences between the ASIC and Australian courts regarding the penal goals that underpin their distribution of penalties for corporate wrongdoing?
  7. Are there differences between the various jurisdictions in comparison to Australia regarding the penal goals that underpin their sentencing trends for corporate wrongdoing?

This is by no means an exhaustive list and as ever available resources will shape the scale of any research in these areas. However, the examples above and associated research questions can help to provide increased empirical depth to debates about corporate wrongdoing, how widespread such behaviours may be, whether contemporary regulatory infrastructures are responding appropriately to corporate wrongdoing in Australia and elsewhere, what are the punishment rationales informing enforcement praxis, and how such regulatory responses might be improved. These are regulatory goals worth pursuing not only for the ASIC, but for all those with an interest in countering corporate wrongdoing in Australia. 

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