The International Investigations Review: Australia
The Australian government has empowered a number of regulatory bodies to investigate and prosecute corporate misconduct. These are:
- The Australian Securities and Investments Commission (ASIC) is the main corporate regulator. It enforces and regulates company law.
- The Australian Competition and Consumer Commission (ACCC) enforces and regulates competition and consumer laws.
- The Australian Tax Office enforces and administers the federal taxation system and superannuation law. It is Australia's principal revenue collection agency.
- The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the national financial intelligence agency. It enforces anti-money laundering and counter-terrorism financing laws.
All these regulatory bodies have, in some form, compulsory powers that can require individuals and companies to produce documents and information, including attendance at compulsory examinations where there is no privilege against self-incrimination. They also encourage cooperation when exercising their investigative functions.
When a matter is referred for criminal investigation, it is often investigated by the Australian Federal Police (AFP), the national law enforcement agency. The AFP is solely responsible for investigating contraventions of Commonwealth criminal law. The Commonwealth Director of Public Prosecutions (CDPP), the national prosecutorial agency, is in turn responsible for the prosecution of alleged offences against Commonwealth law.
When Australian legal practitioners conduct an internal investigation, it is likely to be in the context of a regulatory probe by one of these Australian government bodies, which may also include a concurrent criminal investigation by the AFP.
Australian regulators have had long-standing formal mechanisms in place for self-reporting of both civil and criminal wrongdoing. The AUSTRAC, the ACCC and the ASIC, for example, all have specific mechanisms for self-reporting, whether it be mandatory or voluntary. The ASIC, in particular, relies heavily on self-reporting to fulfil its regulatory oversight of the financial services sector. If a corporate cooperates with the ASIC, it can:2
- fully recognise that cooperation (taking into account whether the corporate has a self-reporting obligation);
- negotiate alternative resolutions to the matter;
- take into account the degree of cooperation provided during the investigation when determining the type of remedy or remedies sought, depending on all the circumstances of the case;
- in administrative and civil matters (other than civil penalty matters), make particular submissions to the tribunal or court as to what the outcome should be;
- in civil penalty matters, take the corporate's cooperation into account; and
- in criminal matters, take the corporate's cooperation into account.
A notable development in self-reporting is the recent formalisation of policy concerning foreign bribery, reflective of Australia's ever-growing presence on the international stage. On 21 December 2017, the AFP and the CDPP released a joint guideline clarifying the principles and process that apply to corporations who self-report conduct involving a suspected breach of Division 70 of the Criminal Code 1995 (Cth).3
Division 70 of the Criminal Code is concerned with the bribery of foreign public officials. Section 70.2 provides for the offence of bribing a foreign official. Contraventions of Section 70.2 carry significant penalties for an individual or corporation (up to 10 years' imprisonment and a fine of 10,000 penalty units for an individual, 100,000 penalty units for a corporation or three times the value of the benefit provided or 10 per cent of the corporation's annual turnover over a defined turnover period). Presently, there is no obligation to self-report suspected breaches of Division 70 of the Criminal Code.
Although self-reporting is not mandatory, providing full and frank disclosure and assistance to investigating authorities is an appropriate action following the discovery or detection of a contravention of Section 70.2. There are, as the guideline suggests, many reasons why a corporate would choose to self-report wrongdoing:4
- to proactively identify and address wrongdoing within the company;
- to comply with directors' statutory and fiduciary duties to act in the best interests of the company;
- to limit corporate criminal liability;
- to minimise reputational damage;
- to demonstrate a cooperative intent with the AFP in investigating the conduct;
- to maximise the sentencing discount that will be available to the company in any relevant prosecution of the company; and
- to be a good 'corporate citizen'.
The guideline suggests that assistance which the corporate entity could provide would include the provision of reports prepared by the corporation or its lawyers to investigators, and access to any witnesses that may ultimately give evidence in court. Assistance has its clear benefits; the corporation can be given an undertaking that evidence given by the corporation as a witness is not admissible, whether directly or derivatively, against the corporation in any civil or criminal proceedings.5 The corporation can also be given an indemnity from prosecution, but this indemnity does not prevent a proceeds of crime authority from commencing civil confiscation proceedings under the Proceeds of Crime Act 2002 (Cth).
The implementation of the guideline is in line with Australia's overall commitment to combat foreign bribery. Australia is a signatory to the Organisation for Economic Co-operation and Development's (OECD) Anti-Bribery Convention. A Phase 4 review of Australia's implementation of the Anti-Bribery Convention occurred in December 2017. The report following the Phase 4 review detailed several recommendations that indicate the Australian government's increased commitment to detecting and prosecuting foreign bribery. These include:6
- improving the potential for detecting foreign bribery through Australia's anti-money laundering system;
- enhancing whistle-blower protection for private sector employees;
- continuing to investigate and prosecute foreign bribery and ensuring appropriate resourcing of authorities to facilitate those improvements; and
- engaging with the private sector to encourage adoption of robust anti-bribery procedures.
Consistent with this approach are the measures set out under the 'Draft guidance on the steps a body corporate can take to prevent an associate from bribing public officials' consultation paper released by the Attorney General of Australia in November 2019. On 2 December 2019, the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2019 was introduced into Parliament. While the Bill is set to introduce a new corporate offence for failure to prevent a foreign bribery offence, commissioned by an associate of a body corporate, under Section 70.5A the Criminal Code Act 1995 (Cth), it also includes a proposed defence if the body corporate can demonstrate it had adequate procedures in place to prevent such an offence. Following consideration of feedback received from relevant stakeholders in February 2020, the Attorney General intends to publish a final guidance paper to coincide with the introduction of the amending legislation.
ii Internal investigations
Established on 14 December 2017, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has shed light on the practices and culture of the financial services industry, revealing inadequacies in the investigative and reporting practices adopted by some of Australia's largest corporate entities. Common criticisms levelled at these entities concern the delay in reporting misconduct, general obscurification, misleading behaviour and interference with functions of the corporate regulator, and questionable 'independent reporting' by law firms retained to conduct internal investigations and respond to regulatory probes.
The final report of the Commissioner, the Honourable Kenneth M Hayne AC QC, was submitted on 1 February 2019. The report included 76 recommendations relating to the conduct of banks, mortgage brokers, financial advisers and superannuation trustees as well as Australia's financial services regulators. The Commissioner invited ASIC to investigate 11 potential instances of criminal misconduct, with the view of instigating criminal or other legal proceedings as appropriate. The report stressed the need for supervisory bodies such as the Australian Prudential Regulation Authority and ASIC to build a supervisory programme 'focused on building culture that will mitigate the risk of misconduct'.7
Following the release of the final report, ASIC announced that would establish an internal 'Office of Enforcement', creating a separate department for enforcement staff with a specific focus on court-based outcomes.8 The ASIC Office of Enforcement is now established and is operational following a A$404 million federal government investment package. A marked shift towards increased investigation and litigation by the agency is evidenced by a 20 per cent increase in ASIC enforcement investigations and a 206 per cent increase in wealth management investigations between July 2018 and June 2019. This trend of increased enforcement by way of litigation is set to continue in the foreseeable future. Between 1 January 2019 and 30 June 2019, ASIC expressly targeted contraventions in the following areas, said to be of primary concern:
- harm caused by corporate gatekeepers, including auditors and liquidators, who hold positions of responsibility and trust, and who must lawfully discharge the obligations their positions carry;
- dishonest, misleading and deceptive conduct by those providing financial advice or financial services; and
- market misconduct that threatens to create uncertainty and erode investor confidence.9
The inadequacies revealed by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry illustrate that the decision to investigate can be a difficult one, particularly where there is a grave risk of reputational damage and the consequent erosion in public confidence in the organisation. Of primary concern is whether an internal investigation is required to comply with a relevant law, regulation or corporate policy. A secondary concern must always be the exercise of balancing the costs associated with any internal investigation and the effects of inactivity, delay and failing to investigate.
Commonly, internal investigations are undertaken by a lawyer or team of in-house lawyers. Sometimes, because of the scope or complexity of an investigation, external law firms will be briefed alongside specialist investigators, auditors and accountants. These firms usually specialise in civil litigation and corporate law more generally. However, the emerging understanding of the internationalisation of economic crime may change this paradigm. Advances in digital technology have driven an increase in incidences of white-collar crime and cybercrime. Corporations may think it prudent to use specialist criminal lawyers to provide advice much earlier in the investigation process and, where appropriate, assist in the conduct of the internal investigations. Where there is a concurrent regulatory probe with parallel criminal investigations in multiple jurisdictions, complex transnational criminal issues may arise concerning the right against self-incrimination; the use of the exchange of information and data between jurisdictions for criminal investigation and prosecution; and, if there is a request for extradition, whether dual criminality or double jeopardy are applicable.
In-house lawyers need to be particularly aware of the possibility that an internal investigation can lead to both civil and criminal proceedings, sometimes running concurrently, and sometimes crossing multiple jurisdictions. The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters allows for evidence to be taken through Australian courts for use in a foreign civil proceeding following a request by a foreign court.10 Every state and territory in Australia has legislation that allows for evidence to be taken in this way, and often when such evidence is being sought, it is not uncommon for there to be a criminal investigation already under way. Notably, some protections are preserved under the Convention, the fifth amendment, for example, can be claimed in Australia where the subpoenaed party faces criminal charges in the United States. The use of international mechanisms such as the Hague Convention, when corporations are subjected to both regulatory and criminal prosecutions, is likely to become more prevalent, until such time as an international convention or treaty specifically focusing on economic crime is adopted. In the meantime, substantive legal issues such as mutual assistance across jurisdictions, including adequate safeguards for human rights such as the right to a fair trial and privacy, will need to be considered by the courts on a case-by-case basis, under domestic law's interpretation of the Hague Convention.
In December 2016, as part of its Open Government National Action Plan, the Australian government made a commitment to ensure that there were appropriate protections for persons reporting corruption, fraud, tax evasion or avoidance and misconduct within the corporate sector.11 A year later, on 13 December 2017, the Treasury Laws Amendment (Whistleblowers) Bill 2017 (Cth) was introduced in Parliament, some 13 years after the introduction of legislative protection for whistle-blowers under the Corporations Act 2001 (Cth). The Act has now passed both Houses of Parliament and came into force on 1 July 2019.
The Bill was introduced because of perceived deficiencies with the existing regime; namely, gaps in whistle-blower protection. Statutory protection for some whistle-blowers is non-existent and only piecemeal in other areas, and some protections have not adjusted to reflect the actual remits of regulators.
The amendments to the Corporations Act 2001 (Cth) are designed to advance the government's goal of encouraging the disclosure of civil and criminal wrongdoing, particularly in the private sector, to improve overall compliance with laws and regulations by corporations. The government considers whistle-blowers to be playing a critical role in uncovering corporate crime, particularly because of the difficulties faced by law enforcement in detecting corporate misconduct.
The Bill creates a single, consolidated whistle-blower protection regime in the Corporations Act 2001 (Cth) and a whistle-blower protection regime in the Taxation Administration Act 1953 (Cth) through various legislative amendments. It also repeals the financial whistle-blower regimes.
The changes to protections in the Corporations Act 2001 (Cth) are overwhelmingly positive. No longer are whistle-blowers required to identify themselves when making a disclosure, and the types of persons and bodies that are allowed to disclose the identity of whistle-blowers have been comprehensively clarified in the Bill. Existing immunities have been extended, the amendments ensuring that information that is part of a protected disclosure is not admissible in evidence against that whistle-blower in a prosecution for an offence (other than in proceedings concerning the falsity of the information).
The remedies available to whistle-blowers who suffer detriment because of a qualifying disclosure in the Corporations Act 2001 (Cth) have been expanded. The Bill creates a civil penalty provision to address the victimisation of whistle-blowers and allows for the criminal prosecution of victimisers. Other remedies, such as compensation, have been simplified. A person can seek compensation for loss, damage or injury suffered as a result of a victimiser's conduct, where that conduct causes any detriment to another person or threatens to cause detriment to another person, believing or suspecting that a person made, may have made, proposes to make, or could make a qualifying disclosure; and the belief or suspicion is the reason, or part of the reason, for the conduct.
The Bill also addresses corporate governance concerns by introducing a requirement for large proprietary companies and proprietary companies that are trustees of registrable superannuation entities to implement whistle-blower policies. The policies have to detail the protections available to whistle-blowers, how and to whom disclosures can be made, the support that the corporate will offer to whistle-blowers, the corporate's investigation process and how the corporate will ensure fair treatment of employees mentioned or referred to in whistle-blower disclosures.
The comparable amendments to the Taxation Administration Act 1953 (Cth) introduce protections and remedies for whistler-blowers who make disclosures about breaches or suspected breaches of Australian taxation law or taxation-related misconduct. As with the amendments to the Corporations Act 2001 (Cth), the revised act offers protection for whistle-blowers from civil, criminal and administrative liability in respect of qualifying disclosure, the creation of offences in respect of conduct that causes detriment to a person, and offers a mechanism for court-awarded compensation to persons who suffer damage in respect of a qualifying disclosure.
The Honourable Senator Mathias Cormann (Minister for Finance and Deputy Leader of the Government in the Senate) commented during the second reading of the Bill that the 'reforms will also improve practices within Australian businesses, including in the areas of corporate governance and integrity. Officers, employees and taxpayers will now be aware that there is a significantly higher likelihood that misconduct will be reported'. The new whistle-blower amendments will align Australia with international developments and it is expected that this will lead to an increase in regulatory and criminal investigations as well as prosecutions of corporations. Time will tell, however, if the Bill will be the catalyst for immediate change.
i Corporate liability
It is expected that Australia's existing corporate liability regime will soon be subject to radical transformation. The Australia Law Reform Commission (ALRC) is presently undertaking a comprehensive review under terms of reference which indicate that broad changes should be expected, aimed to simplify and strengthen the existing statutory provisions that attribute criminal liability to companies in Australia. The Attorney-General of Australia has referred the following matters to the ALRC:
- the policy rationale for Part 2.5 of the Criminal Code 1995 (Cth);
- the efficacy of Part 2.5 of the Criminal Code 1995 (Cth) as a mechanism for attributing corporate criminal liability;
- the availability of other mechanisms for attributing corporate criminal responsibility and their relative effectiveness, including mechanisms which could be used to hold individuals (senior corporate office holders) liable for corporate misconduct;
- the appropriateness of effectiveness of criminal procedure laws and rules as they apply to corporations; and
- options for reforming Part 2.5 of the Criminal Code 1995 (Cth), or other relevant legislation to strengthen and simplify the Commonwealth corporate criminal responsibility regime.12
Under the existing regime, civil and criminal corporate liability can be derived from common law or from statute. The standard of proof in civil proceedings is 'on the balance of probabilities', while in criminal proceedings it is 'beyond a reasonable doubt'.
Under common law, a corporation is liable for the conduct and guilty mind of a person or persons who are the directing will and mind of the corporation. Commonly, that person or persons will be the managing director, board of directors or a person who has the authority to act on the corporation's behalf. Criminal liability can also extend to employees or agents acting within the actual or apparent scope of their employment, if the corporate expressly, tacitly or impliedly authorises or permits the conduct that is the subject of the offence.
Statutory liability is more clearly defined. Chapter 2, Part 2.5, Division 12 of the Criminal Code 1995 (Cth), for example, outlines corporate criminal responsibility as it applies to the Code. The Criminal Code 1995 (Criminal Code) applies to bodies corporate in the same way it applies to individuals (or where provided, with modifications). For the most part, offences under the Criminal Code have physical elements (action or conduct) and fault elements (intention, knowledge, recklessness or negligence). These elements must be satisfied beyond reasonable doubt in order for an offence to be proven beyond reasonable doubt. Notably, a body corporate may be found guilty of any offence under the Criminal Code, including one punishable by imprisonment.
Where a physical element of an offence is committed by an employee, agent or officer of a body corporate acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent authority, the physical element must also be attributed to the body corporate. If intention, knowledge or recklessness is a fault element in relation to a physical element of an offence, that fault element must be attributed to a body corporate that expressly, tacitly or impliedly authorised or permitted the commission of the offence. Authorisation or permissions may be established by various modes of proof.
Other acts of Parliament, such as the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth), contain similar liability provisions.
Most criminal conduct is investigated by the AFP and prosecuted by the CDPP.
Two key changes to the existing statutory scheme, proposed by the ALRC include:
- Expanding the individuals whose conduct may be attributed to the corporate body from 'officers, employees, and agents' to 'associates' acting on behalf of the corporation. An associate is proposed to be defined as 'any person who performs services for or on behalf of the body corporate'. Significantly, in addition to employees and agents, this may extend to parties such as contractors and subsidiaries.
- The introduction of a due diligence defence of which the legal burden of proof rests on the corporation. Currently, a corporation may be either vicariously or directly liable for the actions of its employees, without necessarily having recourse to a due diligence defence in certain situations. The question of whether a corporation has in fact exercised due diligence is a matter of fact which can again be established using various modes of proof.
Comparable defences feature in existing legislative schemes in the United Kingdom, one example being Section 7(2) of the Bribery Act 2010 (UK) which creates a defence where 'adequate procedures' are in place to prevent bribery.
The ALRC final report is due on 30 April 2020. While the shift towards more aggressive enforcement action has already commenced, reform focusing on simplification of Part 2.5 of the Code and consolidation of the presently diverse corporate liability regulatory landscape in Australia will further strengthen the overall means by which the regime can be used to attribute corporate criminal liability and create an environment hostile to criminal contraventions on the part of corporate bodies.
The main form of penalty imposed on a corporate body is a fine.
Statutory fines have defined maximum limits, either expressed by a maximum number of penalty units that can be imposed or by a monetary figure. In a law of the Commonwealth or Territory ordinance, unless the contrary intention appears, one penalty unit amounts to A$210. The quantum of the fine can be significant. For example, if a corporate body is found guilty of the offence of bribery of a Commonwealth public official, the maximum fine that can be imposed is 100,000 penalty units (amounting to A$21 million).
Serious offences can, in certain circumstances, lead to the company being wound up pursuant to Section 461 of the Corporations Act 2001 (Cth). Similarly, serious offences can lead to confiscation proceedings being brought by the AFP pursuant to the Proceeds of Crime Act 2002 (Cth) (the Act). The Act was passed on 11 October 2002 and came into operation on 1 January 2003. The Act provides a scheme to trace, restrain and confiscate the proceeds of crime against Commonwealth law. In some circumstances, it can also be used to confiscate the proceeds of crime against foreign law or the proceeds of crime against State law (if those proceeds have been used in a way that contravenes Commonwealth law). It is expected that the proceeds of crime laws will increasingly be applied to white-collar matters where, in the past, they have been mostly applied to general crime.
The Corporations Act 2001 (Cth) and The Australian Securities and Investment Act (Cth) provide similar sanctions. Notably, a recent review by the ASIC Enforcement Review Taskforce has called for an increase in civil penalty amounts in legislation administered by the Commission: for individuals, 2,500 penalty units (amounting to A$525,000) and for corporations the greater of 50,000 penalty units (amounting to A$10.5 million) or three times the value of benefits obtained or losses avoided or 10 per cent of annual turnover in the 12 months preceding the contravening conduct (but not more than 1 million penalty units (A$210 million)). Additionally, it was recommended that ASIC be provided with similar powers to the AFP and be directly able to freeze and forfeit proceeds of crime.
In response to the review of the ASIC Enforcement Review Taskforce, the Treasury Laws Amendment (Strengthen Corporate and Financial Sector Penalties) Bill 2018 was introduced to Parliament on 24 October 2018 and passed by both Houses of Parliament on 18 February 2019. The legislative response includes reforms that ultimately exceed the penalty regime as proposed by the Taskforce.
Under the amendments to the Corporations Act 2001 (Cth) and the Australian Securities and Investment Act (Cth), the maximum civil penalty amounts for individuals are at least 5,000 penalty units (amounting to A$1.05 million) or three times the financial benefits obtained or losses avoided; and, for corporations, at least 50,000 penalty units (amounting to A$10.5 million) or three times the value of benefits obtained or losses avoided, or 10 per cent of annual turnover in the 12 months preceding the contravening conduct (but not more than 2.5 million penalty units (A$525 million)).
Other penalties include enforceable undertakings, where the company must carry out or refrain from certain conduct. These are not available where the penalty imposed is dealt with by criminal sanction and are only appropriate for minor breaches of the law.
iii Compliance programmes
A corporate's compliance programme will be relevant to the corporate's criminal liability. For example, liability for some offences charged pursuant to the Criminal Code can be established on the basis that the corporate impliedly authorised the offending conduct by failing to create and maintain a culture that required compliance with the relevant provision. The existence of a compliance programme and the exercise of due diligence will be relevant under Section 12.3(3) of the Criminal Code and will be expressly provided for as a defence under the proposed ALRC recommendations considered above.
Notably, a corporation may rely on the defence of mistake of fact pursuant to Section 9.2 of the Criminal Code. The corporate must prove that the corporation had a compliance programme and exercised due diligence.
Additionally, the existence and effectiveness of a compliance programme may be a relevant factor at sentence proceedings, as it can change the court's assessment of objective criminality of the offence.
iv Prosecution of individuals
Chapter 2D, Part 2D.1, Division 1 of the Corporations Act 2001 (Cth) provides for the general duties of officers and employees of a corporation. Section 180 imposes a civil obligation of care and diligence; Section 181 imposes a civil obligation to act in good faith in the best interests of the corporation; Section 184 makes it a criminal offence if a director or other officer of a corporation is reckless or intentionally dishonest in failing to exercise their powers and discharge their duties in good faith in the best interests of the corporation or for a proper purpose. Further, under Section 184, if an employee of a corporation uses his or her position or uses information dishonestly to gain an advantage, he or she is also liable to a criminal penalty.
Whether an individual is prosecuted or not for contraventions of the Corporations Act 2001 (Cth) will depend on the severity and nature of the contravention.
i Extraterritorial jurisdiction
Australia's corporate and criminal laws have limited extraterritorial application. Typically, the laws will require that the act, omission or person to have some connection with Australia.
The regulation of corporations under the Corporations Act 2001(Cth) extends to foreign corporations who are 'carrying on business' in Australia.13 For example, the power to disqualify individuals under the Corporations Act 2001 is limited to the time when those individuals are managing a foreign corporation, unless the act or omission occurred in connection with the foreign company carrying on business in Australia; or if the act or omission was done or proposed to be done in Australia; or if the act or omission was a decision made by the foreign company whether or not to carry out, or to refrain from doing an act in Australia.14
Under the Criminal Code, a person does not commit an offence unless the conduct of the alleged offence occurred wholly or partly in Australia, or the result of the conduct occurs wholly or partly in Australia.15 However, geographical jurisdiction is extended in certain circumstances; for example, where at the time of the alleged offence the offence occurs wholly outside the jurisdiction of Australia, and the person is an Australian citizen or the person is a body corporate incorporated by or under a law of the Commonwealth or of a state or territory.16
ii International cooperation
Australia cooperates with overseas law enforcement and regulatory bodies in a number of ways through both formal and informal channels, across multilateral and bilateral treaties as well as through international conventions.
The ASIC, for example, has agreements with a number of other countries' law enforcement authorities, which allow for cooperation between countries. These memorandums of understanding enable the exchange of information and for mutual cooperation and assistance to investigations. Australia has such agreements with a wide range of countries, such as Austria, Brazil, China, France and Japan.17 However, there are some restrictions on the extent to which the ASIC can provide assistance to foreign authorities. Sections 6 and 7 of the Mutual Assistance in Business Regulation 1992 (Cth) require the ASIC to receive authorisation from the Attorney-General prior to obtaining documents and testimony on behalf of foreign authorities.
International cooperation is also achieved through Australia's involvement in a number of tax information exchange agreements (TIEAs) as developed by the OECD. These agreements allow for an obligation between Australia and non-OECD countries to assist each other by requesting the exchange of tax information to eliminate the avoidance of tax. The information that can be exchanged is limited to when a specific investigation is occurring.18 Australia has TIEAs with a number of countries, including The Bahamas, Cayman Islands, Guatemala, Liechtenstein and Vanuatu.19
Australia is party to a number of bilateral and multilateral extradition treaties. Extradition requests (either made by Australia or received by Australia) are governed by the operation of the Extradition Act 1988 (Cth). Extradition is used only for serious offences, and most commonly for offences committed against the person.
Australia also has agreements with international law enforcement agencies. In particular, the AFP is part of the International Foreign Bribery Taskforce. The taskforce involves the Federal Bureau of Investigations, the Royal Canadian Mounted Police, the AFP and the United Kingdom's National Crime Agency working together to provide information and cooperation on cross-border anti-corruption investigations; it allows for the agencies involved to share knowledge, investigative techniques, methodologies and best practice.20
iii Local law considerations
Privacy is a major concern when information is shared with overseas entities and authorities. Schedule 1 of the Privacy Act 1988 (Cth) contains the Australian Privacy Principles (APPs). These principles outline that where information is being shared by an APP entity (which includes the AFP and bodies established by a Commonwealth enactment such as the ASIC) to an overseas recipient, the entity must take reasonable steps to ensure that the recipient does not breach the principles.21 However, this principle does not apply where disclosure is required or authorised by an international agreement relating to information sharing, or is reasonably necessary for enforcement-related activities.22 This means that the principles will not apply in instances such as when the AFP or the ASIC sends information to other regulatory agencies to provide information relevant to ongoing investigations. Currently, there is little jurisprudence in Australia dealing with the proper parameters on the exchange of information across jurisdictions where criminal sanctions may apply. This is an area in which Australian courts may become more involved, as the internationalisation of economic crime has been attended by a significant increase in the dissemination and sharing of information about individuals and corporations with, to date, very little oversight by Australia's judiciary.
Year in review
On 23 March 2019, the federal government continued its post-Royal Commission reform measures by announcing a A$35 million investment to extend the federal court's jurisdiction to cover corporate crime. There have been a number of high-profile cases in various Australian federal and state jurisdictions during the past year across a broad area of white-collar crime offending that has required Australian courts to consider the appropriate sentencing principles and penalties to be applied to corporate offenders. Most of the court cases have involved individuals rather than corporations.
In Commonwealth Director of Prosecutions v Nakhl  NSWDC (Unreported), the defendant was sentenced on 15 March 2019 having entered pleas of guilty of eight counts of engaging in dishonest conduct while carrying out a financial services business under Section 1041G(1) of the Corporations Act 2001 (Cth). Four further counts under the same offence provision where considered on sentence pursuant to Section 16BA of the Crimes Act 1914 (Cth). The offending conduct occurred while Mr Nakhl was acting as a financial adviser and representative of both Australian Financial Services Ltd, which was in liquidation, and SydFA Pty Ltd, which was deregistered.
Mr Nakhl misappropriated and lost approximately A$5.1million dollars of self-managed superannuation funds, invested by 12 separate clients, in personal and business ventures not authorised by the given investors. Mr Nakhl then furnished false reports to the investors, which indicated that funds had been invested in authorised funds and that the funds were performing to a satisfactory standard.
Following investigation, ASIC initially obtained freezing orders against assets held by Mr Nakhl prior to his declaration of bankruptcy. Mr Nakhl was sentenced to 10 years' imprisonment with a non-parole period of six years. The sentence represents the longest sentence of imprisonment ever imposed against a financial adviser in Australia.23
Hui (Steven) Xiao v. R  NSWCCA 4 was an appeal to the Court of Criminal Appeal on the severity of a sentence. The appellant had pleaded guilty to one count of procuring another person to acquire financial products while possessing inside information contrary to Sections 1043A(1)(d) and 1311(1) of the Corporations Act 2001 (Cth) and one count of entering into an agreement to commit an offence under Sections 1043A(1)(d) and 1311(1) of the Corporations Act 2001 (Cth). The appellant had been sentenced to an overall term of imprisonment of eight years three months with a non-parole period of five years six months.
The appellant was the managing director of Hanlong Mining Investment Pty Ltd, a subsidiary of the Chinese corporation, Sichuan Hanlong Group Co Ltd. The appellant's role was to identify possible opportunities for investment. In 2010, Bannerman Resources Ltd and Sundance Resources Ltd were identified as investment targets. In early 2011, the appellant was involved in the preparation of a potential takeover of both companies. In July 2011, Sichuan Hanlong decided to make takeover offers. Because of his involvement with Sichuan Hanlong, the appellant was aware of the decision shortly after it was made.
The appellant used his wife's trading account and the trading company he owned and controlled to purchase financial products in both Bannerman and Sundance prior to the announcement of the takeover. There was an agreement made with a Mr Zhu and others, whereby Mr Zhu would purchase financial products in Bannerman and Sundance for the benefit of the appellant and others using funds borrowed from Hanlong Mining.
The Court of Criminal Appeal had quashed the original sentence and imposed an overall term of imprisonment of seven years with a non-parole period of four years six months because of parity concerns, and because of the possibility that the sentencing judge erred in not taking account of evidence that the appellant would experience more onerous custody as he was a foreign national.
Notably, no error was established in respect of the sentencing judge's findings that the conduct was 'carefully planned and premeditated', that the appellant's attempts to conceal his involvement in procuring illegal trades was an aggravating feature of the offending, or by having multiple regard to the appellant's concealment of his identity by making purchases that were not in his own name, or to the fact that the loan to finance the purchases was drawn from a related party of Hanlong Mining.
In R v. Issakidis  NSWSC 378, the defendant was found guilty on 13 June 2017 by a jury, of two conspiracy offences, one contrary to Section 135.4(5) of the Criminal Code and one contrary to Sections 11.5(1) and 400.3(1) of the Criminal Code. The defendant and his co-conspirator were directors of Neumedix Health Australasia Pty Ltd. The defendant and his co-conspirator agreed to cause Neumedix Health to make false depreciation claims in its tax returns of many hundreds of millions of dollars. The depreciation claims were in respect of the alleged cost of acquisition by Neumedix Health of certain medical technologies, even though it was agreed that no such cost was to be incurred. This enabled Neumedix Health to avoid incurring tax liabilities on income it was deemed to have received as the owner of units in a number of trusts. These trusts generated very large taxable profits.
The defendant and his co-conspirator agreed to deal with the 'proceeds of crime', that is to say amounts in various bank accounts that represented the cash distributions from the trusts to Neumedix Health. It was agreed that the funds be distributed offshore to various accounts controlled by entities associated with the defendant and then repatriated to Australia, largely for the benefit of the defendant and his co-conspirator.
Ultimately, an aggregate sentence of 10 years three months was imposed with a non-parole period of seven years six months, the sentencing judge determining that the offending was motivated by greed and that there was a strong need for deterrence as the offences were in the worst category (the loss to the Commonwealth was in excess of A$100 million).
In the case of ACCC v. Yazaki Corporation  FCAFC 73, it was found that Yazaki Corporation had engaged in collusive conduct with a competitor, Sumitomo Electric Industries Ltd, in the course of supplying Toyota Australia with goods in the form of wire harnesses for motor vehicles. The offending cartel conduct involved an agreement, observed over an extended period, relating to requests for quotations issued by Toyota. Following the ACCC's successful appeal against the fine imposed at first instance, the Full Federal Court of Australia imposed a penalty of A$45 million. This represents the highest financial penalty imposed under the Competition and Consumer Act 2010 (Cth).
These cases demonstrate an increased appetite on the part of the ACCC to commence proceedings against companies operating in Australia in relation to cartel conduct, as well as a trend of increasing financial penalties imposed by the courts in response to such conduct.
On 28 November 2018, following the lifting of long-standing suppression orders, previously restricted sentence proceedings relating to foreign bribery prosecutions against Note Printing Australia Limited (NPA) and Securency International Pty Ltd (Securency) were released. On the facts as agreed in The Queen v. Note Printing Australia Limited & Anor  VSC 302, both companies were subsidiaries for the Reserve Bank of Australia and were involved in the manufacture and supply of polymer banknotes used in Australia and internationally. The core offending conduct involved the payment of Indonesian, Malaysian, Vietnamese and Nepalese agents, engaged by the companies to assist in obtaining contracts with banks in the aforementioned countries.
While the substantial commission paid to overseas agents did not represent an offence, significantly it was demonstrated that Securancy and NPA employees, including persons acting in the roles of general manager and chief financial officer, were aware that the local agents were paying a portion of their commission to bank officials with the intention of improperly influencing them in the exercise of their duties. These payments were described by Securancy and NPA employees as 'special commission'. Both companies were fined A$480,000, reduced by virtue of an undertaking on the part of both companies to provide future assistance to authorities.
In the case of Australian Securities and Investments Commission v. Vocation Limited (In Liquidation) (No 2)  FCA 1783, the federal court delivered judgment on civil penalty proceedings against Vocation Limited and three of its officers who held previous roles as CEO, Chairman and CFO. The proceedings arose following an ASIC investigation into Vocation's entry into a Deed of Settlement with the Victorian Department of Education and Early Childhood Development in October 2014. All three officers where ultimately declared to have failed to meet the requisite standard of care and diligence in exercising company functions, in contravention of Section 180 of the Corporations Act 2001 (Cth,) following misleading representations made in relation to the company's securities as well as failures to notify the Australian Securities Exchange (ASX) of relevant information. The company was also found guilty of providing the ASX with a defective cleaning notice, which was then relied upon to raise in excess of A$72 million from investors.
For failing to prevent misleading market disclosures, personal pecuniary penalties ranging from A$25,000 to A$70,000 were imposed against the three individuals and disqualification orders were made against each officer ranging from two to six years. A cost order was also made in favour of ASIC following the completion of proceedings.
On 11 March 2020, in Australian Securities Investments Commission v. King & Anor  HCA 4 the High Court unanimously allowed an appeal from the Queensland Court of Criminal Appeal brought by ASIC and concerning the correct construction of Section 9 of the Corporations Act 2001 (Cth).
ASIC had initially brought proceedings against Mr King, the CEO and executive director of MFS Ltd, the parent company of a group providing funds management and financial services, alleging that Mr King had breached his duties as an 'officer' under Section 601FD of the Corporations Act 2001 (Cth). Significantly, the alleged breach related to activity of a subsidiary investment entity, MFS Investments Pty Ltd, at a time at which Mr King had ceased to be a director. The breach involved the unauthorised payment of company debts using a loan drawn down from the Royal Bank of Scotland.
The Queensland Court of Appeal found that Mr King did not fall within the capacity of an officer as he did not occupy a recognised position to which duties attached. By grant of special leave, ASIC appealed and the High Court found that the Mr King had the capacity to significantly affect the financial standing of the company and as such, should be deemed an 'officer' for the purposes of Section 9. As point of practice flowing from the decision, it must be recognised that all persons who make decisions that effect subsidiary companies can potentially be held liable for the criminal or civil misconduct of the subsidiary, even when the such persons do not formally hold an office or position in the subsidiary.
As new legislation is introduced with increased maximum penalties, it is likely that the courts will approach sentencing principles such as general and specific deterrence against the new maximum penalties that will apply. This is likely to lead to an overall increase in the length of terms of imprisonment that will be imposed as punishment for serious white-collar offences.
Conclusions and outlook
It is anticipated that the next 12 to 18 months will be a period of increased legislative and policy reform in the area of white-collar crime. Central to this reform are the final recommendations of the ALRC in relation to corporate criminal responsibility, which have the potential to prompt radical legislative transformation of Australia's existing criminal liability regime for corporate bodies.
The forecasted changes include the new anti-money laundering and counter-terrorism financing laws that have been implemented by the AUSTRAC. These laws regulate digital currency exchange (DCE) providers operating in Australia. Businesses that are operating in Australia must register with the AUSTRAC and meet the Australian government's anti-money laundering and counter-terrorism compliance and reporting obligations. The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) requires regulated entities to collect information to establish a customer's identity, monitor transactional activity, and report to the AUSTRAC any transactions or activities that are suspicious or involve large amounts of cash (over A$10,000). It is foreseeable that regulatory investigations into DCE compliance with Australia's anti-money laundering legislation will be on the regulators' agenda in the next 12 months.
It is also expected that amendments will be made to certain penalty provisions of the Criminal Code to bring it in line with the Senate Economics References Committee March 2017 report, 'Lifting the fear and suppressing the greed: Penalties for white-collar crime and corporate and financial misconduct in Australia'. The report recommended an increase in civil penalties under the Corporations Act 2001 (Cth) for individuals and companies, a change in the manner in which civil penalties are calculated and empowering the ASIC to have disgorgement powers. Following the commencement of the Treasury Laws Amendment (Strengthen Corporate and Financial Sector Penalties) Bill 2018, a number of these proposed changes are presently in force.
1 Dennis Miralis and Phillip Gibson are partners and Jasmina Ceic is a senior associate at Nyman Gibson Miralis.
2 ASIC Information Sheet 172 (INFO 172), issued in May 2015.
3 AFP and CDPP Best Practice Guidelines: Self-reporting of Foreign Bribery and Related Offending by Corporations.
6 Implementing the OECD Anti-Bribery Convention Phase 4 Report: Australia.
7 Recommendation 5.7, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
8 ASIC update on implementation of Royal Commission recommendations, 19 February 2019.
9 ASIC Enforcement Update Report: January to June 2019 (Report 625), pp. 3–4.
10 Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters.
12 Australia Law Reform Commission Discussion Paper 'Corporate Criminal Responsibility', DP 87, November 2019.
13 Part 5.B, Division 2, Corporations Act 2001 (Cth).
14 Section 206H, Corporations Act 2001 (Cth).
15 Division 14, Criminal Code 1995 (Cth).
16 Division 15, Criminal Code 1995 (Cth).
20 www.afp.gov.au/news-media/media-releases/global-effort-tackle-foreign-bribery-and-corruption-strengthened; www.dentons.com/en/insights/alerts/2017/january/19/the-international-foreign-bribery-taskforce.
21 Section 6, Privacy Act 1988 (Cth); Australian Privacy Principle 8.1.
22 Australian Privacy Principle 8.2.