This article was written by Tim Bednall
In April 2019, the Federal Government announced that it had commissioned the Australian Law Reform Commission (ALRC) to undertake a comprehensive review of Australia’s corporate criminal liability regime.
The ALRC will examine the Commonwealth laws under which criminal liability can be attributed to corporations for the acts of their directors, officers, employees and agents. Corporate criminal liability arises principally under part 2.5 of the Commonwealth Criminal Code.
Specifically, the reference includes:
“a consideration of whether, and if so what, reforms are necessary or desirable to improve Australia's corporate criminal liability regime. In particular, the ALRC should review the following matters:
- the policy rationale for Part 2.5 of the Code;
- the efficacy of Part 2.5 of the Code 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 (e.g. senior corporate office holders) liable for corporate misconduct;
- the appropriateness and effectiveness of criminal procedure laws and rules as they apply to corporations; and
- options for reforming Part 2.5 of the Code or other relevant legislation to strengthen and simplify the Commonwealth corporate criminal responsibility regime.”
The ALRC has been encouraged to consult widely on these issues, and report by 30 April 2020.
The issue of greatest concern for directors and officers of Australian companies is the possibility that the ALRC may recommend reforms by which directors and officers could be held criminally liable for the criminal offences of their companies, in circumstances where their involvement is not of the kind that is sufficient to establish accessorial liability. There are already many Commonwealth and State statutes under which directors are deemed to commit offences of strict liability where their companies breach laws concerning the environment and work health and safety. However, under recent COAG reforms, those statutes now provide directors with “reasonable steps” or “due diligence” defences. The prospect of a general regime under which directors and officers could be held criminally responsible for any crime committed by their company, even though they did not have “knowing involvement” (to simplify the test for accessorial liability), is of great concern.
Another issue that is sure to attract the spotlight in this review is the role of “corporate culture” under the current section 12.3 of the Criminal Code, which allows a court to find that the “fault” element of a crime committed by a corporation may be established by:
- proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision; or
- proving that the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision.
“Corporate culture” is defined to mean “an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place”.
This is a long way from having to prove intent or recklessness in order to convict an individual of a crime.
It is likely that the ALRC will therefore consider whether a director who failed to prevent a poor corporate culture, or failed to instil a corporate culture of compliance, should also be held criminally liable for a crime “proved” to have been committed by the corporation on those grounds. We do not think that would be an “improvement” to the corporate criminal liability regime, even with a “reasonable steps” defence: it is one thing for ASIC to seek civil penalties against directors for breaching their duty of care and diligence by failing to prevent contraventions by their companies, as ASIC continues to do; it is quite another to attribute criminal liability for failing to instil a culture of compliance.
The Law Council has made submissions to the ALRC concerning a number of specific issues that should be considered by the ALRC in its review, including consistency of tests for criminal responsibility across Commonwealth and State statutes.