28 March 2019

Tougher new penalties for corporate and financial sector misconduct

This article is written by Joe Muraca and Victoria Ngomba.   

On 18 February 2019, two weeks after the final report on the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was published, Parliament passed the Treasury Laws Amendments (Strengthening Corporate and Financial Sector Penalties) Bill 2018 (the Bill). 

The Bill includes amendments to the Corporations Act and ASIC Act to strengthen the civil and criminal penalties for corporate and financial sector misconduct.  Most of the amendments commenced on 13 March 2019 and introduce new civil penalty provisions, increased civil penalties, new criminal offences and increased terms of imprisonment for certain serious criminal offences.  Below is an overview of the changes to the Corporations Act.  Our previous detailed alert setting out the key amendments to the Corporations Act can be found here.

Amendment

Overview

Penalties for certain criminal offences have been updated 

  • A number of criminal offences have had their maximum terms increased, with some of the more serious offences attracting a maximum imprisonment term of 15 years.  A list of the relevant provisions can be found here

  • Financial penalties for criminal offences have increased:

  • Where an offence imposes a fine as the only penalty, if contravened by a body corporate, the fine will be multiplied by 10;
  • Where an offence provides a term of imprisonment of 10 years or more as the only specified penalty, the financial penalty is calculated as follows:
 Bodies corporate
Individuals

The greater of:

  • 45,000 penalty units ($9.45 million);
  • three times the benefit derived or detriment avoided; or
  • 10% of annual turnover

The greater of:

  • 4,500 penalty units ($945,000); or
  • three times the benefit derived or detriment avoided
    • Where an offence provides a term of imprisonment of less than 10 years as the only specified penalty, the financial penalty is calculated as follows:
 Bodies corporate
Individuals
  • Multiply the imprisonment term (in months) by 100 penalty units (e.g. a prison term of 10 years (120 months) will attract 12,000 penalty units ($2.52 million)
  • Multiply the imprisonment term (in months) by 10 penalty units
  • For strict and absolute liability offences:

 
  • Imprisonment as a penalty has been removed, with the penalty converted into a financial penalty - the rationale is that individuals should not be subject to imprisonment for inadvertent breaches of the law / offences where there is no fault element; and
  • financial penalties have increased (ranging from 20 to 240 penalty units for individuals, multiplied by 10 for bodies corporate). 

Ordinary criminal offences that sit alongside strict and absolute liability offences have been introduced

New ordinary criminal offences have been introduced to sit alongside existing strict and absolute liability offences.  This recognises that where a fault element can be established for certain strict / absolute liability offences, these offences should be treated as ordinary criminal offences warranting imposition of a higher penalty (including imprisonment for individuals) than the equivalent strict and liability offences. 

A list of the new criminal offences can be found here.  

The civil liability regime has been modernised and expanded 

The civil penalty regime has been extended to a number of other obligations under the Corporations Act including obligations on AFSL holders under Section 912A and section 912D.  A list of the new civil penalty provisions can be found here.

Civil penalties have also increased and are calculated as follows:

 

 Bodies corporate
Individuals

The greater of:

  • 45,000 penalty units ($9.45 million);
  • three times the benefit derived or detriment avoided; or
  • 10% of annual turnover

The greater of:

  • 4,500 penalty units ($945,000); or
  • three times the benefit derived or detriment avoided

The infringement notice regime has been harmonised and expanded 

There is a new infringement notice regime:

  • All strict and absolute liability offences and certain civil penalty provisions will also be subject to the infringement notice regime.  For strict and absolute penalty offences, the penalty amounts are 50% of the maximum penalty for that relevant offence.  For civil penalty provisions, the maximum penalty amount is 12 penalty units ($2,520) for individuals and 60 penalty units ($12,600) for corporations. 
  • ASIC may issue infringement notices, requiring a payment of a penalty, as an alternative to civil or criminal proceedings. 
  • The infringement notice must be issued within 12 months after the alleged contravention took place and the payment period starts the day after the notice is given and continues for 28 days (unless extended). 
  • If an infringement notice is complied with and the penalty paid, ASIC will take no further action against the entity – payment of the infringement notice will not be considered an admission of guilt.  If the infringement notice is not complied with, ASIC may pursue criminal or civil penalties 
A list of the provisions subject to infringement notices can be found here.

Dishonesty’ is now defined

To ensure consistency and certainty when prosecuting offences relating to dishonesty within the Corporations Act, section 9 has been amended to insert an objective definition of the term ‘dishonest’- that is, ‘dishonest according to the standards of ordinary people’.  

There is a new relinquishment remedy

Courts now have the power to make a relinquishment order – the aim of such an order is to neutralise any financial benefit that might have been gained from misconduct. 

Courts will be able to make a relinquishment orders on their own initiative during proceedings before the court or on application from ASIC.  The relevant court will also be able to make a relinquishment order even if a pecuniary penalty order could be, or has been, made in relation to a contravention of a civil penalty provision.

Courts are to give priority to the compensation of victims

In making a pecuniary penalty order, relinquishment order or imposing a fine, Courts will need to consider what the effect of making the pecuniary penalty, relinquishment order or imposing the fine would have on the amount of compensation and refunds that might be reasonably payable and give preference to making an appropriate amount available for compensation and refunds under those provisions.  

The operation of section 184 of the Corporations Act has been clarified

Under sections 184(2) or 184(3), a person who is or has been an officer or employee of a corporation commits an offence if the person dishonestly or recklessly uses their position or information known to them, with the intention of gaining an advantage for themselves or someone else, or causing detriment to the corporation. 

Section 184 has been amended to clarify that it is not a defence if a person uses their position or information with the result of, or with the intention of, gaining an advantage for the corporation.  



[1] Our previous On Board article on the APRA / CBA Report can be found here


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