ASIC's enforcement toolkit to broaden

Posted by on 07/11/2017

The government is looking to substantially raise corporate penalties for white collar crimes and to give the Australian Securities and Investments Commission (ASIC) the power to force companies to forfeit profits from any wrongdoings.

These are some of the suggestions made by the ASIC Enforcement Review Taskforce in a position paper on ‘strengthening penalties for corporate and financial sector misconduct’, released last month.

The suggestions follow recommendations by David Murray's Financial System Inquiry (FSI) to ‘substantially increase’ civil and criminal penalties and that ASIC should ‘be able to seek disgorgement of profits earned as a result of contravening conduct’.

They also come in the wake of recent warnings by outgoing ASIC chairman Greg Medcraft that Australia was becoming ‘a paradise’ for white collar criminals because of low penalties and a lack of powers.

The Taskforce was established in October 2016 with terms of reference that allow for a thorough examination of the adequacy of ASIC's enforcement regime.

Minister for Revenue and Financial Services, Kelly O'Dwyer MP, said its focus when reviewing the current penalties regime was on proposals that would enhance ASIC's enforcement toolkit, set penalties at an appropriate level for deterrence and establish a consistent and robust regulatory regime.

Submissions for the consultations on the position paper close on 17 November and the Taskforce will provide its recommendations to the government by the end of November.

In the positions paper, the Taskforce identifies three key problems with the current penalties regime:

  • the variety of penalties available, for some kinds of misconduct, is inadequate to address the range and severity of misconduct
  • as identified by the FSI, some penalties are too low to act as a ‘credible deterrent’
  • some penalties are inconsistent with the penalties for equivalent Commonwealth and state provisions.

The Taskforce adds that previous reforms to penalties in ASIC-administered legislation have not been conducted holistically. The penalties for some offences have not been reviewed since 1993. As a result, these no longer reflect the seriousness of contraventions and may, in some cases, be substantially lower than the potential profits from misconduct.

There are now inconsistencies across the penalties framework for corporate offences. In addition, the maximum civil penalties differ across ASIC-administered legislation, notwithstanding the misconduct is often comparable.

The effect of the 16 positions put forward in the paper would be to expand the range of civil penalty provisions and to increase maximum civil penalty amounts in the Corporations Act 2001 and National Consumer Credit Protection Act 2009 (Credit Act) to:

  • for individuals, 2,500 penalty units ($525,000).
  • for corporations, the greater of: 12,500 penalty units ($2.625 million), or three times the benefit gained (or loss avoided) or ten per cent annual turnover.

This would mean increases from $200,000 (individuals) and $1 million (corporations) in the Corporations Act and 2,000 penalty units ($420,000) for individuals and 10,000 penalty units ($2.1 million) for corporations in the Credit Act.

To broadly align with planned changes to the Australian Consumer Law, penalties in the Australian Securities and Investments Commission Act 2001 would increase from 2,000 penalty units ($420,000) for individuals and 10,000 penalty units ($2.1 million) for corporations to:

  • for individuals, 2,500 penalty units ($525,000).
  • for corporations, the greater of: 50,000 penalty units ($10.5 million), three times the benefit gained (or loss avoided) or ten per cent annual turnover.

In addition to increasing civil penalties, ASIC would be able to seek disgorgement remedies (removal of benefits illegally obtained or losses avoided) in civil penalty proceedings brought under the Corporations, Credit and ASIC Acts.

Maximum terms of imprisonment would also be increased for a range of offences. The most serious Corporations Act offences, given the nature and/or consequences of the offending (many involving dishonesty) will increase to the highest penalties available under the Act; ten years imprisonment, 4,500 penalty units ($945,000) or three times benefits (individuals) and 45,000 penalty units ($9.45 million) or three times benefits or ten per cent annual turnover (corporations).

Maximum fine amounts for other criminal offences would also increase and be standardised by reference to a formula based on length of available prison term:

  • Maximum term of imprisonment in months multiplied by 10 = penalty units for individuals, multiplied by a further 10 for corporations.

For strict liability offences, the lowest level fines would increase and ASIC would be able to deal with these offences through the existing penalty notice regime as an alternative to prosecution.

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