In response to recommendations made in the ASIC Enforcement Review Taskforce report, the Treasury Laws Amendment (Strengthening Corporate Financial Sector Penalties) Bill 2018 was introduced to the Commonwealth Parliament on 24 October 2018 strengthening penalties for corporate and financial sector misconduct. We recommend that companies (led by directors and senior management) revisit their internal governance and compliance processes, as well as risk management strategies in the organisation.
What will change?
The biggest changes will be the increase in the term of imprisonment for criminal offences as well as larger financial penalties imposed for both criminal offences and civil contraventions in the Corporations Act 2001, Australian Securities and Investments Commission Act 2001 (ASIC Act), National Consumer Credit Protection Act 2009 and Insurance Contracts Act 1984 (as set out below). For strict liability offences under the Corporations Act, the Bill has removed imprisonment as a penalty but increased the financial penalties.
For criminal penalties:
- the maximum term of imprisonment for individuals will be raised (ie. for serious offences, the term will be increased from 5 to 10 years);
- for individuals, the maximum financial penalty has been increased to be the greater of 4,500 penalty units (currently $945,000) or the benefit derived or determinant avoided because of the contravention, multiplied by three; and
- for body corporates, the maximum financial penalty has been increased to the greater of 45,000 penalty units (currently $9.45 million) or the benefit derived or detriment avoided because of the contravention, multiplied by three, or 10% of the annual turnover of the body corporate.
For civil penalties:
- for individuals, the maximum financial penalty has been increased to be the greater of 5,000 penalty units (currently $1.05 million) or the benefit derived or determinant avoided because of the contravention, multiplied by three; and
- for body corporates, the maximum financial penalty has been increased to the greater of 50,000 penalty units (currently $10.5 million) or the benefit derived or detriment avoided because of the contravention, multiplied by three, or 10% of the annual turnover of the body corporate, up to a maximum of $210 million.
Some other changes include:
- the courts may now give priority to compensating victims over the payment of financial penalties;
- introduction of a new "ordinary standards" test that applies to all dishonesty offences under the Corporations Act;
- introduction of relinquishment of any financial benefit gained from conduct that contravenes civil penalty proceedings;
- extending the infringement notice regime;
- contraventions of section 184 of the Corporations Act (being a director's statutory duty to act in good faith and for a proper purpose) can still occur even when the relevant corporation as gained an advantage from the contravention; and
- courts will also be empowered to consider even greater penalties where the profits from misconduct are high or where a company's annual turnover exceeds $105 million.
How will this affect directors, senior management and companies?
The amendments are aiming to deter misconduct, and also as part of the continued push to improve public sentiment and confidence towards corporate Australia.
The increased maximum financial penalties outlined above will apply to:
- Continuous disclosure obligations
- Misleading and deceptive conduct
- Market integrity rules
- Insider trading
- Directors’ and officers’ duties
- Insolvent trading
- Conflicted remuneration
- Market manipulation
The offences that will now have a maximum 10 year imprisonment term in relation to individual conduct under the Corporations Act will include:
- intentionally, recklessly or dishonestly contravening duties as officers or directors;
- dishonestly failing to comply with financial and audit obligations;
- intentionally or recklessly breaching their duties as officers or employees of the responsible entity of a registered scheme; and
- knowingly or recklessly providing defective disclosure documents or statements.
Other offences which have increased their maximum prison term (generally to 5 years) include:
- misleading or deceptive statements in, or omissions from, takeover, compulsory acquisition and buyout documents;
- failing to provide disclosure documents within the time required; and
- obligations on AFSL holders, including in relation to providing assistance, notice of certain matters and/or statements to ASIC.
With the consequences of white collar crime now tougher than ever and with ASIC's increased scrutiny and mandate, organisations should be using this opportunity to ensure their internal governance and compliance processes are robust and up to date, and that their directors and senior management are provided with the appropriate training and resources to adequately manage governance, compliance and risk.