Section 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) allows ASIC to issue a notice requiring a person to appear before ASIC staff and answer questions under oath (Section 19 Notice). The section 19 examination process is a commonly used and powerful tool for ASIC. In this article, we cover the key issues that in-house lawyers should be aware of when an officer or employee in their organisation is served with a Section 19 Notice.
Why have we received a Section 19 Notice and what should I do first?
ASIC may issue a Section 19 Notice when it suspects on reasonable grounds that a person (the “examinee”) can give information that is relevant to a matter it is investigating or is planning to investigate. ASIC has powers to investigate under a number of Acts, including suspected contraventions of the Corporations Act and ASIC Act.
The fact a person has received a Section 19 Notice doesn't necessarily mean that this person is suspected of breaking the law. They may just have information that is relevant to someone else's breach. This should be apparent from the Section 19 Notice.
It is an offence not to comply with a Section 19 Notice. A Section 19 Notice may be challenged on the basis that it is beyond ASIC's powers or it was issued for an improper purpose, but such challenges are difficult due to the broad scope ASIC has to issue Section 19 Notices.
What should I do before the employee’s examination?
Being examined by ASIC is an unfamiliar and daunting prospect for most people as often, the individual does not understand the examination process or its purpose. For this reason, it's important for the legal team to engage with them and manage the process.
The ASIC Act expressly permits the examinee’s lawyer to attend the examination. To avoid conflicts of interest, an external lawyer rather than a member of the inhouse team is warranted for this role.
Further, relevant insurance policies should be checked since:
- receiving a Section 19 Notice may require notification;
- a policy may cover the costs of the examination; and
- a policy may also give the insurer the right to appoint a lawyer for the examination.
The examinee and their lawyer should prepare for the examination. This should include a briefing on the process of the examination, confidentiality, legal professional privilege, privilege against self-incrimination and how to conduct oneself at the examination.
A Section 19 Notice is often preceded by a request for documents or other information by ASIC. These documents should be reviewed by the examinee so far as they are relevant to them before the examination. To the extent possible, consideration should also be given to the types of question that might be anticipated.
What happens during the examination?
The examination must occur in private and will usually be held at ASIC’s offices. The attendees are limited to the examinee and their lawyer, the “inspector”, ASIC staff members and any other person permitted to attend by a direction given by the inspector. The concept of an “inspector” is loosely defined in the ASIC Act as “another person” before whom the examinee appears for the examination. The inspector will be an ASIC staff member and there may be more than one inspector.
There is limited scope for an examinee to refuse to answer a question during the examination and it is worth noting that:
There is very little scope to refuse to answer a question on the basis of relevance
An examinee must answer a question provided it is relevant to a matter that ASIC is investigating or is to investigate. It is an offence under the ASIC Act not to answer such a question. The examinee bears the onus of establishing that a question is irrelevant. This is a difficult onus to fulfil given the wide investigative powers of ASIC and the fact the examinee is unlikely to know the full scope of what ASIC is investigating or is to investigate.
The ASIC Act does not excuse an examinee from answering a question on the basis that doing so might tend to incriminate them or make them liable for a penalty.
This is an abrogation of the privilege against self-incrimination. However, the ASIC Act provides that if:
- the examinee claims that an answer might tend to incriminate them or make them liable for a penalty;
- they make this claim before answering; and
- their answer might in fact tend to incriminate them or make them liable for a penalty;
then their answer cannot be used as evidence in a criminal proceeding against them or in a proceeding for the imposition of a penalty against them, unless the proceeding is in respect of their answer being false. Invoking this immunity has led to the practice of examinees commencing each of their answers with the word “privilege”.
The ASIC Act does not excuse an examinee from answering a question on the basis that it discloses information that is subject to legal professional privilege.
The ASIC Act expressly provides that an answer is not admissible in evidence in a proceeding against an examinee if the answer discloses information in respect of which they could claim legal professional privilege in the proceeding and they object to its admission. However, this protection is of limited scope since it does not excuse the examinee from answering a question and it still allows ASIC to use an answer, which is subject to legal professional privilege, for purposes other than evidence in a proceeding against the examinee.
The ASIC Act also has specific provisions that apply when a lawyer is an examinee and they are asked to disclose a privileged communication made by or to them in their capacity as a lawyer, but this is irrelevant to an examinee who is not a lawyer. The common law position on whether an examinee can refuse to answer a question that would disclose privileged information is not entirely settled although it points strongly to the examinee being entitled to rely on privilege. In light of this uncertainty, ASIC’s practice is to allow an examinee to refuse to answer a question on the basis of legal professional privilege.
ASIC also has an implied power (ie. the power is not expressly stated in the ASIC Act) to direct that the questions asked and the answers given during the examination be kept confidential for a period of time that is necessary to protect the integrity and effectiveness of ASIC’s investigation. The length of this period will depend on the particular investigation and be affected by factors such as the number of examinations ASIC will conduct, whether ASIC will gather documents through its compulsory powers that it must review before those examinations, the volume of those documents and the general complexity of the investigation. One can easily imagine that the integrity of an ASIC investigation would be compromised if ASIC examined multiple people and the first person to be examined told the other people all the questions they were asked and the answers they gave at their examination before those other people were examined.
Some important points to remember when answering questions
Below are some important points for any examinee to bear in mind when answering questions in an ASIC examination.
Answer all questions accurately and honestly. State the facts known to you and not opinions or evidence of what other people know. It is an offence under the ASIC Act to provide an answer which is false or materially misleading. For this reason (among others), it is important not to speculate when giving an answer and not to give an answer to a question that you don’t know the answer to. It is perfectly acceptable to answer a question by saying “I don’t know” or “I cannot accurately answer that question”, if that’s true.
Remember to say "Privilege" before answering every question.
Keep in mind why you have been called to give evidence. An examinee is not there to advocate a position or make arguments in defence or support of anyone. The examinee is there to answer questions of fact to the best of their knowledge and recollection.
Make sure you understand the question before answering. Listen carefully to every question, consider it and make sure you understand it before answering. Ask for clarification of any question which is unclear before responding.
Consider documents, if necessary, before answering a question. If the inspector refers you to a document when asking a question, read the document before answering the question.
Answer questions succinctly. Avoid rambling or volunteering information.
Only answer the questions put to you. Don't respond to statements, just questions. The examination is not a conversation: you're not there to facilitate a discussion or to "fill the silences".
Focus on answering the immediate question. Don't start thinking things such as "Why am I being asked this question?"; "What will the next question be?"; and "If I answer X, will I then be asked Y?"
Use the language you normally use when speaking. Apart from saying "privilege", you shouldn't try to adopt "legal speak". That said, if it's necessary to use industry terminology, do so but explain what the terminology means.
Be polite, courteous and serious. Don't give clever or cute answers or joke. Don't argue with the inspector.
Don't feel rushed to answer any question. There's no hurry. If you need a break during questioning, ask for one.
What happens after the examination?
The examination will invariably be recorded in audio and then transcribed. The examinee has a right under the ASIC Act to be given the transcript, but their employer does not. This means that the employer usually has to wait until ASIC has finished its investigation to obtain a copy of the transcript, which may take a significant period of time. The employer may receive the transcript sooner under a court order if ASIC commences proceedings against them.
ASIC may also impose conditions on the provision of the transcript. A common condition is that the transcript be kept confidential. The provision of the transcript and the imposing of conditions are dealt with by express provisions of the ASIC Act.
The employer and the examinee may not be the only people who access the transcript. A private litigant may obtain a transcript by using a subpoena, Freedom of Information request or a request under section 25 of the ASIC Act. Several exemptions under Freedom of Information law may put the transcript beyond their reach, such as the exemption concerning prejudice to investigations.