- 1 Here are five interesting things that happened this month.
- 1.1 Deferred Prosecution Agreement developments
- 1.2 Corporate and white collar sentences: recent cases and commentary
- 1.3 Financial Services Under the Spotlight
- 1.4 ACCC’s Flush of Penalties
- 1.5 Climate Change Litigation and the UK EPA’s enforcement review
Here are five interesting things that happened this month.
Deferred Prosecution Agreement developments
A fascinating judgment about disclosure and investigation obligations of the prosecution was published this month by the England and Wales High Court. You may recall that the second Deferred Prosecution Agreement (DPA) entered into under UK law was an agreement between the Serious Fraud Office (SFO) and “XYZ Pty Ltd”. (The party was anonymised pending the completion of “linked proceedings” – namely, prosecutions of individuals involved in the corporation’s alleged offending.)
The DPA included conditions that the company would “afford total cooperation to the SFO in its efforts to investigate and proceed against employees of the company who, it is alleged, engaged in the criminal payment of commissions (bribes) to foreign agents to secure business for the company”; and that it would disclose all information and material in its possession, custody or control that was not protected by legal professional privilege (LLP).
So far, so simple.
This month’s case arose because one of the individuals being prosecuted by the SFO, known as “AL”, sought disclosure of all interview notes taken in connection with the alleged offences. It was known to all parties that, prior to XYZ Pty Ltd’s self-report to the SFO, it engaged a law firm to interview individual employees of XYZ to determine whether XYZ should make a self-report. Those interviews were not tape recorded, but the lawyers conducting them took notes, and AL wanted them. The SFO had previously asked for those notes, and XYZ refused, claiming they were protected by LLP: it had provided an oral summary of the content instead.
The SRO told AL that he couldn’t have the notes because they weren’t in the SFO’s possession. AL sought an order from the Crown Court to compel the SFO to disclose the records, but the Crown Court found it could not do so, in circumstances where the SFO did not have the records in its possession.
Following that litigation, the SFO wrote to XYZ, requesting the notes and referring to caselaw indicating any LLP claim was unlikely to succeed. XYZ wrote back, disagreed with the SFO’s assessment regarding LLP, and said the notes were drafted for a ‘dual purpose’ which included separate civil litigation; that the notes were interspersed with notations of legal advice; and that the notes were not verbatim transcripts and included lawyer’s impressions of the evidence. It declined to provide the records.
The SFO wrote to AL, provided him copies of the correspondence to and from XYZ (via its solicitors), and asserted it was not obliged to do anything further.
Here’s where it gets interesting. AL lodged an application in the High Court for administrative review of the SFO’s decision not to compel production of the records by XYZ. (How often are prosecutorial decisions subject to judicial review?) He argued the material was not covered by LLP and that the SFO was obliged to require XYZ to comply with its duty of cooperation under the DPA, to ensure a fair trial of AL.
The High Court agreed with AL – the SFO did have a duty to compel production to comply with its duty to ensure a fair trial of AL – but said it didn’t have jurisdiction as the applicant’s options in the Crown Court hadn’t been exhausted.
Prosecutors are not used to having their decisions judicially reviewed, and often claim (as the SFO did in this case) that they have very broad discretion that should not be interfered with. The High Court agreed that, in terms of a prosecutor’s decision to charge, or not charge, this is true – but it said that once a decision is made to prosecute, the prosecutor assumes a duty to “take the steps necessary to ensure that the Defendants obtain a fair trial”. Its discretion at this point “is much constrained” compared to its discretion to prosecute (or not).
The High Court considered that the SFO had failed to comply with this duty, saying “regulatory decision making cannot proceed upon the basis of cursory tests of obviousness” at ; and “[n]othing has been placed before this court to suggest that there is any practical difficulty at all in obtaining the interview records provided there is a will to obtain them, using judicial compulsion if needs be” at . The SFO had a duty to “assess claims for privilege properly and not cursorily and superficially” (at ) and a duty to keep the disclosure obligations of DPA parties under review (at ). The Court concluded:
“In short, the SFO: failed to address relevant considerations, took into account irrelevant matters, provided inconsistent and inadequate reasons for its decisions, and applied an incorrect approach to the law. These public law errors were material. If on proper analysis no privilege applies (either per se or because of waiver) then XYZ Ltd should simply disclose the interview records forthwith.”
In other DPA news, Singapore has passed legislation introducing DPAs. And the Australian Senate Standing Committee on Economics has published its report on Foreign Bribery laws, including recommendations that the Commonwealth enact a DPA scheme; peculiar timing, given the Crimes Legislation Amendment (Combating Corporate Crime) Bill 2017 is already before the Senate.
Corporate and white collar sentences: recent cases and commentary
Sydney Harbour Oil Spill Prosecution
EPA v Ardent Leisure, concerning the discharge of at least 5,845 litres of diesel fuel into Australia’s iconic Rushcutters Bay in Sydney, was run as a two-day contested plea in the NSWLEC. It neatly demonstrates some recurring themes in corporate sentencing, including the relevance of defence submissions that contractors were partly responsible for the offending, the difficulty in establishing deliberateness of misconduct as an aggravating feature, and how to apply the totality principle when elements in offences do not overlap, but they share common characteristics.
White Collar Tax Fraud
In R v Issakidis  NSWSC 378, an ATO-initiated prosecution, Mr Issakidis was sentenced to 10 years and 3 months’ imprisonment for conspiring with his coaccused (Mr Anthony Dickson) to dishonestly cause a loss to the Commonwealth (s135.4(5) Criminal Code Act 1995) and conspiring with his coaccused to deal with the proceeds of that crime (s400.3(1) Criminal Code Act 1995). He and his coaccused were the sole directors of a company they used to commit tax fraud; the ATO says
“He and co-conspirator Anthony Dickson deliberately absorbed $450 million of otherwise assessable income through falsely created losses overseas to evade $135 million in corporate tax netting themselves $63 million in fees.”
His co-accused didn’t make a favourable impression on his sentencing court; back in 2015, Mr Dickson submitted a 45-page set of sentencing submissions, which included a statement that he “has learned that he should avoid doing business in Australia”. (The sentencing judge observed that the comment did “not assist the offender in obtaining a favourable assessment of his prospects of rehabilitation and the absence of a need for personal deterrence.” He was ultimately sentenced to 14 years’ imprisonment.)
Mr Issakidis also failed to impress the Court, which commented:
“Mr Issakidis has shown no sign of contrition or remorse for his offending. On the contrary, he chose to give evidence at his trial and to tell what I am satisfied beyond reasonable doubt were lies about his knowledge of the complex and intricate facts that constituted his criminal activities. It is therefore understandable that Mr Issakidis did not give evidence at his sentencing proceedings. It would have been difficult for Mr Issakidis convincingly to retreat from his robust protestations of innocence before the jury and to offer straight-faced explanations on matters that in some cases were wholly incredible.”
Invisibility of Prior Convictions
Meanwhile, over in the US, Veronica Root makes a brief argument that US regulators are failing to properly consider corporate offenders’ other criminal activity, in other subject areas and jurisdictions, when determining the best enforcement action to respond to the instant offending; and that sentencing courts never get a fulsome picture of offenders’ criminal history. She argues that this must change.
These criticisms could equally be made in Australia. But, there are significant practical difficulties with regulators and courts taking into account the ‘whole picture’ of a corporation’s criminal activity when making decisions.
In the state of Victoria, the Victoria Police-administered LEAP database only records convictions and findings of guilt in matters initiated by Victoria Police. So, if you want to see a person’s history of environmental, workplace, consumer law, or any other ‘regulatory’ offending, you will have to make individual enquiry with each of regulators in the relevant jurisdiction. When the corporate accused or suspect engages in interstate trade, this can require dozens of enquiries for every matter – far too impractical to require before each enforcement decision is made. Additionally, enquiries need to be made at the Commonwealth level. Root argues that even international offences and sentences should be taken into account – but fails to consider how a regulator could get hold of such information.
Consider the case of EPA v Ardent Leisure, a case noted above. The NSWLEC says
It would be interesting to know whether the regulator had made enquiries of non-environmental regulators to see if the offender had non-environmental convictions.
Another consideration is whether, at any plea hearing, a sentencing court could take these prior convictions into account; sentencing legislation varies from jurisdiction to jurisdiction and may limit the type of convictions a court can take into account.
Nonetheless, it’s an interesting criticism and worth considering: is it worth developing a centralised database of ‘regulatory offences’?
Financial Services Under the Spotlight
Royal Commission Update
The second round of the Financial Services Royal Commission hearings was heard in Melbourne this month. It focussed on financial advice, including fees paid for advice, remuneration of advisors, employment structures and formal processes for assessment of clients, and audits of advisers’ work. The role of ASIC, the Financial Planning Association of Australia and Association of Financial Advisers Ltd in ensuring quality of service was also explored. Among other things, witnesses spoke of banks charging clients for doing nothing; banks charging fees to dead people; banks lying to ASIC and financial advisers providing terrible advice to vulnerable clients because it meant they were paid more.
ASIC Criticised Again
Although the evidence scandalised some commentators, much of the conduct is already the subject of ASIC enforcement action and investigation; though presumably the revelations about lies being told to ASIC are news to the regulator. ANZ and CommBank, for example, have entered EUs with the regulator for their “fees for no service” conduct; AMP is under investigation .
Contrary to popular belief, ASIC does prosecute; indeed people are jailed for ASIC-initiated prosecutions. So why all the criticism? Well, if you look at ASIC’s enforcement policy you find ASIC making the claim
“[w]e pursue substantial criminal remedies for the most serious misconduct—for example, misconduct that has a widespread negative impact on investors or creditors. We will generally consider criminal action for offences involving serious conduct that is dishonest, intentional or highly reckless, even where there is a civil remedy available for the same breach.” (My emphasis)
This is a pretty standard approach. But ASIC doesn’t actually use prosecution for the most serious breaches, or serious breaches involving dishonest, intentional or highly reckless misconduct. It seems to reserve prosecution for smallish fish, like Mr Burke, Mr Pousa and Ms Timko. Why the departure from ASIC’s own enforcement policy? ASIC has never explained why it has departed from its own policy – or explained how it considers its activities to be consistent with its enforcement policy. To be fair, licence suspension and revocation is often viewed as the most serious enforcement tool a regulator can use – and ASIC does suspend, revoke and place conditions on licences quite frequently. But evidence at the royal commission demonstrates that these actions aren’t having much of a general deterrent effect within the financial services industry.
ASIC “Beefed Up”
Which brings us to this month’s announcement by the Commonwealth government that it agrees, or agrees in principle, with all the recommendations of the ASIC Enforcement Review Taskforce . Minister O’Dwyer says
“These stronger new penalties will ensure that those who do the wrong thing will receive appropriate punishment.”
But stronger penalties can’t achieve anything when people aren’t charged in the first place. And nothing in James Shipton’s first speech as ASIC chair gives the impression that ASIC’s current approach will be changing.
ACCC’s Flush of Penalties
Misleading and Deceptive Practices
But if ASIC’s enforcement record disappoints the community, big sister ACCC’s rarely does. This month, its Pental litigation concerning misleading or deceptive representations about (non)flushable wipes has concluded with a $700,000 civil penalty, while Telstra’s false representations about its Premium Direct Billing Service have resulted in a total of $10 million in civil penalties, and Thermomix was penalised over $4.6 million for its misleading conduct – some of which the Court found exposed consumers to a safety risk. In all cases, the Federal Court was content to accept the parties’ joint submissions on penalty. Meanwhile, the Federal Court has re-penalised Flight Centre, following the ACCC’s successful High Court appeal; the penalty was increased from $11 million to $12.5 million.
“The ACCC wants to ensure that penalties for breaches of competition laws are not seen as an acceptable cost of doing business. To achieve deterrence, we need penalties that are large enough to be noticed by senior management, company boards, and also shareholders,” ACCC Chairman Rod Sims said.
And in the High Court, ACCC will have been pleased to see Valve lose its special leave application:
“Valve had sought special leave to appeal from the decision of the Full Federal Court in December 2017, which upheld the trial judge’s ruling that Valve had breached the Australian Consumer Law (ACL) when selling to Australia users, and that it pay a $3 million penalty.”
Perhaps the most interesting stream of ACCC litigation, however, is its unconscionability cases. This month,
“[t]he Federal Court has declared, by consent, that Ford Motor Company of Australia Limited (Ford) engaged in unconscionable conduct in the way it dealt with complaints about PowerShift transmission (PST) cars, and ordered Ford to pay $10 million in penalties.”
But you’ll note that all the above are civil matters; many of these matters – particularly where there are safety issues involved, as in the Thermomix matter, might be viewed as so serious they warrant prosecution, rather than civil penalty action. (Note that unconscionable conduct is not criminalised, so Ford’s conduct could not have been prosecuted). In this sense, some of the criticism of ASIC might also be directed at the ACCC; but its work in the civil penalty space is sufficiently robust that the community seems satisfied with its approach.
Of course, the ACCC does also prosecute: in fact, its second cartel prosecution is listed for a plea on 15 and 16 November 2018, following K-Line’s entry of a guilty plea this month. You’ll recall that co-cartelist NYK received a $25 million sentence last year.
Climate Change Litigation and the UK EPA’s enforcement review
Damian Carrington asks whether climate change litigation can save the world in the Guardian. Just this month, another suit was filed in the US:
“On April 17th, 2018, the Colorado communities of Boulder County, San Miguel County, and the City of Boulder filed a lawsuit against Suncor and ExxonMobil, with legal support from EarthRights International, Niskanen Center, and other co-counsel. The communities ask that the oil companies pay their respective share of the costs associated with climate change impacts caused by the use of fossil fuel products. Members of the communities allege that the companies have known about the danger of their products for the climate for 50 years, but have not taken any measures to mitigate risks.”
Meanwhile, the UK Environment Agency has been actively reviewing its current approach to enforcement; its consultation on its Enforcement and Sanctions Strategy concluded this month, with outcomes of the public consultation published here.