Contents
Things To Think About
First: Corporate Penalties
The topic de jour (de quinze jours?) is penalties for corporate crime and misconduct. First we had the Commonwealth senate economics committee publish its inquiry report into white collar penalties, with the interesting title “‘Lifting the fear and suppressing the greed”; then the Commonwealth attorney-general released his proposed deferred prosecution agreement scheme for comment.
Chapters 3 and 6 of the senate committee report were particularly interesting: in chapter 3, the committee noted that many submissions received pointed out that any increase to maximum penalties will have little effect unless regulators’ means and ability to investigate misconduct are improved. (Consistently with his comments in Australian Sentencing (Cambridge University Press, 2007, p72), Professor Bagaric submitted that penalties are irrelevant; likelihood of detection and prosecution alone deters white-collar crime.) On this point, the committee noted that serious consideration of whistleblower protection and deferred prosecution agreements is required (and currently underway elsewhere). In chapter 6, the thorny issue of disgorgement of profits was tackled: while the committee recommended the introduction of disgorgement powers in civil proceedings, it didn’t address the relationship between penalties/sentence and disgorgement, or the question of why disgorgement proceedings should have to be separate from criminal proceedings.
A couple of cases published this fortnight enliven the issues discussed by the senate committee in its report. In Australian Building and Construction Commissioner v CFMEU [2017] FCAFC 53, the Federal Court said, on the matter of determining an appropriate pecuniary penalty:
The community does not accept that a citizen, corporation or other organisation may choose to break the law and simply pay the penalty. The courts certainly do not accept that proposition. Such acceptance would pose a serious threat to the rule of law upon which our society is based. It would undermine the authority of Parliament and could lead to the public perception that the judiciary is involved in a process which is pointless, if not ridiculous. [100]
The court allowed the appeal, increasing the penalty payable by the CFMEU.
The second case is Fair Work Ombudsman v Maroochy Sunshine Pty Ltd & Anor [2017] FCCA 559. The Federal Circuit Court was satisfied
[i]t is difficult to imagine more egregious conduct than that exhibited by Maroochy Sunshine and Mr Bani in this matter. Whilst I am cognisant of the admonition that the maximum penalty should be reserved for the worst case and it is likely that there will be worse cases of offending than that at hand, it is difficult to envisage that in this case.
The court later cited Heerey J’s comments in Jordan v Mornington Inn Pty Ltd (2007) 166 IR 33 that
[a]s to the respondent’s own financial position, however, in considering the size of a penalty, capacity to pay is of less relevance than the objective of general deterrence… In any event, to the extent that financial hardship might mitigate what would otherwise be an appropriate penalty, such an argument would need to be based on evidence.
There was no evidence as to the defendants’ financial capacity in this case, and yet, the corporate defendant was given a pecuniary penalty of just over half the maximum. That’s peculiar, given that the court determined the behaviour fell into the worst category and no mitigating factors were identified. Indeed, the court concluded at [85], “[t]here is no basis in the evidence to think that Maroochy Sunshine and Mr Bani should be afforded any discount on penalty…” Another interesting feature of the case is the fact that the penalty was used, to some extent, as a de facto disgorgement and compensation order, as the applicant was directed to pay the penalty received to the underpaid employees affected by the conduct. (I note, however, that the only financial benefit to the defendants actually quantified was the benefit attributable to underpayment of employees; there is no doubt they enjoyed other financial benefits.)
Second: Regulatory Culture
I said last fortnight that the particular skill and experience of regulatory staff has an impact on the actions taken by a regulator; this fortnight, two additional stories made me think about this further, and consider that, just as corporations have culture, so too do regulators. First, in her review of the Senate Inquiry into White Collar Penalties Report, Adele Ferguson makes the point that the efficacy of any new powers for ASIC will depend on ASIC’s determination to use them; second, Andy Schmulow concludes in his article “The four methods of financial system regulation: An international comparative survey” that “the solution to successful prudential regulation, and regulatory enforcement, is not simply the regulatory architecture. It is as much a function of regulator culture, inter-agency coordination, and regulatory philosophy. ”
Notable Litigation & Regulatory Actions
Australian Building and Construction Commissioner v CFMEU [2017] FCAFC 53 has already been noted above, because it adds gloss to the classic statement by French J in CSR that civil penalties must be sufficiently high to deter similar conduct. But it’s also interesting because of the way the court on appeal identified courses of conduct, and how that affected its calculation of penalty (compare this approach to Reckitt Benckiser). Note that there was no concurrency of penalties, nor moderation of total penalty; the court referenced the Union’s recidivism and deliberate disregard for the law when increasing its penalty.
If you have a white collar crime practice, you know how common it is to see offenders suffering from a gambling addiction. The recent NSWCCA case of Johnston v R [2017] NSWCCA 53 compares gambling and drug addiction, affirming that (at least in NSW) a gambling addiction is not a mitigating factor in sentencing.
ASIC released a public report on its investigation into the life insurance business of CommInsure, which, you may recall, was prompted by Adele Ferguson’s Four Corners Report Money For Nothing. The Report finds that there was no unlawful behaviour on CommInsure’s part, but notes it has agreed to implement some changes to its policies and processes. ASIC also “released the findings of its review of how Australia’s largest financial advice firms have dealt with past poor advice and non-compliant advisers”, indicating it is working with banks to implement voluntary improvements. In unrelated news, Adele Ferguson noted this fortnight that ASIC needs needs a backbone if it is to be an effective regulator. It reminds me of Sir Ken Macdonald’s complaints about the UK financial regulator, back in 2009.
An update on New York Attorney General Eric Schneiderman’s investigation into Exxon Mobil’s alleged misleading conduct to investors regarding its understanding of climate change risks: the court has determined Mr Schneiderman is entitled under subpoena to access certain emails sent by company executives using pseudonyms. (You may recall that the current Exxon investigation was initiated in 2015, after the NY Att-Gen determined that Peabody Coal had violated NY securities law by making false and misleading statements to investors about climate change impacts on the company – that investigation resulted in an out-of-court settlement).
Bloomberg provides an overview of some of the ongoing plaintiff litigation against Johnson & Johnson regarding its promotion of cosmetic talc as a personal hygiene item to African American and Hispanic women, despite its awareness of growing evidence of a correlation between talc use and development of ovarian cancer.
And the ACCC denied the major banks permission to collectively bargain with Apple over Apple Pay.
Law & Policy Updates
The Inquiry into whistleblower protections in the corporate, public and not-for-profit sectors received its final submissions this fortnight, including one from the Australian Federal Police, outlining the investigative difficulties it faces with the current framework of whistleblower ‘protections’. It concludes:
The AFP supports appropriate enhancements to whistleblower protections and measures to encourage whistleblowers to provide information which may assist with regulatory or criminal investigations. In the context of serious financial crime, there is often overlap between regulatory and criminal misconduct, and consequently a high degree of collaboration between regulatory and law enforcement partners.
In the AFP’s experience, whistleblowers face significant disincentives, including personal and financial costs which may be difficult to compensate. Law enforcement faces significant challenges in protecting whistleblowers’ anonymity, and providing whistleblowers with sufficient assurances of indemnities across a range of misconduct.
ASIC also made a submission; it
recommends replacing the current fragmented, sector-based approach to whistleblowing protection with a comprehensive corporate sector whistleblowing regime by enacting new, stand-alone legislation that covers all disclosures about corporate activities involving a possible breach of Commonwealth legislation.
Dr Olivia Dixon submitted her recent article, ‘Honesty Without Fear? Whistleblower Anti-Retaliation Protections in Corporate Codes of Conduct’ (2016) 40 MULR 1, 168, which offers, among other things, an interesting analysis of the whistleblower policies of Australia’s 200 largest listed companies.
The WorkSafe Legislation Amendment Bill 2017 (Vic) was considered by the Victorian parliament during the sitting week of 21 March 2017. Sam Campbell has prepared a useful snapshot of the proposed amendments, all of which would expand the regulator’s enforcement powers. Interesting to see breach of EU proposed as an offence; this is somewhat similar, conceptually, to the intervention order system.
And finally, ASIC chairman Greg Medcraft advised at the ASIC Annual Forum this fortnight that ASIC is “tailoring machine learning software for use in investigations… We are expanding our capabilities in this area, including machine learning from fuzzy logic, and piloting the machine learning functionality of Nuix to make the identification of relevant evidentiary materials more efficient.”
Event Calendar
20-21 July 2017: Competition Matters 2017 (Wellington)
27-28 July 2017: ACCC & AER Regulatory Conference (Brisbane)
Submissions Open
The Commonwealth Attorney-General is calling for submissions in response to its proposed model for a Deferred Prosecution Agreement scheme in Australia: due date 1 May 2017.