After a year of The Corporate Fail news roundups, it’s tricky to narrow down the the top stories in corporate crime, misconduct and regulation for 2016. But let’s try, shall we?
The most sensational stories of 2016 make an easy roll call: VW cheat device litigation commenced globally (the US FTC and EPA settled deception and environmental allegations for $14.7 billion; closer to home, the ACCC initiated civil pecuniary penalty proceedings); the US DOJ settled its final litigation with BP concerning Deepwater Horizon; a US jury convicted Pacific Gas & Electric Co (PG& E) over its deadly 2010 pipeline explosion; the US Consumer Financial Protection Bureau fined Wells Fargo Bank, N.A. $100 million for secretly opening millions of unauthorised accounts; the State of Washington initiated civil litigation against Johnson & Johnson for failing to disclose rather horrific facts about its pelvic mesh products; and to end the year, the US town of Carneys Point filed a civil suit against DuPont claiming violations of its environmental cleanup laws in connection with its C8 production. We all expected criminal charges or a DPA for the Takata airbag crisis, but the latest report is that a settlement with prosecutors isn’t likely until the first weeks of 2017.
On home turf, my picks of the key events in corporate crime and misconduct law for 2016 are a little less sensational. They include developments in whistleblower protection and corruption investigation, some interesting criminal procedure cases, general issues with banks, including BBSW litigation, and the initiation of Australia’s first cartel prosecutions.
Perhaps the biggest news in Australia was the initiation of our first prosecutions for cartel conduct. Both cases concern the international shipping of cars, trucks, and buses to Australia. NYK entered its guilty plea on 18 July 2016, but K-Line is, apparently, contesting its charges – which means we may see Australia’s first Federal Court jury trial in 2017.
Alongside, the ACCC secured $15M in civil penalties for attempted cartel conduct in ACCC v Australia and New Zealand Banking Group Limited  FCA 1516, a case concerning the bank’s attempts to cooperate with others to manipulate the market for Malaysian ringgit forward contracts. The judgment includes the memorable line, “The Australian public is entitled to expect that Australia’s major corporations act as exemplary corporate citizens wherever in the world they may operate.”
Similar manipulation of bank rate conduct is currently the subject of ASIC litigation against ANZ, Westpac and NAB, only in those cases, it’s Australia’s BBSW that was allegedly manipulated, and the banks are facing allegations of manipulation, misleading and deceptive conduct and unconscionable conduct, rather than anti-competitive behaviour. Each suit is defended, and Justice Beach in the Federal Court will be tied up til the end of 2017 hearing the matters, if the current schedule is maintained. They form part of a wider story about manipulation of bank swap rates worldwide. Those foreign scandals resulted in rather spectacular penalties; the European Commission has just fined Crédit Agricole, HSBC and JPMorgan Chase a total of € 485 million for cartel conduct in manipulation of EURIBOR, while banks entered multi-billion dollar settlements for manipulation of LIBOR.
And since we’re talking about ASIC, let’s remember it secured its first civil pecuniary penalty for a corporation that engaged in insider trading this year.
Shortly after the Panama Papers leaked in April, and ex-Leighton executive Stephen Sasse told the Senate Committee inquiry into foreign bribery that the AFP could not react fact enough to corruption reports to be effective, the Turnbull government announced a $15M investment in the AFP’s Fraud and Anti-Corruption unit. (The US also beefed up its anti-corruption investigation efforts this year; so did France.)
While there haven’t been any notable corruption prosecutions in Australia this year, the AFP did conduct some high-profile investigations into alleged foreign bribery, including Tabcorp, Snowy Mountain Engineering Company, and the Australian offshore arm of Leighton Holdings (now CIMIC). Manager of the AFP’s Fraud and Anti-Corruption Centre Commander Linda Champion says there are corporate prosecutions in the pipeline for 2017. The AFP’s current inability to offer immunity or other concessions to corporate offenders who self-report is a serious policy issue requiring urgent attention.
Perhaps better than any other voice this year, Adele Ferguson drew attention to the sorry fate of whistleblowers in this country. Internationally, the imprisonment of whistleblowers Herve Falciani (HSBC) and Bradley Birkenfeld (UBS) captured the imagination.
In terms of real change, Federal Parliament passed the Fair Work (Registered Organisations) Amendment Act 2016 (Cth) in November, expanding some whistleblower protections. But the significant and ongoing policy work done this year suggests more change is to come: the Public Interest Disclosure Act 2013 (Cth) was reviewed by Phillip Moss, part two of Whistling While They Work has been in progress all year, and the Senate referred an inquiry into whistleblower protections. ASIC commissioner John Price affirmed: law reform is needed so whistleblowers can be better protected (also here and here).
But no Australian regulator has indicated any support for a whistleblower reward system, along the lines of the United States’ SEC scheme (which paid $57 million to 13 whistleblowers in 2016), or qui tam litigation available under the US False Claims Act (which, according to the DOJ, resulted in the department recovering $2.8 billion in fiscal year 2015.) I wonder if this will change over the next few years.
In addition to the bank swap rate litigation noted earlier, banks have been in the spotlight for perceived lapses in integrity when dealing with insurance claims, customer complaints, and, for that matter, whistleblowers. The Standing Committee on Economics tabled its First Report on the four major banks in November (transcript of hearings here), and the Senate included the “$44 billion life insurance industry” in its Scrutiny of Financial Advice inquiry, following Adele Ferguson’s Four Corners investigation “Money For Nothing”. There appears to be significant support to establish a banking tribunal. Watch this space.
Criminal Law Issues
Liability – Civil Vicarious and Criminal Direct (Aggregated)
A couple of interesting liability cases were completed this year. Here in Australia, the High Court provided a little clarity around common law civil vicarious liability of corporations for the criminal acts of employees – a rather unsatisfactory area of law. The case in question, Prince Alfred College Incorporated v ADC  HCA 37, concerned a claim by the plaintiff (respondent) who, as a child, was the victim of sexual offences committed by an employee (a teacher) of the defendant (applicant) school.
And in the US this year, we saw the first (in recent decades) successful corporate criminal conviction on the controversial basis of “collective knowledge” (or aggregation): Pacific Gas & Electric Co (PG& E) was convicted of six offences in connection with the deadly 2010 pipeline explosion in San Bruno. The company had pleaded not guilty and the matter proceeded as a jury trial.
Two Australian cases examined the power of a court to look behind a jury verdict. In last year’s Smith v WA the High Court indicated a judicial enquiry into the jurors’ deliberations was appropriate – a juror left a note in the juryroom alleging he was physically coerced to join in the verdict. The judicial inquiry process was explained this year by the WASCA. But unlike Smith, the High Court said in NH v DPP  HCA 33 that the court lacked jurisdiction to disturb the jury verdict, despite the foreperson reporting to a court officer that he had made a mistake in his announcement of the verdict.
In Victoria, the VSCA confirmed that when empanelling jurors, the presiding judge must ensure that the accused has a reasonable opportunity to view the face of each juror, when called, before the juror takes her seat in the jury box. Failure to do so may result, as in Anthony Cook v The Queen  VSCA 231, in convictions being quashed, even if defence counsel failed to object to the irregular empanelment procedure at the time of trial.
Technology in Criminal Prosecution
EPA Victoria has started using drones to gather evidence of illegal waste dumping. And over in the UK, Staffordshire University’s Centre of Archaeology and Forensic and Crime Science department has a research grant to investigate the presentation of crimes scenes to jurors via virtual reality.
It’s a perennially interesting topic. This year, the Senate Committee on Economics received submissions for its inquiry into white collar civil, administrative and criminal penalties; it’s due to report in February 2017. The Productivity Commission recommended increases in consumer law penalties in its draft report. And the Attorney-General released a consultation paper considering the use of Deferred Prosecution Agreements in Australia.
The Full Federal Court affirmed that in order to deter, civil penalties must ensure that non-compliance isn’t an acceptable cost of doing business. But it failed to explain how its $6M penalty for Reckitt Benckiser could achieve that aim, in light of its own calculations of consumer harm (higher prices paid) occasioned by the relevant misconduct: ACCC v Reckitt Benckiser (Australia) Pty Ltd  FCAFC 181. While the ACCC noted “[t]his is the highest corporate penalty awarded for misleading conduct under the Australian Consumer Law”, the Full Court grumbled that it could have been “many millions more, the ACCC’s figure of $6 million being at the bottom of the appropriate range in all the circumstances of this case” (at ).
Thinking About The Modern Corporation
This year’s navel-gazing about the nature of the modern corporation memorably included: do for-profit companies have a role to play in the provision of essential services? Why are prices for off-patent drugs in competitive markets rising? And should we be concerned about the prevalence of monopoly businesses in the US, or as The Economist put it, the “rise of the superstars“? One thing that has NGOs concerned is the rise and rise of multinationals immune to reputational damage. And the difficulty of regulating supply-chains still perplexes.
What do you think? Would you have included other highlights? Let me know. I love to hear your thoughts.
Thank you for your readership and support this year. I hope yours was a healthy, happy and prosperous 2016; here’s to an even better 2017.