ALRC Proposes Significant Reforms for Australia's Corporate Criminal Liability Regime
The Situation: The Australian Law Reform Commission ("ALRC") has released its much anticipated Discussion Paper on Australia's corporate criminal responsibility regime, which provides the ALRC's preliminary views in relation to some key areas of proposed reform.
The Result: The ALRC concludes there is an over proliferation of criminal offences under existing Commonwealth legislation and a lack of principled distinction between existing criminal and civil regulation of corporations (with both frequently available for the same or similar conduct). A suite of reforms has been proposed to recalibrate the existing regime and establish a coherent model of criminal and civil contraventions. The ALRC is also proposing a new approach to attributing criminal liability to corporations using the conduct and state of mind of the company's "associates" and the introduction of a regime to hold senior executives liable for failing to take reasonable measures to prevent corporate misconduct.
Looking Ahead: The Discussion Paper may be the first step in a significant overhaul of Australia's corporate criminal responsibility regime. Submissions in response to the Discussion Paper are open until 31 January 2020 and the ALRC's Final Report is due by 30 April 2020.
Rebalancing Criminal and Civil Regulation
The ALRC identifies 2,898 criminal offences across 25 Commonwealth statutes as potentially applicable to corporations which, in the ALRC's view, creates a significant regulatory burden while also diluting the rationale for criminal liability. The ALRC concludes that the existing regime is incoherent and lacks a principled approach to distinguishing between conduct that is subject to a civil penalty and conduct that involves a criminal offence.
For example, in the Australian Consumer Law, criminal offences relating to unfair practices mirror those under the equivalent civil penalty provisions and both attract the same maximum penalty. Accordingly, there is no gradation between civil and criminal liability and therefore the criminal law cannot be said to apply to more egregious conduct.
In the Corporations Act, a failure to notify the Australian Securities and Investments Commission ("ASIC") of a change in office opening hours is solely a criminal offence. The market manipulation provisions, however, can result in a civil penalty.
The ALRC proposes that all Commonwealth legislation should be recalibrated so that unlawful conduct is divided into three categories (in descending order of seriousness):
- criminal offences;
- civil penalty proceeding ("CPP") provisions; and
- civil penalty notice ("CPN") provisions.
CPP provisions and criminal offences would not apply to the same conduct unless the criminal offence captures a greater level of wrongdoing. The majority of minor regulatory contraventions that are currently criminal offences would become CPN provisions dealt with by a fixed administrative penalty and therefore removed from the court systems entirely. CPP provisions, in contrast, would be appropriate for contraventions that require an evaluative judgment, though they may not be sufficiently serious to require the imposition of the stigma that attaches to criminal offending.
Corporate Attribution: A New Approach
The ALRC has identified numerous methods in Commonwealth legislation pursuant to which criminal liability can be attributed to corporations which is contrary to the fundamental principle underpinning the criminal law that its application should be coherent and consistent.
The method of corporate attribution in Part 2.5 of the Criminal Code 1995 (Cth) ("Code"), discussed in detail in our previous Commentary, is expressly excluded from around 65% of the legislation reviewed by the ALRC, with most of those statutes adopting alternative attribution methods which, to varying degrees, are based upon the method of corporate attribution used in the now repealed Trade Practices Act 1974 (Cth) ("TPA Model").
The ALRC proposes repealing Part 2.5 of the Code and the various other mechanisms for attributing criminal liability to corporations based on the TPA Model and replacing them with a single statutory method in which:
- the conduct and state of mind of "associates" of the company is attributable to the company; and
- a defence is available to the company if it can demonstrate that it exercised due diligence to prevent the conduct.
An "associate" would be defined broadly to include officers, employees, agents, contractors and subsidiary companies, and is designed to direct the inquiry to the substance of the relationship between the individual and the company without complex considerations based upon the person's role or title. This comparatively direct method of attribution is counterbalanced by the due diligence defence, which is designed to protect otherwise diligent corporations from the conduct of rogue employees.
Whilst the ALRC concedes that due diligence is an elastic concept which takes its meaning from the context in which it must be exercised, it suggests guidelines should be provided to assist companies in establishing appropriate preventative regimes.
Individual Liability for Corporate Misconduct
The ALRC has proposed that a new accountability regime for senior officers is inserted into the Corporations Act, so that when a corporation engages in conduct which is the subject of an offence provision, any officer who was in a position to influence the conduct of the corporation in relation to the contravention is subject to a civil penalty unless he or she took "reasonable measures" to prevent the contravention.
This "deemed liability" model would focus on the senior or executive management team rather than directors per se and, as the ALRC explains, "influence, in this sense, refers to the capacity of an individual to make decisions and direct behaviour in the course of their role in the business".
The proposed regime is intended to complement (rather than replace) the existing obligations imposed on directors in Chapter 2D of the Corporations Act although it is unclear how, or indeed if, the "reasonable measures" required to be taken by senior officers dovetails with the due diligence defence in the proposed redrafting of Part 2.5 of the Code.
Four Key Takeaways
- The ALRC has proposed broad legislative amendments to Australia's existing corporate criminal liability regime, which it considers to be incoherent and lacking any principled distinction between the imposition of civil and criminal liability.
- The ALRC's Discussion Paper suggests a complete recalibration of unlawful conduct as it applies to corporations in Australia to remedy the existing diaspora of criminal conduct and ensure that more trivial regulatory contraventions are dealt with by way of administrative civil penalty notices.
- Further legislative reform is proposed in relation to the attribution of criminal liability to corporations. The ALRC proposes a single method pursuant to which, subject to a due diligence defence, the conduct and state of mind of "associates" of the company is attributable to the company.
- An additional accountability regime is proposed (to complement the obligations on directors in Chapter 2D of the Corporations Act) to subject senior managers, who were in a position to influence the company's conduct, to a civil penalty in circumstances in which the company contravenes an offence provision.
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.