ASIC Enforcement Review: Stronger Penalties for Corporate and Financial Sector Misconduct

Wednesday 25 October 2017 @ 1.18 p.m. | Corporate & Regulatory | Crime

In Position Paper No 7, released on Monday (23 October 2017) by the Australian Securities and Investments Commission  Enforcement Review Taskforce,  (the Taskforce) it has been recommended that the range of civil penalty provisions be expanded and the maximum civil penalty amounts for corporate and financial sector misconduct be increased. The Taskforce was established by Financial Services Minister, Kelly O'Dwyer and includes in its membership, senior representatives from the Australian Securities and Investments Commission (ASIC),  Treasury , the Attorney General's Department and the Commonwealth Director of Public Prosecutions. The Position Paper is entitled "Strengthening Penalties for Corporate and Financial Sector Misconduct". 

Key Recommendations

A key recommendation of the Position Paper was that the sanctions for breaching the Corporations Act 2001 (Cth) for companies should be tripled from the current $1 million to in excess of $2.6 million per breach, or three times the benefit gained (or loss avoided) or 10 percent annual turnover, whichever penalty is greater sanction.

The Position Paper also recommends that civil fines for individuals should be increased from the current $200,000 to $525,000  with the Taskforce being reported as saying that the penalties currently available for some kinds of corporate offences were ". . . inadequate to address the range and severity of misconduct."

The Position Paper also suggests that the maximum terms of imprisonment for criminal offences specified under the Corporations Act 2001 (Cth) should increase to 10 years in jail, fines of $945,000 or three times the benefits gained for individuals.

For companies, the Position Paper recommends that they face criminal fines of $9.45 million, three times the benefits gained or 10 percent of annual turnover for criminal offences.

The point is made by the Taskforce in the paper that the maximum penalties for breaching the provisions of the corporations laws have not increased since the law was enacted in 1993:

"These maximum penalties no longer reflect the seriousness of contraventions and may, in some cases, be substantially lower than the potential profits from misconduct."

The further point is also made by the Taskforce, that:

"The maximum civil penalties also differ across ASIC-administered legislation, notwithstanding the misconduct is often comparable."

To address this the Taskforce proposes in its Position Paper, to also increase penalties under the ASIC legislation and National Consumer Credit Protection legislation:

"To resolve these issues, the Taskforce is proposing to increase the maximum civil penalties in the Corporations Act, the Australian Securities and Investments Commission Act 2001 (ASIC Act), the National Consumer Credit Protection Act 2009 (Credit Act) and the National Credit Code (Credit Code)."

Apart from increased penalties another key recommendation made by the Taskforce is for the introduction of "disgorgement remedies" in civil cases, a type of remedy that allows ASIC to seek to recover the profit gained or loss avoided as a result of a legal breach to make sure individuals do not profit from misconduct.

Next Steps for the Taskforce

The call for tougher penalties is long standing and reported as extending back to 2014 when the then ASIC Chairman called for tougher penalties for corporate crooks amid financial scandals at Australia's major companies. The current Minister is reported as saying that ". . . the Federal Government was committed to increasing penalties for corporate criminals to protect consumers and investors . . . The Taskforce process will help ensure that ASIC has the right tools to combat corporate and financial sector misconduct and to protect consumers, . . ."

The Taskforce's recommendations are now open for submission and feedback, closing mid November 2017.

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