Inquiry into penalties for white collar crime

The Senate Economics References Committee is inquiring into penalties for what it terms “white collar crime”. This term generally refers to financial or corporate crime committed by business operators and professionals. Typical white-collar crimes include fraud, bribery, operation of Ponzi schemes, insider trading, embezzlement, cybercrime, money laundering, identity theft, and forgery.  It can involve illegal phoenix conduct.

The terms of reference are:

The inconsistencies and inadequacies of current criminal, civil and administrative penalties for corporate and financial misconduct or white-collar crime, with particular reference to:

  1. evidentiary standards across various acts and instruments;
  2. the use and duration of custodial sentences;
  3. the use and duration of banning orders;
  4. the value of fine and other monetary penalties, particularly in proportion to the amount of wrongful gains;
  5. the availability and use of mechanisms to recover wrongful gains;
  6. penalties used in other countries, particularly members of the Organisation for Economic Co-operation and Development [OECD]; and
  7. any other relevant matters.

Comment

ARITA is considering a submission to the inquiry on the adequacy of penalties and their efficacy in securing compliance with obligations of directors and others in insolvency, and in the proper financial and corporate governance of business. While monetary penalties are necessary, their effectiveness depends much on the successful prosecution of the relevant offence, and the imposition and the recovery of the penalty. This serves the purposes of any penalty of general and specific deterrence.

However other means of securing compliance are available, in particular in insolvency, by way of imposing restrictions while ever the default remains unattended – for example banning orders, or suspension of trade or professional licences.

Personal insolvency offers some ideas – for example that the 3 year period of bankruptcy does not commence until the bankrupt complies with their obligation to prepare and file their statement of affairs. This is probably a more effective compliance mechanism than prosecution of the criminal offence for non-filing. A similar process suggested by ARITA for ensuring compliance by directors with their obligation to prepare and file a report as to affairs (RATA) was rejected by the government.     

Existing reports

ARITA is aware of a number of existing reports on this issue, most recently ASIC’s Report 387 – penalties for corporate wrongdoing, although insolvency related crimes are not covered. 

A significant report, largely ignored over the years, is the Australian Law Reform Commission’s Report – Principled Regulation – Federal Civil and Administrative Penalties in Australia, December 2002, with chapter 32 in particular focusing on insolvency. 

Peter Keenan, an ARITA Terry Taylor Scholarship recipient in 2011, has also researched this area. His 2013 report for the Australian Institute of Criminology - "Convictions for summary insolvency offences committed by company directors" – gave 2006-2010 figures showing a trend toward fewer convictions and lesser fines for what he calls ‘fail-to-assist [-the liquidator]' offences, and a fall in the actual number of directors convicted.  These were the main types of insolvency related offences prosecuted by ASIC.

Other reports and analysis is being extracted.

Submission due by 30 March

Submissions are due by 30 March and the Committee is to report by 27 July 2016.  Any member feedback to ARITA is invited. 

Michael Murray Legal Director ARITA