On 31 August 2020, the Attorney-General tabled the Australian Law Reform Commission's (ALRC) report into Australia's corporate criminal responsibility regime in Parliament (Report).
The Report is the culmination of the first comprehensive review undertaken into federal criminal laws and how they apply to companies. The ALRC is proposing an ambitious reform agenda to recalibrate the role that criminal law plays in the overall regulation of companies and better align corporate criminal liability with corporate culpability.
- In a thorough, comprehensive and considered Report, the ALRC has recommended broad and deep changes to Australian corporate criminal law.
- The recommendations focus on changes to the substantive law relating to corporate criminal responsibility, and not the process by which regulatory and prosecutorial agencies currently investigate corporate misconduct, which the ALRC considered to be outside the scope of its review. The ALRC agreed with Allens' submission (and reiterated in other consultations it received) that an inquiry into criminal investigative processes would be appropriate to ensure that serious corporate malfeasance is being effectively investigated and prosecuted.
- If adopted, the ALRC's recommendations would strengthen and clarify the law in this area and reserve corporate criminal enforcement for misconduct that warrants denunciation and condemnation and is truly 'criminal' in nature. In particular, the ALRC's recommendations aim to make corporate criminal law more effective at holding corporations to account for the culture within their organisations. Corporate culture is already an area of focus for regulators, prosecutorial agencies and courts. We have published a guide to help corporations and their boards improve their corporate culture and reduce risk.
- It is now left to the Government to decide whether to implement the Report's recommendations, in whole or in part, which it can do according to its own timeline. Given the scale of the reforms, many of the recommendations could take years to be implemented fully, however, we expect that some will be adopted in the shorter term.
In its 567-page Report, the ALRC makes 20 recommendations for reform. Our insights into the key recommendations are set out below.
ALRC problem two: Multiple inconsistent mechanisms for holding companies criminally liable (ie attribution)
ALRC problem five: Proposed Deferred Prosecution Agreement (DPA) scheme does not provide sufficient transparency
The Attorney-General has indicated that the Government will now 'carefully consider each of the recommendations with a view to seeking opportunities for future law reform'. The Government is under no statutory requirement to formally respond to the ALRC's report; and will decide whether to implement the ALRC's recommendations, in whole or in part, according to its own timeline. Given the breadth and depth of the proposed reforms, we expect that this could take years. In the meantime, your business must continue operating in the current legislative framework.
Australian companies should be investing in their risk and compliance functions now. Corporate compliance culture is already an area of focus for regulators, prosecutorial agencies and courts in the wake of the Financial Services Royal Commission, and many of the ALRC's recommendations will further sharpen this focus. For example, having a strong corporate compliance culture could position a company to establish a reasonable precautions defence, counter allegations of systematic conduct and be a powerful mitigating factor in any sentencing decision. While the implementation of the ALRC's proposed reforms could take years, developing and maintaining appropriate processes to assess compliance risk, and effective controls to manage and mitigate it, will set your company up well to navigate the current regulatory and enforcement landscape, as well as any reforms to come.
There are several other developments in corporate criminal law and enforcement on foot, and the publication of the ALRC's reports may have implications for each of these.
- Reform of foreign bribery laws and implementation of a DPA regime: As we reported in December 2019, the CLACCC Bill currently before Parliament would reform Australia's foreign bribery laws, including by creating an offence of failing to prevent foreign bribery and implementing a DPA regime. Under the new offence, companies would face absolute liability for bribery by 'associates' (including subsidiaries) if they do not have adequate procedures in place designed to prevent bribery of foreign public officials by their associates. The ALRC is broadly supportive of the new offence and DPA regime, but, as discussed above, recommends certain revisions to the DPA regime. The ALRC's support may provide fresh impetus for these reforms, but may also delay the passage of CLACCC Bill if the Government adopts the ALRC's DPA-related recommendations.
- Implementation of the Financial Accountability Regime and reforms to individual liability for corporate conduct: In its interim discussion paper, the ALRC proposed that, if a corporation commits a relevant offence, an officer in a position to influence relevant corporate behaviour should be civilly liable, unless the officer took steps to prevent the behaviour. In light of the Government's current proposal to adopt the Financial Accountability Regime, an extended version of the Banking Executive Accountability Regime applicable to all APRA-regulated entities, the ALRC considers it would be inappropriate to introduce another significant individual liability reform at this point in time. Instead, it recommends a detailed review of individual liability mechanisms within five years of the commencement of the Financial Accountability Regime.
- Investigation of corporate crime: In Allens' submissions to the ALRC, we commented that we 'have recently seen a paradigm shift in ASIC's and APRA's approaches to investigation and enforcement', and that there 'is every reason to believe that similar shifts in approach to investigation and enforcement within the corporate criminal sphere would address many of the perceived challenges and difficulties with current laws'. We suggested that, 'without a parallel review of the investigation and enforcement process, it is impossible to determine whether this failure is because of a deficiency or difficulty in the laws or whether the issues arise from the approach to investigation and enforcement'. The ALRC agreed with Allens' comments, and has recommended an inquiry into criminal investigative processes.