INSIGHT

The ALRC recommendations on criminal responsibility and transnational offending – a sign of things to come?

By Rachel Nicolson, Dora Banyasz, Hamish McAvaney
Human rights obligations

The role of criminal law in the regulation of human rights

As Allens reported in our detailed Insight, on 31 August 2020 the Federal Attorney General tabled in Parliament the Australian Law Reform Commission's (ALRC) report into Australia's corporate criminal responsibility regime (the ALRC Report). The ALRC Report contains a comprehensive review of federal criminal laws and how they apply to companies. It also indicates that federal criminal law may have a role to play in the regulation of human rights impacts arising in the context of international operations of Australian corporations.

Key issues

  • Insofar as business and human rights are concerned, the ALRC Report essentially boils down to two recommendations: firstly a recommendation to consider the introduction of a 'failure to prevent' model of criminal attribution to encompass certain transnational crimes involving the most egregious human rights violations; and secondly, a recommendation that the Government commission a comprehensive review into transnational crime and corporate human rights violations. Any such review should include a consideration of the first recommendation.
  • It is now left to the Government to decide whether to implement the ALRC Report's recommendations. Given the imprecise nature of these recommendations (ie a recommendation to conduct a further review), concrete regulatory changes may be some way off. That said, the ALRC Report indicates that the enhanced regulation of human rights violations through the criminal law is on the agenda of the Government. It may also provide impetus for new legislative developments in the medium term.
  • In making these recommendations, the ALRC Report contains a stocktake of the wide array of existing regulatory measures in place, both in Australia and abroad, designed to drive corporate behaviour and mitigate human rights impacts arising from corporate conduct.
  • These regulatory tools are increasingly being used by claimant groups, often supported by NGOs and claimant law firms, in innovative ways in seeking remedy from multinational organisations for alleged human rights and environmental harms. See, for example, our discussion of the existing remedy ecosystem for human rights impacts here.

The Recommendations in a nutshell

Background to the ALRC Report

The ALRC noted that Australian law is currently inconsistent as to when a corporation will be held responsible for a crime, and recommended that Australia's federal criminal law regime should contain one clear method of making such a determination. The ALRC's proposed mechanism is that a corporation shall be responsible for the misconduct of a person acting on its behalf. A corporation would then have a defence of having taken 'reasonable precautions'.

The ALRC also considered that there is a significant public interest in ensuring that Australian corporations do not engage in serious crimes offshore and that goods entering Australia are not tainted by slavery or other forms of human rights abuse. A 'failure to prevent' model of corporate criminal attribution relating to human rights impacts is one part of a potential solution to promoting this public interest. This model would also provide welcome clarity to transnational companies operating in Australia, promote a level playing field for corporations already taking steps to address human rights abuses abroad and potentially promote access to foreign markets for Australian companies because these regulations will help Australian regulation keep pace with regulation in the UK and the EU – a market with which Australia is currently negotiating a free trade agreement.

Recommendation 19 of the ALRC Report

Whilst the ALRC review was on foot, the Government took a number of steps to strengthen the corporate regulatory environment independently of the ALRC Report. Importantly, in 2019, the Government tabled Crimes Amendment (Combatting Corporate Crime) Bill 2019 (the CLACCC Bill) in the Senate, which would, if passed, introduce into Australia the concept of a 'failure to prevent offence' in the context of foreign bribery. Allens' analysis of the CLACCC Bill is available here. The ALRC broadly endorsed the CLACCC Bill.

Recommendation 19 of the ALRC Report is that the Government consider whether the CLACCC Bill should be extended to cover certain offences involving human rights impacts, specifically slavery and slavery-like offences, crimes against humanity, war crimes and genocide. These crimes already apply extraterritorially, which indicates an intention from the legislators that these offences should be regulated even though the offending takes place offshore. The 'failure to prevent' model of corporate criminal responsibility will help to overcome some of the difficulties associated with enforcing these offences.

Broader recommendation

Whilst criminal law has a role in regulating transnational crime involving impacts to human rights, the ALRC states it should be reserved for crimes involving the most egregious human rights impacts. The ALRC noted that the criminal law can be a relatively blunt instrument in terms of generating positive behavioural change among corporates. Prosecutions are resource-intensive and face high evidentiary thresholds, which is problematic when the corporates and prosecutors have asymmetrical access to information in relation to the relevant conduct. Increased criminalisation of offences involving human rights impacts may actually incentivise corporates to turn a blind eye to possible misconduct. The criminal law also does not provide a remedy to victims.

The ALRC considered that transnational crime involving human rights violations (both those covered by the proposed extension of the CLACCC Bill and others) required a holistic review into how criminal and non-criminal mechanisms could be designed to work together – criminal law alone is not the solution. The regulation of transnational crime and corporate human rights violations necessarily involves questions of international law, foreign policy and international cooperation. A 'smart mix' involving both criminal and non-criminal regulatory mechanisms working together in a complementary way is a better option. The ALRC took the opportunity to canvass the existing regulatory mix and suggested a review of how these mechanisms can effectively work together.

The table below sets out a summary of the ALRC's analysis of the existing regulatory mix. The ALRC's assessment of the strengths and weaknesses of the existing regulatory tools does not, on all occasions, reflect Allens' experience.

ALRC's analysis of the existing regulatory mix

Regulatory tool: Voluntary guidelines and commitments

Explanation and examples
Explanation

Guidelines and commitments relating to human rights and corporate responsibility that corporations may voluntarily observe.

Examples

The UN Guiding Principles on Business and Human Rights (UN Guiding Principles). See Allens Insight.

ALRC's perceived strengths and weaknesses
Strengths

May be effective at raising awareness among corporations.

The Government's support of the UN Guiding Principles is consistent with the ALRC Recommendation 19 to introduce the 'failure to prevent' offence to certain transnational crimes.

Weaknesses

Not sufficient to generate meaningful behavioural change in the long run.

Regulatory tool: Non-judicial complaints mechanisms

Explanation and examples
Explanation

These mechanisms can provide an additional forum for victims to seek redress, and for civil society to drive behavioural change among corporations in cases where state-led regulatory mechanisms may be overburdened and unable to respond.

Examples

OECD Guidelines for Multinational Enterprises. States adhering to the Guidelines establish National Contact Points (NCP) to establish the guidelines, receive complaints and facilitate a grievance mechanism.

ALRC's perceived strengths and weaknesses
Strengths

Impacted persons may lodge a complaint with an NCP alleging that a corporation has failed to adhere to the OECD Guidelines for Multinational Enterprises.

Allows corporations to engage in good faith dialogue and take meaningful steps to improve their processes.

Avoids subjecting parties to onerous criminal or civil proceedings, which may not be available.

Weaknesses

In 2017, a Government review into the Australian NCP found that the body was 'significantly lacking'. Core recommendations of the review noted that the NCP should be more independent, transparent and better funded.

Regulatory tool: Statutory disclosure regimes

Explanation and examples
Explanation

Statutory disclosure regimes create obligations for corporations to report on their actions in particular spheres, such as human rights or the environment.

Examples

Modern Slavery Act 2018 (Cth) which requires corporations to disclose their actions to address modern slavery risks within their operations and supply chain, itself based on predecessors in California and the UK. See Allens Insights.

EU non-financial reporting directive requires companies to publish reports on their social and environmental impacts. See Linklaters article.

ALRC's perceived strengths and weaknesses
Strengths

Incentivise corporations to engage with human rights risks in their supply chains. By providing platforms for corporations to learn about and engage with these issues in a way that does not necessarily lead directly to criminal prosecution.

Weaknesses

Companies may engage in a superficial way and address the underlying risks or harms.

Only consumer-facing corporations are likely to be influenced by increased transparency. Do not offer remedies to victims or provide a dispute resolution mechanism.

Regulatory tool: Mandatory due diligence regime

Explanation and examples
Explanation

As conceived by the ALRC, a mandatory due diligence regime imposes a duty on corporations to implement processes and policies designed to prevent, identify, mitigate, remediate and report on any adverse human rights impacts caused by or in connection with that corporation.

A failure to conduct the required due diligence would give rise to a civil penalty, irrespective of whether a human rights impact arises. This is conceptually distinct from a failure to prevent offence, under which a corporation would be criminally liable if a primary offence occurs, but would have access to a defence of due diligence.

Examples

New EU mandatory human rights and environmental due diligence regime. See Allens Insight.

Duty of Vigilance Law in France. See Linklaters article.

Child Labour Due Diligence Act 2019 in the Netherlands.

ALRC's perceived strengths and weaknesses
Strengths

Bolster and operate alongside criminal offences, including a failure to prevent offence.

Create clear expectations of corporate responsibility.

Provide an important mid-level response in the smart regulatory mix.

Weaknesses

If the obligation is too broad, corporations may only conduct superficial due diligence.

Many corporations will require considerable support in implementing the requirements of a broadly drafted due diligence requirement.

Increased burden on Australian corporations.

Regulatory tool: Civil or criminal liability for failure to prevent misconduct

Explanation and examples
Explanation

The failure to prevent model may be appropriate in relation to offences that might occur in a transnational business context, such as slavery and slavery-like offences, human trafficking, violation of foreign sanctions, torture, crimes against humanity, war crimes, genocide and financing of terrorism.

Examples

Recommendation 19 of the ALRC's report suggests applying failure to prevent offence to other federal offences that might arise in the transnational setting.

UK Bribery Act contains a failure to prevent mechanism which is the inspiration behind such forms of regulation.

ALRC's perceived strengths and weaknesses
Strengths

Improves regulatory clarity.

Levels the playing field.

Incentivises corporations to create and maintain a culture that meaningfully engages to prevent the commission of offences.

Crimes such as foreign bribery and modern slavery are more likely to be captured as they occur in the form of an omission or failure to prevent, rather than as a specific act knowingly or intentionally committed by a corporation.

Weaknesses

Recommendation 19 is limited to a small set of existing criminal offences that are uniquely transnational in nature. The ALRC has not rejected expanding the failure to prevent model to other types of misconduct, including human rights violations more generally.

Regulatory tool: Direct criminal liability

Explanation and examples
Explanation

If a corporation commits a criminal offence extraterritorially, it may be attributed with direct criminal liability domestically.

Examples

Exterritorial application of offences under the Australian Criminal Code.

Allens has called for further inquiry into the investigation and enforcement of corporate criminal law. Allens specifically recommended to the ALRC further consideration of the development of formal incentives for self-reporting and cooperation with investigators.

ALRC's perceived strengths and weaknesses
Strengths

Uses the full normative force of the criminal law to condemn the corporate criminal conduct and deter any such future conduct.

Weaknesses

Despite the extraterritorial application of many serious offences under the Criminal Code, prosecutions are very rare.

Significant information asymmetry exists between multinational businesses and investigators.

Jurisdictional restraints and barriers to effective international cooperation between law enforcement agencies.

Stay informed

Subscribe to our insights and updates