Moving forward: key considerations and actions 12 min read
We bring you an update on recent trends in the corporate crime space in Australia, with a focus on enforcement priorities and activities, proposed law reform and emerging risks in 2021 and beyond.
1. COVID-19 heightens the risk of corporate criminal activity
The effects of the COVID-19 pandemic, including global economic uncertainty, increased unemployment, disruptions in trade patterns and increased government stimulus, have heightened the risk of corporate criminal activity in Australia and abroad.
In Australia, the Australian Securities and Investments Commission (ASIC) reported that COVID-19 has created opportunities for serious breaches of financial services laws and consumer harm through predatory practices. To counter this risk, after the onset of the pandemic, ASIC stepped up its markets supervision work and has been especially vigilant in addressing predatory practices, scams, insider trading and market manipulation. ASIC has also indicated it is targeting misconduct in superannuation and insurance, illegal phoenix activity and auditor misconduct. The Australian Federal Police (AFP) also realigned its work and priorities due to the pandemic and has reported that despite COVID-19 disrupting some criminal activities such as drug importation rings, it has provided new opportunities for crime, particularly fraud.
In the United States, the Department of Justice and Securities Exchange Commission has commented that the unique circumstances of COVID-19 create significant bribery and corruption risk and it is likely that foreign bribery investigations will arise as a result of corporate activity during the pandemic. In the UK, the Serious Fraud Office has stated that it views the uncertainty of the COVID-19 crisis as the kind of opportunity which can be exploited by white-collar offenders.
2. Investigations and enforcement activity pushing forward
The Commonwealth Director of Public Prosecutions (CDPP) recently reported that in the last financial year it received a steady flow of referrals from its partner agencies in relation to serious financial crimes.1 These included a number of referrals from ASIC in relation to conduct identified during the Financial Services Royal Commission. The CDPP expects a greater number of such referrals in FY2021. For example, on 18 November 2020 ASIC said that, in the period to the end of December 2020, it was striving to refer around 20 briefs of evidence to the CDPP relating to approximately 25 individuals or companies.2 The CDPP also reported a consistent pattern of referrals from the Australian Competition and Consumer Commission relating to criminal cartel offences, with a number of criminal cartel prosecutions against both individuals and companies progressing through the courts.
The CDPP has recently charged both individuals and corporations with foreign bribery offences and is evaluating possible prosecutions in a number of other cases.3 In recent years, the AFP's budget allocated for foreign bribery investigations has significantly increased.4 We anticipate that the AFP's increased capacity to investigate foreign bribery offending will streamline the conclusion of a number of investigations that have been on foot for a number of years.
3. Increased utilisation of derivative actions to enforce financial misconduct
We have also observed an uptick in prosecutorial and law enforcement agencies seeking to utilise Australia's proceeds of crime, money laundering and books and records laws to hold offenders accountable for financial misconduct. Such actions can be pursued in conjunction with the prosecution of primary offences (such as foreign bribery), or can be a fallback option when a primary offence cannot be made out.
Proceeds of crime
The AFP recently initiated actions under Australia's proceeds of crime legislation in connection with alleged foreign bribery offending. Such actions are civil rather than criminal, meaning the AFP is required to prove to the civil standard of the balance of probabilities (rather than beyond reasonable doubt) that a criminal offence occurred and that the offender derived a benefit from the commission of that offence. This is significant because even when a criminal offence cannot be established beyond reasonable doubt, offenders may still be subjected to court processes and significant financial penalties. We anticipate that the approach to the calculation of the benefit derived from the commission of an offence will be strongly contested between enforcement agencies and defendants and any judgments in this area will be closely followed.
A Bill has also recently passed both Houses of Parliament which will amend Proceeds of Crime legislation to lower various barriers to enforcement of proceeds of crime actions.5
Money laundering offences
To date, the money laundering provisions of Australia's federal Criminal Code have been underutilised in relation to corporate crime. However, with the hardening of Australia's regulatory approach to enforcing anti-money laundering laws and the ever-increasing capacity to detect and trace 'dirty money', we anticipate there will be more emphasis on enforcement of these provisions in the coming years. Significantly, under Australia's money laundering laws, an individual or corporate may be charged in circumstances where they are negligent as to the fact that money or property is the proceeds of crime, or when it is reasonable to suspect that this is the case. This lowers the bar to prosecution as it removes the requirement to prove that the offender knew that money or property was the proceeds of crime or that they were reckless as to this circumstance.
Books and records offences
Prosecutors are increasingly utilising the books and records provisions of the Corporations Act 2001 (Cth) to pursue corporate crime issues where a primary offence (eg foreign bribery) cannot be established. This trend is consistent with the approach of law enforcement authorities in the US and UK in recent years. These books and records offences can potentially capture a broad range of conduct concerning company documents, including for example where a person creates a report that does not accurately record the purpose of a payment.
The false accounting provisions of the Criminal Code, which were introduced in 2016 and apply to conduct after their implementation, may also be utilised by prosecutors in the coming years with respect to corporate criminal misconduct. These offences arguably have a broader ambit than the books and records provisions of the Corporations Act as they apply to both individuals and corporates and in relation to conduct that occurs both in and outside of Australia.
4. Enforcement of 'low hanging fruit' offences
We have also observed regulators pursuing corporates for more trivial strict liability offences (ie offences where there is no requirement to prove an individual had the requisite mental state such as intention or recklessness). Often these offences are not a product of egregious criminal conduct, rather factors such as defective technology, insufficient resources, lack of employee training and oversight by senior management. These so called 'low hanging fruit' offences are typically easier to prove than more complex offences and often result in guilty pleas and convictions being recorded more quickly than for more complex corporate crimes.
In line with ASIC's ongoing 'Why not litigate?' approach to enforcement, we expect this trend to continue and large corporates to more frequently appear in Local and Magistrates Courts. In those circumstances, understanding the procedures and options and also the potential collateral implications of (even a minor) conviction will increasingly be within the set of questions that in-house counsel will need to be prepared to handle.
5. Potential significant reform of corporate criminal laws
Strengthened foreign bribery laws and the introduction of a DPA scheme
For a number of years, a Bill has been before Parliament which, if passed, will strengthen Australia's foreign bribery laws, including introducing a new corporate offence of failure to prevent bribery by an associate. While the passage of the Bill through Parliament has been disrupted a number of times for various reasons, we anticipate it is likely to pass this year. These amendments to Australia's foreign bribery laws will be a game changer and we expect it will result in a further increase in investigations and enforcement activity.
The Bill also proposes the introduction of a DPA scheme to incentivise companies to self-report potential criminal conduct and cooperate with enforcement agencies in relation to corporate crime investigations. The DPA scheme is framed against US and UK models and is proposed to apply to a broad range of offences and for conduct occurring before and after the passing of the Bill. We expect that their availability may result in law enforcement agencies expediting some ongoing investigations to resolution via a DPA.
Recommendations of the Australian Law Reform Commission (ALRC)
In August 2020, the Attorney-General tabled the ALRC's report into Australia's corporate criminal responsibility regime in Parliament. The report is the culmination of the first comprehensive review undertaken into federal criminal laws and how they apply to companies, and the ALRC's recommendations particularly aim to make corporate criminal law more effective at holding corporations to account for the culture within their organisations.
The ALRC's recommendations are currently being reviewed by the Government and we anticipate that some of the proposed reforms will start to get traction during the course of the year.
6. Developments in sanctions laws and enforcement
2021 may see an uptick in sanctions-related activity and enforcement in Australia. As we have reported, the establishment of the Australian Sanctions Office (ASO) at the beginning of last year may signal a change in the Government's approach towards the supervision of economic and trade sanctions, as well as a possible step up in enforcement in the area.
The ASO was established in response to the perception that Australia has a sound legal framework for the administration of sanctions but lacked a dedicated regulator to enforce the framework. The role of the ASO is broad and includes supporting enforcement action by law enforcement agencies such as the AFP and AUSTRAC for non-compliance with sanctions laws.
We may also see the implementation of a worldwide human rights sanction regime following the recommendation in December 2020 of the Parliamentary Joint Standing Committee on Foreign Affairs, Defence and Trade that the Government enact a 'Magnitsky law' to sanction individuals and entities responsible for human rights abuses and corruption (irrespective of where in the world their conduct occurs). Australia's proposed Magnitsky law is framed against equivalent Canadian, EU, UK and US laws and, if adopted, could affect the sanctions profile of a wide range of Australian businesses and organisations. Currently many Australian businesses assess their sanctions profile primarily with reference to the countries in which they operate. However, if Australia adopts a Magnitsky regime, businesses will need to refresh their approach to sanctions compliance to take into account that sanctions risk could arise in countries that themselves are not sanctioned.
7. Foreign influence laws
The Foreign Influence Transparency Scheme and other foreign interference offences were introduced in 2018. Recent events signal a clear shift towards enforcement of the FITS and related foreign interference legislation, including the exercise of various compulsory powers by regulators and the commencement of criminal proceedings. In November 2020, the first individual was charged by the AFP under the foreign interference laws. We anticipate this will continue through 2021.
8. Domestic bribery and corruption
In November 2020, the Government released draft legislation establishing the CIC, a federal ICAC. Although it has been subjected to criticism, the current scope of the legislation is broad and proposes that the CIC have coercive powers to investigate serious criminal conduct in the public sector, as well as providing for new offences relating to corrupt conduct. It is also proposed that the jurisdiction of the CIC will cover not only government personnel and their employed staff, but extend to federal service providers and any subcontractors they engage. This means that possible criminal conduct of businesses may be scrutinised by the CIC and, if appropriate, referred to law enforcement agencies. The Government has invited feedback on the draft legislation via written submissions and we expect that final Bills establishing the CIC and outlining its powers will be introduced to Parliament at some stage this year.
Australia's evolving regulatory and law enforcement landscape with respect to corporate crime means that companies should regularly review their approach to managing risks associated with corporate crime. As a baseline, companies should ensure that they:
We can assist you each of these actions and, if misconduct does occur, our team of specialist investigators and litigators can work with you to identify what happened, take appropriate remedial action and engage with regulatory, law enforcement and prosecution agencies to expedite the resolution of the matter.
Karen Chester, 'Getting on with it' (Banking & Wealth Summit, 18 November 2020).
See OECD Phase 4 Two-Year Follow Up Report: Australia, 19 December 2019, 7.
Crimes Legislation Amendment (Economic Disruption) Bill 2020.