Broad changes proposed to Australia's corporate criminal responsibility regime
As reported by Allens, the Australian Law Reform Commission (“ALRC”) has published a landmark report on the country's corporate criminal responsibility regime (“Report”). It proposes an ambitious reform agenda to recalibrate the role that criminal law plays in the overall regulation of companies and better align corporate liability with corporate culpability. While some of the ALRC's proposed reforms draw inspiration from the UK and US corporate criminal regimes, others are novel and may be of interest to policymakers in other jurisdictions.
The ALRC is an independent body that undertakes research and provides law reform recommendations to the Australian Government. Following several public inquiries into misconduct in Australia's financial services industry, the Australian Government commissioned a wide-ranging ALRC review into the country's corporate criminal responsibility regime. Over the course of a year, the ALRC consulted with a wide range of national and international experts and stakeholders, including Allens partners Chris Kerrigan and Rachel Nicolson and Linklaters partners Alison Saunders and Matthew Axelrod.
Summary of the key ALRC recommendations
Based on its review, the ALRC identified several key shortcomings of Australia's corporate criminal responsibility regime, including that:
- there are too many criminal offences, and several criminalise low level misconduct;
- companies have rarely been prosecuted, even where there has been evidence of serious criminal misconduct; and
- there are various and inconsistent methods for attributing criminal liability to corporations under current laws.
To address these shortcomings, the ALRC has made 20 recommendations, including the following.
- 'Clean up' the federal statute book: The ALRC proposes a more principled approach to criminalisation, whereby only corporate misconduct warranting denunciation and condemnation is criminalised, and lesser forms of corporate misconduct are civilly regulated.
- Implement a single method of corporate attribution: The ALRC recommends the implementation of a single and more robust method for attributing misconduct to a company and presents two options for consideration. The first would strengthen Australia's current default method, which is internationally-unique and based on organisational liability. The second would recognise corporate culpability where an officer, employee or agent acting within actual or apparent authority engaged in misconduct and had the relevant state of mind. It bears some resemblance to a US-style various liability.
- Adopt a 'reasonable precautions' defence: To balance the previous proposal, the ALRC recommends a new defence, whereby a corporation would avoid liability if it had in place objectively reasonable policies and procedures to prevent criminal activities. The proposed defence would resemble the 'adequate procedures' defence applicable to the UK's failure to prevent foreign bribery and tax evasion offences, albeit that it would apply to a far broader range of corporate offences.
- Enact a 'system of conduct' offence: The ALRC proposes an internationally-unique offence criminalising repeat contraventions of prescribed civil penalty provisions. The offence would apply where there was a 'system of conduct' or pattern of corporate behaviour that resulted in two or more contraventions of the same or similar civil penalty provisions. The proposed offence likely would apply to heavily regulated industries, such as the financial services industry.
- Consider new 'failure to prevent' offences: The ALRC recommends that the Government consider applying the proposed foreign bribery 'failure to prevent' offence to other crimes (such as tax evasion, modern slavery, terrorism financing and other human rights offences). If the ALRC's recommendation is adopted, it will ensure that Australian regulatory environment keeps pace with (or even exceeds) the global high-water mark for the regulation of offences that might arise in the context of international business.
- Introduce a sentencing regime tailored to corporate defendants: The ALRC recommends that Australia's corporate sentencing regime be overhauled. Most significantly, it proposes that courts be empowered to impose a wide range of novel non-monetary penalties, including disqualification orders (restraining a corporation from conducting certain commercial activities or trading in a geographic area for a period, or suspending its licences or freezing its profits) and dissolution orders (the 'corporate equivalent of a death sentence'). The ALRC also recommends that Australia adopt a disbarment regime.
- Improve the transparency of Australia's incoming DPA scheme: The ALRC recommends tweaks to Australia's incoming DPA regime (which we reported on in December 2019) to strengthen judicial oversight, aligning it more closely with the UK model.
The Australian Government is reviewing the Report but is under no statutory requirement to provide a formal response and will decide whether to implement the ALRC's recommendations, in whole or in part, according to its own timeline. While this could take years, the Government's historical implementation rate of ALRC recommendations is high, and these reform proposals will be given serious consideration.
Christopher Kerrigan, Partner, Allens
Andrew Wilcock, Senior Associate, Allens
Lewis Winter, Associate, Allens