Significantly higher penalties could well be on the way for corporate offenders following the recent report from ASIC’s Enforcement Review Taskforce.
Steep increases in penalties for corporate misconduct have been proposed in reforms recommended in a new report by the ASIC Enforcement Review Taskforce. Under the proposals, financial penalties for individuals and corporations would increase significantly and new disgorgement powers would be added to the regulator’s toolkit. Criminal breaches of corporate laws would also face much longer maximum prison terms, with some criminal penalties doubling from five to 10 years’ imprisonment.
The taskforce recommendations follow the 2014 Financial System Inquiry’s finding that Australia’s corporate law penalties required substantial increases.
The taskforce has agreed, noting that many of the current penalties are set at levels too low to act as a credible deterrent, fail to reflect the gravity of corporate misconduct and are out of step with community expectations. The AICD shares these concerns and supports the principles that the taskforce has adopted in its review, including clarity and consistency across corporate law penalties.
Of course, the vast majority of directors and officers perform their duties with honesty, integrity, care and diligence; and the vast majority of corporations strive to adhere to both the spirit and letter of the law.
It is important, however, that the maximum penalties attached to corporate misconduct are set at a level that reflects the seriousness of the offence and serves as a real deterrent against misconduct — including for larger and well-resourced organisations. Also essential, of course, are appropriate defences and safeguards for honest and diligent directors and officers, and the AICD will be continuing its work to strengthen director defences.
It is the AICD's strong view that serious breaches of corporate law be pursued directly through the courts in the first instance, not be dealt with administratively.
The AICD supports many of the taskforce recommendations. We agree the maximum penalties should be substantially increased. Adding disgorgement remedies to civil penalty offences — that is, removing the financial benefit obtained from misconduct, whether profit illegally obtained or losses avoided — would provide more credible deterrents against misconduct. Also welcome are recommendations to improve strict and absolute liability offences, including removing imprisonment as a possible sanction and consideration of ordinary offences as alternatives where a “fault” element is present.
Some of the proposals, however, are more problematic. For instance, the taskforce proposes expanding ASIC’s infringement notice regime to capture allegations of serious breaches of the law.
It is the AICD’s strong view that serious breaches of corporate law should be pursued directly through the courts in the first instance, and not be dealt with administratively.
The taskforce report is comprehensive and its proposals warrant thoughtful review. The month-long consultation period allows time for stakeholders, including the AICD, to provide meaningful input on these important reforms.
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