The Australian Law Reform Commission (ALRC) released its final report on corporate criminal responsibility on 31 August. Here are the key recommendations for boards.

    The Australian Law Reform Commission (ALRC) final report on corporate criminal responsibility was tabled by Attorney-General Christian Porter in federal parliament on 31 August. The report is the culmination of an extensive inquiry, announced by the federal government in April 2019 following the banking Royal Commission and concerns with how the criminal law applies to corporate misconduct. The AICD was an active participant in the inquiry.

    The report includes recommendations that cover a review of individual liability/accountability mechanisms; methods for attributing criminal responsibility to corporations; sentencing; penalties; and transnational business. If implemented, they will represent a significant shift in the legal landscape.

    The community needs to be confident poor corporate behaviour is addressed swiftly and proportionately; that corporations as well as individuals will be held to account. Equally, the law must operate justly and with due respect for fundamental legal principles. The ALRC recommendations — targeted at strengthening criminal enforcement action against corporations and reducing regulatory burden through simpler, clearer laws — are an important foundation for the policy debate on how to best achieve this. Notably, the ALRC shifted its approach to a number of proposals over the course of the review, including those related to individual liability for corporate conduct, following strong feedback from stakeholders including the AICD.

    Headlines for directors

    The report discusses the role of the board, including the importance of directors and senior managers in creating and maintaining corporate cultures. It also notes support for the view put forward in the ALRC discussion paper that directors were already exposed to significant liability given their oversight role and may not be the most appropriate targets of any reform efforts.

    Key recommendations include:

    • No immediate reforms to individual liability mechanisms — a significant shift from the original ALRC position — but a medium-term review recommended The ALRC has recommended a review of the effectiveness of individual accountability mechanisms for corporate misconduct within five years of the proposed new Financial Accountability Regime (FAR) entering into force. It contemplates that such a review will encompass directors’ and officers’ duties, with a key concern clearly being to ensure accountability within large complex organisations. In the AICD’s view, a review would present an important opportunity to review the cogency of the current regime and accountability mechanisms — but should not preclude targeted reviews in the interim where the case for reform is compelling. A long-standing concern of the AICD has been to ensure appropriate protections are available for directors who perform their roles with integrity and commitment, but who operate in a complex and compliance-focused regulatory environment.
    • Reforms to the way corporations can be held liable for criminal offences The ALRC has also made recommendations in relation to the method for attributing criminal responsibility to corporations, which are intended both to simplify the current framework and make enforcement more straightforward. These are significant recommendations that need to be carefully considered through the lens of fundamental principles of criminal law.
    • Corporate conduct should be regulated primarily by civil regulatory provisions A principled approach should be taken, with the force of criminal law reserved for the most serious misconduct (this would require a staged repeal process of existing legislative provisions).
    • “Systemic law-breaking” should be addressed through new criminal laws that address systems of conduct or patterns of behaviour that result in multiple contraventions of civil penalty provisions This novel proposal would require corporations to be “reckless” as to whether the system or pattern would result in civil contraventions.
    • New sentencing factors/penalties The ALRC has recommended the introduction of non-monetary penalty options, such as community service, corrective action, being barred from participating in certain activities and, in exceptional circumstances, dissolution, as well as making a corporate culture of compliance a relevant consideration in criminal sentencing.

    Next steps

    The Attorney-General has said that the government “will now carefully consider each of the recommendations with a view to seeking opportunities for future law reform”. The AICD looks forward to continuing to engage with policymakers, regulators and other stakeholders as these policy issues are worked through.

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