ASIC Report Critical of Current Penalties for White Collar Crime
Tuesday 25 March 2014 @ 11.39 a.m. | Corporate & Regulatory | Crime | Trade & Commerce
On Thursday (20 March 2014) the Australian Securities and Investment Commission (ASIC) posted to its website that it had released Report Number 387 "Penalties for corporate wrongdoing" (REP 387).
Purpose of the Report
For the purposes of REP 387, the terminology "corporate wrongdoing" was said by ASIC to mean "misconduct that occurs in the corporate, financial market or financial services sectors", also known as "white collar crime".
In its REP 387, ASIC reviewed the penalties in Australia for corporate wrongdoing to "assess whether they are proportionate and consistent". To accomplish this task ASIC compared the penalties currently available to ASIC with those:
- in other countries;
- of other Australian regulators; and
- across ASIC’s regime.
REP 387's methodology was to survey the penalties that apply to wrongdoers in Canada (Ontario), Hong Kong, the UK and the USA; other Australian Government regulators; and across ASIC’s regime for wrongdoing involving insider trading, market manipulation, continuous disclosure, false statements to the market, inappropriate advice, unlicensed conduct, fraud, and false or misleading representations.
ASIC's intent is to deliver the findings in REP 387 as part of its submission to the Australian Government’s Financial System Inquiry.
Further, a part of ASIC's motivation in producing the report (according to its media post) was its view as expressed in its submission to the Senate Inquiry into ASIC’s own performance, where ASIC noted, that penalties had not been comprehensively reviewed for over a decade and, in many cases, did not meet community expectations. ASIC's view expressed through its Chairman Greg Medcraft is that:
"Tough penalties have a powerful deterrent effect...At the lower end of the scale, more proportionate sanctions can work better. For example, infringement notices can provide more timely and efficient outcome."
Main Report Findings
The key findings of REP 387 according to ASIC's media release show that:
- compared at international level:
- while our maximum criminal penalties (jail terms and fines) are in broad terms consistent with those available in other countries, there are significantly higher prison terms available in the USA, and higher fines are handed out in some overseas countries for certain offences;
- also there is a broader range of civil and administrative penalties in other countries, which are higher, and include the ability to remove financial benefits obtained from corporate wrongdoing (known as disgorgement and similar to proceeds of crimes laws);
- compared with other Australian regulators:
- the maximum civil penalties available to ASIC were found to be lower than those available to other regulators and are fixed amounts, not multiples of the financial benefits obtained from wrongdoing;
- finally compared across ASIC’s own regime:
- the report found there are differences between the types and size of penalties for similar wrongdoing (the example is cited, of providing credit without a licence which can attract a civil penalty up to ten times greater than the criminal fine for the similar offence of those who provide financial services without a licence).
Reaction to the Report
The ABC comments on the REP 387 saying:
"The corporate regulator [ASIC] says Australia is too soft on white-collar crime and that civil penalties are a slap on the wrist compared to other parts of the world."
The ASIC media release quotes ASIC Chairman Greg Medcraft to indicate the importance of effective enforcement:
"Effective enforcement is critical for ASIC in pursuing our strategic priorities of promoting fair and efficient financial markets and ensuring confident and informed investors and financial consumers. It depends on outcomes that genuinely deter corporate wrongdoing . . . The public expects ASIC to take strong action against serious corporate wrongdoers. Those who break the law and cause severe damage should face tough penalties. This will make them and others think twice about breaking the law".
The ABC goes on to quote the ASIC Chairman as favouring penalties similar to proceeds of crime legislation as a more appropriate way of dealing with some offences:
". . . one of the big problems for ASIC is that penalties for corporate crime are often small in comparison to the proceeds of the crime . . . Often [internationally] the penalty is you get to disgorge your financial gain and in fact the concept in many jurisdictions is triple damages, . . . You actually have a penalty that is three times your gain and if you think about it, that is actually what having a deterrent is all about - if you wanted to consider breaking the law, then there will be a significant penalty."
To illustrate the difference, currently the maximum civil penalty for crimes like insider trading and market manipulation in Australia is reported to be around $200,000, while in Canada the equivalent penalty is around $1 million, and in the USA the penalty is three times the profit gained or loss avoided.
In summary REP 387 has found that the "punishment does not fit the crime" and that ASIC is attempting to move things to a position where it does.
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