Report Recommends Increasing Penalties for White Collar Offences


By Zeb Holmes and Ugur Nedim

A review of Australian corporations law has stated that punishments for many white collar crimes and regulatory breaches are too weak to act as a deterrent.

The Financial System Inquiry was established by Financial Services Minister, Kelly O’Dwyer, who suggested that penalties for some breaches and offences are “inadequate to address the range and severity of misconduct.”

Stagnating penalties

The inquiry found that maximum penalties for contravening parts of the Corporations Act have not changed since the law was enacted in 1993.

“Concerns have emerged in a number of forums that the penalties in the legislation administered by ASIC may not be effective in that they do not reflect community perceptions as to the seriousness of engaging in certain forms of misconduct”, the inquiry’s report states.

“These maximum penalties no longer reflect the seriousness of contraventions and may, some cases, be substantially lower than the potential profits from misconduct”.

The head of the inquiry, David Murray, likened the current penalty regime to “being hit by a lettuce leaf”.

Weak penalties and lack of oversight

ASIC chairman Greg Medcraft has previously characterised Australia as a “paradise” for white-collar criminals due to our relatively soft penalty regime for corporate misdeeds.

“The penalties, particularly civil penalties, in Australia for white-collar offences are basically not strong enough, not tough enough. All you’re doing is giving them a slap on the wrist [and] that is not deterring people,” he declared, adding “you have to lift the fear and suppress the greed.”

Commentators have suggested the present lack of oversight fosters a climate whereby large companies such as the Commonwealth Bank are emboldened to conduct “serious and systemic” breaches of anti-money laundering and terrorism financing laws.

The Reserve Bank of Australia (RBA), which oversees the financial system, has identified cultural problems and poor internal controls at Australian banks, which it believes fosters misconduct and leads to a loss of public trust.

Impact of corporate misconduct

The implications of misconduct by financial institutions were pulled into focus by the 2008 global financial crisis, whereby the conduct of banks threatened the collapse of the entire economy.

The fact that only one banker was imprisoned as a result of the conduct has been a source of widespread criticism.

Bank of England chief, Mark Carney, says “the age of irresponsibility is over” and“Markets responsible for trillions of pounds of global trade were stained by excess, collusion and abuse and that ‘ethical drift’ had taken hold.”

He added that “… Criminal sanctions should be updated, with market abuse rules similarly extended and maximum prison terms lengthened.”

Cost of white collar offences

White collar crime is certainly not confined to the financial sector.

A recent Senate Inquiry found that more than half of Australian organisations surveyed reported having experienced white-collar crime in the past two years, and more than a third of organisations lost more than $1 million.

The Australian Federal Police estimates that serious and organised crime costs the economy $36 billion a year, of which organised fraud comprises $6.3 billion.

ASIC calls for tougher penalties

The ASIC Enforcement Review Taskforce has recommended that sanctions for breaking the Corporations Act be nearly tripled from $1 million to more than $2.6 million per breach, or three times the benefit gained (or loss avoided), or 10 per cent annual turnover, whichever penalty is greater.

The inquiry called for maximum terms of imprisonment for criminal offences to increase under the Corporations Act to 10 years, while civil fines for individuals increase from $200,000 to $525,000.

Power to confiscate profits

One of the inquiry’s most significant recommendations is providing ASIC with the power to disgorge profits from white-collar offenders.

The process would allow ASIC to recover the profit gained or loss avoided as a result of the legal breach, to ensure misconduct is not profitable.

Confiscating the profits from corporate wrongdoing is available to regulators in Canada, Hong Kong, Britain and the United States, but not yet in Australia.

In Australia, regulators are required to instigate separate Proceeds of Crime actions if they want to try and claw back the ill-gotten gains from corporate wrongdoers.

ASIC has to refer a case to the Director of Public Prosecutions (DPP) or to the AFP to seek the money back. Court cases can cost hundreds of thousands of dollars, which means many are not pursued.

These changes should allow Australian corporation law to actually act as a deterrent against white-collar crime, putting billions back into the Australian economy.


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