Australia looks to simplify and broaden its approach on corporate and executive criminal responsibility
23 December 2019
The Australian Law Reform Commission (ALRC) has authored a discussion paper into criminal responsibility in Australia. Amongst other things, the paper proposes reforms to how liability is attributed to corporations and their senior executives. The discussion paper follows several inquiries into corporate behaviour and regulation, including the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and the ASIC Enforcement Review Taskforce Report.
Attributing criminal liability to corporations
One of the principal challenges for prosecutors in establishing corporate criminal liability is proving that the company had the requisite intent to commit the offence.
Currently, corporations are considered to have the requisite intent when an individual that is the ‘directing mind and will’ of the corporation holds that intent. Additionally, under the Criminal Code Act 1995 (Cth), a corporation may be liable when:
- the Board of Directors, or a high managerial agent, of the company intentionally, knowingly or recklessly carried out or authorised/permitted (expressly, tacitly or impliedly) the commission of the offence; or
- the corporation’s culture “directed, encouraged, tolerated or led to non-compliance of the relevant provision” or the corporation failed to create and maintain a culture of compliance.
The current law has been criticised due to the multiple methods of attributing liability for the same conduct, which has resulted in an overcomplicated and inconsistent method of attributing criminal liability. It can also be difficult to establish who engaged in the conduct and whether they had the requisite relationship with, or position in, the corporation for their conduct to be attributable to the corporation.
In an effort to address this, the ALRC proposes attributing to a corporation an associate’s state of mind if the associate was acting on the corporation’s behalf. An associate refers to an employee, officer, agent, contractor, subsidiary or body controlled by the corporation.
The United Kingdom implemented similar, so-called ‘failure to prevent’, offences for bribery in the Bribery Act 2010 (UK) (UKBA) and for tax evasion in the Criminal Finances Act 2017 (UK). There has been extensive consultation about adapting these types of offences to cover broader economic crimes but that reform has not progressed recently.
In recognition of the wide reach of these reforms, the ALRC proposes a due diligence defence. While there has been limited discussion by the ALRC on what the requirements for the defence would be, it is expected that companies would need to actively implement, monitor and review their corporate policies, as well as evidence that activity.
Conversely, the conduct of a corporation may in some circumstances be attributed to an individual. In Australia, individuals can be liable for a corporation’s conduct through accessorial liability, or by being knowingly concerned in or party to the contravention. However, concerns have been raised that senior executives are provided too much protection and are too easily able to evade responsibility.
The ALRC proposes holding individuals liable, by way of civil penalty, for offences committed by their employer if the individual was “in a position to influence the conduct of the corporation”. It also proposes a widening of circumstances in which individuals can be criminally liable, namely where they “intentionally knowingly or recklessly” engaged in the offence committed by the corporation.
Feedback is sought as to the categories of individuals that the proposed provisions should apply to, i.e. whether it should apply to “officers”, “executive officers”, or by reference to some other standard designed to capture appropriately senior individuals and exclude junior staff that should not be the subject of these provisions. As with the proposals to broaden the basis for attributing liability to corporates (discussed above), the ALRC proposes to shift the burden to individual defendants by requiring them to establish a defence that they took reasonable measures to prevent the offence being committed.
The ALRC also considered whether the approach adopted in the Banking Executive Accountability Regime (BEAR), which came into full operation earlier this year, should be used to inform broader corporate law. The regime mandates the creation of a list of senior, accountable members within the corporation. While there has been some suggestion of expanding BEAR to other industries, this is likely to move slowly and be on an industry-by-industry basis (and may be driven by the proximity of scandal to that industry).
The proposed reforms to individual accountability has clearly been informed by recent experience in the United Kingdom, which has laid bare the challenge of punishing individuals for conduct the corporation has admitted to. In the United Kingdom, an individual may be liable in certain circumstances for a corporation’s offence if the individual was a senior officer or purported to act in that capacity, and the offence was “committed with the consent or connivance of” that individual (eg, section 12(2) of the Frauds Act 2006 (UK), section 14(2) of the UKBA). Nonetheless, there have been a number of high-profile cases in which a corporation has agreed to a deferred prosecution agreement acknowledging criminal conduct, and the relevant individuals have subsequently been acquitted.
The ALRC is currently taking submissions from the public on its proposals until 31 January 2020 and is expected to provide its report to the Attorney-General by 30 April 2020.
Edward is grateful for the assistance of Brittany Ryan, Summer Clerk, with the preparation of this update.