Substantial increases in funding for government investigative agencies, and major reforms of the corporate criminal and regulatory framework (with the promise of more to come), has increased the workload of in-house litigation teams. A greater willingness from regulators to use the full range of their enforcement toolkit is generating more criminal and civil penalty investigations and court proceedings. While the financial sector has been the immediate focus and will remain so in the short term, recent reforms have radically changed the compliance landscape, and boards of all companies are under unprecedented pressure to manage conduct risk effectively.
- Investigations trends/developments
- Significant law reforms impacting corporate criminal liability
- Internal investigations – key developments
- Sectors targeted by law reforms or enforcement action
- Cross-border co-ordinated enforcement activity
Australia saw a significant increase in enforcement activity in 2019, particularly from the regulators of financial services entities and institutions. This arose in part from recommendations made following a government inquiry (The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry) (FS Royal Commission). In response, the Australian Securities and Investments Commission (ASIC) adopted a new enforcement approach, resulting in more cases being pursued through the courts, rather than by way of settlements or enforceable undertakings (the latter down to 20 in the most recent financial year, from 57 in the prior year).
Separately, following years of quiet and moderate achievement, the Australian money laundering regulator (AUSTRAC) successfully brought its first major actions under Australian anti-money laundering regulations resulting in large fines, with several further actions announced in 2019.
Regulators now have a larger array of enforcement tools available to them. There have been reforms to Australia’s regime for punishing corporate criminal offences and civil penalty contraventions (discussed in more detail below) as well as the Banking Executive Accountability Regime (BEAR) that commenced in full on 1 July 2019 and imposes a range of accountability obligations on banks and their senior executives.
In its 2019 enforcement priorities, Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), placed an increased focus on cartel conduct and other anti-competitive practices that involve “Australians, Australian business or entities carrying on business in Australia”. It has brought several cartel actions in recent years, including a high-profile criminal cartel case against two global investment banks, one of Australia's largest domestic banks and six of their senior executives. The ACCC also strengthened its cartel immunity and co-operation policy, which came into effect on 1 October 2019.
There were significant changes to the Australian enforcement framework in 2019 and a raft of proposed further reforms were announced. Australia’s corporate liability regime was the subject of far-reaching reform:
- an increase in potential imprisonment terms for breach of criminal offences;
- a substantial increase in the potential fines or civil penalties against corporates (from AUD1million to a maximum of 10% of a company’s annual turnover);
- enhancing the remedies available under the civil penalty regime through expanding the number of obligations punishable by civil penalty, as well as increased availability of infringement notices and the creation of relinquishment (or disgorgement) orders;
- a simplification of the definition of “dishonesty” to a single-limb, objective test as to whether the conduct is “dishonest according to the standards of ordinary people”, bringing the legislative test in line with the common law in Australia and the UK (see, in relation to the UK, “Re-defining criminal dishonesty: why does it matter?”).
Australia’s whistleblower regime was also substantially revised to broaden the range of people who can make a protected disclosure, the conduct in respect of which a protected disclosure can be made, and the remedies available to whistleblowers that suffer detriment as a result of having made a protected disclosure.
Australian entities (and foreign entities carrying on business in Australia) with annual consolidated revenue of AUD100m now need to submit and publish a Modern Slavery Statement in respect of their business, as a result of changes made effective on 1 January 2019. The legislation imposes a number of mandatory content requirements, some of which are not present in other comparable legislation (eg, the UK Modern Slavery Act 2015) that may be applicable to corporates caught by this legislation.
In terms of proposed reforms:
- perhaps most significantly, the Government has reintroduced the “Combatting Corporate Crime Bill”, which proposes to create an offence for “failing to prevent bribery” (in a similar form to that contained in the UK Bribery Act 2010) and establish a deferred prosecution agreement regime;
- amendments to Australia’s anti-money laundering legislation have also been introduced into Parliament to simplify and clarify provisions relating to customer due diligence, correspondent banking and tipping off; and
- the Australian Law Reform Commission has authored a discussion paper on proposed reforms to how liability is attributed to corporations and their senior executives.
Whistleblower reforms will likely result in an increase in the number of internal investigations commenced by whistleblower reports, particularly for entities that were not previously required to have a whistleblower policy in place. The penalties for breaching the confidentiality of an eligible whistleblower, or causing/threatening detriment to such a person, has substantially increased to a maximum of the greater of: (i) AUD10.5m; or (ii) 10% of the company’s annual turnover.
Greater pressure on regulators to focus on “deterrence, public denunciation and punishment” has resulted in an increasing reliance on public enforcement through court action. Several recent court actions have been the result of investigations arising out of self-reporting by corporates. While financial services institutions are subject to a range of breach reporting obligations that will guide the timing of self-reporting, the practice of regulators picking “the low-hanging fruit” to bolster their reputations may make other corporates wary of self-reporting before they have a clear understanding of the conduct of their employees and the potential contraventions and liability.
Regulators (including the Australian Taxation Office) have stepped up their challenges to claims of privilege by corporates. In March 2019, ASIC settled proceedings against a financial institution and a large Australian law firm seeking to compel them to produce interview notes taken as part of the law firm’s independent investigation into the conduct of employees at the institution. This followed a high-profile dispute aired during the FS Royal Commission about whether the final report by the law firm should be regarded as “independent”, given the level of input from management and the board of the financial institution on the law firm’s drafts of the report. There have also been reports that ASIC has recently issued a number of compulsory examination notices to General Counsel, whose knowledge of relevant matters is likely to have arisen from requests for legal advice.
Australia’s financial services sector was the primary focus of enforcement action in 2019. The public pressure on that sector was prompted by the FS Royal Commission, which released its final report in February 2019, however several reforms and amendments were already in train prior to it. The Federal Government pledged to introduce legislation in relation to all the recommendations of the FS Royal Commission by the end of 2020. The report contained a number of findings of misconduct (dishonest and otherwise) in the industry, and exhorted regulators to take a more aggressive approach (see Key Themes in the Interim Report). ASIC, APRA and the Commonwealth Director of Public Prosecutions have all taken action in response to the misconduct identified.
The Australian authorities collaborate with their overseas counterparts. The Australian Federal Police (AFP) has been a member of the International Foreign Bribery Taskforce since 2013 and worked on several matters with its other members (including the UK National Crime Agency and the U.S. Federal Bureau of Investigations (FBI)), a number of which are ongoing. In November 2018, an investigation by the AFP into foreign bribery by a subsidiary of the Reserve Bank of Australia concluded with several guilty pleas. That investigation involved the co-operation of the UK Serious Fraud Office (SFO), the Malaysian Anti-Corruption Commission and Attorney-General’s Chambers, and the Indonesian National Police. More recently, the AFP has been assisting the SFO with its investigation into Unaoil.
AUSTRAC recently announced several actions against entities and individuals connected with child exploitation offences in the Philippines. This has included the prosecution of individuals with the cooperation of the AFP and Philippine authorities (AUSTRAC’s media release here). It has also involved proceedings against Westpac, one of Australia’s largest domestic banks, for numerous money laundering compliance failures at the bank, including for money transfers to the Philippines.
ASIC continues to bring civil penalty proceedings against Rio Tinto Ltd (the world's second largest mining company) and former senior individuals for alleged breaches of accounting standards and disclosure obligations. The proceedings, commenced in 2018, arose from a similar enforcement action taken by the U.S. Securities and Exchange Commission (SEC) and the UK Financial Conduct Authority (FCA) in 2017. In announcing the enforcement action, each of these regulators referred to the support provided by the others in collecting and sharing evidence.
Throughout 2019, we have seen increased willingness from ASIC to issue letters of request to Singapore and Hong Kong financial regulators to obtain documents and conduct witness interviews, which is probably connected with ASIC joining the Enhanced Multilateral Memorandum of Understanding (EMMoU) in June 2018. Overseen by the International Organization of Securities Commissions, the EMMoU provides that its signatories (which include the Singaporean and Hong Kong securities regulators) will provide the “Fullest Assistance Permissible” to each other’s investigations.
Responding to greater enforcement activity and improved enforcement powers of regulators is a principal challenge for corporates operating in Australia at present. Regulators have received major additional funding to undertake this enforcement activity. In April 2019, it was announced that ASIC would be receiving a AUD405m increase, and APRA would receive a AUD152m increase, increases in their annual budgets of 25% and 30%, respectively. The increased funding has led to greater co-operation and co-ordination between regulators, as well as an increase in concurrent regulatory investigations (where the conduct falls within overlapping regulatory ambits). As a result, the Australian legal and compliance market is experiencing a considerable skills shortage, making it even more difficult to staff the increased workload.
Further, pressure on boards to adequately monitor non-financial risks, as well as the recent imposition of several new obligations that are broadly-worded or principles-based (such as BEAR), has necessitated the development of more mature compliance systems. This has led to an increase in change projects designed to identify and manage such risks, and a greater investment in consultants with expertise in regulatory compliance, as well as corporate culture and governance. General Counsel will need to be particularly focused on the use of IT systems and infrastructure to address conduct risk and compliance processes. Such systems can be critical for meeting the regulatory obligations of large institutions, however breakdowns in those systems or related processes can lead to large-scale data breaches or systemic non-compliance with the regulations they were intended to meet.
This article is part of the Cross-border White Collar Crime and Investigations Review. Read our overviews and insights for other jurisdictions here.
“Jason Gray is commended for his ability to advise on anti-bribery and corruption matters throughout the Asia-Pacific region, and is especially highlighted for his expertise in U.S. FCPA matters. Clients say: ‘“He is U.S.-qualified, which is fantastic. He knows the U.S. regulations very well and can leverage that well on matters in the Middle East and Asia, leading a lot of investigations in Asia-Pacific and Europe.’”
Chambers 2020, Anti-Bribery and Corruption
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The Legal 500 2020, Regulatory Compliance & Investigations
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