Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697641745367.pdf (Australia)
130 Little Collins Street Melbourne Victoria Australia, 3000 Telephone: +61-3-9251 5271 Facsimile: +61-3-9251 5241 jim@victas.uca.org.au Committee Secretary Senate Standing Committees on Economics PO Box 6100 Parliament House Canberra ACT 2600 E-mail: economics.sen@aph.gov.au Submission by the Justice and International Mission Unit, Synod of Victoria and Tasmania, Uniting Church in Australia to the Inquiry into criminal, civil and administrative penalties for white collar crime 30 March 2016 The Justice and International Mission Unit of the Synod of Victoria and Tasmania, Uniting Church in Australia, welcomes this opportunity to make a submission to the inquiry into the inconsistencies and inadequacies of current criminal, civil and administrative penalties for corporate and financial misconduct or white-collar crime.
Corporate and financial criminal activity occurs to a serious extent in Australia, with the Australian Crime Commission estimating the cost of organised fraud at $6.3 billion a year,1 which includes costs from revenue and tax evasion, superannuation fraud, and card and financial transaction fraud.

The Unit believes that the focus on penalties alone is likely to be inadequate in dealing with causes of financial crimes.
The Unit has had a focus on financial crimes where the law offers strong penalties, such as money laundering and foreign bribery.

The issue in addressing these crime types has not been the adequacy of the penalties, but the lack of action taken to enforce the laws and the ‘soft touch’ often applied by law enforcement authorities in Australia to dealing with financial crimes.
For example, as pointed out by lawyer, Robert Wyld, of Johnson Winter & Slattery in relation to offences related to the bribery of foreign officials:2 In over 15 years, we have seen only two prosecutions for offences under section 70 of the Criminal Code.

The Securency case commenced in July 2011 and most details of it are suppressed in Australia.

The Lifese foreign bribery prosecution commenced in February 2015.
We have seen no corporate criminal liability prosecutions relating to foreign bribery (under sections 12.1 to 12.6 of the Criminal Code).

We have seen no civil prosecutions for false or misleading books and records.

We have seen ASIC spend 1 Australian Crime Commission, The Cost of Serious and Organised Crime in Australia 2013-14, 2015, p. 7.
2 http://www.jws.com.au/en/legal-updates-archive/item/679-foreign-bribery-update-september-2015 1 Criminal, civil and administrative penalties for white collar crimeSubmission 39 almost six years pursuing former AWB directors and officers for alleged breaches of their duties arising out of the infamous AWB wheat sales to Iraq in the early 2000s, two agreed to fines and a disqualification period (the former Managing Director and Chief Financial Officer), two had their cases discontinued in late 2013 and two face trial listed to commence in October 2015.
Why is that?

Is the law too difficult to enforce?

There have been no substantive changes to the law so that can hardly be the issue.

Are cases too hard to prove or is the CDPP seeking too high a threshold to prosecute (certainty of success rather than evidence of a reasonable basis to secure a conviction, as the CDPP Prosecution Policy promotes)?

What role should ASIC and the AFP play and how can criminal and civil prosecutions be improved are key areas to review.
The national Fraud & Corruption Centre hosted by the AFP draws upon multi-agency skills and experience, yet still Australia sees or hears little about why there is so little enforcement.

It is time to reassess the overall management of Australia’s national response to fraud, corruption and foreign bribery and to decide if it is important enough for political leadership to dedicate resources to the process consistent with Australia’s international obligations.
We all like to be a Convention signatory but are we prepared to live up to convention obligations?

As an example, in early March, The Australian Financial Review (AFR) reported that an ASX- listed medical device company, a Brisbane-based engineering firm and three Australian education institutions were all named in Chinese corruption cases where officials have been sentenced to up to ten years imprisonment for accepting bribes.3 Details of the cases were revealed in released court files.
Compumedics was one of the companies named and was reported to have told the journalists from the AFR that they didn’t know the company alleged to have paid a bribe to an official from a Chongqing hospital, which had just purchased one of its devices.4 A spokesperson for the company told the journalists “Compumedics has relationships with a number of key distributors in China.
These distributors all use sub-distributors in various provinces in China.”5 The Chinese court files show that in 2012 Chongqing Aoyuan Medical Equipment Company paid hospital director Zhu Benya a bribe of 20,000 yuan ($4,217) for approving the Compumedics’ device.6 Zhu Benya was sentenced to five years’ imprisonment for accepting it and other bribes.7 The education providers named in the court files as having agents or third parties which paid bribes to officials – the Box Hill Institute, Melbourne Polytechnic and the University of Southern 3 Lisa Murray and Angus Grigg, ‘Bribe culture risk for Aussie firms’, The Australian Financial Review, 5-6 March 2016, p. 10.
4 Lisa Murray and Angus Grigg, ‘Bribe culture risk for Aussie firms’, The Australian Financial Review, 5-6 March 2016, p. 10.

5 Lisa Murray, Angus Grigg and Lucy Gao, ‘Australian companies China agents paid bribes’, The Australian Financial Review, 4 March 2016, p. 12.

6 Lisa Murray, Angus Grigg and Lucy Gao, ‘Australian companies China agents paid bribes’, The Australian Financial Review, 4 March 2016, p. 1.
7 Lisa Murray, Angus Grigg and Lucy Gao, ‘Australian companies China agents paid bribes’, The Australian Financial Review, 4 March 2016, pp.

1, 12.
2 Criminal, civil and administrative penalties for white collar crimeSubmission 39 Queensland – denied knowledge of the bribes and told the AFR they would review their practices.8 According to a statement made by the Box Hill Institute to the AFR, it engaged an agent, International Applied Education Group, to help with its expansion into China.9 This agent was paid “fees as a result of their ongoing administration and for liaising directly with the college.” The local agent, employed by Box Hill Institute, appears to have secretly engaged a middleman in Hunan, who doubled as a travel agent, to help with the introductions in that province.10 This ultimately saw the Box Hill Institute get its syllabus accepted by the Hunan Trade and Business Vocational College.
The court files show the Box Hill Institute’s Chinese agent paid Mr He a fee of 319,200 yuan ($66,500).11 This was shared with the head of the Hunan College, Huang Jianzahong, who had the ultimate authority to make a decision on use of the Australian syllabus.12 According to the Chinese court documents, Huang received 90,000 yuan ($18,700) in two payments as a “thank you” from Mr He and was sentenced to 10 years in prison in 2014 for accepting these and other bribes.13 In a separate corruption case a third party paid a 100,000 yuan bribe for the extension of a co- operation agreement between the University of Southern Queensland, Melbourne Polytechnic and a university in Zheijang Province, outside of Shanghai.14 The bribe was paid in mid-2008 by a businessman, named only as Mr Xu, to Yao Zhenxiang, dean of the international division of Zheijiang University of Technology, and the agreements were subsequently extended.15 Yao Zhenxiang was sentenced to a 10-year prison sentence in November 2014 for accepting bribes totalling 150,000 yuan.16 The University of Southern Queensland no longer has a relationship with the Zheijiang University of Technology.17 8 Lisa Murray and Angus Grigg, ‘Bribe culture risk for Aussie firms’, The Australian Financial Review, 5-6 March 2016, p. 10.
9 Angus Grigg and Lisa Murray, ‘ Australian Companies caught Red-Handed’, The Australian Financial Review, 5-6 March 2016, p. 21.

10 Angus Grigg and Lisa Murray, ‘ Australian Companies caught Red-Handed’, The Australian Financial Review, 5-6 March 2016, p. 21.

11 Angus Grigg and Lisa Murray, ‘ Australian Companies caught Red-Handed’, The Australian Financial Review, 5-6 March 2016, p. 21.
12 Angus Grigg and Lisa Murray, ‘ Australian Companies caught Red-Handed’, The Australian Financial Review, 5-6 March 2016, p. 21.

13 Angus Grigg and Lisa Murray, ‘ Australian Companies caught Red-Handed’, The Australian Financial Review, 5-6 March 2016, p. 21.

14 Angus Grigg and Lisa Murray, ‘ Australian Companies caught Red-Handed’, The Australian Financial Review, 5-6 March 2016, p. 21.
15 Lisa Murray, Angus Grigg and Lucy Gao, ‘Australian companies China agents paid bribes’, The Australian Financial Review, 4 March 2016, p. 12.

16 Lisa Murray, Angus Grigg and Lucy Gao, ‘Australian companies China agents paid bribes’, The Australian Financial Review, 4 March 2016, p. 12.

17 Lisa Murray, Angus Grigg and Lucy Gao, ‘Australian companies China agents paid bribes’, The Australian Financial Review, 4 March 2016, p. 12.
3 Criminal, civil and administrative penalties for white collar crimeSubmission 39 In the case of Brisbane firm John Finlay Engineering, one of its staffers was directly involved in the corruption case, according to the court files.18 The company’s general manager in Beijing, a man referred to as Mr Shing, allegedly paid 70,000 yuan to Qu Wenzhong, the deputy manager of the Dingji Coal Mine project in 2006 and 2007, for helping to settle payment on a construction contract.19 Qu Wenzhong’s five-year prison sentence for accepting bribes was upheld in March 2014 and the court confiscated 810,000 yuan and a Rolex watch.20 Yet there was no sign of any enforcement action of any sort in these cases by Australian law enforcement authorities.
It therefore comes as no surprise that Australian companies, compared to those of many other nations, are very laid back when it comes to the risks of corruption and financial crime.
A survey by Deloitte of Australian and New Zealand businesses with offshore operations conducted in 2015 found that 40% didn’t have a formal compliance program in place to manage corruption risks.21 Wayne State University Law School research shows that in most white-collar offenses the person rarely expects to be caught or believes that the conduct is not a crime, highlighting the need to increase the perception that if a person engages in white collar crime they will get caught.22 A significant deterrence to white-collar offending would be facilitation of greater private sector whistleblowing, where a colleague brings to attention another’s wrongdoing.
Australia continues to lack an effective regime for the protection of whistleblowers in the private sector.

The Australian Parliament as a matter of priority should implement legislation to protect private sector whistleblowers and compensate them where they are subject to retaliatory action.
In the absence of legislative protection for whistleblowers, it is important that businesses implement formal whistleblower programs and investigate whistleblower complains as programs are only as effective as the management of the complaints.23 The 2015 global survey of accountants by CareersinAudit.com found that more than two-thirds in the profession believe that if an employee were to report the misconduct of a colleague they would not be protected against victimization or dismissal, and more than half of respondents (57%) felt they could be targeted or lose their job if they were to report the wrongdoing of a client.24 18 Lisa Murray, Angus Grigg and Lucy Gao, ‘Australian companies China agents paid bribes’, The Australian Financial Review, 4 March 2016, p. 12.
19 Lisa Murray, Angus Grigg and Lucy Gao, ‘Australian companies China agents paid bribes’, The Australian Financial Review, 4 March 2016, p. 12.

20 Lisa Murray, Angus Grigg and Lucy Gao, ‘Australian companies China agents paid bribes’, The Australian Financial Review, 4 March 2016, p. 12.

21 Lisa Murray and Angus Grigg, ‘Bribe culture risk for Aussie firms’, The Australian Financial Review, 5-6 March 2016, p. 10.

22 Peter J. Henning, Is Deterrence relevant in sentencing white-collar defendants?
Wayne State University Law School Legal Studies Research Paper Series No.
2015-04 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2666616 23 PricewaterhouseCoopers, 2014 Global Economic Crime Survey: the Australian Story, Corruption: From the backroom to the boardroom, www.pwc.com.au 24 CareersinAudit, Audit & Risk Industry Survey 2015, www.careersinaudit.com 4 Criminal, civil and administrative penalties for white collar crimeSubmission 39 The internal controls within businesses can also help in deterring white collar crime.
McGrathNicol, a company that offers advisory, restructuring and insolvency services to boards, CEOs and senior management, advises that, “To meet an organisation’s financial targets some employees may find themselves bending or even breaking the rules to fulfil them” as well as to meet the organisation’s expectations of themselves, advance in their own career or just to hold on to the job they currently have.25 McGrathNicol strongly advises organisations to, “closely monitor their procedures to prevent fraud and corruption ... and be wary of setting unattainable financial targets for their employees, to prevent them from wrongdoing.”26 Professor Michael Adams similarly states that deterrence depends on “an effective corporate governance framework, based on an effective internal due diligence system, which is supported by efficient compliance programs to white-collar crimes”.27 Andrew Morgan, forensic services partner at BDO Australia, believes that, according to the theory of the fraud triangle, perpetrators of fraud need motivation, opportunity and the ability to rationalise their behaviour.
Morgan recommends companies be, “always absolutely aware of what is happening within your business and to ensure you have the appropriate structure and people in place”.28 25 The Australian Corporate Lawyer, Career Motivated Misconduct, Volume 26, Issue 1 – Autumn 2016 http://www.mcgrathnicol.com/app/uploads/ACC-Australia-Autumn-2016-Vol1-Issue1_online-version.pdf 26 The Australian Corporate Lawyer, Career Motivated Misconduct, Volume 26, Issue 1 – Autumn 2016 http://www.mcgrathnicol.com/app/uploads/ACC-Australia-Autumn-2016-Vol1-Issue1_online-version.pdf 27 Michael Adams, Australian Corporate Governance: Lessons from HIH Insurance, ALRS 1, 2005 http://www.austlii.edu.au/au/journals/ALRS/2005/1.html 28 Eloise Keating, Former EY executive gets 11 year jail sentence for $450 million fraud, smartcompany, 24 March 2015 http://www.smartcompany.com.au/business-advice/legal/46190-former-ey-executive-gets- 11-year-jail-sentence-for-450-million-fraud/ 5 Criminal, civil and administrative penalties for white collar crimeSubmission 39 Recommendations The Unit requests that the Committee recommend: • That civil penalties for white collar crime be increased where necessary to ensure the person who has committed the crime is unable to financially profit from the crime, except in circumstances where the person is not the architect of the crime and has actively assisted in the exposure of the crime leading to the prosecution of those who were the architects of the crime.
• That any deals done with those have committed white collar crime still ensure those who are the architects of the crime are held to account as individuals.

It should not be possible for the individuals who were the controllers of the criminal activity to escape being held to account as individuals by a legal entity (such as an incorporated company) paying a fine.
• That there be greater transparency of enforcement actions take in cases of white collar crime, such as the seizure of proceeds of crime and unexplained wealth, where such transparency will not prejudice any on-going legal action.

Ideally any settlement agreements over white collar crime should be made public.
Greater transparency is of itself a penalty for the person who committed the crime (being publicly exposed) and acts as a deterrent against further criminal activity, eroding the sense of security those contemplating such criminal activity may have that they will get away with it.

• The Parliament should pass whistleblower protection for private sector employees, including measures to compensate people who have retaliatory action taken against them as a result of them exposing white collar crime.
This would be an effective deterrent measure to prevent white collar crime.

legislation • There be greater emphasis on detecting and investigating white collar crime, including increased resources for the law enforcement agencies charged with investigating such crimes.
6 Criminal, civil and administrative penalties for white collar crimeSubmission 39 Table of Contents Current Situation with penalties for White Collar Crime .............................................................. 7 Deterrence: what works for White Collar Crime .........................................................................10 The need to hold individuals to account ....................................................................................12 The need for transparency around financial crimes ...................................................................15 1.
Current Situation with penalties for White Collar Crime The Unit notes that the ASIC released its Report Number 387 "Penalties for corporate wrongdoing" on 20 March 2014.29The key findings of ASIC’s report were: • compared to other jurisdictions: o o there are significantly higher prison terms available in the USA, and higher fines are handed out in some overseas jurisdictions for certain offences; there is a broader range of civil and administrative penalties in other jurisdictions, 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: o 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; • across ASIC’s own regime the report found there are differences between the types and size of penalties for similar wrongdoing.30 ASIC’s main types of action in response to white collar crime are: punitive (imprisonment and fines); protective (such as disqualification and banning orders); preservative (such as injunctions and freezing orders); corrective (such as forced disclosure); compensatory (such as damage recovery); and negotiated (such as enforceable undertakings).31 In an ASIC and court records analysis, Rebecca Urban in The Australian revealed that 58 individuals were convicted and sentenced for corporate crime during the past two financial years.32 Forty-six percent received custodial sentences.
The majority received suspended sentences, good behaviour bonds or intensive correction orders.

Several received only fines, with the average fine being approximately $23,000 per person or corporation.
Those imprisoned served an average of 20 months before becoming eligible for parole.33 29 Timebase.com, ASIC Report Critical of Current Penalties for White Collar Crime, 25 March 2014 http://www.timebase.com.au/news/2014/AT158-article.html 30 Timebase.com, ASIC Report Critical of Current Penalties for White Collar Crime, 25 March 2014 http://www.timebase.com.au/news/2014/AT158-article.html 31 Australian Securities and Investments Commission, Report 387, Penalties for corporate wrongdoing, 20 March 2014, pp.
9-10 http://download.asic.gov.au/media/1344548/rep387-published-20-March-2014.pdf 32 Rebecca Urban, ‘Corporate criminals escaping jail time’, The Australian, 8 December 2015 http://www.theaustralian.com.au/business/legal-affairs/corporate-criminals-escaping-jail-time/news- story/e16160c0d08f89e72fc109e8dc30cbfe 33 Rebecca Urban, ‘Corporate criminals escaping jail time’, The Australian, 8 December 2015 http://www.theaustralian.com.au/business/legal-affairs/corporate-criminals-escaping-jail-time/news- story/e16160c0d08f89e72fc109e8dc30cbfe 7 Criminal, civil and administrative penalties for white collar crimeSubmission 39 Case-studies • In a Commonwealth Bank of Australia white collar crime case, staff were allegedly complicit in a $76 million Ponzi scheme which was ignored by the banks’ management for almost five years until police were alerted.
Professional poker player Bill Jordanou and accountant Robert Zaia will face court in February 2017 and have indicated they will plead not guilty to almost 100 fraud and deception offences.

Nick Fotopoulos, a Melbourne property developer who lost more than $5 million, has launched a civil action against the bank.
The CBA has rejected requests from victims for compensation and pursued legal action to repossess homes from a number of customers who claimed their loans were acquired with allegedly fraudulent documents from Zaia Arthur & Associates.34 • Pamela Close, a former betting accounts manager at ACT TAB (ACTTAB), was fined $1 million after being convicted in 2015 of a 10-year-old fraud where she swindled the former government-owned gambling provider of $1.42 million.
Ms Close was jailed for 12 months in 2014 after pleading guilty.

She was given a five-year sentence, with 12 months to be served behind bars and a further 18 months via weekend detention.

Ms Close stole the funds to feed her gambling addiction.35 • A former NAB banker, Lukas Kamay, and an Australian Bureau of Statistics worker, Christopher Hill, pleaded guilty in 2014 to conspiring in one of the biggest insider trading cases in Australian history, worth $7 million.
They planned to make $200,000 from market sensitive information but Mr Kamay ended up concealing millions more in accounts not known to Mr Hill.

Mr Hill was sentenced to imprisonment for three years and three months with a non-parole period of two years.36 Mr Kamay was sentenced to prison for seven years and three months with a non-parole period of four-and-a-half years after pleading guilty to insider trading, money laundering and identity theft.
He lost an appeal against the length of the sentence on 13 November 2015.37 • • Former Vanuatu-based accountant Robert Agius was sentenced to nine years in prison with a minimum of six for his role in a tax avoidance scheme that denied the Commonwealth an estimated $5 million.
In February 2013 Hanlong Mining vice-president Calvin Zhu was sentenced to at least 15 months in prison for helping set up an insider trading syndicate among the company’s senior management in Australia.38 In March 2016, company chief executive Steven Xiao was sentenced to eight years and three months in prison after pleading guilty.
Justice Peter Hall said Xiao had been a "true insider" and was guilty of a "gross breach of trust and 34 Cameron Houston and Chris Vedelago, ‘Commonwealth Bank staff implicated in alleged $76m fraud’, The Sydney Morning Herald, 5 February 2016 http://www.smh.com.au/business/banking-and- finance/commonwealth-bank-staff-implicated-in-alleged-76m-fraud-20160204-gmllia.html 35 Eloise Keating, ‘Accounts Manager fined $1 million for 10-year-long fraud’, smartcompany.com http://www.smartcompany.com.au/business-advice/legal/45620-accounts-manager-fined-1-million-for-10- year-long-fraud/ 36 Mark Russell, ‘Insider trading Masterminds Lukas Kamay, Christopher Hill jailed after block bid’, The Sydney Morning Herald, 17 March 2015 http://www.smh.com.au/business/banking-and-finance/insider- trading-masterminds-lukas-kamy-christopher-hill-jailed-after-block-bid-20150316- 1m0tzu.html#ixzz438CQeeHL 37 Mark Russell, ‘Jailed Insider trader Lukas Kamay who brought The Block apartment loses appeal’, The Age, 13 November 2015 http://www.theage.com.au/victoria/jailed-insider-trader-lukas-kamay-who-bought- the-block-apartment-loses-appeal-20151112-gkxzxd.html#ixzz4389ZPyxj 38 Leo Shanahan, ‘ASIC loss in Opes case renews corporate crime debate’, The Australian, 7 September 2013.
8 Criminal, civil and administrative penalties for white collar crimeSubmission 39 confidentiality” but accepted he “has made expressions of some contrition for his offending".39 • The Australia and New Zealand (ANZ) Banking Group agreed to an independent review of its OnePath subsidiaries’ compliance functions.
ASIC sought the review following a significant number of breaches reported by the ANZ Group in relation to its life, general insurance, superannuation and funds management activities, operated through its wholly- owned OnePath group of subsidiary companies.
From early 2013 to mid-2015 around 1.3 million customers were affected by breaches, requiring refunds and compensation of around $4.5 million.40 • • Five former directors of Australian Property Custodian Holdings Ltd (APCHL) who breached their directors’ duties by making an illegal related party payment of more than $30 million were in 2013 disqualified from managing a company for a combined total of 25 years and three months and fined a total of $310,000.41 The five former directors have all lodged appeals and ASIC has lodged counter-appeals for higher fines and longer disqualifications.
Ian Verrender, former Sydney Morning Herald journalist, reported on 3 September 2011 that “[There were] extraordinary events in the Federal Court this week when Justice Middleton sentenced Centro Properties six guilty non-executive directors to...absolutely nothing.

No fines, no banning orders, nothing.
A small fine was doled out to the Chief Executive, Andrew Scott.” The Centro Properties entire board had been found guilty three months earlier of breaching the Corporations Act “and not fulfilling their duties as directors after major errors in the company’s accounts mortally wounded the company...” Justice Middleton decided not to ban them as such an act would cause them “reputational damage ... that cannot be under-estimated.”42 • The collapse of HIH Insurance saw the company’s non-executive director, Rodney Adler, chairman, Ray Williams, and chief financial officer, Dominic Fodera, face a civil penalty action from ASIC.
The NSW Supreme Court (and later the NSW Court of Appeal) found that the defendants had collectively contravened 197 provisions.
Mr Williams received a $250,000 fine and disqualification for 10 years, Mr Fodera received a $5,000 fine, and Mr Adler received a $900,000 fine and disqualification for 20 years and $8 million in compensation had to be paid to HIH Insurance Ltd by Mr Williams and Mr Adler.43 ASIC then brought a criminal prosecution against Mr Adler who was sentenced to four and a half years’ imprisonment, with a non-parole period of two and a half years, commuted the following day to two years due to Mr Adler’s guilty plea.44 39 Ursula Malone, ‘Steven Xiao sentenced to eight years in jail for insider trading’, ABC News, 11 March 2016 http://www.abc.net.au/news/2016-03-11/steven-xiao-sentenced-to-jail-for-insider-trading/7239820 40 ASIC, 16-069MR Independent compliance review of ANZ’s OnePath following breaches resulting in compensation of approximately $4.5 million, ASIC Media release, 15 March 2016 http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-069mr-independent- compliance-review-of-anzs-onepath-following-breaches-resulting-in-compensation-of-approximately-4.5- million/ 41 ASIC, Report 421: ASIC enforcement outcomes: July to December 2014, January 2015http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-421-asic-enforcement- outcomes-july-to-december-2014/ 42 Evan Whitton, ‘Turning a blind eye to white collar crime’, Independent Australia, 25 October 2012 https://independentaustralia.net/politics/politics-display/turning-a-blind-eye-to-white-collar-crime,4641 43 Michael Adams, Australian Corporate Governance: Lessons from HIH Insurance, ALRS 1, 2005 http://www.austlii.edu.au/journals/ALRS/2005/1.html 44 Michael Adams, Australian Corporate Governance: Lessons from HIH Insurance, ALRS 1, 2005 http://www.austlii.edu.au/journals/ALRS/2005/1.html 9 Criminal, civil and administrative penalties for white collar crimeSubmission 39 • The ANZ bank faces investigation in regards to Malaysia’s Prime Minister Najib Razak’s strategic state fund called 1Malaysia Development Bhd (1MDB), set up in 2009 when he came into office.
The fund is meant to turn Kuala Lumpur into a financial hub.

It started to attract national attention in early 2015 when it missed payments for the $11billion it owed to banks and bondholders.

The Wall Street Journal reported it had seen a paper trail that allegedly traces close to $700 million from the troubled fund to Mr Najib's personal bank accounts.
There are multiple Malaysian domestic official investigations into the 1MDB fund and Singapore, Hong Kong, US and Swiss authorities are currently investigating bank deposits allegedly linked to Mr Najib.45 However, it is not public if any law enforcement authorities in Australia are investigating the case.
Most of the suspected US$4 billion embezzled by Najib was handled by the AmBank in Kuala Lumpur, which is partly owned by the ANZ Bank.46 A number of AmBank’s more junior Kuala Lumpar staff were blamed for the fraud and sacked in 2015.

The AmBank Group Chief Executive and Chief finance Officer were both seconded from the ANZ as was AmBank’s Chief Risk officer, based in Hong Kong47.
Last November, AmBank paid a 53.7m ringgit fine after Bank Negara Malaysia found it had breached its anti-money-laundering and counter-terrorism finance obligations in relation to “politically exposed persons” — speculated to be a reference to Najib’s accounts.48 2.
Deterrence: what works for White Collar Crime The Synod believes a penalty regime in the criminal justice system should serve three purposes: • Protecting the community from further harm; • Rehabilitation of the person who has transgressed and their reintegration into the community; and • Deterrence of both the person who committed the crime and others from criminal activity.

There appears to be a major problem with deterring white collar crime globally.
CareersinAudit.com conducted a survey of more than 1,700 accountants across the globe, including recently-qualifieds, auditors, analysts, audit seniors, audit managers, senior audit managers, financial controllers, CFOs, financial directors and partners in 2015.49 The survey found that 20% of respondents believed that between 10-20% of those in the profession have helped their clients create a set of accounts that are deliberately misleading.
A further 10% believe more than a quarter of the profession have been acting unethically and 5% believe half of the profession are not acting with integrity over client accounts.

Furthermore, approximately 45 BBC News Asia, 1MDB: The case that's riveting Malaysia, 26 January 2016 http://www.bbc.com/news/world-asia-33447456 46 ANZ’s Secret 1MDB Sacking Spree... How Come Management Still Sit Pretty?
Sarawak Report, 18 March 2016 http://www.sarawakreport.org/2016/03/anzs-secret-1mdb-sacking-spree-how-come- management-still-sit-pretty/ 47 ANZ’s Secret 1MDB Sacking Spree... How Come Management Still Sit Pretty?
Sarawak Report, 18 March 2016 http://www.sarawakreport.org/2016/03/anzs-secret-1mdb-sacking-spree-how-come- management-still-sit-pretty/ 48 Ben Butler, ‘ANZ partner and other Australian links in Najib Razak scandal’, The Australian, 19 February 2016 http://www.theaustralian.com.au/news/inquirer/anz-partner-and-other-australian-links-in- najib-razak-scandal/news-story/d4134acb14578a587555a2a912f8dd34 49 CareersinAudit, Audit & Risk Industry Survey 2015, www.careersinaudit.com 10 Criminal, civil and administrative penalties for white collar crimeSubmission 39 half (49%) of respondents have known of a specific situation where a colleague has been pressurized by a line manager or a partner to ignore an adjustment that should have been made to a set of accounts.
Just under half of respondents (43%) were aware that a senior staff member within the business/client, despite the fact that the decision could be unethical.
their company had deliberately chosen a commercial result for CareersinAudit.com also found that 55% of those surveyed believed that industry bodies were not doing enough to promote awareness of ethical standards and a 85% said they would take the prospect of a punishment from their industry body seriously.50 While most of white-collar crime was committed by offenders within an organisation, the percentage of external offenders is increasing.51 ASIC corporate affairs manager Matthew Abbott has stated that, “In the financial sector, breaking the law seems to be a trade-off between fear and greed so Australia needs penalties that amplify the fear and suppress the greed.”52 Currently civil penalties for white collar crime can be less than the proceeds of the crime which means that white collar criminals still end up ahead financially, unlike other countries where the penalties can include the sum of the gain plus a penalty of triple the amount of damages.
Such a large penalty may prevent potential white collar criminals from committing an offence.53 White collar crime is more prevalent than many people realise and due to the inconsistencies in legislation the outcome for white collar criminals who are convicted can be much less detrimental than for those who are convicted of other types of fraud such as welfare or identify fraud.
Penalties for social security fraud in Australia can include steep fines and up to ten years in prison, even though the amounts defrauded are generally much smaller, and the people committing the fraud are often people who are already suffering extreme financial hardship.54 People who commit white collar crimes are often affluent, educated and employed in middle management positions.

Their crimes may be motivated from greed and opportunity rather than financial hardship or necessity.
The sums of money involved in white collar crime are often larger than those involved in social security fraud yet white collar criminals are often treated with more leniency than is shown to those accused of social security fraud.

In one white collar criminal case, Gunns boss John Gay was convicted in 2009 of insider trading.

He was given a $50,000 fine and no prison sentence.
It’s speculated his overall gains from the transaction were around $800,000.55 However, it’s worth noting that a recent civil case brought against him by 50 CareersinAudit, Audit & Risk Industry Survey 2015, www.careersinaudit.com 51 PricewaterhouseCoopers, 2014 Global Economic Crime Survey: the Australian Story, Corruption: From the backroom to the boardroom, www.pwc.com.au 52 Rebecca Urban, ‘Corporate criminals escaping jail time’, The Australian, 8 December 2015 http://www.theaustralian.com.au/business/legal-affairs/corporate-criminals-escaping-jail-time/news- story/e16160c0d08f89e72fc109e8dc30cbfe 53 Sydney Criminal Lawyers, White Collar Crime – More Common Than You Might Think, 18 June 2014 www.sydneycriminallawyers.com.au/blog/white-collar-crime-more-common-than-you-might-think 54 Sydney Criminal Lawyers, White Collar Crime – More Common Than You Might Think, 18 June 2014 www.sydneycriminallawyers.com.au/blog/white-collar-crime-more-common-than-you-might-think 55 Sydney Criminal Lawyers, White Collar Crime – More Common Than You Might Think, 18 June 2014 www.sydneycriminallawyers.com.au/blog/white-collar-crime-more-common-than-you-might-think 11 Criminal, civil and administrative penalties for white collar crimeSubmission 39 ASIC and the Commonwealth Director of Public Prosecutions (CDPP) concluded on 11 December 2015 with a penalty order of $500,000 which Gay had 120 days to pay.56 Bagaric and Alexander (2013) state that courts should assess the harm done beyond the immediate victim and “to recognise the damage caused to the profession and the wider community in which the offender practised the profession.”57 They believe that forfeiture, in addition to disgorgement of the proceeds of the crime, has a deterrent effect and also note as per the Corporations Act 2001 (Cth) s 1317P, “there is no bar to pursuing a white-collar offender criminally after the conclusion of a civil penalty proceeding”.58 However, like others, they believe that, “The greatest deterrence against crime is not the size of the penalty, but the perceived likelihood of detection.”59 A greater monitoring of areas where white-collar offences are often committed would also assist in deterrence, such as more audits, and that, “greater measures to monitor compliance [be] implemented.”60 They suggest that more resources should be made available in the areas of policing and further investigation of the pathology of white-collar offending be undertaken.
3.

The need to hold individuals to account The Unit is concerned that individuals are held accountable for financial misconduct or white- collar crime, and are not able to hide behind corporate entities to escape such accountability.
ASIC Commissioner Cathie Armour has stated that, “An important aspect of its approach to market integrity was deterring misconduct by individuals who may otherwise assess the risks as worth taking.”61 The Unit notes the recent US Department of Justice’s Yates Memo (issued by Sally Yates, US Deputy Attorney General on 9 September 2015) emphasised the importance of holding individuals to account for corporate criminal activity they are involved with.
It stated: One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.

Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public's confidence in our justice system….
56 CDPP & ASIC Media Release, Former Gunns Ltd chairman ordered to pay $500,000 pecuniary penalty for insider trading, 16 December 2015 https://www.cdpp.gov.au/news/former-gunns-ltd-chairman-ordered- pay-500000-pecuniary-penalty-insider-trading 57 Mirko Bagaric and Theo Alexander, ‘A Rational Approach To Sentencing White-Collar Offenders In Australia’, Adelaide Law Review, 2013 http:/www.austlii.edu.au/au/journals/AdelLawRw/2013/18.pdf 58 Mirko Bagaric and Theo Alexander, ‘A Rational Approach To Sentencing White-Collar Offenders In Australia’, Adelaide Law Review, 2013 http:/www.austlii.edu.au/au/journals/AdelLawRw/2013/18.pdf 59 Mirko Bagaric and Theo Alexander, ‘A Rational Approach To Sentencing White-Collar Offenders In Australia’, Adelaide Law Review, 2013 http:/www.austlii.edu.au/au/journals/AdelLawRw/2013/18.pdf 60 Mirko Bagaric and Theo Alexander, ‘A Rational Approach To Sentencing White-Collar Offenders In Australia’, Adelaide Law Review, 2013 http:/www.austlii.edu.au/au/journals/AdelLawRw/2013/18.pdf 61 Mirko Bagaric and Theo Alexander, ‘A Rational Approach To Sentencing White-Collar Offenders In Australia’, Adelaide Law Review, 2013 http:/www.austlii.edu.au/au/journals/AdelLawRw/2013/18.pdf 12 Criminal, civil and administrative penalties for white collar crimeSubmission 39 The guidance in this memo will also apply to civil corporate matters.
In addition to recovering assets, civil enforcement actions serve to redress misconduct and deter future wrongdoing.

Thus, civil attorneys investigating corporate wrongdoing should maintain a focus on the responsible individuals, recognizing that holding them to account is an important part of protecting the public fisc in the long term.
The guidance in this memo reflects six key steps to strengthen our pursuit of individual corporate wrongdoing, some of which reflect policy shifts and each of which is described in greater detail below: (1) in order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct; (2) criminal and civil corporate investigations should focus on individuals from the inception of the investigation; (3) criminal and civil attorneys handling corporate investigations should be in routine communication with one another; (4) absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation; (5) Department attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and (6) civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay….
1.

To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.

In order for a company to receive any consideration for cooperation under the Principles of Federal Prosecution of Business Organizations, the company must completely disclose to the Department all relevant facts about individual misconduct.

Companies cannot pick and choose what facts to disclose.
That is, to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct.
If a company seeking cooperation credit declines to learn of such facts or to provide the Department with complete factual information about individual wrongdoers, its cooperation will not be considered a mitigating factor pursuant to USAM 9-28.700 el seq.

Once a company meets the threshold requirement of providing all relevant facts with respect to individuals, it will be eligible for consideration for cooperation credit.
The extent of that cooperation credit will depend on all the various factors that have traditionally applied in making this assessment (e.g., the timeliness of the cooperation, the diligence, thoroughness, and speed of the internal investigation, the proactive nature of the cooperation, etc.).
This condition of cooperation applies equally to corporations seeking to cooperate in civil matters; a company under civil investigation must provide to the Department all relevant facts about individual misconduct in order to receive any consideration in the negotiation.

For example, the Department's position on "full cooperation" under the False Claims Act, 31 U.S.C.

§ 3729(a)(2), will be that, at a minimum, all relevant facts about responsible individuals must be provided.
13 Criminal, civil and administrative penalties for white collar crimeSubmission 39 The requirement that companies cooperate completely as to individuals, within the bounds of the law and legal privileges, see USAM 9-28.700 to 9-28.760, does not mean that Department attorneys should wait for the company to deliver the information about individual wrongdoers and then merely accept what companies provide.
To the contrary, Department attorneys should be proactively investigating individuals at every step of the process - before, during, and after any corporate cooperation.

Department attorneys should vigorously review any information provided by companies and compare it to the results of their own investigation, in order to best ensure that the information provided is indeed complete and does not seek to minimize the behavior or role of any individual or group of individuals.
Department attorneys should strive to obtain from the company as much information as possible about responsible individuals before resolving the corporate case.

But there may be instances where the company's continued cooperation with respect to individuals will be necessary post-resolution.
In these circumstances, the plea or settlement agreement should include a provision that requires the company to provide information about all culpable individuals and that is explicit enough so that a failure to provide the information results in specific consequences, such as stipulated penalties and/or a material breach.

2.

Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
Both criminal and civil attorneys should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct.

By focusing on building cases against individual wrongdoers from the inception of an investigation, we accomplish multiple goals.

First, we maximize our ability to ferret out the full extent of corporate misconduct.
Because a corporation only acts through individuals, investigating the conduct of individuals is the most efficient and effective way to determine the facts and extent of any corporate misconduct.

Second, by focusing our investigation on individuals, we can increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy.
Third, by focusing on individuals from the very beginning of an investigation, we maximize the chances that the final resolution of an investigation uncovering the misconduct will include civil or criminal charges against not just the corporation but against culpable individuals as well….

4.

Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.

individuals.
individuals.

There may be instances where the Department reaches a resolution with the company before resolving matters with responsible these circumstances, Department attorneys should take care to preserve the ability to pursue these individuals.
Because of the importance of holding responsible individuals to account, absent extraordinary circumstances or approved departmental policy such as the Antitrust Division's Corporate Leniency Policy, Department lawyers should not agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees.
The same principle holds true in civil corporate matters; absent extraordinary circumstances, the United States should not release claims related to the liability of individuals based on corporate settlement In 14 Criminal, civil and administrative penalties for white collar crimeSubmission 39 releases.

Any such release of criminal or civil liability clue to extraordinary circumstances must be personally approved in writing by the relevant Assistant Attorney General or United States Attorney.
Against the need to hold individuals to account, there is a need to detect white collar crime in the first place.

Thus, the Unit is supportive of measures that may encourage those who have participated in the white collar crime to come forward, if their testimony will result in the criminal activity being ended and those who were the architects and key beneficiaries of the criminal activity are held to account.
There is a tight balance to be struck between having people come forward so more criminal activity is detected and ended against the need to hold individuals to account for the white collar crimes they have been party to.

4.

The need for transparency around financial crimes There is a need for transparency of cases involving financial misconduct or white-collar crime.
Using the example of bribery of foreign officials, the U4 Anti-Corruption Resource Centre has pointed out that in the jurisdiction of the bribe payer, transparency has a deterrent effect that may work in two ways.

First, when information about penalties imposed against companies or individuals is published, other potential bribe payers realise the potential costs of breaking the law and may refrain from similar behaviour.
Second, the publication of information on bribery cases subjects the defendants to reputational consequences and may discourage them from paying bribes again in the future.62 They point out that settlements present a unique challenge.

While trials are usually public, settlements and other related procedures have varying degrees of publicity.
For settlements, factors influencing the degree of transparency include whether the hearing is public, whether victims and other affected parties are informed that the settlement is taking place and are made aware of its outcome, as well as whether and at what stage of the process any relevant documents are made public.63 In general, cases that settle tend to be less transparent than cases that proceed to full trial, in terms of both the agreements or decisions released and amount of proceedings open to the public.
This arguably makes it harder for the home government of the public official who has been bribed to gain access to relevant facts of the settlement and thus to rely on that information for a domestic investigation; it also reduces the potential deterrent effect of foreign bribery laws.64 By comparison to the US, the Australian Government is highly secretive over the types of financial crimes that the Unit has worked on.
For example, the US Department of Justice makes public cases where unexplained wealth assets have been seized65, while such information is not made public in Australia.
In correspondence to the Unit in early February 2016, the Minister for Justice stated that criminally obtained funds shifted to Australia from Cambodia, China, 62 Francesco De Simone and Bruce Zagaris, ‘Impact of foreign bribery legislation on developing countries and the role of donor agencies’, U4 Anti-Corruption Resource Centre, September 2014, p. 18.
63 Francesco De Simone and Bruce Zagaris, ‘Impact of foreign bribery legislation on developing countries and the role of donor agencies’, U4 Anti-Corruption Resource Centre, September 2014, p. 18.

64 Francesco De Simone and Bruce Zagaris, ‘Impact of foreign bribery legislation on developing countries and the role of donor agencies’, U4 Anti-Corruption Resource Centre, September 2014, p. 18.
65 https://www.justice.gov/briefing-room 15 Criminal, civil and administrative penalties for white collar crimeSubmission 39 Indonesia, Malaysia, Papua New Guinea, Vanuatu and Vietnam have been frozen by the Australian Federal Police but would provide no details on the basis that some of the cases were on-going.

The Unit agrees that where a case is on-going and the public release of information may harm the case, then the information should be kept confidential.
However, as demonstrated by the US Administration, public release of information about cases that have been finalized helps build confidence that law enforcement agencies are taking white collar crimes seriously and acts as a general deterrent to those contemplating such criminal activity.

Dr Mark Zirnsak Director Justice and International Mission Unit Phone: E-mail: 16 Criminal, civil and administrative penalties for white collar crimeSubmission 39