2: (A$) Country Insider trading Market manipulation Disclosure False statements conduct Dishonest conduct Australia Greater of $945,000, or 3 times the benefit gained Greater of $945,000, or 3 times the benefit gained $42,000 Greater of $945,000, or 3 times the benefit gained $42,000 Greater of $945,000, or 3 times the benefit gained Canada (Ontario) Greater of $5.08 million, or 3 times the benefit gained $5.08 million $5.08 million $5.08 million $5.08 million — Hong Kong $1.63 million $1.63 million — $1.63 million $800,000 — United Kingdom (unlimited) (unlimited) — (unlimited) (unlimited) (unlimited) United States $6.4 million $6.4 million $6.4 million $6.4 million $6.4 million $6.4 million Particular categories of offences the Taskforce has identified the potential to increase penalties are defective disclosure/false or misleading statements to consumers; failure to comply with corporate obligation; unlicensed conduct; failure to comply with financial services licensee obligations; client money obligations; credit code obligations; failure to comply with ASIC requirement; and making false or misleading statements to ASIC. The next part of this paper will discuss some of the Taskforce’s proposed increases to criminal penalties. However, the discussion will not address each and every increase contemplated. A complete list of increases in imprisonment penalties is provided at Annexure B. Defective disclosure/false or misleading statements to consumers Obligation to provide information to consumers Chapter 7 of the Corporations Act sets out a number of disclosure requirements for licensees and financial services providers, including requirements to give consumers specific documents and offences relating to the provision of defective disclosure documents. Disclosure documents are generally defective if they contain misleading or deceptive statements or omit material information including information required by the Act to be included in the document. The relevant provisions include the following: sections 1012A, 1012B and 1012C impose obligations to give a Product Disclosure Statement (PDS) in various circumstances. Under section 1021C failure to provide a PDS when required to do so is an offence of strict liability and an ordinary offence;
3 months’ imprisonment and/or 10 penalty units (individuals) 50 penalty units (corporations) 3 months’ imprisonment and/or 30 penalty units (individuals) 300 penalty (corporations) 6 months’ imprisonment and/or between 25 and 180 penalty units (individuals) Between 125 and 900 penalty units (corporations) 6 months’ imprisonment and/or 60 penalty units (individuals) 600 penalty units (corporations) 1 year imprisonment and/or between 50 and 60 penalty units (individuals) Between 250 and 300 penalty units (corporations) 1 year imprisonment and/or 120 penalty units (individuals) 1,200 penalty units (corporations) 2 years’ imprisonment and/or between 100 and 200 penalty units (individuals) Between 500 and 1,000 penalty (corporations) 2 years’ imprisonment and/or 240 penalty units (individuals) 2,400 penalty units (corporations) 5 years’ imprisonment and/or between 200-2,000 penalty units (individuals) Between 1000-10,000 penalty units (corporations) 5 imprisonment and/or 600 penalty units (individuals) 6,000 penalty units (corporations) 10 years’ imprisonment and/or 1,000 penalty units (individuals) 5,000 penalty units (corporations) General formula does not apply, as discussed above 10 years’ imprisonment and/or 4,500 penalty units or x3 benefits (individuals) 45,000 penalty units or x3 benefits or 10% annual turnover (corporations) Corporate offences fraud, in ASIC’s context, refers to serious misconduct engaged in by directors, other company officers and in some cases employees that gives rise to criminal liability. Perpetrators exploit their position in order to derive a benefit for themselves or someone else. Corporations Act contains a number of provisions relating to fraudulent conduct. The offence under section 184 has the most general application. Subsection 184(1) imposes criminal liability where a director or officer of a corporation acts recklessly or with intentional dishonesty and fails to fulfil his or her duties to the corporation. It provides: “A director or other officer of a corporation commits an offence if they: (a)are reckless; or (b)are intentionally dishonest; and fail to exercise their powers and discharge their duties:
Position 4: The Peters test should apply to all dishonesty offences under the Corporations Act. the Peters test has been approved by the High Court as the preferred test for dishonesty, the Taskforce considers that this would be the appropriate test to apply across all offences in the Corporations Act. While this would not resolve the inconsistency between the Criminal Code and Corporations Act, it would provide consistency within the Corporations Act. Question Is the Peters Test appropriate to apply to dishonesty offences across the Corporations Act? A central protection underpinning criminal penalties is the of a fault or mental element of the offence. This is because the law recognises that individuals and corporations should generally not be subject to pecuniary penalties and/or imprisonment for unintended or unforeseen consequences of their conduct. However a number of offences under the corporate law may be prosecuted absent a mental element or mens rea. These are commonly referred to as strict liability offences. Strict liability offences remove the fault element that would otherwise attach to a physical element of an offence. For such an offence to be made out, the regulator must prove the individual or corporation engaged in the physical elements of the offence. For these offences, the Proudman v Dayman defence of honest and reasonable mistake of fact is available to the accused. There are also a small number of absolute liability offences in the Corporations Act, where not only is proof of fault not required, but the Proudman defence is also not available. As the ALRC recognised in its report on traditional rights and freedoms, ‘strict liability offences are a common feature of regulatory frameworks underpinning corporate and prudential regulation, and may be appropriate to ensure the integrity of a financial or corporate regulatory regime.’ These offences are found in the corporate law context to recognise that requiring proof of fault for certain offences would undermine deterrence and reduce the regulator’s ability to successfully prosecute alleged contraventions of those offences. In 2012, the Senate Standing Committee for the Scrutiny of Bills published a report on the application of strict and absolute liability and concluded that the imposition of strict liability may be justified to ‘ensure the integrity of a regulatory regime (for example, public health, the environment, financial or corporate regulation). The AGD guide provides that application of strict and absolute liability to all fault elements of an offence should only be considered appropriate where:
5 (A$) Country Insider trading Market manipulation Disclosure False statements Unlicensed conduct Inappropriate advice Australia Civil: $200,000 Civil: $200,000 Civil: $200,000 - - Civil: $200,000 Canada (Ontario) Admin: $1.05m Admin: $1.05m Admin: $1.05m Admin: $1.05m Admin: $1.05m Admin: $1.05m Hong Kong Admin: profit gained or loss avoided - $1.12m - - Admin: greater of $1.4m, or 3 times the benefit gained United Kingdom Civil and admin: unlimited Civil and admin: unlimited unlimited Civil and admin: unlimited - Admin: unlimited United States Civil: 3 times the benefit gained greater of $111,000, or the benefit gained Civil: greater of $111,000, or the benefit gained Civil: greater of $111,000, or the benefit gained Civil: greater of $111,000, or the benefit gained Admin: $83,850 An example involving JP Morgan provides an indication of the impact of the differing approaches. JP Morgan was fined heavily for losses of over $6 billion (in addition to compensation) on the so-called ‘London whale trades’ affair: £138 million by the UK FCA; US$200 million by the US Securities and Exchange Commission (SEC); US$200 million by the US Federal Reserve; US$309 million by the US CFPB; and US$300 million by the US Office of the Comptroller of the Currency. In addition to differences in the applicable maximum penalties some jurisdictions specify the manner in penalties are to be calculated. The US SEC’s system of civil penalties is a tiered system, with the first tier available for less serious offences, rising to a third tier for more serious offences. Alternatively, the UK FCA takes a five-step approach to setting fines. The total amount payable by a person subject to enforcement action may be made up of two elements: disgorgement of the benefit received as a result of the breach, and a financial penalty reflecting the seriousness of the breach.
606(4) (absolute liability) 25pu and/or 6 months 125pu 600pu and/or 5 years 6000pu Chapter 6C – Information about ownership of listed companies and managed investment schemes 671B(1) (strict liability) 25pu and/or 6 months 125pu 240pu and/or 2 years 2400pu Chapter 2M – Financial reports and audit 286 (strict liability) 25pu and/or 6 months 240pu and/or 2 years 2400pu 307A (strict liability) 50pu 250pu and/or 2 years 2400pu Part 7.8 – Other provisions relating to conduct liability) 50pu 250pu 240pu and/or 2 years 2400pu D: Current civil penalty provisions (Corporations Act) 188(1) and (2) 209(2) 344(1) 674(2A) 675(2A) 961K(1) and (2) 961L 961Q(1)