Introduction

If you are a company director, company secretary, chief financial officer or a licensee or representative in the credit or financial services industry, you need to know what might transpire if the Australian Securities and Investments Commission (ASIC) wants to contact you. In this article, Tony Stumm, a former senior ASIC officer, passes on some helpful points to help you manage an ASIC experience.

The first contact from ASIC

Usually ASIC will make contact with you in two separate ways:

1. Requirement to produce books

ASIC may believe that conduct in which you are alleged to have engaged in should be probed or looked into. This is usually disclosed in the notice by text referring to ‘ensuring compliance with [subject matter]’ or more definitively as ‘investigating a possible breach of [subject matter]’. In either case, you are given a notice under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) requiring you to produce specific books and records to an ASIC officer by a deadline time and date. Unless the relevant books and records contain legal advice to you (a privileged document), you are required to produce the same. However, a privileged document (an abbreviation for a document covered by legal professional privilege) should not be produced to ASIC and instead, details setting out the document (but not its contents) should be given to ASIC in writing along with the other documents being produced. The designation of legal professional privilege means that, in the case of legal advice, that legal advice cannot be used against you in legal proceedings. In some instances, you can seal the privileged document in an envelope marked ‘Legal Professional Privilege’ and provide it to ASIC.

Parties who are potential witnesses in enforcement proceedings, for example banks, share registries, employers and associates, are often given the same type of notice so that ASIC can compare various versions of documents it receives when there are gaps in documentary trails of correspondence.

2. Requirement to give evidence

Once ASIC has analysed and assessed all the important documents delivered in response to its notice, ASIC will determine if its evidence can be enhanced by oral evidence given under oath or affirmation by witnesses. In addition to witnesses, ASIC will typically give a notice or notices to the suspected perpetrators of the alleged mischief so that the suspect’s evidence will be tested against testimony of others for accuracy and completeness. The ASIC notice requiring a person to give testimony to ASIC is one of the most powerful tools ASIC has.

Getting time extensions for notice responses

ASIC officers appreciate that it can often be difficult to identify, locate and assemble books and records required under an ASIC notice. Likewise, ASIC officers recognise that dates and times fixed for giving formal testimony to ASIC may be impacted upon by sickness, bereavement or jurisdiction absence on the day or time in question. In any of these instances, all it takes is a phone call to the ASIC officer issuing the notice, explaining your predicament and requesting an alternative date or time.

Giving testimony to ASIC

The process used by ASIC for extracting testimony from persons served with a notice is colloquially called ‘a s 19 examination’ having regard to s 19 of the ASIC Act empowering ASIC to formally require witnesses to give recorded evidence. If a witness considers that a response to an ASIC question might incriminate them, the witness is permitted, before answering the question to say ‘PRIVILEGE’ and then to answer the question. By doing this, the witness’s answer cannot be used against that person in criminal proceedings or in proceedings carrying a penalty. Because evidence is given under oath or affirmation, witnesses cannot refuse to answer questions or give false testimony. An offence can be created as a result of refusing to produce documents to ASIC or by omitting to present oneself at the day and time of an arranged s 19 examination.

Can lawyers participate in the testimony process?

A person, regardless of whether they may be the suspected perpetrator of an alleged breach or a witness, is entitled to be represented at a s 19 examination by an independent lawyer. The attending lawyer is allowed, with ASIC officers’ permission, to ask questions of the witness and to ask questions that might clarify a response. However, the lawyer attending for the witness:

  1. Cannot interfere with the hearing or its progress;
  2. Cannot interrogate ASIC officers or question evidence produced; and
  3. Cannot remind the witness to claim ‘PRIVILEGE’.

Whilst some people therefore consider that it is not worth engaging a lawyer for a s 19 examination, past experience has proven the opposite.

Examples include:

  1. The lawyer will help settle the witness by briefing the witness on what to expect.
  2. The lawyer will get the opportunity (in the case of a s 19 examination for a suspected perpetrator) of seeing the written evidence that supports the ASIC’s case and will be able to deduce, from questions asked, exactly what the witness may have done to attract ASIC’s interest.
  3. At the end of the s 19 examination, the lawyer will have the opportunity to make submissions to ASIC from what the lawyer has seen and heard, based on produced evidence, and from questions and answers given. This is a valuable opportunity. There have been several instances where assessment of the evidence, written and oral, has been submitted as insufficient for ASIC to prove misconduct, resulting in ASIC terminating their interest in the hearing attendee.

    If you are a director or officer of a company known to be of interest to ASIC, the existence of a directors’ and officers’ (D&O) insurance policy is important because these policies can provide cover for the reasonable costs of a lawyer engaged by the insurers for the company to protect the interests of the officers, where ASIC uses its compulsory powers.

Is there an option to refuse to comply with ASIC notices?

Case law indicates that it is a futile exercise to separately apply to the court for an ASIC notice to be struck out. Sometimes an ASIC notice may contain an error, in terms of a date, a name or similar. However, errors of that kind are not viewed by the court as fatal. If you or your company have been served with a notice because you hold documents for a party of interest to ASIC (identified by notice), you can generally speak directly to the ASIC officer issuing the notice to get clarification on parts of the notice which appear vague. If documents are not produced in compliance with an ASIC notice, the court, after application by ASIC, can direct delivery of documents. Additionally, an offence can be created by such failure which can result in up to two years imprisonment. The policy of many companies holding documents for clients, such as banks, stockbrokers or accountants, is to ask ASIC to issue a notice if ASIC requires client documents. This is a sound policy because a holder of documents would not be deemed to be breaching confidentiality or fiduciary duties by providing client documents in response to an ASIC notice.

In the same context, it can be ill advised for persons subject to confidentiality or fiduciary obligations to volunteer information belonging to third parties unless the information given is within the ambit of the notice, or unless the information is given as testimony in a s 19 examination. Additionally, a lot of information sought by ASIC contains personal information. Releasing personal information of a client to ASIC without an ASIC notice compelling that information places the information holder in an invidious position of being exposed to breaches of the Privacy Act 1988 (Cth).

In summary, there are specific penalties for failing to comply with an ASIC notice and the costs of challenging an ASIC notice in light of the prevailing case law supporting ASIC, suggests compliance is a sensible option.

What usually happens after a s 19 examination?

Because testimony given at a s 19 examination is recorded, the recording tapes are transcribed by ASIC into a written transcript of questions and answers given at the examination. The witness is asked by ASIC to sign the transcript to reflect that it is an accurate record. The witness can be compelled to sign a transcript and then it becomes admissible evidence. The witness is entitled to ask for and be given a copy of the transcript. Both the transcript and what was said at the witness’s s 19 examination are usually made subject to confidentiality declarations so as to prevent the undesirable leakage of information to persons who may be prime targets of ASIC.

Getting closure from ASIC

If an ASIC investigation does not transform into a prosecution or civil proceedings, the witness can expect to be told by ASIC that they are not needed to give evidence. Usually, this is within a year of a s 19 examination.

In a number of instances, a witness may be uncertain as to whether they may be called as a witness or whether they are regarded as perpetrators or accessories to the investigated conduct. It often arises that ASIC will not ‘show its hand’. This may be because the Director of Public Prosecutions is still reviewing the evidence creating uncertainty as to whether criminal or civil proceedings will be involved.

It can often be beneficial for the witness who may be unsure of his or her exposure to legal proceedings, to make written submissions to ASIC (with the help of the witness’s lawyers) to clear the witness’s exposure, for example, by raising defences or mitigating circumstances that were not covered by the s 19 examination.

Conclusion

ASIC is empowered to issue notices to check compliance with the Corporations Act 2001 (Cth) (or other relevant legislation) and additionally can issue notices where it suspects a contravention under relevant legislation it administers as regulator. Typically, to supplement ASIC’s investigating process, ASIC can issue notices to require compulsory testimony to be given on oath or by affirmation.

It is futile to consider contesting either type of notice. The suggested course of action is to comply and to assess, from the testimony given, whether the witness is a possible ASIC targeted perpetrator or accessory. It can be advantageous for a witness to be represented by a lawyer at a s 19 examination. The lawyer should be able to gauge if there is any liability exposure of the witness noticeable from the examination and to make submissions to the ASIC officers conducting the examination as to the innocence of the witness. There is also an opportunity for the witness or his/her lawyer to make submissions to ASIC when the transcript of examination has been finalised identifying defences or mitigating circumstances that ASIC might consider in order to terminate their interest in the witness.

If you work for a company which has D&O insurance cover, the policy is likely to require prompt notification to the insurer of the receipt of any ASIC notice. Prompt notification is important as policies of this kind can respond to meet the reasonable legal costs of lawyers engaged by its insurers on behalf of the company and its officers.