The Australian Law Reform Commission’s (ALRC) Final Report on Corporate Criminal Responsibility was tabled in the Federal Parliament last week.
The Final Report advocates for broad reform in the definition, regulation, and prosecution of corporate offences. It delivers a focused concentration on misconduct and individual accountability for those involved in the management of corporate entities that engage in wrongdoing.
Against the backdrop of the Financial Services Royal Commission’s findings, the ALRC has endeavoured to understand why there are so few prosecutions against corporations in Australia, particularly relative to the prosecution of individuals. In doing so, it has examined the fundamental principles underpinning the regulation of corporations, and the proper role of the criminal law to denounce particularly egregious conduct, in order to make twenty reform recommendations that it considers will provide clarity around criminally prosecuting corporate wrongdoing and will make corporations less likely to view civil penalties as merely a ‘cost of doing business’.
Below we have summarised some of the ALRC’s recommendations – stay tuned for our comprehensive briefing note in the coming days. Australian companies, and overseas companies operating in Australia, ought to be familiar with these recommendations. They will be considered by Federal Parliament in coming months and will likely be on the radar of Australia’s corporate regulators.
A significant area of suggested reform is with respect to corporate attribution, that is, how corporations can be held responsible for crimes which are typically committed by an individual.
To create clarity around this controversial issue, the ALRC recommends specific amendments to the Criminal Code Act 1995 (Cth) to the extent that:
- a corporation will be criminally responsible for the conduct of a person acting on its behalf, whereby the nature of the relationship between the person and the corporation should be more important than the person’s job title or job description, when determining whether the person is acting ‘on behalf of’ the corporation; and
- a corporation will be considered at fault when an employee, officer or agent of the corporation has the relevant state of mind for the particular criminal offence.
Individual Liability Mechanisms
As foreshadowed in our previous update, the ALRC has only made a general recommendation for review into the effectiveness of the current individual liability regime for corporate misconduct. Of note is a suggested review of accessorial liability of individuals for corporate crimes, and directors’ and officers’ duties, reflecting the ALRC’s view that the current regime falls short of holding senior personnel of the largest corporations accountable for corporate misconduct.
The bulk of the ALRC’s recommendations are specific reforms to sentencing, with the ALRC declaring that existing penalty and sentencing options for corporations are inadequate. Some of the sentencing recommendations include amending legislation that would empower courts to:
- impose a broad range of non-monetary penalties, such as disclosure or community service, when sentencing a corporation;
- make orders dissolving a corporation, if it is the only appropriate sentencing options;
- make orders disqualifying a person from managing corporations, if that person managed a corporation that has been dissolved by a court.
Implementation of the ALRC’s Recommendations – where to next?
These recommendations represent, if they were to be adopted even in part, a next step in the broad pivot toward increased scrutiny and oversight of corporate governance in the Australian corporate landscape.
Adoption of certain recommendations could trigger immense shifts in Australia’s legislative, judicial, and regulatory framework and have profound impacts on the businesses across Australia and expose individuals to greater personal risk from actions of companies they manage.