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Seven key themes set to shape regulatory enforcement risk

Corporate crime

Key regulatory and enforcement developments – 2022

On the regulatory development front, the key development was the passage of legislation establishing the National Anti-Corruption Commission (NACC), which will mean increased transparency and accountability in the Commonwealth public sector.1 The NACC will have broad powers to investigate and make findings about corruption in the Commonwealth public sector, including investigating businesses and their officers if they engage in conduct that could or does adversely affect the honest or impartial exercise of any Commonwealth public official's powers or the performance of their duties or functions.

The Australian Sanctions Office (ASO) recently announced that it is undertaking a review of Australia's autonomous sanctions framework and has invited stakeholders to provide submissions by 26 February 2023 in response to its Issues Paper. The broad purpose of the review is to consider whether the Autonomous Sanctions Act 2011 (Cth), the Autonomous Sanctions Regulations 2011 (Cth) and associated instruments remain fit for purpose.

On the enforcement front, notable developments included:

  • The NSW Court of Criminal Appeal considered the proper assessment for a criminal penalty following Jacobs Group's convictions for the offence of foreign bribery. Under the Criminal Code, the penalties for this (and several other) offences are calculated by reference to the 'value of the benefit' the offender gained. The position taken by the sentencing judge, and confirmed by the NSW Court of Criminal Appeal in July last year,2 is that the 'benefit' refers to net benefit (in this case, the contract price less the costs of performing it) rather than the gross benefit (the contract price). By extension, there would be no 'benefit' to an offender who broke even or made a loss from an improperly awarded contract. The approach favoured by the Court of Criminal Appeal meant the maximum penalty was considered to be $11 million, not $30.4 million. The Crown's position to date has been that 'benefit' refers to gross benefit regardless of whether a profit was made, and in November 2022 the High Court granted special leave to hear the matter. If upheld, the decision will diminish the deterrence effect of criminal fines calculated by reference to 'benefit' under applicable offences.
  • The CDPP discontinued its prosecutions in the 'banking cartel case' following allegations of serious defects in the evidence gathering and indictment processes.3
  • The CDPP, following investigations and referral by the ACCC, has however continued to pursue criminal cartel conduct in the Federal Court. Criminal cartel action was commenced against three waste companies and two chief executives involved in two separate cartel arrangements. The first individuals were also sentenced for criminal cartel conduct in 2022, four in relation to an exchange rate price fixing scheme, and another for giving effect to several cartel arrangements with overseas pharmaceutical ingredient suppliers that involved price fixing, bid rigging, output restriction and market allocation.
  • The maximum penalties for criminal cartel offences increased five-fold from 10 November 2022.4 Under the changes, maximum penalties for companies that contravene cartel provisions increased to the greater of $50 million (increased from $10 million) or three times the value derived from the relevant breach, or, if the value derived from the breach cannot be determined, 30 per cent (increased from 10 per cent) of the company’s turnover during the period it engaged in the conduct. Maximum penalties for individuals were also increased.
  • The Full Federal Court in Walker v Members Equity Bank Ltd5 confirmed that prosecutions of false or misleading conduct offences under the Australian Securities and Investments Commission Act 2001 (Cth) must be commenced within three years of the alleged commission of the offence, which may lead to ASIC expediting its investigations of these offences.

Criminal enforcement activity by regulators and law enforcement agencies throughout the year demonstrates a focus on GST fraud,6 insider trading7 and wage theft or labour violations.8 The work of the ATO-led Serious Financial Crime Taskforce resulted in the sentencing of 19 people in 2022 and the collection of $646 million.9 However, despite significant funding to increase corporate crime enforcement activity over 2021–22, the CDPP reported that its prosecution activity fell below forecasts.10

Likely regulatory and enforcement developments – 2023

Some key developments for 2023 include:

  • The establishment of the NACC, which is expected to commence in mid-2023.
  • The Commonwealth Government has also recently commenced consultation on legislation to enact election commitments on multinational tax integrity and a public register of beneficial ownership (UBO register).11 The Government's proposed tax integrity reforms aim to address and prevent tax avoidance by multinationals and improve tax transparency and reporting. The reforms are expected to include public reporting of tax information, mandatory reporting of tax risks to shareholders and disclosure obligations for tenderers for government contracts. Consistently with this message of transparency, the UBO register is intended to fill the gaps within the current Corporations Act disclosure scheme and enable the systematic collection, authentication and publication of beneficial ownership information from both listed and unlisted corporate entities.12 These consultations are expected to result to legislation in 2023, leading to increased regulatory obligations for companies.
  • The completion of the OECD's periodic review of Australia's performance in relation to enforcement and regulation of foreign bribery may renew lapsed reform around foreign bribery.13 This is likely to be reinforced by the High Court's anticipated consideration of appropriate penalties for foreign bribery offences.14 The revival of the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2019 (Cth) would strengthen foreign bribery laws and create a Commonwealth deferred prosecution scheme but it remains to be seen whether the Albanese Government will re-table the Bill.
  • The proposed expansion of the Federal Court's jurisdiction to include hearing corporate crime offences administered by ASIC also has potential to increase enforcement activity.15 Similarly, the formation of a sanctions intelligence team by AUSTRAC in June 2022 will provide increased actionable financial intelligence for the AFP and the Australian Sanctions Office, likely leading to increased enforcement of sanctions violations. The CDPP's decision to retain surplus funding to increase its enforcement capability for corporate crime may foreshadow increased prosecutions in 2023.16

Key regulators and enforcement agencies in this area

ASIC, APRA and the ACCC have demonstrated a significant enforcement appetite in relation to corporate crime offences. The AFP has been active in the foreign bribery space throughout the year and is expected to remain so. The majority of offences at the Commonwealth level are referred to the CDPP for prosecution.

 

Key sectors of focus

Outside the Commonwealth public sector, key sectors of focus remain the financial services and gaming industries, as well as the resources and energy sectors.

Footnotes

  1. National Anti-Corruption Commission Act 2022 (Cth). See https://www.allens.com.au/insights-news/insights/2022/12/preparing-for-a-national-anti-corruption-commission/.

  2. R v Jacobs Group (Australia) Pty Ltd [2022] NSWCCA 152.

  3. See Commonwealth Director of Public Prosecutions 'Banking Cartel Prosecutions Discontinued', (Media Release, 11 February 2022).

  4. ACCC welcomes new penalties and expansion of the unfair contract terms laws | ACCC

  5. [2022] FCFC 184.

  6. See Australian Taxation Office, 'GST fraud crackdown: ATO-led taskforce executes raids across the country' (Media Release, 17 June 2022): Australian Taxation Office, 'Taskforce takes further action on GST fraud' (Media Release, 15 July 2022).

  7. See ASIC, 'Caloundra man sentenced for Insider Trading' (Media Release, 20 June 2022); ASIC, 'Former Sigma Healthcare general manager sentenced for insider trading' (Media Release, 27 June 2022); ASIC, 'Former Tesla Motors Australia director pleads guilty to insider trading' (Media Release, 16 November 2022).

  8. Wage Inspectorate Victoria 'Commonwealth Bank entities accused of underpayment' (Media release, 16 August 2022); Wage Inspectorate Victoria, 'Finance firm faces maximum penalty of more than $3m over alleged non-payment' (Media release, 19 October 2022); Wage Inspectorate Victoria, 'Restaurant and officer to face criminal charges under Victorian wage theft laws in an Australian first' (Media Release, 29 November 2022); Wage Inspectorate Victoria, 'Port Fairy bakery charged with child employment breaches' (Media Release, 5 December 2022).

  9. See https://www.cdpp.gov.au/crimes-we-prosecute/fraud/serious-financial-crime-taskforce.

  10. Commonwealth Director of Public Prosecutions, Annual Report 2021-2022, 19.

  11. See https://www.allens.com.au/insights-news/insights/2022/12/Corporate-crime-major-developments-for-2023/.

  12. Treasury, 'Multinational Tax Integrity: Public Beneficial Ownership Register' (Consultation Paper, November 2022).

  13. See https://www.allens.com.au/insights-news/insights/2019/12/take-two-anti-bribery-reforms-revived-and-long-awaited-draft-regulatory-guidance-released/.

  14. R v Jacobs Group (Australia) Pty Ltd formerly known as Sinclair Knight Merz [2022] HCATrans 193 (10 November 2022).

  15. Attorney General's Department, Federal Court of Australia Amendment (Extending Criminal Jurisdiction and Other Measures) Bill, (October 2022); Federal Court of Australia Amendment (Extending Criminal Jurisdiction and Other Measures) Bill 2022 (Cth) (Exposure Draft).

  16. Ibid.