Is there underenforcement of corporate criminal law in Australia?

By | November 9, 2021

There is an important international debate on whether there is underenforcement of corporate laws that reduces law’s deterrent value. For example, American scholar John Coffee believes that there is a crisis of underenforcement of the law against corporations in the United States. Our recent research examines this issue in Australia by investigating prosecutions from 2009 to 2018 under Australia’s two most significant corporate law statutes: the Corporations Act 2001(Cth) and the Australian Securities and Investments Commission Act 2001 (Cth). The Australian Securities and Investments Commission (ASIC) is Australia’s corporate, financial services, and consumer credit regulator. Although ASIC is authorized to prosecute some minor regulatory offences on its own behalf, in Australia, the Commonwealth Director of Public Prosecutions (CDPP) remains the primary criminal prosecution agency for offences committed under Commonwealth legislation.

Although our focus in this research is criminal enforcement of the law, ASIC has a wide range of enforcement options available to it. They include public warning notices, revocation, suspension or variation of license conditions and, in some circumstances, orders banning a person from providing financial services or being involved in the management of corporations. ASIC may also use administrative actions such as infringement notices. These are financial penalties that ASIC can itself impose without the need for a court order. ASIC may pursue a compensation remedy by commencing a representative action under section 50 of the ASIC Act to recover damages or property for persons who have suffered loss. Alternatively, ASIC may opt to take negotiated actions such as enforceable undertakings. Enforceable undertakings are court enforceable agreements between ASIC and a person or corporation whereby the person or corporation undertakes to make improvements, such as to introduce a compliance program.

We obtained prosecution data for the period of 2009–2018 (which had not previously been made available to researchers) through a Freedom of Information (FOI) request to the CDPP. There were several issues that we wanted to explore which framed our FOI request to the CDPP and so the specific questions that we asked regarding the data provided by the CDPP were:

  • How many prosecutions were there against corporations?
  • How many prosecutions were there against individuals?
  • What gender were the individuals prosecuted?
  • On which dates were offences committed/allegedly committed, defendants charged, and matters finalized?
  • Which sections of the Acts were contravened/allegedly contravened?
  • What was the number of counts by each defendant in relation to each section contravened or allegedly contravened?
  • What was the defendant’s plea (if applicable)?
  • What was the outcome of the prosecution?
  • What were the penalties imposed on each defendant, including the extent to which the penalties were cumulative and/or concurrent?
  • What were the total penalties imposed on each defendant?

The statistics team at the CDPP used our FOI request to interrogate the CDPP’s database and generate the requested information as excel spreadsheets. After collating and analyzing the data, our main findings were: 

  • The data indicates limited levels of criminal enforcement considering it represents ten years of federal prosecutions under two very significant corporate law statutes.
  • We identified 715 cases and a total of 1,427 penalties that pertain to these 715 cases. We classified these 1,427 penalties into 25 categories.
  • These 715 cases were brought under 86 unique sections of the ASIC Act and Corporations Act (combined). So, a very large number of sections of Australian corporations’ law is not utilized by the CDPP. Schedule 3 of the Corporations Act lists the penalties for those sections of the Corporations Act that create criminal offences. We reviewed Schedule 3 of the Corporations Act as it was in December 2018 (the final year of the CDPP data set) and found almost 900 sections and subsections of the Corporations Act that had criminal penalties.
  • Within these 86 sections of the two Acts that were applied, there was substantial prosecutorial concentration within a small number of available sections. Of the 86 sections mentioned above, 19 were applied more than 10 times in cases across the ten-year period. The most commonly applied sections of the Corporations Act were those sections that make it a criminal offence to make dishonest use of a position in a corporation to gain an advantage or cause detriment to the corporation, engage in insider trading, or make a false or misleading statement in a document required by the Corporations Act or submitted to ASIC.
  • The Corporations Act was preferred overwhelmingly to the ASIC Act as the basis for CDPP prosecutions. Of 715 cases only 15 were under the ASIC Act.
  • There are low levels of prosecutions against corporations compared to prosecutions against individuals. The 118 prosecutions against corporations constituted 16.5% of all cases prosecuted by the CDPP.
  • A high proportion of individual defendants were male, comprising the substantial majority of defendants (n=531, 74.3%) with 9.2% of the defendants being female and 16.5% being corporations. This issue of apparent overrepresentation of males and apparent underrepresentation of females is significant. It reflects long standing statistical underrepresentation of females in the broader criminal justice system both in Australia and overseas.
  • There was a high rate of successful prosecutions, with the CDPP achieving a proven outcome in 74.7% of total cases for a total of 534 wins.
  • Penalties imposed by the courts were limited in their severity. Fines were imposed in 234 (43.8%) of the total of 534 CDPP wins and prison sentences were imposed in 176 (33.0%) of these matters. Seventeen defendants received both a fine and a prison sentence. However, 72 (13.5%) of the defendants who received a prison sentence were released forthwith, so in reality, only 104 (19.5%) of the defendants in CDPP wins actually received a custodial sentence.

By providing a ten-year window into corporate criminal law enforcement in Australia, our research can act as a comparative empirical baseline for future research on prosecutions under the ASIC Act and Corporations Act. The time period of 2009–2018 was chosen deliberately. First, it constitutes a substantial ten-year time period on which to assess prosecutions under these two key Australian corporate law statutes. Second, it provides a baseline to facilitate future analysis of criminal prosecutions of misconduct post the 2019 publication of the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which has significantly influenced ASIC’s enforcement approach.

Our findings suggest that from 2009 to 2018, there may have been underenforcement of the ASIC Act and Corporations Act in terms of criminal prosecutions. However, ongoing empirically grounded scholarly research is essential to producing a mosaic of empirical evidence to inform whether such a claim may be applied more widely to how corporations and their directors and officers are regulated in Australia.

George Gilligan is a Senior Research Fellow at the Centre for Corporate Law, Melbourne Law School, University of Melbourne, Australia.

Ian Ramsay is a Redmond Barry Distinguished Professor Emeritus and Director at the Centre for Corporate Law,Melbourne Law School, University of Melbourne, Australia.

This post is adapted from George and Ian’s article “Company and Securities Law JournalIs there underenforcement of corporate criminal law? An analysis of prosecutions under the ASIC Act and Corporations Act 2009-2018″ available on SSRN

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