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Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018

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2016-2017-2018

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Treasury Laws Amendment (Strengthening Corporate And Financial Sector Penalties) Bill 2018

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Treasurer, the Hon Josh Frydenberg MP)

 

 



Table of contents

Glossary............................................................................................................. 1

General outline and financial impact........................................................... 3

Chapter 1 ........... A Stronger Penalty Framework........................................ 5

Chapter 2 ........... Statement of Compatibility with Human Rights.......... 73

 

 



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

AFSL

Australian Financial Services Licence.

ASIC

Australian Securities and Investments Commission.

ASIC Act

Australian Securities and Investments Commission Act 2001 .

Bill

Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018

Corporations Act

Corporations Act 2001 .

Credit Act

National Consumer Credit Protection Act 2009 .

Credit Code

Schedule 1 to the National Consumer Credit Protection Act 2009 .

Criminal Code

The Schedule to the Criminal Code Act 1995 .

the Guide

The Attorney-General’s Department’s A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers , September 2011 edition.

ICCPR

International Covenant on Civil and Political Rights.

Insurance Contracts Act

Insurance Contracts Act 1984 .

Regulatory Powers Act

Regulatory Powers (Standard Provisions) Act 2014.

the Taskforce

The ASIC Enforcement Review Taskforce.

 

 



Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018

Date of effect Day after Royal Assent.

Proposal announced This Bill partially implements the measure boosting penalties to protect Australian consumers from corporate and financial misconduct announced by the Government on 20 April 2018.

Financial impact Nil.

Human rights implications :  This Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 2.

Compliance cost impact No compliance costs.

 



Chapter 1          

A Stronger Penalty Framework

Outline of chapter

1.1                   This Bill amends the Corporations Act, ASIC Act, Credit Act and Insurance Contracts Act to introduce a stronger penalty framework in response to a number of recommendations from the ASIC Enforcement Review Taskforce report.

1.2                   The Taskforce was established following a recommendation from the Financial System Inquiry. The Taskforce recommended strengthening penalties for corporate and financial sector misconduct, and simplifying the access to, and the operation of, a number of civil penalty and criminal offence provisions.

1.3                   The amendments made by this Bill will deter misconduct and improve community confidence in the corporate and financial sector.

Context of amendments

The establishment of the ASIC Enforcement Review Taskforce

1.4                   On 19 October 2016, the Government established the ASIC Enforcement Review Taskforce. The Taskforce was established in response to a recommendation of the Financial System Inquiry and in an environment of much public and political scrutiny of the corporate and financial sector.

1.5                   The Taskforce was asked to review the enforcement regime available to ASIC and assess the suitability of the existing regulatory tools ASIC uses to perform its functions. The Taskforce developed a number of policy options to strengthen ASIC’s powers and regulatory tools, including options that:

•        address gaps or deficiencies to allow more effective enforcement of the regulatory regime;

•        foster consumer confidence in the financial system and enhance ASIC’s ability to prevent harm effectively;

•        promote engagement and cooperation between ASIC and its regulated population without imposing undue regulatory burden on business; and

•        promote a competitive and stable financial system that contributes to Australia’s productivity and growth.

The Taskforce’s findings

1.6                   The Taskforce grouped its policy options into eight chapters, which broadly made the following recommendations:

•        enhance the requirement for financial services and credit licensees to report significant breaches to ASIC;

•        harmonise and enhance search warrant powers;

•        provide ASIC with access to telephone intercepts for the investigation and prosecution of corporate law offences;

•        shift to a co-regulatory model in appropriate cases where industry participants are required to subscribe to an ASIC approved code;

•        strengthen ASIC’s licencing powers;

•        extend ASIC’s banning powers to ban individuals from managing financial services businesses;

•        strengthen penalties for corporate and financial sector misconduct; and

•        provide ASIC with a directions power to complement ASIC’s current powers to regulate an AFSL holder’s or credit licensee’s systems and conduct.

A stronger penalty framework

1.7                   This Bill implements the recommendations from Chapter 7 of the Taskforce’s report to strengthen penalties for corporate and financial sector misconduct.

1.8                   The Taskforce separated its recommendations to implement a stronger penalty framework into two broad categories. A number of recommendations relate to the quantum of penalties, increasing civil and criminal penalty amounts including terms of imprisonment. Others relate to the second category, penalty ‘pathways’, or the scope of provisions determined by legislation to attract civil or criminal penalties or some form of administrative sanction.

1.9                   The Taskforce broadly made the following recommendations:

•        update the maximum penalties for certain offences in ASIC administered legislation;

•        expand the civil penalty regime so that a number of new contraventions become civil penalty provisions;

•        introduce ordinary criminal offences that sit alongside and complement a number of strict and absolute liability offences;

•        introduce a new formula to calculate the maximum financial penalty for criminal offences in the Corporations Act;

•        introduce and apply a new objective only test to all dishonesty offences under the Corporations Act;

•        subject all offences with strict or absolute liability, and certain other offences, to a penalty notice regime;

•        introduce disgorgement remedies in civil penalty proceedings brought by ASIC under the Corporations Act, ASIC Act and Credit Act; and

•        require the courts to give priority to compensating victims over ordering the payment of financial penalties, aligning the Corporations Act with the ASIC Act and Credit Act.

1.10               In making its recommendations, the Taskforce considered the application of the Attorney-General’s Department’s A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011 edition (the Guide). The Guide is accessible on the Attorney-General’s Department’s website.

1.11               On 16 April 2018, the Government agreed to all of the recommendations set out above at paragraph 1.9, except the maximum civil penalty amounts, where the Government considered a stronger response was necessary.

Summary of new law

1.12               The Bill introduces a stronger penalty framework to combat misconduct and improve community confidence in the corporate and financial sector.

1.13               The amendments made by the Bill:

•        update the penalties for certain criminal offences in ASIC administered legislation, including:

-       increasing the maximum imprisonment penalties for certain criminal offences;

-       introducing a formula to calculate financial penalties for criminal offences;

-       removing imprisonment as a penalty and increasing the financial penalties for all strict and absolute liability offences;

•        introduce ordinary criminal offences that sit alongside strict and absolute liability offences;

•        modernise and expand the civil penalty regime by increasing financial penalties for contraventions and making a wider range of offences subject to civil penalties;

•        harmonise and expand the infringement notice regime;

•        introduce a new test that applies to all dishonesty offences under the Corporations Act;

•        introduce relinquishment as a remedy available in civil penalty proceedings;

•        clarify that the courts are to give priority to compensating victims over ordering the payment of financial penalties; and

•        clarify that contraventions of section 184 of the Corporations Act can occur even when the relevant corporation gains an advantage from the contravention.

Comparison of key features of new law and current law

New law

Current law

The maximum imprisonment penalties for certain criminal offences in the Corporations Act, ASIC Act and Credit Act are increased to reflect the seriousness of the misconduct.

The maximum imprisonment penalties for certain criminal offences in the Corporations Act, ASIC Act and Credit Act do not reflect the seriousness of the misconduct.

The maximum financial penalties for criminal offences in the Corporations Act, where the maximum term of imprisonment is less than 10 years, is calculated by multiplying the maximum term of imprisonment in months by 10 for individuals, and by a further 10 for bodies corporate.

No equivalent.

The maximum financial penalties for criminal offences in the Corporations Act, where the maximum term of imprisonment is 10 years or more, are:

•        for individuals, the greater of:

-       4,500 penalty units; or

-       if the court can determine - the benefit derived or detriment avoided because of the contravention, multiplied by three;

•        for bodies corporate, the greater of:

-       45,000 penalty units;

-       if the court can determine - the benefit derived or detriment avoided because of the contravention, multiplied by three; or

-       10 per cent of the annual turnover of the body corporate.

No equivalent.

The default maximum financial penalty for the contravention of an offence that is not listed in Schedule 3 to the Corporations Act is 20 penalty units for individuals and 200 penalty units for bodies corporate, and is a strict liability offence.

The default maximum financial penalty for the contravention of an offence that is not listed in Schedule 3 to the Corporations Act is 5 penalty units for individuals and 25 penalty units for bodies corporate, and is a strict liability offence.

All strict and absolute liability offences do not carry imprisonment as a potential penalty.

Certain strict and absolute liability offences carry imprisonment terms as a potential penalty.

The maximum financial penalties for the contravention of strict and absolute liability offences listed in Schedule 3 range from 20 to 240 penalty units for individuals, multiplied by 10 for bodies corporate.

The maximum financial penalties for the contravention of strict and absolute liability offences listed in Schedule 3 range from 5 to 100 penalty units for individuals, multiplied by 5 for bodies corporate.

New ordinary criminal offences sit alongside existing strict and absolute liability offences.

 

These offences attract a higher penalty than the equivalent strict and absolute liability offences.

No equivalent.

The maximum financial penalty for a contravention of a civil penalty provision in the Corporations, ASIC, Credit and Insurance Contracts Acts, and Credit Code, is:

•        for individuals, the greater of:

-       5,000 penalty units; or

-       if the court can determine - the benefit derived or detriment avoided because of the contravention, multiplied by three;

•        for bodies corporate, the greater of the following:

-       50,000 penalty units;

-       if the court can determine - the benefit derived or detriment avoided by the body corporate because of the contravention, multiplied by three;

-       10 per cent of the annual turnover of the body corporate, but to a maximum monetary value of 1 million penalty units.

 

The maximum financial penalty for a contravention of a corporation/scheme civil penalty provision in the Corporations Act is $200,000 for individuals or $1 million for bodies corporate.

 

The maximum financial penalty for a contravention of a financial services civil penalty provision in the Corporations Act, or the manipulation of financial benchmark provisions, is $200,000 for an individual or $1 million for a body corporate.

 

The maximum financial penalty for a contravention of a civil penalty provision in the market integrity rules is $1 million.

 

The maximum financial penalty for a contravention of a civil penalty provision in the client money reporting rules is $1 million.

 

The maximum financial penalty is 1,000 penalty units for a contravention of a civil penalty provision in the following:

•        the derivative transaction rules;

•        the derivative trade repository rules.

 

The maximum financial penalty is 5,550 penalty units for a contravention of a civil penalty provision in the following:

•        the financial benchmark rules;

•        the compelled financial benchmark rules.

 

The maximum financial penalty for a contravention of a Part 7.7A civil penalty provision in the Corporations Act is either $50,000 or $200,000 for individuals, or $250,000 or $1 million for bodies corporate.

 

The maximum financial penalty for a contravention of a civil penalty provision in the ASIC Act is between 30 and 2,000 penalty units for individuals, or 150 and 10,000 penalty units for bodies corporate.

 

The maximum financial penalty for a contravention of a civil penalty provision in the Credit Act is 2,000 penalty units for individuals or 10,000 penalty units for bodies corporate.

 

The maximum financial penalty for a contravention of a civil penalty provision in the Credit Code is:

•        if the civil penalty provision is a key requirement, $500,000; or

•        2,000 penalty units.

 

There is no equivalent in the Insurance Contracts Act.

A number of new provisions in the Corporations Act, Credit Act, Credit Code and Insurance Contracts Act are civil penalty provisions.

No equivalent.

The Insurance Contracts Act contains a civil penalty framework.

No equivalent.

Civil penalty frameworks in the Corporations, ASIC, Credit and Insurance Contracts Acts rely on the standard framework from the Regulatory Powers Act to the extent possible.

Civil penalty frameworks in the Corporations, ASIC and Credit Acts do not fully align with the standard framework in the Regulatory Powers Act.

All strict and absolute liability offences are subject to an infringement notice regime in the Corporations Act.

Strict and absolute liability offences are not subject to an infringement notice regime in the Corporations Act.

Certain civil penalty provisions are subject to an infringement notice regime in the Corporations Act and Insurance Contracts Act.

 

The maximum penalty for a single contravention of a civil penalty provision which is subject to an infringement notice regime is 12 penalty units for individuals and 60 penalty units for bodies corporate.

Civil penalty provisions are not subject to an infringement notice regime in the Corporations Act and Insurance Contracts Act.

‘Dishonest’ is specifically defined in the Corporations Act as “dishonest according to the standards of ordinary people”.

‘Dishonest’ takes its ordinary meaning, or as defined in sections 1041F and 1041G of the Corporations Act for the purposes of those sections.

Relinquishment is a remedy that is available in civil penalty proceedings under the Corporations Act, ASIC Act, and Credit Act.

No equivalent.

Courts are to give priority to compensating victims over ordering the payment of financial penalties in the Corporations Act.

No equivalent.

A contravention of section 184 of the Corporations Act can still occur if the corporation has gained an advantage from the contravention.

Section 184 of the Corporations Act is contravened if an officer of a corporation uses their position or information known to them to gain an advantage for themselves or someone else, or cause a detriment to the corporation.

Detailed explanation of new law

Updating the penalties for certain criminal offences in the Corporations Act, ASIC Act and Credit Act

Increases to terms of imprisonment for certain criminal offences

1.14               The Bill makes amendments to Schedule 3 to the Corporations Act, and to the ASIC Act and the Credit Act, to increase the maximum imprisonment term for certain criminal offences.

1.15               Maximum penalties provide a court with guidance on how to punish criminal behaviour. They restrict the court’s sentencing discretion as the court is unable to order a penalty in excess of the prescribed maximum penalty. The maximum penalty is generally reserved only for the most egregious cases.

1.16               The existing maximum imprisonment penalties for a number of criminal offences do not currently reflect the seriousness of those offences.

1.17               The maximum imprisonment penalty for a number of criminal offences in the Corporations Act, ASIC Act and Credit Act have been increased to reflect the seriousness of those offences, and to deter and punish such behaviour as appropriate. The increased penalties are consistent with penalties for similar offences in other jurisdictions.

1.18               Offences where the maximum term of imprisonment has been increased are listed in the table below. If the offence does not appear in the table, the penalty for the offence has not changed.

Table 1.1 - Offences where the maximum term of imprisonment has been increased

Offence provision

Current financial penalty or imprisonment term

New imprisonment term

Brief description

Corporations Act

206A(1)

1 year

5 years

Disqualified persons are not to manage corporations.

670A(3)

1 year

5 years

Documents relating to takeovers, compulsory acquisitions and buy-outs cannot be misleading or deceptive, or contain omissions, and are required to contain information that should have been included if a new situation has emerged.

708AA(10)

6 months

2 years

Right issues that do not need disclosure.

708A(9)

6 months

2 years

Defective documents.

792D(1)

6 months

2 years

Market licensee is obligated to assist ASIC.

821C(1) and (3)

6 months

2 years

Clearing and settlement facility licensee is obligated to assist ASIC.

821D

6 months

2 years

Clearing and settlement facility licensee must give ASIC access to facility if requested.

821E(2)

50 penalty units

2 years

Clearing and settlement facility licensee must issue to ASIC an annual report.

892K

2 years

5 years

Operator of financial market must comply with notice.

905A

500 penalty units

2 years

The regulations may identify a class of derivative trade repositories as being required to be licensed, and if so, the requirements need to be met.

907A

500 penalty units

2 years

Prohibitions on holding out.

911A(1)

2 years

5 years

A person who carries on a financial services business must hold an AFSL or have an exemption.

911B(1)

2 years

5 years

A person who carries on a financial service on behalf of another person must have an AFSL or have an exemption.

911C

1 year

2 years

Prohibitions on holding out.

912C(3)

6 months

2 years

ASIC may request AFSL holders to provide a written statement.

912D(1B)

1 year

2 years

AFSL holders must notify ASIC of certain matters.

912E(1)

6 months

2 years

AFSL holders must provide assistance to ASIC if requested.

920C

6 months

5 years

If a banning order is made, the person cannot be granted an AFSL.

952C(3)

2 years

5 years

Failing to give a disclosure document or statement within the time required.

952L(2)

2 years

5 years

AFSL holders commit an offence if they are aware a defective Financial Services Guide is provided and they do not rectify the defect.

982D

6 months

2 years

AFSL holders must only use money as prescribed in the law.

991B(2)

6 months

1 year

AFSL holders must give priority to clients’ orders.

991E(1) and (3)

6 months

1 year

AFSL holders have certain obligations in relation to dealings with non-licensees.

993C(3)

2 years

5 years

AFSL holders must comply with requirements relating to client money account.

1012DAA(10)

6 months

2 years

If a notice given in relation to a rights issue is defective, and the issuer becomes aware it is defective, the issuer must in a reasonable time period rectify the defect.

1012DA(9)

6 months

2 years

If a notice given in relation to a sale amounting to indirect issue is defective, and the issuer becomes aware it is defective, the issuer must in a reasonable time period rectify the defect.

1017E(3) and (4)

2 years

5 years

Dealing with money received for financial product before the product is issued.

1017G(1)

2 years

5 years

Certain product issuers and regulated persons must meet appropriate dispute resolution requirements.

1021C(3)

2 years

5 years

Offence of failing to give a disclosure document or statement.

1021J(2) and (3)

2 years

5 years

Offence if preparer of disclosure document or statement becomes aware that it is defective.

1101E

1 year

2 years

Person must not conceal, destroy, mutilate or alter a book.

1101F(1A) and (1)

1 year

2 years

Person must not engage in conduct that would result in the falsification of a book or register.

1307(1) and (2)

2 years

5 years

Person must not falsify books.

1308(4)

5 penalty units

2 years

Person must not provide false or misleading statements.

1308(8)

5 penalty units

5 years

Person must not provide false or misleading statements.

1310

5 penalty units

2 years

Person must not obstruct or hinder ASIC.

ASIC Act

64(1)

2 years

5 years

A person must not give information or make a statement that is false or misleading.

64(2)

3 months

2 years

A person must not at a hearing give evidence that is false or misleading.

65(2)

6 months

1 year

If a person enters under a warrant, a person must not intentionally or recklessly fail to provide reasonable access.

66(1)

1 year

2 years

Person must not engage in conduct that would result in obstruction or hindering.

Credit Act

82(2)

2 years

5 years

Person must not engage in conduct if a banning order is in place.

160D(2)

2 years

5 years

Person must not provide misleading information.

291(1)

2 years

5 years

Person must not provide false information.

291(2)

3 months

2 years

Person must not at a hearing give evidence that is false or misleading.

292(3)

6 months

1 year

If a person enters under a warrant, a person must not intentionally or recklessly fail to provide reasonable access.

[Schedule 1, item 140, the table in Schedule 3 to the Corporations Act; Schedule 2, items 29, 30, 32 and 33, subsections 64(1), 64(2), 65(2), 66(1) of the ASIC Act; Schedule 3, item 49, subsections 82(2), 160D(2), 291(1), 291(2) and 292(3) of the Credit Act]

1.19               The most serious offences in the Corporations Act have had their maximum term of imprisonment increased from 5 years to 10 years. This has been done to ensure that the penalties reflect the seriousness of the offence. The following table outlines these offences.

Table 1.2 - Offences where the term of imprisonment has increased to 10 years

Offence provision

(Corporations Act)

Brief description

184

Duties and powers.

344(2)

Financial reports and audit.

601FD(4)

Officers of responsible entity.

601FE(4)

Employees of registered scheme.

601UAA(1)

Duties of officers.

601UAB(1)

Duties of employers.

727(1)

Fundraising.

728(3)

Fundraising.

952D(1) and (2)

Financial services disclosure.

952F(2), (3) and (4)

Financial services disclosure.

952L(1)

Financial services disclosure.

993B(3)

Client money.

1021D(1) and (2)

Disclosure document.

1.20               Throughout the Corporations, ASIC and Credit Acts, the penalty stated for an offence is:

•        for the Corporations Act:

-       the penalty specified in Schedule 3 to the Corporations Act for the provision under which the offence is created or included; or

-       the penalty specified in the provision under which the offence is created or included;

•        for the ASIC Act:

-       the penalty specified in any provision of the ASIC Act for the offence; and

•        for the Credit Act:

-       the penalty specified in any provision of the Credit Act for the offence.

[Schedule 1, item 110, section 1311E of the Corporations Act; Schedule 2, item 39, section 93G of the ASIC Act; Schedule 3, item 19, section 288F of the Credit Act]

1.21               The maximum penalty that can be imposed is the penalty amount applicable to the offence. The judiciary continues to have discretion to consider the level of criminal culpability, and impose a penalty that is appropriate in the circumstances, up to the maximum penalty. [Schedule 1, item 110, section 1311A of the Corporations Act; Schedule 2, item 39, section 93C of the ASIC Act; Schedule 3, item 19, section 288B of the Credit Act]

1.22               A number of these offences are designed to sanction contraventions of fundamental obligations that protect consumers and investors. Contravening these obligations has the potential to cause serious harm. Maximum penalties applicable to certain offences have been increased to:

•        reflect the seriousness of the offence;

•        meet community expectations in relation to misconduct;

•        act as a deterrent from committing offences;

•        effectively punish those who commit offences;

•        protect against those who are unfit to provide certain services;

•        ensure consistency in the penalties for offences of equivalent seriousness; and

•        maintain the integrity of Australia’s corporate and financial sector.

 Calculating the maximum financial penalty for criminal offences

1.23               In addition to increasing imprisonment terms, the Taskforce recommended that the financial penalty for criminal offences should also be increased and calculated through a new formula. The new formula ensures a simplified and consistent approach by expressing the maximum financial penalty units by reference to the maximum term of imprisonment for the relevant offence.

1.24               There are two different financial penalty formulae. One formula is used if the term of imprisonment relating to the offence is less than 10 years. A different formula is used if the term of imprisonment is 10 years or more.

Formula where term of imprisonment is less than 10 years

1.25               Where the term of imprisonment is less than 10 years, the individual fine formula is the imprisonment term in months multiplied by 10. [Schedule 1, item 110, section 1311B of the Corporations Act; Schedule 2, item 39, section 93D of the ASIC Act; Schedule 3, item 19, sections 288C and 288D of the Credit Act]

1.26               The financial penalty applicable to an individual for an offence where the term of imprisonment is less than 10 years, is either:

•        if a fine is the only penalty specified, that fine; or

•        if an imprisonment component is the only penalty specified, that term of imprisonment, an amount calculated using the new individual fine formula, or both;

unless the Acts state otherwise and there is a contrary intention.

[Schedule 1, item 110, section 1311B of the Corporations Act; Schedule 2, item 39, section 93D of the ASIC Act; Schedule 3, item 19, section 288C of the Credit Act]

1.27               If the penalty is for a body corporate, the applicable penalty is either:

•        if a fine is the only penalty specified, that fine multiplied by 10; or

•        if an imprisonment component is the only penalty specified, that term of imprisonment, the amount calculated using the new individual fine formula multiplied by 10 (the body corporate formula), or both;

unless the Acts state otherwise and there is a contrary intention.

[Schedule 1, item 110, section 1311C of the Corporations Act; Schedule 2, item 39, section 93E of the ASIC Act; Schedule 3, item 19, section 288D of the Credit Act]

1.28               Examples have been provided in notes to the provision in the Corporations Act to assist in determining whether there is a contrary intention. [Schedule 1, item 110, note to subsection 1311B(5) of the Corporations Act]

1.29               The following table provides examples of how imprisonment terms are converted to a financial penalty using the individual and body corporate formulae.

Table 1.3 - Examples of the new individual and body corporate financial penalty formulae

Imprisonment term

Individual fine (penalty units)

Body corporate fine (penalty units)

3 months

30

300

6 months

60

600

1 year

120

1,200

2 years

240

2,400

5 years

600

6,000

1.30               The amendments provide that a financial penalty relating to a criminal offence is now calculated by way of multiplying the imprisonment term of the offence, expressed in months, by 10.

1.31               The Guide was considered during the development of the fine formula frameworks. The guide suggests an appropriate fine to imprisonment ratio is 5, or 5 penalty units for every 1 month of imprisonment.

1.32               A departure from the ratio of 5 is warranted because offences in the Corporations, ASIC and Credit Acts are of a corporate nature. Those involved in committing such offences could receive large financial benefits from their misconduct, especially in the larger corporate and financial business sectors. To deter such behaviour, and to ensure paying a financial penalty does not become a cost of doing business, a ratio of 10 for individuals is appropriate. This will neutralise any financial benefits or gains obtained from illegal behaviour.

1.33               The further uplift of 10 that applies only to bodies corporate also ensures that a body corporate does not obtain financial benefits from illegal behaviour. Bodies corporate can be well resourced and often can, in the corporate and financial sector, have significant financial value and resources. To ensure financial penalties act as an adequate deterrent, punish illegal behaviour, and are commensurate to the size and capacity of bodies corporate, a further ratio of 10 is appropriate.

1.34               The fine formulae are consistent with the Guide as they provide an adequate penalty that will deter and punish illegal behaviour. They provide an adequate outcome for the worst possible case of corporate and financial misconduct.

Formula where the term of imprisonment is 10 years or more

1.35               The financial penalty formula that applies where the term of imprisonment for an offence is 10 years or more is:

•        for individuals, the greater of:

-       4,500 penalty units; or

-       if the court can determine - the benefit derived or detriment avoided because of the offence, multiplied by three; and

•        for bodies corporate, the greater of:

-       45,000 penalty units;

-       if the court can determine - the benefit derived or detriment avoided because of the offence, multiplied by three; or

-       10 per cent of the annual turnover of the body corporate.

[Schedule 1, item 110, subsections 1311B(4) and 1311C(3) of the Corporations Act; Schedule 2, item 39, subsections 93D(4) and 93E(3) of the ASIC Act; Schedule 3, item 19, subsections 288C(4) and 288D(3) of the Credit Act]

1.36               These penalty amounts apply unless there is a contrary intention, and in the Corporations Act, examples of contrary intentions are provided in notes. [Schedule 1, item 110, subsection 1311C(4) of the Corporations Act]

1.37               The amendments made by this Bill do not increase terms of imprisonment for any offences to more than 10 years. However, the drafting ensures that should penalties increase in the future, the formula continues to operate as intended.

1.38               Annual turnover has the same meaning as it has in Chapter 7 of the Corporations Act, and is calculated for the 12 month period ending at the end of the month in which the body corporate contravened, or began to contravene, the offence provision. [Schedule 1, item 1, section 9 of the Corporations Act; Schedule 3, item 1, subsection 5(1) of the Credit Act]

1.39               Benefit derived or detriment avoided is the sum of:

•        the total value of all benefits that the person obtained that are reasonably attributable to the contravention; and

•        the total value of all detriments that the person avoided that are reasonably attributable to the contravention.

[Schedule 1, item 110, section 1311D of the Corporations Act; Schedule 2, item 39, subsection 93F of the ASIC Act; Schedule 3, item 19, subsection 288E of the Credit Act]

1.40               The introduction of a financial penalty calculation based on the financial benefits received, or detriment avoided, as a result of misconduct, or additionally, for bodies corporate, based on their annual turnover, allows an appropriate financial penalty to be given that reflects the seriousness of an offence, and is of substance to deter and punish misconduct. This framework provides flexibility in the range of penalties that can be given for the most egregious offences, safeguards against the consequences of a criminal action being considered a cost of doing business, and ensures financial penalties can be commensurate to the value and capacity of a body corporate.

1.41               The Guide indicates that an appropriate financial penalty for an offence that carries a maximum imprisonment penalty of life is 2,000 penalty units for individuals and 10,000 penalty units for bodies corporate. Contravening obligations in the Corporations, ASIC and Credit Acts can potentially lead to offenders obtaining large financial gains from committing an offence. To ensure the penalty for these most serious offences reflects the seriousness of the crime, effectively punishes misconduct, and acts as a sufficient deterrent for future misconduct, exceeding the suggested financial penalty in the Guide is appropriate.

Machinery and technical amendments to support the financial penalty formula frameworks

1.42               Schedule 3 to the Corporations Act has been simplified and amended to reflect either the imprisonment term, or penalty amount. Likewise the ASIC and Credit Acts have also been amended to reflect either the imprisonment term or penalty amount. If there is an imprisonment term, the individual fine formula is engaged. If relevant, the body corporate formula is also engaged. The imprisonment term or penalty amounts are stated throughout the relevant offence provisions in the ASIC and Credit Acts. Machinery amendments have also been made to clarify the operation of provisions specifying the penalty for an offence in respect of consequences for committing an offence that is not a punishment on conviction for the offence. [Schedule 1, item 110, section 1311E of the Corporations Act; Schedule 2, item 39, section 93G of the ASIC Act; Schedule 3, item 19, section 288F of the Credit Act]

1.43               Amendments have been made to update either the imprisonment term or penalty amounts in Schedule 3 to the Corporations Act, and to the offence provisions in the ASIC and Credit Acts. [Schedule 1, item 140, the table in Schedule 3 to the Corporations Act; Schedule 2, items 21, 22, 25, 27, 29, 30, 31, 32, 33, 35, 36, 40, 41, 43, 44, 47 and 48, subsections 39A(2), 39C(8), 63(1), 63(3), 64(1), 64(2), 65(1), 65(2), 66(1), 67(1), 69(3), 125(3), 127(4E), 127(4EA), 127(4EB), 127(4F), 199(1), 200(1), 219(4) and 220(1) of the ASIC Act; Schedule 3, item 25, subsection 24(2) of the Code; Schedule 3, item 49, various provisions of the Credit Act]

1.44               If a penalty amount is not stated for an offence in the Corporations Act, then the penalty that applies for contravening the relevant offence is 20 penalty units for individuals and the offence is a strict liability offence. By virtue of the body corporate formula, the penalty for a body corporate is 200 penalty units. [Schedule 1, item 110, section 1311F of the Corporations Act]

1.45               If a penalty amount is not stated for an offence in the ASIC and Credit Acts, then the penalty that applies for contravening the relevant offence is 20 penalty units for individuals and the offence is a strict liability offence. By virtue of the body corporate formula, the fine for a body corporate is 200 penalty units. [Schedule 2, item 39, section 93H of the ASIC Act; Schedule 3, item 19, section 288G of the Credit Act]

1.46               To ensure the integrity of the corporations and financial regulatory framework, it is appropriate that minor offence provisions attract a modest financial penalty and are of strict liability.

1.47               The size of the financial penalty has been balanced against these offences being ones of strict liability. The penalty of 20 penalty units represents an adequate level of deterrence from misconduct for these minor offences taking into consideration the lack of the need to satisfy any fault elements. The penalty amount complies with the Guide as it does not exceed 60 penalty units.

1.48               The new individual and body corporate fine formulae do not apply to offences that do not have an imprisonment component. Instead, these offences have been updated if the individual fine amounts were less than 30 penalty units. Accordingly the body corporate fine amounts have increased to 300 penalty units. If the offence is over 30 penalty units, no changes have been made. However, the new body corporate fine formula applies; that is, the new body corporate fine is the individual fine multiplied by 10. [Schedule 1, items 17, 79, 80, 81, 134, 144 and 145, subsections 198G(2), 921L(7), 921M(1), 921M(2), 921M(3) and 921P(2), subsection 35-5(2) of Schedule 2, paragraph 36(2)(i) of Schedule 4 and paragraph 36(2)(j) of Schedule 4 of the Corporations Act; Schedule 2, item 11, subsection 12GBD(5) of the ASIC Act]

1.49               The new individual fine formula does not apply to offences where the individual fine formula would result in a reduction in the penalty amounts. Instead for these offences, the individual penalty amount has not changed. For example, subsection 601FG(3) of the Corporations Act attracts a fine of 2,000 penalty units and/or 5 years of imprisonment. The new individual fine formula does not apply, because applying the formula would result in a penalty amount of 600 penalty units. However the new body corporate fine formula applies; that is, the new body corporate fine is the individual fine multiplied by 10. [Schedule 1, item 140, the table in Schedule 3 to the Corporations Act]

1.50               The new individual fine formula does not apply to offences that calculate the fine amounts by reference to the number of days for which the offence continues. For example, ASIC may direct a market licensee to follow directions given under subsection 794D(3) of the Corporations Act. If the market licensee does not follow directions, the penalty is calculated based on each day the offence is committed. However the new body corporate fine formula still applies; that is, the new body corporate fine is the individual fine multiplied by 10. [Schedule 1, item 140, the table in Schedule 3 to the Corporations Act]

1.51               The majority of the ‘per day’ penalties relate to licensees who fail to follow ASIC’s direction. While 1,000 penalty units per day can lead to significant penalties, these breaches cannot be inadvertent and most of ASIC’s directions are capped at 21 days. However, this does not necessarily mean the penalty will be a maximum of 21 times 1,000 penalty units given there may be circumstances where a breach could be ongoing even after a direction has lapsed.

1.52               The further uplift of 10 that applies only to bodies corporate also ensures that a body corporate does not obtain financial benefits from illegal behaviour. Bodies corporate can be well resourced and often can, in the corporate and financial sector, have significant financial value and resources. To ensure financial penalties act as an adequate deterrent, punish illegal behaviour, and are commensurate to the size and capacity of a body corporate, a further ratio of 10 is appropriate. Therefore exceeding the suggested financial penalty in the Guide is appropriate.

1.53               In the situation where there is a continuing contravention, subsection 1314(5) of the Corporations Act provides that the penalty applicable is a fine of half a penalty unit multiplied by the number of days the contravention continues. This provision is not being amended by this Bill as it would be inappropriate for a person to be subject to the maximum financial penalties calculated under the individual fine formula and body corporate fine formula for each new daily contravention.

Amendments to the penalties for strict and absolute liability offences

1.54               The Bill makes amendments to increase financial penalties, and remove imprisonment as a penalty, for strict and absolute liability offences. The application of strict and absolute liability offences removes the requirement to prove fault.

1.55               Financial penalties for all strict and absolute liability offences have increased to reflect the seriousness of the offence. Where a strict or absolute liability offence currently carries an imprisonment term as a penalty, the penalty has been converted to a financial penalty using individual and body corporate fine formulae, explained above.

1.56               The new penalty amounts for strict and absolute liability offences are proportionate to other penalty increases. The increase in penalty reflects the seriousness of the offence and acts as adequate deterrent in order to improve the effectiveness of the enforcement regime and ensure the integrity of the corporate and financial services sector.

Table 1.4 - Examples of the new individual and body corporate financial penalty for strict and absolute liability offences

Old penalty

New penalty for individuals

(penalty units)

New penalty for body corporates

(penalty units)

Anything below 20 penalty units

20

200

10 penalty units or imprisonment for 3 months or both

30

300

25 penalty units or imprisonment for 6 months or both

60

600

60 penalty units or imprisonment for 1 year or both

120

1,200

 

1.57               Criminal offences have a number of elements that form part of the offence. For some criminal offences, strict or absolute liability attaches only to certain elements of the offence. Committing criminal offences, where the physical elements of the offence also have strict or absolute liability applying, may still attract a penalty with an imprisonment component if fault can be established for those physical elements. In other words, if fault cannot be established for the physical elements to which strict or absolute liability applies, a person could still be convicted of the offence if they are found to have committed those physical elements, but cannot have a term of imprisonment imposed as a penalty.

1.58               Removing imprisonment for strict and absolute liability offences is consistent with the Guide. The Taskforce concluded that individuals should not be subject to imprisonment for inadvertent breaches of the law or offences where there is no fault element. This acknowledges that there is no demonstrable evidence that imprisonment as a penalty for these offences increases deterrence or enforcement. It also acknowledges that individuals should not be imprisoned for inadvertent breaches of law where no fault element is present.

1.59               Penalties for strict and absolute liability offences with no imprisonment component and less than 20 penalty units have increased to 20 penalty units for individuals and 200 penalty units for body corporates to ensure penalties act as an appropriate deterrent and adequately punish lower level breaches. This is consistent with the Guide.

1.60               The penalty amount of 20 penalty units strikes an appropriate balance between ensuring the integrity and effectiveness of the regulatory framework and deterring and punishing misconduct for lower level breaches, and provides efficiency and effectiveness in prosecuting such offences. This recognises that the regulated population should not only refrain from consciously doing wrong, but should take active steps to fulfil certain statutory obligations.

1.61               Increasing the penalty amount to 20 penalty units will also avoid penalties for these lower level breaches being seen as a cost of doing business. If penalties are too low and can easily be paid with no real deterring effect, there is no negative stigma associated with committing the underlying offence.

1.62               The penalty amount of 20 penalty units recognises that fault elements do not need to be established for these offences, and that a lower maximum penalty is appropriate compared to ordinary and more serious offences. The increases in the financial penalties are offset with the removal of imprisonment as a possible sanction for committing strict and absolute liability offences. This provides a balanced and fair penalty framework for minor and lower level breaches.

1.63               Where the penalty for a strict or absolute liability offence does not have an imprisonment component and is higher than 20 penalty units, no changes have been made. However the new body corporate fine formula applies; that is, the new body corporate fine is the individual fine multiplied by 10.

1.64               Where a strict or absolute liability offence had an imprisonment component, the individual and body corporate formulae were used to calculate the new financial penalty. Imprisonment was then removed for all strict and absolute liability offences. The individual and body corporate fine formulae in some instances have increased the penalty for strict and absolute liability offences to be higher than the recommended penalty amounts in the Guide. These are outlined below at Table 1.5 and 1.6.

1.65               The Guide suggests an appropriate penalty for a strict liability offence is 60 penalty units for an individual and 300 penalty units for a body corporate. For absolute liability offences, the Guide suggests an appropriate penalty to be 10 penalty units for an individual and 50 penalty units for a body corporate. While the amendments depart from the Guide, the increased penalty now reflects the seriousness of the offence, and is appropriate as it makes the amounts more proportionate to the other penalty increases and acts a sufficient deterrent. The increases in the financial penalties also offset the removal of imprisonment as a possible sanction for committing strict or absolute liability offences.

1.66               The application of strict or absolute liability offences are appropriate to ensure the integrity of the financial sector, as consumers put their trust in these classes of people (for example, company directors, financial advisors, superannuation trustees), therefore failure to comply with obligations can result in serious detriment to the consumer. The existence of strict and absolute liability offences reduces non-compliance and acts as an appropriate deterrent.

Table 1.5 - Strict liability offences higher than 60 penalty units for an individual and 300 penalty units for body corporates

Reference

Brief description

Individual fine (penalty units)

Body corporate fine (penalty units)

Corporations Act

158(2)

ASIC may direct a company to change its name, if so the company must comply with the direction within 2 months.

120

1,200

165(2)

ASIC may direct a proprietary company to change to a public company under certain circumstances. If so a company must comply within 2 months.

120

1,200

200D

Contravention to receive benefit without member approval.

180

1,800

205B

Notice of name and address of directors and secretaries to ASIC.

120

1,200

235

Requirement for person to lodge order.

120

1,200

319(1)

Lodging annual report to ASIC.

120

1,200

320

Lodging half-year report to ASIC.

120

1,200

438B(4)

Director must help administrator.

120

1,200

438C(5)

Administrator’s rights to company’s books.

120

1,200

530A(6)

Officers to help liquidator.

120

1,200

530B(6)

Liquidator’s rights to company’s books.

120

1,200

592(1)

Incurring of debt under certain circumstances and fraudulent conduct.

120

1,200

648G(5) and (9)

Including proportional takeover provisions in constitution.

120

1,200

730(1)

People liable on disclosure document to inform person the offer about deficiencies in the disclosure document.

120

1,200

1274(9), (13) and (16)

ASIC must keep registers.

120

1,200

ASIC Act

63(2)

Exercise of certain powers of ASIC in relation to financial products.

120

1,200

66(2)

Contempt of ASIC.

120

1,200

91(3)

Recovery of expenses of investigation.

120

1,200

200(2)

Contempt of panel.

120

1,200

Credit Act

218(6)

ASIC may refuse to receive documents.

120

1,200

220(4)

ASIC may require person to give information for document registers.

120

1,200

281(1)

ASIC may restrict publication of certain material.

120

1,200

293(2)

Disrupting hearings.

120

1,200

319(3)

Recovery of expenses of investigation.

120

1,200

Table 1.6 Absolute liability offences higher than 10 penalty units for an individual and 50 penalty units for body corporates

Reference

Brief description

Individual fine (penalty units)

Body corporate fine (penalty units)

Corporations Act

606(4B)

Prohibition on certain acquisitions of relevant interests in voting shares.

60

600

1.67               The further uplift of 10 that applies only to bodies corporate also ensures that a body corporate does not obtain financial benefits from illegal behaviour. Bodies corporate can be well resourced and often can, in the corporate and financial sector, have significant financial value and resources. To ensure financial penalties act as an adequate deterrent, punish illegal behaviour, and are commensurate to the size and capacity of a body corporate, a further ratio of 10 is appropriate. Therefore exceeding the suggested financial penalty in the Guide is appropriate.

1.68               The amendments to update the penalty units for strict and absolute liability offences, and to remove imprisonment, have been made to Schedule 3 to the Corporations Act and to certain provisions in the Corporations Act. While Schedule 3 to the Corporations Act lists most of the offence provisions in the Corporations Act, some penalty amounts are stated in the provisions themselves. The amendments to the ASIC Act and the Credit Act have been made to the provisions themselves. [Schedule 1, items 133, 135, 136, 137, 139 and 140, subsection 30-1(5) of Schedule 2, subsection 65-40(3) of Schedule 2, subsection 70-10(4) of Schedule 2, subsection 70-25(4) of Schedule 2 and Schedule 3 of the Corporations Act; Schedule 2, items 18, 19, 20, 23, 24, 26, 28, 34, 37, 38, 42, 45, 46, 49 and 50, subsections 22(2), 25(2), 26(1), 47(2), 56(3), 63(2), 63(4), 66(2), 75(5), 91(3), 198(1), 200(2), 216(7), 220(2) and 225A(9) of the ASIC Act; Schedule 3, items 18 and 49, subsection 207(2) and various provisions of the Credit Act]

1.69               Section 250SA of the Corporations Act is now a strict liability offence. Section 250SA of the Corporations Act provides that at the listed company’s Annual General Meeting, the chair must allow for a reasonable opportunity for members to ask questions or make comments on the remuneration report. Section 250S is a strict liability offence and is a similar provision except it is in relation to asking questions and making comments on the management of the company. Sections 250S and 250SA of the Corporations Act are similar and therefore a breach should result in the same maximum penalty. The penalty for contravening sections 250S and 250SA of the Corporations Act is 20 penalty units for an individual and is reflected in Schedule 3 to the Corporations Act. [Schedule 1, items 21 and 22, section 250SA and subsection 250SA(2) of the Corporations Act]

1.70               A strict liability offence for contravening section 250SA is appropriate and consistent with the requirements in the Guide. For instance, this offence is not punishable by imprisonment and the fines for the offence do not exceed 60 penalty units for individuals or 300 penalty units for body corporates. The application of strict liability is appropriate to reduce non-compliance and ensures members are allowed a reasonable opportunity to ask questions on the remuneration report at the Annual General Meeting.

Ordinary criminal offences that sit alongside strict and absolute liability offences

1.71               The amendments in the Bill introduce ordinary criminal offences into the Corporations Act that sit alongside existing strict and absolute liability criminal offences.

1.72               Currently, a number of criminal offences in the Corporations Act have strict and absolute liability attached to them. These offences do not have fault elements and committing the offence occurs simply by contravening the physical elements of the offence. Due to the nature of strict and absolute liability offences, penalties are considerably lower because fault elements do not need to be established. The lower penalties recognise that a person can be guilty of the offence even if they did not intend to commit the offence.

1.73               Currently in circumstances where a person commits the physical elements of a strict or absolute liability offence, and does so knowingly, intentionally or recklessly, the maximum penalty that can be given to that person remains the same as for a person who only commits the physical elements of the offence. This means that penalties for strict and absolute liability offences do not increase commensurately with the level of culpability.

1.74               The introduction of ordinary criminal offences that sit alongside strict and absolute liability offences addresses the situation where a person commits both the physical and fault elements of the offence. The amendments recognise that some existing strict and absolute liability offences should be treated as an ordinary criminal offence if the fault elements can be established, and as a result, a higher penalty should be imposed. The amendments create a tailored and flexible framework that allows a sufficient response to the culpability of an offence, depending on the circumstances in which the offence is committed.

1.75               The following table outlines the ordinary criminal offences that will sit alongside existing strict and absolute liability offences.

Table 1.7 - New ordinary criminal offences

Reference (Corporations Act)

Current strict or absolute liability penalty (individual/body corporate)

New strict or absolute liability penalty (individual/body corporate)

New ordinary criminal offence penalty (individual/body corporate)

205G

3 months and/or 10/50 penalty units

30/300 penalty units

2 years and/or 240/2,400 penalty units

286

6 months and/or 25/125 penalty units

60/600 penalty units

2 years and/or 240/2,400 penalty units

307A

50/250 penalty units

50/500 penalty units

2 years and/or 240/2,400 penalty units

606

6 months and/or 25/125 penalty units

60/600 penalty units

5 years and/or 600/6,000 penalty units

671B

6 months and/or 25/125 penalty units

60/600 penalty units

2 years and/or 240/2,400 penalty units

989CA

50/250 penalty units

50/500 penalty units

2 years and/or 240/2,400 penalty units

[Schedule 1, items 19, 23, 24, 32, 35, 36 and 93, sections 205G, 286, 307A, 606, 671B and 989CA of the Corporations Act]

1.76               The ordinary offences do not specify the fault element for each of the physical elements. As a result, the default fault elements in section 5.6 of the Criminal Code apply to these new offences. This means that:

•        if the physical element of the offence consists of only conduct, intention is the fault element for that physical element; or

•        if the physical element of the offence consists of a circumstance or a result, recklessness is the fault element for that physical element.

1.77               Applying default fault elements is consistent with part 2.2.4 of the Guide.

1.78               For these ordinary criminal offences, and for criminal offences that are also now civil penalty provisions, the physical elements of each offence are generally contained within the offence provision. This is not exhaustive, and the matters to be proven as part of the physical elements can also subsist in other parts of the Acts, such as within definitions.

1.79               For example, while subsection 205G(1) of the Corporations Act contains the general conduct rule, the matters to be proven as part of the physical elements of the offence may also be present in subsection 205G(2) and section 9 of the Corporations Act (for example, the definition of ‘director’). It can be necessary to consider the whole of offence provision, or other relevant provisions, in determining the physical elements of the offence.

1.80               The equivalent ordinary offences to strict and absolute liability offences have a higher penalty attached to reflect that committing the ordinary offence is a deliberate act, and therefore comes with a higher level of culpability. Maintaining the existing strict and absolute liability penalty amounts for ordinary offences does not adequately reflect the importance of these obligations in maintaining consumer confidence and integrity in the corporate and financial industry.

1.81               The increases strike an appropriate balance between ensuring the integrity and effectiveness of the regulatory framework and deterring and punishing misconduct for lower level breaches. They also provide efficiency and effectiveness in prosecuting such offences. This recognises that the regulated population should not only refrain from consciously doing wrong, but should take active steps to fulfil certain statutory obligations.

Modernising and expanding the civil penalty regime

1.82               The Bill makes amendments to increase the maximum financial penalty for a contravention of a civil penalty provision, and harmonise civil penalty frameworks across ASIC administered Acts. The Bill also expands the civil penalty regime by making a wider range of provisions civil penalty provisions.

Modernising the civil penalty regime

1.83               Amendments have been made to the civil penalty amounts to address the eroded deterrent effect of civil penalties due to the effects of inflation. Amendments have also been made to civil penalty regimes to harmonise the underpinning framework across the Corporations, ASIC, Credit and Insurance Contracts Acts.

1.84               The increase in penalty amounts ensures civil penalties across the Corporations, ASIC, Credit and Insurance Contracts Acts reflect community expectations as an appropriate sanction for misconduct in the corporate and financial sector, and brings civil penalty amounts in line with comparable overseas jurisdictions.

1.85               For civil penalties in the Corporations Act, a Court must first make a declaration that a person has contravened a civil penalty provision. The Court may then order a person to pay a pecuniary penalty to the Commonwealth in relation to a contravention of a civil penalty provision. [Schedule 1, items 116 and 117, subsection 1317E(1) and paragraph 1317G(1)(a) of the Corporations Act]

1.86               In making the declaration that a person has contravened a civil penalty provision, the Court must specify:

•        the Court that made the declaration;

•        the civil penalty provision that was contravened;

•        the person who contravened the provision;

•        the conduct that constituted the contravention; and

•        as applicable, the corporation, registered scheme or notified foreign passport fund to which the conduct related or the obligation was imposed.

[Schedule 1, item 116, subsection 1317E(2) of the Corporations Act]

1.87               In making an order to pay a civil penalty, the Court may consider if the contravention is serious or materially prejudices relevant interests, parties or abilities in respect of whether the contravention is of:

•        a corporation/scheme civil penalty provision;

•        a financial services civil penalty provision that is not a Part 7.7A provision; or

•        a contravention of subsection 1211B(1) or 1211B(2) of the Corporations Act.

[Schedule 1, item 117, paragraphs 1317G(1)(b), 1317G(1)(c), and 1317G(1)(d) of the Corporations Act]

1.88               For civil penalties in the ASIC Act, ASIC may apply within 6 years of an alleged contravention for a declaration that a person has contravened a civil penalty provision. [Schedule 2, item 8, subsections 12GBA(1) and 12GBA(2) of the ASIC Act]

1.89               The Court must make a declaration if it is satisfied that the person has contravened a civil penalty provision. The declaration must specify, and is conclusive evidence of:

•        the Court that made the declaration;

•        the civil penalty provision that was contravened;

•        the person who contravened the provision; and

•        the conduct that constituted the contravention.

[Schedule 2, item 8, subsections 12GBA(3), 12GBA(4) and 12GBA(5) of the ASIC Act]

1.90               ASIC may apply to a Court within 6 years, and a Court may order, that a person pay a pecuniary penalty the Court determines to be appropriate if it is satisfied the person has contravened a civil penalty provision. Such an order is a ‘pecuniary penalty order’. [Schedule 2, item 8, section 12GBB of the ASIC Act]

1.91               Civil penalty provisions are Subdivision C, Subdivision D (except section 12DA), and Subdivision GC in Division 2 of Part 2 of the ASIC Act. [Schedule 2, item 8, subsection 12GBA(6) of the ASIC Act]

1.92               For civil penalties in the Insurance Contracts Act, the relevant court must make a declaration that a person has contravened a civil penalty provision. ASIC may make an application for such a declaration, and must do so within 6 years of the alleged contravention. [Schedule 4, item 4, subsections 75A(1), 75A(2) and 75A(3) of the Insurance Contracts Act]

1.93               The declaration must specify, and is conclusive evidence of, the following:

•        the court that made the declaration;

•        the provision that was contravened;

•        the person who contravened the provision; and

•        the conduct that constituted the contravention.

[Schedule 4, item 4, subsections 75A(4) and 75A(5) of the Insurance Contracts Act]

1.94               ASIC can apply to the relevant court for an order that the person who has contravened a civil penalty provision pay the Commonwealth a pecuniary penalty. ASIC must make this application within six years of the contravention. If the court has made a declaration that a civil penalty provision has been contravened, the court can order the person who contravened the civil penalty provision to pay a pecuniary penalty to the Commonwealth. Such an order is a ‘pecuniary penalty order’. [Schedule 4, item 4, subsections 75B(1), 75B(2), 75B(3) and 75B(4) of the Insurance Contracts Act]

1.95               The relevant court for the purposes of the Insurance Contracts Act is:

•        the Federal Court of Australia;

•        the Federal Circuit Court of Australia; or

•        the Supreme Court of a State or Territory.

[Schedule 4, item 1, definition of ‘relevant court’ in subsection 11(1) of the Insurance Contracts Act]

1.96               In determining the pecuniary penalty that should be payable by the person who contravened the civil penalty provision, the court must take into account all relevant matters, including:

•        the nature of the contravention;

•        the nature and extent of losses or damages as a result of the contravention;

•        the circumstances in which the contravention took place; and

•        whether a court has found the person has engaged in similar conduct in the past.

[Schedule 1, item 117, subsection 1317G(6) of the Corporations Act; Schedule 2, item 8, subsection 12GBB(5) of the ASIC Act; Schedule 3, item 6, subsection 167(3) of the Credit Act; Schedule 4, item 4, subsection 75B(5) of the Insurance Contracts Act]

1.97               This list of factors is not exhaustive. A court can also consider matters such as the extent to which the person has cooperated with the authorities or the extent to which the person profited from the contravention in determining the appropriate pecuniary penalty.

1.98               The amendments provide that the pecuniary penalty the relevant court may order must not exceed the ‘pecuniary penalty applicable’ to the contravention of the civil penalty provision. [Schedule 1, item 117, subsection 1317G(2) of the Corporations Act; Schedule 2, item 8, section 12GBC of the ASIC Act; Schedule 3, item 7, section 167A of the Credit Act; Schedule 4, item 4, section 75C of the Insurance Contracts Act]

1.99               A different pecuniary penalty is applicable to individuals and bodies corporate. For individuals, the penalty applicable for a contravention of a civil penalty provision is the greater of:

•        5,000 penalty units (for the Corporations and ASIC Acts, and civil penalties under the Credit Code civil penalty framework), or the penalty set out in the civil penalty provision (for the Insurance Contracts Act and civil penalties under the Credit Act civil penalty framework); or

•        if the court can determine - the benefit derived or detriment avoided because of the contravention, multiplied by three.

[Schedule 1, item 117, subsection 1317G(3) of the Corporations Act; Schedule 2, item 8, subsection 12GBCA(1) of the ASIC Act; Schedule 3, item 7, subsection 167B(1) of the Credit Act; Schedule 3, items 29 and 30, section 116 of the Credit Code; Schedule 4, item 4, subsection 75D(1) of the Insurance Contracts Act]

1.100           For a body corporate, the penalty applicable for a contravention of a civil penalty provision is the greater of the following:

•        50,000 penalty units (for the Corporations and ASIC Acts, and civil penalties in the Credit Code civil penalty framework), or the penalty set out in the civil penalty provision (for the Insurance Contracts Act and civil penalties in the Credit Act civil penalty framework) multiplied by 10;

•        if the court can determine - the benefit derived or detriment avoided by the body corporate because of the contravention, multiplied by three; or

•        10 per cent of the annual turnover of the body corporate, but only to a maximum monetary value of 1 million penalty units.

  [Schedule 1, item 117, subsection 1317G(4) of the Corporations Act; Schedule 2, item 8, subsection 12GBCA(2) of the ASIC Act; Schedule 3, item 7, subsection 167B(2) of the Credit Act; Schedule 3, item 31, section 116 of the Credit Code; Schedule 4, item 4, subsection 75D(2) of the Insurance Contracts Act]

1.101           Amendments have been made to the Credit Act to increase the penalty that attaches to all civil penalty provisions. The penalty is increased from 2,000 penalty units to 5,000 penalty units. This ensures the civil penalties in the Credit Act are consistent with the increased penalties in the Corporations and ASIC Acts. [Schedule 3, item 48, various provisions in the Credit Act]

1.102           The pecuniary penalty calculation methods apply in relation to a contravention of a civil penalty provision unless there is a contrary intention. A contrary intention could be, for example, a specified civil penalty amount for a body corporate. [Schedule 1, item 117, subsection 1317G(5) of the Corporations Act; Schedule 2, item 8, subsection 12GBCA(3) of the ASIC Act; Schedule 3, item 7, subsection 167B(3) of the Credit Act; Schedule 4, item 4, subsection 75D(3) of the Insurance Contracts Act]

1.103           Annual turnover has the same meaning as it has in Chapter 7 of the Corporations Act, and is calculated for the 12 month period ending at the end of the month in which the body corporate contravened, or began to contravene, the civil penalty provision.

1.104           Benefit derived or detriment avoided is the sum of:

•        the total value of all benefits obtained by one or more persons that are reasonably attributable to the contravention; and

•        the total value of all detriments avoided by one or more persons that are reasonably attributable to the contravention.

[Schedule 1, item 117, section 1317GAD of the Corporations Act; Schedule 2, item 8, section 12GBCE of the ASIC Act; Schedule 3, item 7, section 167D of the Credit Act; Schedule 4, item 4, section 75F of the Insurance Contracts Act]

1.105           Limiting the maximum monetary value of any penalty given using the 10 per cent of annual turnover method to 1 million penalty units provides consistency with penalties under other frameworks such as under the amendments made by the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Act 2018 , and comparable competition and consumer provisions.

1.106           Where relevant, existing provisions that provide for penalty calculations have been repealed. [Schedule 1, item 117, section 1317G of the Corporations Act; Schedule 3, item 6, subsection 167(3) of the Credit Act]

1.107           In practice, it is intended that courts would determine which method provides the greatest penalty, and then use discretion to impose an appropriate penalty up to that amount.

1.108           The method for calculating the pecuniary penalty applicable provides flexibility and ensures the penalty reflects the seriousness of the contravention and community expectations. It will further ensure that incurring a civil penalty is not considered a cost of doing business, and the amount is appropriate to deter and punish misconduct. It is intended that the civil penalty frameworks across the Corporations Act, ASIC Act, Credit Act and Insurance Contracts Act are interpreted and operate consistently.

1.109           While the Taskforce recommended 2,500 penalty units as the maximum civil penalty for individuals, the Government considered a stronger response was necessary to improve community confidence in the corporate and financial sectors. The increase to 5,000 penalty units ensures civil penalties for individuals proportionately align with the increase in civil penalties for bodies corporate, and act as a sufficient deterrent for misconduct.

1.110           Those who attempt to contravene, or are involved in a contravention, of a civil penalty provision are also taken to have contravened that provision. Where required, the concept of ‘contravention’ has been amended so that it includes attempts to contravene. [Schedule 1, item 116, subsection 1317E(4) of the Corporations Act; Schedule 2, item 8, section 12GBCL of the ASIC Act; Schedule 3, item 8, section 169 of the Credit Act; Schedule 4, item 4, section 75Q of the Insurance Contracts Act]

1.111           The concept of ‘involved in’ has been mirrored across the Corporations Act, the ASIC Act, the Credit Act and the Insurance Contracts. Across these Acts, a person is involved in a contravention if the person:

•        aids, abets, counsels or procures a person to contravene the provision;

•        induces, whether by threats or promises or otherwise, to contravene the provision;

•        being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of the provision; or

•        conspires with others to contravene the provision.

1.112           The Court, under the ASIC Act, can also continue to relieve a person other than a body corporate from being liable to pay a pecuniary penalty if the person acted honestly, reasonably, and ought fairly to be excused. [Schedule 2, item 14, subsection 12GI(5) of the ASIC Act]

1.113           Contravening a civil penalty provision does not relieve the person of their obligations under the provision. If an act or thing is required to be done, the obligations continue until the act or thing is done. This means that if the act or thing is not done, the civil penalty provision is initially contravened and a separate contravention is then committed each day until the act or thing is done. [Schedule 1, item 126, section 1317QA of the Corporations Act; Schedule 2, item 8, section 12GBCM of the ASIC Act; Schedule 3, item 16, section 175A of the Credit Act; Schedule 4, item 4, section 75R of the Insurance Contracts Act]

1.114           It is not necessary to prove a person’s intention, knowledge, recklessness, negligence or any other state of mind for the relevant court to make a relevant order. However, it is necessary to prove those elements, or any other relevant state of mind element, to the extent the civil penalty proceedings relate to attempting to contravene, or being involved in a contravention of, a civil penalty provision. [Schedule 1, item 126, section 1317QB of the Corporations Act; Schedule 2, item 8, section 12GBCN of the ASIC Act; Schedule 3, item 16, section 175B of the Credit Act; Schedule 4, item 4, section 75S of the Insurance Contracts Act]

1.115           A person is not liable to have a relevant order made against them if the contravention was a result of a mistake of fact. For the person to rely on this defence, the person has to establish that:

•        relevant facts existed or did not exist;

•        the person was under a mistaken but reasonable belief about those facts; and

•        if those facts did or did not exist, the person would not have contravened the civil penalty provision.

A person may be regarded as having considered the existence of facts if:

•        the person had considered previously the existence of those facts in the circumstances surrounding the occasion; and

•        the person honestly and reasonably believed the circumstances were the same as those surrounding the previous occasion.

[Schedule 1, item 126, subsection 1317QC of the Corporations Act; Schedule 3, item 16, section 175C of the Credit Act; Schedule 4, item 4, section 75T of the Insurance Contracts Act]

1.116           A person seeking to rely on the mistake of fact defence bears the evidential burden in relation to those matters. This is the burden of adducting or pointing to evidence that suggests a reasonable possibility that the matter exists or does not. [Schedule 1, item 126, subsection 1317QC(3) of the Corporations Act; Schedule 3, item 16, subsections 175C(3) and 175C(4) of the Credit Act; Schedule 4, item 4, subsections 75T(3) and 75T(4) of the Insurance Contracts Act]

1.117           More generally, a person who wishes to rely on any exception, exemption, excuse, qualification or justification provided by the law creating the civil penalty provision, then that person also bears the evidential burden. [Schedule 1, item 126, section 1317QD of the Corporations Act; Schedule 2, item 8, section 12GBCP of the ASIC Act; Schedule 3, item 16, section 175D of the Credit Act; Schedule 4, item 4, section 75U of the Insurance Contracts Act]

1.118           It is appropriate in these instances that the onus is reversed and placed on a defendant to adduce or point to evidence to establish a relevant matter exists or does not exist. Knowledge of matters relating to a mistake of fact, or any exemption, excuse, qualification or justification provided by the law creating the civil penalty provision, is peculiarly within the knowledge of the defendant. Specifically for a mistake of fact, the defendant is under an incorrect assumption of the existence of facts, and these assumed facts are solely within the knowledge of the defendant. Placing this burden on the defendant is further justified because it would be significantly more difficult and costly for the prosecution to disprove elements that are squarely within the knowledge of the defendant.

1.119           Any element of a civil penalty provision done by an employee or agent of a body corporate acting within scope of their employment or authority, must also be attributable to the body corporate. [Schedule 1, item 126, section 1317QE of the Corporations Act; Schedule 3, item 16, section 175E of the Credit Act; Schedule 4, item 4, section 75V of the Insurance Contracts Act]

1.120           After a court has ordered a payment of a pecuniary penalty, the amount is a debt payable to ASIC on behalf of the Commonwealth (or in the case of civil penalties in the Credit Act or Insurance Contracts Act, a debt payable to the Commonwealth). ASIC or the Commonwealth may enforce such an order as if it were an order made in civil proceedings for the recovery of a debt due by the person, also known as a judgement debt. This ensures that enforcement options are available to ASIC or the Commonwealth to pursue payment of a pecuniary penalty. [Schedule 1, item 117, section 1317GAA of the Corporations Act; Schedule 2, item 8, section 12GBCB of the ASIC Act; Schedule 3, item 6, subsections 167(4) and 167(5) of the Credit Act; Schedule 4, item 4, section 75E of the Insurance Contracts Act]

1.121           Amendments have also been made to insert modern civil penalty procedural provisions into relevant civil penalty frameworks where appropriate.

1.122           If a person’s conduct constitutes the contravention of two or more civil penalty provisions, proceedings may be commenced in relation to any one or more of those provisions. However, the person is not liable for more than one pecuniary penalty in relation to the same conduct. [Schedule 4, item 4, section 75G of the Insurance Contracts Act]

1.123           The relevant court is able to make a single pecuniary penalty order against a person for multiple contraventions of a civil penalty provision if proceedings are founded on the same facts or the contraventions form a series of contraventions of the same or similar character. However, the maximum pecuniary penalty the court can order must not exceed the sum of the maximum penalties that could be ordered if a separate penalty were ordered for each of the contraventions. [Schedule 4, item 4, section 75H of the Insurance Contracts Act]

1.124           The relevant court may direct that two or more proceedings for pecuniary penalty orders are to be heard together. [Schedule 4, item 4, section 75J of the Insurance Contracts Act]

1.125           The relevant court must also apply the rules of evidence and procedure for civil matters when hearing proceedings for a relevant order. [Schedule 2, item 8, section 12GBCF of the ASIC Act; Schedule 4, item 4, section 75K of the Insurance Contracts Act]

1.126           A relevant order cannot be made against a person for a contravention of a civil penalty provision if the person has been convicted of an offence constituted by substantially the same conduct. Similarly, civil penalty proceedings against a person are stayed if criminal proceedings are on foot in relation to a criminal offence with similar conduct to that of the civil penalty provision. Civil penalty proceedings can only resume if the person is not convicted of the offence, otherwise the civil penalty proceedings are dismissed and costs must not be awarded. [Schedule 2, item 8, sections 12GBCG and 12GBCH of the ASIC Act; Schedule 4, item 4, sections 75L and 75M of the Insurance Contracts Act]

1.127           Criminal proceedings can be commenced regardless of whether a relevant order has been made against the person. Evidence of information given or documents produced by an individual is not admissible in criminal proceedings if the individual previously gave that information or documents in civil penalty proceedings and the conduct is similar to that of the civil penalty provision. However this does not apply in relation to the falsity of evidence. [Schedule 2, item 8, sections 12GBCJ and 12GBCK of the ASIC Act; Schedule 4, item 4, sections 75N and 75P of the Insurance Contracts Act]

Interactions with the Regulatory Powers (Standard Provisions) Act 2014

1.128           The standard framework in the Regulatory Powers Act has not been triggered because of the need for a tailored framework that will operate effectively and as intended with the intricacies of each of the respective Acts.

1.129           However to the extent possible, the amended civil penalty frameworks that have been inserted into the Corporations, ASIC, Credit and Insurance Contracts Act are largely based off the standard civil penalty framework contained in the Regulatory Powers Act.

1.130           To the extent provisions in the respective Acts are similar to the standard provisions in the Regulatory Powers Act, it is intended that they operate and are interpreted consistently.

Expanding the civil penalty regime

1.131           The Bill introduces a number of provisions in the Corporations Act, Credit Act, Credit Code and Insurance Contracts Act into the civil penalty regime.

1.132           The following existing provisions have been introduced into the relevant civil penalty regime.

Table 1.8 - Existing provisions that have been introduced into the civil penalty regime

Provision

Brief description

Corporations Act

601ED(5)

Managed investment scheme must be registered.

670A

Documents relating to takeovers, compulsory acquisitions and buy-outs cannot be misleading or deceptive, or contain omissions, and are required to contain information that should have been included if a new situation has emerged.

727

A disclosure document is required for offers of securities.

728

A disclosure document cannot be misleading or deceptive, or contain omissions, and is required to contain information that should have been included if a new situation has emerged in relation to offers of securities.

791A

A person who operates a financial market is required to hold a market licence or have an exemption.

792A

General obligations for a market licensee.

792B

A person who holds a market licence must notify ASIC of certain matters.

820A

A person who operates a clearing and settlement facility must be licensed.

821A

General obligations for a clearing and settlement facility licensee.

821B

A person who holds a clearing and settlement facility licence must notify ASIC of certain matters.

853F(2)

A person who is disqualified must not be involved in a market licensee, clearing and settlement facility licensee, derivative trade repository licensee or a benchmark administrator licensee and must take reasonable steps to cease.

904A

General obligations for a derivative trade repository licensee.

904C(1)

A person who holds a derivative trade repository licence must notify ASIC of certain matters.

905A

The regulations may identify a class of derivative trade repositories as being required to be licensed, and if so the requirements need to be met.

911A

A person who carries on a financial services business must hold an AFSL or have an exemption.

911B

A person can provide financial services on behalf of another person only if certain conditions are met.

912A

General obligations for a financial services licensee.

912D

A financial services licensee must notify ASIC of certain matters.

920C(2)

A person must not breach a banning order.

922M

A person commits an offence if they fail to comply with their obligation to notify ASIC.

941A

A person who holds an AFSL must give a financial services guide if they provide a financial service to a retail client.

941B

An authorised representative of an AFSL holder that holds an AFSL must give a financial services guide if they provide financial services to a retail client.

946A

A person is required to give their clients a statement of advice if personal financial advice is provided to a retail client.

952E

A person must not give a defective disclosure document or statement.

952H

A financial services licensee must ensure disclosure documents or statements be issued by the authorised representative as required.

981B

A person is obligated to pay client money into a particular account.

981C

A person is required to comply with regulations dealing with various matters relating to accounts for the purposes of section 981B.

993D(3)

A person is required to pay loan money into an account.

1012A

A person is required to provide a product disclosure document when providing financial advice for a particular financial product.

1012B

A person is required to provide a product disclosure document under certain situations.

1012C

A person is required to provide a product disclosure document under certain situations.

1017BA

A trustee of a superannuation fund is obligated to make a product dashboard publicly available.

1017BB(1)

A trustee of a superannuation fund is obligated to make information relating to investment of assets publicly available.

1020A(1)

Prohibition against offers relating to managed investment schemes that need to be registered.

1021E

A person must not prepare and give out a defective disclosure statement or document.

1021G

An Australian financial services licensee must ensure their representatives give out a product disclosure document or statement.

1309(2)

A person must not give out false information relating to a corporation.

Credit Act

47

General obligations for a credit licensee.

Credit Code

24

A credit provider must not enter into a credit contract on terms imposing a prohibited monetary liability.

39B(1)

If there is a default under a small amount credit contract, the amount that can be recovered must not exceed an amount that is twice the adjusted credit amount.

154

A person must not make false or misleading representation.

155

A person must not harass a person to get them to apply for credit or enter into a credit contract.

156(1)

A person must not visit another person’s home for the purposes of inducing that person to apply for a credit contract.

174(3)

Consumer leases must contain certain disclosures.

179U

A person must not make false or misleading representation in relation to consumer leases.

179V

A person must not harass a person to get them to apply for a consumer lease.

Insurance Contracts Act

13

An insurer must comply with the duty of utmost good faith.

33C(1)

Insurers must ensure the Key Facts Sheet contains certain information.

[Schedule 1 items 31, 33, 37 to 42, 50, 51, 52, 53, 59, 64 to 67, 74 to 78, 82 to 90, 94 to 102, 107 and 108, sections 601ED, 670A, 727, 728, 791A, 792A, 792B, 820A, 821A, 821B, 853F, 904A, subsection 904C(1), section 905A, subsection 911A(5A), section 911B, subsection 912A(5), sections 912D, 920C, 922M, 941A, 941B, 946A, 952E, 952H, 981B, 981C, 993D, 1012A, 1012B, 1012C, 1017BA, 1017BB, 1020A, 1021E, 1021G, 1309 of the Corporations Act; Schedule 3, item 4, section 47 of the Credit Act; Schedule 3, items 24, 28, 32 to 35, 37 to 47, subsections 24(1) and (1A), 39B, 154, 155, 156, 174, 179U, 179V of the Credit Code; Schedule 4, items 2 and 3, subsections 13(2) and 33C(1) of the Insurance Contracts Act]

1.133           These provisions have been introduced into the civil penalty regime to address a regulatory gap. They are provisions which, if contravened, are serious enough to warrant financial penalties as a sanction, but are not characterised as a criminal offence.

1.134           If the Court makes a declaration of a contravention of the civil penalty provisions in subsections 670A(4), 727(6), 728(4) or 1309(12), ASIC can apply to the Court to disqualify the person who contravened those civil penalty provisions from managing corporations. [Schedule 1, items 20 and 116, subparagraph 206C(1)(a)(i) and Note 1 to subsection 1317E(3) of the Corporations Act]

Harmonising and expanding the infringement notice regime

1.135           Infringement notices are an administrative tool ASIC can use to deter and punish financial sector misconduct. Infringement notices may be used as an alternative to criminal or civil proceedings. If an infringement notice is complied with, including payment of the penalty, no further action will be taken against the person and the payment is not considered an admission of guilt. However, if the infringement notice is not complied with, ASIC may pursue criminal or civil penalties.

1.136           The existing penalty notice regime has been replaced with a new infringement notice regime in the Corporations Act. An infringement notice may be issued for all strict and absolute liability offences in the Corporations Act, other prescribed offences in the Corporations Act and prescribed civil penalty provisions in the Corporations Act. [Schedule 1, items 111 and 113, sections 1313 and 1317DAN of the Corporations Act]

1.137           It is appropriate that all strict and absolute liability offences in the Corporations Act be subject to an infringement notice regime, as strict and absolute liability offences do not require proof of fault. This is consistent with the Guide. It is also appropriate for some civil penalty provisions in the Corporations Act to be subject to an infringement notice regime, as generally civil penalty provisions also do not require proof of fault. This is consistent with the Guide.

1.138            The existing infringement notice regimes in the ASIC Act and Credit Act continue to apply with some additional machinery changes to ensure the regimes are harmonised and operate as intended.

1.139           In the ASIC Act, Subdivisions C and D of Division 2, Part 2, sections 12GYB and 12GYC continue to be subject to the infringement notice regime. In the Credit Act, strict liability offences and prescribed civil penalty provisions continue to be subject to the infringement notice regime. Table 1.9 outlines new provisions in the Credit Act that are subject to an infringement notice regime. [Schedule 2, item 17, section 12GXA of the ASIC Act; Schedule 3, item 19, section 288K of the Credit Act]

1.140           It is appropriate for the existing provisions in the ASIC Act and Credit Act to continue to be subject to an infringement notice regime as strict liability offences and generally civil penalty provisions do not require proof. This is consistent with the guide.

1.141           A new infringement notice regime is added to the Insurance Contracts Act to give effect to the Taskforce’s recommendation that section 33C of the Insurance Contracts Act be subject to an infringement notice.

1.142           An infringement notice may be issued if ASIC reasonably believes a person has contravened a provision subject to an infringement notice. The infringement notice must be issued within the 12 months after the alleged contravention took place, and a single infringement notice is to be issued for a single contravention unless the contravention is related to a person failing to do something required within a specified period of time, in which case the infringement notice can include a contravention for each day. If the contravention relates to both a civil penalty provision and an offence provision, the infringement notice must be issued in relation to the offence provision. [Schedule 1, item 113, section 1317DAM of the Corporations Act; Schedule 2, item 17, section 12GX of the ASIC Act; Schedule 3, item 19, section 288J of the Credit Act; Schedule 4, item 4, section 75W of the Insurance Contracts Act]

1.143           The penalty amounts for all strict and absolute liability offences subject to an infringement notice regime is 50 per cent of the maximum pecuniary penalty for the offences in the Corporations Act. For example, if the maximum penalty for an individual for a strict liability offence is 20 penalty units, the infringement notice penalty for an individual for that offence is 10 penalty units. If the maximum penalty for a body corporate for a strict liability offence is 200 penalty units, the infringement notice penalty for a body corporate for that offence is 100 penalty units. [Schedule 1, item 113, section 1317DAP(2) of the Corporations Act]

1.144           The Guide suggests an appropriate penalty amount under an infringement notice is 20 per cent of the maximum financial penalty applicable to the primary offence. The amendments depart from this ratio as 20 per cent does not act as a sufficient deterrent for offences of a corporate and financial nature. An infringement notice penalty amount of 50 per cent strikes an appropriate balance between providing an adequate deterrent from misconduct and a quick and efficient mechanism to avoid a breach going to court, and ensuring payments of penalties under infringement notices do not simply become a cost of doing business.

1.145           Some civil penalty provisions in the Corporations Act are also subject to an infringement notice regime. The infringement notice penalty amount is 12 penalty units for individuals and 60 penalty units for body corporates. This is consistent with the Guide. [Schedule 1, item 113, paragraph 1317DAP(2)(c) and paragraph 1317DAP(2)(d) of the Corporations Act]

1.146           The civil penalty provisions that are subject to an infringement notice regime will be prescribed in the regulations. Prescribing the list in the regulations allows for flexibility, as when additional civil penalty provisions are created, it may also be appropriate that the civil penalty provision should also be subject to the infringement notice regime. Having the prescribed list in the regulations ensures greater flexibility to allow the penalty framework to stay fit for purpose, while also ensuring ASIC has an appropriately flexible set of regulatory tools to deter and punish financial misconduct.

Table 1.9 - Provisions that are subject to infringement notices

Provision

Brief description

Corporations Act

188(1) and (2)

Responsibilities of a secretary and how they cannot contravene certain provisions.

792B

A person who holds a market licence must notify ASIC of certain matters.

821B

A person who holds a clearing and settlement facility licence must notify ASIC of certain matters.

962P

Fees cannot continue be charged after an arrangement has been cancelled.

912D

A financial services licensee must notify ASIC of certain matters.

941A

A person who holds an Australian financial services licence must give a financial services guide if they provide a financial service to a retail client.

941B

An authorised representative that holds an AFSL must give a financial services guide if they provide financial services to a retail client.

946A

A person is required to give their clients a statement of advice if financial advice is provided to a retail client.

962S(1)

Fee recipient must give fee disclosure statement.

963E(1) and (2)

Financial services licensee responsible for breach of ban on conflicted remuneration.

963G(1)

Authorised representative must not accept conflicted remuneration.

963J

Employer must not pay employees conflicted remuneration.

963K

Financial product issuer or seller must not give conflicted remuneration to financial services licensee or representative.

964A(1)

Platform operator must not accept volume-based shelf-space fees.

964D(1) and (2)

Financial services licensee responsible for a breach of asset-based fees on borrowed amounts.

964E(1)

Authorised representative must not charge asset-based fees on borrowed amounts.

985E(1)

Issuing or increasing the limit of a margin lending facility without having made assessment etc.

985J(1)

Failure to give an assessment to a retail client if requested before issue of facility or increase in limit.

985J(2)

Failure to give an assessment to a retail client if requested after issue of facility or increase in limit.

985J(4)

Demanding payment to give an assessment to a retail client.

985L

Making an issue of a margin lending facility conditional on a retail client agreeing to receive communications through agent.

1012A

A person is required to provide a product disclosure document when providing financial advice for a particular financial product.

1012B

A person is required to provide a product disclosure document under certain situations

1012C

A person is required to provide a product disclosure document under certain situations.

1017BA

A trustee of a superannuation fund is obligated to make a product dashboard publicly available.

Credit Act

31(1)

Prohibition on conducting business with unlicensed persons.

70(1)

Obligation to vary or revoke authorisation that ceases to have effect.

124A(1)

Prohibition on providing credit assistance in relation to short-term credit contracts.

124B(1)

Licensee who makes representations about credit assistance in relation to small amount credit contracts must display information etc.

133AC(2)

Credit provider’s website to provide capacity to generate Key Facts Sheet.

133AD(2)

Credit provider to provide Key Facts Sheet in other Situations.

133AE(2)

Requirement to give consumers more information.

133BC(1)

Application form for credit card contract to include up-to-date Key Facts Sheet.

133BD(1)

Credit provider not to enter into credit card contract unless Key Facts Sheet has been provided etc.

133BG(1)

Records of consents and withdrawals to be kept

133BH(3)

Credit provider to notify consumer of use of credit card in excess of credit limit.

133BJ(1)

Records of consents and withdrawals to be kept.

133CA(1)

Prohibition on entering, or increasing the credit limit of, short-term credit contracts.

133CB(1)

Licensee who makes representations about small amount credit contracts must display information etc.

133CC(1)

Licensee must not enter into a small amount credit contract if the repayments do not meet the prescribed requirements.

133DB(1)

Giving projections of equity before providing credit assistance or entering credit contract.

133DC(2)

Making reverse mortgage information statement available on website of credit provider or credit assistance provider.

133DD(2)

Making reverse mortgage information statement available in other situations.

133DE(1) and (2)

Representations that use the term “reverse mortgage” etc.

160B(1)

“Independent”, “impartial” or “unbiased” etc.

160C(1)

“Financial counsellor” etc.

160E(2) and (3)

Requirements for giving authorisation to employer.

Credit Code

17(3), (4), (5), (6), (8), (9), (11), (15) and (15A)

Matters that must be in contract document.

23(1)

Prohibited monetary obligations.

24

A credit provider must not enter into a credit contract on terms imposing a monetary liability.

32A

Prohibitions relating to credit contracts if the annual cost rate exceeds 48 per cent.

39B

Limit on amount that may be recovered if there is a default under a small amount credit contract.

32AA(2)

Prohibitions relating to credit contracts if the annual cost rate exceeds 48 per cent.

34(6)

Information to be contained in statements of account.

35(1)

Opening balance must not exceed closing balance of previous Statement.

72(4)

Changes on grounds of hardship.

177B(4)

Changes on grounds of hardship.

Insurance Contracts Act

33C

Insurers must ensure the Key Facts Sheet contains certain information.

1.147           The existing provisions in the ASIC Act subject to an infringement notice, namely a provision of Subdivision C and D of Division 2, Part 2 of the ASIC Act (other than sections 12DA, 12DE, 12DI, 12DM and subsection 12DG(1)), and sections 12GYB and 12GYC, continue to be subject to an infringement notice of the same penalty amount. The penalty amounts for the infringement notice are set out in the table below. [Schedule 2, item 17, subsection 12GXB(2) of the ASIC Act]

Table 1.10 - Provisions subject to infringement notices in the ASIC Act

Provision

(ASIC Act)

Individual penalty (penalty units)

Body corporate penalty (penalty units)

Subdivision C and D

12

60

12GYB

6

30

12GYC

10

50

1.148           The Guide suggests an appropriate penalty amount under an infringement notice is 20 per cent of the maximum financial penalty applicable to the primary offence, but should not exceed 12 penalty units for an individual and 60 penalty units for a body corporate. The infringement notice penalty amounts in the ASIC Act are consistent with the Guide.

1.149           Strict liability offences and prescribed civil penalty provisions in the Credit Act are subject to an infringement notice. [Schedule 3, item 19, section 288K of the Credit Act]

1.150           The infringement notice penalty amount in the Credit Act for a single contravention of a criminal offence provision is one fifth of the maximum penalty that the court can impose on the person. This ensures that the penalty amount for infringement notices for offences are a portion of the maximum offence penalty. For example, if the maximum penalty for an individual for a strict liability offence is 20 penalty units, the infringement notice penalty for an individual for that offence is 4 penalty units. If the maximum penalty for a body corporate for a strict liability offence is 200 penalty units, the infringement notice penalty for a body corporate for that offence is 40 penalty units. [Schedule 3, item 19, paragraph 288L(2) of the Credit Act]

1.151           The Guide suggests an appropriate penalty amount under an infringement notice is 20 per cent of the maximum financial penalty applicable to the primary offence. The infringement notice penalty amounts for a strict liability offence in the Credit Act is consistent with the Guide, being one fifth of the maximum financial penalty applicable to the primary offence.

1.152           The infringement notice penalty amount in the Credit Act for a single contravention of a civil penalty provision is 50 penalty units for individuals and 250 penalty units for bodies corporate. These reflect the existing maximum penalty amounts provided for by section 331 of the Credit Act which is being repealed. [Schedule 3, items 19 and 21, paragraph 288L(2) and section 331 of the Credit Act]

1.153           Prescribed offences and prescribed civil penalty provisions in the Insurance Contracts Act can be subject to an infringement notice. The penalty amount for an infringement notice issued under an offence provision is 50 per cent of the maximum penalty for the prescribed offence. The penalty amount for an infringement notice issued under a civil penalty provision is 12 penalty units for individuals and 60 penalty units for body corporates. [Schedule 4, item 4, section 75X and subsection 75Y(2) Insurance Contracts Act]

1.154           The Guide suggests an appropriate penalty amount under an infringement notice is 20 per cent of the maximum financial penalty applicable to the primary offence. The amendments depart from this ratio as it does not act as a sufficient deterrent for offences of a corporate and financial nature. An infringement notice penalty amount of 50 per cent strikes an appropriate balance between providing an adequate deterrent from misconduct and a quick and efficient mechanism to avoid a breach going to court, and ensuring payments of penalties under infringement notices do not simply become a cost of doing business.

1.155           The infringement notice penalty for civil penalty provisions in the Insurance Contracts Act is consistent with the Guide.

1.156           Certain matters are required to be prescribed in the infringement notice including a unique identifier, information about the alleged contravention, the penalty amount, the payment period, how to pay, and information about how the person may apply to ASIC seeking an extension, withdrawal or instalment plan. The infringement notice also needs to stipulate the consequences of not paying the infringement notice. The consequences of not paying the infringement notice or withdrawing an infringement notice may mean a person could be prosecuted in court or proceedings seeking a pecuniary penalty order may be brought upon the person depending whether the alleged contravention is an offence provision or a civil penalty provision. [Schedule 1, item 113, subsection 1317DAP(1) of the Corporations Act; Schedule 2, item 17, subsection 12GXB(1) of the ASIC Act; Schedule 3, item 19, subsection 288L(1) of the Credit Act; Schedule 4, item 4, subsection 75Y(1) of the Insurance Contracts Act]

1.157           When an infringement notice is given, the payment period starts the day after the notice is given and continues for 28 days. The payment period of the infringement notice may change if the person requests via application to ASIC either to extend the payment period, request an instalment plan or request that the infringement notice be withdrawn. ASIC may also, of its own accord, extend the payment period, make arrangements for an instalment plan or withdraw an infringement notice, and can do so before or after the end of the payment period. ASIC can extend the payment period, make arrangements for an instalment plan or withdraw an infringement notice without receiving an application. [Schedule 1, item 113, sections 1317DAQ, 1317DAR, 1317DAS and 1317DAT of the Corporations Act; Schedule 2, item 17, sections 12GXC, 12GXD, 12GXE, and 12GXF of the ASIC Act; Schedule 3, item 19, sections 288M, 288N, 288P, 288Q of the Credit Act; Schedule 4, item 4, sections 75Z, 75ZA, 75ZB and 75ZC of the Insurance Contracts Act]

1.158           In making the decision to withdraw an infringement notice, ASIC should take into account whether a penalty has been previously imposed by the court, the circumstances of the alleged contravention, whether the person has had any previous infringement notices and whether that amount has been paid, and any other matters ASIC considers relevant. [Schedule 1, item 113, subsection 1317DAT(4) of the Corporations Act; Schedule 2, item 17, subsection 12GXF(4) of the ASIC Act; Schedule 3, item 19, subsection 288Q(4) of the Credit Act; Schedule 4, item 4, subsection 75ZC(4) of the Insurance Contracts Act]

1.159           If a person applies to ASIC within the relevant payment period to either extend the payment period or request an instalment plan, or request a withdrawal of the infringement notice, ASIC then has 14 days to respond. If ASIC does not respond within 14 days, this is taken to mean ASIC has not approved the request and the refusal is taken to have occurred on the last day of the 14 day period. If ASIC refuses the extension, instalment or withdrawal application, the payment period ends the later of either the 28 days, or the day after 7 days after the person gets the notice from ASIC that their application has been refused or the day after 7 days after the application has taken to be refused. [Schedule 1, item 113, sections 1317DAQ, 1317DAR, 1317DAS and 1317DAT of the Corporations Act; Schedule 2, item 17 sections 12GXC, 12GXD, 12GXE and 12GXF of the ASIC Act; Schedule 3, item 19, sections 288M, 288N, 288P and 288Q of the Credit Act; Schedule 4, item 4, sections 75Z, 75ZA, 75ZB and 75ZC of the Insurance Contracts Act]

1.160           If ASIC approves the extension request, then the payment period is extended. If ASIC approves the instalment plan request, then the payment period is the last day on which an instalment is to be paid under the arrangement. However, if the person fails to pay the instalment in accordance with the arrangement, then the payment period ends on the last day of the missed instalment. If ASIC grants the infringement notice to be paid in instalments, ASIC will need to specify when the payments are required by and the amounts of each instalment. ASIC may also extend the payment period or vary an instalment plan more than once. [Schedule 1, item 113, sections 1317DAR and 1317DAS of the Corporations Act; Schedule 2, item 17, sections 12GXD, 12GXE of the ASIC Act; Schedule 3, item 19, subsections 288N and 288P of the Credit Act; Schedule 4, item 4, sections 75ZA and 75ZB of the Insurance Contracts Act]

1.161           If ASIC decides to withdraw the infringement notice, ASIC is required to issue a notice to the person outlining the consequences - that is the person may be prosecuted in the court for an offence provision or that a civil penalty order may be brought upon the person for the contravention of a civil penalty provision. [Schedule 1, item 113, subsection 1317DAT(6) of the Corporations Act; Schedule 2,item 17, subsection 12GXF(6) of the ASIC Act; Schedule 3, item 19, subsection 288Q(6) of the Credit Act; Schedule 4, item 4, section 75ZC(6) of the Insurance Contracts Act ]

1.162           If ASIC withdraws an infringement notice and the person has either paid the full amount or has partially paid the infringement notice via instalments, then ASIC is required to refund to the person the amount that has been paid. Similarly, if a person fails to pay all their instalments as specified, and ASIC subsequently decides to prosecute or seek proceedings for the alleged contravention, ASIC must refund to the person the amount that has been paid. [Schedule 1, item 113, subsection 1317DAS(6) and 1317DAT(7) of the Corporations Act; Schedule 2, item 17, subsections 12GXE(6) and 12GXF(7) of the ASIC Act; Schedule 3, item 19, subsections 288P(6) and 288Q(7) of the Credit Act; Schedule 4, item 4, subsections 75ZB(6) and 75ZC(7) of the Insurance Contracts Act]

1.163           If a person complies with the infringement notice and pays the set amount, the person is to be discharged of any liability. If a person has paid an infringement notice issued in relation to an alleged contravention that is an offence provision and is not a civil penalty provision, the person may not be prosecuted in court. If a person has paid an infringement notice issued in relation to an alleged contravention that is an offence provision and the offence is also a civil penalty provision, the person may not be prosecuted in court and proceedings seeking a pecuniary penalty order cannot be brought against them. If a person has paid an infringement notice issued in relation to an alleged contravention of a civil penalty provision, proceedings seeking a civil penalty order cannot be brought against them. If a person has paid an infringement notice, the person has not considered to have admitted guilt or liability. However if a person refuses to pay an infringement notice or the infringement notice is withdrawn, then the person may be prosecuted in the court for an offence provision or proceedings for a contravention of a civil penalty provision may be brought upon the person if the offence is a civil penalty provision. [Schedule 1, item 113, section 1317DAU of the Corporations Act; Schedule 2, item 17, section 12GXG of the ASIC Act; Schedule 3, item 19, section 288R of the Credit Act; Schedule 4, item 4, section 75ZD of the Insurance Contracts Act]

1.164           The infringement notice regime does not mean an infringement notice needs to be issued for an alleged contravention. It is one of a range of regulatory tools that ASIC may decide to use. ASIC may still commence proceedings against a person for a contravention if the infringement notice is given and then subsequently withdrawn, or if the infringement notice is not given. Two or more infringement notices can be given under the infringement notice regime. Making a provision subject to the infringement notice regime does not limit the court’s discretion to determine an appropriate penalty for a person who is found to have contravened the provision. [Schedule 1, item 113, section 1317DAV of the Corporations Act; Schedule 2, item 17, section 12GXH of the ASIC Act; Schedule 3, item 19, section 288S of the Credit Act; Schedule 4, item 4, section 75ZE of the Insurance Contracts Act]

1.165           Review by the Administrative Appeals Tribunal is not available for decisions by ASIC to give, extend, refuse to extend, make or refuse arrangements, withdraw or not withdraw infringement notices. [Schedule 1, item 112, paragraph 1317C(gf) of the Corporations Act]

1.166           The exclusion of these decisions is consistent with the Guide. Parts 6.7 and 6.8 of the Guide explicitly state that decisions to issue or withdraw infringement notices should not be subject to merits review. This is because infringement notices are not final or operative determinations of substantive rights and a person may elect to challenge the infringement notice in court. A person who has been issued an infringement notice does not need to pay the penalty, and will have the ability to challenge the allegation of contravention in any proceedings brought against them.

1.167           Furthermore this is consistent with the Credit and ASIC Acts, where there is currently no merits review for infringement notices.

Interactions with the Regulatory Powers (Standard Provisions) Act 2014

1.168           The standard framework in the Regulatory Powers Act have not been triggered because of the need for a tailored framework that will operate effectively and as intended with the intricacies of each of the respective Acts.

1.169           However to the extent possible, the amended infringement notice frameworks that have been inserted into the Corporations, ASIC, Credit and Insurance Contracts Act are largely based off the standard infringement notice frameworks contained in the Regulatory Powers Act.

1.170           To the extent provisions in the respective Acts are similar to the standard provisions in the Regulatory Powers Act, it is intended that they operate and are interpreted consistently.

Defining dishonesty

1.171           There is no consistent definition of dishonesty in the Corporations Act. Dishonesty takes its ordinary meaning for the purposes of many provisions in the Corporations Act, while it has been defined as a two limbed test for the purposes of sections 1041F and 1041G.

1.172           More recent jurisprudence has suggested that a single limbed test is the preferred test for dishonesty in Australia. The High Court of Australia in Peters v R (1998) 192 CLR 493 ( Peters ) preferred an objective only test where whether an act was ‘dishonest’ should be decided by the standards of ordinary, decent people.

1.173           The amendments in this Bill address the lack of a consistent definition of ‘dishonest’ in the Corporations Act by introducing a specific definition that applies across the Act.

1.174           The amendments insert a definition of ‘dishonest’ into section 9 of the Corporations Act. ‘Dishonest’ means “dishonest according to the standards of ordinary people”. This definition adopts, and is consistent with, the single limb test from Peters . [Schedule 1, item 7, section 9 of the Corporations Act]

1.175           As the definition is an objective only test, it is not necessary to prove that a defendant knew that the relevant conduct was dishonest. Instead, to establish dishonesty, it is only necessary to prove that the conduct is dishonest according to the standards of ordinary people. This will ensure consistency and certainty when prosecuting offences relating to dishonesty within the Corporations Act.

1.176           This test will differ to the tests for dishonesty in the Criminal Code. The tests in the Criminal Code contain both an objective and subjective limb. These tests have not been adopted from Peters .

1.177           A consequential amendment is required to paragraph 184(1)(b) of the Corporations Act to ensure the new definition of dishonesty can apply consistently across the Corporations Act. Currently, the offence in subsection 184(1)(b) of the Corporations Act requires an officer of a corporation to have been “intentionally dishonest” and have failed to exercise their powers and discharge their duties in good faith or for a proper purpose. As the concept of ‘intention’ is subjective, the offence would not operate consistently with the new definition of dishonesty. To ensure the new definition operates as intended, ‘intention’ has been omitted from this offence. [Schedule 1, item 14, paragraph 184(1)(b) of the Corporations Act]

1.178           Amendments have also been made to subsections 1041F(2) and 1041G(2) to repeal the existing definition of ‘dishonest’ so that the new definition applies uniformly across the Corporations Act. Minor consequential amendments have also been made to provisions that refer to the subsections that are being repealed. [Schedule 1, items 103 to 105 and 140, subsections 1041F(2), 1041G(1), 1041G(2) and Schedule 3 of the Corporations Act]

Relinquishment as a remedy

1.179           The Bill makes amendments to the Corporations Act, ASIC Act and Credit Act to enable the relevant court to make a relinquishment order if there has been a contravention of a civil penalty provision.

1.180           A relinquishment order is a mechanism to prevent the unjust enrichment of those who contravene a civil penalty provision by removing any financial benefits that arise. Also known as disgorgement, the mechanism prevents wrongdoers from treating civil penalties as a cost associated with gaining unjust financial benefits.

1.181           A relinquishment order aims to neutralise any financial benefit that might have been gained from misconduct. On some occasions, it can be difficult to identify those who have suffered losses or damages at the hands of wrongdoers. In those situations, and unless those who have suffered losses or damages commence compensation proceedings, the financial benefit gained from misconduct could still remain with the wrongdoer as they would only be subject to a financial penalty.

1.182           The concept of relinquishment exists in the Proceeds of Crimes Act 2002 , where property can be forfeited to the Commonwealth to deprive persons of any financial benefits or profits from committing criminal offences. The Proceeds of Crime Act 2002 framework does not capture profits stemming from the contravention of civil penalty provisions. Rather, it operates on the basis of a criminal investigation and the prospect of criminal proceedings being commenced. Absent this, it is unlikely that the relinquishment framework in the Proceeds of Crime Act 2002 would be used for civil penalty contraventions.

1.183           There are currently no mechanisms that allow ASIC to seek the relinquishment of unjust financial benefits where there has been a contravention of a civil penalty provision. The amendments made by this Bill address this by introducing a framework to allow a court to make relinquishment orders to neutralise the financial benefits and stop the unjust enrichment resulting from non-criminal misconduct.

1.184           The relevant court can make an order (a ‘relinquishment order’) that a person is to pay to the Commonwealth the amount of benefit derived or detriment avoided because of a contravention of a civil penalty provision if:

•        in relation to a contravention of a civil penalty provision in the Corporations Act:

-       a declaration of a contravention of a civil penalty provision has been made;

•        in relation to the contravention of a civil penalty provision in the ASIC Act:

-       the person has contravened a civil penalty provision in that Act; or

•        in relation to the contravention of a civil penalty in the Credit Act:

-       a declaration of a contravention of a civil penalty provision has been made.

[Schedule 1, item 117, subsection 1317GAB(1) of the Corporations Act; Schedule 2, item 8, subsection 12GBCC(1) of the ASIC Act; Schedule 3, item 7, subsection 167C(1) of the Credit Act]

1.185           The relevant court can make a relinquishment order on its own initiative during proceedings before the court, or on application from ASIC. [Schedule 1, item 117, subsection 1317GAB(2) of the Corporations Act; Schedule 2, item 8, subsection 12GBCC(2) of the ASIC Act; Schedule 3, item 7, subsection 167C(2) of the Credit Act]

1.186           The relevant court can make a relinquishment order even if a pecuniary penalty order could be, or has been, made in relation to a contravention of a civil penalty provision. [Schedule 1, item 117, subsection 1317GAB(3) of the Corporations Act; Schedule 2, item 8, subsection 12GBCC(3) of the ASIC Act; Schedule 3, item 7, subsection 167C(3) of the Credit Act]

1.187           For example, if a person is liable to pay a pecuniary penalty order for the contravention of a civil penalty provision, the relevant court can also make a relinquishment order against the person.

1.188           The amount owing under a relinquishment order will be a debt payable to ASIC on behalf of the Commonwealth, and ASIC or the Commonwealth can enforce the order as if it were a judgement debt. [Schedule 1, item 117, section 1317GAC of the Corporations Act; Schedule 2, item 8, section 12GBCD of the ASIC Act; Schedule 3, item 7, subsections 167C(4) and 167C(5) of the Credit Act]

1.189           Relinquishment orders have been afforded the same ordering effect as civil penalties when it comes to their interaction with criminal proceedings.

1.190           A court must not make a relinquishment order against a person if the person has been convicted of a criminal offence with similar conduct to that of the civil penalty provision. [Schedule 1, item 119, section 1317M of the Corporations Act; Schedule 2, item 8, section 12GBCG of the ASIC Act; Schedule 3, item 9, section 171 of the Credit Act]

1.191           Proceedings for a relinquishment order are stayed if criminal proceedings with similar conduct to that of the civil penalty provision are commenced. The proceedings for a relinquishment order can be resumed if the person is not convicted of the offence, but are dismissed with no costs awarded if a conviction is obtained. [Schedule 1, items 120 and 121, subsections 1317N(1) and 1317N(2) of the Corporations Act; Schedule 2, item 8, section 12GBCH of the ASIC Act; Schedule 3, items 10 and 11, subsections 172(1) and 172(2) of the Credit Act]

1.192           Criminal proceedings can still be commenced against a person for similar conduct to that of a civil penalty provision regardless of whether a relinquishment order has been made against the person. [Schedule 1, item 122, paragraph 1317P(1)(b) of the Corporations Act; Schedule 2, item 8, section 12GBCJ of the ASIC Act; Schedule 3, item 12, section 173 of the Credit Act]

1.193           Evidence of information given or documents produced by an individual is not admissible in criminal proceedings if the individual previously gave that information or documents in proceedings in a relinquishment order with similar conduct to that of the civil penalty provision . However this does not apply in relation to the falsity of evidence. [Schedule 1, items 124 and 125, paragraph 1317Q(a) and section 1317Q of the Corporations Act; Schedule 2, item 8, section 12GBCK of the ASIC Act; Schedule 3, item 13, paragraph 174(1)(a) of the Credit Act]

1.194           A body corporate cannot indemnify an officer of the body corporate for a liability of the officer to pay an amount under a relinquishment order made under the ASIC Act. [Schedule 2, item 9, paragraph 12GBD(1)(a) of the ASIC Act]

1.195           Section 175 of the Credit Act currently provides that if a person has been ordered to pay a pecuniary penalty under a civil penalty provision in relation to particular conduct, the person is not liable to pay another pecuniary order under another provision of law of the Commonwealth for that conduct. Amendments have been made to ensure that if a relinquishment order has been made against a person in relation to the conduct, the person will not be liable to pay another relinquishment order made under the Corporations or ASIC Act for that conduct . [Schedule 3, item 15, subsection 175(2) of the Credit Act]

Priority given to compensate victims

1.196           The Bill makes amendments to clarify that preference must be given to compensating victims who suffer damage as a result of a contravention of a civil penalty provision in the Corporations Act.

1.197           Currently, only the ASIC Act and Credit Act provide that compensating victims who suffer damage as a result of contraventions of civil penalty provisions is preferred where a defendant does not have sufficient financial resources to pay both a financial penalty and compensation.

1.198           Clarifying that the court is to give preference to compensation ensures that victims of corporate and financial sector misconduct are compensated as a priority, as these victims are the ones that have ultimately suffered as a result of the misconduct.

1.199           The requirement to give preference to compensation or refunds arises if the relevant court considers it appropriate to:

•        make a pecuniary penalty order in relation to a contravention of a civil penalty provision;

•        make a relinquishment order in relation to a civil penalty provision; or

•        impose a fine in relation to a commission of an offence with similar conduct to that of a civil penalty provision.

[Schedule 1, item 126, subsection 1317QF(1) of the Corporations Act; Schedule 2, item 12, subsection 12GCA(1) of the ASIC Act; Schedule 3, item 17, subsection 181(1) of the Credit Act]

1.200           In making a pecuniary penalty order, relinquishment order or imposing a fine, the relevant court:

•        must consider the effect that making the pecuniary penalty, relinquishment order or imposing the fine would have on the amount of compensation and refunds that might be reasonably payable; and

•        give preference to making an appropriate amount available for compensation and refunds under those provisions.

[Schedule 1, item 126, subsection 1317QF(2) of the Corporations Act; Schedule 2, item 12, subsection 12GCA(2) of the ASIC Act; Schedule 3, item 17, subsection 181(2) of the Credit Act]

1.201           The relevant court can make any orders it sees fit to ensure the amount remains available for compensation or refunds. [Schedule 1, item 126, subsection 1317QF(3) of the Corporations Act; Schedule 2, item 12, subsection 12GCA(3) of the ASIC Act; Schedule 3, item 17, subsection 181(3) of the Credit Act]

1.202           Compensation proceedings do not need to have been commenced for the court to consider the amount of compensation that might reasonably be likely to be payable, and to make an appropriate amount for compensation available.

1.203           It is intended that the provisions are interpreted and operate consistently across the Corporations Act, ASIC Act and Credit Act.

Clarifying the operation of section 184 of the Corporations Act

1.204           The Bill makes amendments to clarify the operation and scope of section 184 of the Corporations Act.

1.205           Currently a person who is, or has been, an officer or employee of a corporation, commits an offence against subsections 184(2) and 184(3) of the Corporations Act if they dishonestly or recklessly use their position, or information known to them, with the intention of gaining an advantage for themselves or someone else, or causing detriment to the corporation. There is ambiguity in the current operation of those offences around whether conduct that benefits the corporation would amount to an offence.

1.206           Section 184 of the Corporations Act has been amended to clarify that it is not a defence to an offence against subsections 184(2) or 184(3) that the person uses their position or information with the result of, or with the intention of, gaining an advantage for the corporation. The amendment ensures that those who use their position or information dishonestly or recklessly, but gain an advantage for the corporation, still commit the offence. [Schedule 1, items 15 and 16, subsections 184(2A) and 184(4) of the Corporations Act]

Specific amendments for certain rules made under the Corporations Act

1.207           ASIC has the ability to make:

•        market integrity rules under section 798G of the Corporations Act;

•        derivative transaction rules under section 901A of the Corporations Act;

•        derivative trade repository rules under section 903A of the Corporations Act;

•        client money rules under section 981J of the Corporations Act; and

•        financial benchmark rules and compelled financial benchmark rules under sections 908CA and 908CD of the Corporations Act.

1.208           Currently these provisions state ASIC may make rules in relation to those matters and the penalty amount cannot exceed the prescribed limit. These rules fall under the civil penalty provisions and therefore are subject to the new civil penalty calculation methods. This does not mean the new maximum penalty will be sought for every breach of a rule. The Court or the appropriate panel will consider the appropriate penalty for each contravention of the rule, taking into account the breach and severity of the misconduct. ASIC may make submissions to the Court or the appropriate panel on the amount of penalty that is appropriate in the matter. Ultimately, however, the Court or appropriate panel will decide the penalty amount. Consequential amendments are made to remove the existing penalty amounts. ASIC is still able to make rules but the maximum penalty amounts are now set in the legislation. [Schedule 1, items 48, 60, 62, 72 and 91, subsections 798G(2), 901A(4), 903A(4), section 908CO and subsection 981K(3) of the Corporations Act]

1.209           The regulations may allow for an alternative to civil proceedings for a person who is alleged to have breached the market integrity rules, derivative transaction rules, derivative trade repository rules, client money rules or financial benchmark rules. The alternatives that may be provided for can include, but are not limited to:

•        processes for paying a penalty to the Commonwealth (which may include an infringement notice) up to a specified limit;

•        undertaking or instituting remedial measures;

•        accepting sanctions other than the payment of a penalty to the commonwealth; and

•        enter into a legally enforceable undertaking.

1.210           The Bill makes amendments to leave the alternative to civil proceedings penalty amounts related to these rules relatively unchanged for individuals, but makes the penalty for bodies corporate more proportionate to the increased civil penalty maximum by multiplying the individual infringement notice penalty amount by 5. Subsections 798K(2), 901F(2), 903E(2), 908CG(2) and 981N(2) are repealed. These subsections calculated the maximum alternative to civil proceedings penalty amounts based on three-fifths of the maximum civil penalty for the market integrity rules and client money reporting rules and one-fifth of the maximum penalty for the derivative transaction rules, derivative trade repository rules and financial benchmark rules. While the new pecuniary penalty formula for civil penalties is increasing, the alternative to civil proceedings penalty amounts remain unchanged for these rules for individuals. Alternative to civil proceedings penalty amounts for bodies corporate are made more proportionate to the new civil penalty increases for bodies corporate on the basis outlined below. [Schedule 1, items 49, 61, 63, 71, and 92, subsections 798K(2), 901F(2), 903E(2), 908CG(2) and 981N(2) of the Corporations Act]

1.211           These penalty amounts are the maximum penalty that can be specified for an alternative to civil penalty proceedings for an alleged contravention of a rule. ASIC may, in its discretion, specify the penalty payable (if any) up to the maximum for each alleged contravention.

Table 1.11- Alternative to civil proceedings maximum penalty amounts for rules

Rule

Individual penalty (penalty units)

Body corporate penalty (penalty units)

Market integrity rules

3,000

15,000

Derivative transaction rules

200

1,000

Derivative trade repository rules

200

1,000

Financial benchmarks rules

1,110

5,550

Client money reporting rules

3,000

15,000

1.212           The regulations may specify infringement notices as an alternative to civil proceedings for these rules. The Guide suggests an appropriate penalty amount under an infringement notice is 20 per cent of the maximum financial penalty applicable to the primary offence but should not exceed 12 penalty units for an individual. For these offences of a corporate and financial nature, the maximum infringement notice penalty amounts significantly exceed 12 penalty units to provide a sufficient deterrent for these offences.

1.213           The maximum financial penalty applicable to the offence is now 5,000 penalty units for individuals and 50,000 penalty units for body corporates, therefore the maximum infringement notice penalty amounts for the derivative transaction rules and derivative trade repository rules are below 20 per cent of the maximum financial penalty applicable to the offence.

1.214           The maximum infringement notice penalty amounts for the market integrity rules, financial benchmark rules and client money reporting rules exceed 20 per cent of the maximum financial penalty applicable to the offence in order to act as a sufficient deterrent. The new penalty strikes an appropriate balance between providing an adequate deterrent from misconduct and a quick and efficient mechanism to avoid a breach going to court, and ensuring payments of penalties under infringement notices do not simply become a cost of doing business.

1.215           Allowing ASIC to specify the penalty up to the maximum is not consistent with the Guide, however this is appropriate given that ASIC has the ability to make these rules. The maximum penalty for some of these rules could significantly exceed the amount appropriate for the contravention in question, as some breaches of the rules may be considered lower level breaches. The maximum penalty amount would not be appropriate for these lower level breaches. Allowing ASIC to set the penalty up to the maximum allows for a more appropriate penalty to be set.

Amendments to definitions

1.216           The Bill makes a number of amendments to the definition provisions in the Corporations Act, the ASIC Act, the Credit Act and the Insurance Contracts Act to define new concepts, or amend or repeal existing concepts.

1.217            Definitions have been inserted into section 9 of the Corporations Act to:

•        define ‘annual turnover’;

•        define ‘benefit derived and detriment avoided’;

•        add relinquishment order into the definition of ‘civil penalty order’;

•        repeal the definition of ‘compliance period’;

•        define ‘contravene’, in relation to a civil penalty provision;

•        define ‘dishonest’;

•        define ‘individual fine formula’;

•        repeal the definition of ‘infringement notice’;

•        add a further element to the definition of ‘offence based on’;

•        define ‘Part 7.7A civil penalty provision’;

•        define ‘payment period’, in relation to infringement notices;

•        define ‘relinquishment order’; and

•        define ‘subject to an infringement notice’.

[Schedule 1, items 1, 2, 4, 5, 7 and 9 to 12, definitions in section 9 of the Corporations Act]

1.218           Definitions have been inserted into subsections 5(1) and 12BA(1) of the ASIC Act to:

•        define ‘benefit derived and detriment avoided’;

•        define ‘contravention’;

•        define ‘civil penalty provision’;

•        define ‘individual fine formula’;

•        make a consequential amendment to the definition of ‘infringement notice’;

•        repeal the definitions of ‘infringement notice compliance period’ and ‘infringement notice provision’; and

•        define ‘payment period’, ‘pecuniary penalty order’, ‘relinquishment order’, and ‘subject to an infringement notice’.

[Schedule 2, items 1 to 6, subsections 5(1) and 12BA(1) of the ASIC Act]

1.219           Definitions have been inserted into subsection 5(1) of the Credit Act to:

•        define ‘annual turnover’;

•        define ‘benefit derived and detriment avoided’;

•        amend the definition of ‘contravention’; and

•        define ‘individual fine formula’, ‘infringement notice’, ‘payment period’, ‘relinquishment order’, and ‘subject to an infringement notice’.

 [Schedule 3, items 1 to 3, subsection 5(1) of the Credit Act]

1.220           Definitions have been inserted into the Insurance Contracts Act to define:

•        ‘annual turnover’;

•        ‘benefit derived and detriment avoided’;

•        ‘civil penalty provision’;

•        ‘contravention’;

•        ‘infringement notice’;

•        ‘involved’;

•        ‘payment period’;

•        ‘pecuniary penalty order’;

•        ‘relevant court’; and

•        ‘subject to an infringement notice’.

[Schedule 4, item 1, subsection 11(1) of the Insurance Contracts Act]

1.221           The following definitions are also used for the purposes of application and transitional provisions:

•        ‘amending Act’; and

•        ‘commencement day’.

[Schedule 1, item 146, section 1655 of the Corporations Act; Schedule 2, item 51, section 320 of the ASIC Act; Schedule 3, item 50, section 1 of Schedule 8 to the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009]

Miscellaneous technical and consequential amendments

1.222           The Bill makes a number of technical and consequential amendments to support the structural changes to penalty frameworks contained in this Bill.

Technical amendments

1.223           Amendments have been made to some existing provisions to modernise language and enhance readability. [Schedule 1, item 18, subsection 205G(1) of the Corporations Act; Schedule 2, item 7, subsections 12GB(1), 12GB(1A) and 12GB(1B) of the ASIC Act; Schedule 3, items 28 and 36, subsections 39B(1) and 154(3) of the Credit Code]

1.224           Amendments have been made to certain strict and absolute liability offences in the Corporations Act to clarify that an offence is based on the particular subsections that have been referenced. Previously, these provisions stated ‘an offence based on this section is an offence of strict liability’. The amendments clarify which subsections are offences of strict liability. [Schedule 1, items 25, 26 and 27, subsections 347A(3), 347B(3), 428(3) of the Corporations Act]

1.225           Where existing criminal offences are also now a civil penalty provision, consequential amendments have been made to clarify multiple consequences attach to the conduct. [Schedule 1, items 29 and 30, subsections 601ED(5) and 601ED(7) of the Corporations Act]

1.226           Amendments have been made to clarify that subsection 1317P(1) of the Corporations Act does not apply to infringement notices issued under section 1317DAC of the Corporations Act in relation to disclosures. [Schedule 1, item 123, paragraph 1317P(2)(a) of the Corporations Act]

1.227           To aid readability and modernise its structure, amendments have been made to the table that lists civil penalty provisions in section 1317E of the Corporations Act to clearly list and categorise each of the civil penalty provisions. The categorisation makes it easier to determine whether additional criteria are to be considered by the Court in making a declaration that a civil penalty provision has been contravened. A provision has been inserted to aid interpretation and clarify the new table structure’s operation. [Schedule 1, item 116, subsection 1317E(3) of the Corporations Act]

1.228           A technical amendment has been made to section 1317S of the Corporations Act to clarify that nothing in that section limits, or is limited by, the mistake of fact defence for civil penalties. [Schedule 1, item 127, subsection 1317S(7) of the Corporations Act]

1.229           A technical amendment has been made to section 12GG of the ASIC Act to update cross-references as a result of amendments, and to clarify that findings of fact made in proceedings for a relinquishment order is prima facie evidence of that fact in proceedings for damages. [Schedule 2, item 13, section 12GG of the ASIC Act]

Consequential amendments

1.230           A number of cross-references have been updated as a result of the amendments made by the Bill. [Schedule 1, items 3, 6, 8, 28, 43 to 47, 54 to 58, 70, 116 and 129, section 9, subsections 588G(2), 793E(4) and 794C(2), paragraph 795B(1)(c), subparagraph 795B(1)(d)(i), subsection 798E(1), paragraph 821BA(1)(b), subsections 822E(4), 823C(1), 823C(2), 823CA(1), Note 1 in subsection 908CF(1), Note 3 in subsection 1317E(1), and the note in subsection 1364(2) of the Corporations Act; Schedule 2, item 15, paragraph 12GLB(1)(a) of the ASIC Act; Schedule 3, items 5 and 14, subsection 167(2) and section 175 of the Credit Act]

1.231           Subsections 18C(3) and 30B(3) of the Credit Code allow regulations to be made to exclude a credit provider from entering into a credit contract for a reverse mortgage if the debtor has not obtained legal advice and that regulations may be made in relation to interest charges under a credit card contract. These provisions also state that the regulations can set out offences against the regulations or provide for civil penalties for contraventions of the regulations, and that the penalty amount cannot exceed the prescribed limit for the offence or contravention. Amendments have been made to ensure consistency in the uplift between penalties for individuals and penalties for bodies corporate. [Schedule 3, items 22, 23, 26 and 27, subsections 18C(3), 18C(4), 30B(3) and 30B(4) of the Credit Code]

1.232           The Guide states regulations should not be authorised to impose fines exceeding 50 penalty units for individuals and 250 penalty units for a body corporate. However as these contraventions amount to a civil penalty, the civil penalty provision applies and as with offences, the uplift of 10 applies to body corporates.

1.233           The increase in the civil penalty amount reflects community expectations regarding an appropriate sanction for misconduct in the corporate and financial sector, and brings civil penalty amounts in line with comparable overseas jurisdictions.

1.234           The further uplift of 10 that applies only to bodies corporate also ensures that a body corporate does not obtain financial benefits from illegal behaviour. Bodies corporate can be well resourced and often can, in the corporate and financial sector, have significant financial value and resources. To ensure financial penalties act as an adequate deterrent, punish illegal behaviour, and are commensurate to the size and capacity of a body corporate, a further ratio of 10 is appropriate. Therefore exceeding the suggested financial penalty in the Guide is appropriate.

1.235           Amendments have been made to certain penalty provisions in the Corporations Act, ASIC Act and Credit Act to ensure consistency in the uplift between penalties for individuals and penalties for bodies corporate. [Schedule 1, items 128, 139 and 142, paragraph 1364(2)(w), subsection 105-1(3) of Schedule 2, subclause 29(7) of Schedule 4 of the Corporations Act; Schedule 2, items 10 and 16, subsection 12GBD(1) and subsection 12GN(5) of the ASIC Act]

1.236           Section 1364 of the Corporations Act provides for the power to make regulations under the Corporations Act. Paragraph 1364(2)(w) provides that if the regulations prescribe a penalty, it cannot exceed 50 penalty units for an individual. The penalty amount for the individual is not changing; however the uplift of 10 applies to body corporates. [Schedule 1, item 128, paragraph 1364(2)(w) of the Corporations Act]

1.237           The Guide states regulations should not be authorised to impose fines exceeding 50 penalty units for individuals and 250 penalty units for a body corporate. However, as the uplift of 10 applies to body corporates, the regulations may impose a penalty for a body corporate up to 500 penalty units.

1.238           The further uplift of 10 that applies only to bodies corporate also ensures that a body corporate does not obtain financial benefits from illegal behaviour. Bodies corporate can be well resourced and often can, in the corporate and financial sector, have significant financial value and resources. To ensure financial penalties act as an adequate deterrent, punish illegal behaviour, and are commensurate to the size and capacity of a body corporate, a further ratio of 10 is appropriate. Therefore exceeding the suggested financial penalty in the Guide is appropriate.

1.239           Amendments have been made to certain penalty provisions in the Corporations Act where the penalty amounts are stated in the provisions. These penalties have been updated to reflect the new structure of stating penalties using a term of imprisonment or penalty amount or a formula to work out the financial penalty. [Schedule 1, items 13, 68, 69, 73, 138, 141 and 143, paragraph 5.3 of the small business guide in Part 5.1, subsection 908BA(1), section 908BB, section 908DC, subsection 70-85(2) of Schedule 2, subclause 25(5) of Schedule 4 and subclause 33(1) of Schedule 4 of the Corporations Act]

1.240           Amendments have been made to ensure the Corporations Amendment (Asia Region Funds Passport) Act 2018 operates as intended, including ensuring the penalty amounts reflect the new uplift. [Schedule 1, items 34 and 106, subsections 671B(1) and 1211B(3) of the Corporations Act]

1.241           Consequential amendments have been made to update a number of cross-references as a result of repealing the penalty notices regime (section 1313 of the Corporations Act). [Schedule 1, items 130, 131 and 132, paragraph 1369(1)(a), subsections 1369(2) and 1369(3) of the Corporations Act]

1.242           Consequential amendments have been made to update and insert certain headings. [Schedule 1, items 114 and 118, heading under Part 9.4B, and before section 1317J of the Corporations Act; Schedule 3, item 20, part 6-6 of the Credit Act]

1.243           Subsections 1311(2) to (6) and 1317DA of the Corporations Act have been repealed and moved into other provisions inserted by this Bill. [Schedule 1, items 109 and 115, subsections 1311(2) to (6) and section 1317DA of the Corporations Act]

1.244           A consequential amendment repeals section 1312 of the Corporations Act as a new formula calculates the financial penalty for a body corporate. [Schedule 1, item 111, section 1312 of the Corporations Act]

1.245           Guides to parts have been inserted in the Credit Act, to provide for a summary for the offences and infringement notices part. These guides provide for a quick overview of the offences and infringement notices parts to aid readability. [Schedule 3, item 19, sections 288A and 288H of the Credit Act]

Commencement and application of the amendments made by this Bill

The commencement of the amendments made by this Bill

1.246           The amendments made by Schedules 1 to 4 to this Bill commence on the day after the day this Bill receives Royal Assent. [Clause 2]

The application of the amendments made by this Bill

1.247           The amendments made by this Bill in relation to offences apply to conduct that occurs wholly on or after the commencement day of this Bill. [Schedule 1, item 146, section 1656 of the Corporations Act; Schedule 2, item 51, section 321 of the ASIC Act; Schedule 3, item 50, section 2 of Schedule 8 to the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009]

1.248           The amendments made by this Bill in relation to a contravention of a civil penalty provision apply to contraventions that occur wholly on or after the commencement day of this Bill. [Schedule 1, item 146, section 1657 of the Corporations Act; Schedule 2, item 51, section 322 of the ASIC Act; Schedule 3, item 50, section 3 of Schedule 8 to the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009; Schedule 4, item 5]

1.249           To avoid doubt, the amendments made by this Bill in relation to an offence or contravention of a civil penalty provision, apply if the conduct occurs wholly on or after the commencement day of this Bill. [Schedule 1, item 146, section 1658 of the Corporations Act]

1.250           The amendments relating to infringement notices apply to infringement notices issued on or after the commencement day of this Bill and can be issued in relation to an alleged contravention of a provision that occurred before, on or after the commencement day of this Bill. [Schedule 1, item 146, subsection 1659(1) of the Corporations Act; Schedule 2, item 51, subsection 323(1) of the ASIC Act; Schedule 3, item 50, subsection 4(1) of Schedule 8 to the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009]

1.251           As the current penalty notice regime is repealed, the amendments made by Schedule 1 to this Bill ensures that despite the repeal, the Corporations Act continues to operate in relation to penalty notices that have been issued before the commencement day of this Bill, as if the current penalty notice regime had not been repealed. [Schedule 1, item 146, subsection 1659(2) of the Corporations Act]

1.252           Any infringement notices issued under the current ASIC or Credit Act infringement notice regime continue to apply if the infringement notice was issued before the commencement day of this Bill, as if the current ASIC or Credit infringement notice regime had not been repealed. [Schedule 2, item 51, subsection 323(2) of the ASIC Act; Schedule 3, item 50, subsection 4(2) of Schedule 8 to the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009]

1.253           The amendments relating to the new definition of ‘dishonest’ apply in relation to offences involving dishonesty if the conduct of the offence occurs wholly on or after the commencement day of this Bill. [Schedule 1, item 146, subsection 1660(1) of the Corporations Act]

1.254           The amendments relating to the new definition of ‘dishonest’ apply in the following ways to certain provisions:

•        for disqualification under section 206B of the Corporations Act — to convictions for an offence involving dishonesty that occur on or after the commencement day of this Bill;

•        in considering good fame and character for licences under section 913B of the Corporations Act — to convictions for an offence involving dishonesty whether the conviction occurs before, on or after the commencement day of this Bill;

•        in considering the suspension or cancellation of licences under section 915B of the Corporations Act (the criterion of ‘convicted of serious fraud’) — to convictions for an offence involving dishonesty whether the conviction occurs before, on or after the commencement day of this Bill;

•        in considering good fame and character for banning orders under section 920A of the Corporations Act, and the criterion of ‘convicted of serious fraud’ in relation to giving a person an opportunity to be heard — to convictions for an offence involving dishonesty whether the conviction occurs before, on or after the commencement day of this Bill;

•        in deciding whether an applicant should be registered as a liquidator under section 20-20 of Schedule 2 to the Corporations Act — to decisions made on or after the commencement day of this Bill (whether the conviction for the offence involving dishonesty occurs before, on or after the commencement day);

•        in relation to the obligation of a liquidator under section 35-1 of Schedule 2 to the Corporations Act to notify ASIC of convictions for an offence involving dishonesty — to convictions that occur on or after the commencement day of this Bill;

•        in relation to the suspending of the registration of a liquidator under section 40-25 of Schedule 2 to the Corporations Act — to convictions for an offence involving dishonesty whether the conviction occurs before, on or after the commencement day of this Bill;

•        in relation to the cancellation of the registration of a liquidator under section 40-30 of Schedule 2 to the Corporations Act — to convictions for an offence involving dishonesty whether the conviction occurs before, on or after the commencement day of this Bill;

•        in relation to a show cause notice under section 40-40 of Schedule 2 to the Corporations Act — to convictions for an offence involving dishonesty whether the conviction occurs before, on or after the commencement day of this Bill.

[Schedule 1, item 146, subsection 1660(2) of the Corporations Act]



Chapter 2          

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018

2.1                   This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.2                   The Bill introduces a stronger penalty framework to combat misconduct and improve community confidence in the corporate and financial sector. The Bill amends the Corporations Act, ASIC Act, Credit Act and Insurance Contracts Act.

2.3                   The amendments made by the Bill:

•        update the penalties for certain criminal offences in ASIC administered legislation, including:

-       increasing the maximum imprisonment penalties for certain criminal offences;

-       introducing a formula to calculate financial penalties for criminal offences;

-       removing imprisonment as a penalty and increasing the financial penalties for all strict and absolute liability offences;

•        introduce ordinary criminal offences that sit alongside strict and absolute liability offences;

•        modernise and expand the civil penalty regime by increasing financial penalties for contraventions and making a wider range of offences subject to civil penalties;

•        harmonise and expand the infringement notice regime;

•        introduce a new test that applies to all dishonesty offences under the Corporations Act;

•        introduce relinquishment as a remedy available in civil penalty proceedings;

•        clarify that the courts are to give priority to compensating victims over ordering the payment of financial penalties; and

•        clarify that contraventions of section 184 of the Corporations Act can occur even when the relevant corporation gains an advantage from the contravention.

Human rights implications

2.4                   Consideration has been specifically given to the guidance in the Parliamentary Joint Committee on Human Rights’ Guidance Note 2: Offence provisions, civil penalties and human rights and to the Attorney-General’s Department’s Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011 edition .

2.5                   The impact of the Bill on the following human rights has been considered:

•        the right to fair trial under article 14 of ICCPR; and

•        the imposition of strict liability offences, and increases to maximum terms of imprisonment, under the Guide.

Removal of terms of imprisonment for strict and absolute liability offences

2.6                   Currently certain strict and absolute liability offences carry imprisonment terms as a potential penalty. Strict liability and absolute liability remove a fault element that would otherwise attach to a physical element and are generally only appropriate in limited circumstances.

2.7                   Given that the proof of fault is one of the most fundamental protections in criminal law, it is not considered appropriate for the existing strict and absolute liability provisions to continue to attach a punishment by terms of imprisonment.

2.8                   The Bill addresses this by ensuring that all strict and absolute liability offences within the Corporations, ASIC, and Credit Acts do not carry imprisonment as a potential penalty. These amendments uphold the principals set out under Article 14 of the ICCPR.

Increases to terms of imprisonment for certain criminal offences

2.9                   This Bill increases the maximum imprisonment term for some criminal offences that have the potential to cause serious harm. The Bill increases or introduces terms of imprisonment for existing offences that were already subject to punishment by imprisonment or a penalty fine.

2.10               Courts are unable to sentence an offender for more than the maximum penalty prescribed by the legislation. This Bill improves a court’s ability to ensure that punishment of seriousness misconduct aligns with community standards and expectations by increasing the maximum terms of imprisonment. The judiciary continues to have discretion to consider the level of criminal culpability, and impose a penalty that is appropriate in the circumstances, up to the maximum term. The maximum penalty is generally reserved only for the most egregious cases.

2.11               A number of the offences are designed to sanction contraventions of fundamental obligations that protect consumers and investors. Monetary sanctions may not be a sufficient deterrent for contravention of those offences given that the committing of the offence may result in a substantial monetary gain. To deter such behaviour, and to ensure committing an offence is not merely factored in as a cost of doing business, increases to the imprisonment terms are appropriate. This will neutralise any financial benefits or gains obtained from illegal behaviour, and prevent further misconduct by the offender.

2.12               To the extent the amendments increase the maximum term of imprisonment, they do not amend any of the criminal process or procedural rights that currently exist and are upheld in accordance with article 14 of the ICCPR.

2.13               The increased penalties will apply to offences that are committed, or begin to be committed, after the Bill commences, and therefore apply prospectively, therefore upholding article 15 of the ICCPR.

Increase to maximum fine for criminal offences

2.14               In addition to increasing imprisonment terms, the Bill also makes amendments to increase the financial penalty for criminal offences. The maximum financial penalty for criminal offences is calculated through a new formula, where, if the term of imprisonment is less than 10 years, the individual fine formula is the imprisonment in months multiplied by 10.

2.15               The Bill makes amendments to increase the financial penalty fine if the term of imprisonment for an offence is 10 years or more:

•        4,500 penalty units; or

•        the benefit derived or detriment avoided because of the offence multiplied by three.

2.16               The financial penalty for offences with 10 years or more imprisonment is appropriate, given that the offences in the Corporations, ASIC and Credit Acts are of a corporate nature. The increase in penalties reflects the seriousness of misconduct and aligns with community standards and expectations.

2.17               The new penalty fine amounts are the maximum that a court can impose.

2.18               Those involved in committing such offences could receive large financial benefits from their misconduct, especially in the larger corporate and financial business sectors. To deter such behaviour, and to ensure paying a financial penalty does not become a cost of doing business, a ratio of 10 for individuals is appropriate. The higher penalty amounts for offences of the most egregious in nature are also appropriate to deter engaging in such behaviour and effectively sanction misconduct.

2.19               These increases will neutralise any financial benefits or gains obtained from illegal behaviour.

2.20               To the extent the amendments increase the maximum penalty for criminal offences, they do not amend any of the criminal process or procedural rights that currently exist and are upheld in accordance with article 14 of the ICCPR. The increased penalties will apply to offences that are committed, or begin to be committed, after the Bill commences, and therefore applies prospectively, therefore upholding article 15 of the ICCPR.

2.21               To the extent the increases in financial penalties apply to bodies corporate, they do not engage any human rights.

New ordinary criminal offences that sit alongside strict and absolute liability offences

2.22               The Bill makes amendment to introduce a number of new ordinary criminal offences that now sit alongside strict and absolute liability offences. This will strengthen the enforcement options available to ASIC.

2.23               The default fault elements of the Criminal Code apply to these new offences. This is consistent with paragraph 2.2.4 of the Guide.

2.24               Equivalent ordinary offences to strict and absolute liability offences have been introduced, and have a higher penalty to reflect that committing the ordinary offence is a deliberate act, and therefore comes with a higher level of culpability. Maintaining the existing strict and absolute liability penalty amounts for ordinary offences does not adequately reflect the importance of these obligations in maintaining consumer confidence and integrity in the corporate and financial industry. Penalties for ordinary offences have therefore been increased.

2.25               The introduction of the new ordinary criminal offences do not amend any of the criminal process or procedural rights that currently exist and are upheld in accordance with article 14 of the ICCPR.

2.26               The increased penalty amounts are adequate to sanction misconduct for the worst possible case.

2.27               The new ordinary criminal offences will apply to offences that are committed, or begin to be committed, after the Bill commences, and therefore applies prospectively, therefore upholding article 15 of the ICCPR. To the extent the new ordinary criminal offences apply to bodies corporate, they do not engage any human rights

Increase to penalties for strict and absolute liability offences

2.28               The Bill makes amendments to increase financial penalties and remove imprisonment as a penalty, for strict and absolute liability offences.

2.29               Financial penalties for all strict and absolute liability offences have increased to reflect the seriousness of the offence. Where a strict and absolute liability offence currently carries an imprisonment term as a penalty, the penalty has been converted to a financial penalty using the individual fine formula, explained above. Imprisonment as a punishment for strict and absolute liability offences has been removed. This is consistent with the Guide.

2.30               The Guide suggests an appropriate penalty for a strict liability offence is 60 penalty units for an individual and 300 penalty units for a body corporate. For absolute liability offences, the Guide suggests an appropriate penalty to be 10 penalty units for an individual and 50 penalty units for a body corporate. The individual and body corporate fine formulae in some instances have increased some strict and absolute liability penalties to be higher than 60 penalty units for individuals and higher than 300 penalty units for body corporates. While the amendments depart from the Guide, the increase in penalty now reflects the seriousness of the offence and is appropriate as it makes the amounts more proportionate to the other penalty increases and acts as a sufficient deterrent. Furthermore, the increases in the financial penalties also offset the removal of imprisonment as a possible sanction for committing strict or absolute liability offences.

2.31               The application of strict and absolute liability offences removes the requirements to prove fault. These offences are existing strict and absolute liability offences in the Corporations Act. The application of strict and absolute liability offences are appropriate to ensure the integrity of the financial sector, as consumers put their trust in these classes of people (for example, company directors, financial advisors, superannuation trustees), therefore failure to comply with their obligations can result in detriment to the consumer. Strict and absolute liability offences reduce non-compliance and act as an appropriate deterrent.

2.32               Furthermore, strict liability offences preserve the defence of honest and reasonably mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for person who may be accused of such offence.

2.33               While the amendments increase the maximum penalty for strict and absolute liability offences, they do not amend any of the process rights that currently exist. The increased penalties will apply to offences that are committed after the Bill commences, and therefore apply prospectively, therefore upholding article 15 of the ICCPR.

New strict liability offence

2.34               The Bill introduces one new strict liability offence. Section 250SA of the Corporations Act is now a strict liability offence. Section 250SA of the Corporations Act provides that at the listed company’s Annual General Meeting, the chair must allow for a reasonable opportunity for members to ask questions or make comments on the remuneration report. Section 250S is a strict liability offence and is a similar provision except it is in relation to asking questions and making comments on the management of the company. Sections 250S and 250SA of the Corporations Act are similar and therefore a breach should result in the same maximum penalty. The penalty for contravening sections 250S and 250SA of the Corporations Act is 20 penalty units for an individual and 200 penalty units for a body corporate.

2.35               A strict liability offence for contravening section 250SA is appropriate and consistent with the requirements in the Guide. For instance, this offence is not punishable by imprisonment and the fines for the offence do not exceed 60 penalty units for individuals or 300 penalty units for body corporates. The application of strict liability is appropriate to reduce non-compliance and ensures members are allowed a reasonable opportunity to ask questions on the remuneration report at the annual general meeting.

2.36               Furthermore, strict liability offences preserve the defence of honest and reasonably mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for the person who may be accused of such offence.

2.37               The penalty for this offence applies prospectively, therefore upholding article 15 of the ICCPR.

Increase to the maximum civil penalty and expanding the civil penalty regime

2.38               The Bill makes amendments to introduce new civil penalty provisions and to increase and align the civil penalty provisions in the Corporations Act, ASIC Act, Credit Act and Insurance Contracts Act. If an individual contravenes a civil penalty provision, ASIC may apply to the court and the court can order individual defendants to pay:

•        5,000 penalty units; or

•        the benefit derived or detriment avoided because of the contravention, multiplied by three.

2.39               The Guidance Note observes that civil penalty provisions may engage criminal process rights under articles 14 and 15 of the ICCPR , regardless of the distinction between criminal and civil penalties in domestic law. This is because the word ‘criminal’ has an autonomous meaning in international human rights law. When a provision imposes a civil penalty, an assessment is therefore required as to whether it amounts to a ‘criminal’ penalty for the purposes of articles 14 and 15 of the ICCPR.

2.40               While the civil penalty provisions are not classified as criminal under Australian law, consideration must be had to the nature, purpose and severity of the penalties.

2.41               While the purpose of the increase to the maximum civil penalty is to act as a sufficient deterrent for misconduct, the penalties are restricted to people who should be aware of their obligations, such as financial advisors, superannuation trustees and company directors.

2.42               The maximum penalty for contravening a civil penalty provision for an individual is either 5,000 penalty units or the benefit derived or detriment avoided, multiplied by three. The increased penalty ensures civil penalties for individuals proportionately align with the increase in civil penalties for bodies corporate, and act as a sufficient deterrent for misconduct.

2.43               In practice, it is intended that courts would determine which method provides the greatest penalty, and then use discretion to impose an appropriate penalty up to that amount. The penalty is the maximum that a court can impose, taking into account the facts and circumstances of each case.

2.44               The method for calculating the pecuniary penalty applicable provides flexibility and ensures the penalty reflects the seriousness of the contravention and community expectations. It will further ensure that incurring a civil penalty is not considered a cost of doing business, and provides an appropriate penalty amount to deter and punish misconduct.

2.45               The new maximum penalty is justified where consequences of not complying can cause consumer detriment. Not complying with the obligations under the Corporations Act, ASIC Act, Credit Act and Insurance Contracts Act can harm consumers and create distrust in the financial services sector. The maximum penalty is considered appropriate to adequately deter misconduct.

2.46               While the civil penalty amounts are intended to deter misconduct, none of the civil penalty provisions carry a penalty of imprisonment. The civil penalty provisions should not be considered ‘criminal’ for the purpose of human rights law due to their application in a financial services regulatory context. Therefore, the civil penalty provisions do not create criminal offences for the purposes of articles 14 and 15 of the ICCPR.

2.47               Furthermore, the increased penalty for civil penalty provisions will apply to offences that are committed after the Bill commences, and therefore applies prospectively, therefore upholding article 15 of the ICCPR.

Reverse evidential burden

2.48               The Bill draws on standard provisions from the Regulatory Powers Act to modernise the civil penalty frameworks in the Corporations, ASIC, Credit and Insurance Contracts Acts.

2.49               The modern framework includes the ability for a person to rely specifically on a defence of mistake of fact, but also on any exception, exemption, excuse, qualification or justification provided by the law creating the civil penalty provision.

2.50               If a person wishes to rely on the defence of mistake of fact, or any exception, exemption, excuse, qualification or justification provided by the law creating the civil penalty provision, the person will have the evidential burden in relation to those matters. That is, the person has the burden to adduce or point to evidence to establish a matter exists, or does not exist, in relation to those matters.

2.51               It is appropriate in these instances that the onus is reversed and placed on a defendant to adduce or point to evidence to establish a relevant matter exists or does not exist. Knowledge of matters relating to a mistake of fact, or any exemption, excuse, qualification or justification provided by the law creating the civil penalty provision, is peculiarly within the knowledge of the defendant. Placing this burden on the defendant is further justified because it would be significantly more difficult and costly for the prosecution to disprove elements that are squarely within the knowledge of the defendant.

Conclusion

2.52               To the extent that the Bill engages the rights under articles 14 and 15 of the ICCPR it is compatible with human rights as the limitations:

•        achieve the legitimate objective of protecting the general public from corporate misconduct;

•        are rationally connected to the objective by improving the likelihood of compliance with the regulatory regimes; and

•        impose proportionate penalties, including providing for terms of imprisonment where monetary fines do not act as a sufficient deterrent, to deter future misconduct.  

2.53               Therefore this Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .