businessman's hands in handcuffs

How the Change May Impact Self-Reporting

The Australian government is raising fines associated with corporate wrongdoing. The changes will bring the country more in line with penalties levied by U.K. and U.S. regulators, but is it the right move?

with contributing authors Jenni Hill, Kirsten Scott and Lara Gotti

On April 20, 2018, Australia’s Minister for Revenue and Financial Services announced the government’s intention to increase maximum penalties under Australia’s Corporations law tenfold.

Corporations found to have committed criminal offences under the Act would be subject to a maximum penalty of AUD 9.45 million/~U.S. $7 million (from AUD 1 million), alternatively three times the benefits received or 10 percent of annual turnover. Penalties for individuals will increase to AUD 945,000/~U.S. $700,000 (from AUD 100,000) or three times the benefits received. The maximum penalty of 10 years’ imprisonment for individuals will remain.

The increase in civil penalties would be even higher; for corporations up to AUD 10.5 million/~U.S. $7.8 million (from AUD 1 million) and for individuals up to AUD 1.05 million/~U.S. $780,000 (up from AUD 200,000).

The increased penalties bring Australia more in line with international penalties, particularly those available to U.K. and U.S. regulators, thereby increasing their deterrent value.

The Right Move?

Commentators largely welcome the proposed increase in penalties. However, to maximise the proposed benefits from this change, there needs to be significant and ongoing discussions between corporates and regulators to encourage early engagement and assistance in the investigation process. There should be options for negotiated outcomes that avoid significant penalties, particularly if the corporation’s procedures and policies aim to prevent such breaches in the first place.

Self-reporting is most effective when there is a benefit in bringing breaches to the regulator’s attention before the investigation has already been initiated and before investigators begin to form their views. However, the limited number of successful prosecutions discourages self-reporting if there is unlikely to be any real consequence of a potential breach of the law.

This may change with the proposed increase in penalties and introduction of deferred prosecution agreements (DPAs).  Proposed legislation, tabled in December 2017, includes the introduction in Australia of DPAs and will allow prosecutors to negotiate with a corporation alleged to have engaged in serious corporate crime, such as foreign bribery, money laundering and fraud. Prosecutors will be able to require the corporation to agree to certain facts, pay fines and/or cooperate with law enforcement (including making available individuals to give evidence against others), in exchange for an agreement not to prosecute the corporation. Similar arrangements have been in place for years in the United States and the U.K.

Regulators believe that DPAs, in conjunction with the new offences of failing to prevent bribery, will see corporations less likely to run the risk of detection and subsequent prosecution, and more likely instead to self-report.

Final Thoughts

The regulatory space in Australia has undergone significant developments in recent times. The introduction of significantly increased penalties together with the proposed introduction of DPAs could see a significant shift in the way companies and individuals interact with regulators.


Wendy Wysong

Wendy L. Wysong, a litigation partner with Clifford Chance, maintains offices in Hong Kong and Washington D.C.  She offers clients advice and representation on compliance and enforcement under the Foreign Corrupt Practices Act, the Arms Export Control Act, International Traffic in Arms Regulations, Export Administration Regulations, and OFAC Economic Sanctions.  She was appointed by the State Department as the ITAR Special Compliance Official for Xe Services (formerly Blackwater) in 2010.

Ms. Wysong combines her experience as a former federal prosecutor with the United States Attorney for the District of Columbia for 16 years with her regulatory background as the former Deputy Assistant Secretary for Export Enforcement at the Bureau of Industry and Security, U.S. Department of Commerce.  She managed its enforcement program and was involved in the development and implementation of foreign policy through export controls across the administration, including the Departments of Justice, State, Treasury, and Homeland Security, as well as the intelligence community.]

Ms. Wysong received her law degree in 1984 from the University of Virginia School of Law, where she was a member of the University of Virginia Law Review.

Contact information:

Wendy L. Wysong
Clifford Chance
28th Floor Jardine House
One Connaught Place
Hong Kong
+852 2826 3460
+852 9280 3612 (cell)

And

2001 K Street, NW
Washington, DC 20006
+1 202 912 5030
+1 202 290 7634
[email protected]

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