by Olivia Dixon and Jennifer G. Hill
In late February 2021, the Australian Securities and Investments Commission (“ASIC”) released a new policy[1] regarding immunity for a range of offences under Australian corporate law (the “ASIC policy”). The ASIC policy covers offences predominantly falling under the ‘market misconduct’ provisions of Part 7.10 of the Australian Corporations Act 2001 (“the Act”) and includes serious offences, such as market manipulation, insider trading and dishonest conduct in the course of operating a financial services business. The ASIC policy also contemplates criminal immunity being provided for “other Commonwealth offences connected with the Pt 7.10 offence.” Such offences may include ancillary liability offences such as aiding and abetting; breach of director’s duties; false accounting; and money laundering.
The ASIC policy is not entirely novel under Australian law. Its provisions closely resemble an immunity and cooperation policy for cartel conduct, most recently updated in 2019, by another regulator, the Australian Competition & Consumer Commission (the “ACCC policy”).[2] The ACCC policy offers two forms of leniency for cartel participants who are willing to assist the ACCC in its investigation: (i) immunity: the first cartel participant to approach the ACCC may be granted conditional immunity from civil enforcement actions, and potentially from criminal actions if it meets the necessary criteria; or (ii) cooperation: if a cartel participant fails to meet the criteria for conditional immunity, it may still receive leniency from the ACCC or the court if it cooperates in the ACCC’s investigation.
Scope and Preconditions of the Immunity Policy
Under the ASIC policy, only individuals (not corporate entities) may apply for immunity, which can relate to either civil penalties or criminal liability. This is in contrast to the ACCC policy, where corporations may apply for immunity. The application must, however, satisfy a number of conditions, including the following:
- The applicant is the first person to apply for immunity, and the applicant’s own conduct may have contravened Part 7.10;
- The misconduct involves at least one other person, which may include a corporation;
- The applicant did not initiate the misconduct or coerce anyone’s involvement in it;
- ASIC has not already commenced an investigation of the conduct;
- The applicant is prepared to fully cooperate with ASIC’s investigation and any subsequent court proceedings.
The new immunity policy may prove attractive given the serious penalties for individuals who contravene Part 7.10 of the Act – namely, a prison term of up to 15 years and fines of close to $1,000,000 or three times the value of the benefit derived from the contravention.
Similar to the ACCC policy, the ASIC policy points out that the offences it encompasses are not only serious but also extremely “complex and difficult-to-detect.” In the context of cartels, ACCC Chair Rod Sims has stated that “the immunity policy is one of our key strategies for detecting and dismantling cartels. We have been able to undertake numerous in-depth cartel investigations as a result of immunity applications under our policy…[which] have resulted in multi-million dollar penalties against cartel members.” A goal of the ASIC policy is to strengthen the regulator’s hand (and its “enforcement toolkit”) in a like manner, ensuring accountability for such offences.
ASIC’s Enforcement Record and the 2019 Banking Royal Commission
ASIC’s role and enforcement record has received a considerable amount of attention in recent years. In 2007, for example, Professor John Coffee noted that enforcement by ASIC appeared to be at least as aggressive as enforcement by the SEC (adjusted according to market capitalization).
However, more than a decade later, Australia’s high profile 2019 Banking Royal Commission (the “Commission”) took a very different view of ASIC’s enforcement record in the financial services sector, finding that it had been inadequate to ensure accountability. The Commission was particularly critical of ASIC’s use of enforceable undertakings – a form of negotiated settlement – to resolve allegations of misconduct. According to the Commission, the regulator’s first question, upon becoming aware of any entity’s breach of the law, should be “why not litigate?” and it has been predicted that this approach will result in many more legal actions in the Australian corporate sector.
In the Commission’s view, the banks had effectively controlled the sanctions and treated them as “just a cost of doing business.” This has also been a concern in the United States. The 2015 Yates Memorandum, for example, explicitly stated that the DOJ’s new prosecutorial policy at that time would preclude the danger of entity liability being viewed as a mere cost of doing business.
Incentives under the Immunity Policy and Implications for Whistleblowing
The requirement under ASIC’s new immunity policy of full and continuing cooperation with the regulator is designed to shift the balance of power in ASIC’s favour. The policy also encourages those who do not qualify for immunity under the new policy to cooperate with the regulator in exchange for leniency. This emphasis on cooperation with the regulator is replicated in another recent Australian development, namely the introduction in 2018 of a Banking Executive Accountability Regime, which was modelled on senior management accountability regimes in the United Kingdom and Hong Kong.
The practical implications of the ASIC policy are yet to be tested; however, it is important to note that the protections afforded under the ASIC policy extend beyond the current statutory whistleblower protections that apply to individuals who make qualifying disclosures to ASIC or other eligible recipients under Part 9.4AAA of the Act. That Part protects individuals from civil and criminal liability in relation to a “qualified disclosure,” but does not protect them from liability arising from any contravening conduct in which they have been involved. Therefore, individuals may have an incentive to report misconduct to ASIC at first instance, rather than to their companies under any corporate whistleblowing policy. This incentive may be further heightened by ASIC’s new breach reporting obligations,[3] which commence on October 1, 2021. These obligations significantly expand the kinds of situations that must be reported by licensees to ASIC, while shortening the time frame to make the report.
The ACCC has consistently referred to its immunity policy as being key to its overall success in prosecuting cartel misconduct. Unlike the US, Australia does not offer monetary rewards for whistleblowing. Whether the ASIC immunity policy is effective in practice will therefore depend on how the new incentives are perceived by individuals implicated in market misconduct offences. If the ASIC policy replicates the reported effects of the ACCC policy, the regulator will substantially increase its ability to successfully investigate and pursue criminal and civil contraventions of Part 7.10 of the Act.
Footnotes
[1] https://download.asic.gov.au/media/5988538/asic-immunity-policy-published-24-february-2021.pdf (PDF: 215 KB).
[2]https://www.accc.gov.au/system/files/1579_ACCC%20immunity%20%26%20cooperation%20policy%20for%20cartel%20conduct%20-%20October%202019_FA.pdf (PDF: 314 KB).
[3] See ASIC Regulatory Guide 78: Breach Reporting by AFS Licensees (Mar. 30, 2020) https://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-78-breach-reporting-by-afs-licensees/.
Olivia Dixon is a Senior Lecturer at the University of Sydney, Australia, in the area of Regulation of Investment and Financial Markets, and a former analyst for a corporate finance company and at the Australian Securities and Investments Commission. Jennifer G. Hill is the Inaugural Bob Baxt AO Chair in Corporate and Commercial Law and Director of the Centre for Commercial Law & Regulatory Studies (CLARS) in the Monash University Faculty of Law, Australia, and a Research Member of the European Corporate Governance Institute (ECGI).
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