The Federal government is committed to pursuing criminal prosecutions for financial misconduct, but will this impact the apparent systemic misconduct in the financial sector?
According to an official statement last week Friday, the Liberal National Government is providing an additional $51.5 million to the Commonwealth Director of Public Prosecutions and the Federal court of Australia.
This announcement comes just months after the conduct regulator commissioned report into the effectiveness of Enforceable Undertakings (EU) as an enforcement tool to deter wrongdoing and just weeks after the Royal Commission published a report by Dr. Sunita Sah’s paper on conflicts of interest and disclosures.
An additional $41.6 million will be given to the CDPP over a period of eight years which will not only allow for more prosecutions but also quicker handling of an increasing caseload.
The Federal court will be receiving an injection of $9.9 million over the next four years for more resources and the appointment of two new judges.
The government indicated that this is in addition to the $70 million injection into the Australian Securities and Investments Commission (ASIC) this is meant ‘to give rise to more criminal prosecutions’.
The strengthening and supervision were one of many key themes that ASIC Commissioner John Price focused on at the FINSIA Regulator’s Panel last week Thursday.
Price indicated that their planned supervisory approach would be:
Use an expanded range of supervisory techniques, including more frequent onsite visits
Build on our already significant public actions in the superannuation sector, including more enforcement outcomes, and
Better leverage the data currently available to ASIC and APRA and make use of new data sources.
Review to Prioritise the problem of Corporate Crime
In addition to the increased funding to the CDPP and the Federal Court, there will also be a review into Federal Court’s ‘criminal jurisdiction’ to whether it should be expanded to include corporate crime.
A report based on the review will be delivered to the government in January of next year.
“Any criminal prosecutions for misconduct by banks and other financial institutions are currently heard in state courts and hence have to compete with state cases for resources and scheduling,” the government said.
It continued that the creation of the criminal jurisdiction would prioritise these cases which means that they will be dealt more quickly than they have been in the past.
Is this an effective solution to the misconduct in the financial sector?
David Jacobson from Bright Law told the GRC Professional that while there are challenges with resources this might not be the answer.
“It seems to me that the federal court’s jurisdiction is changing in a number of areas where the court either does not have expertise or sufficient judges and resources,” he said. “I do not think that this change will solve the problem of corporate culture or misconduct.”
The GRC Professional also reached out to David Bartlett Corporate Criminologist at Griffith University and, when asked if he thought an extension of the criminal jurisdiction might have an impact on the conduct of organisations, he said that there are many corporate offences already covered which includes breaches to the ASIC Act, but that the new injection funds is a clear indication that the government will be supporting ASIC position of more criminal prosecutions as a regulatory tool.
“ASIC has a range of enforcement tools at its disposal. However, when it comes to use of those tools against large corporations, ASIC has historically opted to use lower level tools and not proceed to court,” Bartlett explained. “The principle of using the least punitive tool available relative to the misconduct committed is sound. However, not using the most severe enforcement tools, such as criminal prosecution, in response to clear cases of serious or repeated offending is problematic. It sends the wrong message to the offender and industry about the seriousness and wrongfulness of the conduct.”
Overuse of Criminal Prosecution?
“Having said that, there is a risk in the overuse of criminal prosecution. Adopting an overly adversarial approach may not get the best outcome in a particular case, nor in the long run. There are many competing factors which regulators must carefully weigh in order to get the best outcome,” he added.
Unlike, Jacobson, Bartlett thinks that the getting ASIC in position to ‘appropriately use its suite of enforcement tools’ may have some impact on misconduct in the corporate environment, but he suggested that there were some potential obstacles that need to be considered.
“First, ASIC needs to ensure it has the evidence required to meet the standard of proof for criminal proceedings. This can at times be challenging when prosecuting corporations. If a regulator has a poor track record of success in criminal prosecutions that can set the foundations for a host of problems. For that reason, many regulators opt for civil proceedings where the standard of proof required is lower.
“Second, proceedings need to be commenced and finalised in a timely manner. The increase in funding to the CDPP and Federal Court will help in that regard.
“Third, the actual penalties imposed need to be a deterrent. That is a function of two things: the legislated maximum penalty, and the penalty the court ultimately imposes. In a recent survey of Australian governance professionals, more than two-thirds of respondents expressed the view that fines and other monetary penalties imposed by courts for corporate and financial wrongdoing are inadequate. While that view prevails the effectiveness of criminal prosecution in reducing misconduct is questionable.”