Banning orders and infringement notices
5.1
A number of inquiry participants raised with the committee the use and
duration of banning orders and disqualification orders in relation to white-collar
crime and misconduct.
5.2
While inquiry participants broadly agreed on the value of banning orders
as part of wider penalty framework, some participants suggested reforms that
would enhance their effectiveness in combating white-collar crime and
misconduct. This chapter summarises the views expressed by inquiry participants
in this regard.
5.3
This chapter also considers the current arrangements for the use of
infringement notices, and whether ASIC is effectively and appropriately
employing this particular part of the enforcement toolkit to combat financial and
corporate misconduct.
Importance of banning and disqualification orders
5.4
ASIC is responsible for regulating persons who carry on a financial
services business in Australia, including licensing those persons and
monitoring their ongoing compliance with licence and other legal obligations.[1]
As noted in chapter 2 (Table 1), ASIC can take administrative action to protect
consumers and financial investors, including: disqualifying a person from
managing a corporation; banning a person from providing financial services or
engaging in credit activities; or revoking, suspending or varying the
conditions of a licence (with or without a hearing).[2]
This part of the report summarises those powers, and considers whether they are
appropriate and adequate in combating white-collar crime and misconduct.
Banning orders
5.5
ASIC's power to make a banning order is contained in s920A of the
Corporations Act. As ASIC explains in Regulatory Guide 98: Licensing:
Administrative action against financial service providers, a banning order
is:
...a written order by us that prohibits the banned person from
providing financial services, whether as an AFS licensee or as a representative
of such a licensee. We can make an order that either prevents a person from
providing all financial services, or from providing specified financial
services, in specified circumstances. A banning order may be permanent or for a
specified period.[3]
5.6
On the whole, inquiry participants were agreed as to the importance of
banning orders as part of the enforcement toolkit.
5.7
HNAB-AG suggested that banning orders issued on a zero tolerance basis
for offenders in a given industry would help prevent illegal phoenix activity
and 'avert people [offenders] being moved around within an institution or onto
another'.[4]
5.8
The LCA told the committee that the use of banning orders had been
effective in the approximately 20 years they had been in use:
We believe that when you look at the sorts of banning orders
courts have imposed in the area of white-collar crime generally you see a range
from zero to 20 years, depending on the nature of the offence. We believe that
that has worked well and does not require any tinkering.[5]
5.9
The LCA also noted that the imposition of a banning order could have
serious reputational consequences in Australia, which added to their efficacy.[6]
Disqualification orders
5.10
ASIC also has a power to disqualify a person for managing a corporation
for up to 5 years under s206F of the Corporations Act. On application by ASIC,
a court may also disqualify a person from managing corporations for a period
under s206C of the Act. A person is automatically disqualified from managing
corporations they are convicted of certain offences, are an undischarged
bankrupt, or in certain other situations set out in s206B of the Act, although
ASIC or a court can allow the person to manage a company under s203B of the
Act. As noted below, disqualification orders can also be issued under other
legislative instruments, including under competition law.
5.11
Several inquiry participants highlighted the importance of
disqualification orders. Noting that disqualification orders can be issued by a
court for breaches of the Competition and Consumer Act or the Australian
Consumer Law, the ACCC submitted:
The ACCC considers the imposition of a disqualification order
to be an important remedy, as it restricts a person from managing a company and
sends a strong message to other potential offenders that there are consequences
for misconduct.[7]
5.12
Appearing before the committee, Mr Bezzi from the ACCC emphasised the
power disqualification orders could have:
We have also had disqualification orders in competition
cases. They are quite common. And I can tell you that they are a very powerful
sanction. I have sat across the table from people who have said to me: 'I'll
pay more fine. I'll give you another $100,000. Just reduce the disqualification
period.' I think they work very well.[8]
5.13
ARITA argued that non-monetary penalties should be given greater
prominence in insolvency cases. For instance, directors would be more likely to
meet their obligations to a liquidator when confronted with the possibility of
an order that prevented them for acting as a director of another company, as
opposed to paying a relatively small monetary penalty.[9]
5.14
ARITA noted that a streamlined director disqualification regime had been
proposed in the exposure draft of the Insolvency Law Reform Bill 2013.
According to ARITA, this streamlined approach would have applied in instances
where directors failed to comply with demands by external administrators to
deliver the company's books and records and to provide a report as to affair
(RATA). ASIC would have been able to use this new process as either an
alternative to, or addition to, criminal prosecution. ARITA explained:
ASIC would provide a warning and then formally demand
compliance by the director. If the director did not comply and did not provide
a reasonable excuse, the director would automatically become disqualified from
managing corporations until one of a range of factors occurred, including
compliance with the notice.[10]
5.15
However, as ARITA notes, this reform was subsequently removed from
subsequent drafts of the bill.[11]
5.16
A different matter was raised by Dr Overland, who expressed concern
about the practice of courts granting leave from automatic disqualification
orders. Referring to persons convicted of insider trading in criminal
proceedings, Dr Overland noted that such persons are subject to an automatic
disqualification from managing a corporation. However, a court can grant leave
to allow the person to manage a corporation. For example, despite his
conviction for insider trading, former director and chairman of Gunns Limited,
Mr John Gay, was granted leave to manage two family companies, despite ASIC
opposing his application to do so.[12]
In order to prevent this happening, Dr Overland recommended legislative reform
so that 'a court may only grant such leave if satisfied that the offender is
otherwise subject to a penalty of appropriate personal and general deterrence'.[13]
5.17
Appearing before the committee, Dr Overland reiterated her concerns in
this regard:
In addition to that, the issue of disqualification,
particularly automatic disqualifications that apply when a person is convicted
of a crime that has a maximum sentence under the Corporations Act of more than
12 months, I do find it concerning that leave can be granted and people
committed to manage corporations when they would otherwise be automatically
disqualified and that particular consideration should be given as to whether limitations
should be imposed on that.[14]
5.18
Dr Overland also noted that there is currently no automatic
disqualification from managing corporations for persons found liable for
insider trading in civil proceedings. Dr Overland recommended that the same
form of disqualification apply where a person is found liable for insider
trading in civil penalty proceedings as applied when they were convicted of
insider trading in criminal proceedings—that is, that they be subject to
automatic disqualification.[15]
ASIC's banned and disqualified
register
5.19
ASIC maintains a register of people and organisations who have been
subject to banning orders or disqualification orders, using information drawn
from a number of other registers. It includes information on persons who have been:
-
disqualified from involvement in the management of a corporation;
-
disqualified from auditing self-managed superannuation funds
(SMSFs); or
-
banned from practicing in the financial services or credit
industry.[16]
5.20
Some of the information on the register can be viewed for free—for
instance, the name of the person, type of banning or disqualification, date of
commencement and (if temporary) cessation. Further information from the
register can be purchased.[17]
5.21
The Centre for Corporate Law and Securities Regulation (CCLSR) suggested
that while banning orders constituted one of ASIC's most coercive powers, there
was little public information available regarding their use or duration. The
CCLSR noted, for example, that while the ASIC website does allow the user to search
for banned and disqualified persons (that is, via the register), they can only
do so if they already know the name of the individual for whom they are
searching. As such, the CCLSR recommended that ASIC:
...should establish an online and free-of-charge public
register of banning orders imposed by ASIC that can be both browsed and
searched using key terms, similar to ASIC's enforceable undertakings register'.[18]
5.22
According to the CCLSR, the establishment of a register of this sort
would help improve fairness and accountability in relation to ASIC's use of its
power. Moreover, it would help promote general deterrence by sending 'a
stronger signal to the market that ASIC is taking administrative enforcement
action seriously, both in terms of [the] frequency and magnitude of bans'.[19]
Committee view
5.23
The committee notes the issues raised by CCLSR in relation to the banned
and disqualified register maintained by ASIC. While the committee did not
consider the matter at any length in the inquiry, it considers that there would
be merit in further considering enhancing the access to and usability of the
register. This would likely help improve transparency regarding the use of
disqualification and banning orders in Australia, and also better enable
consumers and other interested parties to access information about people and
organisations that have engaged in misconduct serious enough to warrant a
banning or disqualification order.
Recommendation 2
5.24
The committee recommends that the Australian Securities and Investments Commission
consider ways in which the accessibility and usability of the banned and
disqualified register might be enhanced, in order to create greater
transparency regarding banning and disqualification orders.
Infringement notices
5.25
Another administrative action that ASIC can take against financial
service providers is the issuance of an infringement notice.
5.26
Infringement notices, as explained in Information Sheet 151: ASIC's
approach to enforcement, are administrative actions administered by ASIC
or, with ASIC's authority, the Markets Disciplinary Panel.[20]
There are a number of different infringement notice regimes with differing
levels of potential penalty, as set out below in Table 5.1.
Table 5.1: Types of
infringement notice
| For contraventions of: |
Features |
Issued by |
| ASIC Act (unconscionable
conduct and consumer protection provisions) |
These notices are intended to facilitate payment of relatively small
financial penalties in relation to relatively minor contraventions. |
ASIC |
| National Credit Act |
ASIC |
| Market integrity rules |
These notices can impose
higher financial penalties, reflecting the potentially greater impact on the
market of the conduct involved. They can only be issued after a formal
opportunity to present their case is offered to the recipient. Notices for
breaches of the market integrity rules can extend to compliance and conduct
direction. |
MDD |
| Corporations Act (continuous disclosure obligations) |
ASIC |
Source: Australian Securities and Investments Commission, Information
Sheet 151: ASIC's approach to enforcement, p. 7.
5.27
Where an infringement notice is complied with (for example, where the
penalty is paid) no further regulatory action can be taken in relation to the
breach. However, if the infringement notice is not complied with, ASIC is able
to bring a civil penalty action against the notice recipient.[21]
5.28
In its submission, ASIC notes that infringement notices provide 'a
prompt and proportionate means of enforcing the law', particularly when the
more serious action for suspending or cancelling an AFS license appears
disproportionate to the breach in question.[22]
5.29
However, ASIC also advised that while infringement notices are part of
ASIC's enforcement toolkit in relation to breaches of the market integrity
rules and continuous disclosure obligations, 'they are not currently available
to us for breaches of the financial services and managed investments provisions
of the Corporations Act, among others'.[23] ASIC suggested that
introducing a broader infringement notice regime alongside existing remedies
would provide a useful enforcement tool to respond to misconduct at the lower
end of the scale where:
- a
higher volume of cases is expected, relative to instances of more serious
misconduct;
- an
assessment of whether misconduct has occurred depends on relatively
straightforward and objective criteria; and
- a
penalty must be imposed as soon as possible in order to be effective.[24]
5.30
ASIC explained that in many cases, when an AFS licensee does not comply
with its obligations, the only enforcement remedy available to ASIC is to
suspend or cancel on AFS licence, even though an infringement notice would be a
more proportionate and appropriate response. Banning orders, ASIC explained:
...is not appropriate for the vast majority of cases where
misconduct is of low to medium severity, and where suspending or cancelling a
licence would have significant adverse consequences for the licensee, its
clients, employees and other representatives, and would be disproportionate
with the nature of the breach. This means that we do not have the means to
respond effectively and in a timely manner to less serious misconduct, which
could escalate into more serious breaches.[25]
5.31
In contrast to ASIC's arguments regarding the value and utility of
infringement notices, the LCA told the committee that it did not support the
use of infringement notices in relation to white-collar crime, and noted that
its concerns were shared in this regard by the Australian Law Reform Commission:
Infringement notices in the area of white-collar crime have
been a contentious issue. We as a body have always opposed the use of
infringement notices. We believe it is lazy regulation. It does not involve a
finding of culpability. It does not provide guidance to the community as to
what conduct should be proscribed or not. We note that the Australian Law
Reform Commission does not support infringement notices in areas such as this,
and we would continue our opposition to infringement notices and our opposition
to a broadening of the application of infringement notices in the corporations
context.[26]
Committee view
5.32
While noting the Law Council of Australia's views regarding infringement
notices, the committee agrees with ASIC that infringement notices provide a
valuable enforcement tool for responding to less serious instances of corporate
and financial misconduct.
5.33
The committee agrees with ASIC that there may be value in making
infringement notices available for breaches of the financial services and
managed investments provisions of the Corporations Act.
Recommendation 3
5.34
The committee recommends that the government consider making
infringement notices available to the Australian Securities and Investments
Commission to respond to breaches of the financial services and managed
investments provisions of the Corporations Act.
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