BUSINESS REGULATION AND AUSTRALIA'S FUTURE Australian Studies in Law, Crime and Justice Wayward Governance: Illegality and its Control in the Public Sector by P.N. Grabosky Working Girls: Prostitute Women, their Life and Social Control by Roberta Perkins Casino Capitalism? Insider Trading in Australia by Roman Tomasic Women in Transition: Social Control in Papua New Guinea by Cyndi Banks Australian Studies in Law, Crime and Justice, Editorial Committee: Ms Christine Alder The University of Melbourne Dr Susan Armstrong University of New South Wales Dr John Braithwaite The Australian National University Professor Brent Fisse Department of Law University of Sydney Professor Fay Gale The University of Western Australia Professor Richard Harding The University of Western Australia Mr Gordon Hawkins University of Sydney Dr Ken Polk The University of Melbourne Dr Jocelynne Scutt Owen Dixon Chambers, Melbourne Dr Kate Warner University of Tasmania BUSINESS REGULATION AND AUSTRALIA'S FUTURE edited by Peter Grabosky and John Braithwaite Australian Institute of Criminology ###Australian Institute of Criminology 1993 The Criminology Building 4 Marcus Clarke Street Canberra ACT This book is copyright. Apart from any fair dealing for the purpose of private study, research, criticism or review, as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission. Inquiries should be made to the publisher. National Library of Australia Cataloguing-in-Publication entry Business regulation and Australia's future. Bibliography. Includes index. ISBN 0 642 18453 4. 1. Trade regulation - Australia. 2. Business - Australia. 3. Industry and state - Australia. I. Grabosky, Peter N. (Peter Nils), 1945- II. Braithwaite, John. III. Australian Institute of Criminology. (Series : Australian studies in law, crime and justice). 343.9407. Editing, typesetting and design by Angela Grant, Publications Program Australian Institute of Criminology Index by Andrea Becker, assisted by Angela Grant Printed by Robert Burton Printers Pty Limited, Sefton, NSW PREFACE he contributions to this volume were originally presented at a T conference on The Future of Regulatory Enforcement in Australia, convened by the Australian Institute of Criminology and the Australian National University in Sydney during March 1992. The editors wish to express their gratitude to the Institute for supporting the conference, and to the contributors for their cooperation throughout the venture. The conference was part of the Australian Institute of Criminology's long standing commitment to upgrading the quality of policy deliberation on questions of regulatory enforcement in Australia. For the Australian National University, this conference was part of the fundamental rethinking of Australia's future for the project coordinated by the Research School of Social Sciences, 'Reshaping Australian Institutions: Toward and Beyond 2001'. Canberra December 1992 v CONTRIBUTORS Robert Baxt Partner Arthur Robinson and Hedderwicks Trevor Boucher Commissioner of Taxation John Braithwaite Professor Research School of Social Sciences The Australian National University Bill Coad Director Cash Transaction Reports Agency Graeme Davidson Assistant Director of Public Prosections (Commonwealth) Brent Fisse Professor of Law University of Sydney Peter Grabosky Director of Research Australian Institute of Criminology Neil Gunningham Professor of Law Centre for Environmental Law and Policy Australian National University Tony G. Hartnell Chairman Australian Securities Commission Joseph P. Longo Partner Parker and Parker, Solicitors vii John Martin Executive Director Confederation of Australian Industry Eric Mayer Chairman of Trustees Committee for Economic Development of Australia Patrick McDonnell Deputy Director Cash Transaction Reports Agency Albert J. Reiss, Jr. William Graham Sumner Professor of Sociology Yale University Michael Rozenes, Q.C. Commonwealth Director of Public Prosecutions Ray Schoer Director, Operations Australian Stock Exchange Clifford Shearing Professor of Criminology and Sociology University of Toronto John Tamblyn First Assistant Commissioner Trade Practices Commission Roger Wilkins Director-General NSW Cabinet Office viii CONTENTS Preface v Contributors vii Chapter 1 Introduction 1 Peter Grabosky, Clifford Shearing & John Braithwaite Chapter 2 Australian Regulatory Enforcement in Comparative Perspective 9 Peter Grabosky Chapter 3 Regulatory Enforcement by the Australian Securities Commission: An Inter-Relationship of Strategies 25 Tony Hartnell Chapter 4 The Powers of Investigation of the Australian Securities Commission: Balancing the Interests of Persons and Companies under Investigation with the Interests of the State 43 Joseph P. Longo Chapter 5 A Constitutive Conception of Regulation 67 Clifford D. Shearing Chapter 6 Responsive Regulation for Australia 81 John Braithwaite ix Chapter 7 The Role of Regulatory Enforcement in the Australian Economy 97 Eric Mayer Chapter 8 Self-Regulation and the Australian Stock Exchange 107 Ray Schoer Chapter 9 Thinking about Regulatory MixCompanies and Securities, Tax and Trade Practices 117 Robert Baxt Chapter 10 Thinking about Regulatory MixRegulating Occupational Health and Safety, Futures Markets and Environmental Law 133 Neil Gunningham Chapter 11 Progress Towards a More Responsive Trade Practices Regulatory Strategy 151 John Tamblyn Chapter 12 Making the Giant Competitive rather than CrushingIndustry Perspectives on Regulation Enforcement 169 John Martin Chapter 13 The Problems of Duplication and Inconsistency of Regulation in a Federal System 181 Roger Wilkins x Chapter 14 Detecting, Investigating and Regulating Business Law-Breakers 189 Albert J. Reiss, Jr Chapter 15 New Strategies for the Control of Illicit Money Laundering 201 Bill Coad & Patrick McDonnell Chapter 16 Risk Management on a Market Segmented Basis 231 Trevor Boucher Chapter 17 Prosecuting Regulatory Offenders 245 Michael Rozenes, QC & Graeme Davidson Chapter 18 Rethinking Criminal Responsibility in a Corporate Society: an Accountability Model 255 Brent Fisse Index 269 Index to Cases 275 xi Chapter One Introduction Peter Grabosky, Clifford Shearing & John Braithwaite ustralia is in the midst of dramatic change in the relationship between A government and business. Regardless of which side of politics governs at state or federal levels, it has become quite clear that the major challenge facing our nation as the next century approaches is to ensure Australian competitiveness in the world economy. To this end, gratuitous intervention in the business of business is something to be avoided. At the same time, there must be some safeguards to ensure that the 'public interest' is not threatened. Recent history is littered with examples of 'market failure', where tremendous harm has been done to the public interest as a result of unrestrained economic activity¾activity which, one might add, was not necessarily productive. The entrepreneurial excesses of the 1980s cost Australia dearly. Australian entrepreneurs became the butt of jokes in international financial circles, and Australian capital markets suffered accordingly. We are still picking up the pieces. 'Market failure' is manifest in other areas as well. Because of undisciplined management, soil degradation has brought about the destruction of a significant proportion of Australia's land which had been used for grazing and agriculture. Unrestrained exploitation of south- eastern fisheries has brought about significant retraction of the fishing industry. Public discourse on regulatory enforcement tends to shed more heat than light. From some quarters, one hears rhetoric denouncing business regulation as strangling the economy; from others, one hears regulation described as the connective tissue of civilisation as we know it. This volume, based on contributions from leaders in business, government and the academy, seeks to transcend such rhetoric. A dominant theme in many of the chapters which follow is the principle that the most effective and efficient means of ensuring responsible corporate citizenship lies in prevention, rather than response after the fact. To harness and to structure markets and corporate responsibility in a manner which would inhibit business illegality while 2 Business Regulation and Australia's Future continuing to foster business enterprise, is vastly preferable to rule book enforcement. To encourage and to reward responsible self-regulatory initiatives is often preferable to enlarging the often cumbersome and costly apparatus of command and control regulation. A number of contributors to this volume point to the constructive role which members of the public can play in enhancing the effectiveness of regulatory policy. The initial chapter sets out the general background for Australian business regulation, and contrasts the Australian style of regulation with those of our major trading partners. It is suggested that Australia is situated between the extreme adversarial style of regulation which characterises the United States, and the more cooperative and consensual style of regulation prevailing in the United Kingdom and Japan. The chapter by Tony Hartnell, Chairman of the Australian Securities Commission (ASC), describes the regime of regulation established by the recent successor to the former cooperative scheme for companies and securities regulation. The ASC's predecessor was plagued by inadequate resources and by the constraints arising from having to operate