CORPORATE CRIMINAL RESPONSIBILITY FINAL REPORT ALRC Report 136 April 2020 This Final Report reflects the law as at 1 April 2020. The Australian Law Reform Commission (ALRC) was established on 1 January 1975 and operates in accordance with the Australian Law Reform Commission Act 1996 (Cth). The office of the ALRC is at Level 4, Harry Gibbs Commonwealth Law Courts Building, 119 North Quay, Brisbane QLD 4000. Postal Address: PO Box 12953, George Street QLD 4003 Telephone: within Australia (07) 3248 1224 International: +61 7 3248 1224 Email: [email protected] Website: www.alrc.gov.au ALRC publications are available to view or download free of charge on the ALRC website: www.alrc.gov.au/publications. If you require assistance, please contact the ALRC. ISBN: 978-0-6482087-8-5 Commission Reference: ALRC Report 136, 2020 © Commonwealth of Australia 2020 This work is copyright. You may download, display, print and reproduce this material in whole or part, subject to acknowledgement of the source, for your personal, non- commercial use or use within your organisation. Requests for further authorisation should be directed to the ALRC. Printed by Fineline Print & Copy Service, NSW The Hon Christian Porter MP Attorney-General of Australia Parliament House Canberra ACT 2600 30 April 2020 Dear Attorney-General Review of the Corporate Criminal Responsibility On 10 April 2019, the Australian Law Reform Commission received Terms of Reference to undertake an inquiry into corporate criminal responsibility. On behalf of the Members of the Commission involved in this Inquiry, and in accordance with the Australian Law Reform Commission Act 1996 (Cth), I am pleased to present you with the Final Report on this reference, Corporate Criminal Responsibility (ALRC Report 136, 2020). Yours sincerely, The Hon Justice SC Derrington President Contents Contents 1 Terms of Reference 5 Participants 7 Acknowledgements 11 Recommendations 13 Outcomes 19 Glossary 21 Figures and Tables 23 1. Introduction 27 The Inquiry 27 Related inquiries 29 Economic contribution of corporations 30 Scope of this Inquiry 31 Focus of the Inquiry 36 Investigating corporate crime 44 Committal hearings 45 Process of reform 47 2. The Commonwealth Criminal Code 49 Introduction 49 The development of a Code 49 Chapter 1 of the Code 52 Chapter 2 of the Code 52 Part 2.2 of the Criminal Code — Offence structure 53 Part 2.5 of the Criminal Code — Corporate criminal responsibility 56 The exclusion of Part 2.5 from Commonwealth statutes and the alternative attribution model 66 2 Corporate Criminal Responsibility 3. Corporate Criminal Responsibility — the Data 69 Introduction 69 About the data 70 Commonwealth criminal law as it applies to corporations 73 Criminal prosecutions of corporate actors 96 Difficulties in accessing quantitative data relating to corporate criminal responsibility 117 4. Foundations of Corporate Criminal Responsibility 123 Introduction 123 The potential for misconduct in a corporate context 124 Capacity of a corporation to be criminally responsible 130 Historical development of methods of corporate attribution 139 Application of procedural and evidential rules to corporations 151 5. Principled Criminalisation 167 Introduction 167 Methods of corporate regulation in Australia 168 Effective corporate regulation 177 Principled criminalisation 178 Infringement notices and corporate criminal responsibility 205 Enhanced processes to facilitate principled recourse to corporate criminal responsibility 211 6. Corporate Attribution 217 Introduction 217 Single legislative attribution method for corporations 220 Attributing physical elements 224 Attributing fault — A single model 227 Option 1 — Modification of Part 2.5 233 Option 2 — A TPA Model approach 250 Aggregation 256 Reasonable precautions defence 259 Negligence and mistake of fact (strict liability) 266 Liability for civil penalties 267 Contents 3 7. Offences Specific to Corporations 269 Introduction 269 System of conduct offences 270 Failure to prevent offences 296 Duty-based offences 321 8. Sentencing Corporations 329 Introduction 329 Sentencing corporations: purposes and principles 331 Sentencing factors 336 Non-monetary penalties 347 A national debarment regime 362 Informed sentencing 366 Areas for further consideration 370 9. Individual Liability Mechanisms 379 Introduction 379 Corporate misconduct: role of individual liability 381 Corporate misconduct: modes of individual liability 387 Individual liability in the largest corporations 418 Striking the right balance on individual liability 434 Future directions 441 10. Transnational Business 445 Introduction 445 Failure to prevent offences for transnational crimes 447 The need for a holistic review of transnational crime 458 Priorities for further inquiry and consultation 468 A roadmap for Government 491 11. Further Reforms 493 Introduction 493 Deferred prosecution agreements 494 Deferred enforcement agreements for civil penalties 503 Whistleblower protections 505 Illegal phoenix activity 511 Appendix A Preliminary Consultations May–October 2019 517 Appendix B Consultations November 2019–March 2020 521 Appendix C Discussion Paper Proposals and Questions 525 Appendix D Comments on Terms of Reference 533 Appendix E Submissions to Discussion Paper 535 Appendix F Primary Sources 537 Appendix G Comparison of Attribution Methods 551 Appendix H Illustrative Amendments to Part 2.5 of the Criminal Code 553 Appendix I Recommendations 4–1, 5–1, 6–1, and 6–8 of ALRC Report No 103 559 Appendix J Example Extended Management Liability Provisions 563 Terms of Reference Review of Australia’s corporate criminal liability regime I, Christian Porter, Attorney-General of Australia, having regard to: y the corporate criminal responsibility regime in Part 2.5 of the Commonwealth Criminal Code contained in Schedule 1 of the Criminal Code Act 1995 (Cth) (‘the Code’); and, y the complexity of this regime and its challenges as a mechanism for attributing corporate criminal liability; REFER to the Australian Law Reform Commission (ALRC) for inquiry and report, pursuant to s 20(1) of the Australian Law Reform Commission Act 1996 (Cth), a consideration of whether, and if so what, reforms are necessary or desirable to improve Australia’s corporate criminal liability regime. In particular, the ALRC should review the following matters: y the policy rationale for Part 2.5 of the Code; y the efficacy of Part 2.5 of the Code as a mechanism for attributing corporate criminal liability; y the availability of other mechanisms for attributing corporate criminal responsibility and their relative effectiveness, including mechanisms which could be used to hold individuals (eg senior corporate office holders) liable for corporate misconduct; y the appropriateness and effectiveness of criminal procedure laws and rules as they apply to corporations; and y options for reforming Part 2.5 of the Code or other relevant legislation to strengthen and simplify the Commonwealth corporate criminal responsibility regime. Scope of the reference The ALRC should have regard to existing reports relevant to Australia’s corporate accountability system, including reports on: corporate misconduct; corporate criminal law; corporate governance; court procedure which applies in corporate enforcement actions; and law enforcement arrangements relating to corporate misconduct/crime. The reports which the ALRC should consider should include but not be limited to the: y 2019 Final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry; and 6 Corporate Criminal Responsibility y 2017 report of the ASIC Enforcement Review Taskforce. This review would encompass consideration of: y comparative corporate criminal responsibility regimes in relevant foreign jurisdictions; y potential application of Part 2.5 of the Code to extraterritorial offences by corporations; y consideration of possible alternatives to expanding the scope and application of Part 2.5 of the Code, such as introducing or strengthening other statutory regimes for corporate criminal liability; y consideration of whether Part 2.5 of the Code needs to incorporate provisions enabling senior corporate officers to be held liable for misconduct by corporations; y options for reforming Part 2.5 of the Code (or other corporate liability regimes) to facilitate implementation of the recommendations made by, or to address issues highlighted by, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and by the ASIC Enforcement Review Taskforce. Noting the Federal Court of Australia’s criminal jurisdiction, the review should consider the effectiveness of present Commonwealth criminal procedural laws with a focus on their interaction with state and territory criminal procedural law, particularly in relation to committal hearings. Consultation The ALRC should consult widely with: law enforcement authorities charged with policing and prosecuting corporate criminal conduct; courts; and other stakeholders with expertise and experience in the corporate law and white collar crime sectors. The ALRC should produce consultation documents to ensure experts, stakeholders and the community have the opportunity to contribute to the review. Timeframe for reporting The ALRC should provide its report to the Attorney-General by 30 April 2020. Participants Australian Law Reform Commission President The Hon Justice S C Derrington, Federal Court of Australia Part-time Commissioners The Hon Justice R J Bromwich, Federal