Penalties for White Collar Crime: Senate Report of March 2017

 ASIC, Offences, Regulation, White collar crime  Comments Off on Penalties for White Collar Crime: Senate Report of March 2017
May 292017
 

crime-cloud

Inquiries by Parliamentary committees can be a waste of everyone’s time. The Senate’s Inquiry into criminal, civil and administrative penalties for white collar crimes is a good example.

It began in November 2015 and ended in March 2017 (after pausing for 5 months because of the  election). It received 139 submissions, 2 lots of “additional information”, and had a public hearing at which 23 witnesses appeared. It’s report, which carries the grandiose title “Lifting the fear and suppressing the greed” (23 March 2017), runs to 108 pages. The committee said:

“A clear message to the committee from inquiry participants was that white-
collar crime and misconduct can cause serious harms, both at the individual level and
in the community as a whole.”

But despite this statement and the enormous amount of work that went into making submissions, conducting the inquiry and writing the report, media coverage has been almost non-existent. Perhaps news editors thought the subject matter was fairly dry, and/or that the report’s  recommendations were not particularly noteworthy or inspiring or controversial.  Such a conclusion would be understandable. To which I would add, that the report is unlikely to have much of an impact on how we deal with white collar crime.

 THE COMMITTEE’S RECOMMENDATIONS
Recommendation 1 That the government consider reforms to provide greater clarity regarding the evidentiary standards and rules of procedure that apply in civil penalty proceedings involving white-collar offences. paragraph 3.52
Recommendation 2 That the Australian Securities and Investments Commission (ASIC) 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. paragraph 5.24
Recommendation 3 That the government consider making infringement notices available to the ASIC to respond to breaches of the financial services and managed investments provisions of the Corporations Act. paragraph 5.34
Recommendation 4 That the government amend the Corporations Act 2001 to increase the current level of civil penalties, both for individuals and bodies corporate, and that in doing so it should have regard to non-criminal penalty settings for similar offences in other jurisdictions. paragraph 6.55
Recommendation 5 That the government provide for civil penalties in respect of white-collar offences to be set as a multiple of the benefit gained or loss avoided. paragraph 6.56
Recommendation 6 That the government introduce disgorgement powers for the ASIC in relation to non-criminal matters. paragraph 6.57

The committee’s full report is available for viewing and download at the committee’s Parliament of Australia website.

Incidentally, insolvency practitioners will be disappointed that there are so few references in the report to insolvency and liquidation, although potentially recommendation 4 could have an impact in corporate insolvency.

The next part of this blog post contains extracts which reveal “The Committee’s Views”  and the “Table of Contents of Report”.

Continue reading »

Feb 252017
 

Melb Uni
Researchers at Melbourne University have issued their third and final report on investigations into insolvency fraud committed through the use of phoenix companies.

The 162 page report, issued on 24 February 2017, is titled Phoenix Activity: Recommendations On Detection, Disruption And Enforcement.

In the Executive Summary the authors state:

Harmful phoenix activity, left unchecked, has the capacity to undermine Australia’s revenue base and the competitive ‘level playing field’. It is wrong that legitimate business operators, paying taxes, wages and other debts, might be driven out of business by those engaging in harmful phoenix activity. Minimising business distrust caused by harmful phoenix activity can lower the cost of finance and make it more widely available. If less tax revenue is fraudulently avoided, the economy and society as a whole benefit. If fewer employee entitlements are lost as a result of harmful phoenix activity, there is likely to be less reliance on the Fair Entitlements Guarantee, freeing up government resources for other purposes.

What was described in earlier reports as “fraudulent phoenix activity” is described in the final report as “harmful phoenix activity”.

CLICK HERE to read and/or download a copy of the report.

The authors are Professor Helen Anderson, Professor Ian Ramsay, Professor Michelle Welsh and research fellow Mr Jasper Hedges.

Their Phoenix Project (“Phoenix Activity: Regulating Fraudulent Use of the Corporate Form”) “seeks to enhance Australia’s economic stability by determining the best methods of addressing fraudulent use of the corporate form without unduly inhibiting its proper use”. The project was launched in 3 years ago.

Analysis and highlights of the report will be posted here in due course.


Jan 192017
 

drawing-sorry

Boo Hoo

In March 2016 I lodged a submission with the Senate Standing Economics References Committee which is inquiring into penalties for white collar crime in Australia. However, for reasons which remain a mystery (probably just an administrative stuff-up), my submission did not make it to the committee, and so is not published on the Inquiry’s website with the other 139 submissions appearing there (at 19 Jan 2017).

The 139 submissions are listed (and publicly available) on two web pages:

Although my submission didn’t contain any astonishing revelations or brilliant insights, a considerable amount of thought and work went into creating it, and the facts and ideas it contains are probably worth considering. Therefore, I’ve decided to publish most of the submission here, just for the record.(The Senate Committee is due to report by 28 February 2017.)

OFFENCES IN CORPORATE INSOLVENCY

The committee is looking at penalties for white-collar crime in general. The focus of my submission was the field of corporate insolvency and the penalties for white collar crimes committed by directors of insolvent companies. Continue reading »

May 212015
 

Slap with feather … (updated 4 December 2015)

Case 3

Australian Financial Security Authority – Media release: (NSW) Hull – Bankrupt pleads guilty to three offences under the Bankruptcy Act

Wed 02 December 2015

A man was sentenced for disposing of property within 12 months prior to becoming a bankrupt with intent to defraud his creditors and having made a false declaration on his Statement of Affairs. Mr Denis John Hull was sentenced in the Downing Centre Local Court on 24 November 2015 following a guilty plea being entered to having disposed of property within 12 months prior to becoming a bankrupt with intent to defraud his creditors and to having made a false declaration on his Statement of Affairs.

On 31 March 2012 Mr Hull received a total of $21,175.44 from the sale of two parcels of shares authorised for sale on 26 March 2012. On 10 April 2012 he became bankrupt via Debtor’s Petition, by which time he had disposed of monies totalling $16,000 received from the sale of shares. In his Statement of Affairs completed on 5 April 2014, Mr Hull failed to disclose the sale of the two parcels of shares, and failed to disclose the existence of the bank account into which the share proceeds were subsequently deposited.

During the proceedings Magistrate Milledge remarked that the offending was “quite deceitful and very worrying”. She later stated that the offending was “despicable, mean and criminal”, but acknowledged that it was clear that Mr Hull accepted that as demonstrated in his letter to the court. In passing sentence, Magistrate Milledge gave consideration to Mr Hull’s age at the date of the offending; the fact that he had previously managed to lead a trouble free life; and that his recent efforts to repay the monies showed remorse; and remarked that it was her view that whilst there was serious criminality she saw it as something that was done at a critical place in life and understood that this was why Mr Hull had done what he had done, noting that this did not excuse the offending.

Mr Hull was sentenced and was ordered to enter into a 2 year good behaviour bond in the amount of $200 with nil conviction to be recorded pursuant to Section 19B(1)(d) Crimes Act 1914. Magistrate Milledge noted that no restitution order would be made as this was being taken care of.

The matter was prosecuted by the Office of the Commonwealth Director of Public Prosecutions.;


Amazing … (updated 11 August 2015)

Case 2

Australian Financial Security Authority – Media release: (TAS) Smith – Discharged bankrupt faces court and imprisonment for failing to disclose financial details and withdrawing cash of $72,600

Thu 06 August 2015

A dairy farmer formerly of King Island, Dominic Luke Smith was prosecuted in the Launceston Court of Petty Sessions on 24 July 2015 for removing $72,600 from his bank accounts in 2012, prior to and just after the date of bankruptcy.
Mr Smith also failed to keep appropriate books and records relating to his business transactions for five years prior to his bankruptcy and failed to disclose information as required by the trustee. Mr Smith was not able to account for how he spent a $100,000 loan and failed to produce bank account statements and cheque butts when requested by his bankruptcy trustee. Mr Smith pleaded guilty to 15 offences under the Bankruptcy Act and was sentenced to a total effective sentence of 4 months’ imprisonment, released on a $1,000 two-year good behaviour bond. The matter was prosecuted by the Office of the Commonwealth Director of Public Prosecutions.

Case 1

Australian Financial Security Authority – Media release NSW (McElwaine) – Nine-month bond for offence against the Bankruptcy Act

Thu 14 May 2015

A NSW woman has pleaded guilty to gambling away more than $137,000 from the sale of her property rather than paying creditors before declaring bankruptcy with debts of $438,000. Dee Why resident Bridgett McElwaine was sentenced in the Downing Centre Local Court on 12 May 2015 after pleading guilty to an offence against the Bankruptcy Act. Ms McElwaine filed for voluntary bankruptcy in October 2012 with debts of $438,000 mostly from the use of 22 credit cards. Before her bankruptcy, Ms McElwaine had received proceeds of more than $137,000 after selling her property in Frenchs Forest, NSW. She withdrew more than $96,000 in the 12 months before her bankruptcy and told the court she ‘blew the lot’ on gambling instead of making the money available to her creditors. In sentencing Magistrate Goodwin noted a jail term was available for Ms McElwaine’s serious offence and that a clear message needed to be sent to the community about the unacceptable nature of that behaviour. Ms McElwaine was convicted and placed on a nine-month good behaviour bond, recognisance of $500 and to accept Community Corrections Service supervision. The case was prosecuted by the Office of the Commonwealth Director of Public Prosecutions.Media release NSW (McElwaine) – Nine-month bond for offence against the Bankruptcy Act


 

Feb 192014
 

In today’s opening statement to the Senate inquiry into the performance of the Australian Securities and Investments Commission (ASIC), the Chairman of ASIC, Mr Greg Metcalf, has called for greater penalties for breaches of corporate law and has strongly defended ASIC staff.

Greg Metcalf

Greg Metcalf, ASIC Chairman

On Penalties

“On the topic of penalties, I would like to say a little more.

There is an expectation among the public that we will take strong action against wrongdoers – and doing this will send a message that shapes future behaviour. However, one of the barriers we face to achieving this is the inadequacy of penalties.

We have outlined some of these inadequacies in our main submission. They include the fact that:

  • some comparable criminal offences currently attract inconsistent penalties
  • civil penalties:
    • are currently set too low
    • are not available for a sufficiently wide range of misconduct
  • lastly, we require a more graduated set of penalties to provide an effective enforcement response in a wider range of cases.

We consider that this includes the greater availability of infringement notice powers.

It is frustrating – both for us and the public – when the penalty available to respond to misconduct is much less than the profit someone made in the process.  If this is so, then rational players in the market will routinely take that risk.  If the thinking of law-breakers is a tussle between fear versus greed, then we need penalties that amplify the fear and smother the greed.

We need penalties that create a fear that overcomes any desire to take risks and break the law.”;

On ASIC staff

“Chairman, one disappointing thing about some of the submissions was the inflammatory tone of criticisms made – particularly about ASIC staff.

ASIC has exceptional employees. They are men and women who work at ASIC for good reason. This is because they believe in the public interest. They are skilled and committed to their work. Considering the difficult job they do, they should receive appropriate respect.

Our people have diverse backgrounds – they have experience in law, accounting and financial services. Many have invaluable industry or consumer advocacy experience. This means they understand how markets work and the issues facing investors, consumers and the wider industry.

ASIC employees also undertake ongoing internal training and have access to industry secondment programs, which further develop their skills.

All of these things make our people highly sought after by the private sector and internationally by other regulators.”

ASIC logo
 SOURCE: These are extracts from an ASIC document dated 19 February published on the ASIC website.  The subtitle is “Speaking notes from Greg Metcalf, Chairman, ASIC”.  To see CLICK HERE.
Sep 292011
 

The Senator who instigated the Senate Economics References committee inquiry into the role of administrators and liquidators has called for a Royal Commission into white collar crime. 

Senator John Williams, the Nationals Senator for New South Wales, has congratulated the Armidale Dumaresq Council for supporting his call.  Senator Williams said yesterday (28/9/2011) that Armidale Dumaresq Council has first-hand knowledge of the damage that can be done to community assets through unscrupulous practices of some in the insolvency industryThe YCW Leagues Club in Armidale was the victim of the administration of Newcastle liquidator Stuart Ariff who this week was found guilty on 19 criminal charges relating to a separate matter.

Senator Williams said the Council’s submission to the 2009 Senate inquiry was damning of the Australian Securities and Investments Commission (ASIC) for a lack of action. Since then, Armidale Dumaresq Council Deputy Mayor Jim Maher has been keen to see reform in the insolvency industry, and successfully moved two motions.

On 21 September 2011 Senator Williams called for a Royal Commission into white collar crime in Australia, and handed a file of statutory declarations alleging wrongdoing to the Australian Federal Police and the NSW Fraud Squad.

“Unfortunately there is no confidence in the industry regulators like ASIC anymore. Mr. Ariff is a case in point. I hope the Federal government acts on white collar crime because it is destroying peoples’ lives. To do nothing would be a green light for the illegal activities to continue”, Senator Williams said.

SOURCE: MEDIA RELEASE BY SENATOR JOHN WILLIAMS, 28 September 2011. Click here for  Senator William’s Website.

Sep 272011
 

On 26 September 2011 former liquidator Stuart Ariff was  found guilty of various charges brought under the NSW Crimes Act and the Corporations Act. The Australian Securities and Investments Commission has  issued the following media release.  (The photo of Mr Ariff is from The Australian.)

“Former liquidator Stuart Ariff was today found guilty by a jury in the New South Wales District Court on all 19 criminal charges brought by ASIC. The offences relate to Mr Ariff’s conduct while he was the liquidator of HR Cook Investments Pty Ltd (in liquidation) (“HR Cook Investments”) during the period 9 June 2006 to 29 March 2009. Mr Ariff was found guilty on 13 charges under section 176A of the NSW Crimes Actconcerning the transfer of funds totalling $1.18 million with intent to defraud HR Cook Investments. Mr Ariff was also found guilty on six charges under section 1308(2) of the Corporations Act 2001of making false statements in documents lodged with ASIC recording receipts and payments relating to HR Cook Investments. The NSW Crimes Act charges each carry a maximum penalty of 10 years imprisonment. The Corporations Act 2001 charges each carry a maximum fine of $22,000 or imprisonment for five years or both.

Mr Ariff’s conditional bail was revoked and he was remanded into custody. The matter will return to Parramatta District Court on 25 November 2011 for sentencing.

The matter was prosecuted by the Commonwealth Director of Public Prosecutions.”

Apr 122011
 

“When ITSA (the Insolvency and Trustee Service Australia)  identifies criminal behaviour such as this, it will investigate the matter and pursue the offender to the full extent of the law”.   So said Mr Jeff Hanley, Assistant National Manager of ITSA’s Enforcement unit in a media release commenting on the case of Mr Peter David Wilson of Sea Lake, Victoria.

While ITSA may well pursue offenders to the full extent of the law, the sentence in the Wilson case again raises the question of whether, generally speaking, the judiciary in Australia  regards bankruptcy offences as relatively trivial.

Mr Wilson’s crime was that he signed a Statement of Income declaring his annual income to be significantly less than he earned. In support of this false Statement of Income he provided an Australian Taxation Office Notice of Assessment which, enquiries revealed, he had altered to show a taxable income that was less than it actually was.

As required by the Bankruptcy Act, Mr Wilson had been making fortnightly income contributions.  But he fell behind in the payments. When requested by his Trustee to complete an Annual Statement of Income Mr Wilson “saw a way of not having to make the contributions by falsely lowering his annual income to his Trustee”.

“This offender deliberately fabricated documents to avoid disclosing his true income and therefore pay less by way of a return to his creditors” said Mr Hanley.

“In a Record of Interview with ITSA Investigators, Wilson made full and frank admissions about his offending – stating he intentionally altered the document so as to reduce his income for the purposes of not having to pay compulsory income contributions.”

The penalty? Mr Wilson pleaded guilty and was released on a $1000 recognisance to be of good behaviour for 12 months. A further condition imposed was that Wilson continue to make fortnightly payments in reduction of his debt to ITSA.

Of course, we do not know all the facts nor the character and circumstances of Mr Wilson at the time he appeared before the court.

But one wonders whether light sentences such as this would have any detterent effect at all on other would-be offenders with  fraudulent intent.

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Author: P Keenan 12/4/2011.   Disclaimer: The material published on this blog is general in nature. It is made available on the understanding that the Author is not thereby engaged in rendering professional advice.  Before relying on the material in any important matter, users should carefully evaluate its accuracy, currency, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.