The winds of change are blowing when it comes to corporate criminal responsibility

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There are many adjectives you could pin on 2020, but uneventful isn’t one of them. It’s therefore unsurprising that most businesses probably haven’t paid close attention to the controversy over a range of legal reforms that have been simmering away in legal circles since November of last year. That was when the Australian Government appointed Australian Law Reform Commission (ALRC) released a discussion paper laying out potential – and, some would say, long-overdue – reforms of corporate criminal responsibility law.

It’s definitely unsurprising that this discussion paper proved contentious, given that it was itself one of the many offspring of another controversial reform document, the damning Hayne Commission report recommending sweeping reforms of the banking sector. That report revealed several acts of malfeasance on the part of some financial services companies, and made it inevitable that the question of corporate criminal responsibility would need to be revisited for the first time since 1995.

Corporations made criminally liable for any wrongdoing by rogue employees?

In the following ten months, many lawyers and law bodies have spoken out publicly about the proposed reforms, some in favour and some more critical, including the powerful Law Council of Australia. Arguably the most controversial reform was proposal eight, which “deems the conduct and state of mind of any “associate” to be that of the company”. As legal experts argued, this would make corporations criminally liable for any wrongdoing by rogue employees and increase costs for consumers. The prospect of a new and poorly defined legal risk alarmed many businesses who were paying attention.

On the last day of August, the final set of recommendations from the ALRC were finally published and the good news is that the Commission appears to have listened on this point. Proposal eight has been dropped from the final set of reforms that were tabled in Parliament. Elsewhere, there is much that businesses need to pay attention to, given the impetus behind these reforms and the strong likelihood that they will indeed lead to changes in laws and regulations.

At first, the news might seem alarming for businesses, given that – as Lawyers Weekly notes – the reforms are focused on “strengthening criminal action enforcement against corporations.” However, closer inspection reveals that this stronger stance will be mostly directed at large corporations indulging in the most appalling practices. In this sense, they remain true to the Hayne Commission report which first sparked the reforms into life. Given that some of the offences named include tax evasion, slavery, human trafficking, violation of foreign sanctions, torture, crimes against humanity, war crimes and financing of terrorism, it is to be hoped that most businesses will neither disagree with the reforms nor fear them.

Good news for small businesses?

There is, in fact, some good news for small and medium-sized businesses in that the reforms address the injustice that in the past it was more likely that a small corporation would be targeted for prosecution than a large corporation, with their armies of lawyers. The ALRC makes this absolutely clear in their report: “Small corporations are more likely to be targeted than large corporations, even though the wrongdoing of large corporations may potentially affect far more people.”

There is more good news for small and medium-sized companies. Currently, there is a bewildering range of laws that could potentially apply to businesses. The ALRC’s research identified over 3,100 criminal offences across 25 statutes, which create a significant regulatory compliance burden that impacts all enterprises. The reforms seek to simplify and streamline these laws, reducing the amount of red tape for businesses in the future. Another key recommendation is that there should be greater national consistency with respect to corporate criminal misconduct, something which has been needed in Australia for some time.

How does it impact organisations doing business overseas?

Unfortunately, if you are doing business overseas, the reforms may pose greater challenges. Partly as a result of transnational scandals, particularly in financial services, the reforms seek to beef up laws in this area. This will likely add greater responsibility to companies to ensure compliance with the laws against corporate misconduct not just in Australia but also overseas, which will mean a greater regulatory burden, not a lesser one.

Don’t think that this subject is closed now, however.  Although the Government has pledged to examine the reforms closely, this is likely to be a long process and – as Bennet & Co note – “all or none of the recommendations may be accepted and put into legislation”. If the reforms are adopted they will almost certainly require a major overhaul of Commonwealth legislation, something which is likely to generate further controversy. No matter what happens, smart businesses will need to keep an eye on the reforms as they proceed, or make sure they have legal advisers who monitor developments on their behalf. The winds of change are blowing when it comes to corporate criminal responsibility, and it’s always better to adjust your sails before those winds hit you than be caught by surprise and capsized.

Have any question about commercial law? Get in touch and one of our experienced and competent lawyers will be on your side. 

Mark Lazarus

Mark Lazarus

Mark Lazarus, the visionary behind the business and the fresh blood of the Lazarus Legal team, Mark (or Laz as he is often known) owes much of his success to his past experiences. And he’s made it his personal goal to bring that wisdom and formula to the firm.

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