I’m glad – if that’s the right term – that I managed to attend one of the public hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in the Federal Court building, just around the corner from Monash Law Chambers. Seated in the front row (between two Monash alumni and Rod Culleton, as it happens), I could get a real sense of the significance of what was unfolding.
Of course, I was watching the hearings online, and reading the transcripts, but there was something special and visceral about being present, if only for a few hours. Something about the formality of the setting and the process, Commissioner Kenneth Hayne’s interjections and expressions, and, in particular, Rowena Orr QC’s questioning of ANZ CEO Shane Elliott, brought home the importance of revealing and interrogating suspected wrongdoing and poor corporate cultures in public.
We all know by now that the banking royal commission unearthed and confirmed systematic, extensive harmful behaviours by banks. Often referred to euphemistically, and legalistically, as “misconduct”, the final report concluded that some practices clearly were criminal, though they were neither seen nor pursued as such.
It’s evident that ASIC was averse to litigation, prompting Commissioner Hayne to recommend that “the critical question whenever ASIC is considering any contravention of the law must be … ‘Why not litigate?’”.
ASIC’s preference has been for negotiation and settlement, meaning that the boundaries of the law in this space weren’t tested and that only the rarest, “safest” civil actions and prosecutions pursued. The regulator has been urged to reflect on why not litigate rather than vice-versa.
In the final report, Commissioner Hayne emphasised that “too often, financial services entities that broke the law were not properly held to account”. Though we might think that holding wrongdoers to account can happen in a variety of ways – through this work of the royal commission, for instance, or in civil litigation – Commissioner Hayne was at pains to differentiate the paying of compensation from holding to account.
It would be a lost opportunity if the corporate culture provisions, seen as a prototype in the common law world in respect of corporate criminal law, remain untested and unused.
The quintessential and, indeed, most powerful way we as a society can hold wrongdoers to account is through the criminal process. The reason for this is twofold: the criminal trial involves a distinct procedure, as well as a particular potential outcome.
Generally speaking, criminal trials are heard in open court, before a judge and lay jury, with certain due process protections for the defence, and there’s an examination of both prosecution and defence argument, with cross-examination of witnesses. And the possible outcome of the criminal trial is unique – the convicted party will be punished, whether through a fine and/or imprisonment, and the label of “criminal” ascribed to them/it.
These are the practical and symbolic consequences of the criminal trial, which demarcate it from other state and individual responses to unlawful behaviour. It’s the absence of this, in respect of both banks and individuals, that Commissioner Hayne is lamenting.
There’s a clear conclusion in the final report regarding the criminality of taking fees for no service. In the final report, Commissioner Hayne considers section 1041G of the Corporations Act, which makes it a crime for a licensed bank to engage in dishonest conduct in relation to a financial product or service.
He determines that three institutions breached this provision, and has written to ASIC to advise it of this. Beyond this, it’s notable that there are no other firm determinations regarding criminality, though this may be so as not to compromise any parallel investigations.
One might think Commissioner Hayne pulled his punches, so to speak, in alluding to but not advocating the use of Part 2.5 of the Commonwealth Criminal Code, which enables a corporation to be held liable under the criminal law for an offence through proving that a culture existed within the corporation that directed, encouraged, tolerated or led to non-compliance with the relevant provision, as well as through the conventional attribution model of liability that has proved problematic in practice.
Lost opportunity
Given the close focus in the hearings and the reports on the role of culture in permitting and engendering problematic and criminal behaviour, it would be a lost opportunity if the corporate culture provisions, seen as a prototype in the common law world in respect of corporate criminal law, remain untested and unused.
Linked to this, and in response to the final report, the federal government has announced that it’s extending the jurisdiction of the Federal Court to cover corporate criminal misconduct, so as to expedite cases that are considered by state courts and commonly take more than two years to be heard. It remains to be seen how this is enacted and implemented.
In his final report, Commissioner Hayne also stressed that “misconduct will be deterred only if entities believe that misconduct will be detected, denounced and justly punished”.
While this might have undue faith in the ability of entities to be deterred, if there’s to be any impact at all, there must be a likely and speedy response to wrongdoing in terms of detection, denunciation and punishment.
There needs to be a swift and fair determination of the criminality of banks and senior individuals arising from the findings of the commission, and an appropriate retrospective response to this.
New tool for misconduct
An important and relevant change on the horizon in relation to corporate crime is the likely introduction of deferred prosecution agreements (DPAs) by means of the Crimes Amendment (Combating Corporate Crime) Bill 2017. DPAs are negotiated settlements that allow the Commonwealth DPP to intervene and impose conditions on a corporation for criminal behaviour (such as under s1041G as mentioned earlier), while permitting the corporation to make reparation without the collateral damage of a conviction, which may unduly impact on employees and shareholders.
DPAs are seen as quicker, cheaper and more predictable than the conventional criminal trial with its costs, risks and delays. They allow conditions to be imposed on banks and companies, which might be helpful looking forward in preventing future harm and in improving culture.
DPAs are seen as quicker, cheaper and more predictable than the conventional criminal trial with its costs, risks and delays.
That said, DPAs centre on negotiation and agreement with corporations, which take place behind closed doors, so the exposure of wrongdoing is lessened. Regardless, DPAs will provide a tool in responding to corporate crime in Australia. Indeed, extra funding has already been allocated to the Commonwealth Director of Public Prosecutions to prosecute cases of financial misconduct.
Trust is visceral – intuitive, ephemeral, hard to define and quantify, but by now sadly lacking in the financial system and its institutions. And while deploying the criminal law more robustly might not restore trust in the banks, it may well serve to develop some trust in the wider sense that the state is recognising the harm and the gravity of the wrongdoing.
This article was published by Lens at Monash University.
