White collar crime has become a whole lot riskier since the Australian Securities and Investments Commission (ASIC) established a dedicated Office of Enforcement on 1 July 2019, responsible for carrying out ASIC’s key enforcement activities for market, corporate and financial sector misconduct. The Office of Enforcement is comprised of analysts, investigators and lawyers.
The establishment of the Office of Enforcement was in response to the recommendations that came out of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
In accordance with the Royal Commission recommendations, ASIC’s enforcement powers were strengthened and penalties became much tougher. For example, someone engaging in dishonest conduct in carrying on a financial services business can now face penalties of up to $525 million per contravention, and imprisonment of up to 15 years.
In its latest Enforcement Update Report for July to December 2021, ASIC provides insight into the enforcement outcomes recorded across the areas of financial services, markets, corporate governance and small business.
Summary of enforcement outcomes
ASIC provides a summary of the total enforcement outcomes across all areas, which include investigations, prosecutions, civil penalties, bannings and infringement notices.
Prosecutions |
| 26 individuals charged in criminal proceedings |
| 178 criminal charges laid |
| 6 custodial sentences (two people imprisoned) |
| 10 non-custodial sentences |
| 99 defendants prosecuted for strict liability offences |
| 226 criminal charges laid in summary prosecutions for strict liability offences |
Civil penalties |
| $84.3m in civil penalties imposed by the courts |
| 21 civil penalty cases commenced |
| 48 civil penalty cases currently before the courts |
Bannings |
| 21 people or companies removed or restricted from providing financial services or credit |
| 31 individuals disqualified or removed from directing companies |
Infringement notices |
| 1 infringement notice issued |
| $110,250 in infringement penalties paid |
Investigations |
| 48 investigations commenced |
| 139 investigations ongoing |
The report then continues to expand on the specific role of ASIC and key outcomes in each key area, as well as providing case studies to illustrate this work in action.
All matters were prosecuted by the Commonwealth Director of Public Prosecutions (CDPP).
Financial services
ASIC regulates financial services and credit providers to ensure that they act in the best interests of consumers and investors, and that directors are held accountable for company actions.
In the six months between 1 July and 31 December 2021, ASIC concluded 32 financial services enforcement matters. There were three criminal enforcement outcomes: two relating to superannuation misconduct and one relating to credit misconduct. Additionally, there were 14 civil actions and 15 administrative remedies covering a range of misconduct including credit misconduct, financial advice misconduct, insurance misconduct, investment management misconduct, and other financial services misconduct.
Case study: Superannuation misconduct
In October 2021, the Federal Court ordered that Colonial First State Investments Ltd (Colonial), as trustee for the Colonial First State FirstChoice Superannuation Trust (FirstChoice Fund), pay a penalty of $20 million for misleading communications with members on at least 12,978 occasions.
The Court found that Colonial’s misleading communications were intended to encourage members to stay within the FirstChoice Fund rather than move to a simple and cost-effective MySuper product (which Colonial is legally required to offer) with lower fees and straightforward features.
Markets
ASIC investigates market misconduct to ensure the fairness and efficiency of Australia’s financial markets. This includes addressing issues related to insider trading, market manipulation and market integrity rules.
In the six months between 1 July and 31 December 2021, ASIC concluded seven markets enforcement matters. This included two criminal enforcement outcomes related to insider trading. Furthermore, there was one civil action and four administrative remedies covering a range of misconduct relating to continuous disclosure, market manipulation, and other market misconduct.
Case study: Continuous disclosure obligations
On 16 December 2021, the Federal Court ordered that a former CEO of an energy company be disqualified from managing corporations for four years and pay a $40,000 pecuniary penalty.
The Court found that the man failed to discharge his duties as a director in considering whether information in his possession during the sale of company assets needed to be disclosed to the ASX.
Corporate governance
ASIC regulates public companies to ensure that they treat investors and consumers fairly and are properly accountable to their investors through accurate and timely reporting.
In the six months between 1 July and 31 December 2021, ASIC concluded eight corporate governance enforcement matters. There were two criminal enforcement outcomes relating to auditor misconduct. Additionally, there were four civil actions and two administrative remedies covering a range of misconduct relating to directors’ duties and governance failures, auditor misconduct, and other corporate governance misconduct.
Case study: Auditor misconduct
In August 2021, two former auditors of Halifax Investment Services Pty Ltd (Halifax) were convicted and ordered to pay fines of $10,000 and $40,000 respectively for failing to conduct audits in accordance with auditing standards.
The breaches of the auditing standards included:
- Failure to understand Halifax’s business.
- Failure to design appropriate tests to identify material misstatements in the accounts.
- Failure to take responsibility for the overall conduct of the audits.
Small business
ASIC takes actions against companies, directors and other stakeholders who fail to comply with their legal obligations under the Corporations Act 2001.
In the six months between 1 July and 31 December 2021, ASIC concluded 139 small business enforcement matters. This included 108 criminal enforcement outcomes, and 31 administrative actions. Key results included:
- 93 persons identified through ASIC’s Liquidator Assistance Program convicted for failing to help liquidators.
- Nine persons convicted of criminal offences, of which two were custodial sentences.
- Six companies prosecuted for failing to lodge their annual financial reports with ASIC.
- 29 persons disqualified from managing corporations, of which two related to illegal phoenix activity.
- Two Australian credit licences cancelled or suspended.
Case study: Failing to meet financial reporting and company officer obligations
An agricultural company was fined $300,000 for failing to:
- Lodge with ASIC an annual report for its company financial year ending 31 December 2019.
- Lodge with ASIC a half-year report for the period ending 30 June 2019.
- Hold an annual general meeting for the 2019 calendar year.
- Report to its members for the 2019 financial year.
- Have a company secretary and at least three directors between 9 June 2019 and 27 July 2021.
Matters underway
In all of the above-mentioned areas, there were a number of matters within the period that had not attained a final result because:
- The court/tribunal had determined liability but not decided the penalty or final order,
- A plea was entered but the court/tribunal had not yet made a decision on conviction or sentence, or
- The court had not yet decided if a breach of law or an offence was committed.
As at 1 January 2022, ASIC had the following number of matters underway:
- 28 criminal and 48 civil financial services-related matters.
- 15 criminal and 10 civil markets-related matters.
- 25 criminal and one civil corporate governance-related matters.
- 97 small business-related criminal matters.
Key takeaways
Since establishing a dedicated Office of Enforcement, ASIC has been achieving significant enforcement results across the areas of financial services, markets, corporate governance, and small business. In the six months between 1 July and 31 December 2021, ASIC achieved criminal enforcement outcomes across a range of misconduct including credit and superannuation misconduct, insider trading, auditor misconduct, and action against persons or companies, as well as imposing administrative remedies for an even wider range of conduct. A significant number of matters are still underway, and criminal outcomes remain possible for a broader range of misconduct.
