Civil or Criminal Penalties for Corporate Misconduct- Which Way Ahead?

Abstract

The Treasurer's announcement in February 2005 that the federal government would amend the Trade Practices Act 1974 (Cth) (TPA) to introduce criminal penalties for serious or hard-core cartel conduct focuses attention on the debate whether civil or criminal penalties are more appropriate ways to regulate corporate misconduct. This change to the TPA is yet to be enacted. However, in 1993, fundamental reforms were made to the regime of sanctions for enforcement of the statutory duties of corporate officers in Australia when the civil penalty regime, currently contained in Part 9.4B of the Corporations Act 2001 (Cth), was introduced. By adopting this approach, it was hoped that the Australian Securities and Investments Commission (ASIC) could more effectively deal with corporate misconduct and that civil penalties would be a significant enforcement tool. ASIC has had success recently in using the civil penalty regime, particularly against directors in high profile cases. Nevertheless, to ensure that it is regarded as a credible regulator, this article argues that, in the light of the adverse press and perceptions surrounding ASIC's failure to institute criminal proceedings against Stephen Vizard and the difficulties in bringing civil penalty proceedings resulting from the majority decision of the High Court in Rich v ASIC, ASIC should consider shifting the balance away from civil penalty proceedings to criminal prosecutions in serious cases of corporate wrongdoing. This is especially so now with the recent victory of its US counterpart, the Securities and Exchange Commission (SEC) in the Enron case. The criminal convictions of former top two executives, Jeffrey Skilling and Kenneth Lay (now deceased) on 26 May 2006 and the subsequent sentencing of Skilling to 24 years and four months in prison, bring to a close a four-year investigation into the largest corporate fraud in US history and should buoy corporate regulators around the world, including ASIC to pursue criminal cases.

Keywords: civil penalties, enforcement, corporate governance