A company is something of a legal Frankenstein. The legal person is created out of thin air and made of paper. It can, like the monster, create trouble for its creator. 

ATTRIBUTION OF LIABILITY

Attributing criminal liability to corporations is predicated on the lie that companies can have a state of mind. Early common law used to identify a corporation’s state of mind with a select few individuals which constitute its “directing mind and will.” This was a fiction then and it is even more far-fetched a description of large and complex modern corporations.

The national criminal law provides for “corporate culture” as being relevant to the fault element. This is problematic because the definition can make a single rule or policy characteristic of the entire corporate culture in terms of ascribing a state of mind of the company.

The ALRC’s final report, Corporate Criminal Responsibility (tabled 31 August 2020) recommended that the state of mind of corporations should be considered by a wider range of individuals in a given company, reflecting the disaggregation of responsibility across large modern corporations. This comes with a caveat that the individual be acting with “actual or implied authority” to ensure that corporations are not punished for rogue employees on a frolic of their own.

However, to punish companies, the law faces a ghost, an elusive inhuman personality. It is a person who can sue and be sued at law but obviously does not exist in physical terms. It is said that the modern company has no soul to be damned, and no body to be kicked.

Companies cannot be imprisoned like people, and it is said that companies use this fact to get away with many things. This is in fact part of the point of a company. So far as financial liability goes, the corporate veil may be used to protect more than simply money and in fact cover more than immodesty. The covering can of course be torn aside as was shown in the aftermath of the Hayne Royal Commission, which has put increased pressure on reform in corporate crime.

TAILORED OFFENCES

Instead of attributing mental states to corporations, offences specifically tailored for corporate criminal responsibility may offer a better way forward. Corporations often continually contravene penalty provisions and treat financial penalties as a cost of doing business. Therefore, there is no incentive for corporations to change their behaviour. The Royal Commission identified that profit motives, which inspire strategic contravention of civil penalties, can often go ahead of ethical considerations.

Consequently, the ALRC recommended the removal of infringement notices for enforcing criminal sanctions. It also recommended that new crimes be introduced to harshly punish patterns of behaviour which result in multiple contraventions of penalty provisions. In an efforts towards reform, a new bill – CLACCC – also sought to amend the Criminal Code, creating a tailored “failure to prevent” foreign bribery offence which aimed to serve as a preventative device to influence corporate behaviour. Based upon UK legislation, a broadly defined “associate” of the company (including employee agent, contractor and subsidiary) engaged in wrongdoing for the profit or gain of the corporation would be an offence of the corporation. The corporation would have been liable despite prosecution of the associate as an individual.

PROSECUTORIAL CHALLENGES

Corporate crime is the new Chancery: slow, boring and expensive. For example, foreign bribery cases, according to the OECD Anti-Bribery Convention, takes on average 7.3 years to conclude. This is despite the ability to compel the provision of information, document production and answering of questions. Interestingly, once the regulator prepares a brief of evidence and refers the matter to the CDPP, the officer in charge of the case can accept representations from accused parties as to why they should not be charged. These representations (unheard of in any other criminal prosecution) allow “public interest” arguments against prosecution. However, the accused will do this without possession of the brief of evidence that the regulator has provided to the CDPP. Therefore, the accused is taking a stab in the dark to defend themselves. Or even worse, they are well aware of their misconduct and are defending their ability on public interest grounds to continue illegal practices.

This practice was sought to be formalised by CLACCC in a process called “Deferred Prosecution Agreements.” This process aimed to encourage self-reporting misconduct and negotiation for agreements for compliance to avoid drawn out prosecutions.

PUNISHMENT

The law cannot wind up wrongdoing companies, lest wide reaching economic impacts harm the community. Instead, corporations are typically sentenced through financial penalties. This is problematic given the length of time it takes for criminality to be revealed, investigated and finally charged. During this time, corporations do not stand still. Ownership, management and those in employment are constantly changing. Long after those responsible have left the corporation, new shareholders, employees and third parties are punished disproportionately for activities they were not involved in. The people committing the offences (corporate officers such as directors) are not those who bear the responsibility of punishment.

In this light, the ALRC recommended alternatives to non-monetary penalties, requiring corporations to review regulatory compliance programs, undertake activities for community benefit, disclose information, and provide restitution and internal disciplinary action.

WHERE IS THIS HEADED?

Recent proposals for reform are yet to be implemented. The CLACC lapsed at the end of Parliament in July 2022, and there are no other current attempts to implement the ALRC recommendations. There remain question marks over whether there is momentum for reform in the near future. The corporate ghost continues to elude the law as it has done for centuries.

References:

‘Corporate Criminal Responsibility – the Case for Reform’, Australian Law Reform Commission (online, 31 December 2020)

Alana Giles, ‘Australia: Corporate crime in Australia 2020’, Holding Redlich (online, 22 October 2020)

Christian Gergis, ‘Key findings from the banking Royal Commission final report’, Australian Institute of Company Directors (online, 1 March 2019)

Commonwealth, Parliamentary Debates, Senate, 2 December 2019 (Senator Duniam)

John Coffee, ‘“No Soul to Damn: No Body to Kick”: An Unscandalized Inquiry into the Problem of Corporate Punishment’ (1981) 79 Michigan Law Review 386, 386, quoting Edward, First Baron Thurlow 1731-1806

R v Potter & Mures Fishing Pty Ltd (Transcript, Supreme Court of Tasmania, Blow CJ, 14 September 2015)

Tesco Supermarkets Ltd v Nattrass [1972] AC 153

Tim L’Estrange et al, ‘Australia: The Future Direction Of Corporate Criminal Responsibility In Australia’, Jones Day (online, 26 October 2020)

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action*.