Corporations and Cooperation – Playing Nice with Regulators

If a corporation or one of its officers has engaged in misconduct, there can be significant benefits to admitting the misconduct, taking immediate steps to rectify that misconduct and cooperating with regulators.

The Australian Securities and Investments Commission (ASIC) has recently made it clear that it intends to adopt a ‘why not litigate’ approach to the enforcement of corporate laws. A tougher regulatory environment, however, should not deter corporations and officers from early cooperation with regulators given the impact that cooperation and genuine remorse can have on civil and criminal penalties.

The Federal Court’s approach

In the recent decision of Fair Work Ombudsman v Transpetrol TM AS (No 2) [2019] FCA 608 (3 May 2019) (FWO v Transpetrol), the Federal Court found that the Fair Work Ombudsman (FWO) ‘overreached’ in seeking the initial range of penalties claimed in light of the conduct of Transpetrol after considering, among other things, Transpetrol’s early admission to contraventions and the complex legal and commercial environment in which it operated.[1]

The FWO had alleged that Transpetrol, a Norwegian corporation, had underpaid 57 crew members of an oil and chemical tanker, the MT Turmoil, by $255,000 between 2013 and 2015 under various Australian industrial instruments. In response, and although Transpetrol was not aware of the contraventions at the time, it subsequently repaid the relevant workers, and cooperated with the investigation conducted by the FWO.

In two related decisions,[2] the Federal Court rejected the FWO’s pursuit of civil penalties totalling up to $87,975 (approximately 60% of the maximum penalty available) against Transpetrol for the underpayments, and ordered the FWO to pay 50% of Transpetrol’s costs. Rares J criticised the conduct of the FWO in bringing the proceedings and seeking high-range penalties of a high amount, despite Transpetrol’s full cooperation and the fact that it had repaid the affected workers.

Rares J concluded that it would not have been fair or just to impose a penalty on Transpetrol in the circumstances, saying that ‘Transpetrol was forced to defend the penalty phase of the proceeding (it having, from the outset, admitted the contraventions) because the Ombudsman took too zealous a position’.

Significance 

It is clear from the decision of FWO v Transpetrol that civil penalties, and even criminal penalties, may be significantly lessened, and even avoided, if corporations take immediate steps to address misconduct and cooperate with regulators.

While the FWO, ASIC and other regulators may act as a ‘tough cop’, it must also be recognised that the courts will continue to have a critical independent role in ensuring that civil and criminal penalties are just and fair having regard to the circumstances of the case.

ASIC’s Deputy Chairman and ‘chief enforcer’, Daniel Crennan QC, recently commented on potential new civil and criminal proceedings against financial institutions, saying ‘They should not engage in brinkmanship or gamesmanship with us. There is no point. We are not going away. The best thing to do is to cooperate’. The decision in FWO v Transpetrol provides corporations some comfort that the approach encouraged by ASIC will be recognised by the courts.

There are a large number of regulators that operate across Australia operating across various industries and jurisdictions, each with its own approach to compliance and enforcement. Generally, regulators tend to encourage and recognise cooperation. Cooperation may include:

• early notification of misconduct;
• disclosing information relevant to the misconduct;
• communicating with regulators regarding the rectification of misconduct; and
• adopting a cooperative approach during an investigation.

In the current era of regulatory enforcement, and in the wake of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, although cooperation will not guarantee the avoidance of litigation, corporations should always consider the benefits of cooperating with regulators.

Consistency is key

Notwithstanding the above, it is important for company officers to recognise that interactions with regulators throughout the investigation process will always be fraught and implementing a consistent escalation process when dealing with regulators is key.

For more information regarding factors to consider in maintaining a respectful tension with regulators see our article: Who Let the Dogs Out?! Regulators baring their teeth and chasing down duty holders.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.