Corporate Crime – Cooperating with a regulator – how far should you go?

The decision to cooperate (or not)

When a corporation or individual becomes aware that they may have contravened the law, or that they are being investigated by a regulator for a contravention of the law, one of the first issues they need to determine is what engagement strategy will they take?

There are generally two strategies available:

• to remain silent and provide information only when compelled to do so; and
   
• to proactively engage with the regulator, including by self-reporting and providing information informally.

As with most things, there are risks and benefits to each strategy.

Making the case against yourself

Investigating corporate misconduct can be time consuming and complex. Proving a contravention of a civil penalty provision is often difficult. Successfully prosecuting a corporate criminal offence is even more difficult.

The obvious risk of self-reporting and informally offering information in regulatory investigations is that the potential defendant is effectively assisting a regulator to build a case against them that the regulator may not otherwise have been able to successfully prove. Providing information, in the absence of being compelled to do so, usually means that a defendant will be deprived of the ability to claim privilege against self-incrimination or the privilege against self-exposure to penalty.

Although these are real and considerable risks, adopting a strategy of remaining silent may not always result in the best outcome and can lead to a less effective relationship with your regulator going forward.

The benefits of cooperation

Self-reporting and cooperation will usually be given favourable consideration by a regulator and a court. It is often, for example, considered by a regulator when deciding whether to:

• commence criminal proceedings (or negotiate charges);[1]
   
• commence civil penalty proceedings (including as an alternative to criminal proceedings);
   
• make submissions to a court that the person ought to receive a discount on their penalty or sentence;
   
• grant immunities in return for voluntary cooperation; and/ or
   
• agree to an enforceable undertaking or deferred prosecution agreement in lieu of any prosecution or civil penalty proceedings.

Where a corporation or individual fully cooperates with a regulatory investigation, it may be that a court determines that the appropriate penalty is relatively low compared to what would otherwise have been imposed. In one recent civil penalty case, the Federal Court refused to impose any penalty given the respondent’s significant cooperation. This is discussed further in our article ‘Corporations and Cooperation – Playing Nice with Regulators’.

In civil penalty proceedings, courts can have regard to joint submissions on an appropriate penalty.  Courts have recognised that ‘the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and respondents’.[2] This is relevant to negotiating with a regulator in relation to potential civil penalty proceedings.[3]

Cooperating with ASIC

The Australian Securities and Investments Commission (ASIC) actively encourages cooperation such as:

• voluntary self-reporting of misconduct to ASIC;
   
• the honest and complete disclosure of information relevant to misconduct;
   
• the provision of voluntary assistance during an investigation;
   
• the provision of evidence in a form that can be used in court; and
   
• pleading guilty to or admitting any misconduct committed.

If a person does cooperate with ASIC, there are a range of potential benefits of the kind referred to above including making submissions to the court on what the outcome should be, enforceable undertakings (see here), and immunities from prosecution.

Cooperating with the ACCC

The Australian Competition and Consumer Commission (ACCC) also actively encourages cooperation, particularly in relation to cartel conduct.

The ‘ACCC immunity and cooperation policy for cartel conduct’ sets out the ACCC’s policy on applications for immunity from ACCC-initiated civil proceedings for those involved in cartel conduct. In short, this important and powerful policy encourages self-reporting and cooperation by granting conditional civil immunity to the first entity involved in an unlawful cartel that discloses the cartel conduct to the ACCC.

The CDPP

The Commonwealth Director of Public Prosecution (CDPP) ‘Prosecution Policy of the Commonwealth’ provides significant insight into not only the Commonwealth prosecution process but also:

• when the CDPP may grant immunities from prosecution of serious cartel offences (consistent with the ACCC’s approach);[4]
   
• when the CDPP may give an undertaking that certain statements, documents or disclosures will not be used as evidence against a person who provides them;[5]and
   
• when Comcare may agree to an enforceable undertaking for an offence against the Work Health and Safety Act 2011 (Cth).

Deferred Prosecution Agreements

In an effort to encourage greater self-reporting to corporate regulators, in December 2017, the Commonwealth Government introduced the Crimes Legislation (Combatting Corporate Crime) Bill 2017 (CCC Bill) to initiate a Deferred Prosecution Agreement (DPA) scheme in Australia. Pursuant to the CCC Bill, the CDPP could agree not to commence criminal proceedings against a corporation for a specified offence[6] in return for a commitment from the corporation to, for example, pay a financial penalty, compensate victims, donate money to a charity or introduce compliance programs.

The CCC Bill lapsed earlier this year but, given the frequent and effective use of DPA’s in the United Kingdom[7] and the United States[8], we expect the CCC Bill to be reintroduced in some form.

Conclusion

Avoiding enforcement action is high on the agenda for most corporations and individuals. While ‘going silent’ will at times be the most effective way to achieve this in response to a specific regulatory investigation, the decision to adopt this strategy needs to be made in the context of a broader and ongoing relationship with regulators. 

[1] In many cases, the decision to commence criminal proceedings is made by the CDPP following the referral of a brief of evidence from a regulator or law enforcement agency (e.g. the Australian Federal Police).[2]Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Ors; Construction, Forestry, Mining and Energy Union & Anor v Director, Fair Work Building Industry Inspectorate & Anor [2015] HCA 46.[3] In criminal proceedings a prosecutor is not permitted to make submissions to a sentencing Judge on penalty range: Barbaro v The Queen; Zirilli v The Queen [2013] HCA 2.[4] That is, an offence against section 45AF and 45AG of the Competition and Consumer Act 2010 (Cth).[5] The CDPP’s power in this regard arises from section 9 of the Director of Public Prosecutions Act 1983 (Cth).[6] For specific offence against the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), Autonomous Sanctions Act 2011 (Cth), Charter of the United Nations Act 1945 (Cth), Corporations Act 2011 (Cth) and the Criminal Code.[7] DPA’s have been available to the United Kingdom’s Crown Prosecution Service (CPS) and Serious Fraud Office (SFO) since their introduction in the Crime and Courts Act 2013 (UK) on 24 February 2014.[8] In the United States, Deferred Prosecution Agreements have been used as enforcement tool by the US Department of Justice (DoJ) since 1992.

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.