TheInternationalInvestigations

Review

Law Business Research

Fourth Edition

Editor

Nicolas Bourtin

The InternationalInvestigations Review

The International Investigations Review

Reproduced with permission from Law Business Research Ltd.This article was first published in The International Investigations Review - Edition 4

(published in July 2014 – editor Nicolas Bourtin).

For further information please emailNick.Barette@lbresearch.com

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Chapter 2

AUSTRALIA

Rani John, Elizabeth Avery and Peter Feros1

I INTRODUCTION

A number of Australian regulators and agencies are empowered to investigate and bring proceedings in relation to corporate conduct, although criminal prosecutions are in most cases exclusively dealt with by the Commonwealth (federal) and state directors of public prosecution (usually aided by the investigating authority). The three federal regulators with the most far-reaching and general application to all corporations are the Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission (ASIC) and the Australian Tax Office (ATO).

Australia’s competition law is contained within the Competition and Consumer Act 2010 (Cth) (the CCA). The ACCC is responsible for investigating and enforcing the conduct regulated under the CCA. The ACCC is a federally funded body but acts independently of the government.2

The ACCC has a range of special investigative powers at its disposal for use in enforcing the CCA, including the following:a Section 155 notices: Section 155 of the CCA enables the ACCC to issue a notice

to any corporation or person if it has reason to believe that the person is capable of furnishing information, producing documents or giving evidence in person in relation to a breach or potential breach of the CCA.3 The ACCC can require the recipient to furnish that information, produce the documents or appear in person before it to provide evidence, either orally or in writing. The ACCC also has

1 Rani John, Elizabeth Avery and Peter Feros are partners at Gilbert + Tobin. They would like to thank Lydia Adkins, Andrew Sharp and James Campisi, lawyers at Gilbert + Tobin, for their assistance in preparing this edition of this chapter.

2 The ACCC is a statutory authority, formed in 1995 to administer the then Trade Practices Act 1974 (Cth) (previously the TPA, now the CCA) and other legislation.

3 Section 155(1)(a)–(c) of the CCA.

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powers to investigate claims or representations made in relation to the supply of goods or services by way of a substantiation notice under Section 219 of the CCA.

b Dawn raids: the ACCC has the power to obtain warrants to enter premises and inspect documents upon application to a magistrate who is satisfied that there are reasonable grounds to suspect that there is evidential material on the premises in question.4 The ACCC may enter premises by consent or under warrant.5 Once entry has been made, ACCC inspectors and assistants are able to search the premises, make copies of evidential material, operate electronic equipment to determine if evidential material is accessible, and remove such material.6

c Phone tapping and surveillance powers: the ACCC is able to seek a range of telecommunication warrants to assist in gathering evidence in investigations relating to alleged cartel conduct. These warrants enable the ACCC itself to gather evidence, or authorise the federal police to do so in assisting an ACCC investigation. They do not extend to investigating alleged civil contraventions of the CCA.

In the area of securities, ASIC is the government body that administers and enforces company, capital market, securities and financial service laws to protect consumers, investors and creditors. ASIC also investigates complaints about companies or individuals who may have breached the laws it administers, including the Corporations Act 2001 (Cth) (the Corporations Act).7 ASIC is an independent body, so its investigatory and litigious priorities are not subject to direct political influence; however, it has both generalised and specific annual priorities that influence the decisions it makes about the matters it will investigate and the enforcement actions it will take.

During the course of a formal investigation, ASIC may exercise compulsory powers to require the production of documents and explanation of their contents.8 If necessary, ASIC can seize documents under a search warrant.9 It can also conduct oral examinations of relevant persons by issuing a notice if it, ‘on reasonable grounds, suspects or believes’ that a person can give information relevant to a matter that it is investigating, or is to investigate.10 Non-compliance with notices to produce documents or give oral evidence is an offence. Compliance does not represent any concession of wrongdoing or contravention.

4 Section 154X of the CCA. Note that prior to 1 January 2007, the ACCC had the power to enter and inspect under Section 155(2); however, this was not under warrant but rather subject to the requirement that the chairman had reason to believe that there were documents on the premises that might relate to a breach or potential breach of the TPA.

5 Divisions 3 and 4 of Part XID of the CCA.6 See Sections 154D–154H of the CCA.7 ASIC’s powers also derive from the Australian Securities and Investments Commission Act

2001 (Cth) (the ASIC Act).8 See generally Part 3 Division 3 of the ASIC Act, in particular Section 28(d).9 Sections 35 and 36 of the ASIC Act.10 Section 19(1) of the ASIC Act; see also Little River Goldfields NL v. Moulds (1991) 32 FCR 456;

Commissioner for Corporate Affairs v. Guardian Investments Pty Ltd (1984) 9 ACLR 162; Parker v. Churchill (1985) 9 FCR 316; George v. Rockett (1990) 170 CLR 104.

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The ATO is the Commonwealth government’s principal revenue collection agency, ultimately reporting to the Treasurer. It sets out its regulatory objectives and priorities in regular strategic statements, annual corporate plans and compliance programmes, including in the area of enforcement. For example, in recent years, one focus of the ATO has been to identify, deter and prosecute crimes against the tax and superannuation systems, including refund fraud and abusive use of tax secrecy havens.

Like the ACCC and ASIC, the ATO has very broad investigative powers (or access powers). The ATO’s access powers are derived from statute11 and guidelines, which ATO officers must follow when invoking them. These powers permit the ATO to access buildings and places, books, documents and other papers, and require the production of documents and require persons to give evidence. This extends to the provision of login details and encryption keys in relation to electronically stored records. In very general terms, criminal prosecutions will not be pursued unless there is sufficient admissible evidence to prove that an offence has been committed, and that a prosecution would be consistent with the prosecutions policy of the Commonwealth and in the public interest.12

II CONDUCT

i Self-reporting

There is no obligation under the CCA for businesses to self-report potential breaches or wrongdoing to the ACCC. However, like many other corresponding agencies around the world, the ACCC has developed an immunity policy that is designed to detect and deter cartel conduct.13

While the immunity policy operates only in relation to whistle-blowing for cartel conduct, the ACCC also maintains a cooperation policy for enforcement matters, which applies to conduct that does not meet the criteria for immunity under the immunity policy; this may be where the ACCC has already commenced proceedings for cartel conduct,14 or where a corporation has engaged in other types of anti-competitive conduct (such as agreements that substantially lessen competition or resale price maintenance).15 In these circumstances, an applicant may still receive credit for cooperating with the investigation under the cooperation policy. Although applicants are generally not

11 See Sections 263 and 264 of the Income Tax Assessment Act 1936 (Cth) (the ITAA).12 See ATO Fraud Control and the Prosecution Process Corporate Management Practice

Statement at www.ato.gov.au/corporate/content.aspx?doc=/content/00090701.htm.13 ACCC Immunity Policy for Cartel Conduct (2011), available online at www.accc.gov.au/

publications/accc-immunity-policy-for-cartel-conduct. This policy is currently under review. In April 2014, the ACCC released a draft of its new Immunity and Cooperation Policy for Cartel Conduct for public comment.

14 Sometimes referred to as ‘amnesty plus’.15 Sections 45 and 48 of the CCA.

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afforded full immunity, the cooperation policy is flexible enough that the ACCC is able to confer leniency, such as imposing reduced penalties.16

Under the CCA, cartel conduct may constitute both a civil contravention and a criminal offence. To prosecute conduct on a criminal basis requires the establishment of the mental element, namely knowledge or belief.17 Under its immunity policy, the ACCC may only grant immunity for civil contraventions.

The application for immunity by a corporation must be made before the ACCC receives written legal advice that it has sufficient evidence to file proceedings.18 Eligibility is determined by reference to various conditions, with the main criteria being that the applicant:a is not a ringleader of the cartel;b is the first to apply for immunity;c has not coerced others to engage in cartel activity;d gives full and frank disclosure to the ACCC and cooperates fully with the

investigation;e makes the application as a truly corporate act; andf has ceased (or will cease) involvement in the cartel.19

Derivative immunity is available to individuals who are listed employees and officers of the corporate applicant, or those who used to work for them. To qualify for immunity, they must adhere to the same preconditions of immunity and cooperate fully with the ACCC’s investigation as required of the corporation in question.20

In relation to criminal offences, the ACCC and the Commonwealth Department of Public Prosecutions (CDPP) have a memorandum of understanding (MoU) that provides that where the ACCC determines that the conduct in question is sufficiently serious to be referred to the CDPP for potential criminal prosecution, it will also make a recommendation to the CDPP as to whether the immunity applicant should be granted immunity from prosecution; however, the ultimate decision falls to the CDPP alone.21

Until the ACCC’s investigation and prosecution in relation to the conduct subject of the immunity application is closed or finalised, the grant of immunity is generally conditional, subject to the immunity applicant’s ongoing cooperation. However, immunity, conditional or otherwise, does not necessarily guarantee anonymity. The

16 ACCC Cooperation Policy for Enforcement Matters (2002), available online at www.accc.gov.au/publications/accc-cooperation-policy-for-enforcement-matters.

17 Section 44ZZRG(2) of the CCA.18 Paragraph 8(b) of the ACCC Immunity Policy for Cartel Conduct.19 Paragraph 17 of the ACCC Immunity Policy for Cartel Conduct.20 Paragraph 13 of the ACCC Immunity Policy for Cartel Conduct.21 See ‘MoU Between the CDPP and the ACCC Regarding Serious Cartel Conduct’ (2008),

available online at www.cdpp.gov.au/Media/Releases/20081201-ACCC-and-CDPP-Cartel-Conduct-Immunity-MoU.pdf. For the CDPP’s policy on immunity, see Annexure B to the CDPP’s ‘Prosecution Policy of the Commonwealth’, ‘Immunity from Prosecution in Serious Cartel Offences’, available online at www.cdpp.gov.au/wp-content/uploads/Prosecution-Policy-of-the-Commonwealth.pdf.

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court will weigh the public interest immunity privilege against the respondents’ right to a fair trial. In ACCC v. Prysmian Cavi e Sistemi Energia Srl,22 the ACCC sought to keep the identity of the derivative immunity applicant confidential, on grounds of public interest immunity privilege, based on concerns that the derivative immunity applicant would be exposed to prosecution in other jurisdictions. While the court rejected that concern as irrelevant to its consideration, the court did acknowledge that there was a public interest in encouraging immunity applicants to come forward, which could be undermined by disclosure, depending on the circumstances. Here, the derivative immunity applicant’s identity had already been disclosed in other contexts and accordingly, the interest in protecting the applicant’s identity was outweighed when balanced against the respondents’ right to a fair trial.

Subsequently, the CCA has been amended to regulate the factors that a  court must take into account in ordering disclosure of ‘protected cartel information’ (information provided to the ACCC in confidence relating to a breach of the cartel conduct prohibitions).23 The court must take into account the following factors when considering whether to order disclosure of protected cartel information:a the information was provided to the ACCC in confidence;b Australia’s relations with other countries;c the need to avoid disrupting national and international efforts relating to law

enforcement, criminal intelligence and criminal investigations;d if an informant provided the information, the safety of the informant, and the

fact that disclosure may discourage informants from giving information in the future; and

e the administration of justice.24

At the time of writing, no criminal prosecutions for cartel conduct have yet been commenced.

Neither the ASIC Act nor the Corporations Act contains any general obligation for businesses to self-report potential breaches of law or wrongdoing to ASIC. The position is different, however, for holders of certain licences under the Corporations Act such as financial services licensees, who have obligations to promptly report certain significant breaches to ASIC,25 and to provide details of the breach, how it was identified, why it is significant, the persons involved and how it was or is being remedied.

22 [2011] FCA 938.23 See Section 157B of the CCA.24 See Section 157B(2) of the CCA; see also Sections 157B(4) and 157B(5) (requiring the

ACCC to take into account similar factors in determining whether to disclose protected cartel information to a Court or tribunal); and Section 157C (restricting disclosure of protected cartel information pursuant to orders for discovery).

25 See Section 912D of the Corporations Act; ASIC Regulatory Guide 78: Breach reporting by AFS licensees (reissued February 2014, see www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rg78-published-26-February-2014.pdf/$file/rg78-published-26-February-2014.pdf ).

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ASIC can in some cases grant relief from provisions of the Corporations Act (and other legislation it administers).26 Generally, ASIC cannot give relief for contraventions that have already taken place; however, it may give relief in circumstances where no mischief has yet occurred and the regulatory detriment of the breach is minimal and outweighed by the commercial benefit that would result from the proposed relief. The court has some powers to grant retrospective relief. For example, upon the application of any interested person, it may make orders about general irregularities (i.e., validating acts and relieving persons of civil liability).27 The court also has power to grant relief from liability to certain persons in specific types of civil proceedings.28

Taxpayers must accurately provide the ATO with all information relevant to their tax positions, as this determines their tax liabilities (if any); the fundamental characteristic of Australia’s current income tax regime is self-assessment. The ATO places the onus on taxpayers to interpret and apply the law in preparing their returns; a corollary of this is an expectation (although not a legal obligation) to disclose any internal wrongdoing. The ATO relies on audits and other investigative powers to check and verify assessments, and is empowered to impose penalties and interest charges for non-compliance with tax laws,29 and reduce those penalties and charges at its discretion for voluntary disclosure.

The ATO has no power to grant immunity from criminal prosecution for breach of tax laws; that is the sole preserve of the CDPP.

ii Internal investigations

Businesses are free to conduct their own internal investigations into any behaviour considered to be at risk of breaching antitrust, securities or taxation legislation.

The ACCC encourages businesses to design and implement appropriate corporate compliance policies that contain mechanisms for undertaking such investigations, and the existence of such programmes is viewed favourably by the ACCC and the federal courts if the matter in question gets to the point of administrative or court resolution.

There is no requirement to share the results of an internal investigation with the ACCC, nor even the fact that an investigation has taken place. Where a business believes it is at risk of uncovering cartel conduct, it is able to apply for a ‘marker’ with the ACCC on an anonymous basis.30 This is essentially a ‘first-in’ placeholder for an immunity application, which allows the applicant a limited time (usually 28 days) to investigate and gather relevant material, and to decide whether to make a formal application for immunity, or allow the marker to lapse.

With regard to securities, there is no general requirement to disclose to ASIC the fact an internal investigation has been undertaken, or the results of such investigation. Again, the position is different for licence holders under the Corporations Act such as financial services licensees, who have heightened obligations to have in place compliance

26 See ASIC Regulatory Guide 51 ‘Applications for Relief ’; Regulatory Guide 108 ‘No Action Letters’.

27 Section 1322 of the Corporations Act; see also Elkington v. Vockbay Pty Ltd (1993) 10 ACSR 785.28 Section 1318 of the Corporations Act.29 See the Taxation Administration Act 1953 (Cth) (TAA).30 Paragraph 9 of the ACCC Immunity Policy for Cartel Conduct.

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and supervisory systems, including robust mechanisms for identifying breaches and making appropriate enquiries where breaches are suspected.31 These obligations may dovetail with reporting obligations such that the results of an internal investigation should be reported to ASIC.

A typical internal investigation will involve identifying the employees at risk, acquiring and ‘locking down’ their hard copy and electronic files, conducting face-to-face interviews with relevant employees and carrying out forensic electronic investigations. Employees are free to, and should be advised that they are able to, retain their own legal representation if their conduct is being reviewed during the investigation. The corporation’s legal representatives, in conducting the interviews and investigation, should make it clear that they represent the interests of the company.

Legal professional privilege (also known as client legal privilege) can be asserted over the conduct of an investigation in accordance with the usual principles of privilege. However, in making an application to the ACCC under either the immunity or the cooperation policy, the ACCC will expect full and frank disclosure to meet the requirements of a grant of conditional immunity.32 Documents are not required to be produced to ASIC (even where ASIC is exercising its coercive powers) if such production may involve a breach of legal professional privilege.33 ASIC is required to treat information provided to it in accordance with the law and it will treat documents as confidential if such a claim is made. The position is similar for investigations conducted by the ATO. In addition, the ATO is increasingly data matching information obtained from taxpayers with information obtained under MoUs with other governmental agencies such as the various State Revenue Offices, the Australian Prudential Regulation Authority, the CDPP and the Australian Federal Police, as well as the US and UK governments.

iii Whistle-blowers

The immunity policy and the cooperation policy set out the circumstances in which the ACCC may confer immunity or leniency upon whistle-blowers and operate as an incentive to self-report potentially illegal conduct. Other than this, the CCA contains no specific whistle-blower protection mechanisms for employees. Neither does the ATO follow any specific guidelines or provisions dealing with whistle-blowers, or any specification as to how a business should deal with an employee reporting such suspicions, although it encourages the provision of information to it about suspected tax evasion, even on an anonymous basis.34 Reporting suspected offences does not confer any immunity on the person reporting them.

For suspected breaches of the Corporations Act, Part 9.4AAA establishes a  framework designed to encourage corporate employees, officers, subcontractors and the employees of subcontractors to report suspected breaches of the corporations law

31 See Section 912A of the Corporations Act.32 Paragraph 77 of the ACCC Immunity Policy Interpretation Guidelines.33 Section 69 of the ASIC Act.34 See the ATO’s website page covering frequently asked questions about tax evasion at www.ato.

gov.au/corporate/content.asp?doc=/content/30338.htm&pc=001/001/008/007&mnu=&mfp=&st=&cy=1.

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to ASIC or internally within the company, and to prohibit employers from victimising employees, officers, subcontractors or employees of subcontractors who do so in good faith and on reasonable grounds. The provisions give the relevant employee, officer or subcontractor qualified privilege in relation to a protected disclosure of information.35

Over the past year there has been renewed criticism of this framework and calls for an improvement in the protections afforded to whistle-blowers in the private sector.36 Those calls have been made in the context of the implementation of enhanced protections for public-sector whistle-blowers,37 and in the context of the Senate inquiry into ASIC’s performance, prompted in part by ASIC’s failure to promptly address information supplied by whistle-blowers.38 In February 2014 (perhaps prompted in part by the negative media coverage of ASIC associated with that inquiry) ASIC released an information sheet explaining how it deals with whistle-blower information and the existing protections available to whistle-blowers.39 It remains, however, to be seen whether calls for changes to the legislative framework will be taken up.

III ENFORCEMENT

i Corporate liability

The CCA provides that the conduct of employees is deemed to have been engaged in also by the body corporate (including corporations) where the person acts:a within the scope of their actual or apparent authority; orb at the direction or with the consent or agreement (express or implied) of a director,

employee or agent of the body corporate, where that direction, consent or agreement was given within the scope of that person’s actual or apparent authority.40

This applies to all conduct prohibited under the CCA. However, a corporate entity will not be liable if the person at whom the conduct was directed can be shown to have known that the director, employee or agent of the body corporate was acting in his or her own interests and not that of the corporate entity.

As a company is an abstract entity, the state of mind of the company must be determined by the conduct of its directors, employees and agents. For example, in the

35 Paragraph 5.381 of the Explanatory Memorandum to the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Bill 2003 (the CLERP9 Bill); Sections 1317AA, 1317AB of the Corporations Act.

36 See, for example, Adele Ferguson, ‘Blow the whistle, face the music’, Sydney Morning Herald (online), 4 June 2013, www.smh.com.au/business/blow-the-whistle-face-the-music-20130603-2nm6x.html.

37 See the Public Interest Disclosure Act 2013 (Cth), which came into effect in January 2014.38 Supra at nn 89 ff.39 ASIC, Information Sheet 52, Whistleblowers and whistleblower protection, available online at

https://www.asic.gov.au/asic/asic.nsf/byheadline/Whistleblowers+and+whistleblower+protection?openDocument#INFO 52.

40 Section 84(2) of the CCA.

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prosecution of an offence (criminal or civil) under the cartel conduct provisions, to establish the state of mind of the body corporate, it is sufficient to show that:a a director, employee or agent of the body corporate engaged in that conduct; b the director, employee or agent was, in engaging in that conduct, acting within

the scope of his or her actual or apparent authority; andc the director, employee or agent had that state of mind (in this case, knowledge

or belief ).41

An individual may be found to be a person involved in a contravention of the CCA where the person has aided, abetted, counselled or procured, induced, been knowingly concerned in or a party to, or has conspired with others to effect the contravention.42

ASIC and the ATO may also bring civil proceedings against a corporation for contraventions of various laws and may recommend that the CDPP commence criminal prosecutions for contraventions. Corporate conduct can be subject to civil or criminal liability based on the actions of its directors and officers (and in some cases its employees) because conduct by those persons in the course of fulfilling their duties for the corporation is deemed to have been performed by the corporation itself. This rule applies regardless of whether the contravention carries a criminal or civil penalty. Individuals may also be found personally liable for contraventions by corporations in some circumstances.

It is possible for both the corporation and the individual to be represented by the same legal counsel where the litigation or prosecution stems from the same conduct. However, as individuals may also be found personally liable for contraventions by a corporation in relation to antitrust, securities or taxation legislation, there is the potential for conflicts of interest to arise and, if this occurs, the legal representative may need to cease acting for one or both of the respondents.

ii Penalties

The ACCC may take court-based and certain non-court-based (administrative) action to seek sanctions against businesses. Court-based actions are divided into criminal and civil sanctions, while non-court-based actions are categorised as formal and less formal sanctions.

Criminal sanctions for serious cartel conduct, which can only be ordered by the Federal Court or State Supreme Courts, include criminal convictions, fines and imprisonment. Civil court-based sanctions include pecuniary penalties, disqualification orders, non-party redress, adverse publicity orders, declarations and injunctions. Penalties imposed by the court may be the greater of A$10 million, three times the value of the benefit gained from the conduct, or 10 per cent of the annual turnover of a body corporate during the period (per contravention).43

Non-court-based sanctions include court-enforceable undertakings, infringement notices, public warning notices, substantiation notices and administrative resolutions.

ASIC has wide powers to commence civil proceedings seeking a wide variety of penalties and restrictions on the freedom of corporations and individuals. It may seek

41 Section 84 of the CCA.42 Section 75B of the CCA.43 Section 76 (1A)(b) of the CCA.

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pecuniary penalty and compensation orders, declarations, and banning orders preventing persons from being involved in managing corporations for specified periods. Penalties for contraventions of specified sections of the Corporations Act are set out in Schedule 3 of the Corporations Act.

ASIC is also empowered to seek injunctions to restrain contraventions of the Corporations Act, or to require a person to do or refrain from doing ‘any act or thing’.44 It can also, while an investigation, civil proceeding or prosecution for contravention is ongoing, seek orders freezing assets, prohibiting persons and assets from leaving the jurisdiction, appointing receivers and managers to the property of a body corporate to protect interests of persons who may have a claim against the body corporate, or requiring persons to surrender their passports to it.45

A corporation will also be subject to administrative or criminal penalties for contravening Australia’s taxation laws. The ATO may impose an administrative penalty on a business directly (for example, in relation to a shortfall, including shortfalls relating to ‘schemes’).46 In certain circumstances where a corporation has voluntarily disclosed the contravention, there will be a reduction in the penalty and interest charges applied.

The amount of the penalty imposed depends on the seriousness of the contravention and any past contravention or activities of the corporation. Where the corporation has committed several contraventions that would ordinarily result in a term of imprisonment for an individual, the corporation is liable to pay a penalty five times the maximum monetary penalty.47

Prosecutions against corporations under the Taxation Administration Act 1953 (Cth) (the TAA) are pursued on a summary basis48 and in relation to ‘prescribed tax offences’; a penalty is imposed on a corporation where a contravention is found.49 Criminal sanctions may also be pursued against corporations by the provisions set out in the Criminal Code Act 1995 (Cth) (the Criminal Code)50 and the Crimes (Taxation Offences) Act 1980 (Cth). The sanctions imposed by these sections include penalties but do not include imprisonment in the case of corporations; however, individuals within the corporation may be held criminally liable for a contravention and can be imprisoned for such acts.

44 Section 1324 of the Corporations Act.45 Section 1323 of the Corporations Act.46 See Schedule 1, Part 4-25 of the TAA, in particular Subdivisions 284-A to 284-D, and Divisions

286 to 298.47 Sections 8E and 8ZF of the TAA – where the corporation has committed other taxation

offences the penalty is increased.48 Section 8ZA(4) of the TAA.49 Section 8A of the TAA.50 Division 12 of the Criminal Code, in particular Sections 136 and 137, attributes the fault

elements of intention, knowledge or recklessness to a body corporate where it expressly, tacitly or implicitly permits the commission of a prescribed taxation offence.

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iii Compliance programmes

The ACCC recognises that litigation to establish a contravention of Part IV of the CCA can be extremely complex, time-consuming and costly. The Federal Court is amenable to negotiated settlements provided that the terms are appropriate.

Section 76 of the CCA provides that the court may order any pecuniary penalty it determines appropriate having regard to all relevant matters, including the nature and extent of any loss or damage, the circumstances in which the conduct took place and whether the person has previously been found to have contravened the CCA. Over time these principles have been expanded to specifically include whether the corporate culture of the enterprise lends itself to compliance with the CCA, as evidenced by educational programmes and disciplinary or other corrective measures.51

Therefore, while the existence of a compliance programme is not a defence to a civil contravention, it will be considered as a mitigating factor; the extent of such consideration will depend upon the comprehensiveness of the programme, its practical effectiveness and the genuineness of the compliance culture that exists within the firm.52

There is currently no explicit, generalised legal duty on Australian companies or their directors to implement compliance systems in relation to the Corporations Act. The only situations in which such compliance systems are directly required are where they are a condition of a licence issued under the Corporations Act. The law on corporate governance and directors’ duties makes internal compliance systems desirable to avoid or minimise the risk of liability; however, evidence of corporate compliance systems will not automatically result in mitigation of criminal and civil penalties for offences against the Corporations Act.

Due diligence defences may be successfully raised where company officers involved in an alleged contravention prove that they took all reasonable steps to ensure that the company had effective internal controls in place to prevent breaches, and in doing so, believed on reasonable grounds that the company had complied with all of its obligations under the Corporations Act.53 An effective compliance system can also be an important tool in preventing breaches of the Corporations Act. For example, the effectiveness of internal compliance programmes has been a factor that Australian courts have taken into account when considering alleged breaches of the insider trading provisions of the Corporations Act.54

At a broader level, many of the offences created by the Corporations Act are governed by the Criminal Code, which contains a defence of general due diligence.55

51 Trade Practices Commission v. CSR Ltd (1991) ATPR 41-076 at 52152–52153 per French J (as he then was).

52 For examples of cases in which the existence of a compliance programme mitigated penalty, see ACCC v. Australian Safeway Stores Pty Ltd (1997) 75 FCR 238, ACCC v. George Weston Foods Ltd [2000] FCA 690.

53 For example, see Section 674(2B) of the Corporations Act.54 See ASIC v. Citigroup Global Markets Australia Pty Ltd (No. 4) (2007) 160 FCR 35.55 See Part 2.5, Division 12 of the Criminal Code.

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Lack of an effective compliance system may increase a company’s risk of liability for federal criminal offences committed by company officers.56

While the existence of a compliance programme within a corporation does not in and of itself serve as a defence to a criminal charge or penalty sanction with regard to a ‘prescribed taxation offence’, the attitude of the corporation to compliance is taken into account by the ATO in making its decision as to whether to prosecute the corporation.57 Generally, where a taxpayer has a good compliance history, it will not be referred for prosecution action at first instance, particularly where the ATO and prosecuting authorities have the discretion to elect whether to prosecute or impose a penalty tax upon the corporation.

iv Prosecution of individuals

Under the CCA, the way in which a company deals with an employee who is the subject of an investigation, in a practical sense, will depend upon the company’s risk management and compliance policies and the terms of the employee’s contract. Ideally, internal policies will clearly set out how a corporation should proceed in such a situation. It is neither a requirement nor necessary that a company terminate the employee’s contract in such a situation. Termination will be governed by the terms of the employee’s contract and any applicable internal policies of the corporation. The same generally applies where an employee is subject to investigation or prosecution by ASIC or the ATO.

In certain cases, taking such steps may be consistent with other obligations of the company. For example, financial services licensees are required to take reasonable steps to ensure their representatives comply with relevant laws.58 Where an employee or representative is involved in a suspect transaction, it may be appropriate, consistent with that obligation, to caution or otherwise discipline that employee or representative, or to impose restrictions or additional supervision requirements on the employee’s or representative’s trading activity.

Where a corporation under investigation is represented by legal counsel who attends a formal interview or examination of the employee conducted by the ACCC, ASIC or the ATO, the corporation should make it clear that the legal counsel represents the firm, not the individuals. If individuals engage their own legal counsel, the two sets of legal representatives are allowed to confer, taking into account any issues of client legal privilege and confidentiality.

Section 77A of the CCA prevents bodies corporate from indemnifying a person (whether by agreement or by making payment) against liabilities incurred as an officer of that body corporate, where the liability is a civil liability59 or the legal costs incurred in defending or resisting proceedings establishing that liability; this applies to both first-

56 Ibid. 57 See ATO Fraud Control and the Prosecution Process Corporate Management Practice

Statement at www.ato.gov.au/corporate/content.aspx?doc=/content/00090701.htm.58 Section 912A of the Corporations Act.59 Civil liability refers to a liability to pay a pecuniary penalty under Section 76 of the CCA for a

contravention of Part IV of the CCA.

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instance proceedings and appeals. If a corporation breaches this provision, it may be liable for a pecuniary penalty of 25 penalty units.

There are likewise limits on a company’s ability to assist employees that are the subject of claims by ASIC. Section 199A(3) of the Corporations Act provides that a company must not indemnify a person against legal costs incurred in defending an action for liability, criminal proceedings or proceedings by ASIC for a court order if the costs are incurred in defending or resisting such proceedings, and if the person is found liable or guilty, or grounds for making the order are found by the court to be established.60 However, Section 199A(3) will not apply in relation to costs incurred in responding to ASIC actions as part of an investigation, before commencing court proceedings. The company may nevertheless be able to give the person subject to an investigation or proceedings by ASIC a loan or advance in respect of legal costs, provided that any such loan or advance be repaid if the conditions in Section 199A(3) become applicable. Additionally, arrangements to indemnify a person for penalties for contraventions of the law may be void at common law as a matter of public policy.61

The position in relation to ATO investigations and litigation is similar to that described for ASIC. Additionally, tax deductions are ordinarily not allowed for fines incurred for breaches of the law, or for legal expenses incurred by a taxpayer in defending itself or its employees from prosecution.62

IV INTERNATIONAL

i Extraterritorial jurisdiction

The government does not intend that all provisions of the CCA be extended to extraterritorial conduct. Relevantly, the prohibitions on anti-competitive conduct in Part IV (cartels, anti-competitive agreements, misuse of market power, exclusive dealing and mergers that substantially lessen competition) extend to conduct occurring outside Australia that is engaged in by bodies corporate incorporated in or carrying on business in Australia, Australian citizens and persons who are ordinarily resident in Australia.63 However, before being able to rely upon extraterritorial conduct as the basis for a damages claim or a claim for compensation, an applicant must first gain ministerial consent.64 The Minister is obliged to give consent unless, in his or her opinion, the conduct was required or specifically authorised by a law of the country in which it occurred, or it is not in the Australian national interest to give that consent.65

60 This provision applies including in relation to proceedings by ASIC for banning orders (Sections 206C, 206D, 206E or 206EAA), oppressive conduct of affairs (Section 232), civil penalties (Section 1317E, 1317G, 1317H, 1317HA or 1317HB) or injunctions (Section 1324).

61 See Section 199C of the Corporations Act. 62 Taxation Ruling No. IT 149.63 Section 5(1) of the CCA.64 Sections 5(3) and (4) of the CCA.65 Section 5(5) of the CCA.

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The issue of whether anti-competitive conduct occurring wholly outside Australia can be subject to the operation of the CCA as conduct occurring in a market in Australia has been raised by a number of airlines that are parties to proceedings brought by the ACCC in relation to an alleged global price-fixing cartel for air cargo services. The issue was also agitated by the respondent airlines in a private representative or ‘class action’ against various airlines relating to similar alleged global conduct.66 The ACCC has now settled with 13 of the 15 airlines against which it commenced proceedings, resulting in the imposition of almost A$100 million in penalties to date. At the time of publication, judgment is pending in the proceedings brought by the ACCC against Garuda Indonesia and Air New Zealand, following a trial held in 2013.

The operation of the Corporations Act outside Australia is based upon the legislative powers of the Commonwealth under the external affairs power in Section 51(xxix) of the Australian Constitution.67

The chapters of the Corporations Act are declared to apply, according to their tenor, in relation to acts and omissions outside Australia.68 However, the extraterritorial application of the Corporations Act is limited in practice by the use of terms that are defined in a manner so as to have a nexus with Australia (most notably ‘company’ is defined to be any company registered under the Corporations Act).69 For example, the statutory duties of directors and other officers contained in Sections 180 to 184 of the Corporations Act have been found to apply to acts or omissions of directors or other officers of Australian corporations registered in Australia where those acts or omissions occur outside Australia. This has been justified on the basis that breaches by directors of their duties under the Corporations Act that occur outside Australia may have an adverse effect within Australia.70

Section 51 of the Constitution restricts the Commonwealth’s powers of taxation to making legislation for the ‘peace, order, and good government of the Commonwealth’. This suggests that there must be some nexus with Australia before Australian tax legislation can have an extraterritorial effect. Accordingly, jurisdiction to tax will depend on residence and source. A company is an Australian resident if it is incorporated in Australia, or carries on business in Australia and has either its voting power controlled by resident shareholders or its central management and control in Australia.71

Subject to certain exceptions, Australia will generally not tax the profits of a company that is resident in a country with which it has a tax treaty unless it carries on its business through a ‘permanent establishment’ in Australia, which may occur where a non-resident carries on business in Australia. Australia, however, has a comprehensive withholding tax regime that imposes tax at source on various payments and credits

66 Settlement of the class action received court approval in June 2014.67 Section 3(3) of the Corporations Act.68 Section 5(4) of the Corporations Act; see also Waller v. Freehills (2009) 258 ALR 67.69 Section 9 of the Corporations Act.70 PCH Offshore Pty Ltd v. Dunn (2009) 72 ACSR 99. 71 See Section 6(1) of the ITAA for the definition of ‘resident’; ATO ID 2002/46; Malayan

Shipping Co v. Federal Commissioner of Taxation (1946) 71 CLR 156.

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(including, subject to certain limited exceptions, in respect of unfranked dividends, interest and royalties).

As Australian residents are taxed on their worldwide income, they must report all relevant foreign income in their Australian income tax return (although some types of foreign income and gains are non-taxable in certain circumstances). Australia’s tax law has specific provisions for international dealings, including anti-tax deferral, anti-avoidance and dealings with tax havens. The ATO conducts joint investigations with other Australian agencies, including the Australian Federal Police, the Australian Crime Commission, the Australian Transaction Reports and Analysis Centre and ASIC, as well as foreign agencies, to counter tax evasion and fraud. The high-profile Project Wickenby (focusing on the investigation of internationally promoted tax arrangements that involve tax avoidance or evasion) is one example of this joint task force approach.

ii International cooperation

The ACCC, as a federal regulator, is a member of a number of global associations relevant to competition and consumer protection issues and is a party to bilateral and tripartite cooperation arrangements and treaties with counterpart agencies globally, including various US agencies, the Chinese State Administration for Industry and Commerce (SAIC), the New Zealand Commerce Commission, the UK Office of Fair Trading, the Canadian Competition Bureau, the European Commission, and the Korea and Taiwan fair trade commissions.72

Each agreement is specific to the relationship and the legislation enforced by the agencies, but generally they recognise that cooperation and coordination may result in more effective resolution of each’s enforcement issues. The extent and type of cooperation can include notification obligations, coordination of enforcement activities and agreements to advise of potential conflicts.

Notably, in September 2012 the ACCC signed a new MoU with SAIC, one of the competition authorities in the People’s Republic of China. The MoU promotes cooperation and coordination between the ACCC and SAIC, particularly in regard to information sharing and staff training, as well as competition-law enforcement, consumer protection and regulation of online goods transactions.

ASIC has entered into MoUs with more than 20 foreign regulators.73 ASIC may release information to a foreign regulator if such release will assist the foreign regulator to exercise a power conferred by the domestic law of that country. However, ASIC is only permitted to release information gathered from an investigation that is authorised under Australian legislation. Provisions in the Mutual Assistance in Business Regulation Act 1987 (Cth) (the MABR Act) also give ASIC the power to obtain evidence for foreign regulators through the exercise of compulsory powers and ASIC may require a person to produce documents or to give oral evidence for that purpose.74 However, these powers

72 A list of current agreements can be found at the ACCC’s website, at www.accc.gov.au/about-us/international-relations/treaties-agreements.

73 Copies of current MoUs are available at the ASIC website, at www.asic.gov.au/asic/asic.nsf/byheadline/OIR+-+Memorandum+of+Understandings?openDocument.

74 Section 10 of the MABR Act.

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can only be exercised by ASIC with the Attorney-General’s approval and are limited to circumstances in which the foreign regulator intends to use the information in civil or administrative proceedings.75 In criminal proceedings, the Attorney-General may provide assistance to foreign regulators in relation to the taking of evidence, the production of documents and search and seizure in Australia.76

ASIC can also request investigative assistance from foreign regulators under its MoUs with them, which requires the use of compulsory powers in the foreign country. Outside of these, ASIC must rely on the Mutual Assistance in Criminal Matters Act 1987 (Cth) (the MACM Act) or the foreign equivalent of the MABR Act if it requires compulsory powers to be used in a foreign country.

In the context of criminal matters, if ASIC wants compulsory powers exercised in a foreign country, the request for such assistance must be made through the Attorney-General. The Attorney-General may then request that a foreign country provide investigative assistance to Australia in relation to the taking of evidence, the production of documents and search and seizure in that foreign country.77

Australia has signed tax treaties with more than 40 countries, including its major trade and investment partners,78 providing for an exchange of information about income Australian residents earn overseas and income foreign residents earn in Australia. It has also entered into a number of tax information exchange agreements (TIEAs), which outline the obligations of Australia and its various partners to aid each other by exchanging tax information relevant to the administration and enforcement of domestic tax laws. In contrast with tax treaties (which deal with income tax), TIEAs cover all taxes administered by the ATO as well as all criminal and civil tax matters.79 More recently, following the enactment by the United States of the Foreign Account Tax Compliance Act (FATCA), Australia and the United States signed an intergovernmental agreement (IGA) to assist in the facilitation of FATCA for Australian financial institutions. The IGA is intended to assist in Australian compliance with FATCA. This includes reporting the information via the ATO under current Australia–US tax treaty arrangements.

Under Australian law, an extradition request by a foreign country concerning acts committed outside that country’s jurisdiction may be granted in circumstances in which Australian law would punish such conduct committed outside Australian territory in similar circumstances. However, in some instances, an extradition request may be granted at the discretion of the Australian government regardless of the existence of an

75 Section 6(2) of the MABR Act.76 Sections 13 and 15 of the MACM Act.77 Sections 10, 12 and 14 of the MACM Act.78 See the list of countries that currently have tax treaties with Australia at the website of the

Australian Treasury at www.treasury.gov.au/Policy-Topics/Taxation/Tax-Treaties/HTML.79 A list of countries that have TIEAs with Australia can be found at the ATO website, at www.

ato.gov.au/General/International-tax-agreements/In-detail/Tax-information-exchange-agreements-(TIEA)/Countries-that-have-a-tax-information-exchange-agreement-(TIEA)-with-Australia/.

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equivalent Australian law, as is the case with the extradition treaty between Australia and the United States.80

iii Local law considerations

The Foreign Judgments Act 1991 (Cth) (the FJA) establishes a statutory scheme under which judgments of foreign courts can be enforced in Australia. However, the scheme is restricted to specific countries and courts.81 Common law prerequisites apply to the recognition and enforcement of foreign judgments that fall outside the scope of the FJA. These prerequisites are that the foreign court has exercised a jurisdiction that the Australian courts recognise; the judgment is final and conclusive; the parties to the judgment and application to enforce it are identical; and the judgment is for a fixed or readily calculable debt.82

As a general principle, Australian courts are unlikely to give effect to administrative or judicial rulings of foreign countries where those rulings are contrary to public policy considerations in Australia. There may also be legislative restrictions on giving effect to foreign laws or rulings. For example, the Foreign Proceedings (Excess of Jurisdiction) Act 1984 (Cth), provides that the Attorney-General may prohibit performance of an obligation imposed by a foreign law or the giving of evidence or information to a foreign court or authority. The ability to share information may also be restricted by applicable privacy and secrecy laws.

V YEAR IN REVIEW

The past year has seen important decisions and developments in a number of areas affecting investigations and enforcement action taken by each of the ACCC, ASIC and the ATO. A discussion of some of these developments follows.

i ACCC enforcement focus and revision of policy and guideline documents

During his time as chairman of the ACCC, Rod Sims has consistently articulated the strategic direction that the ACCC will take during his term. Mr Sims has reiterated the importance of working in the ‘real-world’ context to seek strong enforcement and achieve effective communication with consumers and business.

More specifically, when Mr Sims spoke to the Committee for Economic Development of Australia in February 2013 to launch the ACCC’s 2013 Compliance

80 For general information on extradition law in Australia, see the website of the Attorney-General’s Department at www.ag.gov.au/Internationalrelations/Internationalcrimecooperationarrangements/Pages/default.aspx.

81 See Schedule to the Foreign Judgments Regulations 1992 (Cth) for relevant courts and countries.

82 See generally, Lawrence Collins (ed), Dicey, Morris and Collins on the Conflict of Laws (Sweet & Maxwell, 14th ed, 2006) vol 1, 574–87.

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and Enforcement Policy, he outlined six principles as fundamental to the effectiveness of Australia’s competition and consumer law:83 a strong enforcement – Mr Sims has asserted that the more other companies see the

ACCC prosecuting companies for alleged breaches of the law, the more powerful the ACCC’s informal approaches become;

b the need to get the ‘big’ public decisions correct – Mr Sims has acknowledged that the big decisions, while important in of themselves, also serve to illustrate to the public the approach the ACCC is taking and is likely to take in relation to other cases;

c explaining what the ACCC is and is not doing, and why;d being proactive by actively looking out for the main problem areas and seeking to

address these;e being practical through grounding the ACCC’s decisions in ‘real world

understanding’; andf recognising that Australia will always have monopolies that require effective

regulation and ensuring that is achieved.

The ACCC has placed a major emphasis on communication, and is clearly endeavouring to ensure business gets the message to comply by seeing competition law in action, being litigated and enforced. It has begun to actively target certain problem areas it has identified. The ACCC 2013 and 2014 Compliance and Enforcement Policies state that the ACCC assesses certain forms of conduct (such as cartel conduct, anti-competitive agreements and misuse of market power) as a priority because that conduct is ‘so detrimental to consumer welfare and the competitive process’. The ACCC’s strategy also has to be realistic: it has openly recognised that certain industries are more likely to experience areas of limited competition in Australia and in response has identified these areas as of particular interest, for example, retail supermarkets, the petrol sector, and the telecommunications and energy industries.

Over the past 12 months, the ACCC has also reviewed some of its key policy and guideline documents. In particular, in 2013, the ACCC began a review of its immunity policy for cartel conduct, which is ongoing. In April 2014, it released a draft version of the immunity and co-operation policy for cartel conduct (Draft Immunity Policy) and frequently asked questions. The Draft Immunity Policy is more reflective of the ACCC’s current practice. The consolidation of the relevant policy documents into a ‘one-stop shop’ by merging parts of the 2009 immunity policy, the 2009 guidelines and the relevant alleged cartel conduct component of the cooperation policy for enforcement matters is also a helpful improvement.

83 Rod Sims, ‘The ACCC’s 2013 priorities’ (speech delivered at the Committee for Economic Development of Australia (CEDA) conference, Australia, 21 February 2013) https://www.accc.gov.au/system/files/Speech%20-%20Sims%20-%20CEDA%20-%2021%20February%202013%20-%20Final%20(3).pdf.

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ii Misuse of market power as an ongoing priority

In 2008, the ACCC brought proceedings in the Federal Court alleging that Cement Australia Pty Ltd (Cement Australia) and others had engaged in contraventions of Sections 45, 46 and 47 of the TPA (now known as the CCA). The ACCC alleged that Cement Australia had a substantial degree of market power in the market for concrete grade fly ash, a cement replacement, in south-east Queensland, and had taken advantage of that market power for the purpose of locking out its competitors.

The ACCC’s misuse of market power case alleged that Cement Australia used its market power during a fly ash tender process in order to win exclusive supply of a product and foreclose its competitors. The ACCC had also alleged that the conduct of Cement Australia involved entering into contracts, arrangements or understandings with power stations in south-east Queensland for the supply of fly ash, which had the purpose, effect or likely effect of substantially lessening competition in contravention of the relevant legislation. The ACCC also made various corresponding allegations in relation to the ‘giving effect to’ these contracts.

Judgment was delivered in the case in 2013. The ACCC had mixed results: it was successful in its anti-competitive arrangement claims (under Section 45) but failed in its misuse of market power claims (under Section 46 of the CCA).84

Despite the ACCC’s lack of success to date in contested misuse of market power cases, Mr Sims has recently confirmed that those cases continue to be an enforcement priority. According to a recent speech, the ACCC currently has around 15 detailed investigations under way into alleged misuses of market power, with one further matter likely to be before the courts soon.85

iii Consideration of misleading and deceptive conduct

One of the most important decisions in consumer protection over the past 12 months was the High Court’s majority decision in ACCC v. TPG.86

That decision, handed down in December 2013, found for the ACCC on its appeal against TPG. The case concerned advertising by TPG in relation to telephone and internet services to residential customers. The ACCC alleged that TPG’s advertisements were misleading and deceptive by reason of the disparity between the prominent headline offering the relevant broadband service at an attractive price and the less prominent terms qualifying that offer. The ACCC also alleged that some of the advertisements contravened Section 53C(1)(c) of the TPA by failing to specify ‘in a prominent way and as a single figure, the single price’ for the package of services offered by TPG.

The High Court’s majority decision provides important guidance on the question of how the knowledge imputed to the reasonable consumer impacts the assessment of

84 Australian Competition and Consumer Commission v. Cement Australia Pty Ltd & Ors [2013] FCA 909.

85 Rod Sims, ‘CEDA conference: Looking Forward to 2014’ (Speech delivered at the CEDA conference, Australia, 21 February 2014) https://www.accc.gov.au/speech/ceda-conference-looking-forward-to-2014.

86 (2013) ALR 186.

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whether advertising is misleading or deceptive. It affirms that advertising of this nature is tested by reference to the ‘dominant message’ conveyed, even where the relevant consumer base may have other knowledge about the type of goods or services the subject of an advertisement.

iv Consideration of vertical arrangements for distribution

The decisions of the Federal Court in ACCC v. Australian and New Zealand Banking Group Limited 87 (the ANZ case) and ACCC v. Flight Centre Limited 88 (the Flight Centre case) have resulted in uncertainty in relation to the treatment of dual distribution models under the CCA (i.e., arrangements where a supplier both supplies its product directly and through a distributor). Both cases involve allegations by the ACCC that parties with a seemingly vertical relationship were competitors with each other and, as a result, were capable of engaging in unlawful price fixing.

The ANZ case concerned a major Australian bank, Australian and New Zealand Banking Group Limited (ANZ), and a third-party mortgage broker that distributed ANZ mortgages. The ACCC alleged that ANZ had, through in-house branches and other tied channels, provided loan arrangement services in competition with third-party mortgage brokers supplying ANZ mortgages. It also alleged that ANZ had engaged in price fixing by making and giving effect to an agreement requiring a third-party mortgage broker, Mortgage Refunds Pty Ltd, to agree to limit the amount of refund offered on the bank’s loans. Dowsett J found no contravention was established because he found that ANZ and mortgage brokers were not relevantly competitors, and, therefore, were not capable of engaging in price fixing.

The Flight Centre case concerned an established travel agent in Australia, Flight Centre Limited, and particular airlines for which it distributed air fares. The ACCC alleged that Flight Centre had competed with the relevant airlines for a retail or distribution margin on booking and distribution services. It also alleged that Flight Centre attempted to induce those airlines to enter into price fixing arrangements (in contravention of Section 45 of the CCA, through Section 45A of the TPA). Specifically, it alleged that Flight Centre attempted to induce the particular airlines to agree that any fare that the airlines offered directly to their customers would also be made available to Flight Centre, and that such a fare would be sold by the airline at a total price, including any charge for its booking services, of no less than the total of the net fare (the amount that Flight Centre must remit to the airline) plus the commission that Flight Centre would be entitled to be paid for its services. In the decision, Logan J found that Flight Centre and the relevant airlines (for which Flight Centre was acting as agent) were relevantly competitive and that Flight Centre’s conduct did constitute an illegal attempt to engage in price fixing. The court imposed a A$11 million penalty on Flight Centre.

The full implications of both cases are not yet known, as both cases have been appealed and the appeals are pending as at the time of writing.

87 [2013] FCA 1206.88 (No 2) [2013] FCA 1313.

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v The Senate Economics References Committee inquiry

ASIC has had a busy year. In addition to its regular investigation and deterrence activities, its performance in undertaking these activities has been the subject of a Senate Economics References Committee inquiry.

The inquiry followed criticism of ASIC’s handing of an investigation into activities of employees of a major Australian bank’s financial planning unit, including delays in addressing information supplied by whistle-blowers from the bank. The terms of reference for the inquiry are wide ranging and include an examination of ASIC’s enabling legislation and whether there are any necessary changes required; ASIC’s accountability framework and its complaints management policies and practices; and other related matters.89

The inquiry is ongoing, and its report is expected in mid-2014. Already, there have been explosive allegations made about the regulator’s failure to adequately address conflicts of interest,90 among other things. The committee has publicly commented that proposed changes (to be set out in its report) will be broad.91

vi Prosecution of directors’ conduct

In 2013, ASIC had mixed results in its actions against directors’ conduct, which involved some of Australia’s most public corporate failures following the global financial crisis. This has resulted in further criticism of ASIC’s performance as a regulator in deterring and dealing with corporate misconduct.

The Westpoint group of companies (Westpoint) was a large property investment business. It collapsed in 2006 owing more than A$388 million to investors.92 ASIC investigated the collapse and is currently pursuing multiple avenues to obtain compensation for investors, including actions against Westpoint directors, financial planners, auditors and relevant trustees.93 In early 2013, ASIC began proceedings against former officers who ASIC alleged had breached their duties, in contravention of Sections 184(2)(a) and 601FD of the Corporations Act. ASIC alleged that the former officers had engaged in asset stripping prior to Westpoint’s collapse, and that the officers had dishonestly backdated the transfer of an option to buy a shopping

89 Senate Standing Committees on Economics, Terms of Reference (2013) Parliament of Australia www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/ASIC .

90 Michael West, ‘Watchdog favoured big business, says former ASIC lawyer’, Sydney Morning Herald (online), 2 April 2014, www.smh.com.au/business/watchdog-favoured-big-business-says-former-asic-lawyer-20140402-35xt9.html.

91 Laura Millan, ‘Wake-up call for watchdog after inquiry’, Financial Standard (online), 22 April 2014, www.financialstandard.com.au/news/view/39573038.

92 ASIC, Background to the Westpoint collapse (19 March 2010) https://westpoint.asic.gov.au/wstpoint/wstpoint.nsf/byheadline/Background+to+the+Westpoint+collapse?opendocument.

93 ASIC, Summary of claims (19 March 2010), https://westpoint.asic.gov.au/wstpoint/wstpoint.nsf/byheadline/Background+to+the+Westpoint+collapse?opendocument.

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centre in Perth.94 The trial was discontinued in mid-2013 after ASIC located a document relevant to the charges. The content of this document was not publicly released, but there was speculation in the media that it was a detailed file note from auditor KPMG that proved the ACCC’s allegations could not be substantiated.95 Following an assessment of the document in the context of the prosecution’s case, the Commonwealth Director of Public Prosecutions advised the court that the case should proceed no further.96

ABC Learning Centres Limited was one of the largest providers of early childhood education services in the world, and it collapsed in 2008. ASIC has come under criticism that many of the key players have appeared to have avoided prosecution for the collapse. In 2013, however, the former ABC Learning chief financial officer was charged with three counts of authorising false or misleading information in relation to information made available to auditors conducting a review of the company’s accounts in 2006.97 The committal hearing for this matter is set for mid-2014.

Storm Financial Limited was a financial advice company involved in investment home lending, margin lending and related advice. ASIC has been investigating the affairs of Storm Financial since December 2008, and the investigations are continuing. A key focus of ASIC’s investigations is to consider recovery of compensation for Storm investors who suffered financial losses as a result of a Storm investment.98 ASIC had some success in its prosecution of the Storm Financial founders, when in June 2013, the Federal Court dismissed an application seeking summary dismissal of ASIC’s case. Also, in August 2013, the Federal Court of Australia upheld ASIC’s appeal against court approval of the A$82.5 million settlement between former Storm Financial investors and Macquarie Bank, although that appeal was also the subject of criticism,99 seen in some quarters as ASIC meddling in a settlement otherwise acceptable as between investors and the bank, and where ASIC had not initially taken action itself.

94 ASIC, ‘ASIC brings criminal charges against Westpoints Norm Carey and Graeme Rundle’ (Media Release, 11-132AD, 1 July 2011) https://www.asic.gov.au/asic/asic.nsf/byheadline/11-132AD+ASIC+brings+criminal+charges+against+Westpoints+Norm+Carey+and+Graeme+Rundle?openDocument.

95 Eli Greenblat, ‘ASIC drops Westpoint case, Carey to sue’, Sydney Morning Herald (online), 14 May 2013, www.smh.com.au/business/asic-drops-westpoint-case-carey-to-sue-20130514-2jk5h.html.

96 ASIC, ‘Statement on Westpoint action’ (Media Release, 13-105MR, 14 May 2013) www.asic.gov.au/asic/asic.nsf/byheadline/13-105MR+Statement+on+Westpoint+action?openDocument.

97 ASIC, ‘Former ABC Learning CFO charged’ (Media Release, 13-104MR, 10 May 2013) https://www.asic.gov.au/asic/asic.nsf/byheadline/13-104MR+Former+ABC+Learning+CFO+charged?openDocument.

98 ASIC, Overview of ASIC’s Storm, https://storm.asic.gov.au/storm/storm.nsf/.99 See, for example, Leanne Mezrani, ‘Firm slams appeal decision in Storm case, Lawyers Weekly

(online), 13 August 2013, www.lawyersweekly.com.au/news/levitt-robinson-slams-appeal-decision-in-storm-cas.

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vii ASIC treatment of anti-bribery allegations

In March 2012, ASIC announced that the Australian Federal Police (AFP) had provided it with material relating to foreign bribery allegations concerning two Australian companies, Securency International Pty Ltd and Note Printing Australia Limited. ASIC noted at that time that it had reviewed this material from the AFP for possible director’s duty breaches but had decided not to take enforcement action.100

Over the past 12 months, ASIC’s decision not to take such action received significant negative media attention and led to questions being asked about ASIC’s commitment to enforcing breaches of the Corporations Act generally.101 ASIC defended its position on the basis that it was the AFP that was primarily responsible for the investigation of the bribery of foreign officials under the Criminal Code Act 1995 (Cth). ASIC argued that the AFP was better equipped to run such investigations, having dedicated staff and access to resources not available to ASIC; and that while ASIC could have initiated a parallel civil investigation into any potential directors duties breaches, any potential criminal proceedings may have been compromised by such activity.

Nevertheless – and seemingly in response to the media criticism it received – in October 2013 ASIC entered into an MoU with the AFP, defining the role of each agency in respect of foreign bribery investigations.102 ASIC has also arranged to second staff to the AFP to assist with foreign bribery investigations.

viii Changes and developments at the ATO

Over 734,684 reviews and audits were conducted in 2012–13, raising an additional A$11.158 billion in liabilities; the forecast for 2013–14 is to extend these activities, with an increased reliance on data-matching.103 Despite these figures, developments in ATO investigations and the enforcement of taxation law has been relatively minimal over the past 12 months.

However, after announcements in the Federal Government’s 2014–5 Budget, a total of 4,700 jobs will be cut from the ATO over a four-year period, starting with 2,100 by October 2014.104 It is unclear how these cutbacks will affect the manner in which the ATO carries out its investigative and enforcement functions.

In 2013, the ATO appointed a new Commissioner of Taxation, Chris Jordan, a former tax partner at KPMG. This change in leadership has seen a shift in the ATO’s

100 ASIC, ‘Statement on Securency International and Note Printing Australia’ (Media Release, 12-47AD, 12 March 2012) www.asic.gov.au/asic/asic.nsf/byheadline/12-47AD+Statement+on+Securency+International+and+Note+Printing+Australia?openDocument.

101 See ASIC’s reaction in ASIC, ASIC response to ABC TV’s Four Corners’ questions (30 September 2013) www.asic.gov.au/asic/asic.nsf/byheadline/ASIC+response+to+ABC+TV’s+Four+Corners’+questions+-+30+September+2013?openDocument.

102 A copy of the MoU is available online at www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/AFP-MoU-Oct%202013.pdf/$file/AFP-MoU-Oct%202013.pdf.

103 ATO, ‘Compliance in Focus 2013-14’ (Media Release, QC 35735, 19 December 2013) https://www.ato.gov.au/uploadedFiles/Content/CS_C/downloads/CSC35735NAT74689.pdf

104 Treasury, ‘Budget Paper No. 2: Budget Measures 2014-15’ (14 May 2014) p. 214.

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enforcement policy, with an increased willingness to settle disputes with taxpayers. This is evident from the number of settlements increasing by approximately one third.105

This trend towards dispute resolution has been coupled with the introduction of independent reviews for income tax audits for large businesses. This process involves a review of the technical merits of an audit case prior to finalisation of the ATO’s position. Following on from this, an open and direct discussion with the taxpayer is facilitated with the use of third parties, such as former Federal Court and High Court judges, focused on early neutral evaluation and mediation.106 The aim of this new process is to have the third party reviewer take a fresh look at the application of the law to the facts and issues in dispute. The reviewer will act as a neutral evaluator of the dispute. The impact of this process is expected to result in a reduction in litigation and a move to settle disputes through alternative means.

As in other parts of the world, the ATO is also having to deal with the complexities of base erosion and profit shifting. This is an area of focus for the government and has been the subject of significant media coverage. This will therefore be an area of increasing interest for, and enforcement activity by, the ATO.

VI CONCLUSIONS AND OUTLOOK

The ACCC remains a vigorous enforcer, continuing to use its wide-ranging investigative powers. In 2013, it has had mixed success in the cases brought by it before the courts.

ASIC has also had mixed results over the past year in its enforcement action, and has suffered intense public scrutiny of its performance under the Senate Economics Committee inquiry. It will face some challenges over the next 12 months as the inquiry report is published.

The ATO is currently dealing with continuing legislative change while increasingly shifting its focus to alternative dispute resolution. Like all revenue authorities, the ATO is also trying to deal with complex questions of base erosion and profit shifting and this promises to be an area of continuing activity and focus for the ATO.

105 ATO, ‘Commissioner’s address to TIA’ (Speech, QC 39692, 27 March 2014), https://www.ato.gov.au/Media-centre/Speeches/Commissioner/Commissioner-s-address-to-TIA/.

106 Ibid.

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Appendix 1

ABOUT THE AUTHORS

RANI JOHNGilbert + TobinRani John is a partner with Gilbert + Tobin, specialising in complex litigation. She has wide-ranging experience in commercial litigation and advice work, including high-profile and large-scale trade practices litigation, regulatory investigations and litigation by ASIC, the ACCC and other regulators, and corporations and securities law. Her clients include major corporates, financial institutions, statutory corporations and professional advisers. She has been recognised in Chambers Global, Chambers Asia Pacific, Best Lawyers, Euromoney Expert Guides, Doyle’s Guide and Benchmark Asia-Pacific as a leading lawyer in dispute resolution.

ELIZABETH AVERYGilbert + TobinElizabeth Avery is a partner in Gilbert + Tobin’s competition and regulation group. Her practice includes advising on enforcement litigation and investigations, merger clearances and ongoing strategic and operational advisory work, as well as compliance training. Her practice spans a broad range of industries, including financial services, resources, infrastructure, technology, retailing and travel and hospitality. She has a particular focus on multi-jurisdictional matters. Prior to joining Gilbert + Tobin, Ms Avery was an antitrust lawyer in the New York office of Weil, Gotshal & Manges LLP for seven years. She is listed in Chambers Asia Pacific, GCR’s Who’s Who Legal: The International Who’s Who of Competition Lawyers and Euromoney Expert Guides. She was named ‘Rising Star’ at the 2013 Euromoney Australiasian Women in Business Law Awards, and was the only Australian featured in GCR’s ‘100 Women in Antitrust’ in March 2013.

About the Authors

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PETER FEROSGilbert + TobinPeter Feros joined Gilbert + Tobin in October 2008, as a tax partner; prior to joining Gilbert + Tobin, he was a tax partner at PricewaterhouseCoopers. Mr Feros has over 17 years’ experience in advising Australian-listed and foreign multinational companies on Australian corporate taxation and taxation controversy related issues, including mergers and acquisitions, and disputes with the Australian Taxation Office (including audits and investigations). Mr Feros has diverse industry expertise, encompassing the private equity, telecommunications, technology, entertainment, media, consumer product, industrial product and property sectors.

GILBERT + TOBINLevel 37, 2 Park StreetSydney NSW 2000AustraliaTel: +61 2 9263 4000Fax: +61 2 9263 4111rjohn@gtlaw.com.auwww.gtlaw.com.au