White-Collar and Corporate Crime Run Rife in Australia, as ASIC Stands By and Watches

No one would accuse federal, territory and state police agencies of neglecting their mandated pursuit of enforcing the criminal law. But the criticism could be made about most Australian policing agencies having public image issues, as they do little by way of “keeping up appearances”.

However, when it comes to the enforcer of white-collar crimes in this country, the Australia Securities and Investments Commission it’s often criticised for its neglect to pursue corporate crime, while a new report suggests that because of this, ASIC instead prioritises “managing its reputation”.

Indeed, ASIC, the nation’s main corporate and financial regulator, has come under increasing criticism over the past decade, due to its inadequacy in carrying out its mandate, which has a lot to do with that remit having been broadened repeatedly by successive governments.

The Senate Standing Committee on Economics was charged with investigating the “capacity and capability” of ASIC “to undertake proportionate investigation and enforcement action arising from reports of alleged misconduct” in October 2022.

And, released last week, the committee’s report into ASIC found a watchdog that does have teeth to bare, but is too afraid to use them, as it pursues a mere fraction of the corporate misconduct complaints that come its way, which leads to a dearth of enforcement in terms of corporate law.

Corporate crime does pay

“While ASIC tries to deflect criticism that it is a weak corporate regulator by promoting its recent enforcement actions, the reality remains that corporate law is underenforced in Australia,” the committee report’s executive summary outlines.

“ASIC’s response to most reports of alleged misconduct is to take no further action and only a fraction of reports are investigated,” the document adds.

The corporate watchdog receives about 8,000 to 10,000 misconduct reports a year from the public, as well as thousands more via mandatory reporting, such as those stemming from auditor reports.

And the complaints received cover a range of unlawful behaviour, ranging from insider trading to deceptive messaging about financial products and harmful lending practices.

According to the senators making up the committee, a complaint made to ASIC can result in several outcomes: investigation, enforcement or no action taken. And the committee members found that the latter result is what happens with the overwhelming majority of complaints made to ASIC.

So, over 2022-23, ASIC received 17,503 misconduct reports. However, only 14 percent of these were deemed as requiring further action, while 63 percent of the allegations received no further action, and a further 14 percent were found to fall outside of ASIC’s remit.

The report also found that the percentage of misconduct allegations that are assessed as requiring no further action has doubled over the past decade, with 33 percent being rejected in 2011-12, while in 2021-22, the complaints set aside accounted for 66 percent of the total received.

And in terms of the matters that ASIC does take enforcement action against, “the civil penalties imposed are often at odds with the scale of the offending”, the committee report underscores and adds that only a few criminal sanctions are ever achieved.

Too broad a mandate

An issue that the Senate committee has identified as a major impediment to the nation’s corporate law enforcer delivering justice is that its remit is way too broad, and this is an issue that’s progressively stifled the independent statutory body as its mandate has increasingly grown.

ASIC was established in 1991 as the Australian Securities Commission: a national body established to incorporate the preexisting federal, state and territory corporate regulators. And in 1998, when its mandate was broadened to include consumer protection, it became known as ASIC.

In terms of the protections for consumers, this involves matters regarding superannuation, insurance and deposit-taking.

And these days, ASIC is governed by the Australian Securities and Investments Commission Act 2001 (Cth), and since that year, a key part of its role is overseeing that business entities abide by the Corporations Act 2001 (Cth), or otherwise face the civil or criminal penalties contained within it.

If corporate crimes are identified by the corporate regulator, a prosecution can be launched, and ASIC, often with the assistance of the Australian Federal Police, will conduct the investigation.

And in 2010, ASIC was further burdened with more responsibilities in terms of regulating and oversighting trustee companies, consumer credit, financial broking and the supervision of trading on the Australian licensed equity, derivatives and futures market.

“In 2021–22, ASIC regulated over 95,000 entities of varying size and complexity, including 1,841 public companies, 6,288 financial services licensees and 1,183 securities dealers,” the report sets out, adding that as far as corporate regulators go globally, ASIC’s remit is one of the broadest.

And in terms of what that means in actual cases pursued, over that same year, 2021-22, 75 new civil cases were opened, and 52 new criminal cases were launched.

And the report underscores that while ASIC refers the most serious cases it identifies to the Commonwealth Director of Public Prosecutions, over recent years, these referrals have been dropping in number.

“Comprehensibly failed”

The Senate report on ASIC further laments that “too often” the independent body fails to respond to “early warnings of corporate misconduct and does not routinely use the full extent of its powers to achieve strong enforcement outcomes”.

“This approach fails to deliver justice to the victims of corporate crimes, undermines economic productivity and does not deter future poor behaviour,” the document adds, as it hints at the clear need for reform.

The Senate Standing Committee on Economics report has delivered eleven recommendations, with the initial one being that the government should recognise that ASIC has “comprehensively failed” in its remit and that this is because of how broad its mandate is.

While it’s second recommendation is to split up the independent body into two new agencies with one being “a companies regulator” and the other comprising “a separate financial conduct authority”.

And as the report identifies that “ASIC has extensive powers” but fails to properly enforce them, it would be expected that the new bodies not only have a similar broad reach to penalise wrongdoers but that they’re also encouraged to robustly enforce these laws. 

“Clearly, exercising ASIC’s responsibilities needs to be done better and it needs to be done differently,” the Senate committee outlined in concluding its executive summary.

“Continually assigning ASIC more duties and powers will simply deliver more of the same result: an overburdened and monolithic regulator that fails to meet expectations.”