Global Investigations Review - The law and practice of international investigations

Securities & Related Investigations

Last verified on Tuesday 15th November 2016

Australia

Robert R Wyld, Andreas Piesiewicz and Thomas Burns
Johnson Winter & Slattery

    Regulatory environment

  1. 1.What are your country’s primary securities or related law enforcement authorities? 
  2. The primary securities and related law enforcement authorities in Australia, at the federal level, are the Australian Securities and Investment Commission (ASIC), the Australian Federal Police (AFP) and the Australian Prudential Regulatory Authority (APRA). The Australian Securities Exchange (ASX) has regulatory responsibilities in relation to entities listed on the exchange and there are various state enforcement authorities. The principal authority for market and competition issues is the Australian Competition and Consumer Commission (ACCC). While the ACCC is a proactive market regulator, its work does not focus to any significant degree on securities investigations or proceedings and will not therefore be covered in this text. Its focus is more on consumer claims and anticompetitive conduct including cartel conduct. This text focuses of the activities of ASIC and the AFP. Where serious criminal conduct is identified, ASIC, the AFP and/or the Australian Tax Office (ATO) may work with or establish a taskforce involving the Australian Crime Commission (ACC) which can exercise significant compulsive powers in secret to interrogate individuals and gather evidence (under the terms of the Australian Crime Commission Act 2002 (Cth)).

    Where a Commonwealth criminal offence is prosecuted, it is normally prosecuted by the independent statutory prosecutor, the Commonwealth Director of Public Prosecutions (CDPP). 

  3. 2.What are the principal violations or legal issues that the securities or related law enforcement authorities investigate?
  4. Some of the principal violations that ASIC investigates include breaches of continuous disclosure obligations, misleading and deceptive conduct in relation to financial services, insider trading offences, breaches of directors duties and market manipulation. 

  5. 3.If there is more than one authority involved in a securities or related investigation, how is jurisdiction allocated? What is the interplay between the securities regulator and the public prosecutor?
  6. ASIC administers, among other laws, the Corporations Act 2001 (Cth) (Corporations Act). ASIC is responsible for investigating and prosecuting breaches of that act. ASIC has the power to initiate civil proceedings and criminal prosecutions. However, in practice it usually refers criminal prosecutions to the CDPP and is assisted in criminal investigations by the AFP. The AFP is responsible for investigating offences against Commonwealth laws while the CDPP is responsible for prosecuting such offences. APRA is responsible for regulating deposit taking institutions and the ASX has the power to regulate entities and securities listed on its exchanges.

    In Australia there is a concept of civil penalties. Civil penalties are similar to criminal penalties but they are dealt with under civil procedure and the standard of proof is the balance of probabilities (Corporations Act, section 1332). The proceedings are generally brought by ASIC itself. While such penalty proceedings are civil matters, some of the same protections that are afforded in relation to criminal proceedings are also afforded in relation to civil penalty proceedings, for example, the privilege against self-incrimination.

  7. 4.Do the securities or related law enforcement authorities have investigatory powers? Can they bring administrative, civil or criminal proceedings? 
  8. Yes, ASIChas a general power to undertake investigations under section 13(1) of the Australian Securities and Investment Commission Act 2001 (Cth) (the ASIC Act) ‘for the due administration of the corporations legislation’. ASIC may use this power where it has reason to suspect that there has been a contravention of the corporations legislation that relates to the management of a body corporate or managed investment scheme or where it suspects there has been a contravention of another law that involves dishonesty and relates to a body corporate, managed investment scheme or financial product.

     

    Under section 19 of the ASIC Act, where ASIC believes, on reasonable grounds, that a person has information that could assist them in an investigation, ASIC may require that person, by written notice, to assist them in their investigation or to appear and answer questions on oath.

     

    Under sections 30, 31, 32A and 33 of the ASIC Act, ASIC has the power to issue notices that require the production of documents. ASIC may require the production of documents relating to the affairs of a body corporate, financial products and financial services. ASIC has the power to initiate criminal, civil penalty and civil proceedings, to intervene in third party civil proceedings related to a Corporations Act matter and to begin and carry on ‘public interest’ proceedings in a company’s or person’s name. In practice it generally refers criminal proceedings to the CDPP for prosecution (save for minor regulatory prosecutions).

    ASIC Information Sheet 145 provides general information on ASIC’s compulsory information-gathering powers. 

    Section 3E of the Crimes Act 1914 (Cth) (Crimes Act) provides that an officer of the AFP may obtain a search warrant from an issuing officer (a magistrate or authorised justice of the peace) to conduct a search of a premises. The warrant may be issued where the issuing officer is satisfied that there are reasonable grounds for suspecting that there is or will be evidentiary material at the premises concerning an offence or the commission of an offence.

    Under section 3XQO of the Crimes Act, an AFP officer may apply to a Federal Circuit Court Judge for a notice requiring a person to produce documents. The officer can apply where they consider on reasonable grounds that the person has documents that are relevant to an investigation into a serious offence. The AFP generally refers matters to the CDPP where it considers that its investigation has uncovered enough evidence to support a criminal prosecution.

     

  9. 5.Are regulatory or criminal securities and related investigations public? Under what circumstances? 
  10. In general, all regulatory or criminal securities investigations are private and not disclosed to the public.

    Under section 127 of the ASIC Act, ASIC must keep confidential information given to it in the course of carrying out its functions under the corporations legislation, including information it acquires during its investigations. Examinations conducted under section 19 of the ASIC Act are required to be conducted in private (section 22, ASIC Act). Generally, ASIC also requires the examinee to keep confidential the matters the subject of the examinations. In some circumstances, however, ASIC may disclose information it obtains in the course of its investigations or be compelled to do so – see question 29 below.

  11. 6.Are regulatory or criminal securities and related investigations targeted at the company or the individuals involved, or both?
  12. Securities investigations may be targeted at both individuals and companies. Certain provisions of the Corporations Act, for example, those concerning directors’ duties, only impose liability on individual persons. Other provisions impose liability on both companies and individuals, or can give rise to accessorial liability for an individual who is ‘involved’ in a contravention by a company. Where criminal proceedings are considered, the prime focus is traditionally on the conduct of individual directors and officers of a company. ASIC Information Sheet 151 sets out its approach to enforcement. 

    Investigation procedure

  13. 7.How do the securities and related law enforcement authorities typically begin an investigation?
  14. In general, ASIC may commence an investigation upon learning of suspicious conduct involving a company or corporate activity regulated by it. The initial information may come from any number of sources including the company, an individual, a whistleblower, suppliers, competitors, the media, ASIC’s own monitoring/market surveillance, referrals from another regulator and/or reports to ASIC as required by law.

    Typically ASIC begins an investigation by issuing notices, under section 30 or 33 of the ASIC Act, requiring a person to produce books and documents or through requiring a person to appear at an examination, under section 19 of the Act.

  15. 8.What level of suspicion of wrongdoing is required for the securities or related law enforcement authorities to begin an investigation?
  16. Under section 13(1) of the ASIC Act, ASIC may begin an investigation ‘where it has reason to suspect that there may have been (a contravention) committed’. For ASIC to ‘suspect’ that a contravention has been committed ‘requires a degree of satisfaction, not necessarily amounting to belief, but at least extending beyond speculation as to whether an event has occurred or not.’ (Commissioner for Corporate Affairs (Vic) v Guardian Investments Pty Ltd (1984) 9 ACLR 162, 167). ASIC is required to hold both an ‘honest suspicion’ and have ‘good grounds for holding the relevant suspicion’ (Commissioner for Corporate Affairs (Vic) v Guardian Investments Pty Ltd (1984) 9 ACLR 162, 168). It is not necessary that ASIC suspects that a particular person has committed a contravention only that it suspects that a contravention has been committed (NCSC v Sim (No 2) (1986) 4 ACLC 719, 725). 

  17. 9.May the securities or related law enforcement authorities conduct dawn raids? Does this depend on the nature and seriousness of the allegations?
  18. Yes, the AFP has the power to conduct ‘dawn raids’ under the ASIC Act. Where ASIC has reasonable grounds to suspect that there are or may be books whose production could be required under Division 3 of the ASIC Act, ASIC may apply for a search warrant under section 35. Section 28 sets out when ASIC may exercise its powers, in Division 3, to require the production of books. Among other powers, ASIC may require the production of books in relation to an alleged contravention of the law that relates to a body corporate or financial product and involves dishonesty. Where ASIC makes such an application, a magistrate may, under section 36, issue a search warrant to a member of the AFP authorising them to enter a premises and search for those books. Section 36 (4)(b) provides that the warrant must state whether the search is authorised to be conducted at any time of the day or whether it can only be conducted within specified hours. 

    If the AFP considers, independently, that criminal offences may have been committed, they can apply for a search warrant and conduct their own dawn raid.

  19. 10.Must the findings of a company internal review be reported to the securities or related law enforcement authorities? When and under what circumstances?
  20. A company is under no obligation to report the findings of an internal review to securities or law enforcement authorities.

    However, in New South Wales (but not other Australian states or territories), where a person has committed a serious indictable offence and another person knows or believes that the first person has committed an offence and has information that could assist law enforcement authorities in prosecuting the first person, it is an offence for the second person to fail, without reasonable excuse, to inform law enforcement authorities of that information (section 316 Crimes Act 1900 (NSW)).

    Under section 44 of the Crimes Act and other state and territory legislation, it is, among other offences, an offence to ask for or accept a benefit in return for withholding evidence of an offence. 

  21. 11.Are whistleblowers a frequent source of information for securities and related investigations? 
  22. The perception is that whistleblowers are a frequent source of information for securities and related investigations. However, it is hard to quantify the percentage of investigations that are started by a whistleblower or involve a whistleblower as there are no statistics on this point in Australia. Where a whistleblower makes a form of ‘protected disclosure’ about conduct concerning the company amounting to a likely contravention of the Corporations Act to the employer, an auditor or ASIC, the employee is entitled to certain statutory protections (see Part 9.4AAA, sections 1317AA to 1317AE, Corporations Act). 

  23. 12.Describe the typical phases of a securities or related investigation in your country.
  24. Upon receiving or learning of that information, ASIC will usually review any evidence that has been provided to it and assess the apparent misconduct in question including the extent of any harm or loss, the benefits of pursuing the apparent misconduct relative to the cost, the seriousness of the apparent misconduct, and whether there is an alternative course of action – such as surveillance or stakeholder engagement. Following assessment of those matters, it may then begin gathering evidence, for example, ASIC may use its powers to examine witness and compel the production of documents. After completing this information gathering process, ASIC will consider whether it should initiate civil proceedings in regard to the conduct or refer the matter to the AFP for any further investigation and/or to the CDPP for criminal prosecution. 

  25. 13.What are the mechanisms by which a securities or related law enforcement authority may cooperate and coordinate with authorities outside your jurisdiction?
  26. Australian securities and related enforcement authorities such as ASIC, the AFP and the Australian Taxation Office (ATO) have many inter-agency agreements that allow them to exchange information with agencies in other jurisdictions. For example, ASIC has numerous memoranda of understanding with financial market regulators in the United States, the United Kingdom, Canada and numerous European, African and Asian countries to facilitate, amongst other things, sharing information and cooperation between the regulators in those countries. The Mutual Legal Assistance Act 1987 (Cth) exists to facilitate a formal process for Australia to receive and seek legal assistance in criminal matters from other jurisdictions and to regulate the way in which Australia provides legal assistance to other jurisdictions. Informally, Australian securities and law enforcement authorities regularly speak with similar agencies in other jurisdictions and invariably coordinate their investigative functions.

  27. 14.Will a securities or related law enforcement authority take into account findings by a law enforcement authority outside your jurisdiction in the course of its investigation?
  28. Yes, Australian securities and law enforcement authorities will take into account the findings of foreign authorities. Section 1317M of the Corporations Act states that a court must ‘not make a declaration of contravention or a pecuniary penalty order against a person for a contravention if the person has been convicted of an offence constituted by conduct that is substantially the same as the conduct constituting the contravention’. The principle of double jeopardy applies under Australian law and may arise at different stages of a criminal proceeding (see Bui v Director of Public Prosecutions (Cth) [2012] HCA 1 at [13] to [14]). The AFP generally takes the view that it is responsible for investigating potential contraventions of Australia’s criminal law by Australian persons (companies and individuals). However, if the AFP suspects that there has been a crime committed by a foreign person, over which conduct the AFP has jurisdiction, and it believes that action will not be taken against the foreign person in their own country, the AFP will consider investigating the foreign person and potentially seeking their extradition to Australia to stand trial for those offences.

    Document production

  29. 15.What can the securities and related law enforcement authorities require to be produced as part of an investigation? Do the powers of a regulator differ from those of the public prosecutor?
  30. Among other powers, ASIC may give a written notice to companies and persons under sections 30 and 33 of the ASIC Act requiring the production of ‘Books’, that relate to the affairs of a body corporate, a financial service, a financial product or financial market. ‘Books’ is defined to include, registers, financial reports, documents and any other record of information. ASIC’s powers to seek production of documents is fairly broad although attempts can be made to negotiate and narrow down the extent of documents sought in any notice. 

    These powers are different from those of the CDPP. Evidence is usually gathered for criminal proceedings either by ASIC or the AFP (whose power to require the production of documents is discussed above at question 4). This evidence is then usually given to the CDPP, the public prosecutor. The CDPP is not an investigative agency. Once any criminal prosecution commences, the CDPP has certain obligations of disclosure (as do defendants) that are often governed by state criminal procedure legislation.

  31. 16.Will a litigation hold or will other instruction to preserve documentation need to be issued? When?
  32. There is no mandatory requirement to issue a ‘litigation hold instruction’ but it is a prudent step to take in Australia to avoid any allegation that a company or individual has destroyed potentially relevant documents. Under section 54 of the Victorian Crimes Act 1958 (Vic), it is an offence for a person to destroy documents when that person knows that those documents are reasonably likely to be required in evidence in a legal proceeding. The destruction of documents may amount to a contempt of court and adverse inferences can be drawn against a party that destroys documents in proceedings to which the documents are or may be relevant. 

  33. 17.Can the securities and related law enforcement authorities request the production of materials protected by attorney-client privilege or work-product doctrine? Can the securities and related law enforcement authorities use protected materials if it obtains them from third parties?
  34. Yes, ASIC has the power to request the production of documents subject to legal professional privilege (or client legal privilege as it is known under the Commonwealth and State Evidence Acts, see sections 118 and 119 Evidence Act 1995 (Cth)), for example through issuing notices to produce documents under section 33 of the ASIC Act (Corporate Affairs Commission (NSW) v Ulli & Ors (1991) 9 ACLC 843). A notice under sections 30 or 33 may also be issued to third parties who have documents in their possession that relate to the matter under investigation, including documents that may be subject to a claim of legal professional privilege.

    However, a party who is entitled to claim privilege may withhold the documents on that basis or disclose them on a limited and confidential basis pursuant to ASIC’s Voluntary confidential LPP disclosure agreement to maintain the claim of privilege (ASIC Information Sheet 165). Alternatively, the party may choose to waive privilege and hand over the documents. In addition, a lawyer may refuse to comply with a requirement of ASIC to produce documents that are subject to a claim of legal professional privilege (section 69, ASIC Act). 

    When an objection is made to production on the basis of privilege, the person objecting must provide a notice to ASIC setting out sufficient information to identify the document over which privilege is claimed and the basis of the privilege claim.

    Where the AFP executes a search warrant over legal premises or like places and seeks to seize documents over which claims can properly be made to protect privileged communications, these are dealt with pursuant to the General Guidelines between the Australian Federal Police and the Law Council Of Australia as to the Execution of Search Warrants on Lawyers' Premises, Law Societies and Like Institutions in Circumstances where a Claim of Legal Professional Privilege is Made 1997. These Guidelines require privileged documents to be sealed, held independently and failing agreement between the parties on disclosure, for an application to be made by the holder of the privilege to a court to substantiate the claims.

  35. 18.How is confidential information or commercially sensitive information treated by the securities and related law enforcement authorities?
  36. Under section 127 of the ASIC Act, ASIC is generally required to keep confidential information that is given to it in the course of ASIC carrying out its functions under the corporations’ legislation. As conducting securities investigations is one of ASIC’s functions under the corporations legislation, ASIC is generally obliged to maintain the confidentiality of information that it obtains during investigations, including that of commercially sensitive information, although in some circumstances this information can be released (see below at question 29). In these circumstances, steps can be taken to seek to impose a confidentiality regime over the commercially sensitive information.

  37. 19.Can the target of a document request exercise a right not to produce?
  38. No, in general the target of a document requested by ASIC is required to comply with the request. This is subject to some limited exceptions such as the right to assert legal professional privilege over documents they hold, under section 69 of the Act. Attempts can also be made to narrow, by agreement, the scope of the production requirement.

  39. 20.Do any data privacy or bank secrecy laws restrict the production of materials to a securities or related law enforcement authority in your jurisdiction? An authority outside your jurisdiction? May the company under investigation provide personal or bank customer data on a voluntary basis?
  40. No, most data privacy laws in Australia have exceptions that permit a party to disclose a document where it is compelled to do so by order of a court or a relevant investigative agency. A formal request for access to materials held in Australia from a foreign agency would have to comply with the Mutual Legal Assistance Act. Australian privacy laws prevent any entity holding ‘personal information’ from disclosing that data (see the Privacy Act 1988 (Cth) and the Australian Privacy Principles). However, such data may be able to be disclosed with the customer’s consent, which may be provided through the agreement the company has with its customer, where that agreement provides for such a disclosure. In addition, that data can be disclosed to agencies outside Australia subject to certain conditions protecting the privacy of that data (see Australian Privacy Principle 8 under the Privacy Act 1988 for cross-border data disclosures).

  41. 21.Are there any data privacy, bank secrecy or other laws that restrict where documents or other communications may be stored or reviewed for the investigation?
  42. No.

  43. 22.Are the securities and related law enforcement authorities able to obtain documents from outside the country?
  44. ASIC may make requests to securities authorities in other jurisdictions to provide it with documents held outside of Australia. ASIC has cooperation agreements with authorities in many other jurisdictions to facilitate the cross-border exchange of documents.

    Witness interviews

  45. 23.Will the securities and related law enforcement authorities conduct witness interviews? If so, will the interviews be on the record? Will the interviews be made public?
  46. ASIC will conduct witness interviews either informally or through compulsory examination under its power in section 19 of the ASIC Act. These interviews will be recorded. Section 22 of the ASIC Act provides that section 19 examinations are to be conducted in private. The interview will not ordinarily be made public or disclosed to a third party. However, ASIC may give a record of the interview to a person’s lawyer if the lawyer satisfies ASIC that the person is carrying on, or is contemplating in good faith, a proceeding in respect of a matter to which the examination relates (section 25(1), ASIC Act), and section 25(3) also confers a further to discretion to provide a record of the interview to another person. Further, ASIC may be compelled to disclose the record by court orders (including subpoenas) made in other court proceedings, and, pursuant to section 127 ASIC, may also release a copy of the record to (specified) agencies.

  47. 24.Can witnesses exercise a right not to testify? Will any adverse inference be drawn if they do so?
  48. In a compulsory examination under section 19 of the ASIC Act, a witness is required to respond to questions. The witness cannot refuse to answer questions on the basis of self-incrimination. However, a witness is entitled to claim the privilege against self-incrimination before answering questions. Where a witness claims privilege against self-incrimination, the answers are generally inadmissible in criminal or civil penalty proceedings against that person (section 68, ASIC Act). However, the authorities may make such derivative use of information so gathered in order to find the evidence, otherwise inadmissible, by other means. A witness may also refuse to answer questions on the basis of legal professional or client legal privilege, where responding to the question would reveal the content of privileged communications that the witness is entitled to claim privilege over. 

  49. 25.Do witnesses receive separate counsel? Who provides counsel for witnesses?
  50. Section 23 of the ASIC Act provides that a lawyer may attend the section 19 examination on behalf of the witness. The witness must provide for and pay their own counsel although if the witness is a company director or officer, a company may pay for the witness to be represented, by a company lawyer or an independent lawyer (subject to the circumstances). 

    Advocacy

  51. 26.Can the target of a securities or related investigation challenge the investigation in court while the investigation is ongoing?
  52. Yes, the target of a securities investigation can challenge the investigation while the investigation is ongoing. Section 13 of the ASIC Act provides ASIC with its general powers of investigation. ASIC may undertake investigations where it ‘has reason to suspect that there may have been a contravention committed’. It is possible for the target of a securities investigation to challenge whether ASIC held the relevant suspicion. See question 8 for a further discussion of the requirements for ASIC to hold a suspicion for the purposes of section 13 of the ASIC Act. If so, proceedings may be commenced seeking declarations and/or injunctions/stay orders against ASIC on the grounds that any investigation or investigative conduct is not authorised by statute and is beyond ASIC’s power. 

  53. 27.What opportunity will there be to respond to a securities or related law enforcement authority’s theories or allegations prior to the authority bringing charges?
  54. While an investigating authority is not generally obliged to provide the target of an investigation with an opportunity to respond before proceedings commence (Cornall v A.B (1995) 1 VR 372), there are usually several opportunities to respond to securities and related law enforcement’s allegations before any charges are laid. Where ASIC uses its powers under section 19 of the ASIC Act to examine a witness, the witness can respond to ASIC’s questions and, to the extent that the questions permit, put their defence to the contravention that is suspected of having been occurred. There are usually regular informal conversations between the investigating officer and the target or the investigation’s legal counsel. It is possible for the target of an investigation to apply for a no action letter from ASIC. A no-action letter is a letter from ASIC to the target of an investigation that states that ASIC does not intend to take regulatory action in relation to particular conduct (ASIC Regulatory Guide 108 p. 4). However, a non-action letter is not binding and ASIC may withdraw the letter at any time (ASIC Regulatory Guide 108 p. 4).

  55. 28.What form does the advocacy with a security or related law enforcement authority typically take? 
  56. Typically advocacy with securities and law enforcement authorities, before proceedings have commenced, take the form of meetings with the investigating authority and correspondence or submissions in writing to the authority. As mentioned above at question 27, it is also possible to make an application to ASIC for a no-action letter in regard of the circumstances which it is investigating. ASIC will consider a range of factors in deciding whether it will grant a no-action letter including whether no other relief is available, the nature of the conduct, any steps taken by the target to reduce effects of the misconduct, whether the target has a history of offending and the impact on granting a no-action letter on third parties (ASIC Regulatory Guide 108 p. 12).

  57. 29.Are statements or advocacy positions taken by an investigated party during the investigation process deemed admissions and binding in future proceedings? Would such statements be made public?
  58. Generally, and subject to any privilege against self-incrimination that might apply for the reasons discussed at question 24 above statements or positions taken by a party during the investigation process are admissible in future proceedings. Whether or not the applicable rules of evidence have the consequence that the admission of such statements operates to ‘bind’ the party, whether as an admission or otherwise, will depend on a range of circumstances. Further, if the statements were made in settlement discussions, section 131 of the Evidence Act 1995 (Cth) provides that communications made between persons in dispute in an attempt to reach a settlement of the dispute generally cannot be adduced as evidence.

    Under section 127 of the ASIC Act, ASIC is generally required to prevent the unauthorised disclosures of information given to it in confidence or in connection with investigations that it undertakes. However, under section 25 of the ASIC Act, ASIC may disclose records of examinations and related books to the lawyer of a person who is carrying on or contemplating litigation which relates to the subject matter of the examination. Further section 127 of the ASIC Act provides that disclosures may be made by ASIC where they are required or permitted by another law of the Commonwealth – which would include a court order for disclosure made in other proceedings – and section 127 also permits disclosure to specified agencies.

    Timing

  59. 30.What is the limitation period for charges for securities and related violations?
  60. In Australia, there generally is no limitation period within which charges must be brought for a serious or indictable offence. Federal criminal matters are usually heard in state courts. Section 68 of the Judicature Act 1903 (Cth) provides that state courts’ procedure applies when Commonwealth criminal matters are heard in state courts.

    A proceeding for a declaration of contravention or a pecuniary penalty order (for which proceedings can only be brought by ASIC), and a proceeding for a compensation order (for which proceedings can be brought by ASIC as well as other persons), must be started no later than six years after the contravention (unless there is a specific shorter time period applicable in the case of a criminal offence) (see section 1317K, Corporations Act). 

    Prosecution for criminal offenses under Commonwealth laws generally may be commenced as follows (section 15B, Crimes Act):

    • for an individual:
      • no time limit where the maximum term of imprisonment for a first offense exceeds six months;
      • within one year if the maximum term of imprisonment is 6 months or less; and
      • within one year where the punishment is a pecuniary penalty with no imprisonment;
    • for a corporation:
      • no time limit where the maximum penalty is or includes a fine of more than 150 penalty units in the case of a first conviction; or
      • within one year in any other case. 

    These laws reflect the legal maxim nullum tempus occurrit regi or ‘time does not run against the Crown.’ 

  61. 31.When does the limitation period begin to run?
  62. The following applies:

    • for proceedings brought by ASIC for a declaration of contravention, pecuniary penalty order or compensation order, from the date of the contravention (or such lesser time as prescribed for a criminal offence);
    • for criminal offences, see question 30 above.

    In purely equitable proceedings, where there is a corresponding remedy at law in respect of the same matter and that legal remedy is the subject of a statutory bar, equity will apply the bar by analogy unless there exists a ground which justifies not doing so because reliance by the defendant on the statute would ‘in the circumstances be unconscionable’ (see Gerace v Auzhair Supplies Pty Ltd(2014) 87 NSWLR 435; [2014] NSWCA 181 at [105]). 

  63. 32.What can suspend the running of the limitation period? Can the securities and related law enforcement authorities request a tolling agreement?
  64. There are no tolling agreements under Australian law. Any action, civil or criminal must be commenced within the prescribed limitation period, failing which it will be statute-barred. 

    It is possible for parties to agree not to plead or rely upon limitation time bars. If that occurs, it should be clearly stated in writing to ensure that if the party who seeks to assert the time bar agrees not to do so and then changes his mind, the agreement or equity will hold him to his obligation.

  65. 33.How long does a securities or related investigation typically take?
  66. The length of the investigation will depend on several factors including the complexity of evidence and the number of parties being involved. Simple investigations may be resolved quite quickly, within months. However, more complex investigations can run for several years.

     

    Resolution

  67. 34.What is the process for closing an investigation if the investigation does not reveal a violation of securities or related laws? Will the securities or related law enforcement authorities provide written confirmation that the investigation is closed without action?
  68. It is possible to apply to ASIC for a no-action letter (see question 28). This letter will confirm that ASIC does not intend to take regulatory action in relation to a particular circumstance or alleged contravention (ASIC Regulatory Guide 108 p.4). However, no-action letters are not binding and may be withdrawn by ASIC (ASIC Regulatory Guide 108 p.4). See above at question 28 for a discussion of the factors that ASIC will consider in deciding whether to provide a no-action letter. 

  69. 35.How will the resolution or settlement process be initiated?
  70. There are a range of mechanisms through which the resolution or settlement process may be initiated by the investigating authority (such as ASIC or the AFP), the CDPP or the target of the investigation depending on the conduct that is being investigated. Normally, any resolution will be triggered by negotiation between the regulatory agency and the potential target, often with the regulatory agency identifying the sanction they propose. 

  71. 36.Who decides whether to proceed with charges and what charges to select? 
  72. Where an investigating authority, such as ASIC or the AFP, considers that it has gathered enough evidence to make out an offence, the decision to proceed with charges can be taken by delegated officers of the agency, or senior Commissioners of ASIC or the AFP or the head of the relevant agency in consultation with the agency’s executive operational team. Where potential criminal charges exist, an ultimate decision to prosecute lies with the CDPP. The CDPP will then consider whether to proceed with charges and which charges to select based upon the evidence and the application of the Prosecution Policy of the Commonwealth of Australia (Prosecution Policy). 

  73. 37.What factors would a securities or related law enforcement authority consider in selecting charges and the severity of any penalty or fine?
  74. ASIC states in its Information Sheet 151 that it in deciding what remedy to pursue it will consider the nature and seriousness of the misconduct, the behaviour of the offender after the misconduct, the strength of its case, the impact various remedies would have on the offender, the regulated population and the public, and whether any mitigating factors are present.

    For criminal offences, the Prosecution Policy states that as an initial matter, the CDPP will consider whether there is enough evidence available to support a prosecution. It is not enough for there to be a prima facie case that a crime has been committed for a prosecution to commence; there must also be a reasonable prospect of conviction (clauses 2.4 and 2.5, Prosecution Policy). The prosecutor then must be satisfied that it is in the public interest to bring the prosecution (clause 2.8, Prosecution Policy).

  75. 38.What remedies can the securities or related law enforcement authorities consider? How are penalties calculated?
  76. There are a wide range of remedies that ASIC and the CDPP can use to enforce the corporations legislation. These include:

    • criminal punishments such as terms of imprisonment and criminal fines;
    • civil remedies such as pecuniary penalties, infringement notices, and compensation orders (ASIC Regulatory Guide 100 p. 5–6);
    • other non-punitive remedies, such as public warnings, enforceable undertakings, removal of licences and banning individuals from managing companies or providing financial services (ASIC Information Sheet 151 p. 6);
    • civil proceedings commenced by ASIC in a person’s name, under its power in section 50 of the ASIC Act, to recover damages in actions for negligence and fraud (among others); and
    • ASIC actions, such as seeking injunctions, to preserve assets from being dissipated in anticipation, for example, of an action to recover damages (ASIC Information Sheet 151 p. 6).

    Under the criminal law, the maximum fine for an individual convicted of a serious market offence, such as insider trading, is A$765,000 or three times the value of the benefit received (ASIC Information Sheet 151 p. 5). Where a person is convicted of a criminal offence, sentencing is determined by the normal criminal sentencing principles and the application of section 16A of the Crimes Act.

    Where a person has contravened a civil penalty provision, the court must make a declaration of contravention (see section 1317E(1), Corporations Act). A pecuniary penalty order may then be made by the Court up to certain statutory amounts (section 1317G, Corporations Act). The maximum civil pecuniary penalty for an individual is A$200,000 (section 1317G, Corporations Act). Companies may be ordered to pay civil pecuniary penalties of up to $1 million (section 1317G, Corporations Act). 

  77. 39.Do illegal profits have to be disgorged, and if so, how are they determined?
  78. Yes, illegal profits can be required to be disgorged under the Proceeds of Crime Act 2002 (Cth) and, as discussed above at question 38, some penalties are calculated by reference to the value of the benefit illegitimately received. Under the Proceeds of Crime Act, the Commissioner of the AFP may apply to a court for orders that certain property being the proceeds of or the instrument of crime be restrained and then forfeited to the Commonwealth and for a pecuniary penalty order which requires the subject of the order pay to the Commonwealth an amount of money based on the value of the benefit obtained through commission of the offence. A person who can justify an interest in ‘tainted’ proceeds of crime property or any other third party can seek to apply to the Court for orders that any restrained property be released or otherwise be the subject of a claim for compensation to the Commonwealth Government (the Minister of Justice exercising a discretion whether or not to grant such compensation).

  79. 40.Can criminal charges be brought against companies in your jurisdiction for violations of securities and related laws?
  80. Yes, under the Criminal Code Act 1995 (Cth) bodies corporate may have criminal proceedings brought against them (see sections 12.1 to 12.6, Criminal Code). 

  81. 41.Will the securities and related law enforcement authorities provide a reduced penalty for cooperation? What standard will the authority use when taking into account any cooperation?
  82. As discussed above at question 38, ASIC will consider the behaviour of the offender after the alleged offence was committed in determining which remedy to pursue. For criminal offences, the Prosecution Policy provides that in deciding whether to prosecute an offence, the prosecutor is to consider whether the alleged offender has cooperated in the investigation and/or the investigations of others (Prosecution Policy p.6). Section 16A of the Crimes Act provides that the degree to which the offender has co-operated with law enforcement is to be taken into account by the court in sentencing an offender.

    Under section 9(6D) of the Director of Public Prosecutions Act 1983 (Cth), the CDPP may grant an undertaking that a named person will not be prosecuted for a specific offence or conduct that may constitute an offence under Commonwealth law. The Prosecution Policy provides guidance on when such undertakings may be given. Generally these undertakings will only be given where the evidence of an accomplice is needed to secure the conviction of the defendant or to ‘fully disclose the nature of the offending’ and where the accomplice is ‘significantly less culpable than the defendant’ (clauses 6.1 to 6.7, Prosecution Policy).

    Where a person wishes to cooperate with the AFP (and ASIC) in any criminal investigation, he or she might seek to give an ‘induced statement’ or receive a ‘letter of comfort’ which provides a form of protection in relation to the use that may be made by the AFP (and ASIC) of statements made by the person following receipt of the inducement or letter of comfort. Such inducements and letters of comfort are directed to encouraging the person to give evidence as a prosecution witness (not as an accused person) in criminal proceedings against others (see the CDPP Guidelines & Directions Manual - Undertakings, Offers of Assistance and Induced Statements, December 2012).

     

  83. 42.Are deferred prosecution agreements or non-prosecution agreements permitted?
  84. Any civil proceedings, seeking pecuniary penalty orders or otherwise, may be settled or compromised between the parties.

    There are no deferred prosecution or non-prosecution agreements in Australia to settle criminal prosecutions, as those agreements are known in the United States or the United Kingdom. There can be negotiation on the number and type of charges an accused may face (see clauses 6.14 to 6.21 of the Prosecution Policy).

    In March 2016, the Australian Attorney General issued a Consultation Paper seeking submissions on whether a Commonwealth deferred prosecution agreement (or DPA) scheme should be introduced in Australia for Australian criminal offences and if so, which offences. The majority of submissions supported the introduction of such a scheme, including submissions by the AFP. That is presently being considered by the Australian government.

  85. 43.Will a court need to approve the settlement agreement with a securities or related law enforcement authority?
  86. If there are no civil penalty proceedings on foot, any resolution or agreement can be achieved by negotiation between the target or potential offender and the investigative agency.

    In civil penalty proceedings, the role of the court is to review and if appropriate, approve the proposed settlement.

    In criminal proceedings, the CDPP (or a prosecutor) cannot agree on a settlement or make submissions with a defendant to agree on penalties or fines. However, the CDPP can negotiate with the defendant regarding pleading guilty to lesser or rolled-up charges either before charges are laid or during proceedings but once an offender is convicted, during the sentencing process, the prosecutor is limited in what they can say or agree to (p. 14-15 of the Commonwealth Prosecution Policy). The High Court of Australia has made it clear that the duty of the prosecutor is merely to establish the applicable sentencing principles and to ensure the sentencing judge applies the correct principles without falling into appealable error (see Barbaro v The Queen: Zirilli v The Queen (2014) 253 CLR 58; [2014] HCA 2, applied in Commonwealth of Australia & Director, Fair Work Building Industry Inspectorate v CFMEU [2015] HCA 46 at [33] to [37]).

     

  87. 44.If a settlement occurs, will an admission to certain facts or wrongdoing be required?
  88. In civil proceedings or civil penalty prosecutions, ASIC usually requires that a party admits to wrongdoing as part of a settlement. For example, when coming to a settlement of a civil penalty offence with ASIC, ASIC will usually require the target of the investigation to agree to one or more declaration of contraventions and provide the court with an agreed statement of facts (ASIC Information Sheet 172).

    In a criminal prosecution, a plea of guilty will usually involve an admission of guilt or the admission to conduct that might then warrant a lesser sentence due the credit being granted by the sentencing judge for cooperation.

  89. 45.Can the findings or decisions of the securities or related law enforcement authorities be administratively appealed? Appealed to a court?
  90. A limited number of ASIC decisions may be subject to ‘administrative’ or ‘merits’ review by the Commonwealth Administrative Appeals Tribunal (AAT) (see section 244, ASIC Act). For example, orders made by ASIC under section 72 of the ASIC Act, restraining a person from disposing of securities in a company may be the subject of administrative or merits review. But decisions in relation to the commencement of investigations are not.

    Certain decisions of ASIC can be appealed to the Federal Court for judicial review under the Administrative Decisions Judicial Review Act 1976 (Cth). This review is different from administrative review in that the court cannot generally look to the substance of the decision made; rather it considers whether the decision was made in a lawful manner. It should be noted that the court will almost never intervene in a decision to prosecute a person and is usually reluctant to intervene in ASIC’s ongoing investigations (Australian Corporate law Practice and Procedures 15.1.0270 and 15.2.0025).

  91. 46.If a decision can be administratively or judicially appealed, what are the consequences of an adverse decision on appeal? What are the consequences of a positive decision on appeal? 
  92. The consequence of an adverse decision on appeal is that the original decision stands. There may also be a costs order against the appellant. If the appeal is an administrative appeal and is successful, the court or tribunal may uphold the original decision or remit the matter for further review by the original decision-maker in accordance with the findings of the tribunal or court. 

    Collateral consequences

  93. 47.What are some of the collateral consequences to a resolution or settlement with a securities or related law enforcement authority? 
  94. The collateral impact will vary depending on the circumstances. Under an enforceable undertaking, ASIC will usually require, among other conditions, that the terms of the enforceable undertaking are made public and a company implements an adequate system of monitoring and reporting on compliance to ensure future contraventions do not occur or repeat themselves (ASIC Regulatory Guide 103 p. 14,17). There is no automatic debarring from government procurement or other contracts. Under the Commonwealth of Australia Procurement Rules 2014, there is no automatic debarment process where a party to a contract has been found liable (or guilty) in a civil (or criminal) proceeding.

  95. 48.What are some of the collateral consequences to a conviction or the imposition of liability by a court?
  96. The consequences of a conviction or the imposition of liability from a court can be wide ranging. The imposition of liability or a criminal conviction will often result in adverse press coverage and cause reputational damage to a company and the individuals concerned in any contravening conduct. For individuals being convicted of an offence, that can affect their ability to hold professional positions. If a person is convicted of an offence concerning the whole or substantial part of the business of a corporation, then that person is automatically disqualified from being a company director for at least five years (section 206B, Corporations Act). 

  97. 49.Can private securities or related legal claims proceed parallel to investigations by securities and related law enforcement authorities?
  98. Civil claims of different types, between the same or different parties, can run in parallel.

    Criminal and civil penalty proceedings usually take priority to ordinary civil proceedings in that an individual has the substantive right to silence and it is for the prosecution to prove the case against the accused beyond reasonable doubt. The accused need not lead any evidence to defend him or herself. Where civil proceedings arise at the same time as a criminal investigation or a prosecution is occurring and involve substantially the same underlying facts, the civil proceedings may be stayed until the criminal matter has concluded (see Re AWB Ltd (2008) 222 FLR 240; [2008] VSC 473 at [29] per Robson J). 

  99. 50.What effect will findings by an authority in another jurisdiction have in private proceedings?
  100. Australian plaintiffs are generally aware of the findings of securities authorities in other jurisdictions, particularly English-speaking ones. Such findings are generally inadmissible in Australian courts. However, use can be made of such findings in, for example, preparing pleadings, seeking the issue of subpoenas for the production of documents and in preparing a case for trial. 

  101. 51.Can private plaintiffs obtain access to the files or documents the securities or related law enforcement authorities collected during the investigation?
  102. ASIC is under an obligation to prevent the unauthorised disclosure of documents (see question 29). However, section 25 of the ASIC Act provides that ASIC may disclose the records of statutory examinations and related books to the lawyer of a person who is carrying on or contemplating proceedings that relates to the content of the examination. Section 127 of the ASIC Act permits disclosures by ASIC where they are required or permitted by another law of the Commonwealth. ASIC may, however, seek to maintain the confidence of documents and information supplied to it in order to promote and encourage the reporting of suspicious conduct. If such material is voluntarily released, it may inhibit ASIC’s overall ability to regulate the securities and financial markets. Thus, it is more likely that ASIC will oppose giving any voluntary disclosure and it will then be a matter for private plaintiffs to seek court orders to determine in any particular civil proceeding whether ASIC is required to disclose documents held by it as a result of its investigative functions.

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Questions

    Regulatory environment

  1. 1.What are your country’s primary securities or related law enforcement authorities? 
  2. 2.What are the principal violations or legal issues that the securities or related law enforcement authorities investigate?
  3. 3.If there is more than one authority involved in a securities or related investigation, how is jurisdiction allocated? What is the interplay between the securities regulator and the public prosecutor?
  4. 4.Do the securities or related law enforcement authorities have investigatory powers? Can they bring administrative, civil or criminal proceedings? 
  5. 5.Are regulatory or criminal securities and related investigations public? Under what circumstances? 
  6. 6.Are regulatory or criminal securities and related investigations targeted at the company or the individuals involved, or both?
  7. Investigation procedure

  8. 7.How do the securities and related law enforcement authorities typically begin an investigation?
  9. 8.What level of suspicion of wrongdoing is required for the securities or related law enforcement authorities to begin an investigation?
  10. 9.May the securities or related law enforcement authorities conduct dawn raids? Does this depend on the nature and seriousness of the allegations?
  11. 10.Must the findings of a company internal review be reported to the securities or related law enforcement authorities? When and under what circumstances?
  12. 11.Are whistleblowers a frequent source of information for securities and related investigations? 
  13. 12.Describe the typical phases of a securities or related investigation in your country.
  14. 13.What are the mechanisms by which a securities or related law enforcement authority may cooperate and coordinate with authorities outside your jurisdiction?
  15. 14.Will a securities or related law enforcement authority take into account findings by a law enforcement authority outside your jurisdiction in the course of its investigation?
  16. Document production

  17. 15.What can the securities and related law enforcement authorities require to be produced as part of an investigation? Do the powers of a regulator differ from those of the public prosecutor?
  18. 16.Will a litigation hold or will other instruction to preserve documentation need to be issued? When?
  19. 17.Can the securities and related law enforcement authorities request the production of materials protected by attorney-client privilege or work-product doctrine? Can the securities and related law enforcement authorities use protected materials if it obtains them from third parties?
  20. 18.How is confidential information or commercially sensitive information treated by the securities and related law enforcement authorities?
  21. 19.Can the target of a document request exercise a right not to produce?
  22. 20.Do any data privacy or bank secrecy laws restrict the production of materials to a securities or related law enforcement authority in your jurisdiction? An authority outside your jurisdiction? May the company under investigation provide personal or bank customer data on a voluntary basis?
  23. 21.Are there any data privacy, bank secrecy or other laws that restrict where documents or other communications may be stored or reviewed for the investigation?
  24. 22.Are the securities and related law enforcement authorities able to obtain documents from outside the country?
  25. Witness interviews

  26. 23.Will the securities and related law enforcement authorities conduct witness interviews? If so, will the interviews be on the record? Will the interviews be made public?
  27. 24.Can witnesses exercise a right not to testify? Will any adverse inference be drawn if they do so?
  28. 25.Do witnesses receive separate counsel? Who provides counsel for witnesses?
  29. Advocacy

  30. 26.Can the target of a securities or related investigation challenge the investigation in court while the investigation is ongoing?
  31. 27.What opportunity will there be to respond to a securities or related law enforcement authority’s theories or allegations prior to the authority bringing charges?
  32. 28.What form does the advocacy with a security or related law enforcement authority typically take? 
  33. 29.Are statements or advocacy positions taken by an investigated party during the investigation process deemed admissions and binding in future proceedings? Would such statements be made public?
  34. Timing

  35. 30.What is the limitation period for charges for securities and related violations?
  36. 31.When does the limitation period begin to run?
  37. 32.What can suspend the running of the limitation period? Can the securities and related law enforcement authorities request a tolling agreement?
  38. 33.How long does a securities or related investigation typically take?
  39. Resolution

  40. 34.What is the process for closing an investigation if the investigation does not reveal a violation of securities or related laws? Will the securities or related law enforcement authorities provide written confirmation that the investigation is closed without action?
  41. 35.How will the resolution or settlement process be initiated?
  42. 36.Who decides whether to proceed with charges and what charges to select? 
  43. 37.What factors would a securities or related law enforcement authority consider in selecting charges and the severity of any penalty or fine?
  44. 38.What remedies can the securities or related law enforcement authorities consider? How are penalties calculated?
  45. 39.Do illegal profits have to be disgorged, and if so, how are they determined?
  46. 40.Can criminal charges be brought against companies in your jurisdiction for violations of securities and related laws?
  47. 41.Will the securities and related law enforcement authorities provide a reduced penalty for cooperation? What standard will the authority use when taking into account any cooperation?
  48. 42.Are deferred prosecution agreements or non-prosecution agreements permitted?
  49. 43.Will a court need to approve the settlement agreement with a securities or related law enforcement authority?
  50. 44.If a settlement occurs, will an admission to certain facts or wrongdoing be required?
  51. 45.Can the findings or decisions of the securities or related law enforcement authorities be administratively appealed? Appealed to a court?
  52. 46.If a decision can be administratively or judicially appealed, what are the consequences of an adverse decision on appeal? What are the consequences of a positive decision on appeal? 
  53. Collateral consequences

  54. 47.What are some of the collateral consequences to a resolution or settlement with a securities or related law enforcement authority? 
  55. 48.What are some of the collateral consequences to a conviction or the imposition of liability by a court?
  56. 49.Can private securities or related legal claims proceed parallel to investigations by securities and related law enforcement authorities?
  57. 50.What effect will findings by an authority in another jurisdiction have in private proceedings?
  58. 51.Can private plaintiffs obtain access to the files or documents the securities or related law enforcement authorities collected during the investigation?