Commonwealth Director of Public Prosecutions (CDPP)

Prosecuting regulatory offenders

Date of Publication: 
3 March 1992

Author: Rozenes, M. Date: 3/03/1992 Venue: The Future of Regulatory Enforcement in Australia Conference, 3-5 March 1992, Sydney

As I speak to you today I have been the Director of Public Prosecutions for little over a month. That time has been spent in an intense learning exercise attempting to come to grips with the issues and problems involved in prosecuting those charged with offences against Commonwealth Law. My experience prior to becoming DPP was on both ends of the bar table either as prosecutor or as defence counsel, although it is fair to say that by far the bulk of my work was for the defence. I must confess that it is only now that I appreciate some of the issues and difficulties encountered by the DPP when deciding to institute prosecutions for Commonwealth offences. As you are probably aware the DPP's office was established by the DPP Act 1983, with the office beginning operations in 1984. Perhaps the most important principle underlying the creation of the Office was to separate the role of prosecutor and investigator and give the prosecutor independence from the political process. This has had the effect of injecting a degree of objectivity in the prosecution process. The severance of the investigating function and the prosecuting function can create tensions, and I will expand upon this later however the essential merit of a separate and independent prosecutor should not be overlooked. I believe that the interests of justice require that there be an independent prosecutor to ensure that only appropriate cases are brought to court and thus serve the community at large. I have some difficulty with the idea that the offenders can be described as regulatory or otherwise. In a sense all legislation is designed to regulate behaviour whether it be in the area of corporate conduct, the importation of narcotics or Social Security. I suspect those who formulated this topic, sought to draw a distinction between those offences which are to be found in either the Co-operative Scheme laws or the Corporations Law and other more general offences such as arise under the Crimes Act. For my part I do not hold with this distinction. Above all it is vital that the appropriate charge be laid in respect of the questioned conduct. If this conduct can appropriately be categorised as an offence falling within either the Co-operative Scheme laws or the Corporations Law then charges should be laid under the appropriate section. On the other hand, if the criminality of the particular conduct is appropriately reflected in a State Crimes Act offence then that must be the charge laid. In the end I suspect the distinction if there is one, between corporate offences on the one hand and more general State Crimes Act offences does not matter all that greatly. Difficulties encountered in prosecuting these types of offences. can arise irrespective of whether Co-operative Scheme or Corporations Law offences are charged or State Crimes Act offences are charged. It is recognised that some of the most important work in my office is the prosecution of corporate offenders. You only have to open a newspaper or turn on the television to see references to Royal Commission Reports, reports of the Australian Securities Commission, current prosecutions and civil actions arising from questionable corporate practices to appreciate the public interest in such matters. The issue of corporate prosecutions is topical and highly newsworthy in all forms of mass media. Expressions such as the "excesses of the 1980's", following as it does upon the "halcyon days of the seventies", can quickly become hackneyed and perhaps misleading. The excessive bank lending that eventually led to spectacular corporate collapses has been well documented. However, these expressions may not capture what was the mentality and practice of many persons at that time. These practices included back to back loans (in some quarters colloquially termed Brigitte Bardot's from the initials B.B.), transactions entered into prior to balance date in order to give a distorted view of company finances, channelling of loans through companies associated with entrepreneurs and various forms of market manipulation. In many cases corporate entrepreneurs appear to have treated the company's money and/or the company's assets as their own, intermingling funds or simply using them for purposes other than those of the company. These practices were at least questionable if not criminal. The effect on our domestic economy and international reputation cannot be over-estimated. The Australian economy has suffered as a result of these practices and will continue to suffer until there is a change both in the perception and reality of corporate regulation in Australia. For the first time since Federation, Australia has a national regulator capable of administering corporate legislation in an effective manner. The ASC does not have the funding problems that plagued the National Companies and Securities Commission. The ASC is an organisation that is committed to reform of corporate practices and promotion of corporate ethics. It has the opportunity and means to redefine Australia's corporate practice. The ASC's predecessor, the NCSC, was not prosecution orientated. While it had legislative power to bring prosecutions, by Ministerial direction it was required to delegate that power to State corporate affairs offices. Those corporate affairs offices could bring prosecutions in the NCSC's name. However, the NCSC could not direct the corporate affairs office to bring the prosecution. The ultimate prosecutorial discretion rested with the corporate affairs office and, in some cases, the State Director of Public Prosecutions or their predecessors. This factor, combined with lack of funds, led the NCSC to adopt a practice of commercial settlement. Faced with the reality that its resources would not permit it to run large prosecution cases, the NCSC attempted by commercial pressure and the threat of publicity to rectify what it saw as deficiencies or possible contraventions of the law. The outcome of those commercial settlements remains obscure. In some cases they appear to have involved the payment of money in return for an undertaking that a prosecution would not be instituted. Of course, it was never certain that the NCSC could cause a prosecution to be begun. However, the threat of prosecution and the attendant publicity was usually sufficient to bring the corporation and its directors to the negotiating table. Indeed the NCSC's funding was so limited that even its investigatory function was curtailed. Investigations would often be short-lived and ineffective simply because there was insufficient funds to enable the appointed investigator to properly inquire into the matter. The criminal prosecution process was perceived to be too long and too expensive. It was also perceived as inherently fallible, for there was always the risk that the case would be too complex for a jury to understand. Further, as the central issue in a criminal trial is the defendant's knowledge that his or her actions were wrong, the difficulty in showing a fraudulent intent as distinct from sharp commercial practice may have often led to the decision not to prosecute. As a result, these difficulties led to the concentration of prosecution resources on minor more clear cut contraventions of the law. Unfortunately, this approach did nothing to instil confidence in the criminal justice system or to raise the standards of the corporate community. Indeed, if anything it has undermined Australia's reputation as a place for investment and, given our businessmen the reputation of "corporate cowboys". Of course, for the vast majority of Australian businessmen this epithet was undeserved. Their conduct was and still is honest and honourable. However, others regarded the risk of a fine or perhaps disgorging any unlawfully made profits as a necessary incident of business life. On a risk analysis assessment, the factors were heavily in favour of the corporate criminal. Against the possibility of being caught there was a strong possibility that the corporate criminal would be dealt with by way of secret deal. These factors provided no disincentive to engage in the particular conduct. Sadly, it also brought the criminal prosecution process into disrepute. The important point that must be made is that civil action cannot, in cases of fraud or dishonesty, be an adequate and effective deterrent. It is sometimes said that the thing most feared by the white collar criminal is the prospect that he or she will be stripped naked of their ill gotten gains. My experience is that the thing that most scares white collar criminals is the thought of incarceration. There must be a real deterrent in the form of a criminal prosecution with appropriate penalties for those convicted. It is appropriate that the ASC has devoted its resources to cleaning up the mess of the 80's and is committed to ongoing prosecution of corporate offenders. Recently in NSW the Court of Criminal Appeal upheld an appeal by the prosecution against sentence imposed upon Naji Halabi. Halabi had been sentenced to 18 months weekend detention for his part in conspiring with two others to defraud Westpac Banking Corp Ltd. The Court increased the sentence to one of 18 months in custody. The Court was heavily influenced by the fact that the crime involved a breach of trust by an employee. However, Loveday J is reported to have said, "Ordinarily, lengthy custodial sentences should be expected for typical white-collar crimes." (Halabi Court of Criminal Appeal, Unreported, 17 February 1992). Prosecution action can of course be extremely frustrating to those unused to the criminal justice system. The time involved to properly investigate and prosecute major corporate fraud is often measured in years. No doubt advances can be made to streamline the prosecution of these sorts of cases - but at the end of the day the offender must have his guilt proved to the criminal standard. The frustrations that some feel as a result of such long lead times must not lead to the conclusion that the criminal process is inappropriate. Those who contravene the law must know that ultimately they will be brought to book. It has been said that a regulatory strategy without a credible threat of prosecution is simply no strategy at all. Such a strategy would be self-defeating, ineffectual and inappropriate. There can be no admission on the part of the criminal justice system that cases are to difficult to prosecute. The consequence of such an admission is to acknowledge that those who can conceal their criminal conduct behind sophisticated corporate procedures so as to make it extremely difficult for the prosecutor to proceed walk free, whilst the less sophisticated and usually poorer criminal receives no such benefit. Such a course must inevitably bring our system of criminal justice into disrepute and erode public confidence in the rule of law. When the prosecution process is seen to be cumbersome, time consuming and expensive there is an understandable temptation to seek to prefer other venues. One such venue is the substitution of civil remedies for criminal process. It is said that the civil route is quicker and more efficient. That the standard of proof is lower. The remedy is commercially effective. The impugned conduct is rectified by declaratory relief. The victim, be it the corporation, its shareholders or some third party are compensated and the wrong doer is stripped of his or her profit. It cannot be the case that the ultimate sanction for the corporate wrongdoer is the mere restoration of the status quo. I am not to be taken as saying that civil remedies play no part in the prosecution of the corporate offender. On the contrary, civil remedies form an important weapon in the fight against corporate crime. But it must be understood that the only real and effective deterrent for the corporate crook is the certainty of detection followed by the certainty of punishment. To advocate otherwise is to simply encourage corporate wrongdoers to factor into the cost of doing business the risk of having to pay back ill gotten gains. Such an approach will only ensure that assets are well hidden and that otherwise the risk is accepted. The Government regards prosecution as a crucial element in its enforcement program. Naturally the ASC, when investigating these matters, tends to look to either the co-operative scheme codes or the Corporations Law for the appropriate offence. Often the particular activity will fit within one of those offences. However, the DPP has a wider focus. If the activity more appropriately falls within a more general State Crimes Act provision, we will recommend to the ASC that such an offence be charged, perhaps in conjunction with co-operative scheme or Corporation Law offences. As I mentioned at the outset, it is vital that the offences charged adequately reflect the alleged criminality. In some cases it will simply be the case that a charge of defrauding or even conspiracy to defraud will be the most appropriate charge. While we are sensitive to the views of the ASC and the desire to lay charges under a particular piece of legislation, there is a wider community interest that charges laid should adequately reflect the criminality disclosed by the available evidence. If such charges are not laid then any sentence handed down will not in turn, reflect the criminality and not be a true deterrent. In these circumstances, the whole object of the exercise may be lost. This issue exposes one of the great difficulties for the ASC and the DPP. The ASC, while a national regulator, is working with uniform State legislation that applies federal law. But, in this area, the new corporate legislation is not a code as to criminal conduct. The provisions of the State Crimes Act complement the offence provisions of the corporate legislation. If, in order to show the true criminality, both State Crimes Act and Company law offences should be laid, then that must be done. The ASC should have no difficulty with that; nor should it have any difficulty with those cases where only State Crimes Act offences are charged. The DPP is working closely with the ASC in relation to Corporate Prosecutions. Current statistics indicate that since the ASC's inception 144 separate matters involving possible breaches of the law have either been referred to the DPP or the question of prosecution has been discussed with the DPP. Of those 144 cases the DPP has advised that 19 should not go further. Charges have been laid in approximately 60 of the matters with the remaining cases either with the ASC for further investigation or with the DPP for further consideration. I am happy to say that in relation to the cases referred to the DPP, all have been and are being dealt with promptly in an efficient and professional manner. Some of the cases being considered are potentially the largest this country has seen. They involve thousands of documents and deal with complicated corporate structures and transactions. Some require the consideration of multi-disciplinary teams - lawyers, accountants, financial analysts and experienced investigators. These cases are not easy. What has taken one or more years to investigate cannot be disposed of in a week. It takes time to properly consider and appreciate these legal cases and the DPP may see the focus of the case differently from the ASC. The point is, however, that the DPP has an objective role to play and we are concerned that we fulfil that role in a proper and responsible manner. Of course, the statistics do not tell the whole story. The ASC is committed to investigating and referring matters to us in a timely fashion. In many cases the DPP is involved in advising the ASC during the course of the investigation, as to possible areas of criminality. Ultimately, the ASC must refer a brief of evidence to the DPP before we can take action. Once the brief is received, the DPP conducts an objective, reasoned analysis of the case and evaluates the strengths and weaknesses of any evidence. The DPP may point out further areas where investigation is required. Accordingly, as with any case, there will be a process of interaction between the DPP and ASC in order that the case may be put in a way that complies with the principles of justice and the considerations set out in the Commonwealth's prosecution policy. Such a relationship is bound, on occasions, to cause some tension although I am happy to state that on the whole relationships between ASC investigators and DPP prosecutors are good. There is a need to resist the public pressure for quick convictions or "runs on the board". That expression is unfortunate but marginally better than "scalps on the wall". That there is a public expectation that corporate entrepreneurs face the court and be dealt with is understandable. Nevertheless, we must be careful to ensure that the prosecution response is an adequate and proper one. Among other things, this means that charges must not be laid prematurely in the hope that any gaps in the evidence can be closed as the case proceeds to trial. That is a tendency which must be avoided. Indeed to bring charges which must then be withdrawn because of evidentiary difficulties would, in my mind, be counterproductive if not irresponsible. It is vital that the ASC and DPP work closely together in this regard. Short term frustration because of a perceived lack of action will never be an adequate justification for premature action. As with any prosecution we conduct, the interests of justice and fairness must be paramount. By now you will be aware of the ASC's current approach to offences that have occurred post 1 January 1991. The ASC is, understandably, concerned to institute civil proceedings at the earliest possible opportunity in order to protect shareholders or creditors or the rights of the company itself. Following such intervention the ASC will then consider the question of criminal prosecution. A tension can arise between the two sets of proceedings. While this paper is not a treatise on the law, you will be aware that doctrines such as contempt, stay of proceedings and abuse of process all have the potential to impact upon the situation where both criminal and civil proceedings are brought at the one time in respect of the same actions. The ASC have an understandable concern that should criminal proceedings be instituted in respect of the same actions where civil proceedings are on foot, those civil proceedings may be stayed by a court to prevent any unfair prejudice to the defendant. Of course whether such prejudice will be caused will depend upon the facts of each case and it is not possible to predicate with any certainty what the outcome will be. However, while the fact that the criminal proceedings are on foot has the potential to disrupt those civil proceedings, this should not be a reason to delay criminal proceedings until the civil proceedings are finalised. In many cases the two sets of proceedings may be able to run together. Further, the DPP is not adverse to civil proceedings in that it may be expected that if civil proceedings run their course they may result in material which is of use in a prosecution. For example, discovery or affidavits may provide the prosecution with an inclination of likely defences to criminal charges or may lock potential defendants into a story from which it will be difficult to extricate themselves. Obviously the area is extremely sensitive and needs a cautious approach. The DPP takes the view that this issue must be examined critically and that as a general principle it is not correct to say that the institution of criminal proceedings will prejudice or stop the civil proceedings. Ideally we would like such actions to be closely co-ordinated so that injunctive relief or action for restitution can take place at the same time as the criminal proceeding. While this may not be possible in all cases, the importance of the criminal proceedings can not be underestimated. Further, if the institution of those criminal proceedings is delayed pending the outcome of the civil proceedings there is a potential for abuse of process arguments to be advanced on behalf of defendants. In the end, I expect that any particular problem will be resolved by negotiation with the ASC. The DPP is a receptive agency in many ways. We rely upon other agencies to do the investigative work and refer the brief of evidence. However, that does not mean that we sit back passively if we believe that certain areas need investigation and that those areas ought to be investigated. We are concerned that the system will ensure that conduct of a criminal nature will be investigated and briefs referred to the DPP. If the system does not have that result then we will complain long and loud. The ASC is of course concerned to administer both the Corporations Law and the Co-operative Scheme Law where applicable. It is reluctant to devote scarce investigative resources to what is perceived to be purely State Crimes Act offences such as fraud or misappropriation of moneys. Most commonly this will involve entrepreneurial activity with the involvement of a company merely the means by which the fraud has been perpetrated. When exposed in this way the activity is seen as a matter for State police forces. In these circumstances in some cases, the NCA might step into the breach to conduct an investigation where it is authorised to do so. There is however the potential that matters requiring investigation fall outside the NCA's area of operation and the State Police Force is unwilling or unable to take that matter on. In these cases we would agitate that the ASC take up the investigation either solely or in conjunction with another agency. It is simply unacceptable that such breaches not be investigated and prosecuted. This area as much as any other has the potential to result in injustice and frustration with the law. Of course joint investigations have their own difficulties and it is beyond this paper to examine them. There needs to be careful co-ordination of investigative activity to ensure that the investigation proceeds in the right direction examining the most relevant areas of criminality. Further, the respective roles of each organisation must be clearly defined at the outset so that there is co-ordinated activity. I know that the ASC and NCA have agreed guidelines in particular matters where a joint investigation has been instituted. No doubt as our experience expands and these sorts of investigations become more commonplace the respective roles of the investigating agencies will be determined. In this process we see the DPP as being able to assist and co-ordinate where appropriate. It is appropriate to note a sound of warning. We must be careful to ensure that the errors of the 1980s are never repeated. It would be unacceptable to sit back after those cases have been completed and believe that the work has been done. It is vital that there be an ongoing and thorough commitment to prosecuting corporate fraud and corporate crime. No one believes that as at the 1st of January 1991 corporate crime ceased to exist. There will always be those ready to use the system and play it to their own advantage and at the expense of others. There is a need to clarify the law to ensure that such activities are adequately and quickly dealt with and those responsible prosecuted to its fullest extent. It is only by taking these steps that confidence will return to the investing public both within and outside Australia. That must be both an immediate and long term aim for both the DPP and ASC.