AFP Submission to the White Collar Crime Inquiry 54

8/18/2019 AFP Submission to the White Collar Crime Inquiry 54

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Submission by the

Australian Federal Police

Senate StandingCommittee onEconomics –ReferencesCommitteeInquiry into penalties forwhite-collar crime

April 2016

Criminal, civil and administrative penalties for white collar crimeSubmission 54


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Contents

Executive Summary ............................................................................................................... 3

Introduction.......................................................................................................................... 4

Terms of Reference ............................................................................................................... 5

Background: nature of white-collar crime ................................................................................. 6

Evidentiary standards for offences ........................................................................................... 7

Corporate criminal liability ................................................................................................... 8

Corporate culture ............................................................................................................. 8

Knowingly concerned........................................................................................................ 8

Mechanisms to recover wrongful gains ..................................................................................... 9

Confiscation of criminal assets.............................................................................................. 9

Other matters: evidence gathering ........................................................................................ 10

Banker’s affidavits and search warrants ............................................................................... 10

Electronic service of warrants and receipt of evidence ........................................................... 11

Sharing of financial information .......................................................................................... 11

Other matters: incentives to comply ...................................................................................... 11

Australia ....................................................................................................................... 11

Canada ......................................................................................................................... 12

Conclusion .......................................................................................................................... 12



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Executive Summary

White-collar crime is a form of serious financial crime, which includes offences such as

fraud, bribery, corruption and money laundering. These offences can cause serious

harm to the community. The Australian Crime Commission has estimated that serious

and organised crime costs the Australian economy $36 billion per year, of which

organised fraud comprises $6.3 billion.1 Strong criminal penalties form part of a range

of measures needed to effectively combat such crimes.

Serious financial crime is difficult to investigate and prosecute. It is often complex,

premeditated and carried out by well-educated and resourced perpetrators. Professional

advice (wittingly or unwittingly provided) is often used to help evade law enforcement

and fight prosecution. Criminal conduct often occurs over long periods of time before it

is discovered, and involves cross-border, structured transactions and multiple parties

that are deliberately used to evade detection and investigation.

These characteristics of serious financial crime mean that investigators face significant

challenges obtaining sufficient evidence to bring prosecutions. A perception that there isa low risk of being detected means that criminals are willing to take risks in committing

serious financial crimes. Even if they are detected, offences may not be made out in

court due to challenges associated with gathering sufficient evidence.

Any assessment of the efficacy of criminal penalties for serious financial crime must

take into account the degree to which they are able to be enforced and the availability

of effective non-criminal measures. While strong criminal penalties are important to

deter and punish wrongdoing, they must be supported by sufficient powers to gather

evidence and incentives to encourage whistle-blowers to come forward and companies

to voluntarily self-report wrongdoing. Both incentives to encourage voluntary

compliance with the law and other mechanisms to reduce the profit motivation of

serious financial crime are critical to a holistic strategy to combat such crime.

The AFP has been, and continues, to work closely with the Government through the

Attorney-General’s Department to ensure that the legislative framework for combating

serious financial crime and white collar crime remains robust and effective.

Key reforms recently enacted through the Crimes Legislation Amendment (Proceeds of

Crime and Other Measures) Act 2016 include amendments to:

• clarify the operation of the non-conviction based confiscation regime in the

Proceeds of Crime Act 2002 in response to recent court decisions; and

• introduce new false accounting offences into the Criminal Code.

These reforms are having a significant positive impact on the ability of the AFP to

combat serious financial crime, including by ensuring its continued ability to take civil

action to reduce the ability of perpetrators to enjoy their illegitimate profits.

The AFP will continue to work with the Government to support the existing strong

framework to detect, deter and punish serious financial crime.

1 Australian Crime Commission, The costs of serious and organised crime in Australia 2013-14, p. 7.



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including civil and administrative measures, are considered and deployed where

appropriate.

7. Serious financial crime is often complex, well-concealed and difficult to detect. It may

involve a significant degree of planning and pre-meditation, as well as the complicity

or assistance (witting or unwitting) of other parties. In addition to appropriate

penalties, law enforcement and partner agencies require a range of powers to detect,investigate, prevent and deter such crimes. For example, key reforms passed in the

Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Act 2016

ensure the effective operation of the non-conviction based confiscation regime in the

Proceeds of Crime Act 2002, and enable the AFP to continue to take action to combat

the profit motivation of serious financial crime.

8. Measures to ensure information can be obtained in a timely manner, and which

remove the profit motivation and provide strong deterrence, are fundamental. Without

such measures, the ability of law enforcement to secure swift and certain punishment

for serious financial crime will remain limited. On the other hand, the potential profits

to be made from serious financial crime will continue to motivate individuals andcompanies to engage in criminal behaviour.

Terms of Reference

9. The terms of reference for the inquiry are as follows:

the inconsistencies and inadequacies of current criminal, civil and administrative

penalties for corporate and financial misconduct or white-collar crime, with

particular reference to:

a. evidentiary standards across various acts and instruments;

b. the use and duration of custodial sentences;

c. the use and duration of banning orders;

d. the value of fine and other monetary penalties, particularly in proportion to

the amount of wrongful gains;

e. the availability and use of mechanisms to recover wrongful gains;

f. penalties used in other countries, particularly members of the Organisation

for Economic Co-operation and Development [OECD]; and

g. any other relevant matters.

10. This submission will discuss matters relating to:

• the ability of law enforcement and partner agencies to obtain timely, sufficient

evidence and enable the prosecution or prevention of serious financial crime

including white-collar crime and related wrongdoing

• the availability of non-conviction based mechanisms to remove or reduce the

profit motivation of serious financial crime, and

• ensuring serious financial crime is viewed seriously by the community,

irrespective of the corporate or professional status of its perpetrators.



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Background: nature of white-collar crime

11. ‘White collar crime’ is a form of serious financial crime. The AFP does not distinguish

‘white collar crime’ from financial crime types such as those related to organised

crime, which do not come within the commonly understood definition of ‘white collar

crime’. The AFP’s preferred terminology for all such criminal activity is ‘serious

financial crime’.

12. The term ‘white-collar crime’ generally refers to financially-motivated, non-violent

crime and can cover a broad range of criminal conduct. Criminal conduct may occur in

the course of the perpetrator’s business or profession. In some cases, perpetrators

exploit their social status or that of the business or profession with which they are

associated, for example, corporate fraud or corruption. Other offences involve criminal

conduct benefitting a business directly, for example bribery of a foreign official to

obtain a business advantage, or indirectly, by profiting from the proceeds of crime,

such as through money laundering.

13.

Despite some misconceptions, serious financial crime, including white-collar crime, cancause serious harm to the community. Fraud against the Commonwealth, and bribery

and corruption of public officials, can result in the misdirection or wastage of scarce

public resources, leading to poorer quality public services. Money laundering is a key

facilitator of serious and organised crime, with proceeds of crime used to fund other

criminal enterprises or activities, including terrorism. The initial financial impact of

serious financial crime and white-collar crime is only the ‘tip of the iceberg’. While the

full extent of the cost of such crime to society is difficult to measure, the ACC has

recently estimated that serious and organised crime costs the Australian economy $36

billion per year, of which organised fraud comprises $6.3 billion. 4

14. Serious financial crime often involves sophisticated attempts to hide the wrongful

conduct and a level of planning that makes it difficult to detect and investigate.

Perpetrators may be well-educated and well-resourced, allowing them to take

advantage of specialist or professional advice to evade law enforcement and

prosecution. The difficulties in detection and investigation of such crime may be

further aggravated where it involves:

• conduct occurring over lengthy periods of time prior to discovery

• transactions occurring over multiple jurisdictions, including overseas jurisdictions

• financial arrangements deliberately structured in a way that complicates and

obscures money trails

• syndicate structures in which the more senior members distance themselves from

the actual commission of criminal conduct, meaning that they benefit from crime

but are often beyond the remit of criminal prosecution

• decisions or transactions for which more than one person may be responsible, or

no single person has clear responsibility (for example, where actions were

consistent with a corporate entity’s usual ‘way of doing business’, or encouraged or

sanctioned by its corporate culture), or

• transactions involving corporate entities or other third parties.

4 Australian Crime Commission, The costs of serious and organised crime in Australia 2013-14, p. 7.



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15. Consequently, obtaining sufficient evidence to prosecute serious financial crime is

often difficult. Although a range of evidence may be sought, documentary evidence,

such as transaction records and financial accounts, is often crucial to an investigation.

However, such evidence is often susceptible to alteration or destruction, or may

otherwise be inaccurate or incomplete. For example, proof of an offence may require

evidence of the ‘money trail’ (the movement of money in and out of, and within, thefinancial system), as well as evidence of decisions made by the perpetrators linking

the movement of money to the intended commission of the offence.

16. Complicating factors such as those listed above can create significant obstacles to the

successful investigation and prosecution of criminal offences. For example, it may be

difficult to:

• identify the full nature and extent of the offending, including the degree of criminal

fault (intention, knowledge, recklessness or negligence)

• identify parties who were involved in, or responsible for the decision to engage in,

the relevant transactions

• trace the flow of money to its ultimate beneficiary or the perpetrator of the crime

(particularly where sophisticated money laundering techniques are used), or

• obtain records or other evidence, particularly from an overseas jurisdiction.

17. The difficulties involved in investigating serious financial crime necessitate policy

responses that address the impediments to obtaining relevant evidence and the social

harm caused by criminal conduct. Without such measures, the ability of individuals

and bodies corporate to profit from white-collar crime without being detected or

subject to fitting punishment will continue to drive its commission and cause society

harm. While Australia has a robust criminal law framework to address serious financial

crime and white-collar crime, any assessment of the efficacy of criminal penaltiesshould take into account the degree to which they are able to be enforced and the

availability of effective non-criminal measures.

Evidentiary standards for offences

18. Legislative drafting of serious financial crime offences such as fraud, bribery and

money laundering reflects the complexity of those crimes. Most relevant

Commonwealth Criminal Code offences comprise multiple physical elements. These

elements relate to conduct, as well as a result of conduct or circumstances in which

conduct, or a result of conduct, occurs. They also generally include fault elements ofknowledge or intent,5 and in some cases, additional elements of ‘dishonesty’, or an

‘ulterior intention’ that a certain outcome be achieved as a result of the conduct

engaged in.

19. While piecing together the money trail and establishing the physical elements of an

offence can be a complicated matter, it is the tendency of perpetrators of serious

financial crime to go to great lengths to distance themselves from the crime which

makes prosecution particularly challenging. As discussed above, proving elements of

5 Although some offences, such as money laundering, include fault elements of recklessness or negligence;these will be discussed further below.



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serious financial crime offences is often difficult due to an absence or paucity of

documentary evidence. In particular, investigators often experience difficulties proving

the necessary fault element, dishonesty or ulterior intention where bodies corporate or

third parties, such as agents or intermediaries are involved.

Corporate criminal liability

20. Part 2.5 of the Criminal Code provides that a body corporate may be found guilty of

any offence, including one punishable by imprisonment, and that the Code applies to

bodies corporate in the same way as it applies to individuals.6 Consequently, serious

financial crime offences in the Code, such as those relating to bribery, fraud and

money laundering, are all equally applicable to bodies corporate as well as individuals.

Co r p o r a t e c u l t u r e

21. The Criminal Code evidences a clear intention to apply criminal responsibility to bodies

corporate, subject to modifications necessary because of the fact that criminal liability

is being imposed on a body corporate. In particular, the ‘corporate culture’ provisions

are innovative in that they appear intended to allow criminal liability to be attributed

to a corporation without a finding of fault in relation to an individual.

22. Notwithstanding the breadth of the definition of ‘corporate culture’ in subsection

12.3(6) of the Criminal Code, investigators nonetheless face difficulties in gathering

evidence to prove a corporate culture that authorised or permitted the commission of

an offence, or that a body corporate failed to create and maintain a corporate culture

that required compliance. This is especially the case where a body corporate has in

place formal policies that despite being compliant with the law, are not intended to be

taken seriously. Proving a non-compliant corporate culture in such circumstances is

often difficult for the same reasons it is difficult to attribute intention, knowledge or

ulterior intention to an individual: people take great care to avoid incrimination.

Additionally, potential whistle-blowers face a range of challenges and disincentives.

23. The effectiveness of penalties in deterring serious financial crime, including

white-collar crime, is highly dependent on the ability to investigate and prosecute

bodies corporate as appropriate. To date, there have not been any successful

prosecutions under the corporate criminal responsibility provisions of the Criminal

Code, where a body corporate has pleaded not guilty.

K n o w i n g l y c o n c er n e d

24. The criminal law has long recognised that persons involved in the commission of an

offence should be held criminally responsible, even where they did not actually commit

an offence. Such derivative liability is important to deter and punish those who would

seek to support or encourage criminal activity, regardless of their motivation for doing

so.

25. Under Division 11 of the Criminal Code, there is currently inadequate provision for

criminal liability of those who would be characterised as ‘ringleaders’ in serious and

organised crime syndicates. Although such persons can be prosecuted on the basis of

6 Section 12.1.



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accessorial liability (aiding, abetting, counselling or procuring the commission of an

offence), these forms of liability imply that the offender was not as culpable as the

person who committed the main offence. In fact, such persons should be considered

more culpable, due to their leadership roles and conduct which is often deliberately

calculated to distance themselves from the commission of the main offence.

26.

Criminal syndicate leaders, for example, generally make the most profit, while oftenremaining just beyond the reach of the law. Where a defendant is charged with ‘aiding

or abetting’ the commission of an offence, there is a risk that their level of criminality

is viewed as inferior to the person who actually committed the offence. Even if

convicted, inadequate sentences which fail to dissuade criminal behaviour may result

from misperceptions borne of the ‘inappropriate’ nature of the charge.

27. The AFP believes that amending the Criminal Code to include ‘knowingly concerned’ as

an additional form of secondary criminal liability would significantly alleviate this gap

in the current law and facilitate prosecution of serious financial crime offences. The

concept of ‘knowingly concerned’ was included in the Crimes Act 1914 when it was

first enacted and thus has a long history in Australian law. As noted by theCommonwealth Director of Public Prosecutions, it required proof that a person had

intentionally concerned themselves with the essential elements or facts of a criminal

offence; mere knowledge of the offence was insufficient.7 It more accurately reflects

the nature of organised crime, and is simpler to apply than the archaic formulation of

‘aid, abet, counsel or procure’.

28. The Government introduced legislative amendments to amend the Criminal Code to

include ‘knowingly concerned’ as a form of derivative liability through the Crimes

Legislation Amendment (Powers, Offences and Other Measures) Bill 2015. However,

the schedule of the Bill including these amendments was defeated in the Senate.

Mechanisms to recover wrongful gains

Confiscation of criminal assets

29. Confiscation of criminal assets is a vital tool in taking the profit out of crime and

preventing the reinvestment of criminal profits into further criminal activity. In

particular, the non-conviction based asset forfeiture regime under the Proceeds of

Crime Act 2002 (POCA) can be used to target senior members of criminal syndicates,

who benefit from financial crime but sufficiently distance themselves from the

offending to place themselves outside the remit of traditional criminal justice

measures. Through the joint Criminal Assets Confiscation Taskforce (CACT), the AFP is

focusing on asset confiscation as an alternative method to recover wrongful gains from

all forms of serious financial crime.

7 Commonwealth Director of Public Prosecutions, Inquiry into the Crimes Legislation Amendment (Powers,Offences and Other Measures) Bill 2015: Submission by the Commonwealth DPP , 7 May 2015, p. 6.



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Criminal Assets Confiscation Taskforce (CACT)

The CACT, led and hosted by the AFP, combines the expertise and resources of

the AFP, the Australian Crime Commission and the Australian Taxation Office. TheCACT has investigation and litigation teams in Brisbane, Sydney, Melbourne,

Perth and Canberra, thereby providing national coverage. These teams also

provide financial investigative support to other operational areas of the AFP.

The CACT investigates conviction-based and non-conviction-based proceeds of

crime matters under the POCA. The CACT employs a dynamic and integrated

approach to asset confiscation and develops the most effective and appropriate

strategy for each individual case. In 2014–15, AFP’s specialised Criminal Assets

Litigation practice restrained more than $246.6 million in criminal assets, making

it the most successful year to date. These results arise from a number of forms of

serious financial crime, including ‘white collar’ offending such as insider trading

and fraud, as well as other crime types such as drug offences.

30. The AFP continues to work closely within Government to ensure the regime under the

Proceeds of Crime Act 2002 remains effective in light of evolving case law in this area.

Other matters: evidence gathering

31. As outlined above, the nature of many serious financial crimes is such that they are

difficult to prosecute in large part due to the challenges involved in obtaining sufficient

evidence to meet evidentiary standards.

Banker’s affidavits and search warrants

32. The ability to obtain financial transaction and related records is often critical to the

investigation and prosecution of serious financial crime, including white-collar crime.

However, current processes for obtaining such information from financial institutions

still largely reflect the historical approach of the criminal law. Such processes are often

resource-intensive and duplicative for both financial institutions and investigating

agencies, and impede the timely progress of an investigation to prosecution.

33. For example, a financial institution may be willingly cooperating with government

agencies in respect of an investigation (which may not relate to the institution itself).

Accordingly, it may prepare and provide information and documents to a government

agency in response to a production order or other statutory requirement. However, for

this information to be collected and adduced in court, a search warrant must be

executed on the financial institution and a banker’s affidavit is often required. This

means that financial institutions may need to provide or present the same documents

or information on multiple occasions.

34. The AFP is working with Government and private sector partners to explore options to

improve efficiency in these processes and ensure relevant material is provided to

support investigations in a timely manner with minimum burden on industry.



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Electronic service of warrants and receipt of evidence

35. The AFP is aware that some jurisdictions allow for the electronic (online) service of

warrants and production orders on banks and financial institutions.

36. In this digital age, the general public, including the private sector, expect to be able to

deal with government electronically. Banks and financial institutions may prefer to be

able to provide documents and other information to law enforcement electronically,

including documents and information subject to search warrants or production orders.

Sharing of financial information

37. The AFP has strong working relationships with AUSTRAC, other Commonwealth, State

and Territory government agencies and the private sector, and will continue to explore

information sharing issues in close collaboration with these partners.

Other matters: incentives to comply

38. As outlined above, a major challenge in investigating and prosecuting serious financial

crime including white-collar crime is obtaining sufficient information and evidence

about the commission of an offence. For example, the commission of an offence may

be subject to a ‘cover up’, particularly where it is committed in a corporate context in

the absence of a strong compliance culture. External witnesses or evidence may be

difficult to obtain for various reasons, especially where persons may have been

involved in the commission of an offence or located in other jurisdictions.

39. In light of the difficulties involved in prosecuting white-collar criminal offences,

jurisdictions such as the United States and United Kingdom have developed the use of

deferred prosecution agreements (DPAs) as an additional approach to traditional

prosecution. DPAs provide an incentive to corporate offenders to self-report

wrongdoing, and as a part of the agreement, to improve their internal compliance

systems. Although DPAs may allow offenders to avoid conviction if their terms are

met, their terms often include the payment of a financial penalty, as well as requiring

the company to incur further costs to improve their compliance systems. Offenders

may also be required to make restitution to the victims of the crime.

Case Studies: Deferred Prosecution Agreements

A u s t r a l i a

The AFP is currently conducting two investigations with companies that are

willing to cooperate on their respective foreign bribery matters. One of these

matters was referred to the AFP by the company itself.

In the absence of DPA arrangements, it is noted that the companies may face

charges irrespective of their ongoing cooperation. This in turn limits the

incentives for companies to self-report serious financial crime matters and

strengthen their compliance systems.



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Ca n a d a

In Canada, the media recently reported that one case, involving a major

company and one of its senior executives who were, between them, charged

with foreign bribery and a range of other serious financial crime offences in

2014, is not expected to reach preliminary court hearings until 2018.The company has publicly expressed its willingness to defend the charges in

court if a DPA scheme is not implemented in Canada. It has argued that the

unavailability of DPAs in Canada disadvantages the company when competing

against rival firms from countries that do have DPA schemes.

40. The use of deferred prosecution schemes in overseas jurisdictions is an example of

how additional measures can bolster the deterrent effect of strong criminal penalties

by encouraging corporate compliance and cooperation. At the same time, it is

important that individual measures to incentivise compliance are not perceived to be

panaceas for combating serious financial crime including white-collar crime.

Ultimately, these measures target the majority of persons who can be persuaded to

voluntarily comply with the law. They complement the criminal investigation and

prosecution of offences, which serves to reassure those who choose to comply that

they are not disadvantaged because of their compliance and warn those who are

inclined not to comply as to the consequences of non-compliance.

41. These issues have been canvassed in detail in the Attorney-General’s Department

public consultation paper Improving enforcement options for serious corporate crime:

Consideration of a Deferred Prosecution Agreements scheme in Australia, which was

launched by the Minister for Justice at the OECD Anti-Bribery Ministerial Meeting in

Paris in March 2016. The AFP supports the exploration of options for deferredprosecution schemes through this public consultation process.

Conclusion

42. Serious financial crime, including white-collar crime, such as foreign bribery,

money laundering and complex fraud, has a serious impact on the community. While

strong criminal penalties are important to deter and punish wrongdoing, they must be

complemented by a range of other measures to remove the profit motive of crime and

incentivise voluntary compliance.

43.

The AFP continues to work closely with the Government through the

Attorney-General’s Department to consider options to ensure the current legislative

framework remains robust and further enhance its ability to combat serious financial

crime and white collar crime.

44. It is also important to note that combating serious financial crime and white collar

crime is not just the responsibility of government. To this end, the AFP will continue to

work with the private sector to promote the need to take responsibility for corporate

culture and the implementation of appropriate governance and compliance frameworks

to reduce the opportunity for such crime to occur.


AFP Submission to the White Collar Crime Inquiry 54

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