Criminal Law News & Current Affairs

By Zoe Jones


The Royal Banking Commission – who is going to be charged, and when?

On 4 February 2019, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (“the Commission”) released its final report to address misconduct in the Australian banking sector. The Commissioner, the Honourable Kenneth Madison Hayne AC QC, outlined 76 recommendations reached as a result of 7 rounds of hearings between 13 March 2018 and 30 November 2018.

Perhaps the most tongue-wagging result of the Commission has been the spectre of criminal charges being laid against corporate entities and individuals. This has been with respect to the ‘fee-for-no-service’ scandal, being the failure of banks to deliver ongoing advice services to financial advice clients who were charged fees for those services, which the Commissioner found had been systemic in the banking sector since 2007.[1] This includes, amongst other things, the National Australia  Bank (“NAB”), AMP Personal Banking (“AMP”) charging and failing to refund premiums to customers following their death, which the Commissioner described as “objectively dishonest”.[2]

There appears to be little doubt the Australian Securities Investments Commission (“ASIC”) will take some action against the banks in response to the Commission’s findings.

In November 2018, the Commissioner wrote to ASIC to invite them to “consider whether criminal or other legal proceedings” should be taken against unnamed banks involved in the fees-for-no-service scandal. Those banks are already expected to pay at least $850 million in remediation over the scandal.[3] The Commissioner has recommended approximately 24 cases of misconduct be referred to ASIC for consideration of civil or criminal action.

At pages 151 and 152 of the Final Report, the Commissioner strongly suggests action pursuant to section 1041G of the Corporations Act 2001 (Cth) (“the Act”) accurately reflects the level of criminality and scale of the banks’ conduct. That section states:

(1) A person must not, in the course of carrying on a financial services business in this jurisdiction, engage in dishonest conduct in relation to a financial product or financial service.

 (2) In this section:

Dishonest means:

(a) dishonest according to the standards of ordinary people; and

(b) known by the person to be dishonest according to the standards of ordinary people.

Section 1311(1) of the Corporations Act makes this contravention an offence.

Section 769B of the Act provides (in effect) that conduct engaged in on behalf of a body corporate by a director, employee or agent, within the scope of the person’s actual or apparent authority, is taken, for the purposes of a proceeding for an offence based on section 1041G, to have been engaged in also by the body corporate. This means if an employee of a bank is found to have engaged in dishonest conduct whilst performing their duties pursuant to section 1041G, the bank is also taken to have engaged in that conduct.

The maximum penalties for contravention of this section are for an individual, imprisonment for 10 years, or a fine the greater $945,000.00 or three times the total value of the benefits obtained by the person and reasonably attributable to the commission of the offence, or both. The maximum penalty for a body corporate is a fine of $9,450,000.00, or three times the total value of the benefits obtained by a person and reasonably attributable to the commission of the offence (whichever is greater). If the court cannot determine the total value of those benefits, the body corporate may be fined 10% of the body corporate’s turnover that year.[4]

Unfortunately, ASIC’s history of failing to litigate such contraventions may warrant such quasi-judicial prompting. Even during the hearings held by the Commission, it became clear ASIC’s preference is to negotiate and settle such complaints, rather than proceed to litigation. This led the Commissioner to dedicate an entire chapter of the Final Report to changing ASIC’s enforcement culture to emphasise the public importance of litigation to enforce the law, and to ensure adequate deterrence of misconduct with “visible denunciation and punishment”.[5] ASIC has been encouraged to overhaul its approach to enforcement by considering “as its starting point” whether a court should determine the consequences of a contravention and limiting its reliance on infringement notices.

It is a hope, no more, that ASIC will take these recommendations to heart.

The question is, whether in addition to ASIC’s actions, criminal charges will be laid. The difference between action taken by ASIC and criminal charges is that ASIC’s powers only relate to civil and criminal penalty proceedings. Only the Commonwealth Director of Public Prosecutions (“CDPP”) has the power to charge either an individual or a corporation with a criminal offence.

Whilst the Commissioner alluded to, but did not specifically recommend criminal charges, Part 2.5 of the Commonwealth Criminal Code allows criminal liability to be borne by bodies corporate as well as individuals, including imprisonment. These prosecutions would occur in state courts, as federal courts do not have this jurisdiction. There is some recent history of the CDPP laying charges against the banks, with charges of alleged criminal cartel conduct by the Australian and New Zealand Banking Group (“ANZ”) still ongoing in New South Wales Local Court. 6 individuals have also been charged in relation to these offences.

As that matter progresses, it is clear the CDPP are having some difficulty mounting their case as no formal Statement of Facts has yet been filed. Whether this is a resourcing issue, or due to the mammoth investigation power necessary to mount a successful criminal prosecution of a big 4 bank is unclear. However, in November 2018, treasurer Josh Fydenberg announced $51.1 million would be allocated to the CDPP to investigate and prosecute criminal misconduct by banks. This may prevent such procedural delays of CDPP banking prosecutions in the future.

As to when criminal charges will be laid, if any, the answer is nobody knows. However, prosecutors may be keeping one eye on the likely introduction of deferred prosecution agreements (“DPAs”) by means of the Crimes Amendment (Combating Corporate Crime) Bill 2017. DPAs are negotiated settlements that allow the CDPP and the offending party to agree upon conditions to be imposed on a corporation for criminal behaviour, whilst permitting the corporation to make reparations without recording a conviction. On 7 February 2018, this bill was considered by the Senate Standing Committee for the Scrutiny of Bills but has yet to be passed by the Senate.

DPAs may provide the CDPP with a more cost-effective and more predictable means of prosecution than a full criminal trial, with all the uncertainties and vagaries that come with litigation.

However, if this bill passed by the Houses of Parliament and utilised by the CDPP, it is questionable whether such agreements adequately reflect the public interest of bringing banks to account. Keeping their penalties behind closed doors without a criminal conviction appears to fly in the face of the Commissioner’s statement that “litigation of the kind now under consideration is the exercise of public power for public purposes.”[6] The fact remains banks have such power over the average consumers’ financial interests during their lifetime (and apparently, even after their death). Banks should be facing criminal consequences for any action that jeopardises this, rather than being given the opportunity to pay their way out of a conviction.

[1] The Hon Kenneth Madison Hayne AC QC, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – Final Report, accessed on 8 February 2019 at  <>, page 152.

[2] Ibid page 156.

[3] The Hon Kenneth Madison Hayne AC QC, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – Final Report, accessed on 8 February 2019 at  <>, page 154.

[4] Corporations Act 2001 (Cth) section 1311, sch 3, item 310.

[5] Ibid page 433.

[6] Ibid page 432.