ASIC: Paradise or Paradise Lost for white collar criminals?

After two years of corporate scandals, the 2016 budget sees the Government reversing its decision two years ago to cut the funding of the Australian Securities and Investment Commission, the corporate cop.

But replacement funding will not be nearly enough to improve corporate behaviour in Australia.

In 2014 ASIC Chairman, Greg Medcraft, admitted that Australia was “a bit of a paradise” for white collar crime.

Opposition Leader Bill Shorten has promised to call a Royal Commission if elected. Photo: AAP

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Things have hardly improved since then. Consider some of the recent scandals and allegations: CommInsure, bank financial advisors, bank bill swap rate rigging, foreign exchange rigging, 7-Eleven underpayments, multinational tax avoidance, IOOF insider trading.

Even the CEO of the Australian Securities Exchange resigned amid a foreign bribery scandal.

Given the regular parade of corporate scandal, it makes sense that Bill Shorten has promised a Royal Commission into the financial services industry.

Australia needs to take a deep look at corporate conduct, especially in that sector. The Royal Commission should also examine whether ASIC has the resources and powers to do its job.

Since being established in 1998, ASIC has seen its responsibilities expand dramatically. From its original jurisdiction of general corporate, insolvency and auditor regulation, ASIC’s mandate has grown to include financial services conduct, consumer credit, parts of the Australian Consumer Law, and broader market supervision.

While ASIC’s regulatory footprint has grown, ASIC’s resources have not kept pace, as this chart shows.

Under-resourcing is not limited to ASIC. A recent report from the Australia Institute finds that the Coalition’s first two budgets saw almost 4000 (or 14.9 per cent) corporate cops depart key economic regulators such as ASIC, ATO, ACCC, APRA and the Fair Work Ombudsman.

Funding is only part of the issue. The Royal Commission should look at ASIC’s powers too.

Mr Medcraft has also noted that the civil penalties for contraventions of the Corporations Act were “not strong enough, not tough enough”.

He is right – Australia’s civil penalties are woefully inadequate to deter corporate misconduct and are far weaker than comparable penalties in the United Kingdom, United States or Canada.

Treasurer Scott Morrison said ASIC already holds the powers of a Royal Commission. Photo: AAP

ASIC has suggested that civil penalties should be higher and more readily available, and new remedies such as disgorgement should also be introduced.

More innovative ideas can also be deployed in this battle. The US Securities and Exchange Commission’s lauded whistleblower program empowers, protects and appropriately rewards whistleblowers with a proportion of the civil fines ordered against the corporate wrongdoer.

Class actions also continue to do their part to bring wrongdoing to account and Parliament should legislate to protect whistleblowers who provide evidence in civil proceedings.

ASIC’s replacement funding tonight is a band-aid over a self-inflicted wound. If we don’t want to continue being a paradise for corporate wrongdoers, we need to take a deep look at how we monitor and enforce the law.

Nothing short of a Royal Commission is going to get the job done.

Maurice Blackburn is Australia’s leading class action and social justice law firm, with a longstanding engagement on important social, public policy and political issues.