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Australian Law Reform Commission - Reform Journal |
Reform Issue 78 Autumn 2001
This article appeared on pages 49– 51 & 73 of the original journal.
Civil & administrative penalties
By Kate Connors*
In June this year, the Australian Law Reform Commission will bring together leading Australian and international experts in regulatory theory for its conference Penalties: Policy, Principles and Practice in Government Regulation.
The question of how penalties operate within the broader sphere of government regulation is a key theme of the ALRC’s review of the use of civil and administrative penalties in federal legislation.
In a number of areas of federal jurisdiction, legislation provides for civil and administrative penalty regimes to enable regulatory authorities and government departments and agencies to enforce compliance with legislation or achieve effective regulation.
The use of civil and administrative sanctions is an expanding and developing field of regulatory activity. It is in the context of this expansion that the ALRC has been asked to review the arrangements for federal civil and administrative penalty provisions. The ALRC ultimately aims to produce a reference for legislators and regulators on policy and practice with respect to the design and enforcement of penalty provisions. An important part of achieving this aim will be consideration of the questions ‘what is effective regulation’ and ‘what is the role of penalties alongside other regulatory techniques in securing compliance and cooperation from the community’.
Understanding the landscape
One of the first tasks undertaken by the ALRC has been to ‘map’ federal legislation into a database to determine the current range, design and formulation of federal penalty provisions.
The ALRC has noted 2,122 penalty provisions from 70 federal statutes with penalty provisions. Of the 70 Acts analysed by the ALRC, most included at least one criminal penalty. Fifty of the statutes included administrative penalties, and 20 included civil penalties.
Some 74 per cent of the penalties identified in our selection of Commonwealth legislation were criminal sanctions; 18 per cent were administrative penalties and eight per cent were civil penalties. Of the criminal penalties the vast majority involved a fine; the next largest category had the option of a fine and/or imprisonment, with a small number of provisions having imprisonment only as the penalty.1
Close to half of the administrative penalties in Commonwealth legislation concern licensing regimes relating to a number of areas of legislation including aviation, communications, broadcasting, aged care, navigation and fisheries. Of those administrative penalties not related to licensing regimes, the majority are found in tax and social security law, and a smaller proportion in corporations, trade practices and banking legislation.
The large majority of civil penalties are in the Corporations Law (90 of 164); the remainder distributed between environ-mental, superannuation, communications, trade practices and workplace relations legislation.
Each penalty provision was entered into the ALRC’s database and categorised according to the type and level of penalty, the target(s) of the penalty, the description of the proscribed conduct, expression of liability, availability of repeat or alternative penalties, review provisions, rights and protections for the regulated and the investigatory powers given to agencies and regulators.
The ALRC analysed the data by searching under the various fields and filtering entries according to specified criteria. This revealed certain patterns in the design and form of particular penalty types and procedures, and certain trends and similarities in the use of civil and administrative penalties.
Some important issues that emerged from the database project were:
• inconsistent arrangements for the same conduct across different Acts. In these penalty clauses the proscribed conduct is framed in a similar fashion but the penalties for such conduct may be administrative, civil or criminal;
• penalty regimes operating in similar working environments (such as regimes which govern the marketplace or protect revenue) differed significantly in the way compliance was encouraged or enforced and in the discretion provided to officers of the regulator to modify, tailor or ameliorate the penalty provision;
• inconsistency in relation to delineating the circumstances and conduct giving rise to penalties. For example, over half the civil and about one third of the administrative penalty clauses do not explicitly state a fault element; absolute liability is found in just under half the administrative penalty clauses; and common fault elements like intention, knowledge and recklessness are specifically mentioned in only 20 civil and administrative penalty provisions.
Penalties in practice
As well as understanding how the legislation is crafted, one of the ALRC’s tasks is to ascertain how the identified provisions work in practice. This is essential if the ALRC is to formulate principles for the design and practice of penalty provisions as its terms of reference require.
To this end, the ALRC has been consulting widely with government agencies and departments that have responsibilities for imposing administrative and civil penalties, as well as with legal and compliance professional bodies, community and business groups, academics, individuals and organisations with an interest or expertise in this area.
While criminal penalties dominate in the legislation, in practice, administrative penalties appear to be the most common choice of regulators. In 1998-99, for example, the Australian Taxation Office imposed administrative penalties totalling $1.122 billion, with penalty remissions of $139 million allowed by the Office.2 In social security in the same year, ACOSS cites over 300,000 administrative penalties imposed on more than 200,000 people.3
The ALRC’s analysis of administrative penalty provisions found a range of conduct subject to administrative penalties, and of forms that these penalties can take. By far the largest group of administrative penalties concerned the varied licensing and registration regimes. Monetary penalties had different forms, such as withholding social security benefits, interest charges or penalty taxes, levies or other charges. Other administrative penalties include banning orders, forfeiture of assets and directions restricting the way entities do business.
Notable features of how administrative penalty regimes work in practice include:
• that most penalties can be imposed without the penalised person having a right to be heard;
• that many penalties can be imposed without giving notice to the person penalised;
• in a few cases, a limitation on the person’s right to review the penalty decision.
An important issue relevant to the practical operation of penalties concerns the delegation of discretion. In all fields of regulation and administration rules are regularly ignored or flouted. Inevitably, only a small proportion of non-compliance comes to the attention of regulators. An even smaller proportion of cases result in the imposition of penalties. There are issues of equity associated with the exercise of the discretion to proceed against particular offenders or to target particular examples of non-compliance, in situations where identical or similar circumstances are not penalised.
This is a particularly significant matter in administrative law and practice, although there is limited research to document how discretion is exercised, whether the devolution of judgmental discretion leads to higher adjudicative and administration costs and what compliance outcomes are achieved if judgmental and discretionary responsibilities are, or are not, delegated down the line of decision-makers.
The ALRC will consider the procedural and due process issues that should govern the use of administrative penalties.
What is effective regulation?
The identification of what makes a successful regulatory regime is a key part of the ALRC’s task of enunciating principles relevant to the workings of civil and administrative penalties.
Many federal regulatory regimes utilise an explicit pyramid of sanctions and remedies, and accommodate negotiation and interaction with their regulated community concerning compliance, incentives and motivations for action.
The ALRC is considering the range of regulatory tools available to regulators and government departments to promote compliance and enforce sanctions for non-compliance. Such strategies include negotiated agreements such as enforceable undertakings and the operation of immunities and incentives, such as penalty reductions and leniency programs, to promote compliance.
The applicability of particular arrangements requires consideration of the mandates, objectives, players, activity, resources available and the supporting legal regime for individual civil and administrative regulators. It may be that certain core principles are generally applicable to the range of market place regulation in securities and investment, competition and trade practices, financial services, insurance and broadcasting. However where the regulatory activity is directed at, say, the protection of the environment or border security, the principles and objectives of marketplace regulation may have limited applicability.
The ALRC is currently analysing working sets of principles, and information concerning their applicability, utility and effectiveness.
Conclusion
The study of government regulation seeks to reconcile competing interests in efficient, efficacious, fair and just administration. The June conference on penalties will involve social scientists, lawyers, regulators and members of regulated communities in debating these issues across a wide range of subject areas. Following the conference, the ALRC will be producing a discussion paper canvassing these issues and advancing options for debate and reform. The Commission welcomes submissions and comments on this important review.
*Kate Connors is a Legal Officer, assigned to the ALRC’s inquiry into the use of civil and administrative penalties.
Endnotes
1. This analysis of the penalty provisions is subject to s 4B of the Crimes Act 1914 (Cth).
2. The Auditor General Audit Report No 31 Administration of Tax Penalties: Australian Taxation Office, 1999-2000, para 1.8, Figure 1.
3. See The Sydney Morning Herald, 9 November 2000, 2.
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URL: http://www.austlii.edu.au/au/journals/ALRCRefJl/2001/12.html