Gibson, Althea --- "The Intangible Offender: Sentencing Corporations for Federal Offences" [2005] ALRCRefJl 31; (2005) 87 Australian Law Reform Commission Reform Journal 57

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Reform Issue 87 Summer 2005/06

This article appeared on pages 57-60 of the original journal.

The intangible offender: Sentencing corporations for federal offences

By Althea Gibson*

In 2005 a number of former directors of HIH Insurance Ltd were sentenced for offences against the Corporations Act 2001 (Cth) and the Crimes Act 1914 (Cth). Their sentences attracted significant media attention, highlighting community concern about the serious consequences of crimes in the suites as opposed to crimes in the streets. But what about crimes by the suites?

A corporation is an intangible entity that the law treats as having its own legal personality. As a legal person, a corporation can enter into contracts, buy and sell goods, own land, and commence legal proceedings. A corporation can also engage in unlawful behaviour and can be investigated by authorities, prosecuted, and convicted of a criminal offence. However, difficulties can arise when it comes to sentencing a corporation.

Sentencing law has been traditionally concerned with the sentencing of individual offenders and does not translate seamlessly to the sentencing of corporations. For this reason, a number of commentators and law reform agencies have concluded that sentencing law needs to be reformed to enable the criminal justice system to respond adequately and effectively to criminal behaviour by corporations.

Federal offences and corporations

A number of statutory provisions work together to enable corporations to be prosecuted and sentenced for offences against laws of the Commonwealth. Section 21(1)(a) of the Act Interpretation Act 1901 (Cth) provides that an expression in any Act that is used to refer to persons generally—such as ‘person’ or ‘whoever’—is also to be taken as a reference to a body corporate. The Crimes Act contains a provision of a similar nature, which provides that a provision of a law of the Commonwealth relating to a summary or indictable offence is deemed to refer to bodies corporate as well as natural persons, unless the contrary intention appears. In this way offence provisions that initially appear to apply only to individuals also apply to corporations.

The Criminal Code (Cth) provides that a body corporate can be found guilty of any offence,¹ and contains provisions relating to the way in which criminal responsibility is attributed to corporations. For example, it provides that an act committed by an employee, agent or officer of body corporate who was acting within his or her employment or authority must also be attributed to the body corporate.² These provisions enable corporations to satisfy both the physical and mental elements of offences despite the fact that they are intangible bodies.

The nature and seriousness of federal offences that can be committed by corporations vary. Corporations can commit offences that are harmful to the Commonwealth as a polity, such as taxation offences, or offences that damage the environment, such as pollution offences. Corporations can commit offences that harm society generally, such as offences relating to the advertising of tobacco products, or offences that result in the injury or death of individuals, such as offences relating to occupational health and safety of people employed by the Commonwealth or by Commonwealth authorities.

Sentencing options for corporations

Part IB of the Crimes Act deals with the sentencing, administration and release of federal offenders. Part IB does not contain specific sentencing options for corporations. The most obvious difficulty when it comes to sentencing corporations is the fact that a corporation lacks a physical presence. A corporation cannot be sentenced to a term of imprisonment. Nor can it be sentenced to a number of other sentencing options available to individuals—such as home detention, periodic detention or community service.

Accordingly, it is not surprising that fines are the most commonly utilised sentencing option for corporations. Section 4B(2) of the Crimes Act contains a formula that enables the maximum penalty of imprisonment for an offence to be converted into a maximum fine. A judge can apply this formula to work out the maximum fine for a federal offence if the offence in question is punishable by imprisonment only.

However, fines may not always be effective sentencing options for corporations. For example, a corporation may not be deterred from committing another offence in the future if the fine is viewed as a minor financial inconvenience—simply another business expense. Section 4B(3) of the Crimes Act provides that court sentencing a corporation can impose a fine on a corporation that is up to five times greater than the maximum fine it could impose on a natural person for the offence, unless the contrary intention appears. While this provision ensures that fines imposed on corporations can be larger than those imposed on individuals, it does not necessarily ensure that they have a real punitive bite. Another problem with fines is that a corporation may evade punishment by shifting the burden of the fine on to consumers by, for example, increasing the price of the corporation’s goods or services.

So what sentencing options can be created for corporations when corporations have ‘no soul to be damned, and no body to be kicked’?³ Commentators and law reformers have discussed a number of ways in which existing sentencing options could be modified to be more effective for corporations and have also discussed a number of new options that could be created for corporations.

• Equity and turnover fines: Equity and turnover fines aim to address some of the distinguishing features of corporations. An equity fine involves the transfer of shares from the corporation to a state criminal compensation fund, which is then entitled to dispose of the shares and distribute the assets to persons affected by the conduct of the corporation. A turnover fine is a fine calculated by reference to the annual turnover of the corporation.

• Disqualification orders: Disqualification orders are orders that prevent a corporation from engaging in certain commercial activities. They include orders requiring a corporation to cease commercial activities for a period of time or orders preventing a corporation from trading in certain geographic regions.

• Orders requiring a corporation to take corrective action: Corporation probation orders, as they are often called, include internal discipline orders, organisational reform orders and punitive injunctions. Internal discipline orders require corporations to investigate their own offending conduct, take internal action against those involved in an offence, and provide the court with a satisfactory compliance report. Organisational reform orders require an expert, such as a corporate lawyer or an accountant, to be appointed to review the corporation’s organisation and methods. Punitive injunctions require corporations to reform themselves in a manner that incorporates a punitive element, such as by a particular date.

• Community service orders: Most people are familiar with the concept of community service. Community service orders can be tailored to the sentencing of corporations. For example, a corporation could be required to perform community service by helping to repair harm to the environment or by making its facilities available to community groups.

• Publicity orders: Corporations tend to value their corporate image highly. The media is often interested in the criminal activities of corporations. However, in some circumstances these activities may not be publicised if they are considered trivial, technical, or if other events are considered more newsworthy. Publicity orders can require corporations to publicise information about their offending conduct to specific groups of people or to the community at large. Publicity orders can damage a corporation’s reputation, adversely affect the morale of a corporation’s employees, or diminish a corporation’s profits.

• Dissolution orders: Dissolution or deregistration of a corporation is a severe sentencing option that has been likened to ‘corporate capital punishment’.⁴ By terminating the corporations existence, the order ensures that the corporation cannot repeat its offending conduct. This sentencing option may be appropriate where a corporation was operated primarily for a criminal purpose.

Sentencing factors

Judges consider a number of factors when sentencing federal offenders. Section 16A(2) of the Crimes Act sets out some of these factors, some of which are applicable to both individuals and corporations. For example, both an individual and a corporation can plead guilty to an offence, and have a prior criminal record. However, some sentencing factors are clearly inapplicable to corporations. A corporation will not have family members or dependants who may be affected by the sentence and will not have any physical or mental condition that may affect the nature or quantum of the sentence imposed.

When sentencing corporations, courts will often need to consider different factors to those considered when sentencing individuals. For example, factors that tend to indicate the culpability of individual offenders include the degree of premeditation involved in the offence, the offender’s motive for committing the offence and the role the offender played during the commission of the offence. However, these factors are largely inapplicable to corporations. Factors that may indicate the culpability of a corporation include the existence or absence of a compliance program designed to detect criminal activity; the actions of a corporation upon discovery of the offence; and the extent to which the offence or its consequences could have been foreseen.

The sentencing hearing

Another obvious consequence of the fact that a corporation lacks a physical body is that a corporation will not be able to physically attend a sentencing hearing. However, it may be desirable for a representative of the corporation to attend a sentencing hearing for a number of reasons. Courts are often required to explain the details of a sentence to an offender to ensure the offender understands the obligations or the punishment to be imposed on him or her by the sentence. This may be equally applicable when sentencing a corporation. Requiring an officer of a corporation to attend a sentencing hearing may also enable the court to express directly society’s disapproval of the corporation’s conduct to an individual upon whom it may have an impact.

During sentencing hearings courts are often provided with information about individual offenders and victims. Information about an offender can be provided to the court by a pre-sentence report, which may contain information about an offender’s background and may inform the court about whether a particular offender is suitable for certain sentencing options. It may be desirable for pre-sentence reports to be prepared about corporations, but the focus of these reports would be different. Pre-sentence reports relating to corporations may be complex, and may need to be prepared by suitably qualified people, such as accountants.

Information about a victim can be provided to the court by a victim impact statement, which enables a victim to inform the court about the harm or loss suffered as a result of an offence. Some of the offences committed by corporations are generally regarded as ‘victimless’ because they do not have directly identifiable victims. Instead, they cause indirect harm to individuals, by adversely affecting financial markets, the environment and so on. It may possible to identify and describe the harm caused by corporations for these types of offences.

Proposed reform

The Australian Law Reform Commission (ALRC) is currently conducting an inquiry into the sentencing of federal offenders. As part of that inquiry, the ALRC is examining the sentencing of corporations. The ALRC has already examined penalties for corporations in detail on two occasions.⁵ In addition, the New South Wales Law Reform Commission has completed an inquiry into the sentencing of corporations⁶ and the Tasmania Law Reform Institute is currently examining the law in relation to the criminal liability of corporations and is considering sentencing options for corporations.⁷

In November 2005 the ALRC released a Discussion Paper, Sentencing of Federal Offenders (DP 70). The Discussion Paper includes a number of proposals for reform of the law relating to the sentencing of corporations, including proposals to create new sentencing options for corporations; to set out sentencing factors to be considered when sentencing corporations; to enable judicial officers to require officers of corporations to attend sentencing hearings; and to enable pre-sentence reports and victim impact statements to be prepared and presented to the court for offences involving corporations.

The ALRC’s Sentencing Inquiry

The ALRC began its current inquiry into federal sentencing laws in July 2004, with Terms of Reference requiring it to examine Part IB of the Crimes Act 1914 (Cth). The ALRC is to report on whether Part IB, which deals with the sentencing, imprisonment, administration and release of federal offenders remains appropriate, effective and efficient.

Discussion Paper 70 Sentencing of Federal Offenders (DP 70), was released in November 2005, and signalled a further round of intensive public consultations before preparation of the final report, due in early 2006.

The Discussion Paper is free, or available online.

Please check the ALRC web site for information on how to make a submission, and the closing date for submissions.

If you would like to be notified when the final report is released, please register your interest online, or contact the ALRC www.alrc.gov.au.

* Althea Gibson is a Legal Officer at the Australian Law Reform Commission.

Endnotes

1. Criminal Code (Cth) s 12.1(2).

2. Ibid s 12.2.

3. J Coffee, ‘“No Soul to Damn: No Body to Kick”: An Unscandalized Inquiry into the Problem of Corporate Punishment’ (1981) 79 Michigan Law Review 386.

4. Ibid.

5. Australian Law Reform Commission, Compliance with the Trade Practices Act 1974, ALRC 68 (1994) Chs 9–10; Australian Law Reform Commission, Principled Regulation: Federal Civil and Administrative Penalties in Australia, ALRC 95 (2002), Ch 28.

6. New South Wales Law Reform Commission, Sentencing: Corporate Offenders, Report 102 (2003).

7. Tasmania Law Reform Institute, Criminal Liability of Organisations, Issues Paper 9 (2005).