Pamela F Hanrahan

Corporate and white-collar crime

In the decade since the financial crisis, the tone of the whitecollar crime literature has altered perceptibly. Earlier, it was mostly concerned with the rogue individual – an employee or agent who abused his or her position of trust to obtain a personal advantage, often at the expense of the employer or principal through conduct contrary to its policies and norms. Now the focus is more often on the corporation itself and the criminal and near-criminal behaviour of its officers in pursuit of corporate success – that is, the aggrandisement of the corporation and (often) themselves within it. Rather than being contrary to the ethos of the particular corporation, this behaviour is often embedded in it. Regulators are inclined to describe it as a problem of “culture”. The essays in this collection are directed at various aspects of that problem, and how the law might respond to it. As Professor Garrett points out, this type of wrongdoing gives rise to a difficult moral and policy question as to how to respond. The usual responses of the criminal law may not be effective for either general or specific deterrence where the wrongdoer is a corporation or is a “company man (or woman)” motivated by corporate success. The dividing line between regulatory-crime and crime-crime is not always sharply drawn, particularly where the victim is the system rather than an individual. Rules and enforcement mechanisms directed at crime-crimes, which are punitive and backward looking, may not be the most effective way to address structural non-compliance by and within large businesses. But alternative responses to regulatory-crime, including those based on theories of responsive regulation, can fail to satisfy public calls for retribution where corporate misconduct appears to be going unpunished and the sanctions imposed are simply a cost of doing business. Professor Garrett examines the effect globally of changes made by the United States since 2003 in its approach to corporate prosecutions. The new approach with its emphasis on out-of-court settlements and huge penalties has been highly influential, although the conditions that allow for this approach to be adopted are not present in all jurisdictions. He explains the form of deferred and non-prosecution agreements used; and identifies the advantages of these settlementoriented approaches as their flexibility and the manner in which they can rehabilitate a corporation without destroying it. However Professor Garrett notes that the degree of leniency and the fact that they are concluded out of the public eye remain of concern. Dr McGrath also examines the emergence of more flexible responses to this type of wrongdoing, looking at the Irish experience in transitioning from a traditional commandand-control approach to one based more explicitly on theories of responsive regulation. He identifies a new architecture of corporate enforcement arising from legislative reform, cultural sentiments requiring increased corporate accountability, and a greater emphasis on enforcement in practice. But, he contends, the “tough on crime” rhetoric is not always matched by the outcomes; “politicians act out for public approval, but prosecutors and corporations resolve criminality in-house, with limited transparency, scrutiny and oversight”. He concludes that “there remains a tendency to ‘manage’ corporate wrongdoing through strategies such as guidance, persuasion and settlement rather than punish it”. Professor Hanrahan uses the layered penalties regime in the Australian insider trading laws as a case study to consider the deterrent effect (if any) of civil and criminal penalties. The Australian experience suggests that where the wrongdoer is an individual motivated by personal gain, the appropriate response is a criminal one. However, where the wrongdoer is motivated by corporate success or is the corporation itself, a civil response may allow the regulator more flexibility and avoid difficulties in pinning blame on a particular individual. Professor Hill sees the problem differently, in terms of how the law responds to issues of culture within corporations. She is concerned with the way in which the personality of a corporation’s employees affects culture, and with it the propensity of corporations to engage in wrongful or destructive behaviour. She argues that the law could do more – not through prescriptive law, but expressive or penumbral law – to encourage corporations to pay attention to the personality and individual attributes of employees as they are hiring, firing or otherwise punishing, promoting, rewarding and training them. These attributes include their empathy and appetite for risk. This reflects her view that “a focus on culture (and indeed, compliance, broadly construed) is necessarily in significant part a focus on individuals – after all, firms act through individuals, and individuals together construct and enact a firm’s culture”. Professor O’Brien looks beyond the law, to a recent nonlaw strategy – the Bank of International Settlements’ new global code of conduct for the wholesale foreign exchange markets. He argues that this risk management tool, combing practical, empirical and normative dimensions, leverages public shaming and economic sanctions within what could become vital diagnostic and evaluative instruments. This may make individual institutions and those who work within them more amenable to effective market conduct and prudential oversight. As Professor Hill observes, “we live in a golden age of bad corporate conduct. Some of the behaviour is criminal, some of it should be criminal, and some of it is simply harmful to the broader society without crossing into criminality”. As she goes on to say, the law cannot just require all businesses to abide by a strong-form paternalistic “golden rule”. There Law and Financial Markets Review, 2017 Vol. 11, Nos. 2–3, 53–54, https://doi.org/10.1080/17521440.2017.1373892

Deterring white-collar crime: insights from Australia’s insider trading penalties regime

In Australia, insider trading by individuals or corporations can attract either criminal or civil penalties. This article considers the potential deterrent effect of the different types of penalties for illegal insider trading and concludes that while criminal prosecution remains the preferred enforcement option in relation to wrongdoing by individuals motivated by personal gain, civil penalty proceedings may be a more effective deterrent of unlawful conduct by individual wrongdoers motivated by corporate success, or by corporations. If so, this may have implications for penalties design in relation to other forms of white-collar crime, at least where the harm caused is not to an individual victim.

Corporate governance, financial institutions and the “social licence”

Financial institutions owe a range of obligations – legal and regulatory, contractual, and non-legal – to their shareholders, their other stakeholders and, arguably, to the public good. Understanding the nature and intensity of those obligations, and the role of boards in balancing and reconciling them, is a key concern of corporate governance. Recent discussions about the need for financial sector entities to earn and maintain a social licence to operate suggest a new way of framing discussions about these obligations.

Should the FSI revisit the philosophy of financial services regulation

The Australian governments Financial System Inquiry (FSI) is charged with, among other things, refreshing the “philosophy, principles and objectives underpinning the development of a well-functioning financial system”. However, the FSIs Interim Report gives little indication that a fundamental rethink of the dominant “conduct and disclosure” approach to financial services regulation, derived from principles of capital markets regulation, is on the cards. While that approach remains a sound basis for regulating securities issuers and participants in capital markets, it is not clear that it provides the right framework for regulating fiduciary intermediaries in the wealth management sector, or providers of consumer financial products and services.