Corporate criminal responsibility in the natural resources sector

Photo: Josh Kelly

Adam Fairhurst, Associate Director, Forensic Services, BDO Australia

Do your organisation’s officeholders regularly review corporate compliance procedures and regulations? If not, now is the time to act. Just as safety compliance is paramount to protect your people, corporate compliance is paramount to protect you and your organisation.

Putting it in perspective

Imagine receiving a notice to appear in court on behalf of yourself and your organisation, alleging you are criminally liable for the actions of one or more of your organisation’s employees. How is it that an officeholder can be held accountable for something they are unaware of? Unfortunately, under Australian legislation, “ignorance of the law is no excuse”.

As an officeholder for a company, this could be a very real circumstance. Criminal allegations levelled against an organisation and officeholders bring with them a raft of risk issues and consequences, both personally and professionally, no matter the circumstances. Regardless of any outcome, reputational damage is a certainty and it only gets worse from there. Whether it is legal costs or subsequent monetary penalty, the financial consequences may also be material, and then, there is the possibility of imprisonment. The gravity of the potential outcomes of criminal prosecution highlights the need for proactivity when it comes to corporate compliance procedures and regulations. Once claims are lodged with relevant authorities, it will be your conduct and the established organisational policies that will determine the outcomes of any action taken. Better yet, a proactive approach will assist to avoid these potentially careerdefining circumstances.

The landscape is changing

Adding further complexity to the compliance landscape is the Australian Law Reform Commission’s (ALRC) recent inquiry into the review on ‘Corporate Criminal Responsibility’. The outcomes of this inquiry will likely see the compliance goal posts change, with continual ongoing transformation. Mining companies listed on the Australian Securities Exchange (ASX) could greatly benefit from proactively reviewing their compliance programs, governance, and whistleblowing

awareness activities. Such actions ensure organisational risk issues are actively mitigated, and when they do occur, that they are investigated appropriately.

The ALRC inquiry

The ALRC inquiry focuses on corporate criminal responsibility1 and, in particular, the application of criminal law to a corporation itself, for conduct of the corporation. The inquiry makes a number of recommendations that guide mining organisation leadership team thinking around the implementation of necessary controls. The recommendations are open-ended and appear subjective. Taking the time to understand the recommendations will assist mining organisations and their officeholders to avoid taking undue risks. The ALRC website summarises the impact and overview of the recommendations1 on corporations as:

Impact

• Corporate conduct should be regulated primarily by civil regulatory provisions • Corporations should be subject to a criminal offence only when: • The denunciation and condemnation of the conduct is warranted • The stigma of being a ‘criminal’ would be appropriate • The deterrence from a civil penalty would be insufficient • The potential harm that may occur justifies a criminal offence • It is in the public’s best interest.

Overview

• The law should contain one clear method of determining when a corporation is responsible for a crime.

That method should apply in the vast majority of situations. A corporation

should be criminally responsible for the conduct of a person acting

on its behalf. The nature of the relationship between the person and the corporation should be more important than the person’s job title or job description, when determining whether the person is acting ‘on

behalf of’ the corporation. • The law should contain one way of determining whether a corporation is considered at fault for particular misconduct. This should reflect the moral liability of the corporation.

A corporation should be considered at fault when an employee, officer or agent of the corporation has the relevant state of mind for the particular criminal offence. A

corporation should have a defence of having taken ‘reasonable precautions’.

• The Government should consider applying the new model of ‘failure to prevent’ offences of misconduct overseas by Australian corporations. • There should be new criminal laws that address systems of conduct or patterns of behaviour that result in multiple contraventions of civil penalty provisions. • The law should require courts to consider a number of specified factors when sentencing a corporation (so the general public has greater confidence that corporations are being sentenced appropriately and consistently for criminal corporate misconduct). • Courts should be able to impose a range of non-monetary penalties when sentencing a corporation, including: • Publication or disclosure • Community service • Corrective action • Facilitating redress • Not participating in certain commercial activities. • Courts should be able to make orders dissolving a corporation, if it is the only appropriate sentencing option. • Courts should be able to make orders disqualifying a person from managing corporations, if that person managed a corporation that has been dissolved by a court. • The Australian Government, together with state and territory governments, should develop a national debarment regime, to ensure corporations with an interest in undertaking government work will have a significant incentive to not get involved in criminal activity.

The public will, therefore, be able to have greater trust in the process of awarding government contracts. Criminal allegations levelled against an organisation and officeholders bring with them a raft of risk issues and consequences, both personally and professionally, no matter the circumstances.

• Courts should be able to make orders for the preparation of pre-sentence reports for corporations, and should be able to consider victim impact statements. For example, courts will be able to tailor non-monetary penalties that take into account the corporation’s compliance culture, as well as any steps the corporation has taken to improve its procedures, discipline its personnel, and compensate victims or repair any harm.

Victims of corporate crime will have a voice when corporations are sentenced.

Courts will be better able to assess the impact of the misconduct, and the suitability of a compensation or redress order. • There should be judicial oversight of

Deferred Prosecution Agreements (DPAs) and publication of the reasons for any approval of a DPA in open court. This is recommended to avoid the same criticisms as those made of enforceable undertakings in the

Financial Services Royal Commission 2 . There is further context explaining the methodology and reasoning for the ALRC’s inquiry findings, within the Corporate Criminal Responsibility, ALRC report2. The Australian Securities and Investments Commission (ASIC), as the corporate regulator, is taking ALRC’s inquiry findings seriously by enforcing these recommendations and carrying out investigations. ASIC has been criticised previously for adopting a light touch with its prosecutions and judicial penalties, and change is afoot in terms of their appetite for prosecution on the back of the inquiry findings.

A case to consider

On 11 June 2020, the District Court of Queensland delivered its decision in R v Brisbane Auto Recycling Pty Ltd & Ors [2020] QDC 113, convicting the defendant company, Brisbane Auto Recycling Pty Ltd (BAR), of industrial manslaughter and imposing the highest workplace health and safety fine to date of $3 million. The two directors of BAR, Mr Hussaini and Mr Karimi, were also found liable, each being convicted of reckless conduct - category 1 under sections 27 and 31 of the Work Health and Safety Act 2011 (Qld) (WHS Act). Both received sentences of 10 months imprisonment, suspended for 20 months3 . Given the inherently risky nature of the physical operating environments in the mining industry, the above circumstances could be relevant for any mining organisation’s officeholders. Safety is paramount and for some is very well managed, but risks remain. Consider the organisational officeholders’ responsibility for an individual, representing the entity offshore, who is accepting or facilitating bribes. What if another was over-inflating large invoices for major project contractors and sharing in the kickbacks? These are scenarios that, like it or not, could occur every day, and they pose a significant financial, reputational and liability risk to officeholders and entities alike. Regulatory action focuses on the identification of the root cause that allowed the activity to occur because, ultimately, it takes the position that is the officeholder’s responsibility to take reasonable precautions to prevent inappropriate or criminal conduct. Of course, defining “reasonable precaution” is not a simple as it sounds.

What mining organisation officeholders can do

Regular review of governance, risk and compliance (GRC) procedures will assist in risk mitigation and may provide the basis for building a ‘reasonable precautions’ framework. At a minimum, officeholders, or those responsible for GRC should frequently review the following procedures within their organisation: • regulatory and legislative compliance • operational governance and monitoring activities • controls and risk management registers • safety practices, particularly regarding training and governance • financial practices, controls and systems • social and community engagement strategies • whistleblower awareness, to ensure staff have the confidence they will be protected for reporting a wrongdoing • investigation methodologies and practices, whether for safety incidents, internal serious concern matters, frauds or code of conduct breaches. While mining companies are often highly cognisant of personal safety in front line roles, organisations often underestimate the potential impact of more common workplace issues. The all too pervasive thought is ‘that does not happen here’. Such workplace issues can put the responsible organisation and officeholders under scrutiny if they have not been proactive in their controls, governance or training, and have not led by example when it comes to the organisation’s ethics and integrity procedures. Ignorance is not only “no excuse” for legal breaches, under the ALRC recommendations, it is also “no excuse” for a failure to proactively consider and mitigate risks. Better to understand and apply ‘reasonable precautions’ than risk the alternatives. 

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

1 The complete report, can be found via the ALRC website https://www.alrc.gov.au 2 https://www.alrc.gov.au/wp-content/uploads/2020/05/

ALRC-CCR-Summary-Report-web-1.pdf 3 https://hallandwilcox.com.au/thinking/australias-firstever-industrial-manslaughter-conviction-what-are-theimplications-for-employers/

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