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Hot under the collar

Hot under the collar

white collar crime

As action against white-collar crime intensifies, this practice area is heating up for Australian firms.

Crime doesn’t pay – unless it’s white-collar crime, where individuals and companies directly pocket financial gains made from cheating the system. Australia in particular has long been seen as a low-risk jurisdiction, a so-called “paradise” for white-collar criminals, as ASIC chairman Greg Medcraft put it in 2014.

This idyllic situation may, however, not be destined to last. Regulators are stepping up their act, and companies are following suit. As enforcement becomes more common, lawyers with white-collar crime expertise are finding themselves in high demand.

On the hunt

White-collar criminals range across a broad spectrum of society, from the student committing Centrelink fraud to the CEO offering a juicy bribe.

The worst offenders in recent years have been some of Australia’s largest institutions, with scandals such as the Bank Bill Swap Rate scheme implicating whole financial systems.

Across all categories though, increased regulatory action is increasingly becoming the norm.

Susanna Ford, a litigation and dispute resolution partner at Arnold Bloch Leibler, works primarily with major corporate clients. In this sector, she believes local regulators such as ASIC or the Australian Federal Police have become more active with both investigations and enforcement.

“I think what we’re seeing is a whole heap of increased regulatory scrutiny in recent years, probably arising in the seven years since the global financial crisis occurred,” she says.

In particular, the banking and finance sectors have come under more pressure since regulation of these entities was passed from the ASX to ASIC, she suggests.

She points to the ongoing investigation of the interest-rate rigging scandal – known as the BBSW investigation – that threatens to engulf a number of brand-name banks within Australia and overseas.

This has created a “lot of legal paperwork” for lawyers to work through, Ms Ford says.

But just as business relationships rarely stop at Australian borders these days, regulators are also going transnational. Ben Allen, a litigation partner who recently joined Gadens, has observed growing activity from foreign regulators against Australian corporates.

US agencies, including the Department of Justice and the SEC, have been especially gung-ho in pursuing claims of corruption or fraud by global companies.

“That means if there are Australian entities who have a footprint in the US, or have certain other criteria that would allow the extraterritorial power of the US regulator to be enlivened, it means they are at risk of enforcement action by overseas regulators,” Mr Allen says.

His speciality, anti-bribery and corruption, has been a particular focus of both Australian and overseas authorities.

On a smaller scale, white-collar offences by individuals are also on the up, suggests defence lawyer Jimmy Singh from Sydney Criminal Lawyers. His clients in this area tend to be accused of fraud, money laundering, insider trading or identity theft.

He believes whistleblower hotlines and increased interest from the authorities have triggered more prosecutions in this area but warns that “a lot of it remains undiscovered”.

Looking inwards

Even as regulators exercise their powers more frequently, companies are becoming more wary.

Ms Ford suggests this could be partly triggered by the fear of regulator investigations, but also points to a wider awareness in the business sector around compliance.

“There is increasing activity and people are self-generating their own enquiries and making sure they have their own houses in order before the regulators come knocking.”

In many cases, these internal audits are generating work for lawyers in an advisory capacity, Mr Allen has found.

“Where lawyers are coming in to assist is to help management and boards to embed the anti-corruption risk into the strategic planning of an organisation,” he says.

In practice, he suggests this could include introducing measures like testing individual transactions, localised training towards specific risks and customising due diligence for each new acquisition, as well as for third-parties and supply chains.

However, Mr Allen cautions corporations against being lured into a “false sense of security” by putting in place overarching compliance policies.

“Basically, they are assuming that they have in place appropriate controls, when in fact they have not implemented a culture of compliance into their strategic decision-making as an organisation,” he warns.

Especially with anti-bribery, organisations need to drill down into the risks associated with specific types of transactions in specific regions when formulating policies, not just making country-level assessments, he believes.

Ms Ford also warns against a “tick the box” attitude to compliance, where policies are used as stand-ins for customised legal advice.

“Each case is different and each case requires a nimble and slightly different solution,” she says.

“I can understand why companies are trying to get their own houses in order and make sure their people understand what to do in the event that a crisis occurs.

“But we don’t think this is a substitute for having experienced lawyers on the ground who can give advice and tell you what the best option to take might be.”

Panic mode

When a company or individual is facing an investigation, the first phone call is usually to the lawyers.

“Certainly we’re seeing that planning for investigations internally, and responding to whistleblower complaints and to early enforcement enquiries, is probably where lawyers’ functions are going to turn once an effective program is put in place,” Mr Allen says.

Ms Ford suggests the initial stages of an investigation often involve “crisis management” by lawyers specialising in this area.

“Often, while [clients] will have experience in regulatory enforcement activity, they will not necessarily have had great experience with the whitecollar crime side,” she says.

“It’s about having experienced people on the ground who do not have to scramble to get up to speed when the regulator comes knocking to execute a search warrant or haul you in for a compulsory examination.”

At ABL, an additional service offered is media management for high-profile clients, helping formulate a strategy to respond to publicity around the regulator’s actions.

Mr Singh’s experience is generally on the other side of the table. His clients tend to come to him after being questioned by their employers or the authorities, he says.

In his experience, companies are becoming more proactive around investigating and pursuing unauthorised behaviour.

“I think the companies are becoming involved at an earlier stage. They want to have an interview with the alleged offender, often even before it goes to the police,” he says.

Yet despite enthusiasm for clamping down on white-collar crime, actual penalties remain comparatively low, he warns, referencing the case of Rajina Subramaniam who was sentenced to a non-parole period of seven years for stealing $45 million from ING Australia.

“It appears as though some people might take the view that committing these crimes is well worth spending that period of time in jail,” he says.

At the corporate and institutionlevel, Ms Ford agrees that laws in Australia remain lenient compared to similar overseas countries.

“I’m not criticising the regulator at all here – it’s a function of the frameworks in which they are operating,” she says.

As an example, she points to the BBSW investigation. In Europe and the UK, financial institutions and banks have paid billions of dollars in penalties so far, she suggests.

“In Australia, we’ve seen enforceable undertakings provided by three financial institutions and they are to the tune of $3.6 million.

However, she also believes this is beginning to shift. Regulators are being provided with increased resources and specialised units for tackling financial crime have been established, including the Federal Government’s Serious Financial Crimes Taskforce.

Ultimately, she believes white-collar crime will remain a highly active area for Australian firms.

“I think it’s correct to say it is a growth area for lawyers. The regulators are here to stay and we live in an increasingly regulated world.”


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