Immunity for serious financial misconduct – ASIC’s new policy

Overview

ASIC has just announced a new policy that allows individuals who think they might have been involved in market manipulation, insider trading, dishonest conduct or other contraventions of Part 7.10 of the Corporations Act 2001 (the Act) to apply for immunity from civil penalty or criminal proceedings. This policy expands ASIC’s ability to identify and pursue serious misconduct in complex markets and financial services and could lead to swift effective outcomes to investigations that might otherwise be complex and drawn out.

A contravention of Part 7.10 of the Act carries a criminal penalty of up to 15 years in prison or a civil penalty of up to about $11 million, in the case of corporations. In addition, if a Court determines that a benefit has been derived and a detriment has been avoided as a result of the contravention, these amounts can be multiplied up to three times. Forfeiture orders may also apply to the net benefits of any offence under proceeds of crime legislation.

Like the ACCC’s Cartel and Cooperation Policy, which incentivises a first party to disclose cartel conduct which would otherwise be difficult for the ACCC to discover, ASIC’s immunity policy incentivises individuals who have, together with other individuals or corporations, contravened Part 7.10 of the Act, to reveal that contravention where it might otherwise have gone undiscovered. However, the policy sets out a number of hurdles for an applicant to clear before immunity is granted, so it will be interesting to see what impact the policy has in practice.

Key aspects of the immunity policy

• Applications for immunity are only available to individuals, not corporations and only the individual who first applies for immunity will be eligible to obtain it.
• It will likely operate to incentivise employees of corporations that facilitate such misconduct (however unwittingly) to disclose it in return for immunity.
• Administrative actions and compensation actions are specifically excluded under the policy.
• The policy prescribes what appear to be relatively strict eligibility criteria and states that information provided in support of an unsuccessful application for immunity may still be used indirectly by ASIC in investigating the applicant and any other person.

Eligibility

A person is eligible for immunity under the policy if:

1. 1. they are, or have been, involved in misconduct;
   2. they are one of two or more persons (notably, the other persons may be individuals or corporations) who were, or are, involved in the misconduct;
   3. they have not coerced any other person to engage, participate or be involved in the misconduct;
   4. ASIC has not already commenced an investigation in respect of the misconduct;
   5. they admit that they have participated, or are participating, in the misconduct;
   6. they are the first person to apply for immunity in respect of the misconduct;
   7. they were not the instigator of the misconduct;
   8. they have ceased, or will immediately cease, their involvement in the misconduct; and
   9. they have provided full, frank and truthful disclosure, have cooperated fully and expeditiously while making the application, and have undertaken to continue to do so throughout ASIC’s investigation and any ensuing court proceedings.

Applying for and receiving immunity

If a person satisfies the conditions for eligibility, they can approach ASIC and request the issue of a marker. As in cases of applications for immunity for cartel conduct, if granted, a marker indicates and preserves the applicant’s status as the first individual to apply for immunity in respect of a particular misconduct.

To obtain a marker, the applicant needs to provide ASIC with enough detail about the misconduct for it to confirm no other person has already been issued a marker for the same misconduct.

If an applicant receives a marker, they can then decide whether to proceed with the application or not. If they choose to proceed, they will need to provide ASIC with a detailed description of the misconduct, including who was involved in it. They may also be required to provide documents and to be interviewed by ASIC.

It is important to note that, if an applicant withdraws their application or is not granted immunity, ASIC may indirectly use any information it has received to aid it in its investigation, including to gather evidence that could be used against the applicant, or any other party. Applicants will likely weigh up this risk carefully before making an application.

Administrative actions and compensation actions are not covered by the policy

Another important consideration for applicants may be that even with immunity they will remain exposed to administrative and compensation actions:

• Administrative actions are actions designed to protect rather than to punish. An example of such an action would be one for disqualification from managing a corporation.
• Compensation actions are actions by ASIC for the recovery of damages or property on behalf of persons who have suffered a loss.

Immunity from civil penalty vs immunity from criminal prosecution

If ASIC decides to grant immunity, there is a different process for civil and criminal immunity.

In civil penalty proceedings, ASIC may grant:

1. 1. conditional immunity if it is satisfied the applicant has satisfied the conditions for immunity; and
   2. final immunity if, having been granted conditional immunity, the applicant satisfies certain additional criteria, which will include making full, frank and truthful disclosure and to cooperate fully with ASIC.

Immunity from prosecution in criminal proceedings can only be granted by the Director of Public Prosecutions (DPP). If ASIC considers an immunity applicant has satisfied the conditions for immunity, it will make a recommendation to the DPP that immunity from prosecution be granted. The DPP will ordinarily:

1. 1. upon ASIC’s recommendation, issue a letter of comfort to the applicant to the effect that final immunity will be granted provided certain conditions are met; and
   2. grant the applicant final immunity if they satisfy the conditions set out in the letter of comfort.

Conclusion

While the immunity policy could be a game changer for ASIC in some investigations, for applicants, the eligibility criteria and ongoing obligations they will need to adhere to get final immunity are quite onerous meaning it may only be attractive in quite specific circumstances.

On its face, the policy suggests that applicants may not have real certainty until near the end of the process, about whether they will be granted final immunity. It will be interesting to see how ASIC approaches this in practice and whether it is able to encourage individuals to embrace this policy.

For more information please contact our team.

Authored by:

Edward Martin, Partner
Kelly Griffiths, Partner
James Macdonald, Senior Associate