OVERVIEW
1.1 This Issues Paper discusses the sentencing of “corporate offenders”.1 It is part of the NSW Law Reform Commission’s reference on sentencing law. It raises issues concerning the sentencing of corporations, in particular the range of sentencing options that are available for this group of offenders.
THE COURSE OF THE COMMISSION’S REFERENCE
1.2 The then Attorney General, the Hon Jeff Shaw QC, referred the reform of sentencing law to the Law Reform Commission on 12 April 1995.2 In 1996, the Commission released a discussion paper and a report on the general principles of sentencing as the first phase of its inquiry.3 The Commission is currently undertaking the second phase of its inquiry, which involves consideration of sentencing issues concerning specific groups of offenders. Particular problems face the sentencing of these groups, which require separate discussion. In the third and last phase, the Commission will examine the maximum penalties that legislation makes applicable to criminal offences in New South Wales.4
1.3 As part of this second phase, the Commission has released a report on the sentencing of Aboriginal offenders,5 and an issues paper on young offenders.6
“CORPORATE OFFENDER” DEFINED
1.4 This paper uses the term “corporate offender”. This is commonly understood to mean one of two things. It can refer to a corporation that has been convicted of a criminal offence. Alternatively, it can refer to a person who commits a “white collar crime”, generally understood as a business or commercial crime, often committed on behalf of or against a corporation.7
1.5 At this stage, the Commission is confining its discussion of corporate offenders to corporations. We will not examine other entities such as unincorporated associations or partnerships.8 A corporation is an artificial entity that the law treats as having its own legal personality,9 separate from and independent of the persons who make up the corporation. This means, for example, that a corporation can own and sell property, sue or be sued, or commit a criminal offence. In New South Wales, an entity generally10 becomes a corporation on registration, according to the requirements of the Corporations Act 2001 (Cth).11
1.6 Because corporations are not natural persons and cannot be subject to the usual sentencing options such as imprisonment, they require special consideration in an inquiry into sentencing law. Individuals who commit white collar crimes, on the other hand, are natural persons, and, in theory at least, are subject to the general sentencing options for individual offenders as discussed by the Commission in the first phase of its inquiry. There is criticism from time to time that the sentences imposed on white collar criminals are too lenient, and that this group of offenders are given special treatment in the criminal justice system.12 While this is a matter of concern, it involves more consideration of the maximum penalties applicable to such offenders, and the exercise of judicial discretion in imposing those penalties. These are issues that were discussed in the first stage of the Commission’s inquiry, and will be examined again in the third stage.
“CORPORATE CRIMES”
1.7 Corporations can commit the same offences as natural persons.13 However, it is probably correct to say that the most common examples of corporate crime committed against the laws of the state14 involve cases of environmental pollution and dangerous industrial practices, as well as other breaches of workplace safety. There was a recent example of this in Victoria, in the case of the Longford gas explosion, in which two men were killed and eight others injured, and gas supplies to Victorian homes and businesses were cut.15 There are numerous, less sensational examples of corporate misconduct arising in the many areas of corporate activity which are regulated by legislation in New South Wales, including, for example, legislation relating to fair trading, food production and handling, building and construction, as well as environment protection legislation and workplace health and safety laws.16 Breaches of such legislation result in criminal sanctions, civil and/or administrative penalties.
1.8 Corporate crime poses a significant threat to the welfare of the community. Given the pervasive presence of corporations in a wide range of activities in our society, and the impact of their actions on a much wider group of people than are affected by individual action, the potential for both economic and physical harm caused by a corporation is great. There is a substantial body of literature that considers corporate crime to be a serious social problem,17 despite what some may argue to be relatively less media coverage than crimes committed by individuals, at least in the tabloid newspapers, and despite the lack of comprehensive empirical research into the costs and incidence of corporate misconduct. In the area of workplace safety, for example, statistics from WorkCover NSW18 reveal that there was a total of 163 reported employment fatalities in New South Wales in the financial year 1998/99, and 55,492 employment injuries for that same period, 25.8% of which were reported as permanent disability cases. The gross incurred cost of employment injuries for that year was $854 million.
1.9 It is important to ensure that there are effective means of reducing the risk of corporate misconduct. One way of doing this is to impose appropriate criminal sanctions on corporate offenders. There are many who argue that the existing sanctions are inadequate. A number of suggestions have been made for more effective sanctions against corporations that breach the law. These are discussed in this paper.
PURPOSE OF THE PAPER
1.10 This Paper aims to provide a basis for consulting with interested members of the community on sentencing of corporate offenders. It gives a general overview of the area as a starting point for more detailed discussion following community consultation. The Paper asks a number of questions, appearing in Chapter 3. These questions are designed to direct attention to what the Commission considers to be the main issues concerning sentencing of this category of offenders. You are invited to respond to these questions, or to make comments about other issues of concern. For details on how to make a submission and the closing date for submissions, see pages vi-vii. Following a period of consultation, the Commission will prepare a report on sentencing of corporate offenders, including recommendations for reform to this area if, based on our consultation with the community, we consider this to be necessary or desirable.
STRUCTURE OF THE PAPER
1.11 The Issues Paper is divided into three chapters. The first chapter provides an introduction to the subject and the progress of the Commission’s sentencing reference. The second chapter gives a very brief overview of the principles of criminal liability for corporations and the criminal sanctions generally available for corporate offenders. The third chapter discusses the weaknesses or disadvantages of the existing sentencing regime, makes suggestions for alternative or additional sanctions, and raises the possibility of consolidating sentencing options for corporations into a single sentencing scheme. The chapter raises issues for consideration and invites comments on these issues.
FOOTNOTES
1. See para 1.4-1.6 below for a definition of “corporate offender”.
2. The terms of reference are set out on page iv.
3. See New South Wales Law Reform Commission, Sentencing (Discussion Paper 33, 1996), (Report 79, 1996).
4. New South Wales Law Reform Commission, Sentencing (Discussion Paper 33, 1996) at para 1.13-1.20.
5. See New South Wales Law Reform Commission, Sentencing: Aboriginal Offenders (Report 96, 2000).
6. See New South Wales Law Reform Commission, Sentencing: Young Offenders (Issues Paper 19, 2001).
7. See Australian Law Reform Commission, Sentencing: Penalties (Discussion Paper 30, 1987) at para 283; H Croall, White Collar Crime: Criminal Justice and Criminology (Open University Press, Buckingham, 1992) ch 1.
8. For both unincorporated associations and partnerships, primary liability falls on the individual members or partners, the entity itself not being considered as a separate legal personality. Professor Fisse questioned the principle which confines corporate criminal liability to corporations, noting that the problem of imposing responsibility on individuals within an organisation extends to large partnerships and government bureaucracies: see B Fisse, Howard’s Criminal Law (5th ed, Law Book Company Limited, Sydney, 1990) at 595. The imposition of criminal liability on entities other than corporations is an issue that lies beyond the Commission’s immediate terms of reference.
9. See Corporations Act 2001 (Cth) s 124. The term “company” is often used interchangeably with “corporation”. “Corporation” is the wider term. The Corporations Act 2001 defines “corporation” to include a company, as well as any body corporate and unincorporated body that may sue or be sued, or hold property in the name of its secretary or an officer of the body duly appointed for that purpose: see s 9, 57A. “Company” is defined generally as any company registered under the Corporations Act 2001: see s 9. See also CCH Corporations Law Editors, Australian Corporations and Securities Law Reporter (CCH Australia Limited, Sydney, 1990) vol 1 at ¶21-500; H Gibbs and D Heydon (eds), Halsbury’s Laws of Australia (Butterworths, Sydney, 1993) vol 7 at para 120-121; R Tomasic and S Bottomley, Corporations Law in Australia (Federation Press, Sydney, 1995); R Baxt, K Fletcher and S Fridman, Afterman and Baxt’s Cases and Materials on Corporations and Associations (7th ed, Butterworths, Sydney, 1996).
10. Incorporation may also be conferred by statute, which is often done with State or Commonwealth corporations, such as the Australian Broadcasting Corporation: see Australian Broadcasting Corporation Act 1983 (Cth).
11. See Corporations Act 2001 (Cth) s 119.
12. See, for example, recent reports in the media, such as A Fels, “Jail Would Hurt More Than Fines” Canberra Times (5 July 2001) at 11; Australian Associated Press, “Jail Over False Ads: Fels” West Australian (11 July 2001) at 14.
13. See Chapter 2.
14. Other common examples of corporate crime involve breaches of the corporations legislation and trade practices legislation, Corporations Act 2001 (Cth); Trade Practices Act 1974 (Cth). Both of these are predominantly within the jurisdiction of the federal rather than state legislature (with the mechanism for the states’ consent for amendments to the Corporations Act 2001). They are therefore areas over which the New South Wales Law Reform Commission would have no power to recommend legislative reform.
15. Esso was found criminally liable for this incident and convicted for several breaches of Victorian work safety legislation. The case received extensive media coverage: see, for example, B Crawford, “20,000 line up to sue Esso” The Australian (29 June 2001) at 1, 4; M Shaw, P Gregory, G Tippet, “Esso guilty over blast at gas plant” Sydney Morning Herald (29 June 2001) at 7.
16. See, for example, Environmentally Hazardous Chemicals Act 1985 (NSW); Forestry Act 1916 (NSW); Marine Pollution Act 1987 (NSW); Ozone Protection Act 1989 (NSW); Wilderness Act 1987 (NSW); Occupational Health and Safety Act 2000 (NSW); Industrial Relations Act 1996 (NSW); Food Act 1989 (NSW); Fair Trading Act 1987 (NSW).
17. For example, Australian Law Reform Commission, Sentencing: Penalties (Discussion Paper 30, 1987); M Block, “Optimal Penalties, Criminal Law and the Control of Corporate Behavior” (1991) 71 Boston University Law Review 395; Canada, Law Reform Commission, Criminal Responsibility for Group Action (Working Paper 16, 1976); JC Coffee Jnr, “‘No Soul to Damn: No Body To Kick’: An Unscandalised Inquiry into the Problem of Corporate Punishment” (1981) 79 Michigan Law Review 386; J Duns, “A Silent Revolution: the Changing Nature of Sanctions in Companies and Securities Legislation” (1991) 9 Company and Securities Law Journal 365; B Fisse, Howard’s Criminal Law (5th ed, Law Book Company Limited, 1990) ch 7; B Fisse, “Sentencing Options Against Corporations” (1990) Criminal Law Forum 211; B Fisse, “Reconstructing Corporate Criminal Law: Deterrence, Retribution, Fault, and Sanctions” (1983) 56 Southern California Law Review 1141; B Fisse and J Braithwaite, Corporations, Crime and Accountability (Cambridge University Press, Cambridge, 1993); P Grabosky and A Sutton (eds), Stains on a White Collar: Fourteen Studies in Corporate Crime or Corporate Harm (Federation Press, Sydney, 1989); R Gruner, “Towards An Organizational Jurisprudence: Transforming Corporate Criminal Law Through Federal Sentencing Reform” (1994) 36 Arizona Law Review 407; T Hoffman, “Corporate Compliance Programs and US Sentencing Guidelines” (1998) 21 Pennsylvania Law Weekly 13; S Pilchen, “When Corporations Commit Crimes: Sentencing Under the Federal Organizational Guidelines” (1995) 78 Judicature 202; South Australia, Criminal Law and Penal Methods Reform Committee, The Substantive Criminal Law (Report 4, Government Printer, Adelaide, 1977); C Stone, “Sentencing the Corporation” (1991) 71 Boston University Law Review 383; R Tomasic, “Sanctioning Corporate Crime and Misconduct: Beyond Draconian and Decriminalization Solutions” (1992) Australian Journal of Corporate Law 82; R Tomasic, Corporate Crime and Corporations Law Enforcement Strategies in Australia (Centre for National Corporate Law Research, Discussion Paper 1/93, Canberra, 1993); United States of America, Sentencing Commission, Supplementary Report on Sentencing Guidelines For Organizations (August 1991).
18. See WorkCover NSW, Statistical Bulletin 1998/99, NSW Workers Compensation at 4. It should be noted that, by 1998/99, the number of employment injuries had actually been decreasing for the last four years at a rate of 3% each year. Of course, not all employers in these cases would have been corporations. The figures do no more than provide a general idea of the incidence and cost of corporate misconduct in this one particular area.
