Businesses should be stripped of ill-gotten profits, task force says

ASIC's penalties described as 'too low' and 'inadequate', ahead of calls for change.

The financial watchdog should have the power to strip ill-gotten profits from businesses the same way drug dealers have the fruits of their crimes seized by the Australian Federal Police.

And the fines that are handed down should be three times as large, so that the penalty proportionally reflects the illegal conduct.

These are the key recommendations made by a high-profile task force that has spent a year reviewing the Australian Investment and Securities Commission's (ASIC) disciplinary powers, before publishing their findings in a paper titled Strengthening penalties for corporate and financial sector misconduct.

The proposed introduction of 'disgorgement powers' for civil breaches would allow ASIC to strip away the profit made from conduct deemed illegal. Currently there is no such mechanism ASIC can use for civil breaches. This strikes a stark contrast against the penalties of criminal cases, where the Australian Federal Police can recover proceeds or benefits arising from offences – even those that are only alleged.

Other countries already have bodies with these powers, says the report, including the Market Misconduct Tribunal in Hong Kong, the Financial Conduct Authority in the United Kingdom, and the Securities and Exchange Commission in the United States.

The money recovered would be directed to compensation funds for victims, or to education or advocacy programs for investors and consumers. Or it could be absorbed by the relevant government.

Disgorgement powers would be introduced alongside revised penalties, which in their current form were described in earlier reports as "inadequate" and "too low to act as a 'credible deterrent'".

The penalties listed under the Corporations Act, for instance, have not been updated since it was enacted in 1993.

The task force is calling for the maximum penalty paid under the Corporations Act to increase from $1 million to $2.65 million. Alternatively, businesses could face a fine three times as much as they made from the breach, or 10% of their annual turnover.

Jail times will almost double for the majority of offences under the Act, often from terms of five years to ten.

Kelly O'Dwyer, Minister for Revenue and Financial Services, says the government is committed to improving outcomes for consumers and investors and a strong penalty framework plays a crucial part.

"The task force process will help to ensure that ASIC has the right tools to combat corporate and financial sector misconduct and to protect consumers," she says.

The government will continue to accept submissions for consultations until 17 November, with the task force expected to provide its recommendations at the end of November.