Corporate fraud in Australian companies
Discuss about the Law of Business Organization for Corporate Fraud.
Corporate fraud has been happening all over the world and causing harm to the interests of various stakeholders. The greed of a few people results in millions of dollars being illegally taken away from thousands of investors who had placed their trust in the management of a company. It is the government in any country which is expected to protect the rights of such people and punish those who have committed fraud. But to achieve this purpose laws have to be framed and enforced in an intelligent and efficient way[1].
Over the years there have been many cases of corporate fraud in Australia. Various laws have been enacted but, still, this has not stopped people in the business world to cheat others and break the law. In 1980’s and 1990’s in Australia there have been instances of business people misappropriating the money of investors illegally or misleading the investors by spreading wrong information relating to their businesses. The basic intention of these corrupt people is to make individual profits by applying means or methods that have been prohibited by law. Such people want to gain unfair advantage in the competitive business world though such illegal approaches to make money. They are ready to take the risk of breaking the law sometimes feeling that law enforcement agencies would not be able to detect their cheating. On many occasions they feel that even if they get caught they would be able to take advantage of the loopholes in the laws and get away with a mild punishment or payment of a much lesser compensation.
In recent times the instances of Australian Companies bribing public officials in other companies to win contracts have increased. But that does not mean that other types of corporate frauds have come to an end. There is need for law making and law enforcing agencies to prevent any type of corporate fraud. The need is to promote a culture and an environment where companies realize that they have no option but to adopt fair practices in their business dealings and the investors and the customers also feel that their interests are protected. There are still significant cases of corporate frauds in Australia and the government should remain committed to eliminate such events.
In a case in Australian courts, an individual Alan Bond was accused of being part of business dealings, also involving government, which resulted in loss of public money amounting to $ 600 million. Alan Bond was also accused of siphoning of money from one of the companies Bell Resources, controlled by the individual to another company named Bond Corporation owned by the person. Allan Bond was a manipulator with business interests in property industry, gold mining and brewing wine. But these risky methods led to the failure of many of the individual’s businesses. Many shareholders who had invested in Allan’s companies lost money. The compensation provided to the creditors was considered very inadequate and many of them felt that they were unfairly treated by law[2]. Allan Bond was sentenced to seven years in prison for defrauding Bell Resources. The individual after being released from prison, got engaged in business, again made a fortune but lost it again due to malpractices and rash business decisions. The individual’s companies were liquidated[3].
Corporate fraud by Allan Bond
There has been a legal case fought in courts for the recovery of money owed to creditors of Bell Group from which Allan Bond siphoned off money to Bond Corporation for last twenty years in various courts of Australia. Ultimately the government has set up a statutory authority to arrange for the payment of money to creditors as per a settlement[4]. This shows the far reaching consequences of a fraud committed by Allan Bond. Once money has been taken away illegally, it takes lot of time, efforts and expenses to recover the lost amount and compensate the victims of the crime. The judgement in such cases should be delivered much faster. There is the need to make the Corporation Act and other regulatory bodies more effective.
There are many who feel that Allan Bond should have been given more severe punishment under the law for defrauding Bell resources because the amount involved in the fraud was very high. There have been instances where people who have misappropriated far lesser money have been given comparatively much harsher imprisonment in relation to their crime. This shows that there is the need to amend the present laws to provide a more effective deterrent to people who intend to commit such frauds. The punishment given to the guilty should be commensurate with the amount of money which has been taken away illegally. The law should be more transparent, reasonable and just in such cases. The severity of the crime committed and its far reaching effects should be recognized by the law.
In another case a person named Rodney Adler was sentenced to serve four years and six months in prison for the role the individual played in the collapse of the company HIH Insurance[5]. This company collapsed in 2001 with liabilities of $ 5.3 billion. Rodney Adler was held guilty of making false statements to induce purchases of HIH Insurance shares and also of lying to secure money from HIH Insurance for a company in which Adler had an interest. In this case the laws cited by the Supreme Court of New South Wales Common Law Division were Corporations Act 2001 (Cth) ss184 (1)(b), 997, 999, Crimes Act 1900 (NSW) s178BB, Crimes Act 1914 (Cth) Part 1B, Crimes (Sentencing Procedure) Act 1999 (NSW) .
In another case Australian Securities And Investment Commission has brought German construction company Hochtief AG into court for committing insider trading in a purchase of shares of Leigton Holdings. In this case it was alleged that Hochtief Australia Holdings Limited which held a large number of shares in Leigton Holdings, had information about the financial performance of Leigton Holdings before the financial results were declared. Hochtief AG knew that Leigton had better financial results as compared to the previous year. So Hochtief which had a majority shareholding in Leigton, unfairly, in 2014, pushed forward the last date for purchasing the shares of Leigton and made its subsidiary purchase shares of Leigton[6].
Corporate fraud by Rodney Adler
In this case it was argued that insider trading laws of Corporation Act had been breached. Insider information is the information about the company which is not generally available and likely to have an effect on the value of a financial product of the firm[7]. Financial products included under insider trading law include all securities that can be traded on the stock exchange. It is an offence under the Corporations Act to trade using inside information, or pass such information to others who are likely to trade on the basis of such inside information.
There are many companies from the world’s most developed economies which are perceived to frequently pay bribes when doing business internationally, despite of new laws and international commitments to eradicate bribery in business. While many of the developed economic powers show slow economic growth, in many emerging economies the incomes of people have risen and there is greater demand for goods and services. Thus there are greater opportunities for foreign investment and trade in these countries. But the foreign companies have to compete with the local industry in these countries apart from competition between companies from the developed world. Moreover the business policies of the governments in many of these countries have also led to public officials demanding illegal payments to get government contracts in favour of these foreign companies. The culture in these relatively poor countries is also breeding corrupt practices of the foreign companies. But there has been growing awareness among governments and people of different countries that there is a need to stop these corrupt practices and make international business clean[8].
The Australian federal government has laws which prohibit bribery of federal public officials, as well as foreign public officials[9]. The specific criminal offence of bribing a foreign public official is dealt with in Section 70.2 of the Bribery Act. There has been renewed focus on bribery and corruption by the Australian police. Steps have been taken for restructuring of investigative systems, improving cooperation within government agencies, as well as between Australian and foreign authorities. Many Australian companies have now realized that doing business abroad without taking effective anti-bribery and corruption measures would have serious adverse legal consequences for them. The government of Australia has also committed itself on international forums to adopt practices to prevent foreign bribery by Australian companies[10].
It has to be understood that victims of fraudulent acts are not only shareholders or customers of the company; innocent employees are at risk as they can lose their jobs as a consequence of these crimes. Sometimes the senior executes of a company collude with one another to commit frauds which are very difficult to detect. One of the effective ways to prevent such fraud is to make companies disclose their financial records and enforce better auditing controls.
Steps have to be taken to ensure that regulators and the courts in Australia focus upon achieving effective enforcement strategies in regard to the Corporations Act. There are some people who argue that the investigation and enforcement powers of Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC) are probably narrower than those of some comparable foreign counterparts like in the United States of America and United Kingdom, and that there is an urgent need to expand its powers.
Conclusion
There is need for external regulation of corporations by law enforcement bodies and also internal regulation by the management of the companies to prevent frauds from happening. The aim should be to promote ethical culture in business organizations so that they can self regulate their behavior. If the thinking of people is changed then people would not make use of fraudulent ways to make money. But that should be the long term goal. The government needs to be vigilant and strengthen the legal system to detect illegal activities in the corporate world and punish those found guilty of breaking the law.
References
Abc.net.au, Bell Group Money To Be Disbursed By Statutory Authority (22 August 2016) <https://www.abc.net.au/news/2015-05-06/bell-group-money-to-be-disbursed-by-statutory-authority/6450596 >
Abc.net.au, Hochtief Faces Leighton Insider Trading Case Brought By ASIC (22 August 2016) <https://www.abc.net.au/news/2016-02-02/hochtief-leighton-insider-trading-asic/7133384 >
Asic.gov.au, Creditors- Liquidation (22August 2016) <https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-creditors/creditors-liquidation/ >
Australian Politics.com, Rodney Adler Sentenced To Four And A Half Years Jail (22 August 2016) < https://australianpolitics.com/2005/04/14/rodney-adler-jailed-over-hih-collapse.html >
Financierworldwide.com, Australia Tells OECD It Is Getting Serious About Foreign Bribery (22 August 2016) <https://www.financierworldwide.com/australia-tells-oecd-it-is-getting-serious-about-foreign-bribery/#.V7qUplt97Dc >
Jeremy Gans, Modern Criminal Law Of Australia (Cambridge University Press, 2011) 266
Perthnow.com, Alan Bond Is No Hero Say Victims (22 August 2016) <https://www.perthnow.com.au/news/western-australia/alan-bond-is-no-hero-say-victims/story-fnhocxo3-1226663242823 >
Stephen M. Bainbridge, Research Handbook On Insider Trading (Edward Elgar Publishing Limited 2013) 1
Stuart H. Deming, Anti Bribery Laws In Common Law Jurisdictions (Oxford University Press, 2014) 10
Westlawn.com.au, Cost Of Fraud In Australia $8.5 billion (23 August 2016) <https://westlawn.com.au/cost-of-fraud-in-australia-8-5-billion-only-5-of-businesses-protected/
Yahong Zhang and Cecilia Lavena, Government Anti Corruption Strategies: A Cross Cultural Perspective (CRC Press Taylor And Francis Group, 2015) 215
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