Minister for Financial Services, Superannuation and Corporate Law
9 June 2009 - 14 September 2010
Commonwealth Parliamentary Offices, Sydney
Thursday, 28 January 2010
SUBJECTS: Strengthening of ASIC'S investigative powers, increased penalties for market misconduct offences.
This morning I'm announcing a significant strengthening of Australia's laws in relation to insider trading; market manipulation; false trading; market rigging; and making false and misleading statements. There are some people who regard insider trading and these other offences as being victimless crimes. They are not victimless crimes. People who engage in market manipulation and insider trading profit at the expense of others. They undermine the operation of our market economy. They undermine Australia's reputation as a fair and transparent place to do business. They undermine our ambition to be a major financial centre.
The reforms I'm announcing today do two things. They firstly send a strong message of deterrence. They send the message that if you are thinking of engaging in market manipulation or insider trading, the penalty on detection will be significant. They also significantly increase the powers of ASIC, our corporate regulator, to investigate and prosecute these offences.
Currently, the maximum penalty for insider trading is $220,000; for other offences it's $22,000. This will be increased to either $500,000, or three times the profit or loss made by the conduct which constitutes the offence in relation to an individual. At the moment, the maximum penalty prison term for these offences is five years. This will be increased to 10 years. This will bring Australia into line with the United States for the toughest penalties for these types of offences. It will also align with other offences, such as cartel conduct and obtaining a financial advantage by deception.
For corporations, the maximum penalty will increase from the current $1 million to $5 million, or three times the profit made or loss avoided by the conduct, or 10 per cent of the annual turnover of the corporation in the relevant period, whichever is greater. These are substantial penalties, but they're also penalties which fit the crime. The financial payoff from undertaking these offences is very substantial; it's appropriate that the penalty be very substantial.
It's also important that ASIC have appropriate powers to investigate and prosecute these offences. Accordingly, I'm announcing today that the Government will move to amend the Telecommunications Interception and Access Act to designate these offences as serious offences warranting telephone interception powers. The Australian Federal Police, acting on request from ASIC, would execute the warrant. ASIC and the AFP will then work closely together on the case. Telephone interception would only be available where a judicial officer is satisfied that the evidentiary requirements have been met, and there would be substantial recording and recordkeeping requirements.
The penalties I'm announcing today are tough. The improvements to ASIC's investigatory power are significant. We make no apologies for that. It's only fair to those people doing the right things – the investors, the directors, the executives, the shareholders doing the right thing – that we're tough on people doing the wrong thing. It's appropriate and fair for the transparent operation of our market economy that these crimes are dealt with seriously, which is exactly what we're doing.
I'm happy to take some questions.
Do you have any reason to believe that this is a serious problem in Australia?
I think there is evidence to indicate that this is an issue in need of address. I point to two things: the number of referrals from the ASX to ASIC, while a small percentage of the total number of trades of course, is nevertheless substantial enough to warrant my concern and the Government's concern. Also, ASIC have pointed out to me and a number of commentators have made the point publicly that there's a noticeable trend often of an increase in a firm share price before market sensitive announcements are made. That also indicates to me cause for concern. Both of those things, together with ASIC's advice to me that they find one hand tied behind their back in investigating these cases, justifies this decision.
Is there a suggestion the ASX isn't doing its job?
Well, no. I think the ASX has been proactive. I was encouraged by their actions last week in relation to trading during blackout periods. ASX has been proactive in handling these matters and handing them to ASIC, and I have no particular complaint about the way they've done that.
Well, the Telephone Interception Act is not just about intercepting telephone calls per se. There are a range of interceptions available under that Act, and investigating these offences will have the full array of interceptions available under the Act. It's important to note, and I think you make the point, that people engaging in this behaviour know that it's illegal. They know the penalties are severe. They go to great lengths to cover their tracks. They go to great lengths to hide their activities. It's appropriate therefore that ASIC have the appropriate powers to investigate that, and that they not have one hand tied behind their back as they try to do so.
I also note that recently some high profile cases overseas in the United States have pointed out the use of telephone tapping, that it would have been difficult to have those cases successfully investigated in the United States without those powers that the SEC has in the United States.
Yes I am, otherwise I wouldn't have recommended it to the Government and I wouldn't be announcing them. I will say this: I hope that nobody gets prosecuted because I hope nobody undertakes insider trading. I hope that the deterrence message that we send today is strong enough to dissuade people from undertaking these types of crimes. But if they do, I certainly expect ASIC to prosecute them vigorously.
What do you say to those who might say giving ASIC more powers to investigate issues doesn't necessarily inspire confidence given ASIC's track record in using its resources in achieving success, particularly in some of these very expensive and high profile court cases?
Well, on those high profile court cases, I'd say a few things. Firstly, I do have confidence in ASIC. I'd also be disappointed if a regulator undertook only cases it was certain of winning. It's appropriate that a regulator undertake difficult cases. Secondly, those cases are subject to appeal in at least two instances and ASIC will be announcing whether or not it will appeal the third case in due course. Thirdly, I know and expect that ASIC will be learning the lessons from those defeats. I know and expect that ASIC will be examining their operation to those cases and seeing what there is to be learnt. I would expect nothing less and I know they're undertaking that exercise. And other than that, I think it's fair to say that we should withhold final judgement until the complete process has transpired and that includes appeals.
No, I don't. Just because ASIC loses a court case, it doesn't mean you don't listen to them when they say, 'We are effectively being stymied in our prosecution of other matters'. And as I say, I think we should withhold judgement until the appeal process is complete.
Thank you very much.