When and why a corporation should report a criminal offence

What you need to know

This is the second part in our series considering what you should do when you become aware of the commission of a serious criminal offence.

We discussed in Part 1 that:

1. generally speaking, there are no positive obligations to report criminal offences;
2. but, uniquely in New South Wales, there is a positive obligation (with criminal penalties attached) to report serious indictable offences under section 316(1) of the Crimes Act 1900 (NSW).

In this article, we discuss whether a person should report an offence voluntarily, and the considerations surrounding the making of a report, especially where there is no obligation to report (eg if section 316(1) does not apply, or if outside of NSW).

Voluntary disclosure of criminal offences?

Potential benefits

There are a number of potential benefits to companies of voluntary reporting. These can include:

• more favourable treatment from authorities in investigations or prosecutions arising, in which the company becomes involved;
• if there is ultimately a settlement between the company and a third party in relation to the conduct, reporting can help avoid any suggestion that the company was agreeing not to report in order to get the benefit of that settlement (in contravention of prohibitions against seeking benefits in exchange for not reporting a serious indictable offence: all Australian jurisdictions other than South Australia make that an offence, as discussed in Part 1);
• where the obligation to report in NSW (under section 316(1), as discussed in Part 1) only applies to part of the factual matrix underpinning a series of offences (eg for technical reasons), making a full report can assist in dispelling any suggestion of providing misleading or incomplete information to a government authority;
• depending on the situation – doing (and being seen to do) "the right thing", as well as taking a tough stance against misconduct so as to deter future misconduct (eg by employees or counterparties);
• "piggy-backing" off a criminal investigation and prosecution in pursuing remedies for the conduct in issue. The helpfulness of this potential advantage will, of course, depend heavily on the ultimate outcome of the investigation and prosecution. In addition, there are statutory regimes that allow a court to make compensation orders following conviction in criminal proceedings. These regimes can allow some measure of compensation to follow (or even be given at the same time as) sentencing, and the award may be supplemented by further civil proceedings: see, eg, Victims Rights and Support Act 2013 (NSW), ss 97 and 102.

Directors might also consider that in certain situations, their duties to act with due care and diligence, and in the best interests of the company, arguably require them to report actual or suspected offences. This may be to protect the company and because of the potential benefits described above.

Ultimately, it will be a matter for each director to exercise his or her judgment, balancing the foreseeable risks, benefits and harms arising from the conduct in question.

The decision to make a voluntary report will need to be carefully weighed against the risks, which are described further below.

Potential risks

Confidentiality or privacy obligations

There are some risks in making a report. The information contained in a report may include personal information and information the subject of confidentiality obligations. This issue may be particularly acute in circumstances where the reporting is technically voluntary.

While such obligations will need to be considered individually, privacy legislation and standard confidentiality clauses in contracts often provide carve-outs for compelled disclosures, or disclosures necessary to assist law enforcement.

One way to trigger such carve-outs could be to request that a formal warrant or subpoena be issued by the relevant law enforcement agency, prior to providing confidential or personal information.

Stay of civil proceedings

Making a report to the relevant law enforcement agency may also impact on any civil claim the company brings, connected with the same subject matter.

There is no bar that prevents the company from initiating civil proceedings prior to, or concurrently with, any relevant criminal proceeding. A court may, however, on application by the defendant, stay civil proceedings either outright or beyond a certain pre-trial stage, until the related criminal proceedings are completed.

In determining a stay application, the court will need to balance any prejudice to the defendant's right to a fair trial in the criminal proceeding, against the company's right to have its civil claim heard without delay. There are a number of factors that will affect this exercise, although the potential prejudice to the defendant could include:

• the premature disclosure (in the civil proceeding) of the defendant's case in the criminal prosecution;
• the possibility of interference with the defendant's witnesses prior to the hearing of the criminal proceeding; and
• the effect of any publicity given to the civil litigation upon the jurors in the criminal trial.

There is likely to be some delay between lodging a report and the commencement of any criminal proceedings. The company could make use of this lead time and seek to resolve its civil claims prior to any criminal action commencing. Courts are generally hesitant to grant a stay application on the mere possibility that a criminal proceeding may be commenced: Sogelease Australia Ltd v Griffin [2002] NSWSC 1099; ASX Perpetual Registrars Ltd v Golubovic [2003] NSWSC 1157.

Reduction in assets available to meet civil claims

Dealing with a police investigation and then criminal proceedings will be costly to the potential defendant – and could reduce the assets that might otherwise be available to satisfy judgment in civil proceedings. The delay (particularly if it is associated with unemployment during that period) will also likely eat into the defendant's available funds, and may create a bankruptcy risk, even if there are freezing orders in place.

However, as discussed above there are potential advantages in "piggy backing" off the back of criminal proceedings which can reduce the costs of or need for civil proceedings.

Considerations for in-house counsel

In-house counsel may be placed in a difficult situation when they learn that a corporation is the victim of a crime committed by one of its employees – do they have a personal obligation to report that crime? That can be a complex question depending on the particular facts and taking into account the in-house counsel's duty to his or her client the corporation (r 4.1.1 of the Australian Solicitors' Conduct Rules), to comply with the law (r 4.1.5), and also "to the court and the administration of justice" (r 3.1).

It is also important to be aware in this context that while legal professional privilege may protect an in-house counsel's communications with his or her client about the matter, privilege will not attach to communications where there is prima facie evidence that the communication is in the furtherance of fraud, crime or any other improper purpose.

Authors: Rani John, Partner; Ian Bolster, Partner; Stephen Speirs, Senior Associate; Joshua King, Lawyer; Phimister Dowell, Lawyer