ASIC investigations and prosecutions

An investigation by ASIC often requiring the immediate intervention of a white-collar crime lawyer to navigate the regulator's extensive powers.

The recent guilty plea of a former finance director involved in a cryptocurrency investment scheme underscores the severe risks faced by corporate officers, including potential imprisonment and permanent disqualification.

In this article, our Sydney criminal lawyers explore how ASIC identifies misconduct, the scope of its investigative authority, and why strategic legal defense is essential to protecting your rights in the face of complex financial prosecutions.

A former finance director has pleaded guilty to a Commonwealth offence involving the handling of funds suspected to be the proceeds of crime, following an investigation into an alleged cryptocurrency investment scheme.

Brendan Gunn recently admitted to one count of dealing with property reasonably suspected of being proceeds of crime, contrary to section 400.9(1) of the Criminal Code Act 1995 (Cth).

At the time of the offending, Mr Gunn was a director of Mormarkets Pty Ltd, a company that accepted deposits from Australian investors for what were described as cryptocurrency investments and other purported overseas investment opportunities.

According to court documents, Mr Gunn opened and maintained a number of Australian bank accounts in the company's name.

During the company's operation, he received repeated notifications from banks regarding suspicious activity and reports of potential fraud linked to the accounts.

Despite the concerns - and the accounts being paused or closed on several occasions - Mr Gunn continued to operate them.

The company's accounts were ultimately closed.

Between March and May 2020, Mr Gunn received two bank cheques totalling $181,000, representing funds held in the closed accounts. He admitted that he dealt with the cheques by forwarding them to an associate.

The funds were found to belong to three investors who had deposited money with the company to purchase cryptocurrency.

The investors had been attracted through online advertisements, some of which featured celebrity endorsements, promoting cryptocurrency trading through Mormarkets Pty Ltd.

The victims later reported that they were unable to withdraw their funds or had lost their investments altogether.

It was alleged that, over time, the "account managers" associated with the scheme ceased contact and failed to return the invested funds.

There is no evidence to suggest that Mr Gunn was aware of the specific representations made by the purported account managers to investors.

His admitted role was limited to opening and maintaining the company's bank accounts and forwarding the bank cheques to an associate.

He also liaised with and took instructions from several individuals based overseas.

The matter is being prosecuted by the Commonwealth Director of Public Prosecutions following an investigation and referral by the Australian Securities and Investments Commission (ASIC).

What is ASIC?

The Australian Securities and Investments Commission (ASIC) is the Commonwealth organisation that regulates Australian corporations, financial markets and financial services organisations and professionals who deal and advise in investments, superannuation, insurance, deposit taking and credit.

ASIC regulates the market under a number of Federal Australian laws, including the :

• Corporations Act 2001 (Cth)
• Australian Securities and Investments Commission Act 2001 (Cth)
• National Consumer Credit Protection Act 2009 (Cth)
• Superannuation Industry (Supervision) Act 1993 (Cth)
• Financial Sector Reform (Hayne Royal Commission Response - Better Advice) Act 2001 (Cth)

ASIC's statutory objectives are aimed at facilitating trust and confidence in the financial system and taking action to enforce and give effect to the laws which are in place to protect the public.

ASIC's power extends to investigating Australian companies in order to uphold and enforce the laws concerning corporations and individuals who work in them.

The Australian Securities and Investments Commission Act 2001 (Cth)

When Can ASIC Investigate?

ASIC has discretion to investigate but may use this power where it holds reasonable suspicion of a breach of the laws that it is concerned with being the legislations relating to corporations.

Alternatively, ASIC may also commence investigations if it is in the public's interest.

ASIC's Investigation Powers

ASIC's investigation powers are outlined in Part 3 of the Australian Securities and Investments Commission Act 2001 and include:

1. Conducting an examination of individuals if it is relevant to their investigation. They may do this is there is reasonable grounds to suspect that the individual(s) in question can disclose relevant information to the investigation. This requires individual(s) subject to the investigation to answer question and provide assistance where reasonable. A written notice will be provided to the individual(s) by ASIC before the commencement of the private investigation. It is advisable to get legal advice prior to attending the examination.
2. Book inspections - ASIC may investigate the corporations registers, financial reports, financial records, banker's books and any other information relevant to the investigation pursuant to Division 3 of Part 3 of the Australian Securities and Investments Commission Act 2001 (Cth). ASIC have the power to require the disclosure of such information during investigations but limited to section 28.
3. ASIC may also apply for and obtain search warrants pursuant to Division 3A of Part 3 of the Australian Securities and Investments Commission Act 2001.
4. ASIC can compel the disclosure of financial products, including facilities via an individual makes financial investments, manages financial risks or makes non-cash payments. This power comes from Division 4 of Part 3 of the Australian Securities and Investments Commission Act 2001.

Following ASIC's investigation, ASIC has the discretion to then commence prosecution under section 49 or civil proceedings under section 50 of the Australian Securities and Investments Commission Act 2001.

What Happens After an ASIC Investigation? | When Can ASIC Prosecute?

Following an investigation or a record of an examination, ASIC may cause a prosecution of the person for the offence to be begun and carried on if it appears to ASIC that a person may have committed an offence against the corporations legislation and ought to be prosecuted for the offence.

This power comes from section 49 of the Australian Securities and Investments Commission Act 2001.

Furthermore, ASIC may by writing given to the person or to an eligible person in relation to the body, require the person or eligible person to give all reasonable assistance in connection with such prosecution if ASIC on reasonable grounds suspects or believes that such person can give information relevant to a prosecution for an offence or the offence related to matters being, or connected with, affairs of a body corporate, or to matter including such matters.

A failure to comply with this requirement is an offence under section 63(3) of the Australian Securities and Investments Commission Act 2001 carrying up to 3 months imprisonment.

ASIC Offences

ASIC has the power to prosecute a range of criminal, civil, and administrative offences via the Corporations Act 2001, the Australian Securities and Investments Commission Act 2001 Act (ASIC Act), Insurance Contracts Act 1984, and National Consumer Credit Protection Act 2009 and National Credit Code.

ASIC has the power to investigate and prosecute offences, including :

• Directors publishing false statements,
• Carrying financial services without a valid licence,
• Insider trading,
• Dishonesty,
• Defraud,
• Falsifying books,
• Dishonest use of roles,
• Managing a corporation whilst disqualified.
• Misleading or deceptive conduct,
• Bait advertising,
• Accepting payment without intending or being able to supply as orders,
• Pyramid selling of financial products, and
• False or misleading representations.

ASIC receives reports through the following channels :

• Reports from members of the public
• Through their monitoring and surveillance work
• Information received from other agencies, regulators and stakeholder groups
• Reports from auditors, registered liquidators, Australian financial services, and licensees.

Not every matter is investigated. When deciding if a matter will be investigated or if enforcement action will be taken, ASIC will consider a range of factors related to the circumstances of the alleged misconduct, including :

• The significance of harm flowing from the misconduct
• The broader public benefit connected to taking action
• Issues specific to the case
• Alternatives to a formal investigation

Self-incrimination in ASIC Investigations

It is not a reasonable excuse to refuse or fail to produce or give information, or to sign the record, or to produce a book as a result of an ASIC investigation simply because it might tend to incriminate you or make you liable to a penalty.

This is reflected in section 68 of the Australian Securities and Investments Commission Act 2001.

Before making an oral statement giving information or signing a record under a requirements, you may claim that the statement or signing the record might tend to incriminate you or make you liable to a penalty, and in the event it does, such statement or the fact you have signed the record will not then be admissible in evidence against you in criminal proceeding or a proceeding for the imposition of a penalty pursuant unless you made a false statement or you signed a record containing a false statement, pursuant to section 68 of the Australian Securities and Investments Commission Act 2001.

Legal Professional Privilege

When a person requires a lawyer to give information or to produce a book and giving it would involve disclosing, or the book contains, a privileged communication made by (on behalf of or to) the lawyer in their capacity as a lawyer, the lawyer is entitled to refuse to comply with the requirement pursuant to section 69(2) of the Australian Securities and Investments Commission Act 2001 unless, if the person to whom (or by or on behalf of whom) the communication was made is a body corporate that is being wound up- the liquidator of the body, or unless the person to whom (or by or on behalf of whom) the communication as made, consents to the lawyer complying with the requirement.

A failure to comply with this attracts a penalty of up to 3 months imprisonment.

ASIC Penalties

ASIC enforces laws which allow a court to order a prison term, criminal fines, or issue other court orders, for example, community service orders.

Generally, ASIC will pursue criminal penalties for examples of serious misconduct, that is dishonest, intentional or highly reckless. In these cases, ASIC will generally opt to pursue criminal remedies even when a civil remedy is also available.

This is because the consequence of a criminal sanction is enerally more significant than a civil penalty.

For example, if a court finds that a director of a company criminally breached their director duties, engaged in false or misleading disclosure, or engaged in dishonest conduct, penalties of up to 15 year imprisonment or significant criminal fines apply.

An individual convicted of a criminal offence may be prevented from performing certain roles, such as being the company director. Further, a criminal penalty on a person's criminal record is usually permanent.

However, the criminal standard of proof is higher than the civil standard of proof.

Before deciding if a criminal penalty will be pursued, ASIC will need to assess if it has enough evidence to prove the matter beyond reasonable doubt before referring the matter for a criminal proceeding.

If ASIC does consider that it has gathered enough evidence to establish that a criminal offence has been committed, it will usually refer the matter to the Commonwealth Director of Public Prosecutions (CDPP).

However, ASIC can prosecute some less serious regulatory matters on its own behalf.

If the matter is referred to the CDPP, then the CDPP will prosecute the matter, only if it decides that the prosecution is in the public interest and there is sufficient evidence.

More information about the prosecution policy can be found on the CDPP's website.

A person is not to give information or make a statement that is false or misleading in a material particular when purporting to comply with a requirement or in the course of an examination required by ASIC.

This attracts a maximum penalty of up to 5 years imprisonment pursuant to section 64 of the Australian Securities and Investments Commission Act 2001.

A person who gives false or misleading evidence in a material particular at a hearing will face up to 2 years imprisonment unless it is proved that the defendant when giving the information or evidence or making the statement, believed on reasonable grounds that it was true and not misleading.

Where ASIC is investigating or is about to investigate a matter, a person must not engage in conduct that results in the concealment, destruction, mutilation or alteration of a book relating to that matter; or if a book relating to that matter is in a particular State or Territory-engage in conduct that results in the taking or sending of the book out of that State or Territory or out of Australia.

This offence carries up to 5 years imprisonment pursuant to section 67 of the Australian Securities and Investments Commission Act 2001, unless it is proved that the defendant intended neither to defeat the purpose of the corporations legislation, nor to delay or obstruct an investigation, or a proposed investigation, by ASIC.

There is a maximum penalty of 2 years imprisonment if a person engages in conduct that results in the obstruction or hindering of a person in the exercise of the power under Part 3 of the Australian Securities and Investments Commission Act 2001 unless the person has a reasonable excuse.

ASIC May Recover Investigation Expenses

If you are convicted of an offence against a law of the Commonwealth or of a State or Territory in a prosecution; or you are convicted of an offence against Division 2 of Part 2 of the Australian Securities and Investments Commission Act 2001; following an investigation by ASIC, ASIC may order that you pay the whole or part of the expenses of the investigation or order that you reimburse it to the extent of a specified amount of such of the expenses of the investigation as ASIC paid pursuant to section 91(1) of the Australian Securities and Investments Commission Act 2001.

Failure to then comply with such an order attracts a penalty of up to 120 penalty units and permits ASIC to recover the debt in court. As at the date of this article 1 penalty unit is equal to $330.

Dealing with Property Reasonably Suspected of Being Proceeds of Crime - section 400.9(1) Criminal Code Act 1995 (Cth)

Dealing with property reasonably suspected of being proceeds of crime under the federal law of section 400.9(1) of the Criminal Code Act 1995 (Cth) carries with it a maximum penalty of up to 3 years imprisonment and/or 180 penalty units (where 1 penalty unit equals $330.

A person is guilty of this offence if the prosecution proves beyond reasonable doubt each of the following elements of the section 400.9 offence:

• The person dealt with money or property. This means if he or she received it, concealed it or disposed of it; imported it or exported it; or engaged in a banking transaction relating to money or other property; and
• It is reasonable to suspect that the money or property was proceeds of indictable crime; and
• At the time of dealing, the value of the money or property is $100,00 or more.

If the value of the money or other property is less than $100,000, then pursuant to section 400.9(1A) the maximum penalty is 2 years imprisonment and/or 120 penalty units.

If the value of the money or other property is $1,000,000 or more, then pursuant to section 400.9(1AB) the maximum penalty is 4 years imprisonment and/or 240 penalty units.

If the value of the money or other property is $10,000,000 or more then pursuant to section 400.9(1AA) the maximum penalty is 5 years imprisonment and/or 300 penalty units.

It is an available defence to this offence if the defendant proves on the balance of probabilities that he or she had no reasonable grounds for suspecting that the money or property was derived or realised, directly or indirectly, from some form of unlawful activity pursuant to section 400.9(5).

"Proceeds of general crime" means any money or other property that is wholly or partly derived or realised, directly or indirectly, by any person from the commission of an offence against a Commonwealth law, State or Territory law; or a foreign offence.

"Proceeds of indictable crime" means any money or other property that is wholly or partly derived or realised, directly or indirectly, by any person from the commission of a particular offence against a Commonwealth, State or Territory law or a foreign country that may be dealt with as an indictable offence (even if it may, in some circumstances, be dealt with as a summary offence).

"Property- here means real or personal property of every description, whether situated in Australia or elsewhere and whether tangible or intangible and includes an interest in any such real or personal property.

Click here for more on money laundering offences.

Conclusion

If you have been charged with a criminal offence by ASIC, it is essential to seek expert legal advice at the earliest possible stage, given the seriousness of the allegations and the potentially severe consequences that can follow.

Criminal proceedings arising from regulatory investigations often involve complex financial evidence, multiple agencies, and overlapping civil and criminal liability, making early strategic legal guidance critical to protecting your right and making an informed decision in response to the allegations.

The consequences of conviction extend well beyond immediate penalties and can include long-term professional, reputational and regulatory consequences, such as disqualification from corporate roles, loss of professional licences, and permanent criminal records that may affect future employment and business opportunities.

Do You Need a Lawyer For an ASIC Investigation? | Speak to an ASIC Defence Lawyer

Being approached by ASIC in relation to an investigation is a daunting experience regardless of how experienced you are as director of other office holder of a corporation in Australia.

Given the far reaching powers that ASIC are given by legislation, it is critical to get timely legal advice on your rights and to have an experienced lawyer to help navigate you through the process.

It is important not to make decisions without first being adequately informed.

It is highly advisable to speak to an ASIC lawyer early for peace of mind.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.