No such thing as semi formal: What you need to know about ASIC investigations

The Australian Securities and Investment Commission (ASIC) has extensive investigative powers.1 ASIC may commence an investigation in a number of situations, including where it suspects there has been a contravention of the Corporations Act (2001) (Cth).2

ASIC may conduct initial informal investigations or conduct a formal investigation under s13 of the ASIC Act. Both formal and informal investigations have pros and cons for both ASIC and the person being investigated or asked to participate with the investigation.

This article will outline the benefits and detriments of both forms of investigations for all involved.

Informal Investigation by ASIC

There are many benefits to an informal investigation, for both ASIC and the person being investigated or assisting with an investigation (Volunteer). From ASIC’s perspective, the investigation is likely to be more cost and time effective if progressed on an informal basis. If conducted on an informal basis, Volunteers may be more likely be willing participants and offer up information, which in turn will result in the investigation being finalised faster than a formal investigation.

A Volunteer can refuse to provide information to ASIC in relation to an informal investigation by relying on the grounds of duty of confidentiality; right to silence; penalty privilege; privilege against self-incrimination; or legal professional privilege (Rights of Refusal). Further, even where a Volunteer does choose to provide information to ASIC, there is nothing compelling them to provide all relevant information. This is not to say that ASIC may not later initiate a formal investigation as a result of information obtained (or not) from an informal investigation.

Where a Volunteer decides to provide information to ASIC in the context of an informal investigation, they need to be aware of the consequences this can have. They need to be alive to the fact that they may be waiving some of their protections. A Volunteer will lose the statutory protection afforded to those who are compelled by ASIC to participate in a formal investigation, and unlike those who are compelled, their statements may be used against them in further proceedings.3

Formal Investigations

There are arguments for and against conducting a formal ASIC investigation. Although it may take ASIC more time and cost it more money, ASIC may be more likely to obtain information they need to progress an investigation.  

In a formal investigation, ASIC has the power to compel a person (Interviewee) to attend an examination and answer questions. When compelled to comply with an examination, an Interviewee is not able to refuse to answer questions on the grounds of some of the Rights to Refusal referred to above. Further, ASIC can compel an Interviewee to answer questions even where the answer may be self incriminating.4 Failure to do so can result in the Interviewee being subjected to serious penalties. 

Formal Investigations can be a positive path for an Interviewee, especially in situations where the they may have information that is self-incriminating or the nature and breadth of ASIC’s investigation is not clear.

Also, ASIC will take into consideration the Interviewee’s co-operation when deciding whether matters should be prosecuted or the sentence to be handed down if an Interviewee is found to be guilty. ASIC will also consider this fact when deciding whether a matter should be dealt with administratively or through civil proceedings.

Further, if an Interviewee were to be criminally prosecuted in relation to evidence they have provided, their co-operation will still be taken into consideration. The Crimes Act 1914 (Cth) states that a court may reduce a sentence of an offender in circumstances where an offender has cooperated with law enforcement agencies.5

Lavan Comment

If ASIC asks you to participate in an informal investigation, you should carefully consider whether it is in your best interests to do so. There are many factors to be taken into account when making that decision and whether you ultimately decide to move forward with ASIC on a formal or informal basis.  Each situation will be different and is a matter that needs to be carefully considered. Lavan’s Corporate Disputes team is able to provide you with advice that is specific to your situation.

20 May 2019
Corporate Disputes
AUTHOR
Cinzia Donald
Partner
AUTHOR
Lorraine Madden
Special Counsel
SERVICES
Corporate Disputes


FOOTNOTES

[1] Section 13 Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

[2] ASIC Act s13(1).

[3] Richardson v Forestry Commission (1988) 164 CLR 261.

[4] ASIC Act s63.

[5] Section 21E.