Contents

Appendix 2
Non-criminal penalties in other jurisdictions

United States

The United States has a wide range of discretionary monetary penalties at both federal and state level, for example in securities law,668  aviation,669  water standards,670  fraud,671  consumer safety672  and spam.673  Many of these are imposed directly by the regulator; for example since 1978 several federal banking agencies have had the ability to assess monetary penalties for banking violations.674

Also, distinct from many other jurisdictions, some regimes have a parallel enforcement approach, in that the regulator can choose to impose penalties through administrative processes and/or seek judicially imposed penalties from the court.

United States Securities Exchange Commission

The United States Securities Exchange Commission (SEC) is one such federal regulator with parallel enforcement powers. Since 1990 it has had the power to impose penalties administratively, supplementing its existing ability to seek judicially imposed penalties from the Federal Court.675  The SEC has said that it will often commence both types of proceeding in respect of a matter or contravention where both are possible.676
While the Court has the power to impose penalties on any person, the SEC’s administrative penalty power is limited to certain regulated persons such as brokers, as it can only impose penalties in proceedings brought pursuant to certain sections of the Act.677  Also, while the Court possesses broad discretionary authority to impose penalties, the SEC may only do so if it determines there has been a wilful violation and that any penalty is in the public interest.678  The SEC may also take into account the person’s ability to pay the penalty.679
Administrative proceedings initiated by the SEC are designed to incorporate a degree of independence from the enforcement body. They are heard by an independent officer in the first instance, referred to as an administrative law judge, who considers evidence from the SEC and the defendant and issues an initial decision containing factual and legal findings and a recommended sanction. All or part of the decision may be appealed by either party to the SEC. The SEC may affirm, reverse or remand the decision for additional hearings. The SEC’s decision can be further appealed to the court.680
The SEC’s enforcement approach, particularly the question of whether or not to seek a penalty against the body corporate in breach, has come under scrutiny. In response to concerns over its enforcement decisions, in 2006 it issued a statement describing the framework it uses when determining when to employ its administrative powers to impose penalties against body corporates versus individuals.681  It listed several factors relevant to that determination, principally:

Other relevant factors included the need to deter the particular type of misconduct; the extent of the injury to innocent parties; and whether complicity in the violation is widespread throughout the corporation.

However, the SEC’s enforcement approach continues to be controversial. Its 2006 enforcement policy has come under critique from current SEC Commissioner Luis Aguilar, who has suggested it is outdated and needs to be reviewed.682  Further, the SEC’s proposed US$33m settlement against Bank of America in 2009 was rejected on the grounds that it would force shareholders of the bank to pay the penalty for the bank’s own misconduct.683

Role of the courts

The courts retain a role in imposing civil penalties. Proceedings for a penalty in the Federal Court proceed basically along accepted civil procedure. Penalties are imposed on the civil standard of proof and on the basis of strict liability.

The courts have assessed the constitutionality of administratively-imposed penalties, particularly in light of constitutional protections against double jeopardy through simultaneous criminal-civil actions and infringements of the defendant’s right to privilege.

Kenneth Mann has tracked the Supreme Court’s treatment of a wide range of punitive civil sanctions, which has varied widely since the late 1800s. He observes that the Court’s initial focus was on substance over form and it treated civil penalties as punitive, requiring heightened procedural protections.684  This was followed by a return to focus on form, and the reading down of those protections, in the late 19th century.685  In 1989, United States v Halper686  signalled a brief return to the substantive approach, but that was overruled a few years later in Hudson v United States.687  Hence US jurisprudence has returned to the original position in which civil penalties are assessed in formal rather than substantive terms.

Academic commentary

Academic debate has centred on the development of a “middleground” jurisprudence for civil penalties, with commentators both in favour and against.688  Kenneth Mann has previously written in support of a middleground jurisprudence, stating that:689

[T]he middleground allows for more proportionate punitive sanctioning. When punitive civil sanctions are available, cases otherwise confined to the conventional paradigms shift into the middleground, increasing overall sanctioning while reducing reliance on both criminal sanctions and merely remedial sanctions.

However, other United States commentators have spoken out in favour of retaining a distinct boundary between the civil and criminal law.690
668See for example 15 USC § 77t(d)(1).
669See for example 49 USC § 46301.
670See for example 33 USC § 1319.
671See for example 31 USC § 3806.
672See for example 15 USC § 2069.
673See for example 15 USC § 7706.
674MS Morris “The Securities Enforcement Remedies and Penny Stock Reform Act of 1990: By Keeping up with the Joneses, the SEC's Enforcement Arsenal is Modernized” [1993] 7 Admin LJ Am U 151 at [172]. See for example 15 USC § 78u–2(a) (Securities Commission authority to assess money penalties).
675Securities Enforcement Remedies and Penny Stock Reform Act of 1990. Now see Securities Exchange Act 15 USC § 78u–2.
676United States Securities Exchange Commission “What we do” <www.sec.gov/about/whatwedo.shtml#org>.
677Securities Exchange Act 15 USC § 78u–2(a)(1).
678Securities Exchange Act 15 USC § 78u–2(a)(1) and 78u–2(c).
679Securities Exchange Act 15 USC § 78u–2(d).
680United States Securities Exchange Commission “What we do” <www.sec.gov/about/whatwedo.shtml#org>.
681United States Securities and Exchange Commission “Statement of the Securities and Exchange Commission Concerning Financial Penalties” (press release, Washington DC, 4 January 2006).
682Luis A Aguilar, Commissioner, United States Securities and Exchange Commission “Sustainable Reform Prioritizing Long-Term Investors Requires the Right Orientation” (SEC Speaks, Washington DC, 5 February 2010.)
683Securities and Exchange Commission v Bank of America Corporation 09 Civ 6829 (JSR) (14 September 2009).
684United States v Chouteau 102 US 603 (1880), Boyd v United States 116 US 616 (1886).
685Stockwell v United States 80 US (13 Wall) 531 (1871).
686United States v Halper [1989] 490 US 435.
687Hudson v United States [1997] 522 US 93.
688See JC Coffee “Paradigms Lost: The Blurring of the Criminal and Civil Law Models – and what can be done about it” (1992) 101 Yale LJ 1875; K Mann “Punitive Civil Sanctions: The Middleground between Criminal and Civil Law” (1992) 101 Yale LJ 1795; J Resknik “The Domain of Courts” (1989) 137 U PA L Rev 2219; CS Steiker “Civil and Criminal Divide” in J Dressler Encyclopaedia of Crime and Justice (Macmillan, 2001) at 160; and FE Zimring “The Multiple Middlegrounds Between Civil and Criminal Law” (1992) 101 Yale LJ 1901.
689Mann, above at 1865 (footnotes omitted).
690See for example Coffee, above n 688.