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, aviation, water standards, fraud, consumer safety and spam. 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.
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. The SEC has said that it will often commence both types of proceeding in respect of a matter or contravention where both are possible.
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. 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. The SEC may also take into account the person’s ability to pay the penalty.
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.
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. It listed several factors relevant to that determination, principally:
- the presence or absence of a direct benefit to the corporation as a result of the violation; and
- the degree to which the penalty will recompense or further harm the injured shareholders.
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. 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.
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. This was followed by a return to focus on form, and the reading down of those protections, in the late 19th century. In 1989, United States v Halper signalled a brief return to the substantive approach, but that was overruled a few years later in Hudson v United States. Hence US jurisprudence has returned to the original position in which civil penalties are assessed in formal rather than substantive terms.
Academic debate has centred on the development of a “middleground” jurisprudence for civil penalties, with commentators both in favour and against. Kenneth Mann has previously written in support of a middleground jurisprudence, stating that:
[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.
