No offence intended – the failure to report white-collar crime and section 316 of the Crimes Act 1900 (NSW)

The following article was published by Lexology on 21 August 2020:

It is often the case that a corporation which discovers white-collar crime is also the victim.  This may occur because an employee has engaged in fraudulent activity such as the misappropriation of funds belonging to the employer.  The focus in such cases is often to conduct a private investigation and, where possible, recover the stolen funds through the commencement of civil proceedings or by way of a settlement. 

A corporation may not want to report white-collar crime to the police, or other appropriate authority, because of a desire to keep the matter “in house” or “under wraps”. 

There can be many reasons for this, including minimising or avoiding public scrutiny and reputational issues, particularly where the victim is a large, or well known, corporation.  Issues such as loss of confidence by shareholders and unwarranted external criticism of company management can be very damaging.  Additionally, the perpetrator may offer something to their corporate victim in exchange for non-reporting, such as co-operation with any internal investigation or voluntary reimbursement, which may be attractive to a corporation seeking to demonstrate that it has taken appropriate recovery action.    

While commercial considerations will always come into play, it can be a risky approach to prioritise those considerations while ignoring others.  In particular, doing so may have unintended consequences under the criminal law.  Specifically, in New South Wales, section 316(1) of the Crimes Act 1900 (NSW) gives rise to the possibility that officers and employees of a corporate victim may inadvertently commit an offence themselves if they fail to report white-collar crime.

The legislation 

Section 316(1) of the Crimes Act provides:

“(1) An adult—

 (a) who knows or believes that a serious indictable offence has been committed by another person, and

(b) who knows or believes that he or she has information that might be of material assistance in securing the apprehension of the offender or the prosecution or conviction of the offender for that offence, and

(c) who fails without reasonable excuse to bring that information to the attention of a member of the NSW Police Force or other appropriate authority,

is guilty of an offence.

Maximum penalty—Imprisonment for—

(a) 2 years—if the maximum penalty for the serious indictable offence is not more than 10 years imprisonment, or

(b) 3 years—if the maximum penalty for the serious indictable offence is more than 10 years imprisonment but not more than 20 years imprisonment, or

(c) 5 years—if the maximum penalty for the serious indictable offence is more than 20 years imprisonment.”

A serious indictable offence means an indictable offence that is punishable by imprisonment for life or for a term of 5 years or more.  It includes (but is not limited to):

• larceny (see section 117); and
• fraud (see section 192E).

The effect of section 316(1) is that if you know or believe that a serious indictable offence has been committed and you have information that might be of material assistance in securing the apprehension, prosecution or conviction of the offender, then in the absence of a reasonable excuse, you are committing an offence yourself if you fail to disclose the information to the police or other appropriate authority.  

Where the offence of failing to report is committed, the maximum penalty for that failure is increased where a benefit is solicited or accepted in exchange for the failure to report.  Under section 316(2), the maximum penalty in those circumstances becomes:

• 5 years—if the maximum penalty for the serious indictable offence is not more than 10 years imprisonment, or
• 6 years—if the maximum penalty for the serious indictable offence is more than 10 years imprisonment but not more than 20 years imprisonment, or
• 7 years—if the maximum penalty for the serious indictable offence is more than 20 years imprisonment.”

It is important to note that, following an amendment made in 2018, section 316(1) applies to “an adult” rather than “a person”.  As such, it does not apply to a corporation but clearly covers individuals within a corporation (such as directors and other officers, and employees).

Practical tips

If you suspect that your corporation has fallen victim to white-collar crime, the following practical tips may assist:

1. Seek advice on the conduct in question, even if you don’t intend to commence civil proceedings against the perpetrator. That advice should include:

• whether there exists an obligation to report to the police or other appropriate authority under section 316(1) of the Crimes Act 1900 (NSW);
• whether to terminate the employment of the perpetrator (if they are an employee); and
• if civil proceedings are to be commenced, what relief should be pursued (potentially including freezing orders and/or tracing of stolen funds).

2. Do not make assumptions about whether the obligation to report information to the police (or other appropriate authority) under section 316(1) has been triggered, because it is sometimes easy to make assumptions that are misplaced. Examples of misplaced assumptions can include:

• the conduct in question is not significant enough to be reported; and
• the offence has not been proved in a Court.

3. The obligation to report must be considered separately from potential civil claims. If the obligation exists, then the only available option is to report. 
   
   
4. Don’t use an offer not to report information to the police or other appropriate authority as a “bargaining chip” in negotiations with the perpetrator (for example, in exchange for not commencing civil proceedings, or to achieve a favourable settlement) because soliciting or accepting any kind of benefit in exchange for your silence increases the maximum penalty for the offence under section 316, as outlined above.
   
   
5. Complying with the obligation under section 316 does not mean that commencing civil proceedings against the perpetrator becomes mandatory. So, in settlement negotiations, it is legitimate to offer not to commence civil proceedings as a term of a proposed settlement.

Finally, while section 316 applies in New South Wales, it is important to note that (like NSW) the Commonwealth and other States and Territories also have laws which make it an offence to accept a benefit in exchanging for not reporting criminal conduct.