Maximum pecuniary penalties
16.2In our Issues Paper, we stated our intention to provide guidance about how maximum pecuniary penalties should be set in statutes. This issue has raised a number of questions, including: how much guidance can be taken from how maximum penalties are set for criminal offences; whether different or additional principles and factors are relevant to setting maximum pecuniary penalties and, if so, what they are; and what approach should be taken where statutes contain both criminal offences and pecuniary penalties for the same or similar conduct.
16.3We have considered these questions and have developed some Guidelines about how maximum pecuniary penalties should be set. However, there is a case for further, wider review of this area. At present, the way in which both maximum criminal and maximum pecuniary penalties are set is unsatisfactory.
16.4In the criminal sphere, maximum penalties have been set fairly unsystematically. One accepted principle is that the maximum penalty should reflect the most serious of cases of that form of offending. However, there is no agreed methodology or approach for determining the relative seriousness of an offence. And, while relativity between the maximum penalties for similar offences tends to be considered, criminal penalties have not been updated systematically over time, so this is not a reliable guide.
16.5Similarly, there is no agreed methodology or approach for assessing how maximum pecuniary penalties should be set, both in individual cases and relative to each other. To illustrate, considerable work has been documented on how maximum pecuniary penalties in the Commerce Act 1986 should be set, based on economic theory about how to optimally deter breaches of competition law. It is standard for economic theory on competition law penalties to take into account factors including: the need to focus on deterring breaches because of the low chance of detection; the fact that offenders can make substantial gains quickly, before detection is risked; the rational and detailed financial assessment that potential offenders are likely to undertake before they engage in such practices; the size of the market concerned; and the cost of the resulting detriment to the market and economy as a whole. Those factors are quite specific to the deterrence of anti-competitive practices. Yet, the same maximum penalties for bodies corporate have been repeated in:
- the Biosecurity Act 1993, for breaches of a variety of regulatory requirements under that Act;
- the Dairy Industry Restructuring Act 2001, in relation to Fonterra’s obligations under the Act; and
- the Hazardous Substances and New Organisms Act 1996, in relation to breaches relating to the development, testing, importing, releasing, possessing or disposing of “new organisms” under that Act, and failing to comply with other regulatory controls.
16.6It may be that those maximum penalties are the most appropriate ones in each of those regimes too. But it is also possible that an unscientific transplanting of maximum pecuniary penalties is taking place.
16.7One consistent feature of pecuniary penalties is their very high maxima. In general, standard maximum pecuniary penalties are higher than standard criminal fines. However, there are also inconsistent approaches across the existing statutes. This is especially the case where statutes contain both criminal offences and pecuniary penalties for the same or similar conduct, or for different breaches of the regime.
- Under the Anti-Money Laundering and Countering the Financing of Terrorism Act 2009, criminal offences have a higher penalty than pecuniary penalties. The maximum criminal penalties, which are reserved for knowing or reckless breaches of the Act, are two years’ imprisonment or a $300,000 fine for an individual or a $5 million fine for a body corporate. All other breaches of the Act are punishable by a pecuniary penalty of up to $200,000 for an individual or $2 million for a body corporate.
- Under the Commerce Act 1986, breach of a price-quality requirement or order, or of an information disclosure requirement or order, is an offence if done intentionally and can also be punished by pecuniary penalty. Here the pecuniary penalties are higher than the criminal penalties. The maximum pecuniary penalty is $500,000 for an individual or $5 million for a body corporate. The maximum criminal penalty is $200,000 for an individual or $1 million for a body corporate.
- In some cases, the maximum monetary penalties are the same for both pecuniary penalty and criminal breaches, although of course for the latter, conviction results and there may also be provision for a term of imprisonment. The Commerce (Cartels and Other Matters) Amendment Bill 2011 will introduce a criminal offence for bodies corporate that engage in cartel conduct. The maximum fine is identical to that of the parallel pecuniary penalty – the greater of either $10 million, three times the value of commercial gain if readily ascertainable, or 10 per cent of the turnover of the person in breach.
16.8The issue for pecuniary penalties is whether their statutory maxima can be set in a principled, consistent, and (where possible) evidence-based way. This question cannot be covered in full here and we propose no strict methodology for policymakers who are setting penalties in legislation. What we do provide, however, is guidance on some of the relevant considerations. As stated above, we propose that a dedicated review should take place, which is able to identify and assess all the relevant legal principles; relevant deterrence, economic and other theories; and evidence and factors that may be relevant to the setting of a range of forms of penalty, including criminal incarceration penalties, criminal fines; and pecuniary penalties. Such a review would benefit from the input of a range of expertise. It could be carried out by way of an officials’ review or as a request for advice from a body such as the Law Commission or Legislation Advisory Committee.
16.9In the meantime, there is clearly a need for a central agency to have oversight of the development of maximum penalties for pecuniary penalty provisions. It is well-established practice that the Ministry of Justice plays this role when criminal penalties are set. In Chapter 2 of this Report, we recommend that the Ministry should be consulted on proposals for pecuniary penalties, in the same manner as for criminal offences. Such an oversight role will be absolutely central to the principled and robust setting of pecuniary penalties in the future.