Corporate Law and Director Duties

This assignment examines the Commonwealth Bank of Australia's (CBA) involvement in a money laundering scandal. It analyzes the relevant legal provisions, particularly Section 180(1) of the Corporations Act 2001, regarding directors' duties and care. The role of the Australian Securities & Investments Commission (ASIC) in investigating the matter is discussed, along with the potential consequences for the bank and its directors, including civil penalties and criminal prosecution.

Running head: CROWN CONFIDENTIAL
Crown Confidential
Name of the Student
Name of the University
Author Note

1CROWN CONFIDENTIAL
Table of Contents
Part A:.............................................................................................................................................2
Corporate Legal Issues faced by Crown Resorts:..................................................................2
Role of ASIC:.............................................................................................................................3
Possible Remedies:.....................................................................................................................4
Bibliography:..................................................................................................................................6
Part B:.............................................................................................................................................7
Bibliography:................................................................................................................................11

2CROWN CONFIDENTIAL
Part A:
Corporate Legal Issues faced by Crown Resorts:
It is the duty of the directors of corporate enterprises to act in the best interest of the
company. According to the provisions of Section 180 (1) of the Corporation Act 2001 (Cth) the
directors and other officials of the company are instructed to take due care and diligence in
relation to their operational activities. In this regard, a hypothetical person has been appointed as
a director in order to evaluate the depth of such care and diligence and thereby the reasonability
is analyzed keeping in mind the depth of the decision1. The decision taken must be according to
the interests of the company. In a recent case of ASIC v Cassimatis2, it was held hat in any
condition a reasonable director will not cause breach of the provisions of law. It is mandatory to
follow the law of the land and failure to do to will give rise to serious consequences. The
shareholders in general do not have the authority to ratify the acts mentioned above. In the given
scenario, the directors of crown sports have violated statutory provisions by sending various
agents to China for the recruitment of high roller gamblers3. Gambling is highly illegal in China.
The government of China took reasonable steps to arrest the employees of the organization
which also included Australians. There has been a decline in the shares of the organization by
14% which subjected to major loss which was faced by the company and its shareholders. In this
regard it can be observed that the reputation of the company suffered huge loss as a result of its
actions. In the given scenario, the legal issues of any corporate which have been faced by the
directors of Crown Resorts Ltd are as a result of the director duties that have been violated by
1 Corporation Act 2001 (Cth) at section 180(1)
2 (No 8) [2016] FCA 1023
3 '“Big Gambling”: The Rise Of The Global Industry-State Gambling Complex' (Taylor &
Francis, 2018) <http://www.tandfonline.com/doi/full/10.3109/16066359.2014.929118> accessed
4 January 2018.

3CROWN CONFIDENTIAL
them. The directors as mentioned above have breached the provisions of the Section 180 (1) of
the Corporation Act 2001 by not acting with care and diligence concerning the business of the
company.
Role of ASIC:
The Australian Investment and Security Commission is an independent government body
in Australia whose purpose is associated with the regulation of companies and securities. The
duty of the Australian Investment and Security Commission is to keep records on the affairs of
corporate enterprises. The AISC is involved in the regulation of financial services, integrated
corporate, market and consumer credit regulators in Australia4. The commission since time
immemorial has targeted economic growth by allowing the markets to fund economy. In order to
ensure the financial stability in Australia, the AISC has played significant role. The AISC have
proved to be beneficial in promoting the level of confidence and trust among consumers and
investors, ensuring efficiency of markets by providing proper registration services in the long
run. The ASIC has played significant role in bringing action against the organizations which
failed to act ethically and legally and thereby caused serious loss to the investors and creditors. If
any violation has been identified in any case, then in such cases the ASIC seeks orders like
financial penalties and suspension of directors. In the given scenario, it can be observed that the
employees of Crown Resorts have been arrested in China due to the illegal activities committed
by it5. In this context, it is the role of ASIC to investigate into the matter seriously. In this regard,
it can be stated that such decision taken by the directors may cause serious loss to the company
4 Our role | ASIC - Australian Securities and Investments Commission. (2018). Asic.gov.au.
Retrieved 3 January 2018, from http://asic.gov.au/about-asic/what-we-do/our-role/
5 'Home, James, And Don’T Spare The Horses: The Inevitability Of A Second Sydney Casino'
(Taylor&Francis,2018)<http://www.tandfonline.com/doi/abs/10.1080/07293682.2017.1319394>
accessed 4 January 2018.

4CROWN CONFIDENTIAL
including its investors and creditors. It is the duty of Australian Investment and Security
Commission to make investigation into the matter in cases where any company is registered with
the Australian Stock Exchange (ASX) has been accused of violating the provisions of law. In the
given scenario, if it comes to the findings of ASIC that the directors of Crown Resort have
violated their duties of corporation it will seek reasonable action against the company in
Australia.
Possible Remedies:
If it comes to the knowledge of ASIC upon proper investigation that the directors of
Crown Resort have actually involved in illegal activities and therefore various remedies are
available according to the provisions of the Corporation Act 2001. The violation of duties of
directors as provided in the Corporation Act 2001 is a civil penalty provision. In this regard, the
directors can be prosecuted under criminal liability under the criminal code according to the
provisions of Section 61, if it is found that they have violated the provisions of Section 184 of
the Corporation Act 2001 which is to recklessly breach the duties as contained in Section 180 to
183 of the Corporation Act 2001. The provisions of civil penalty are contained in Section 1317E
of the Corporation Act 2001. In case of serious breach of duties the directors may be subjected to
financial penalty up to A$200, 000. According to the provisions of section 206C of the
Corporation Act 2001, may be suspended from managing a corporation in the future which is for
a period up to five years6. In such cases the directors may seek an alibi under the provisions of
Section 1317G and the court may pardon the breach of duties committed by them7. However, it
is required that AISC should prove that a serious breach has been committed by the directors in
relation to their duties. In Australian Securities & Investments Commission [ASIC] v
6 Corporation Act 2001 (Cth) at section 206C
7 Corporation Act 2001 (Cth) at section 1317E

5CROWN CONFIDENTIAL
Lindberg8, it was held that ASIC was successful in obtaining suspension of two years along with
a penalty of $100,000 where the directors have violated the provisions of Section 180 (1) of the
Corporation Act 2001. In such cases, directors have an opportunity of outside settlement in
relation to the penalties that has been prescribed. The ASIC had to prove such cases in the Court.
8 2012] VSC 332

6CROWN CONFIDENTIAL
Bibliography:
'“Big Gambling”: The Rise Of The Global Industry-State Gambling Complex' (Taylor &
Francis, 2018) <http://www.tandfonline.com/doi/full/10.3109/16066359.2014.929118> accessed
4 January 2018.
ASIC v Cassimatis (No 8) [2016] FCA 1023.
Australian Securities & Investments Commission [ASIC] v Lindberg [2012] VSC 332.
Corporation Act 2001 (Cth).
'Home, James, And Don’T Spare The Horses: The Inevitability Of A Second Sydney Casino'
(Taylor&Francis,2018)<http://www.tandfonline.com/doi/abs/10.1080/07293682.2017.1319394>
accessed 4 January 2018.
Our role | ASIC - Australian Securities and Investments Commission. (2018). Asic.gov.au.
Retrieved 3 January 2018, from http://asic.gov.au/about-asic/what-we-do/our-role/.

7CROWN CONFIDENTIAL
Part B:
The Commonwealth Bank have suffered huge decline in its share price after a case was
filed by AUSTRAC against such organization for money laundering9. The organization has been
subjected to a potential class of action by the shareholders as a result of such incident. Allegation
was brought against the organization by AUSTRAC due to the reason that they have been
associated with money laundering operations by terrorist groups and criminals. The CBA was
accused to have conducted breaches in relation to the rules of money laundering and counter-
terrorism financing. A proceeding of civil penalty has been initiated by the AUSTRAC in the
federal court of justice against the Commonwealth Bank for consequences of serious and
systemic non-compliance.
The Australian community has been subjected to serious and ongoing financial crime as a
result of the conduct of the CBA which was provided by the court. However it was provided by
the bank that they would not involve in any such illegal activities in the future which would
authorize crime of any kind. An issue was brought before the Court of Justice because the bank
was unsuccessful to report matters of suspicion in relation to transaction over A$77 million. In
this regard, the agency alleged that 53,000 contraventions of anti-laundering laws and counter-
terrorism laws are made by the Commonwealth bank particularly to its intelligent deposit
machines. A maximum amount of A$18 million can be imposed for the violation of anti-
laundering and counter terrorism policies10.
9 Knaus, C. (2018). Commonwealth Bank accused of money laundering and terrorism-financing
breaches. the Guardian.Retrieved 3January 2018, from https://www.theguardian.com/australia-
news/2017/aug/03/commonwealth-bank-accused-of-money-laundering-and-terrorism-financing-
breaches
10 CBA will take months to answer money laundering allegations. (2018). ABC News. Retrieved
3 January 2018, fromhttp://www.abc.net.au/news/2017-09-04/commonwealth-bank-will-take-
months-to-respond-to-austrac/8869706

8CROWN CONFIDENTIAL
The banks did not take necessary steps in order to manage and mitigate risks in cases here
machines were used for suspected money laundering as stated by the AUSTRAC. The
AUSTRAC alleged that four money laundering syndicates utilized the machines which were
associated with drug import and distribution network. In order to keep suspicion at bay, the
machines had been used by the money laundering syndicates in depositing and transferring cash
at low amounts. It was observed that of the money laundering activities involved more than 21m
deposited into 11 CBAs which was due to the outcome of intelligent machines11. The bank in
such case failed to take any action even after repeated warnings by the Australian Federal Police.
The Australian Investment and Security Commission are regarded as the corporate masterpiece
in Australia whose duty is to keep an eye on the affairs of the government. The regulation of
integrated corporate, financial services, markets and consumer credit in Australia is regulated by
the ASIC. The purpose of ALIC is to promote financial stability in Australia. The vision of the
commission since time immemorial was to allow the markets to fund economy and trigger
economic growth. In order to promote the level of confidence and trust among consumers and
investors, the ASIC has proved to be efficient12. Organizations which fail to act in a legal and
ethical manner by causing loss to the creditors and investors; ASIC has been successful in
bringing action against such organizations. The ASIC has been successful in identifying the
violations of law and by seeking order like financial penalties and suspension of directors. It has
been observed that the directors of CBA failed to take proper care in relation to the affairs of the
company.
11 CBA faces 'very large' shareholder action on money laundering. (2018). ABC News. Retrieved
3 January 2018, from http://www.abc.net.au/news/2017-08-23/commonwealth-bank-faces-
shareholder-class-action/8833860
12 Taking Other People's Money: Development And The Political Economy Of Asian Casinos'
(Taylor& Francis,2018) <http://www.tandfonline.com/doi/abs/10.1080/09512748.2014.995127>
accessed 4 January 2018.

9CROWN CONFIDENTIAL
From the above discussion it is pertinent that the directors of a corporate organization are
at the duty to act in relation to the best interest of the company. The provisions of Section 180 (1)
of the Corporation Act 2001, provided instruction to the directors of a company to take
reasonable care and diligence in relation to their operational activities13. In this regard, it can be
mentioned that such care and diligence has been evaluated by the appointment of hypothetical
person as a director in order to analyze the reasonability of such decision. In this case it can be
mentioned that as the company has involved in illegal activities and caused violation of legal
provisions and it can be seen that its directors have also violated the provisions of section 180(1)
of the Corporation Act 2001. In the given scenario it can be observed that the present role of the
AISC to investigate the issue of the matter. This is done with a purpose because the bank failed
to comply with a legal duty of disclosure and has acted with diligence and care according to their
operational activities which any responsible director would have done in the given scenario. The
organization along with the directors would be subjected to prosecution as a result of the breach
of director’s duties committed by them14. It can be stated that under the provisions of civil
penalty the directors may be made personally liable for the payment of financial penalties after
being suspended for managing the affairs of the company under the provisions of Section 1317E
and 206C of the Corporation Act 2001.
13 Planning News - Planning In The News (Business Collection) - Informit'
(
Search.informit.com.au,2018)<https://search.informit.com.au/fullText;dn=658413116605352;res
=IELBUS> accessed 4 January 2018.
14 ABC News. (2018). ASIC to investigate CBA over money-laundering scandal. [online]
Available at: http://www.abc.net.au/news/2017-08-11/asic-to-investigate-cba/8796542 [Accessed
4 Jan. 2018].

10CROWN CONFIDENTIAL
Bibliography:
'ASIC To Investigate CBA Over Money-Laundering Scandal' (ABC News, 2018)
<http://www.abc.net.au/news/2017-08-11/asic-to-investigate-cba/8796542> accessed 6 January
2018.
CBA faces 'very large' shareholder action on money laundering. (2018). ABC News. Retrieved 3
January 2018, from http://www.abc.net.au/news/2017-08-23/commonwealth-bank-faces-
shareholder-class-action/8833860.
CBA will take months to answer money laundering allegations. (2018). ABC News. Retrieved 3
January 2018, from http://www.abc.net.au/news/2017-09-04/commonwealth-bank-will-take-
months-to-respond-to-austrac/8869706.
Knaus, C. (2018). Commonwealth Bank accused of money laundering and terrorism-financing
breaches. the Guardian. Retrieved 3 January 2018, from https://www.theguardian.com/australia-
news/2017/aug/03/commonwealth-bank-accused-of-money-laundering-and-terrorism-financing-
breaches.
Planning News - Planning In The News (Business Collection) - Informit'
(
Search.informit.com.au,2018)<https://search.informit.com.au/fullText;dn=658413116605352;res
=IELBUS> accessed 4 January 2018.
'Taking Other People's Money: Development And The Political Economy Of Asian Casinos'
(Taylor&Francis,2018)<http://www.tandfonline.com/doi/abs/10.1080/09512748.2014.995127>
accessed 4 January 2018.

11CROWN CONFIDENTIAL