Editorial: State needs option of civil cases

Civil penuciary penalties may be seen as the system being soft on "white-collar" crime, as the criminal offence of fraud is difficult to prove. Photo / Thinkstock

Heavy financial penalties proper in cases that escape criminal jurisdiction.

Most of us understand there are two types of law: criminal law, which involves the state against individuals, and civil law which rules on disputes between individuals or organisations. But there is also a hybrid category - law enforced by the state which carries no criminal penalties - that is become increasingly common, particularly in commercial and environmental law. It raises important questions about fairness that the Law Commission has recently put out for public comment.

The most obvious question is whether any such category ought to exist, since it extends to offences that could be called "white collar crime". It covers offences that can carry financial penalties as high as $1 million for an individual but never imprisonment or the stain of a criminal record.

While that may be a relief to the offender who can find the money, it also means he or she is more easily punished because the offence does not have to be proved to the criminal standard of beyond reasonable doubt. Liability can be established on the civil law standard, the balance of probabilities. Is this fair? Or should the state have to satisfy the criminal standard of proof every time it brings its force to bear on an individual or company?

The commission reports that commercial law enforcers such as the Commerce Commission are increasingly using the non-criminal procedure to deal with offending that involves offences as serious as insider trading, price fixing and even money laundering. Civil pecuniary penalties for these sort of offences first appeared in the Commerce Act 1986 and can now be found in 15 statutes. The Justice Minister has asked the commission to review their benefits, drawbacks and consistency of the penalties and their use.

The Hazardous Substances and New Organisms Act, for example, provides civil pecuniary penalties for breaches of rules governing genetic modification but the older part of the act, regulating hazardous substances, contains criminal offences.

The Commerce Act has produced the vast majority of civil pecuniary penalties. In most of them a company has admitted liability and the sum paid as punishment has been agreed between the company and the Commerce Commission, then approved by the High Court. The highest penalty so far is $12 million, imposed on Telecom NZ last year for restrictive trade practices.

The Securities Commission, by contrast, has been limited to criminal procedures against insider trading.

Legal purists criticise these penalties as criminal sanctions by stealth, since they can attract as much opprobrium as a finding of criminal guilt without the same standard of proof. But the Law Commission's discussion paper argues there is a place for the hybrid. It notes there is already an overlap between the punitive principle of criminal fines and the compensatory purpose of civil damages. Civil courts can order exemplary damages and criminal courts these days can award victims compensation.

The risk in civil pecuniary penalties is the perception that the system is soft on white-collar crime. But as long as fraud remains a criminal offence, punishable by imprisonment, the perception is wrong. Fraud, though, is one of the hardest intentions to prove beyond reasonable doubt. The law needs a category of offences it can punish heavily on the balance of probabilities.

A financial penalty can bring as much public dishonour as a criminal conviction for an offending company or individual, and so it should.