DO YOU WORK IN THE DIGITAL ASSETS SPACE? YOU MIGHT BE LIABLE FOR YOUR BUSINESSES CONDUCT

If you are involved in the digital assets space, there is a chance that the business you work for is breaking the law and you might be held liable for it. Accessorial liability, a legal concept found in jurisdictions around the world, applies to individuals who participate in a company’s wrongdoing. Companies dealing in digital assets may be dealing in financial products without a licence, engaging in misleading or deceptive conduct or other contraventions of the law. If you are assisting them to do so, you may be held liable for these offences (even if you are not an officer or director).

1.?????What is Accessorial Liability?

Under the Corporations Act 2001, accessorial liability refers to the legal principle that holds individuals or entities accountable for being involved in a company's contravention of the Corporations Act. Accessorial liability is intended to ensure that not only companies themselves but also those who are involved in a contravention are held responsible for their actions. Section 79 of the Corporations Act outlines the provisions for accessorial liability. Under s79, a person who is involved in a company's contravention is deemed to have contravened the same provision themselves. This means that individuals who are knowingly a party to a contravention, either directly or indirectly, can be held responsible for the breach.

Accessorial liability can apply to any person, including employees, advisors, consultants, and other external parties who knowingly participate in or facilitate the contravention. The penalties for accessorial liability can be significant and will vary depending on the extent of the contravention.

Accessorial liability, or similar concepts that hold individuals accountable for involvement in corporate wrongdoing exists outside of Australia. In the United States, secondary liability is enforced by the Securities and Exchange Commission (SEC) and achieves a similar purpose to the Australian Law. In Singapore, individuals who are not personally guilty of the corrupt acts committed by the company may be liable for consequential offences related to such corrupt acts, including money laundering and the failure to report the suspicion that certain property is connected to criminal offences.

2.?????What potential contraventions could accessorial liability apply to?

With the rise of digital assets, regulatory bodies around the world have identified the importance of determining whether these assets fall under the category of financial products. ASIC has noted that crypto-assets can be financial products.

In the United States, the SEC also recently took legal action against Coinbase and Binance for allegedly violating securities regulations. In Australia, ASIC took action against Finder Wallet for dealing in financial products without an AFSL.

Dealing in financial products without an Australian Financial Services Licence is a contravention of the Corporations Act 2001. Accessorial liability can see employees, advisors, consultants, and other external parties who knowingly participate in or facilitate the contravention held liable for such a contravention.

Misleading and deceptive conduct

Whether a digital asset is a financial product or not, the same prohibitions against misleading or deceptive conduct apply under the Australian Consumer Law. Conduct that may be misleading or deceptive to consumers can include failing to disclose adequate information, using social media to generate the appearance of a greater level of public interest in a digital asset or suggesting a product is approved if that is not the case.

In the dynamic realm of the digital landscape, businesses must remain mindful of accessorial liability and its implications. The potential penalties associated with accessorial liability highlight the need for individuals, such as employees, advisors, consultants, and external parties, to exercise caution in their involvement in any contraventions of the law. By holding individuals accountable, accessorial liability ensures that responsibility extends beyond the company itself. Businesses and individuals operating in the digital space must prioritize compliance with regulatory requirements. By doing so, they can navigate the complex regulatory landscape, protect their interests, and maintain the integrity of the digital ecosystem.