Australian Government passes new hate crime legislation: What businesses should know

1. Supply chain and procurement

Supply chains and procurement arrangements are an obvious risk factor under the Division 114B offences. For instance, pursuant to section 114B.5(2) (getting funds to, from or for a prohibited hate group), if a company or third-party counterparty funnels funds or other resources to an organisation and there were warning signs indicating that the organisation may be a prohibited hate group, a company will not be able to rely on “we didn’t know” as a complete answer. Recklessness focuses on what risks were apparent at the time and whether the company proceeded despite those risks.

Depending on how a corporate group is structured, liability may extend beyond the immediate contracting entity. In particular, exposure may arise through: 

• Part 2.5 of the Criminal Code, where conduct or fault of individuals is attributed to the corporation because of authorisation, tolerance or corporate culture (discussed further below);  
• Agency principles, where a subsidiary or contractor is acting within the scope of authority conferred by the parent company; or 
• Accessorial liability, where parent-level decisions or approvals aid or procure the offending conduct. 

In practice, this means that procurement decisions, approvals and ongoing supplier relationships will be expected to be supported by a clear record showing how relevant risks were identified, assessed and managed. 

2. Corporate culture as evidence

Part 5.3B places renewed emphasis on corporate culture as a mechanism for attributing criminal liability. 

Under section 12.3 of the Criminal Code, the fault element of an offence (including recklessness) may be attributed to a corporation where: 

• the board or a high managerial agent authorised or permitted the conduct; 
• a corporate culture existed that directed, encouraged, tolerated or led to non‑compliance; or 
• the corporation failed to create and maintain a culture that required compliance with the law. 

In this context, a lack of effective screening, escalation or remediation processes—particularly for high‑risk payments, grants, sponsorships or donations—in theory could be relied on by prosecutors as evidence of a culture that tolerates unjustified risk‑taking. This makes documented controls critical. What matters is whether the organisation can demonstrate that risks are actively identified and escalated. 

3. AML/CTF requirements

While the Act does not create a new statutory KYC regime or amend existing Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) legislation, the new Division 114B offences should be considered as part of the upfront and ongoing due diligence measures undertaken by entities subject to the AML/CTF regime, including banks, payment providers, fintechs and other financial intermediaries. 

Firms operating AML/CTF frameworks will need to consider how their KYC processes and transaction monitoring programs should be designed to respond to the risk that their services may be used to make funds available to, or be received from, prohibited groups. This may include sanctions‑style screening to cover the list of prohibited hate groups specified by regulation under the new Division 114A of the Criminal Code. Where screening produces a credible match, that information is likely to constitute a substantial risk for the purposes of the recklessness analysis.  

In practice, this means that screening results or “hits” (that is, matches or potential matches) against a prohibited hate group list: 

• should be built into enhanced due diligence triggers; 
• may require transaction holds or escalation to senior compliance staff, including to consider whether a suspicious matter report should be filed with AUSTRAC; and 
• may result in relationship exit events, particularly where risk cannot be mitigated. 

The cost of non-compliance 

As noted above, the offences in Division 114B carry maximum penalties ranging from 7 to 15 years’ imprisonment and corporations may also face significant financial penalties. 

Beyond formal penalties, the collateral consequences of a conviction may be significant, and include: 

• Reputational and commercial risk: A conviction under Division 114B would be significant and may trigger adverse media scrutiny and overall increased regulatory and counterparty attention. There is also a risk that any associated fine will not be insured and that a conviction may adversely affect future insurance coverage. 
• Government procurement risk: Under the Commonwealth Procurement Rules, entities conducting a procurement must consider potential suppliers’ ethical conduct and probity when assessing value for money and may set conditions for participation or exclude a tenderer on integrity grounds (e.g., false declarations or significant performance deficiencies). In practice, a conviction for funding or supporting a prohibited hate group may be regarded as a serious probity and integrity concern, creating a discretionary risk of exclusion from tender processes and, depending on contract terms and value‑for‑money assessments, removal from panels, refusal to award or renew contracts, or termination.  

Recommended actions for businesses 

To mitigate the risk of a finding of recklessness, businesses should consider taking the following steps: