Since the Turnbull Government announced it was returning some of the Abbott funding cuts to Australia's corporate watchdogs (by way of an increase in an existing levy on banks and other financial institutions) the mainstream media has started to move on from commenting on what appears to be endemic corruption in corporate Australia.
The exception to that observation is The Guardian who reported on The Australia Institute report and also compiled a banking scandal list.
The Australia Institute, 2 May 2016:
A new report analysing findings from across several corporate regulatory bodies and related agencies finds widespread wrong-doing in the Australian private sector.
Meanwhile the six major regulatory bodies and other agencies have seen 3,926 staff cut (or 14.9%) between the 2013-14 and 2015-16 budgets – meaning there are less cops on the corporate beat.
The research, commissioned by the ACTU, reviews figures from the Australian Competition and Consumer Commission (ACCC), Australian Securities and Investments Commission (ASIC), Australian Tax Office (ATO), Fair Work Ombudsman, Fair Work Commission and Australian Bureau of Statistics (ABS).
Excerpts from Corporate Malfeasance in Australia:
* The Australian Tax Office (ATO) annual reports were examined to determine the extent of tax evasion and avoidance. Overall the ATO figures and discussion suggest that in the ATO's normal course of business it recovers huge amounts from companies and other businesses that attempt to conceal their liability for taxation. In earlier years the ATO was prosecuting over 500 companies a year and still prosecutes 300 a year, the downward trend possibly reflecting the staffing reductions. It settles with many more and as a result recovers some $3.5 billion in tax from companies attempting to hide their profits. Companies also try to underpay the GST and other indirect taxes as well as PAYG on behalf of their employees; those amounted to $6.3 billion in the latest year for which there is complete data. One of their compliance programs, the taxable payments reporting system' specifically targets building and construction firms and has recovered $2.3 billion for the year 2012-13 alone. Similar successes have been recorded in relation to the other specific target groups such as the international profit shifting program.
* On Tuesday the 5th of April 2016 The Australian Financial Review published nine stories on wrong-doing or alleged wrong-doing on the part of the Australian corporate sector:
1. Banks considering legal action against the board of Arrium (a listed company) for drawing down a loan while simultaneously seeking to negotiate offloading debt at a large discount (page 1 and 11),
2. Panama leaks suggest BHP's many British Virgin Island companies established to create profits appear on the British side of the company (p. 1),
3. WIN alleged Nine Entertainment broke its supply agreement with a streaming service (p. 2),
4. Ken Henry (NAB chair) supported calls for Australian companies to take more responsibility for misdeeds and ASIC wanting to make boards criminally responsible for bad conduct (p. 6),
5. BHP threatening to fire a law firm in Panama for wanting to undertake due diligence on BHP's operations.
6. Queensland Nickel likely to go into liquidation without making provision for workers' entitlements (p. 8),
7. ASIC to 'nail' a second among the big four banks following court proceedings against ANZ (p. 12),
8. Rate rigging probe to investigate other big four banks (p. 15), and
9. CBA facing senate inquiry into charges, inter alia, that it overlooked three whistle-blower claims, ANZ had been examined over links with corruption scandal in Malaysia (p. 15).
A casual check of the front page the previous day suggested this is not unusual, with the lead story of the ATO targeting 800 wealthy individuals using corporations and other structures in tax havens and involving 'suspected money laundering, arms and drug deals, and tax avoidance'. This of course referred to the suspect activities organised by the law firm Mossack Fonseca and largely operating out of Panama.1 Another page one story refers to the takeover of Asciano, which was supposed to involve three independent entities but suggests that common ownership will thwart that independence against the deal negotiated with the ACCC.
*The April 5 articles involved five of the top 10 listed companies in alleged wrong-doing in just one day of news, suggesting such malfeasance is rife among Australia's leading companies. That impression gave rise to this paper which attempts to provide some estimate of the magnitude of the problem. To that end the paper examines various data sources that give a more complete picture of corporate behaviour in Australia. In generating a database of misbehaviour it has to be appreciated that regulators are inclined to settle with corporate wrong-doers. The compliance pyramid used by many regulatory agencies is specifically designed to begin with activates such as education and negotiation and ending with legal proceedings. Usually the number of cases diminishes rapidly as the government agency moves up the compliance pyramid.
In generating a database of misbehaviour it has to be appreciated that regulators are inclined to settle with corporate wrong-doers. The compliance pyramid used by many regulatory agencies is specifically designed to begin with activates such as education and negotiation and ending with legal proceedings. Usually the number of cases diminishes rapidly as the government agency moves up the compliance pyramid.
* The Australia Institute has examined ACCC media releases over the last ten years (from 2006). A total of 92 matters covered by media releases were published relating to ACCC action against companies included in the top 50 listed corporations. On 29 occasions the ACCC took legal action and gained either a ruling in its favour or an out of court settlement. On the other 63 issues, the ACCC did not proceed with litigation, but made administrative proceedings, recommendations or expressed concern.
Of the 92 issues the ACCC took some action on, three companies were involved in 56 of them – the Woolworths, Wesfarmers (parent company of Coles) and telecommunications giant, Telstra.
* ASIC has the power to commence prosecutions, usually through the Director of Public Prosecutions. In the four and a half years to December 2015 it successfully concluded 3,115 cases against corporations. ASIC reports on enforcement activities every six months.19 These include only cases that have been successfully concluded. The areas of enforcement include market misconduct, corporate governance misconduct and financial services misconduct for both large and small businesses. The types of enforcement include criminal and civil proceedings, administrative remedies and enforceable undertakings and negotiated outcomes.
The Guardian, Timeline: banking scandals in Australia since 2009 (in reverse order), 29 April 2016:
Wednesday 6 April 2016
Former ANZ planner jailed for stealing almost $1m - jailed for more than six years….for stealing almost $1m from an elderly client to feed a gambling debt. ANZ promised to reimburse the victim…..
Tuesday 5 April 2016
Westpac subsidiary paid penalties of $493,000 after breaching consumer protections - Asic found it breached important consumer protection provisions relating to the repossession of motor vehicles, including failing to provide customers with default notices prior to commencing enforcement proceedings to repossess mortgaged vehicles; and failing to provide customers with legally required information setting out their rights within the required time frame after it repossessed mortgaged vehicles.
Tuesday 5 April 2016
Asic sued Westpac over alleged market manipulation in setting bank bill swap rate - Asic started legal proceedings in the federal court in Melbourne against Westpac for unconscionable conduct and market manipulation in relation to Westpac's involvement in setting the bank bill swap reference rate in the period 6 April 2010 and 6 June 2012. It is alleged that Westpac traded in a manner intended to create an artificial price for bank bills on 16 occasions during the period of 6 April 2010 and 6 June 2012….
Monday 4 April 2016
ANZ announces it reported three breaches of dispute resolution requirements - ANZ told a parliamentary inquiry that for 2014-15, it had reported three breaches of the internal dispute resolution requirements under the code of banking practice to the code compliance monitoring committee and six in 2013-14. Two breaches for 2014-15 were self-identified and one was raised with ANZ by the committee.
Wednesday 30 March 2016
ANZ announced it would refund $5m - …..to 25,000 customers after it failed to properly apply some fee reductions and fee waivers for certain customers….
Thursday 17 March 2016
Asic imposed conditions on Macquarie financial services license - Asic imposed additional conditions on Macquarie Bank Limited's Australian Financial Services (AFS) licence for breaches relating to the handling of client money between March 2004 and 2014. The breaches raised issues including failing to deposit monies into a designated client trust account; and making withdrawals that were not permitted from such an account….
Tuesday 15 March2016
ANZ gives $4.5m compensation for breaches - ANZ confirmed engagement of PricewaterhouseCoopers in January 2016 to conduct an independent compliance review within its OnePath subsidiaries, following compliance breaches that were proactively reported to Asic from early 2013. Since February 2013, ANZ has compensated about $4.5m to around 1.3 million OnePath customers for breaches including not following up on some unbanked cheques and for superannuation contributions not being allocated to the customer's correct account.
Read the rest of the seven year timeline here.
The Australian, December 2015:
NAB boss Andrew Thorburn earned $5.5 million for his first full year in the banking giant's top job.
Mr Thorburn's remuneration package for the year to September 30 was largely made up of $2.3m in cash and more than $3m in cash and share-based bonuses.
During 2013-14 he earned $2.2m as the head of NAB's Bank of New Zealand subsidiary before taking on NAB's top job on August 1 last year.
His pay packet was dwarfed by his contemporaries at ANZ and the Commonwealth Bank.
ANZ boss Mike Smith received total remuneration worth $10.8m, including a $3.3m cash salary, while Commonwealth Bank chief executive Ian Narev's pay fell to just under $8m.
Gail Kelly collected nearly $12m before she left the chief executive's chair at Westpac in February.
According to the
Parliamentary
Joint Committee on Corporations and Financial Services:
On
4 June 2015 the House of Representatives referred an inquiry into the
impairment of customer loans to the committee for inquiry and report by 31
March 2016.
On
4 June 2015 the committee resolved that:
*
in conducting the inquiry the committee will not investigate or seek to resolve
disputes between customers and banks; and
*
where the experiences of customers may inform the committee about the practices
of banks, the committee welcomes submissions that explicitly address the terms
of reference.
On
22 July 2015 the committee extended the closing date for submissions to 21
August 2015.
On
2 March 2016, the House of Representatives granted the committee
an extension of time to report until 20 May 2016.
On
15 April 2016, the inquiry lapsed due to the prorogation of the House of
Representatives.
On
19 April 2016, the committee resolved to re-adopt the inquiry using the same
terms of reference as the original inquiry referred by the House of
Representatives on 4 June 2015 but with a reporting date to be determined by
the committee.
This
still sitting inquiry has held 8 public hearings to date and received 195
submissions.
Here are excerpts from one submission concerning a home build in a suburb with a
median house price of over $1.5 million:
*
BankWest insisted that the mortgage was only available to us as a Commercial
Loan Facility due to the size of the build. We were told this was appropriate
even for a private residence.
* BankWest was so inefficient with their
drawdown to pay the builder and quantity surveying checks, that months of
building time were lost. It could take up to 4 weeks to get an approved
drawdown. Building stopped during this period......
* At this point no loans were in arrears
* BankWest stopped all contact.
*
BankWest increased interest rates to a default 18.5%.....
* ......were offered $11.5m by a third party for the house so long as it
was completed.
* BankWest refused the offer.
* BankWest refused to complete the house
* BankWest charges kept accruing.
* BankWest denied all contact with us for nearly 12 months
whilst charges kept accruing.
* BankWest appointed receivers.
*
Receivers charged huge fees
*
BankWest devalued the property extremely low
* .....were denied any right to see valuation.
* ..... were denied any right to see monies being spent.
* .....were denied any right to see any administration costs.
* BankWest then completed the build of the property.as per our
request 12 months earlier.
* The completion cost of the build was blown out with huge
administration charges and interest.
* BankWest then sold a potential $10m property undervalued with
only a 3 week sales campaign.
* Coincidently the only bidder at the auction was a senior
executive from NAB whose opening bid was the approximate amount of the
mortgage.
* The receiver’s then set a seller opening bid of $7,225,000 and
instructed the auctioneer to announce that anyone who paid $1.00 more for this
property would purchase the property today.
*
BankWest Lawyers were threatening and acted unconscionably. I have to state in
my life I have never felt so threatened and shaken by a conversation.
* BankWest demanded we pay an an extra $500K in extra charges.
* At this point I contacted the Banking Ombudsman.
* Within 48 hours of the Ombudsman contacting BankWest they
immediately dropped the extra $500,000 of extra charges. Why?
* BankWest demanded that I signed a confidentiality agreement
about this process.
* BankWest demanded that I signed an agreement agreeing never to
take legal action against them.
* No documents relating to the sale or process were ever
provided. [my red bolding]
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