Bank penal­ties dis­guised as char­i­ta­ble do­na­tions

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As the bank­ing royal com­mis­sion’s hear­ings con­clude, it can be re­vealed the banks have made $88 mil­lion in taxd­e­ductable do­na­tions to avoid ma­jor penal­ties. Michael West re­ports.

Here is a trou­bling fact that has largely es­caped scru­tiny dur­ing the bank­ing royal com­mis­sion: for the past 10 years, rather than be­ing pe­nalised for breaches, it ap­pears the banks have been re­ceiv­ing tax de­duc­tions for their crimes and mis­de­meanours. In­stead of pay­ing fines, they have been mak­ing do­na­tions to char­i­ties – a “no fault” so­lu­tion to deal­ing with fi­nan­cial of­fences. And in more than 70 per cent of cases, there is no record of where this money has gone.

The Aus­tralian Se­cu­ri­ties and In­vest­ments Com­mis­sion’s (ASIC) decade of deals with the banks be­gan in March 2009 when its then chair­man, Tony D’Aloisio, struck an “en­force­able un­der­tak­ing” (EU) agree­ment with ANZ Bank­ing Group.

ANZ had been a key player in the spec­tac­u­lar col­lapse of the fi­nancier Opes Prime, which went into re­ceiver­ship in March 2008 with an es­ti­mated $1 bil­lion of debt. In­stead of drag­ging the bank into court at great cost, D’Aloisio did a

“no blame” deal with ANZ bosses, who agreed to “com­plete a pro­gram to rem­edy de­fi­cien­cies in op­er­a­tional pro­ce­dures”.

Dur­ing the past 10 years, the cor­po­rate reg­u­la­tor has ramped up these “no fault” ar­range­ments with the banks. Rather than pros­e­cute them, ASIC agrees not to sue, and the banks agree to an en­force­able un­der­tak­ing in which they recog­nise ASIC’s “con­cerns” about their be­hav­iour and make a “com­mu­nity ben­e­fit pay­ment”.

Com­mu­nity ben­e­fit pay­ments are of­ten mis­taken for penal­ties or fines. In re­al­ity, they are char­i­ta­ble pay­ments. It ap­pears that, for 10 years, the banks have en­joyed as­so­ci­ated tax de­duc­tions for what should be pun­ish­ments.

It also ap­pears the banks play a role in de­ter­min­ing who re­ceives their com­mu­nity ben­e­fit pay­ments.

An in­ves­ti­ga­tion of the EUs by michael­ and The Satur­day Pa­per has found that of the $88.1 mil­lion in com­mu­nity ben­e­fits pay­ments made by the banks over the past 10 years as part of EU agree­ments, $68.5 mil­lion has gone to un­spec­i­fied par­ties.

An­other $16.6 mil­lion has been paid to a com­pany named Fi­nan­cial Lit­er­acy Aus­tralia Lim­ited, $2 mil­lion to the Smith Fam­ily, and $500,000 to The Ethics Cen­tre.

Since D’Aloisio’s ANZ deal, the reg­u­la­tor has struck a fur­ther 27 EUs. All

the ma­jor banks – ANZ, West­pac, Na­tional Aus­tralia Bank and Com­mon­wealth Bank – have agreed to EUs. As have Mac­quarie Bank and a slew of for­eign banks, in­clud­ing J.P. Mor­gan, Gold­man Sachs, HSBC and UBS.

Ear­lier this year, dur­ing the Hayne Royal Com­mis­sion into Mis­con­duct in the Bank­ing, Su­per­an­nu­a­tion and Fi­nan­cial Ser­vices In­dus­try, se­nior coun­sel as­sist­ing, Rowena Orr, QC, put ques­tions to ASIC se­nior ex­ec­u­tive Louise Ma­caulay about the reg­u­la­tor’s use of EUs. “To your knowl­edge are en­force­able un­der­tak­ings with ASIC heav­ily ne­go­ti­ated?” Orr asked. “Yes, they are,” Ma­caulay replied. “Is

ASIC con­cerned about a pub­lic per­cep­tion of ASIC ne­go­ti­at­ing and reach­ing con­sen­sus with fi­nan­cial ser­vices en­ti­ties about ap­pro­pri­ate sanc­tions for their mis­con­duct?” Orr fol­lowed up. “Yes,” Ma­caulay ad­mit­ted, “I’m aware of that pub­lic view.”

“The banks agree to the do­na­tion so they don’t get pros­e­cuted,” says re­tired Uni­ver­sity of New South Wales ac­count­ing aca­demic Jef­frey Knapp. “In­stead of fines, which go to the gov­ern­ment, ASIC and the banks de­cide where the money goes.

“The char­i­ties, at least the ones which have been iden­ti­fied, are real, they are good causes. The ques­tion is what has the Smith Fam­ily got to do with the ma­nip­u­la­tion of for­eign ex­change mar­kets?”

The of­fences cov­ered by the EUs ranged from the mar­ket-rig­ging scan­dal in bank bill swaps (BBSW) – a global scam that af­fected in­ter­est rates na­tion­ally – to fees-for-no-ser­vice rorts, sell­ing dodgy fi­nan­cial prod­ucts and pro­vid­ing dodgy fi­nan­cial ad­vice to cus­tomers.

Be­tween them, the Big Four banks now record more than $30 bil­lion in prof­its each year, after tax. De­spite the rev­e­la­tions of sys­temic fraud at the bank­ing royal com­mis­sion this year, not one ex­ec­u­tive has gone to jail. Not one di­rec­tor has been banned or even held legally ac­count­able for the ripoff of hun­dreds of thou­sands of Aus­tralian bank cus­tomers. As the royal com­mis­sion has shown, the il­licit prof­its they have made by fleec­ing their cus­tomers must run into the bil­lions. Against this, there were 28 EUs handed down by ASIC, which raised $88 mil­lion in com­mu­nity ben­e­fit pay­ments.

Ques­tions were put to ASIC and Fi­nan­cial Lit­er­acy Aus­tralia (FLA) re­gard­ing the scheme but, at time of press, there had been no re­sponse as to the des­ti­na­tion of the $68.5 mil­lion in pay­ments made to par­ties that had not been iden­ti­fied by ASIC or the banks.

Ac­cord­ing to FLA’s fi­nan­cial state­ments, $17.9 mil­lion has come in the door in do­na­tions since 2014. It has di­rected $6 mil­lion over four years in grants. This is a com­pany with no full­time em­ploy­ees, two part-time em­ploy­ees and – at last bal­ance date of De­cem­ber 31, 2017 – $12 mil­lion in cash.

Its di­rec­tors – Robert Brown,

Paul Clitheroe, Craig Dunn, Linda

Elkins, Fiona Guthrie, Elaine Henry, An­thony Mackay, Ian Silk, Michael Smith (re­tired) – are well con­nected. Smith was for­merly CEO of the ANZ and Dunn a for­mer CEO of AMP. Me­dia per­son­al­ity Paul Clitheroe and his part­ners sold their IPAC fi­nan­cial ad­vice busi­ness to Com­mon­wealth Bank, bought it back and then sold it to AMP. Fiona Guthrie heads up Fi­nan­cial Coun­selling Aus­tralia. Air Com­modore Robert Brown is chair­man of the Aus­tralian De­fence Force Fi­nan­cial Ser­vices Con­sumer Coun­cil and Ian Silk is the CEO of Aus­tralian Su­per, the big­gest su­per­an­nu­a­tion fund in the coun­try.

The com­pany’s web­site shows FLA has di­rected its do­na­tions to wor­thy causes, such as Brother­hood of St Lau­rence and Good Shep­herd Aus­tralia New Zealand. The lat­ter, ac­cord­ing to FLA, “uses a small group and coach­ing model to build the fi­nan­cial ca­pa­bil­ity of women who have ex­pe­ri­enced fam­ily vi­o­lence, eco­nomic abuse and/or in­ter­gen­er­a­tional poverty”.

The fo­cus is on ed­u­ca­tion and ed­u­cat­ing con­sumers in fi­nan­cial lit­er­acy. This has been a key reg­u­la­tory fo­cus of ASIC for the past 10 years. While tens of mil­lions of dol­lars have been sunk into fi­nan­cial lit­er­acy, how­ever, the sys­temic fi­nan­cial fraud has con­tin­ued un­abated.

This fo­cus on ed­u­ca­tion en­tails the pre­sup­po­si­tion the vic­tims of fi­nan­cial crime are them­selves to blame for not be­ing ed­u­cated enough. Fur­ther, that if they were ed­u­cated, their fi­nan­cial in­sti­tu­tion might not be able to rip them off.

None of the money do­nated via the EUs, at least none that could be iden­ti­fied for this in­ves­ti­ga­tion, ad­dressed the per­pe­tra­tors of fi­nan­cial fraud, only its vic­tims and po­ten­tial vic­tims.

ANZ, which has struck no less than five EUs with ASIC – for dodgy fi­nan­cial ad­vice, fees for no ser­vice, forex mar­ket rig­ging, in­ter­est rate mar­ket rig­ging and Opes Prime – even picked up awards from Fi­nan­cial Lit­er­acy Aus­tralia in 2014, 2015 and 2017 for its MoneyMinded On­line pro­gram and Money Busi­ness adult fi­nan­cial ed­u­ca­tion pro­gram.

A new des­ti­na­tion for EU funds was set up this year, only re­ferred to in doc­u­ments as A.C.N. 625 525 162 Lim­ited. An ASIC search of this com­pany num­ber links to the “Ec­stra Foun­da­tion”, an en­tity whose di­rec­tors – in com­mon with FLA – are Robert Brown, Paul Clitheroe and Elaine Henry. Its pur­pose, un­der its gov­ern­ing doc­u­ment of April 11, 2018, is de­scribed as “ad­vanc­ing ed­u­ca­tion, ad­vanc­ing so­cial or pub­lic wel­fare”.

An­nounc­ing the es­tab­lish­ment of Ec­stra ear­lier this month, Lib­eral MP Kelly O’Dwyer de­scribed the non­profit body as a “one-stop-shop to help Aus­tralians build their fi­nan­cial lit­er­acy and ca­pa­bil­ity”.

Ac­cord­ing to Ec­stra board mem­ber Paul Clitheroe, the body has thus far re­ceived “en­force­able un­der­tak­ings of $40 mil­lion, plus a spec­i­fied grant of

$10 mil­lion to as­sist with women’s fi­nan­cial ca­pa­bil­ity”.

“A pre­vi­ous body (FLA) which I also chaired is be­ing wound up and its as­sets to be trans­ferred to Ec­stra,” Clitheroe said. “The pro bono board of FLA have re­signed, bar Robert Brown AM and Elaine Henry OAM and my­self who will over­see the wind-up.

“As with FLA, Ec­stra will dis­trib­ute the funds it holds in the form of grants to ef­fec­tive com­mu­nity or­gan­i­sa­tions work­ing to im­prove fi­nan­cial ca­pa­bil­ity. Ec­stra will, how­ever, play a broader role in com­mu­ni­cat­ing fi­nan­cial ca­pa­bil­ity con­cepts and be com­ment­ing on a broad range of is­sues un­der the broad ban­ner of ‘be­ing bet­ter with money’.”

The Satur­day Pa­per is not sug­gest­ing that any of the char­i­ties or their di­rec­tors, or the di­rec­tors of FLA or Ec­stra, have en­gaged in any im­pro­pri­ety.

The pro­ceeds from EUs are al­lo­cated by the Aus­tralian Gov­ern­ment Fi­nan­cial Lit­er­acy Board, a non-statu­tory body which “pro­vides in­de­pen­dent and strate­gic guid­ance to Gov­ern­ment and ASIC on fi­nan­cial ca­pa­bil­ity”.

Again, the same names bob up. Mem­bers of the Aus­tralian Gov­ern­ment Fi­nan­cial Lit­er­acy Board in­clude Clitheroe, Robert Brown, Fiona Guthrie and Elaine Henry.

We at­tempted to con­tact these mem­bers through ASIC, and the in­sti­tu­tions with which they are pub­licly linked. Save for Clitheroe we were told no­body was avail­able to re­spond to ques­tions.

Other mem­bers of the Aus­tralian Gov­ern­ment Fi­nan­cial Lit­er­acy Board in­clude ASIC deputy chair Peter Kell and chair­man James Ship­ton, whose for­mer com­pany, Gold­man Sachs, agreed to an EU with ASIC in July this year for share­mar­ket trans­ac­tions in­volv­ing pri­vate hospi­tal group, Health­scope. The Satur­day Pa­per is not sug­gest­ing his role af­fected this EU in any way.

Through­out the Hayne royal com­mis­sion, the cor­po­rate reg­u­la­tor has come un­der con­stant crit­i­cism for be­ing too close to the banks and for fail­ing to reg­u­late them ef­fec­tively. When Ship­ton gave ev­i­dence last week, dur­ing the fi­nal fort­night of hear­ings for the royal com­mis­sion, he agreed with Coun­sel Rowena Orr that more could be done to ar­rest the eye­wa­ter­ing in­ci­dence of bank­ing fraud.

“It’s part of hu­man na­ture, isn’t it, Mr Ship­ton, that when we have a re­la­tion­ship with some­one, it’s usu­ally harder for us to do some­thing that might harm that per­son’s in­ter­ests?” asked Orr.

“That’s why I am em­pha­sis­ing the im­por­tance of hav­ing a pro­fes­sional re­la­tion­ship and, as I em­pha­sised ear­lier, ex­er­cis­ing the high­est de­gree of pro­fes­sional judge­ment in re­la­tion to these in­ter­ac­tions,” re­sponded Ship­ton. “We’ve started with nam­ing more names than we’ve named be­fore in re­la­tion to the rel­a­tive per­for­mance.”

“I want to be very clear, Mr Ship­ton – I put to you, you are not nam­ing enough names,” Orr said.

“Well, I think you made a good point, Ms Orr,” replied Ship­ton.

There is a sig­nif­i­cant “up­side” in favour­ing ed­u­ca­tion of bank­ing con­sumers over prose­cu­tion of bank­ing per­pe­tra­tors. It saves a lot of money.

Last year, the gov­ern­ment awarded ASIC with $348 mil­lion for its bud­get. In re­turn, ASIC col­lected $1.2 bil­lion for the gov­ern­ment – sharply up from $998 mil­lion the year be­fore. The agency is a huge cash cow for the Com­mon­wealth gov­ern­ment. Spend­ing money prose­cut­ing banks would put this at risk.

As the EU deals with the banks have ramped up, so have per­for­mance bonuses for ASIC ex­ec­u­tives. Given the del­uge of fraud and mis­con­duct on dis­play at the Hayne royal com­mis­sion, how­ever, the en­tire ASIC reg­u­la­tory edifice and its phi­los­o­phy of do­ing deals for taxd­e­ductible do­na­tions must be on the chop­ping block.

Jef­frey Knapp be­lieves “it is time for ASIC to be bro­ken up so that law en­force­ment is not treated as ex­er­cise of deal-mak­ing and pub­lic re­la­tions tri­umphs on fi­nan­cial lit­er­acy ini­tia­tives.

“After all that has come to light in the bank­ing royal com­mis­sion,” he says, “the Aus­tralian pub­lic de­serves an

• ef­fec­tive cor­po­rate reg­u­la­tor.”


MICHAEL WEST is a Walk­ley Award-win­ning jour­nal­ist.

MICHAEL WEST is a Walk­ley Award-win­ning jour­nal­ist.

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