We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.
~ Section 3.2 of the 2013 Code of Banking Practice
Banking sector culture is rotten: the authorities have belatedly caught on
On 10 July, at a public relations affair on the Gold Coast, our beloved prime minister, Tony Abbott, fielded the question “Should Bill Shorten quit after the Royal Commission?”.
Our Tone’s response:
“Again, I'm not in the business of giving public advice to other political parties. I’m in the business of trying to ensure that our country is as well-governed as possible and we’ve got two pieces of legislation before the Parliament — the Registered Organisations Commission Bill, which will give union governance the same integrity that we’ve long had in corporate governance …”
The same integrity that we’ve long had in corporate governance? Hello? Abbott prefers not to know, or prefers to feign ignorance. He has reached the top job on the same "principles", so why bother to change his ways?
At the moment, the umpteenth Parliamentary inquiry is being held into the banking sector, this one labeled The Impairment of Customer Loans. This is because "corporate governance" is, in banking, an oxymoron.
My submission to this inquiry would be my umpteenth submission. But nothing, or very little, ever changes. Hence more inquiries. Because the banks have the political class in their collective pocket. Including our prime minister.
In late June I received an email from a South Australian small business owner. The Commonwealth Bank had unilaterally altered the loan contract, put the borrower into Recovery, and was attempting foreclosure in July.
Two days later, I received an email from another small business owner. The borrower is yet another of the hundreds of BankWest customers who the CBA has defaulted or attempting to default by brazenly devaluing the customer’s assets on an arbitrary basis. The CBA was attempting foreclosure in July. I haven’t had the courage to inquire into the outcome of these two stories.
I’ve been receiving emails like this for 15 years. Why?
On 28 April, at a ‘Banking & Wealth Summit’ (!), Reserve Bank Governor Glenn Stevens had some strong words (if opaquely expressed) to say about finance sector corruption and dysfunctionality.
And the final issue is misconduct. This has loomed larger for longer in many jurisdictions than we would have thought likely a few years ago. Investigations and prosecutions for alleged past misconduct are ongoing.
It seems our own country has not been entirely immune from some of this. Without in any way wanting to pass judgement on any particular case, root causes seem to include distorted incentives coupled with an erosion of a culture that placed great store on acting in a trustworthy way.
Suddenly, all the heavies are talking about "culture" when it has long been absent from the regulators’ mindset.
Glenn Stevens again:
Finance depends on trust. In fact, in the end, it can depend on little else. Where trust has been damaged, repair has to be made. Both industry and the official community are working hard to try to clarify expected standards of behaviour. Various codes of practice are being developed, calculation methodologies are being refined …
In the end, though, you can’t legislate for culture or character. Culture has to be nurtured, which is not a costless exercise. Character has to be developed and exemplified in behaviour. For all of us in the financial services and official sectors, this is a never-ending task.
David Murray, former CEO of the CBA, 1992-2005 (28 April):
The culture is the sum of a set of beliefs in an organisation and those beliefs are driven by the rules in that organisation, by the strategies and the behaviour of its leaders and governing bodies....
I believe it is counterproductive to attempt to legislate for culture, it is up to individual organisations to get it right and if it is right it can make an enormous competitive advantage to a particular organisation…. If you can't legislate for culture then there is no stick a regulator can use in its place.
Greg Tanzer, ASIC Commissioner (27 May):
There is a need for a cultural shift in the financial industry — and it needs to happen now.…
It is crucial firms recognise performance in a way that not only promotes good conduct but penalises poor conduct as well.… On rewards, ASIC has been saying for some time that one of the issues in the financial advice industry relates to the incentive structures they use.
Greg Medcraft, ASIC Chairman (29 May):
When inappropriate investments become worthless, it is not the wealthy who are being fleeced. So that is why we need to clean up culture because people suffer.… And people are sick of it. They want to have trust and confidence in the institutions they are dealing with.
Wayne Byres, APRA Chairman (29 May):
Culture is a nebulous concept, much more difficult to define and observe than capital adequacy. But strengthening culture, like strengthening capital, is critical to long-run stability.…
It is clear that in many cases, aspirational statements of organisational culture have been no match for the personal incentives that are created for individuals.… [global efforts to build capital and liquidity would make the financial system more resilient] but they will only offer a partial remedy to the problems that were experienced, unless there are behavioural changes within financial firms as well.
What we have here is talk. Gabfests, following which nothing of substance happens. No victims of financial unconscionability/fraud have been adequately compensated. Parliamentary inquiries come and go, with their own remonstrations. And nothing happens.
Labor’s 2012 Future of Financial Advice reforms were a definite step forward, but remain under siege by the Coalition and they are inadequate in themselves (oriented purely to retail customers).
These big shots talk as if the lately discovered cultural problems are an aberration. They fail to confront, in spite of all the evidence, that they are describing elements of the intrinsic nature of the beast.
These regulatory talking heads are an integral part of the problem. They are embedded in the malaise of the banking sector’s culture.
Implicated in the Securency scandal, but curiously absolved. This million dollar a year man has only one instrument to manage (the cash rate). Dysfunctional as is the instrument, Stevens and his team still can’t get it right — vide the current too low rate in Australia.
Murray’s role as senior manager then CEO of the CBA, along with long time internal solicitor and general counsel, Les Taylor, was integral in embedding the CBA’s culture as one of profit at any price during the bank’s privatisation process, prelude to the CBA’s current deeply corrupt culture.
Greg Medcraft and ASIC
Medcraft (ex Société Générale) had to be dragged screaming back from his permanent junket overseas to take charge of a moribund ASIC, over which he was titularly chairman.
Medcraft again, on the culture bandwagon. before a Senate Estimates hearing (3 June, tabled document No.7):
ASIC is concerned about culture because it is a big driver of conduct in the financial industry. It is a sad fact that bad culture leads to bad conduct and this inevitably leads to poor outcomes for consumers .....
Medcraft is now making some appropriate noises, but noise isn’t enough. Indeed, it is hypocritical. Nothing has come out of the Senate Economics Committee’s damning (if selective) June 2014 report regarding ASIC’s "oversight" of the financial advisory sector.
But ASIC already has powers that it refuses to use – s12 of the ASIC Act (re business to business unconscionable conduct), legislated 2001. ASIC personnel keep sending letters to bank victims telling them to buzz off – I have copies of such correspondence. Moreover, ASIC continues to ignore the criminal complicity of the Financial Ombudsman Service with bank corruption, although ASIC has formal oversight over the FOS’ operations. ASIC remains unreformed, complicit, unrepentantly so.
Fairfax journalist James Eyers reports (27 May):
The Australian Prudential Regulation Authority has also been closely monitoring culture in banks and has told boards of directors about the importance of maintaining high ethical standards. APRA's intensified focus on risk and the series of scandals in bank wealth divisions has ensured that the commercial banks in Australia are focused on improving risk culture and avoiding potential regulatory sanctions and damage to their brands from misconduct.
Complete rubbish. Where is the evidence? APRA has the powers to intervene in company operations, but prefers a palsy relationship.
The first time the word "culture" appeared publically was with respect to the NAB’s trading desk cowboys, leading to big losses in 2003. The Australian Prudential Regulation Authority, forced to awaken from its slumber (lassitude regarding the collapse of HIH/FAI insurance), issued a report in March 2004 emphasising the hitherto alien concept — Report into Irregular Currency Options Trading at the National Australia Bank. I provided a background to this report in my October 2010 ‘Illusion and Reality at the National Australia Bank’.
APRA claimed that the NAB had a dysfunctional culture, which it did. The NAB promised to change its game, which it didn’t. Everybody in authority then looked the other way. The concept of dysfunctional banking culture then returned to obscurity.
In May 2012, I emailed APRA inviting it to delve again into the NAB’s ongoing dysfunctional and corrupt corporate culture, providing chapter and verse of supporting documentation. APRA emailed me back in June, telling me to bugger off. Meanwhile, nothing has changed at the NAB.
Thus do the regulators talk and expect miracles to come from somewhere else — or perhaps not.
A recent Fairfax article on the "revolving door" had both senior regulators and private sector consultants argue for the importance of public/private sector exchanges. But several sometime regulatory staff emphasised the downside.
Dr Andy Schmulow (according to the reporter) is
... comfortable calling out what he believes is a sick culture at his former home, APRA.
“I've never in my life experienced such an environment steeped in groupthink, and openly hostile to anything that would challenge whatever their orthodoxies are.”
James Wheeldon, ex-ASIC lawyer, claimed:
“At ASIC, where I saw that revolving door in play … the culture there was not a culture of doing things by the book, it was a culture of facilitating business. And that affected everything. Giving business what they want, and rolling over for business.”
Regulators, it appears, have their own dysfunctional cultures. Physician heal thyself.
Barring miracles, I have a recommendation to clean up the banking sector’s culture overnight, a culture hitherto entrenched. Send bank CEOs to gaol.
* * *
Representative victims of bank corruption
The authorities can send those engaging in insider trading to gaol (save for Gunns’ ex-CEO John Gay). So why not bank CEOs?
The authorities get hot and bothered over insider trading, but what’s the big deal? The share market, at least in the short term, is a casino. By contrast, the harm that banks do with their corrupt practices is immense.
Here follows a selective list of various small business or farmer victims of fraud or high level unconscionability. A couple of victim aggregations are included. Ditto the odd investor or home mortgagor. The list is indicative of the length of the criminality over time (the period of financial deregulation) and the extent of the criminality right across the banking sector.
The CEOs in place at the time of the crime are listed, as are various accessories where known – either internal to the bank or the facilitating law firms and receivers. Send the accessories to gaol as well. Partners of law firms or receivers could draw straws as to who goes into the clink.
Foreign currency loan victims
Mostly SMEs/farmers, estimated at 3000+, with Commonwealth Bank (CBA), Westpac and ANZ.
Banks competed with each other (soon after financial deregulation) to push complex and toxic facilities that bank staff themselves didn’t understand.
When the Australian dollar plunged against the denominated loan currencies (Swiss franc, U.S. dollar, Japanese yen) in 1985-6, borrowers were left with liabilities of more than double the original principal borrowed. The banks then attempted to push all responsibility for the calamity onto the borrowers, with the bulk of the ignorant judiciary deciding for the banks.
The Somersets (company: Kabwand)
Farmers, Qld, 1984; NAB
Bank CEO: Neil ‘Nobby’ Clark. Legals: Thynne Macartney.
The Somersets had been successful farmers, now semi-retired. They were fraudulently induced into purchase of worthless property by a corrupt lending manager (friends with the then owner); the bank forecloses on and bankrupts the Somersets, involving reconstructed diary notes, corrupt law firm involvement and a complicit judiciary.
Exhibit A of what is to follow with respect to bank corruption for the next 30 years.
Steel building frame manufacturers, NSW, 1985; CBA.
Revenues fraudulently appropriated by massive undocumented interest rates / charges. The Riggs’ assets (including family home) foreclosed, sold under value to local related parties and the Riggs bankrupted. An important regional firm (and potential major exporter), partnering with BHP subsidiary Lysaght, destroyed.
John Carroll (Brendan Communications)
Mobile phone technology, Victoria, late 1980s; NAB.
Bank CEO: Neil ‘Nobby’ Clark. Legals: Mallesons Stephen Jaques.
Small pioneering mobile phone equipment firm destroyed, Carroll believed, in the interests of Telecom, a major NAB customer. Carroll’s life was threatened and his outer Melbourne installation was trashed by the local sheriff (who later felt remorse) using conscripted prison labour.
The Troianis (Wide Bay Bricks)
Brick manufacturers, Qld. 1990s; NAB.
Bank CEO: Don Argus. Legals: Mallesons Stephen Jaques.
Sante Troiani, innovative and successful brick manufacturer (and in possession of a major quality clay deposit), was seduced by the NAB into giving it his business in 1993.
The NAB then set about destroying his business through a complex structure of extractions and depredations (helped by company insiders), culminating in foreclosure and family bankruptcy in the early 2000s, with transparent legal and judicial complicity.
The only rational interpretation of this process was that Troiani’s destruction was to the benefit of building giant Boral, with whom the NAB had directors in common. The bank appropriated tens of millions of dollars of Troiani assets, leaving the couple with nothing.
Pioneer Park (formerly Domino Mining) and Merlo Australia
NSW, 1996; ANZ.
Bank CEO: John Macfarlane (from September 1997). Accessory: Don Edgar, general manager, Business Banking. Legals: Minter Ellison. Receiver: Pricewaterhouse Coopers.
A Central Coast-based manufacturing company of world class industrial machinery, especially for coal mining (including specialist underground vehicles), was induced to move to the ANZ bank in 1996 to finance an expansion linked to new contracts with China and the Australian army. ANZ unilaterally broke the terms of the contract in late 1998, issuing demand and imposing an administrator/liquidator in 1999. The company was never in default.
The receiver trashed the site, discarded engineering drawings (that is: the firm’s intellectual property, built up over decades) worth tens of millions, and flogged equipment at what prices could be obtained immediately, fleecing the workforce in the bargain. The land (sitting on one of the State’s most valuable coal sites), near Wyong station, is now owned by a South Korean government company.
Faced with the blatant lies surrounding its actions and initial success of the firms’ advocates in court, a cabal of bank, law firm and judicial collusion (with personal or professional linkages) destroyed the company through a comprehensively corrupt process over the period to 2006.
Property investor, NSW, 2002; Perpetual Trustees, NAB
CEO: David Deverall (2003-11). Accessories: CEOs Graham Bradley (pre-2003), Chris Ryan (2011-12), Geoff Lloyd (2012-). Legals: Kemp Strang.
In 2002, Barry Landa was induced by a broker linked to Challenger Mortgage Management to borrow funds ($1.65m), using as security his home and several investment properties, to invest in Perpetual Trustees Australia Ltd.
The broker, Dominic Cincotta, instead funnelled the funds (as with other victims) into a PTAL account under his wife’s name. Internal audits early discovered the dodgy accounts but PTAL failed to act. Landa was paying off his presumed mortgage to Cincotta (summing to $750,000), receiving fraudulent statements, with those payments also going into Cincotta accounts.
Landa discovered the scam in late 2003, with Cincotta subsequently sentenced to gaol. But PT pursued Landa for his properties, claiming innocence with respect to Cincotta’s scam. Some later court judgements agreed. Landa lost his $750,000, his original ‘loan’ escalating to $3.96m, due to fees and penalty interest charges.
The NAB bought Challenger in 2009, and from thence Landa received statements from the NAB. But who "owned" Landa’s mortgage after this transaction remains mysterious. Ultimately, Landa paid the $3.96m to lawyers Kemp Strang (fearing further costs and losses in court), but which company received the payment also remains unclear.
Kemp Strang blackmailed Landa in refusing to return the title to his house until he signed a non-accusatory statement. The home title was recently promptly returned to Landa after his complaints to several politicians.
Homeowners, NSW, 2005; Macquarie Mortgages, Perpetual Limited.
Bank CEO: Alan Moss (Macquarie), David Deverall (Perpetual). Accessory: James Angus (Macquarie & Perpetual staffer). Legals: Dibbs Abbott Stillman.
The Cristians sought a loan through a mortgage broker to upgrade their property. The provider was supposedly Macquarie Mortgages. The Cristians insisted on and were offered an interest only loan, but were misled into signing a principal and interest contract (apparently with funds coming from Perpetual) which they had previously explicitly rejected, requiring higher unaffordable payments. Macquarie stuffed them around on settlement and then declined to rectify the wrong facility. The Cristians refused to legitimise the provider deception, but were foreclosed.
Successive court cases recognised only the signed contract, not the deception and gave possession to Perpetual in 2007. The Cristians’ account is verified by the affidavit in their favour by the original mortgage broker.
Homeowners, NSW, 2010s; NAB
Unknowing victims of an elaborate mafia-style sting operation, centred on a false front ‘mortgage broker’ and spiv NAB insider, and forged documentation. The bank nevertheless ignores the criminal operation to which it is party (the criminals remain at large), sues for possession of Thirup residence, and is successful in court.
Farmers, NSW, 2010s; NAB
Bank CEO: Cameron Clyne. Accessory: Ashley Gardiner (recovery administration).
Chris and Claire Priestley arranged a loan package in late 2004 from the NAB to buy out part of the family property, then drought-affected. With different bank managers overseeing the loan, the terms were changed in 2008 to more readily facilitate default. In the meantime, the NAB obtained a healthy dividend from Rural Adjustment Authority drought relief funds allocated to the Priestleys.
The drought broke in December 2009, but the bank wanted the Priestleys out immediately, on terms impossible to meet. The bank finally took possession in early 2013. This is a classic case of denial of post-drought recovery options, flouting of the Code of Banking Practice, and abuse of Farm Debt Mediation procedures.
Meat processor and exporter, Qld, late 2000s; Westpac.
Bank CEO: David Morgan (sometime Deputy Secretary, federal Treasury). Receivers: Korda Mentha.
Craig Harwood and his father ran a successful game meat processor, with significant exports. Their business had been a recipient of numerous business awards, and government grants.
In 2002-03, planning expansion with a new factory, Harwood obtained an attractive loan offer from the CBA. Given a decades-long relationship with Westpac, Harwood asked his then loan manager if Westpac could match the CBA offer. The Westpac manager said yes, but did so outside his authority, scared of losing business.
To hide his scam, the Westpac manager offered an inappropriate facility (a massive expansion of the overdraft) while promising workability, which soon proved dysfunctional for the expansion plans. Westpac then moved the Harwood business into administration. After various subterfuges, Westpac and Korda Mentha destroyed the business.
Property investor, Qld, 2007; Westpac
CEO: Gail Kelly. Legals: Allens, Gadens.
A scam has been operating for some time involving bank officers (who move between banks, NAB, ANZ, then Westpac and CBA), and a corrupt gang comprising an ex-bank officer playing developer, finance broker, Gold Coast real estate agent, property valuers and dodgy solicitors, and centred on a wealthy property ‘investor’ Mario Girardo. The bank insider (aided by bribes to colleagues) would facilitate excessive loans to Girardo on massively inflated valuations. But the cabal’s operations were perennially in trouble. They needed dupes to stay ahead of the bank’s auditors.
Hayes, asset rich but cash poor, had significant land nearby. A prospective purchaser (a listed company) had had an offer from Westpac finance, but the corrupt Westpac insiders cancelled this loan, offering the same funds to Hayes but inducing him into partnership with Girardo as a condition of the loan. Hayes’ equity was used to prop up the ongoing scams.
Westpac has refused to press charges against the scammers and their own staff, bankrupting Girardo in 2009 but pursuing Hayes through the courts (with colluding judiciary and elements within the police force onside) for its missing millions. Girardo ended up with a 6 year jail sentence for kidnapping a former partner. Westpac senior management belatedly realised (after 4 years of reckless lending of more than $20 million) that Girardo was a career criminal and not their private $100 million wealth client.
A classic Queensland thriller.
Natasha Chadwick and Arthur Brotherhood
Proprietors IBIS Care, 2007; ANZ.
CEO: Mike Smith.
The IBIS Care nursing home founders took on ANZ capital as an equity partner at the bank’s invitation in March 2007.
Mike Smith became ANZ CEO in October 2007 and decided overnight to divest the bank of its "cottage industries".
The bank rebuffed a management buyout by Chadwick and Brotherhood, heaped avoidable costs onto their ledger, then brutally marginalised and removed the founders in 2011. Chadwick and Brotherhood are representative victims of the cavalier whims of successive bank CEOs.
Close to 1,000 mostly developers & hoteliers, 2008; CBA/BankWest.
CEO: Ralph Norris (to 2011). Accessories: Ian Narev (directing the BankWest takeover; CEO, post-2011), David Cohen (group general counsel), Jon Sutton (CEO BankWest, 2008-12), Rob de Luca (CEO BankWest, 2012-). Legals: various (including Ashurst Australia, Norton Rose Fulbright, Gadens). Receivers: various (including PPB, Korda Mentha, Taylor Woodings).
The CBA bought BankWest from its struggling parent, HBOS, in late 2008, with government and regulatory approval. The CBA then engaged in a mass default and foreclosure of BankWest customers, mostly via the arbitrary devaluation of customer assets that triggered "unacceptable" loan to valuation ratios. The latter with government and regulatory indifference to date. A variety of receivers proceeded to plunder the businesses, with perennial sale under value of the borrowers’ assets.
ANZ clean out of farmers
Frank Bertola, Bruce Dixon, Rodney Culleton, etc., farmers, WA; the Freemarks, farmers, Tasmania; the Brownings, Charlie Phillott, farmers, Qld, 2010s; ANZ.
Bank CEO: Michael Smith. Receivers: various, includes PPB.
Large scale clean out of farmers by the ANZ, under unconscionable conditions. Drought conditions in Queensland have been used as general excuse in that State, but regardless of particular circumstances of the farmers. ANZ bought the Australian Wheat Board’s financing subsidiary, Landmark, in early 2010, formally to expand its presence in the agriculture sector overnight. Insiders knew that the Landmark loan book was ‘poor’ (read, facilities more generous than on ‘normal’ commercial terms). Evidently planned beforehand, the ANZ unilaterally changed many former Landmark borrowers to more stringent and impossible terms, initiating default and foreclosure.
Farmer, Qld, 2000s; Rabobank
Bank CEO: Bruce Dick; Accessory: Peter Knoblanche (GM Rural).
Gary Parker, a significant bean producer, borrowed $1 million from Rabobank in 1996. Parker won a long court over faulty irrigation equipment, but his steeply accumulating debt to Rabobank consumed all his damages award of $2.3 million (the usual fraudulent penalty interest rates involved).
The bank continued to pursue Parker for claimed ongoing debt, refusing to supply statements that in turn caught up Parker in being pursued by the Tax Office as well.
Investment property owner, Victoria, 2010s. Bendigo & Adelaide Bank.
Bank CEO: Mike Hirst. Legals: Piper Alderman. Receivers: Rodgers Reidy.
In August 2012, the Wilde facilities on a commercial investment property expired and BAB advised that they would not be renewing them, breaking a previous commitment. Refinancing in the middle of a Market Rental Review (required under the Lease by the Small Business Commissioner) was impossible because the necessary valuation had to follow the Review.
Without notice, in October 2012, BAB repossessed the property via "controllers" Rodgers Reidy. The bank claimed to have sent a notice, but it was to a previous address known by the bank to be vacated. Two other banks had agreed to re-finance the BAB facilities, requesting BAB to remove the receivers for 30 days to enable them to go unconditional. BAB’s response was ‘they did not have to and therefore they wouldn’t’.
BAB was never at risk, with a loan to valuation ratio of 64% and ample income to satisfy loan repayments. The loan, contracted at 5.75% interest, was dropped into an overdraft and charged at 14.16%. The $115,000 rent along with $450,000 in penalties and fees went straight to Rodgers Reidy. BAB renegotiated the lease and sold the property under value in October 2013. Losses totalled $1,415,000, comprising $850,000 on the property sale and $565,000 on bank and controller theft.
Investment property owner, Victoria, 2010s; CBA/BankWest.
CEO: Rob de Luca, BankWest. Accessory: Ian Narev, CEO CBA. Legals: Corrs Chambers Westgarth. Receivers: Cor Cordis.
After the above, BAB notified CBA/Bank West, which commenced similar action against the Wildes on another commercial property in December 2013.
BankWest engineered a default, appointing Cor Cordis as controllers. The receivers terminated a Wilde-organised agency agreement to sell the property by auction in March 2014, terminated all leases and changed the locks, arguing (against all commercial agents’ advice regarding a tightly held location) they were better off going to market with "vacant possession".
The auction in late April failed to reach the reserve of $1.575m, attracting only $1.28m. In late June 2014 they sold the property privately for $1.28m, making no effort to re-let the premises. Independent valuations were at $1.75 - $1.85m. The $128,000 in GST proceeds of the sale were not remitted, but illegally retained by Cor Cordis. This property is now back on the market at $1.8m.
Despite numerous requests, original loan applications were only belatedly provided in April 2015. The documents proved to be substantially altered and, in some cases, completed by the development manager at Bank West with fabricated and inaccurate figures. An intended personal loan of $100,000 was structured as a company overdraft, meaning that the Wildes lost protection under the Consumer Credit Code. The original property loan, offered at 4.99% fixed for 12 months, increased to near 8% within 3-4 months.
When challenged, BankWest replied that nothing that the then loan manager had offered in writing or verbally was relevant as that manager was no longer with the Bank. Losses included about $520,000 on under value sale and receiver "costs" of $870,000.
Farmer, Qld, 2010s; Suncorp.
Bank CEO: Patrick Snowball. Legals: Allens. Receivers: Robson Cotter; Ernst & Young. Accessory: John Gillam, CEO Bunnings.
Kriedemann Farms started a sugar cane mulch processing business in 1992, supplying nurseries. In 1998, Bunnings approached them to supply them when they opened stores in Brisbane. Kriedemann Farms became more dependent on Bunnings as it killed off nursery competition.
In 2010, Bunnings told Barry Kriedemann that he would have to pay the freight for interstate transport, an impossible impost. Barry Kriedemann called in a receiver in 2011, whose malevolent incompetence exacerbated financial problems. Suncorp then put in its own receiver, ditto, with all the conventional unearned financial extractions.
Suncorp sold off multiple Kriedemann properties at significantly under value. Suncorp then claimed that Kriedemann was liable for capital gains tax, which he wasn’t. Following the under value property selloffs, Kriedemann Farms’ artificially reduced residual balance of $1.3 million continues to be held by Suncorp. The sum includes $750,000 for the so-called capital gains tax owing, a lie, and the rest held as ‘contingency’ in case Kriedemann takes legal action against the bank.
Suncorp’s lawyers demand that Kriedemann sign a deed indemnifying all guilty parties before they return the balance due. Barry Kriedemann refuses to sign.
These crimes listed above, representative of a larger crowd, remain without justice. More, injustice has been delivered with regulatory and judicial assistance.
Note that there is no bank – repeat, no bank – that one can trust on a business loan. All bank advertising in this domain is a lie, arguably actionable.
These and comparable stories are a natural consequence of the corporation possessing not merely extraordinary power (reinforced through multiple domains) but also the amorphous status of a person at law.
* * *
Corporate immunity to criminal prosecution
Facilitation of the creation of the joint stock corporation in the late 19th century, unencumbered by any restrictions on its operation, would dramatically transform the nature of capitalism and economic society.
The legal legitimisation occurred relatively benignly in Britain and its colonies, but opponents in the U.S. realised its significance. They observed the American States competing via a race to the bottom in terms of enabling registration requirements, with New Jersey setting the pace but with the previously inconsequential Delaware as the ultimate victor.
Thus, we have the monsters that currently possess the planet, for whom tax is optional, with governments in their pay. If the trans-Pacific and trans-Atlantic “trade” treaties are waved through by treasonous governments, they will soon rule with no offsetting forces whatsoever.
The 2003 book by the Canadian lawyer Joel Bakan, The Corporation: The pathological Pursuit of Profit and Power, and the subsequent film, brought the nature of the beast to a broad public. The corporation’s legal “personhood” has facilitated its subsequent pathological behaviour, but the fictional basis of that legality has facilitated general immunity from an official sanction that would otherwise apply to flesh and blood people.
Thus, we arrive at the Australian banking sector and the Big Four that dominates it. Although second string under the global banking giants, the Big Four are in the top rank in profitability — a product of their absolute dominance of the domestic economy and of politics besides.
The banking sector’s immunity from prosecution for criminal activity is linked to political acquiescence, but also to the legal minefield that lies within the corporation’s fictional personhood.
The Commonwealth Criminal Code Act 1995 is currently 384 pages long. The component devoted to corporate crime (parts 2.5 [s12] and 2.6 [s13]) is a mere 6 pages long. The size of the Act has been increased since 1995 by almost a factor of ten, but the brief section devoted to corporate crime remains untouched.
The Act was long in gestation, traversing most of federal Labor’s period in office (1983-96). It was an attempt to appropriate criminal law, including that for corporations, from the states, to ensure nation-wide uniformity, and to facilitate a basis for much federal regulation regarding corporate behaviour. The Act was complemented by the referral of the Corporations power from the States in 2001, embodied in the Corporations Act 2001.
Of importance here, the progenitors of the 1995 Act were conscious of the criminality in the financial sphere that reigned in the late 1980s, with a desire to bring such under control. Down the track, nothing has been effected in that domain; on the contrary.
The Corporations Act 2001 currently sits at over 2800 pages, but it is strikingly incomplete. There is extensive coverage of receiver/liquidator responsibilities and prohibitions (Chapter 5, ‘External Administration’). Given the lawlessness of this sector, this legislation evidently lacks regulatory and judicial enforcement.
Remarkably, there appears to be almost no coverage in this door-stopping Corporations Act of corporate fraud. The Act covers company officer fraud against the company itself, but it does not recognise the pervasive potential of company/company officer fraud against the company’s clients.
There is a massive section on the finance sector (Chapter 7, ‘Financial Services and Markets’). The chapter covers what has come to be called “wealth management” (clearly ineffective, save for the temporary banishing of the odd low level crooked “financial adviser”). But there is curiously no mention of bank lending facilities, and, thus, no acknowledgement of the intrinsic capacity for fraud by a bank against its borrowing clients.
Then there is the problem of attribution. With insider trading, for example, the culprit is readily identifiable. With corporate criminality, whence the culprit?
One track has been to pursue the “owners”, by lifting “the corporate veil”. But in listed public companies, the owners are not merely diffuse but generally passive.
How to get at the operating entity itself? Considerable academic legal scribbling has been devoted to the line that in order to find the corporate entity guilty of a crime one had to locate ‘the directing mind and will’. The object of this pursuit, I think, was to be able to attribute guilt not to the ‘directing mind’ but to the entity itself. But the effort expended appears to have led, apart from occasional successes, to a general impasse.
The progenitors of the 1995 Commonwealth Criminal Code Act attempted to cut through the impasse by harnessing a radical line of argument. The directing mind and intent was also to be found in, because it’s embodied in, a corporation’s “culture”. Fault should be attributable to the entity where (Tahnee Woolf, ‘The Criminal Code Act 1995 (Cth): towards a realist vision of corporate criminal liability’, Criminal Law Journal, October 1995):
‘… the corporation had a criminogenic “corporate culture”, that is, where its general attitudes, policies, rules and codes of conduct encouraged the performance of the prohibited conduct.’
This is a radical step indeed. “Corporate culture” is not a touchy-feely addition to the text but is integral as a causative medium. Let’s revisit the relevant section of the 1995 Act:
12.3 (2) The means by which such an authorisation or permission [for an offense] may be established include: …
(b) proving that a high managerial agent of the body corporate intentionally, knowingly or recklessly engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or
(c) proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision; or
(d) proving that the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision. …
[s12.3] (6) … corporate culture means an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place.
ASIC’s Greg Medcraft, for once, has been useful in bringing the Criminal Code to Parliamentarians’ attention, at Senate Estimates hearings on 3rd June.
Under s12.2 of the Commonwealth Criminal Code, a company can be responsible for a breach of certain commonwealth laws if a company’s culture encouraged or tolerated the breach. …
We think that when an officer breaches a law ASIC administers – and culture is responsible – then the officers and the firm should be responsible.
We think the officer and the firms should be subject to civil penalties and administrative sanctions, as accessories.
At the hearings, Medcraft claimed that he is hampered by inadequate powers and the demanding burden of proof regarding criminal charges (Criminal Code Act, Part 2.6 [s13]).
Yet there are instances where that burden of proof might be not insurmountable. And once a precedent is established …
Consider the CBA takedown of close to 1000 BankWest borrowers after its takeover in late 2008. A prima facie case can readily be made that 12.3 (2) (b) applies here — the takedown was strategically organised and implemented at the top. Attribution should be a lay down misere.
The authorities (ASIC, RBA, APRA, Federal Treasury) should have sent in the police and appropriated sequestered documents relevant to the BankWest takeover and the associated takedown. That, of course, requires a de-politicisation of the Australian Federal Police; more it requires the establishment of an expert team within the AFP of trained specialists to investigate corporate financial crime.
As for a supportive culture behind the BankWest borrower takedown, look no further than my Dark Side of the CBA series on this site, highlighting 30 years of CBA malpractice, facilitated by finance sector deregulation and subsequent privatisation. The BankWest borrower takedown was not a one-off affair, but a spectacular culmination of 30 years of criminal activity. Another lay down misere.
Returning to the Criminal Code Act, we read:
12.1 General principles
(1) This Code applies to bodies corporate in the same way as it applies to individuals. …
(2) A body corporate may be found guilty of any offence, including one punishable by imprisonment.
Crimes punishable by imprisonment! One can’t send a body corporate to gaol. Ergo, 12.1 (2) applies to real people.
By all means indict rogue non-senior bank staff lending officers, recovery heavies, legal staff functionaries. In individual victim cases, such people are readily identifiable. But senior management, CEOs and general legal counsel, should be in the front line.
Some bank crimes against SME/farmer borrowers clearly originate at the top. Other bank crimes against such clients originate under the initiative of rogue lending officers. But the stories that have been given to me over the last 15 years highlight that the latter are perennially condoned “upstairs” and given the full weight of the bank’s resources.
And they are condoned upstairs, either explicitly or implicitly, because the rogue officers are a product of a “criminogenic” corporate culture.
The appropriation of responsibility by the bank as corporate entity for all failures and unconscionable or fraudulent actions by individual bank officers, regardless of seniority, is on full display when the bank litigates against the borrower for a breakdown of the “relationship” attributable to the bank itself.
The buck stops at the top. The hierarchy of remunerations (lavish at the top) is evidently structured under the presumption that those at the top are most responsible for the “successes” (i.e. profit generation) of the company. Are then those at the top not most responsible for the company’s moral failures and criminal activities?
The Commonwealth Criminal Code Act, thus, is a powerful instrument to indict bank CEOs. It has been lying fallow for two decades, while bank immunity for criminality powers on. Our regulators have admitted that bank culture is rotten, but claim that nothing can be done externally to fix it.
On the contrary, the legislation is already in place. And the legislation embeds the role of corporate culture. True, the hurdles are formally high. But the evidence, as noted above, is overwhelming.
All that is required is political will.
Alas, the political class and the regulators are complicit in bank criminality.
The quick way to fix the rotten banking sector culture is to send bank CEOs to gaol. It remains to impress on members of the major political parties in Parliament that their self-interest lies in detaching themselves from the banking sector gravy train.
In the first instance, a word with Nationals Senator John Williams, his office buried under a mountain of bank victim documentation, could begin their enlightenment on this issue. As Williams noted after he crossed the floor in late June to support a Greens motion for a Royal Commission (into one dimension of banking malpractice):
“I’m sick of Australians being robbed by rogues.”
Send bank CEOs to gaol.
This article first appeared (in three parts) in Independent Australia.