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The restoration of malpractice (part 3)

By Dr George Venturini   

Whoever it is that owns the ‘big four’ banks, one thing is clear: if the same four custodian companies own similar chunks of each of the ‘big four’, there is indication that the shareholders behind them do not want one bank to succeed at the expense of another. The optimal result is had if all of them win together – and maintain their dominant position, of course. Thus ‘structured’ the ‘big four’ are regarded as too big to fail.

Research by the Productivity Commission, which has for quite some time arguing for more competition in the banking sector, published ahead of the Royal Commission concluded that the four major banks were among the most profitable lenders in the world, earning profit margins of 36.4 per cent in the June quarter of 2017. For the same period return on equity after tax were 13.6 per cent.

On the other hand, the present neo-liberal government has had in mind for quite some time to reward he four banks with corporate tax concessions to the tune of $ 3.2 billion to the A.N.Z., close to $ 4 billion to the C.B.A., $ 2.6 billion to the N.A.B. and $ 3.5 billion to Westpac.

When ‘the spill’ came in September 2015 (the Liberals practice no internal coups, of course; that ignominy is for Labor), a better ‘free market expert’ was chosen. Malcolm Turnbull made his fortune as chairman and managing director of Goldman Sachs and Co. Australia in 1997-2001, eventually becoming a partner. He has, presumably, maintained discreet connections, and is listed as one of the former partners, along with such notable such as Mark Carney – Governor of the Bank of England (2013-) and  Mario DraghiPresident of the European Central Bank (2011-).

At mid-September 2016 Mr. Turnbull was in New York to address the United Nations General Assembly and to attend two special summits on refugees. On that occasion he bragged on how to deal with the problem of ‘illegal arrivals’ and volunteered to teach other countries on how to deal with the problems caused by more than 65 million people currently displaced around the world – a situation not seen since the second world war.

On 20 March 2017 the Turnbull government reaffirmed its commitment to multicultural Australia with the release of the statement ‘Multicultural Australia: united, strong and successful’. The statement was meant to outline the strategic direction and priorities for multicultural policy in Australia. “We are a richly diverse nation – it claimed – and have flourished with waves of migration. This cultural diversity is one of our greatest assets. Our immigration nation is not defined by race, religion or culture but by our shared values of freedom, democracy, the law and equal opportunity. We reject practices which undermine these shared values.”

On 11 April 2018 a learned panel, led by Dr. Tim Soutphommasane, the Race Discrimination Commissioner at the Australian Human Rights Commission, returned to the theme of Leading for Change: A Blueprint for Cultural Diversity and Inclusive Leadership (2016) with a new, up-dated study by the same titled and launched that day. The panel lamented that the story it had told in 2016 had been “an unhappy one. [Then] There was an almost total absence of non-European backgrounds represented among the cohort of chief executives in Australia.”

Two years later the panel continue[d] the story. “Our new report – it alerted – provides an updated overview of the representation of cultural diversity in the senior leadership of Australian organisations. Leading for Change: A Blueprint for Cultural Diversity and Inclusive Leadership Revisited, written in partnership with the University of Sydney Business School, the Committee for Sydney, and Asia Society Australia, gives a breakdown of the cultural diversity of the two most senior tiers of senior management within the ASX 200 group of listed companies, Commonwealth and State government departments and universities. The report also provides statistics for the cultural diversity of the Australian Parliament.

The findings of this report suggest we have a long way to go before realising the full potential of our multicultural population. If progress is being made on cultural diversity, it remains slow.

Based on the 2016 Census data on ancestry, we estimate about 58 percent of Australians have an Anglo-Celtic background, 18 per cent have a European background, 21 per cent have a non-European background, and 3 per cent have an Indigenous background.

However, our examination of almost 2500 senior leaders in business, politics, government and higher education shows only very limited cultural diversity. Almost 95 per cent of senior leaders at the chief executive or ‘c-suite’ levels have an Anglo-Celtic or European background. Of the 372 chief executives and equivalents we identified, 97 per cent have an Anglo-Celtic or European background.”

The Report offered a breakdown. “Within the ASX 200 companies, there appears only to be eight CEOs who have a non-European background – enough to squeeze into a Tarago. Of the 30 members of the Federal Ministry, there is no one who has a non-European background, and one who has an Indigenous background. It is similarly bleak within the public service, where 99 percent of the heads of federal and state government departments have an Anglo-Celtic or European background (that’s one of 103). Universities don’t fare much better: just one of the 39 vice-chancellors of Australian universities has a non-European background.

All up there are 11 of the 372 CEOs and equivalents who have a non-European or Indigenous background. A mere cricket team’s worth of diversity.

These are dismal statistics for a society that prides itself on its multiculturalism. They challenge our egalitarian self-image. And they challenge our future prosperity as a nation. If we aren’t making the most of our multicultural talents, we may be squandering opportunities.

We reiterate that improving the representation of cultural diversity requires action at three levels: leadership, systems and culture. Through a series of case studies drawn from Australian organisations’ experience, we highlight examples of how such concrete steps can be taken.”

The Australian Human Rights Commission Report told the naked – perhaps unpleasant – truth and unmasked the facile, pompous lies of governments.

Writing about the Report, Dr. Soutphommasane concluded: “If we are serious about shifting numbers, it may be necessary to consider targets for cultural diversity – if not quotas. Such measures don’t stand in opposition to a principle of merit. After all, meritocracy presumes a level playing field. Yet do we seriously believe that a perfectly level playing field exists, when there is such dramatic under-representation of cultural diversity within leadership positions?

Multiculturalism can be as superficial as food and festivals. But if we’re serious about our diversity, we must be prepared to hold up a mirror to ourselves – and ask if what we see looks right for an egalitarian and multicultural Australia.” (T. Soutphommasane, ‘Australian business and other organisations persistently fall short on cultural diversity,’ 13 April 2018 … johnmenadue.com; see also the review by a distinguished Australian scholar: Review: ‘Leading For Change’ – Corporate Cultural…, countercurrents.org).

On 30 November 2017 Prime Minister Turnbull and Treasurer Scott Morrison joined in announcing that the government would establish a Royal Commission into the alleged misconduct of Australia’s banks and other financial services entities.

The joint media release said that: “All Australians have the right to be treated honestly and fairly in their dealings with banking, superannuation and financial services providers. The highest standards of conduct are critical to the good governance and corporate culture of those providers.

We have one of the strongest and most stable banking, superannuation and financial services industries in the world, performing a critical role in underpinning the Australian economy.”

In particular, it was the view of the Turnbull government that the Australian “banking system is systemically strong with internationally recognised world’s best prudential regulation and oversight.

The ministers further observed that: “Ongoing speculation and fear-mongering about a banking inquiry or Royal Commission is disruptive and risks undermining the reputation of Australia’s world-class financial system.

The Government has decided to establish this Royal Commission to further ensure our financial system is working efficiently and effectively.

Instead of the inquisition into capitalism that some have called for, the Royal Commission will take a conventional, focused approach. It will not be a never-ending lawyers’ picnic.”

The view of the Australian government was that “Our approach to banking and financial services reform has focused on ensuring that our financial system is resilient, efficient and fair. 

We have moved to establish a new one-stop shop to resolve customer complaints; significantly bolstered the Australian Securities and Investments Commission’s powers and resources; created a framework to hold banking executives accountable for their actions; and acted to boost banking and financial services competition for the benefit of customers.” [Emphasis added]

The government was concerned to ensure “that the Inquiry will not defer, delay or limit, in any way, any proposed or announced policy, legislation or regulation that [the government] is currently implementing.

The scope of the Inquiry was to “consider the conduct of banks, insurers, financial services providers and superannuation funds (not including self-managed superannuation funds).” And also, to “consider how well-equipped regulators are to identify and address misconduct.  It will not inquire into other matters such as financial stability or the resilience of our banks.”

The initiative was directed towards “a sensible, efficient and focused inquiry into misconduct and practices falling below community standards and expectations. Most Australians are consumers of banking and financial services, and we all have the right to be treated honestly and fairly by banking and financial services providers.”

At this point the Prime Minister and the Treasurer rhapsodised: “Trust in a well-functioning banking and financial services industry promotes financial system stability, growth, efficiency and innovation over the long term.”

Having resisted for some two years a call for a commission the government was now declaring that there was a “sense of inevitability” about it and, furthermore, praising itself for the decision!

As a matter of record, Turnbull had come under serious internal pressure and the combined pressure of the Greens, Labor and much of the crossbench, while the ‘big four’ banks had written to Treasurer Morrison calling for an inquiry “to end political uncertainty.”

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established, pursuant to the Royal Commissions Act 1902, on 14 December 2017 by the Letters Patent issued by the Governor-General. The Letters Patent which formally appointed the Royal Commissioner and outlined the Terms of Reference for the inquiry.

The Commissioner, the Honourable Kenneth Madison Hayne A.C., Q.C., was authorised to submit an interim report no later than 30 September 2018, and was requested to provide a final report by 1 February 2019.​ ​

The work of the Royal Commission began on 13 March 2018. It was to have a round of public hearings, starting on 16 April 2018.

As at 27 April 2018 the Royal Commission had received 4,501 public submissions, of which 65 per cent on banking, 10 per cent on financial advice and 9 per cent on superannuation.

The careful observer of business in Australia would hardly find some novelties; the same skulduggery had been going on for years. Just looking at the past ten years one would see that:

ANZ accepts an enforceable undertaking to remedy a poor compliance culture and pays hundreds of millions in settlement to Opes Prime investors.

On 6 March 2009 it became known that A.N.Z. had agreed to a settlement of hundreds of millions with Opes Prime Group Limited investors and accepted an enforceable undertaking to remedy a poor compliance habit.

On 14 October 2009 C.B.A. was fined $100,000 for failure to comply with the required continued disclosure of obligations under the Corporations Act.

On 31 March 2011 a former Macquarie Bank manager was gaoled for two and a half years after pleading guilty to making $1.4 million from insider trading.

On 7 March 2012 A.S.I.C. accepted an enforceable undertaking from C.B.A. after disclosure that a message sent to its internet banking customers was misleading. In December 2011 C.B.A. had requested that customers provide their consent to continue to receive credit limit increase invitations. It was the view of A.S.I.C. that the messages suggested that if the customers did not consent, they would lose the chance to receive credit limit increase offers in the future.

On 5 September 2012 The Sydney Morning Herald reported that a Macquarie Private Wealth internal report found more than 80 per cent of the division’s private client advisors were in breach of compliance standards.

On 14 September 2012 C.B.A. agreed to make $136 million available in compensation for involvement in Storm Financial Limited, the collapse of which hurt 14,000 investors. The $136 million was in addition to payment of about $132 million and other benefits that C.B.A. had already provided to Storm investors under its C.B.A. resolution scheme.

On 10 November 2012 The Australian Financial Review reported that N.A.B. was to pay $115 million to settle a class action with shareholders after insufficient disclosure of its investment in securities supported by sub-prime mortgages during the global financial crisis.

On 17 December 2013 two members of the C.B.A. Group entered enforceable undertakings to review their handling of client money. The two companies completed a remediation programme after identifying weaknesses, including unauthorised withdrawals of client money from trust accounts and pooling of client money.

On 23 December 2013 N.A.B. gave an enforceable undertaking to A.S.I.C. which authorised it to monitor and control market direct market access trading after possible misconduct by trading personnel contracted to the bank resulted in a share price spike of the ASX 200.

On 30 January 2014 The Sydney Morning Herald reported that A.N.Z. was conducting a sweeping review of all of its home loan, savings and small business accounts to ensure that they are operating correctly after a major glitch forced the bank to refund $70 million to 235,000 home loan customers.

On 20 May 2014 A.S.I.C. banned a former Westpac trader for eight years after an investigation found that he had set up a series of fictitious trading entries and prepared a false document.

On 12 September 2014 Macquarie Bank agreed to a $75 million settlement in a class action brought against it for involvement in Storm Financial.

On 17 September 2014 A.S.I.C.  fined N.A.B. $40,800 for potentially misleading advertising in relation to a UBank, an Australian direct bank, home loan product.

On 17 September 2014 A.S.I.C. fined Westpac $20,400 for potentially misleading statements in a product disclosure statement.

On 1 October 2014 A.S.I.C. fined N.A.B. $10,200 for potentially misleading statements in a product disclosure statement.

On 4 January 2015 The Australian Financial Review reported that seven traders, including a senior A.N.Z. Group trader, were being investigated for possible manipulation of market benchmarks.

On 15 January 2015 The Sydney Morning Herald reported that two traders dismissed by A.N.Z. for inappropriate behaviour were suing the bank for tens of millions of dollars, claiming a rampant prevailing atmosphere of sex, drugs and alcohol was condoned among senior staff on the dealing floor. A.N.Z. said that the staff were dismissed for serious breaches of its code and it would “be vigorously defending both their court applications.”

On 10 February 2015 a former financial planner was gaoled for defrauding more than 150 clients of more than $5.9 million over a period of 20 years, including eight years of working for an A.N.Z. subsidiary. The company cooperated with A.S.I.C., investigated the matter, ensured thorough remediation and terminated the adviser’s authorisation once wrongdoing was established.

On 13 February 2015 a two-year enforceable undertaking between A.S.I.C. and Macquarie Equities Limited concluded. The enforceable undertaking was entered into in January 2013 after A.S.I.C. had found “systemic deficiencies” in its compliance with financial services laws.

On 26 February 2015 A.S.I.C. permanently banned a former Westpac home finance manager after a conviction of fraud for withdrawing more than $113,000 from ATMs after obtaining eight credit cards using false names.

On 17 March 2015 a former N.A.B. foreign exchange trader was sentenced to seven years gaol for insider trading after pleading guilty to masterminding a $7 million crime.

On 27 March 2015 two former C.B.A. executives were charged over alleged bribery scandal for allegedly receiving more than $1.9 million in return for awarding an I.T. contract to a particular company.

On 15 April 2015 The (Melbourne) Age reported that N.A.B.’s British banks had receive a record $ 38.8 million fine from Britain’s Financial Conduct Authority for “serious failings” in handling complaints regarding payment protection insurance to up to 90,000 customers of the British subsidiary.

On 16 April 2015 the Australian Broadcasting Corporation reported that 8,500 A.N.Z. customers were sold advice packages but did not receive services included in them. The A.N.Z. was due to reimburse $30 million in fines.

On 20 April 2015 The Sydney Morning Herald reported that a Queensland businessman was suing Westpac for misleading and deceptive conduct after the bank allegedly slotted him into highly leveraged financial products and blew up $4 million in savings.

On 21 April 2015 A.N.Z. told the Senate Economics References Committee that in the 12 months to April 2015 it had reported six A.N.Z. planners to A.S.I.C. for breaches; and terminated the employment of 16 planners over the previous three years for behaviours which range from ‘cultural differences’ and inappropriate behaviour through to the serious compliance breaches reported to A.S.I.C.

On 21 April 2015 C.B.A. told the Senate Economics References Committee that it reported 12 C.B.A. advisers to the police over allegations of fraud or forgery since 2011; and that 43 planners had left in previous three years, including some who left while under investigation.

On 21 April 2015 Macquarie Bank told the Senate Economics References Committee that it had paid $9.5 million in compensation to financial advice clients and reported 11 advisers to A.S.I.C. Macquarie was reviewing 2,500 client files for possible compensation and found out of 320 files already there were 65 clients eligible for compensation.

On 21 April 2015 N.A.B. told the Senate Economics References Committee that it compensated more than 750 of its financial advice customers a total of $14.5 million between January 2010 and September 2014.

On 21 April 2015 N.A.B. told the Senate Economics References Committee that 41 planners had been dismissed over the previous five years and it had reported 10 planners to A.S.I.C. for breaches.

Continued Wednesday – The restoration of malpractice (part 4)

Previous instalment – The restoration of malpractice (part 2)

Dr. Venturino Giorgio Venturini devoted some seventy years to study, practice, teach, write and administer law at different places in four continents. He may be reached at George.venturini@bigpond.com.au.

 

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4 comments

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  1. Joseph Carli

    And of that extremely high percentage of Anglo/European executives and heads of dept’s, you would find an almost equivalent percentage are from the private school education system…: “Consciousness of kind”…There is no way to resolve the problem except as in the past as with the Russian revolution and the Chinese revolution…The capitalists are the destroyers of humanity…except this time there will not be need of an armed uprising, as the collapse of the natural world will place everybody on a level playing field….just fighting for survival…
    The Roman Empire of the West collapsed from a high in around 400AD to zero by 475AD….you can imagine the chaos that ensured in that little time frame..one life-time, really.

    This modern phase of financial chicanery is but a repeat of a pattern…Here..: https://freefall852.wordpress.com/2019/02/04/history-on-the-back-of-a-beer-coaster/

  2. Alan Luchetti

    Eleven years of federal surpluses between 1996 and 2007 extracted so much money from the economy that bank lending had to make up the difference to enable economic activity to be maintained. The banks were duly further deregulated. Private debt went from 128% of GDP in 1997 to 190% in 2007. The household debt / disposable income ratio tripled.

    If you’re wondering who runs the government and the opposition, ask yourself which “industry”, sorry, sector, benefits from the surpluses that all our politicians are bipartisanly promising. And if you’re wondering who the financial sector’s minions and chumps are, look at every professor, public setvant, pundit or pollie who piously warns of the need for “budget repair”.

  3. Pingback: The restoration of malpractice (part 4) - » The Australian Independent Media Network

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