Royal Commission – Bad Bankers" equusadm_in
It is impossible not to notice that some of this country’s biggest financial institutions are copping a hiding at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Scandal after scandal is being revealed by a media still in bloodlust mode after the cricket ball tampering saga. In only a few weeks of the hearing, we have seen evidence of appalling behaviour by some of Australia’s major banks and financial planners from the past decade, but, so far, could it be criminal? The short answer is yes indeed.
The Royal Commission was established on 14 December 2017. The Letters Patent, which formally appoint the Royal Commissioner, the Honourable Kenneth Hayne AC QC, outline the Terms of Reference for the inquiry.
In summary, the royal commission has been asked to investigate whether any of Australia’s financial services entities have engaged in misconduct. As well, if criminal or other legal proceedings should be referred to the commonwealth.
The Commission was established after years of public pressure from whistleblowers, consumer groups, the Greens, Labor, and some Nationals MPs.
CONDUCT REVEALED SO FAR
The Commission has heard evidence of the following conduct:
- charging fees to clients who have died.
- forged documents
- repeated failure to verify customers’ living expenses before lending them money
- selling insurance to people who it is know cannot afford it.
- The inherent conflict of interest arising from banks providing personal financial advice to retail clients while also selling them their financial products.
- Charging clients for services that weren’t provided and then lying to ASIC about it
Below is a brief consideration of the possible criminal conduct arising from the last two of the abovementioned types of conduct as they are potentially the most serious.
Allegations were aired that NAB staff were involved in a bribery ring covering multiple branches, forged documents, fake payslips and Medicare cards. It is said that bribes were being paid in cash to secure loans as staff responded to an incentive program to sign up new customers.
A NAB executive admitted that “significant problems” had emerged with NAB’s “introducer program” between 2013 and 2016, where non-financial experts – including people such as gym instructors – would receive secret commissions for referring strangers to NAB to ask for home loans.
“money exchanges hands in cash in envelopes, white envelopes, usually over the counter. The money was then deposited at CBA so NAB couldn’t detect the deposits.
Evidence was heard that the number of NAB’s “introducers” peaked at about 8,000 between 2013 and 2016. They sent more than $24bn worth of home loans to NAB during that period.
Yes, this is serious criminal conduct. The Criminal Code of Western Australia contains two offences relating to this type of conduct; sections 533 and 534. Furthermore, culpability is extended to any person in WA who was in any way involved in the conduct (section 536) and any officer of a company involved in the conduct (section 537).
The maximum penalty is a fine of $250 000 in the case of a corporation and, for an individual, imprisonment for 7 years.
Charging clients for service that weren’t provided and then lying to ASIC about it
Evidence showed that AMP was aware it was charging customers fees for 90 days for financial advice that it had no intention of providing. Worse still, AMP did not want to stop the practice because it was profitable. Worse, worse still, evidence showed that executives advised ASIC officials that they had mistakenly charged customers fees for no service despite knowing that it was a deliberate policy. Rather than contrition, the AMP executive being examined about the practice said “I think there are reasons to be concerned. I think they show a culture that’s not as robust as it should be.” Counsel assisting the commission confronted the executive about this obvious understatement. The executive ultimately accepted, as he had to, that “a conscious decision was made to protect the profitability of AMP at the expense of complying with AMP’s (ASIC) licence”.
Yes, this is serious criminal conduct. In short, on the face of it, the practice of charging for no service is a fraud under s.409 of the Criminal Code of Western Australia. Fraud is punishable with 7 years imprisonment, unless the person deceived is 60 or over, where it is 10 years. No doubt, there will be a preponderance of older people that are the victims of such conduct, exposing any person who is charged to greater penalties. In addition, there are offences under the Corporations Act and ASIC Act that would also apply to this type of conduct. The penalties are often lower and there exists also the scope for ASIC to commence civil proceedings against persons alleged to be involved with the result that the person is only exposed to fines.
As to the conduct involving lies to ASIC, there are a number of criminal offences in the Corporations Legislation that would encompass this conduct. These offences are punishable by fines of $220,000 or imprisonment for 5 years.
The above brief analysis demonstrates that the conduct disclosed by the evidence presented so far involves serious criminal conduct. There would, however, be a long way to go for the material collected by the Royal Commission to result in criminal proceedings. Furthermore, as mentioned above, ASIC has the civil proceeding option open to it. It is a process that, although easier in terms of proof, is ordinarily much slower.
The conduct discussed above appears endemic within our large financial institutions. When the Royal Commission is over and the executive move to the prosecution stage, there will be a significant amount of individuals requiring effective assistance. Such assistance should ideally commence now. There is much that can be done to minimize exposure and, potentially, avoid being a player in the prosecution stage.