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30 March 2016
The Secretary
Senate Standing Committees on Economics
PO Box 6100
Parliament House
Canberra ACT 2600
Dear Sir/ Madam,
Submission to Senate Inquiry into Penalties for White Collar Crime
Please accept this submission to the above inquiry.
Terms of Reference of Inquiry:
The inconsistencies and inadequacies of current criminal, civil and administrative
penalties for corporate and financial misconduct or white-collar crime, with particular
reference to:
a
the value of fine and other monetary penalties, particularly in proportion to the
amount of wrongful gains;
Introduction
Following reforms of the banking sector in 1991 and 2001, the activities of financial
institutions, particularly financial and corporate misconduct, have been selfregulated. This has presented a number of difficulties in the adequacy and
enforceability of penalties for misconduct of banks. Much of this has stemmed from
the requirement that Banks must have procedures for resolution of disputes
between Banks and Customers.1
1
2
Outline
This submission has 2 parts:
Part A. Background to banking misconduct and lack of penalties, including:
Martin Committee, also known as House of Representatives Standing Committee on Finance and Public
Administration (1991), commissioned by the Federal Government on Banking and Deregulation.
3
Code of Banking Practice 1993, adopted 3 November 1993. (Attachment A).
4 Adopted by the major banks in or about May 2004. (Attachment B).
5
Submission DR334: Clair and Chris Priestley regarding three letters by the Priestleys sent to NAB on 2
September 2014, accessed at http://www.pc.gov.au/inquiries/completed/access-justice/submissions.
(Attachment C)
6
Terms of Reference for Submission required by Senate Standing Committees on Economics.
Part A Background
The alleged misconduct in the banking sector has been widespread since selfregulation was introduced in 2001. The 2003 Code intended to ensure best
practice by the banking sector in dealing with customers.
However, the 1993 Code, implemented following the Martin Committee Review
(1991), intended to7:
(i)
(ii)
(iii)
promote informed and effective relationships between Banks and Customers; and
(iv)
require Banks to have procedures for resolution of disputes between Banks and
Customers.
With the introduction of the 2003 Code, these objectives, as agreed between
consumer organisations, banks and government, were rescinded. As such, where
customers had a complaint or dispute with a code-subscribing bank, they were
directed to various forums for resolving disputes. In these forums, customers
rights under the Code were overshadowed and avoided, and their complaints
unresolved (as illustrated in the case study The Priestleys vs. The NAB in the
following page). In some instances, banks simply commence an action in court,
whereby customers experience a significant power imbalance.
The introduction of self-regulation facilitated misconduct in the banking sector. In
using avenues such as the Financial Ombudsman Service (FOS) and Mediation,
for rectifying disputes, financial institutions have been able to avoid responsibility
under the Code Compliance Monitoring Committee (CCMC) for investigating Code
breaches and wrongdoing.
In 2004, the Constitution of the CCMC (the Constitution)8 was introduced by the
Chief Executives of the Major Banks. This document was not disclosed or
available to customers until late 2012. This enabled banks to mislead customers
as to their rights under the Code to have disputes investigated or resolved. The
inability to investigate complaints and disputes meant that banks were
unaccountable for their actions, and penalties could not be imposed at a later date.
Penalties for deceit or misconduct of this nature should reflect the seriousness of
the dishonest practices introduced and allowed by financial institutions. However,
the complicity between financial institutions and regulators has meant that
penalties for these actions have been inadequate, avoidable or seemingly nonexistent. This issue requires immediate rectification.
A Case Study NAB v. Priestley
7
Code of Banking Practice 1993, adopted 3 November 1993, p.1. (Attachment A).
obtained by the JMA Parties on 27 July 2012. (Attachment D).
8 First
Submission DR334: Clair and Chris Priestley regarding three letters by the Priestleys sent to NAB on 2
September 2014, accessed at http://www.pc.gov.au/inquiries/completed/access-justice/submissions.
(Attachment C)
10
Code Compliance Monitoring Committee Association Constitution (20 February 2004), p.14-15.
(Attachment D)
11
Submission DR334: Clair and Chris Priestley regarding three letters by the Priestleys sent to NAB on 2
September 2014, p.2, accessed at http://www.pc.gov.au/inquiries/completed/access-justice/submissions.
(Attachment C)
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), is a United States
federal law enacted in the wake of the savings and loan crisis of the 1980s.
13
Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud
Leading up to and During the Financial Crisis, US Department of Justice, August 21 2014, accessed at
https://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlementfinancial-fraud-leading#main-content. (Attachment E)
14 Tasmanian Small Business Council submission, accessed at
http://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/cust
omer_loans/Submissions
The banks and their chief executives, supported by their agents, mean less
than 10 people control banking regulation in Australia. The considerable number
of banking inquiries recently has been caused by lack of transparency and the
conflict of interest between banks and their regulators.15
The self-regulation of the banking sector has resulted in abuse of process by the
major Australian banks, through which they have obtained wrongful gains. Selfregulation has failed customers and meant there has not been effective use of
enforcement and penalty procedures. As such, banks and bankers are not
discouraged from engaging in financial misconduct or white-collar crime.
Summation
There must be monetary penalties proportionate to the amount of wrongful gains
by banks and bankers that have acted deceitfully and dishonestly. At the same
time, governments and regulators must accept their responsibility to penalise
parties for financial misconduct as has been the case in the United States.
In Australia, banks have not been penalised for their failure to draw attention to the
Constitution when customers signed bank contracts. The lack of proper
investigative and punitive procedures in Australia for financial misconduct, and the
apparent ease with which banks can escape penalties, provided an opportunity by
banks to engage in deceitful and unconscionable practices.
The increasing number of bank customers complaints now emerging almost daily
demonstrates the need for action. Your Committee must ask itself, "why is this
so?" and then act to halt customer abuse by banks and bankers.
We would welcome the opportunity to appear before the Committee.
If you require more information, please contact the writer.
Yours sincerely,
Geoff Fader
Tasmanian Small Business Council
Per: Geoff Fader
Chair
Tel:
Email:
http://www.tsbc.org.au
Skype:
15
Attachments:
A: Code of Banking Practice 1993
B: Code of Banking Practice 2004
C: Submission DR334: Clair and Chris Priestley
D: Code Compliance Monitoring Committee Association Constitution
E: Bank of America to Pay $16.65 Billion in Historic Justice Department
Settlement for Financial Fraud Leading up to and During the Financial Crisis,
US Department of Justice, August 21 2014.
F: Tasmanian Small Business Council Submission to the Parliamentary Joint
Committee on Corporations and Financial Services Inquiry