One of the most striking aspects of the Banking Royal Commission has been the apparent indifference, verging on contempt, shown by some corporations to Australia’s financial regulators and the rule of law.
The Commission has revealed concerted efforts by banks and other financial service providers to conceal their misconduct from the Australian Securities and Investments Commission (ASIC), to actively mislead ASIC over compliance and to divert blame by attributing any misbehaviour to administrative oversight.
A staggering example of this was National Australia Bank’s act of withholding a critical document from the Royal Commission. When finally divulged, it revealed that the bank knew of potentially fraudulent commission payments being made as part of its ‘introducer program’, months before notifying ASIC.
NAB’s attitude to the existence and implications of serious misconduct was further revealed when its superannuation trustee, Nulis Nominees, was the subject of strong questioning from the Commission, about the notorious ‘fee for no service’ practice.
Commissioner Hayne asked the former chairwoman Nicole Smith: “Did you think yourself that taking money to which there was no entitlement raised a question for criminal law?” Ms Smith answered that she did not.
But this kind of attitude is not restricted to the banks.
For many years, the Aboriginal Community Benefit Fund (ACBF) traded off the misleading suggestion, obvious from its name, that it was connected with or sponsored by government or Aboriginal organisations. This misleading conduct arguably played a significant role in its success in selling funeral insurance into remote communities.
The misconduct was in defiance of court orders obtained in 1999 through proceedings brought by ASIC, which required the ACBF to disclaim any association.
At the time of the hearing before the Banking Royal Commission, ACBF continued to engage in allegedly misleading and predatory practices, despite repeated complaints by consumers, representations by the Consumer Action Law Centre and ongoing pressure by the regulator in accordance with recommendations that were made in 2015.
And just this week, CommInsure’s executive general manager, Helen Troup, admitted that the company had actively misled the independent dispute resolution body, the Financial Ombudsman Service (FOS), had refused to hand over information even though it had been directed to do so by FOS and repeatedly challenged its jurisdiction over disputes.
This apparent indifference to and disregard for the law isn’t restricted to the financial sector.
In the recent Reckitt Benckiser litigation, the defendant pharmaceutical company continued to market and sell expensive ‘targeted pain relief’ Nurofen products. In fact, those products did not target particular forms of pain and were no different from Reckitt’s standard and much cheaper product.
Reckitt, continued this behaviour for five years after it was first notified of the issue by Choice and despite repeated criticism by consumer groups and in television programs and newspaper articles in both Australia and New Zealand.
It also continued marketing and selling those products in the face of an ASIC investigation, a 2013 request to remove the offending representations or claims from its products and the start of litigation by ASIC in 2015.
The Full Court of the Federal Court found Reckitt’s conduct was deliberate and all about maximising corporate profit. The conduct was particularly shocking since the entire revenue stream resulting from the misleading behaviour, some $45 million, was due to a calculated and wholly illusory distinction between identical products.
So far, blame for these repeated patterns of misconduct has mostly been laid at the feet of the regulators and, to a lesser extent, the courts for failing to enforce our laws, or failing to respond to a breach of those laws with sufficient severity. ASIC’s practice of agreeing soft ‘penalties’ has come in for particularly strident criticism.
But part of the problem lies in the laws themselves.
Australia’s corporations, commercial and consumer law statutes contain strong bans on ‘misleading or deceptive conduct or conduct that is likely to mislead or deceive’.
But it has proven almost impossible to prove ‘deceptive’ conduct against large, modern companies. This is largely because of the need to show deliberate dishonesty and knowledge on the part of those who are the ‘directing mind and will’ of the company.
In large corporations, where roles and responsibilities are dispersed between a huge array of managers, employers and agents, attributing knowledge and dishonesty to defined and ‘leading’ individuals is incredibly challenging and expensive for regulators and victims.
Faced with the almost impossible difficulty of proving fraud in corporate contexts, private litigants and regulators instead focus on conduct that is ‘misleading... or likely to mislead’ rather than ‘deceptive’. This has significant consequences for remedies, penalties orders and the iterative and deterrent power of the law.
The regulatory burden in such cases is now largely carried by the statutory prohibition on ‘misleading’, as opposed to deceptive, conduct - which does not attract the stinging remedial outcomes needed to change corporate behaviours.
It also seems that findings of ‘misleading’ conduct do not carry enough reputational risk to act as incentives for corporations to change egregious but highly profitable misconduct.
This regulatory failure provides the perfect breeding ground for fraudulent and predatory commercial practices.
And it directly contributes to the calculated indifference shown by corporate business to regulators and to the rule of law.
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