By Nathan Lynch, Head Regulatory Analyst for Australia & New Zealand, Thomson Reuters
A petition from 40,000 Australians has called on the government to reverse its plans to privatise the Australian Securities and Investments Commission’s corporate registry operations. The campaign said privatising the ASIC Registry could permanently entrench some of the world’s highest company search fees in Australia, which flew in the face of the global push to make digital records freely available. Signatories said the government should instead follow the lead of New Zealand and the United Kingdom by making searches of digital records free for academics, journalists and other members of the public.
The campaign from advocacy group GetUp has argued that the privatisation of the ASIC Registry will impede corporate transparency in Australia. The group said privatising the registry and locking in commercial fees was an “all-out attack on corporate transparency and the ability of journalists to hold the private sector accountable.”
Regulatory experts have also warned that privatising the ASIC Registry could impede the goals of the anti-money laundering and counter-terrorist financing (AML/CTF) regime by making it too expensive for organisations to conduct thorough background checks on company ownership as part of their customer due diligence.
According to ASIC’s most recent annual report, company search fees netted the government A$58 million in the 2014/15 financial year.
“The quantum of the information charges is hard to take seriously. The charges appear to be little more than a money grab from a monopolist holding the information,” said Jeffrey Knapp, senior accounting lecturer at UNSW. “If it was somebody else other than the government charging A$38 for a PDF document sent by email, then one might consider reporting them to the ACCC for unconscionable conduct.”
Paul McCarthy, author and adjunct professor in computer science at UNSW Australia, said adopting an “open data” model similar to Hong Kong, the UK and New Zealand would have a raft of benefits for Australia, such as helping authorities to crack down on corporate tax avoidance and supporting AML/CTF compliance.
“Any market, whether it’s financial products and services or another sector such as technology or movie making, benefits from more information. Anyone in public office with an economics degree knows that. It’s information that enables investment and confidence and trust in those markets,” McCarthy said.
Taxing times
Although ASIC’s charges are described as fees, they are in fact taxes levied by the Commonwealth under the Corporations (Fees) Act 2001. The fees legislation was introduced shortly after the the High Court decisions in Re Wakim; ex parte McNally and The Queen v Hughes, which led to an overhaul of the corporations law.
At the time company registry fees were deemed to be a good proxy for the regulator’s workload. The government said the fees legislation would “not result in any levying of additional fees on business or consumers.”
Over the past 15 years, however, ASIC’s workload has expanded greatly to include functions such as consumer credit, market supervision and the national business names register. Likewise, fee revenue has increased exponentially over the past decade and a half. In the 2015 financial year ASIC raised A$824 million for the Commonwealth in fees and charges but cost just A$311 million to run. “The increase in revenue is driven by continued net company growth coupled with fee indexation,” ASIC said in its annual report.
In addition to this revenue, in April the government announced a new “user pays” model to cover the cost of ASIC’s regulatory workload. This is expected to raise around $330 million each year to cover ASIC’s operating budget from mid-2017 onwards.
Former senator Mark Bishop, who was chairman of the Senate Inquiry into the Performance of ASIC, said his inquiry’s report strongly supported the introduction of a cost recovery model as registry fees were a poor proxy for the regulator’s workload. It was clear, however, that registry fees needed to be reduced in tandem with the introduction of an industry funding model. Recommendation 51 of the inquiry’s final report said these fees should be brought “in line with the fees charged in other jurisdictions.”
“If industry is going to pay the full cost of its own regulation then there is little justification for charging businesses and consumers for services that have already been paid for. You can’t have double dipping,” Bishop told Thomson Reuters late last year.
AML/CTF consultants and lawyers said that “open data” and free digital company record searches would encourage reporting entities under the AML/CTF regime to conduct more thorough checks into the beneficial ownership of companies.
Calls for clarity
Greenhill, the investment bank, is handling the registry sale tender process on behalf of the federal government.
Mathias Cormann, the minister for finance, told Thomson Reuters that under the proposed privatisation model the government would retain ownership of the ASIC Registry’s data. The government would also continue to collect any taxes under the Corporations (Fees) Act 2001.
This strategy means that the successful bidder would need to invest in IT infrastructure, create value-added services and continue to generate revenue from ASIC’s search-related fees. It also leaves the door open for the government to reduce or eliminate search fees for digital records — even while a private sector firm operates the registry.
Knapp said the government needed to clarify what it intended to do with company search fees in the context of the introduction of a “user pays” ASIC regulatory model and the privatisation of the register.
Cormann said it was important to note that the government had not made a decision yet on whether the sale of the sale of the registry would proceed. He said if it did proceed the government would have safeguards in place to ensure the existing levels of access are maintained.
“Regarding the ASIC Registry, the access that users of the ASIC Registry currently receive will continue, with legislation and regulation to ensure the public, information brokers, and government users have equitable access to the data,” Cormann said. “The government is exploring private sector involvement in the operation of the ASIC Registry to ensure that services to the Australian community continue to improve, that data which is openly available now continues to be openly available, and that those services are delivered as efficiently as possible.”
Cormann also stressed that any commercial operator would need to meet the government’s Open Data Policy Statement and ensure an appropriate level of IT security. The government has not given any indication that it intends to use the privatisation as an opportunity to reduce or eliminate digital search fees, however.
Public concerns
GetUp said the issue had attracted 40,000 signatories within the first 48 hours of the campaign, which highlighted the public’s concerns over the privatisation.
The final phase of the tender process for bids to operate the registry is set to end on August 29.
Natalie O’Brien, economic campaigns director for GetUp said the privatisation could jeopardise the ability of journalists and academics to conduct investigations into the illicit and unethical activities of business.
“This is an all-out attack on corporate transparency and the ability of journalists to hold the private sector accountable. Australia already pays some of the highest fees in the world to access corporate data. Journalists and academics routinely run out of money to purchase more financial statements to properly investigate a particular company or industry,” O’Brien said.
“If the database is run by a for-profit corporation, not only will it entrench this abysmal status quo, we’ll see costs rise, and additional access barriers may be created. That means less transparency, less corporate accountability,” she said.
The plan to privatise the ASIC Registry, which could fetch anywhere between A$1 billion and $6 billion according to industry estimates, was launched under the Abbott government in 2014 as part of its promise to ”reduce the footprint” of the federal government. Critics of the proposal are hopeful, however, that Prime Minister Malcolm Turnbull holds a different view of the value of corporate transparency.
Turnbull reportedly told an industry event in 2014 when he was communications minister that he opposed the idea of charging for company record searches.
“I have to say as a matter of principle, I don’t think the government should be charging the public for data,” Turnbull said at the Australian Information Industry’s Navigating Analytics Summit in Canberra in March 2014.
“Obviously these are tough and troubled times from a budgetary point of view — and there will be all sorts of contractual issues — but really, the productivity benefits from making data freely available are so much greater than whatever revenues you can generate from them,” Turnbull said.
GetUp said the register provides journalists with the records they need to investigate tax evasion, labour exploitation, human trafficking, money laundering, financing of terrorism, commercial online child sexual abuse, illicit arms trading, fraud, embezzlement and bribery. It said it had been central to efforts to expose the tax dodging habits of private companies.
“Everyday people know that corporations need more scrutiny, not less. Otherwise we are all the poorer,” O’Brien said.
