LF Economics’ Lindsay David and Philip Soos lodged a detailed submission to the 2016 Parliamentary Inquiry into Penalties for White-Collar Crime, which has just been released, whereby they argue that Australia is a haven for white-collar criminality and control fraud.
Below is the Executive Summary:
Over the last decade, concerns have been growing among the Australian public regarding the activities of the private sector, especially the corporate sector, in its dealings with consumers. The FIRE (finance, insurance and real estate) sector is at the forefront of accusations regarding fraud and other criminal wrongdoings. Almost every week, there is coverage in the mass media of criminal activity allegedly carried out by the FIRE sector against investors, businesses, households and individuals. Despite this media attention, there is evidence to suggest regular and widespread criminality has been committed by the FIRE sector since the 1980s.
It is argued by LF Economics there exists systemic criminal activity in the FIRE sector, placing consumers at grave risk of having their finances and livelihoods destroyed. The evidence pointing to this is based on the research of the world’s leading academic specialist in banking, financial and corporate fraud, Professor William K. Black, and Australia’s leading financial consumer activist and President of the Banking & Finance Consumers Support Association (BFCSA), Denise Brailey.
The term control fraud refers to those committed by the controlling agents of firms: executives and managers. These frauds are the domain of white-collar criminals and are rendered largely invisible by organisational power and influence, like the church abuse scandal. Control frauds are generated and amplified by the neo-liberal agenda which has significantly and regressively altered Australia’s credit-based banking system since the 1980s, operating by the modes of privatisation, deregulation, self-regulation, desupervision and de facto decriminalisation. This institutional setup has and will inevitably continue to generate increasingly larger toxic and recurring control frauds.
While penalties for white-collar crime need to be strongly expanded, acting on the available evidence is the first prerequisite to enforcing the rule of law against white-collar criminality as both government and regulators are seemingly reluctant to take action against control frauds in operation. Accountability and transparency needs to be restored in our banking and financial system, as confidence in the economy is built on the essential pillar of trust. The committee should recommend another inquiry with the widest terms of reference possible, focusing on the numerous control frauds plaguing the economy, and a Royal Commission which will inevitably uncover a cesspit of immense criminality committed by the FIRE sector, covered up by regulators.
a) Evidentiary standards across various acts and instruments;
b) The use and duration of custodial sentences;
c) The use and duration of banning orders;
d) The value of fine and other monetary penalties, particularly in proportion to the amount of wrongful gains;
e) The availability and use of mechanisms to recover wrongful gains;
f) Penalties used in other countries, particularly members of the Organisation for Economic Co-operation and Development [OECD]; and
g) Any other relevant matters.
LF Economics argues there are systemic control frauds operating within the Australian FIRE sector, with the full knowledge of ASIC, APRA and the RBA. None of these public organisations, however, have taken any meaningful action to identify, uphold the law and impose penalties on those engaged in white-collar criminality, let alone suggesting such penalties be increased. The authorities know of these control frauds but refuse to act upon this knowledge (enforce the rule of law); this is the first issue the inquiry must address in order to understand how to better approach penalties such as custodial sentencing, banning orders, monetary penalties, enforced undertakings and mechanisms to recover wrongful gains.
Due to the lack of both identification of control fraud and enforcement of existing laws on the part of government, modification of penalties for while-collar crimes may do little to stem control fraud. As part of an inclusive analysis, however, changes to penalties is an important step needed to bring the highly criminogenic FIRE sector into line. Accordingly, LF Economics strongly supports the strengthening of penalties for such crimes in Australia as suggested in the recommendations below, including the submission to this inquiry by Denise Brailey: financial consumer activist, criminologist and president of the Banking & Finance Consumers Support Association (BFCSA). There are other submissions bringing much needed insights to this neglected aspect of penalties for white-collar crimes.
It does not help when the LNP and ALP both refuse to investigate serious allegations of widespread control fraud (euphemistically called “misconduct in the financial services industry”) via a Royal Commission as put forward by Greens Senator Peter Whish-Wilson. Both political parties take campaign contributions from the FIRE sector which may explain their reluctance to investigate the allegations of control fraud. Long trails of victims are now left to fend for themselves, unassisted and blatantly ignored by regulators that should be striving to bring justice to these victims. Regulators refusing to investigate and prosecute criminality may themselves be in breach of law.
Given the paucity of analysis and investigation into these issues, LF Economics takes the liberty of expanding upon (g) by offering a comprehensive analysis of why control frauds are thriving in the current economic and political environment. By doing so, a strong case emerges whereby penalties for white-collar crimes are in need of strengthening.
And here is the Conclusion:
The government and public have been subject to a false and misleading view of the FIRE sector that is overly focused on its continued expansion as a profit centre to be maximised rather than a cost centre to be minimised. The ‘big end of town’, particularly the Big Four banks, are dictating political views, legislative processes and policy directions, made possible by the swarm of lobbyists paid out of record-breaking profits generated by massive private sector indebtedness. The evidence of losses, the constant barrage of consumer grievances, a steady stream of complaints against ASIC, the regulator’s favouritism of the engineers and lenders’ undue influence over the ombudsmen services should give the committee pause when considering future recommendations to stem control frauds. Victims repeatedly express that a Royal Commission will let them tell their stories and assist in uncovering mountains of evidence of foul criminality in the FIRE sector.
Australians have been betrayed by the regulatory agencies’ neglect and continual siding with lenders and corporate management, despite their full knowledge of the catastrophic pain endured by many who have lost their homes, assets and life savings. The committee should take note of the immense suffering of victims. A strict focus on rules, regulations, standards, codes and penalties will have a negligible effect on control frauds because these crimes are simply ignored in reality. Two decades of fruitless inquiries and tweaking of innumerable rules and regulations has merely contributed to the losses endured by typical ‘mum and dad’ investors, now into many tens (perhaps hundreds) of billions of dollars. The nation already has an abundance of appropriate laws and regulations to contain and dismantle these control frauds, yet regulators are averse to enforcement, rendering these powers null and void. Australia’s record household sector indebtedness and associated mortgage control fraud risks bringing the FIRE sector down and seriously impairing the economy.
This inquiry should not be limited to yet another narrow probe into the FIRE sector. The evidence strongly suggests that control frauds are currently in operation, with the FIRE sector actively seeking new targets to raid. An extensive analysis of the evidence is contained in the body and appendices of this submission. For government to effectively uncover the full extent of control frauds and begin cleansing a patently corrupt FIRE sector, a Royal Commission is necessary. LF Economics urges the committee to strongly recommend this course of action.
The submission, which tops 150 pages, explains in detail how bank control fraud takes place and provides numerous examples.
Hopefully this issue will gain some much-need attention from the MSM and our politicians, and ultimately culminate in a banking Royal Commission.
The full submission can be downloaded here.
Well done messrs Lindsay David and Phil Soos.