Wednesday, 28 November 2018
Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018; Second Reading
It is a real privilege today to be able to make a contribution, on behalf of my colleagues on this side of the House, to the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018. We are supportive of this bill. We are pleased to see the government finally making a move towards strengthening penalties for corporate crime, which has been a need for quite a long time in federal law. And I move a second reading amendment that will enable the House to continue a discussion about the government's failure to address some other areas of corporate crime that Labor believes are very critical. I move:
That all words after "That" be omitted with a view to substituting the following words:
"whilst not declining to give the bill a second reading, the House notes the continued failure of the Government to address corporate misconduct".
First, I'll talk about the bill and what it does, for the benefit of people in the gallery and those listening at home. It's been widely recognised for a very long time in this country that the penalties that are attached to white-collar crime are insufficient. We see that when I do my roundtables. When I talk to people—even people in business—the refrain that always gets the most nods of heads is when I talk about the fact that people are sent to jail for long periods of time and get big fines when they're an individual committing a crime, but, for some reason, our law seems to suggest and seems to reflect a view that we don't take white-collar crime and corporate crime as seriously in this chamber. That is wrong, and that is something that we need to actively refute as a parliament to send a really clear message to the community and to the people for whom these laws are most relevant that white-collar crime is crime. It doesn't matter if you're wearing a suit when the crime is conducted and it doesn't matter if you're clever at hiding what you're doing in spreadsheets and in different sorts of files. If you commit a crime, you need to pay for that crime, and some of the measures that are in the bill before us are going to make sure that that's instituted by this federal parliament.
I mentioned that there's a general consensus that white-collar crime penalties have been insufficient and inadequate. A review into enforcement conducted a couple of years ago produced a final report in 2017 that outlined some changes that need to be made to federal law, and the bill before us will see some of those changes being enacted. The enforcement review, which is the discussion that I referred to, arose out of the financial systems inquiry. That inquiry identified very clearly that the maximum penalties in financial sector law are unlikely to deter misconduct by large firms and made a recommendation that we substantially increase civil and criminal penalties. The review also considered the enforcement options that are available to ASIC. So what we see in this bill is, in part, an increase to penalties across a range of different offences, but it also provides ASIC and the courts more flexibility in how they account for people's wrongdoing.
All in all, the ASIC review task force produced a set of recommendations that we are generally supportive of. We're generally supportive of strengthening penalties in the way that's being done in this bill, and I want to go through some of the specific changes. The bill deals with criminal and civil penalty provisions in the Corporations Act, the ASIC Act and the National Consumer Credit Protection Act. It makes several changes to offences that exist within those acts. It increases penalties for individuals and corporations for both criminal offences and breaches of civil penalty provisions. It makes some changes to the penalties that sit with strict and absolute liability offences. It creates several new ordinary criminal offences—that is, offences that require some type of mental element or criminal intent to be proven. It introduces a disgorgement remedy for ASIC to use in civil penalty proceedings. That, in plain English, means that this law will allow a court to force someone who has benefited from a crime to essentially return the funds that have come from that crime. It creates a new infringement notice provision, which will give ASIC more options in punishing misconduct.
I think the aspect of this bill that is going to have the most resonance in the community is the part of the bill that sees increases to penalties across a wide range of offences. There are increases to maximum financial penalties across both civil and criminal offences, and we are supportive of those increases.
I want to refer to other penalty increases. One of those is where the benefit the corporation gained from the contravention, or the loss avoided, can be calculated and the court can impose a monetary penalty of three times that amount. This is a very important reform. We might be speaking in sentencing gobbledygook a little bit in this discussion but, to put it simply, there probably have been instances which people at home will have read about in the newspaper where a very serious corporate crime is committed and the penalty that's attached to the crime is a tiny share of the benefit that was generated by the crime. These penalties are talked about as the cost of doing business. That's not we want penalties to be in federal criminal law. We need penalties to actively deter misconduct, and that means we need penalties that are of a significant size. The bill before us gives courts the power to award penalties that are three times the size of the wrongdoing.
Individuals will also be subject to this maximum penalty of three times the benefit for criminal offences or breaches of civil penalty provisions. The bill would give courts an additional option in determining a penalty, which is that courts can calculate monetary penalties using the turnover size of the corporation. The bill specifies that a monetary penalty of 10 per cent of the annual turnover of the corporation can be put in place. The government has proposed a restriction to that, which is that civil penalties that use the 10 per cent turnover calculation are restricted to a maximum of one million penalty units or $210 million.
Labor is generally supportive of using increased deterrence. As a parliament we need to send a stronger message to banks and financial service providers that the community expects better. The community expects that as parliamentarians we will use the democratic process to determine which actions are against the law. Importantly, the courts use the maximum penalties that we set to gauge how seriously the parliament regards conduct. That's why the maximum penalty for these types of crimes is crucial. It doesn't mean that people are always sentenced at the maximum; it means that a judge has in mind that the parliament is sending a signal about the seriousness of this type of wrongdoing.
The banks and financial institutions that have failed to obey the law on many occasions are in a sense turning up their noses up at the parliament. We in this room embody the views of the people we represent on what have been some flagrant examples of the breaking of the law. We simply can't allow a legal regime in our country that says that big corporations can get away with, for example, the sorts of wrongdoing that have come out of the banking royal commission.
Before I turn to some other matters I mention the removal of custodial sentences from strict and absolute liability offences. The bill makes some changes to strict and absolute liability offences. Currently in the laws that I talked about there are several strict and absolute liability offences that carry potential custodial sentences. Again I want to put that in plain English: we're saying that a strict or absolute liability offence doesn't require the proof of a mental element and, despite not having that requirement, a person can go to jail when those offences have been committed. The way that those laws are framed is a little bit unusual. We try not to attach prison sentences to offences that don't have a mental element to them. The reason we don't is that going to prison is such a grave thing to happen and it's such a big thing to take away someone's liberty that we want to make sure we're doing it in only the most extreme of circumstances.
I just want to note that there has been quite substantial debate about the government's bill, which would seek to remove the custodial option from the absolute and strict liability offences. One of the most concerned parties about this aspect of the bill is ASIC, who is meant to be enforcing these remedies. ASIC raised concerns, through the ASIC Enforcement Review, about what is proposed by the government in this bill. It opposes the measures that are in the bill, and I want to just share, in a couple of quotes, what ASIC has said about its opposition. It said:
We consider that imprisonment should not be removed as a possible sanction for strict and absolute liability offences where it is currently in place, as this would send a confusing regulatory message.
It also said:
… Parliament clearly intended that various corporate strict liability offences were of such importance as to warrant a potential custodial sentence.
This same legislative intention is evident in numerous other Commonwealth statutes that also contain strict liability offences punishable by terms of imprisonment.
I just want it noted for the debate and discussion that will occur about this bill that we have here our corporate regulator actively opposing the solution that the government has put forward. I think that's going to warrant some further conversation in the Senate.
One of the important justifications that we do need to put into this discussion is that there are some specific aspects of white-collar crime that would mean that we wouldn't normally attach custodial sentences to strict and absolute liability offences. One of them is that white-collar crime is incredibly difficult to investigate. It's very difficult, therefore, to prosecute to the point of proving a criminal element in the mind of the wrongdoer. The reason for that is that, unlike a normal assault offence, for example, where there are witnesses who see one person punch another—and then the evidentiary process is quite straightforward—with white-collar crime we have a different type of criminal usually. People who are engaging in white-collar crime are often very good at hiding what they do. Indeed, the nature of white-collar crime makes it easier for them to hide what they're doing. It is quite difficult to take, for example, a big bank that might have 20,000 employees and find the person who is responsible for some type of wrongdoing and then find evidence of that wrongdoing when you're not actually inside the bank. So I think there is an argument to be made here about the strict and absolute liability offences, and ASIC has made that argument quite strongly in its discussion about this bill.
The bill creates several new infringement notice provisions. Infringement notices are lower level penalties that ASIC can impose without the need to go to court or prove wrongdoing. As we might get a parking ticket, this is ASIC's way of giving people a fine without having to go through an expensive and lengthy process using a court. However, if the infringement notice is not complied with, ASIC needs to be able to go to court and prove the offence. Infringement notices provide ASIC with more options, and we want to give our regulator all the tools that it needs to be able to bring these people to justice. But I think there does remain an open question here about whether, in some cases, creating infringement notice provisions sends the wrong signal about the seriousness of the conduct. For some of the offences in the bill before us, there's a criminal offence that exists within the law and, essentially, we're layering less serious ways of penalising that conduct beneath the criminal offence. It's easier to fine wrongdoing, but it's also less of a penalty, and I think that, as per ASIC's argument about the strict and absolute liability offences, there's a discussion to be had here about the kind of message we're sending as a parliament when, in an effort to strengthen the penalties attached to corporate wrongdoing, we actually end up providing a whole lot of easier-to-prove penalties which, I would assume, will be used more frequently than the criminal penalties are today. That is a discussion that I think will take place.
I want to note that, in the royal commission, Commissioner Hayne has identified some potential issues with the use of relatively small infringement notices to penalise serious misconduct where the benefits to the company and the damage to consumers are far in excess of the value of infringement notices. In discussing two cases where ASIC issued infringement notices for breaches of responsible lending obligations under the National Consumer Credit Protection Act, Commissioner Hayne observed that in both cases the ASIC media release about the infringement notice featured the disclaimer that 'the payment of an infringement notice is not an admission of guilt in respect of the alleged contravention.' It is difficult to identify any correspondence between the scale or severity of the conduct and the penalty imposed in either of these cases. If penalties are intended to have a deterrent effect, as suggested by the words of the ASIC media release, then it must be plainly said that the amounts imposed in these cases do not. We'll continue to consider that matter through the Senate process to make sure that we're taking into account these competing views about the benefits of providing additional options to ASIC in this regard.
The bill contains some new powers to ASIC. I mentioned before some new methodologies that a court can use to determine the size of penalties. There are other measures in the bill that create a new remedy that ASIC can seek from courts through civil penalty proceedings through requiring the disgorgement or forfeiture of benefits gained as result of misconduct. Labor supports the introduction of the new disgorgement remedy; that's a very positive development.
I want to speak a little bit now about the second reading amendment, which I'm moving as part of my speech today, because it is important for us to remember the context of the conversation that has brought us to this point and that inexorably leads us to the banking royal commission, which I haven't referred to in too much detail in my speech so far but must be a part of the conversation that we have about the deep failure of our current penalties regime to deter criminal conduct. That's just the frank reality that has come out of the royal commission.
It's important to note that the ASIC Enforcement Review Taskforce reported in December 2017, before the first royal commission hearings had been held. In fact its deliberations occurred before the royal commission had even been announced. I'm sure all of us in this chamber have had the same experience. We knew that there was some level of wrongdoing occurring in corporate Australia and particularly within banking, but the scale, the size and the damage that has been done that has been revealed through the royal commission has shocked almost every Australian. In fact, even the bank CEOs that I talk to, knowing as they do their own organisations, are shocked at what they see when all of the wrongdoing and misconduct is put together. We need to note that the conclusions that the ASIC enforcement review made, and the conclusions that this bill is based on, don't take into account the widespread misconduct and systemic failures of compliance that were laid bare through the royal commission.
The failure of banks to live up to community standards is something that I feel extremely strongly about. One of the reasons for that is that I have spent a considerable amount of time over the last couple of months in particular meeting and speaking with people who are victims of bank misconduct. The unbelievable damage that has been done by these institutions is not possible to put into words. I firmly believe that the only way that anyone can really understand what has happened here is by sitting down with someone who has been affected by banking misconduct and speaking to them about the damage that has caused to them. I have met with people frequently who have had marriage breakdowns, who have had lifelong mental illness—illnesses they will battle with the rest of their life. Their lives have been ruined for financial reasons, but that has often led to a cascade of events that have taken them to a place that they could never have envisaged themselves in.
There have got to be people held to account for the type of conduct that's been seen. We do feel a genuine and huge sense of frustration on this side of the chamber that it has taken so long for us to get to this point. To speak with these bank victims and then to think back to the level to which the government was willing to go to try to prevent the royal commission from ever taking place tells me everything I need to know about the people who sit opposite me in this chamber. Instead of defending the people who have been affected by this misconduct—and I meet some of the worst, but there are millions of Australians who have in one way or another been victims of some type of conduct that has not met community standards—and trying to investigate the people who did this wrong to them, the government defended the big banks and did it for almost two years. We could have had the royal commission done and dusted. We could be implementing reforms right now, but instead we have this royal commission still underway and people still being hurt.
I'm enormously frustrated that I am still today looking at the royal commission. We've had the bank CEOs through the royal commission this week and last week, and I have to say that in many instances I haven't been overwhelmed by or impressed with their conduct. One of the things that is most frustrating about watching those bank CEOs on the stand is what I see as a lack of effort to properly compensate people who have been wronged by the banks. It's a great thing for the bank CEOs to come before the royal commission and say that they did the wrong thing, but it's cold comfort to the many millions of people who were hurt by that.
I see that the banks are going about huge compensation schemes for instances where they've had some type of systemic misconduct. They are going about trying to identify those people. But what about all of those other people who were victims of much more serious misconduct? We have examples where people have been victims of fraud by the banks, and instead of dealing with them properly in an upfront way the banks have sometimes sued them so that they can tie them up in years-long legal battles and prevent that person from ever accessing justice.
So I'm frustrated. I'm frustrated with the government, because we could have been so much further along in this debate. There are so many people who were hurt by the conduct of the big banks while the government ran protection for them and while the government tried to give them billions of dollars in tax cuts. And I'm frustrated because we're here talking about this bill instead of implementing some of those pretty significant reforms that I think will be the consequences of the royal commission.
I just want to put this on record one more time. We have a different person occupying the big chair in this room now—the member for Cook, the Prime Minister. This is the person who called the royal commission a 'populist whinge'. The Prime Minister called the royal commission a 'QC complaints desk' and he voted against it 26 times. He can go around Australia in his empty bus and he can use all the Australian vernacular he wants—he can call things 'dinky-di' and 'fair dinkum' until the cows come home—but the truth is that it doesn't mean anything if he doesn't come into this chamber and do the right thing. And he didn't do the right thing: 26 times he voted against a royal commission.
So I'm frustrated with the current Prime Minister, because I do see him as responsible for where we are today, and that is a community of people who have lost trust in our big financial institutions. That's actually a bad thing. It's a bad thing for the economy and it's a bad thing for Australians. Increasingly, when I talk to people about this they feel that the royal commission represents for them a view of society that they didn't really believe was Australia. That is to say that they thought Australia was a fair country, where if people broke the law they were held to account and if they went to work every day and did the right thing then bad things wouldn't happen to them. I have seen people and talked to them—literally, grown men—and every time I've had a banking round table a grown man will well up with tears or cry in front of me as he talks about the fact that he never thought this could happen in Australia, but it did. And part of that responsibility has to sit with the government of the day.
So we're pleased with aspects of this bill, but frustrated that this is where the debate is. I'll leave my comments there and allow those on the other side of the chamber to make their contributions.
The original question was that this bill be now read a second time. To this the honourable member for Hotham has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. If it suits the House, I will state the question in the form that the amendment be agreed to.
I rise to speak on the government's Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018.
I've spoken before in this chamber about the need for all of us, as banking consumers, to have access to really good-quality services from the banking sector. Our needs are very diverse, and they are diverse for each different person in Australia. We need to have enormous confidence in those who we seek advice from. That's why the government's bill is actually putting consumers first. That's the important part of the bill before the chamber today. Not only is it putting consumers first it is giving a very clear message to financial institutions and individuals that complying with the law is actually not negotiable—it is the law. If the law is breached, the courts will actually have a broader range of penalties to impose. Not only will these act as a significant deterrent; there will be real consequences for the types of behaviour that we've seen at the royal commission. The damage has been extraordinary. It's entirely appropriate that people, companies or groups that have contravened the law are actually punished, and that's what this bill is about. The government is absolutely committed to ensuring that our financial services regulators have the various powers they need to protect consumers and to deter and prosecute corporate and financial sector misconduct.
We saw a number of the comments by Commissioner Hayne in his interim report, and some of them bear repeating here today. The conduct that the Commissioner identified and criticised was described in his report as that of 'taking a customer's money when not entitled to take it'. That was on fee for no service. It also included:
Then, when I look further into the interim report, one of the things that Commissioner Hayne said was:
Each financial services entity is responsible for its own conduct. It, and it alone, is responsible for every act that is identified in this report as conduct that might constitute misconduct or is conduct that falls short of community standards and expectations. The criticisms that are made of the ways that regulators have responded to this conduct must not be understood as diminishing in any way the culpability of the entities that engaged in the relevant conduct.
They are very strong statements. He went on to say:
Important deterrents to misconduct are, therefore, missing from the banking industry. Competitive pressures are slight.
The banks have gone to the edge of what is permitted, and too often beyond that limit, in pursuit of profit. And they have gone beyond the limit:
What we see here today is a range of measures to help cover off some of those instances that the interim report of the Commissioner alluded to. The message here is very clear from the government: complying with the law is not negotiable. If the law is breached, the courts will have a broader range of penalties to impose, which will act as a very significant deterrent. The bill more than doubles the maximum imprisonment penalties for some of the most serious white-collar crimes that I have just described and brings Australia's penalties in closer alignment with leading international jurisdictions. It will also increase several penalties for individuals by more than fivefold and increase civil penalties for corporations by more than tenfold. The government is also giving courts the power to consider even greater penalties where the profits from misconduct are high or where the company's annual turnover exceeds $105 million.
As I referred to with the royal commission, the proceeds of misconduct have been shocking and massive. This bill will ensure that courts can act in these situations. At the moment there is no penalty, apart from taking licensing action and perhaps even taking away the licence, should a financial institution breach its licence to provide financial services that are efficient, honest and fair. However, under these new laws, individuals could face a maximum civil penalty of three times the benefit gained or over $1 million; and companies could face a maximum of $10.5 million or three times the benefit gained or 10 per cent of annual turnover capped at $210 million.
In addition to strengthening the penalty framework, the law will be amended to ensure that courts prioritise compensating victims over collecting penalties from offenders. This is important so that customers who have been affected by the decisions of individuals or institutions can be confident that they won't be left out of pocket. We have consulted with the Legislative and Governance Forum for Corporations in relation to the bill, and it has approved the bill as required under the Corporations Agreement 2002.
As I said at the beginning of my speech, people have lost faith, as we have heard in this House previously. That is extremely serious. They are angry and frustrated, and they are unbelievably hurt not only by what has happened to them but by the weight and amount of evidence they've heard at the royal commission. There are a lot of people who are very shocked. They are particularly angry that the people whom they trusted at those institutions did the wrong thing and didn't act in their, the consumer's, best interest. They are angry about the person, often sitting across the desk from them, who has given them advice that they were trusting to be the right advice. Having done that regularly with a bank manager, I can understand how frustrating it is and how angry people are when they get their advice. We need absolute faith in our financial institutions and the advice they give us. People like me and many others in small business rely on that information to make sound commercial decisions. The decisions you make and the decisions you are in a position to make can make or break your business and can have a major impact on your family.
This bill is yet another part of the government's comprehensive, aggressive reform agenda for the financial sector. We've created a framework to hold banking executives accountable for their actions under the government's Banking Executive Accountability Regime. We've boosted banking and financial services competition to benefit consumers. I note also that we announced recently greater backing for small business by lowering the cost of funding for smaller banks and nonbanks with a $2 million fund, which will mean cheaper loans for small and family businesses, something that's critical to small businesses in Australia. We have provided ASIC with an additional $70 million of funding and significant new powers, and appointed an additional deputy chair, Mr Daniel Crennan QC, with a key focus on enforcement action. These reforms have come from our government and our government's determination to ensure that our financial sector is as strong and customer focused as possible.
There are other inquiries that we have conducted into the financial sector which have provided a number of recommendations. A stronger penalty framework is just the next step for us as a government. It's a step not only about holding those accountable for what they've done but also about making sure that customers can have far more confidence in the advice that they get. In making some of the biggest decisions that you make in life—whether you're an individual deciding about a loan that you want for a home or a vehicle or you're a small business; whatever decision you're making—you frequently rely on very sound advice. One of the toughest things for you as a small-business person to accept is that advice you were given was not in your best interests. Okay, we have to look at every deal we're offered and consider it from our own perspective: is this the best deal that I can get? Is this the right deal for what I'm trying to do in my business or in my life? However, you do expect that the quality of the advice that you get across the counter is the best it can be for your particular circumstances. Financial institutions have a long way to go to regain the confidence of consumers, and with the government, through this bill, putting consumers first, I hope people in small businesses start to get much more confidence in the advice they get.
I have spoken previously in this place about some of the issues that small businesses like our own were facing in those early years. When you consider that in those particular years interest rates went from 17 to 23 per cent, our interest and payments were $1,300 a month and we were generating $2,000 a month, every dollar counted. Every decision counted in our business. Every bit of advice that we got mattered as to whether we would sink or swim as a business. Yes, there were times with our dairy farm business when it was quite tough for us to actually earn that $2,000 a month. If we got to February, we didn't earn $2,000 a month, because it was a short month and we were paid on a daily basis for the milk that we were supplying. We were having to build and develop a business at the same time. We relied so strongly on the advice that we got from our local bank manager. Let me tell you how important local bank managers are. You can go and have a chat with them and they often understand not only how your business works but how your industry works, the decisions that you need to make as a business and how important that information and advice is.
I am very pleased to support the legislation. I have no doubt that the measures in this bill will provide significant deterrents. These are the actions required. They are the sorts of deterrents that, unfortunately, are necessary for us to apply, along with a suite of other measures that the government has taken and will continue to take.
I rise to speak on the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 today. I want to follow on from where the member for Forrest, in her contribution, said that it's 'her government' or 'our government' who has always wanted a banking sector which is as strong and as customer-focused as possible. What an absolute load of rubbish! This is from a government member who voted against a banking royal commission 26 times. The member for Farrer and the member for Calare, who are in the chamber, didn't want a banking sector focused on customers. If they had, they would have not stalled and stopped a banking royal commission.
It has been 12 months since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established and, in that time, we have heard the most astonishing stories of deceit and behaviour by the corporate sector that simply makes your skin crawl. This is one of the many reasons that Labor is supportive of the bill to strengthen corporate and financial sector penalties. The measures in this bill implement the recommendations the ASIC Enforcement Review, and that is a good thing.
The ASIC Enforcement Review arose out of the Financial System Inquiry, which identified that the current maximum penalties in the financial sector laws are unlikely to deter misconduct by large firms and recommended sustainability and increased civil and criminal penalties. In its report the task force made 50 recommendations in relation to self-reporting of contraventions by financial services and credit licences, the harmonisation and enhancement of search warrant powers, ASIC's access to telecommunications intercept material, industry codes in the financial sector, strengthening ASIC's licensing powers and ASIC's powers to ban individuals in the financial sector, strengthening penalties for corporate and financial sector misconduct, and ASIC's directions powers. The task force report was released in April 2018, in conjunction with the government's response to the report. I am pleased to say that in the response the government has agreed or has agreed in principle to all of the recommendations of the task force. As we have learnt through every single day of the banking royal commission, current penalties for corporate misconduct, whether jail sentences or monetary penalties, have been shown, quite frankly, to be hopelessly insufficient to deter misconduct.
Might I add that this is a royal commission that every single member of this government voted against 26 times. We all know what the Prime Minister said about the royal commission. He described it, as we heard from the shadow minister, as 'nothing more than a populist whinge'. That was what the current Prime Minister of Australia said. One thing that hasn't happened since he said those words to the people of Australia is an apology—an apology to say 'we weren't listening', an apology to the victims of banks who have suffered. The government have somehow come in today and want to be congratulated for their actions. I mean, what sort of alternative universe are we in when members of the government come into this chamber? It was nearly as strange as when the Prime Minister said about a month ago that he was responsible, that he should take all of the credit, that he was the hero of the day. Well, the victims do not think that he is the victor in this story. I would like him to tell that to the families that have lost millions at the hands of big banks. And, whilst we await the final report of the royal commission, we don't want to sit by and idly do nothing in the meantime. This bill will seek to raise the bar of penalties so that banks, the financial sector and corporate organisations don't flout the system by taking advantage of small penalties as a small price to pay against the massive profits they reap from doing the wrong thing.
This is a necessary reform. This will help to prevent the outrageous situation that we currently have where companies can make hundreds of millions of dollars, even billions of dollars, through breaking the law and then pay minuscule penalties. This current system is unjust and goes against community expectations of how our corporate sector operates. It is why so many victims—over 10,000, in fact—have come forward and provided submissions to the banking royal commission, telling their stories about how they have been ripped off. With this bill, we seek to put in place deterrents that will in future avoid, potentially, these awful stories. We know that this bill will increase penalties for individuals and corporations for both criminal offences and breaches of civil penalty provisions. It makes several changes to restrict absolute liability offences, create several new ordinary criminal offences—that is, those requiring a mental element to be proven—introduce a remedy for ASIC to use in civil penalty proceedings to force the surrender of benefits gained from wrong-doing and create new infringement notice provisions, giving ASIC more options in punishing misconduct.
Labor is supportive of increasing deterrents and of sending a strong message to our banks and financial service providers that the community expects better. For far too long, we know that they have got away with ripping off Australian consumers just as a way of doing business. It was only this week that we heard from NAB chief executive Andrew Thorburn, who told the banking royal commission that the bank's bonus schemes encouraged bad behaviour, saying that 'we put the bait right there for the people'. He went further and admitted that the NAB became distracted by failing systems in non-core businesses and had 'drifted' towards short-termism at the expense of customers.
I stand in this parliament to say that this type of business behaviour must end, as we parliamentarians can see it, by ensuring that the strong deterrents are put into place. In the past, it has been clear that our banks and financial institutions have failed to obey the law on so many occasions because, as they have shown, they do not take the laws seriously. Today that changes. We need to send a message to companies, directors and senior executives that compliance is not optional and that, if they put in place structures and cultures that facilitate illegal conduct, there will be very, very serious consequences. We know that this must happen because we have seen from the banking royal commission that the corporate sector ignores the deterrents that are already in place. As we know and as we have heard time and time again, over 10,000 submissions from the public were made to the royal commission. I want to put into the record it is actually 10,140 in fact. That is over 10,000 Australians who took the time to let the royal commission know about their experiences of banks and financial services misconduct. But, because of the time line imposed by the commission and this government, only 27 victims had the chance to tell their story in person. That is just 27 victims out of 10,000 who made written submissions.
Today I want to congratulate and thank the Leader of the Opposition, Bill Shorten, and shadow minister Clare O'Neil. They are doing the hard work that this government failed to do. When we see a problem, Labor listens and Labor acts. When we hear that people are being ripped off, Labor listens and Labor acts. That is exactly what the shadow minister has done—listened to Australians, giving them the decency to have their story told, giving them the honour of listening to what they want and giving them a voice. Shamefully, the government has completely outsourced this role. They have just completely abandoned victims once again. So I thank the Leader of the Opposition and the shadow minister, the member for Hotham, for their outstanding leadership and for the work they have done in ensuring that people are given a voice.
I hosted one of these victim forums in my own community. I invited people who were frustrated, who were angry and who were devastated at being ripped off by big banks. I heard from individuals who had been treated appallingly. I heard from people who were taken advantage of, whose lives were destroyed and they were left to simply pick up the pieces. I want to read into the record today, into the parliament of Australia, the feedback that I heard on behalf of these victims, so that they have a voice, and so that their story is heard. I heard about a 'sell and win at all costs' culture, costly and drawn-out legal costs to fight injustice, credit given by banks to financially disadvantaged citizens who should never have qualified for the loan in the first place, falsified documents and fraud, internal dispute resolutions that restricted access to documents, unauthorised transactions and missing signatures.
More importantly, I heard about the major impact victims experienced—I heard this from the victims that I have spoken to directly, face-to-face, in person. I heard about the impact on women who were 'embarrassed to come forward' and about people who have been forced to turn to charities as a result of the financial situation they have been left in. But, most importantly, I heard from people with tears in their eyes about a simple lack of compassion. So, today, we can take a stand and move forward for these victims, but we need to do more. In conclusion, Labor is supportive of this bill. But, as I said, we can and we must do more to ensure that we never again have to hear horrific stories like the ones we heard about in the royal commission.
These measures go some way to doing that, but we must remain vigilant and we must ensure that the appropriate and necessary deterrents are put in place. That is what Labor is committed to, and every single member of this side of the chamber will continue to fight for justice for these victims. The Leader of the Opposition, the shadow minister and members of the Labor team have been travelling the country, criss-crossing the country, listening to the stories, because those people aren't just numbers on a piece of paper; those stories aren't simply statistics. They are real people with real stories, whose lives have been impacted by these decisions, whose lives, in some cases, sadly and horrifically, have been destroyed.
We want to ensure that more families aren't ripped off, to ensure that more small businesses aren't ripped off. We want to make sure that those people get the justice that they deserve and that those people who do the wrong thing are punished in time. So, whilst we support these measures, I place on record that Labor will continue to fight for these victims and continue to make sure they get justice as well.
I rise to speak in support of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018. This legislation will enable tougher penalties for misconduct in the corporate and financial sector by amending the Corporations Act, the ASIC Act, the National Consumer Credit Protection Act 2009 and the Insurance Contracts Act. The legislation is responding to a recommendation from a task force that was itself created from a Financial System Inquiry recommendation.
The intention is to deter misconduct and, by doing so, improve community confidence in the corporate and financial sector. There has long been a lack of community confidence in that sector, especially in the banks. That is why the community called for a royal commission into the banks, and that is why I supported a royal commission and fought to convince the government that a banking royal commission was the only option. I'm pleased to say that fight was successful, with the establishment of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, or what is better known simply as the banking royal commission.
The royal commission submitted an interim report in September, with the final report due to be submitted by 1 February. The community expects bankers to act in respect of customers financial affairs with the utmost integrity. Importantly, the community expects banks and bankers who engage in illegal and criminal conduct to be held to account, facing significant penalties and jail terms where appropriate. As has been highlighted by the royal commission, the entire industry has been plagued by extensive, serious misconduct which is extremely harmful to the affected customers. The royal commission highlighted how regulators have failed to effectively identify and prosecute breaches of the law under the Corporations Act and the Criminal Code.
The community has told me overwhelmingly that they are sick and tired of bankers getting away with white-collar crime without consequences. For most victims, achieving redress against a bank that has acted improperly towards them is impossible. People lose their businesses and they lose their homes. Marriages are torn apart and families are torn apart. Some people have taken their own lives, and most are left in a situation where they are bankrupt and can never start again. I welcome any efforts that provide a genuine improvement to legislation and that provide a strong deterrence against bankers breaking the law in the future.
However, I do hold a concern—and, I've got to say, a bit of disappointment—about the outcome of the royal commission in respect of small and medium enterprises and farmers. Small businesses are vital to our local economy, and they're a significant source—the biggest source—of jobs in this country. Many businesses rely on borrowing to sustain and grow their operations. A bank is supposed to be a trusted business partner that supports business borrowers. However, since the GFC there has been a dramatic increase in complaints about mistreatment of these business owners by the banks.
One of the most serious complaints has resulted from the practice of banks foreclosing upon large volumes of customer loans where customers were meeting their repayment obligations and were not in any financial trouble. The bank simply changed its mind about its lending strategy and forced these businesses into extreme financial hardship, and, almost inevitably, insolvency because the bank wanted to get out of lending to those customers as quickly as possible. Inquiries to date have revealed complex, one-sided business-lending contracts that allowed the banks to act unilaterally against a customer without recourse. Businesses do not have the same legal protections as retail consumers, and most cannot afford to litigate against a bank even when they have a strong case. The resulting social harm is immeasurable.
Unfortunately, I have to say that the royal commission has failed to adequately investigate systemic foreclosures of small and medium enterprise businesses and farmers, which was the ultimate catalyst for that royal commission. After reviewing volumes of evidence supporting the ballooning allegations of systemic misconduct, in 2017 my National Party colleagues and I—most notably, Senator Barry O'Sullivan and Llew O'Brien, the member for Wide Bay—drafted these terms of reference for an inquiry into the practices of banks foreclosing on regional small businesses, farmers and city based businesses who were meeting all of their contracted repayment obligations. The stories we heard were shocking. Evidence was reviewed of receivers engaging in selling properties drastically below fair market value; not correctly accounting for asset sales; cattle duffing—cutting tags out of livestock to hide the true ownership of cattle—and falsely signing that cattle were chemical- and disease-free. Evidence was also received of banks altering loan documents and other relevant customer file documents used in court, forging signatures on documents used in court and withholding relevant documents from courts during the discovery process.
The terms of reference for the National Party's inquiry—the one that we were going to put forward—included investigating the use of unfair non-monetary default covenants in loan contracts; the role of receivers in systemic misconduct; serious biosecurity breaches resulting from receivers' misconduct; the role of valuers in overvaluing or undervaluing a property to meet the bank's desired objectives; and serious misconduct by banks in court, including the use of forged documents in court cases. Unfortunately the former Prime Minister, Malcolm Turnbull, rejected the National Party's thorough, detailed terms of reference, instead adopting a broadbrush approach, leaving it fully open to the royal commission to determine how to address misconduct in the entire banking sector in just 12 months. This is simply an inadequate time frame to investigate the extent of misconduct across the banking and financial services sector.
The royal commission received more than 10,000 submissions, yet only heard from 27 witnesses who were victims of the banks. Less than 10 small-to-medium business performing loan foreclosure case studies were examined in the small-to-medium enterprises round of hearings. Submissions offering to provide documentary evidence of serious misconduct were not followed up by the commission. Bank victim witnesses were heavily influenced by counsel assisting the royal commission to forego their right to cross-examine bank witnesses—I have that testimony that's been given to me. This further compromised the inquiry, I believe. This was in stark contrast to the sexual abuse royal commission, where more than 8,000 private sessions were held with victims and more than 2½ thousand referrals were made to authorities, including police. Victims and their legal counsel were also allowed to cross-examine churches and other relevant institution witnesses.
In the case of Bankwest, counsel assisting the royal commission did not test any proposition of systemic misconduct. This is despite the commission having received a brief prior to the small business round of hearings detailing that a credible ulterior motive existed that drove deliberate dodgy behaviour. In 2009 McKinsey & Company published a bad-bank strategy template, which detailed the rationale, benefits and processes for the banks to simply dump unwanted performing business loans. The benefits included: maintaining investor confidence; optimising economic capital; and reducing management time taken up managing large or complex loans.
The Commonwealth Bank clearly adopted such a strategy in respect of Bankwest, with a very senior executive stating, when updating the market:
The Bankwest story is very much an intentional one. We have quite deliberately got out of low credit quality lending in this space and on an annualised basis in fact our reduction in the target, low credit quality space is well over 20%.
That's a quote from a senior executive at CBA about Bankwest.
Counsel assisting the royal commission failed to put this to the CBA or explore whether ulterior commercial incentives drove the systemic foreclosure of performing loans that were at play. Documents cited by the CBA during the royal commission confirm that the CBA considered the merits of, and ultimately adopted, a bad-bank strategy. Expert analysis highlighting areas requiring further investigation was provided to the royal commission by the CBA after the small business round of hearings. How can the royal commission rule out systemic misconduct if it does not consider credible, independent expert research and advice which was strongly supported by primary documents from within the CBA? In those circumstances, the findings of no misconduct by the royal commission cannot stand and need to be revisited urgently. Compounding the problem, the royal commission did not look at receivers, valuers or misconduct by banks before the courts. The small business round of hearings was the only round not to find serious, systemic conduct despite extensive complaints and evidence supporting the proposition that banks had engaged in systemic misconduct.
Although a 12-month time frame is extremely tight, the government has repeatedly stated that the royal commission will be extended if Commissioner Hayne feels it necessary to request more time. When I learned that the commission had not adequately investigated the small business and farming issues, I wrote to Commissioner Hayne, advising that he had my full support and urging him to request more time to allow the royal commission to investigate the relevant issues more thoroughly. I note that the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, who has conducted an extensive review of these issues, also urged Commissioner Hayne to request more time to allow a more thorough investigation of the matter. It appears that Commissioner Hayne did not heed this request. Around that time I also wrote to the Treasurer, seeking an extension of time for small business, as well as additional terms of reference, to allow misconduct by relevant parties such as valuers, receivers and lawyers to be reviewed.
This leaves both the government and small business borrowers in the unfortunate position that misconduct of the past will still not be addressed. It also leaves all small business and farming borrowers exposed to the very real risk in the future that a bank will change its view of lending risk to an entire sector of loans and aggressively move to foreclose on those loans, even when the borrowers are meeting all of their repayments and aren't in financial difficulty.
A once-in-a-lifetime opportunity to properly review and move to redress past conduct has been wasted, as has the opportunity to effect change to protect borrowers in the future. The risks are real. The risks remain. Small business around the country should be outraged. Farmers and all those communities that rely on farming should be up in arms. Generations to come are likely to be more harmed by unethical bankers than by economic downturns or drought. No matter how much positive work was completed by the royal commission, we cannot allow the failure of the small business round of hearings to go unnoticed or unchallenged. The findings of no misconduct resulted from a rushed, flawed inquiry that did not consider all evidence available to it and did not afford procedural fairness to at least some victims. This does not mean misconduct did not occur. We must continue with a better process to properly investigate the matter that ultimately triggered the royal commission.
We rely on small business to contribute to the local economy and employment in North Queensland and right around the country. As a result of the disappointing failings of the royal commission to adequately investigate this area of misconduct, we owe it to small business and farmers to address this conduct satisfactorily. The Small Business and Family Enterprise Ombudsman has the power, resources, budget and motivation to conduct an investigation into the actions of third party agents of the banks, like valuers and receivers. Whilst the ombudsman can commence an own-motion investigation, the most thorough and effective investigation possible would result from a proactive direction from the Treasurer to conduct such an investigation. When the Treasurer directs the ombudsman to conduct an investigation, the action actually triggers the ombudsman's notice-to-produce power, an important and necessary power not available in an own-motion investigation. I have written to the Treasurer and spoken with him, imploring him to instruct Kate Carnell and the office of the ombudsman to conduct this important investigation into the role of third parties, such as valuers and receivers, foreclosing on performing business loans.
As a practical measure, I also call on the government to ban banks from acting upon non-financial covenants to trigger penalty interest and foreclosure proceedings on small business and farmers who are meeting their repayment obligations and are not in financial difficulty. I understand significant work has been undertaken by government to achieve this outcome, but banks are strongly resisting. The key question is: why are the banks resisting this initiative so strongly? The obvious answer is that the banks want to retain the unfair contract conditions and the ability to exit a loan at any time, no matter what cost this action has on the customers who are meeting their repayment obligations. How many more hardworking small-business men and women who punch above their weight every day must suffer life-changing, catastrophic losses because of unethical bankers and their deliberate dodgy behaviour? How many farmers must face that?
While I commend the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018, it does seem somewhat a redundant move if the unethical practices of the banks are not properly investigated in the first place. How are the strengthened and increased penalties to be applied if misconduct is not properly investigated? The real fear is that nothing will change and the bankers will remain untouchable, immune from prosecution for their illegal and criminal conduct, and honest, hardworking Australians will keep getting ripped off by those big banks who continue to put record profits before people. In closing, I really do call on the royal commission, while there's still time, to look deeply and thoroughly into this area.
Before I get to my substantive remarks on this, I need to call the attention of the House to what ostensibly amount, in some regard, to crocodile tears from the member for Dawson as to the conduct of this inquiry. There is no doubt that he has been a longstanding member of this House who has called for a royal commission. But it is also in no doubt that he is a member of this government that called that royal commission and of this government—indeed, it was the now Prime Minister, who was then the Treasurer—who restricted that royal commission to being for only 12 months, effectively thereby ensuring that the royal commission would not be able to call oral evidence from many victims of banking misconduct, limiting it to fewer than 30, despite the over 9,000 submissions that were made to that royal commission. Even with that, we have seen so many terrible issues come to light and be highlighted through this royal commission, but I think it is remiss of the member for Dawson to not acknowledge the shortcomings of and time constraints that have been placed on this royal commission, which have meant some of these issues that he and many on this side of the parliament, including myself, have highlighted are a function of the limited time that was made available to the royal commission to do its work—a decision that was made by this government, by the now Prime Minister when he was Treasurer—but, when we look at the issues that have come out of this royal commission in the time that it has gone on, we can see that they are astounding. With that, I conclude my remarks.
I thank those members who have contributed to this important debate. The government is committed to strengthening the enforcement regime available to the Australian Securities and Investments Commission, making sure that the Australian Securities and Investments Commission has the powers it needs to take strong enforcement action to protect consumers from corporate and financial misconduct and rebuilding the trust the community has in the financial services industry. The bill overhauls Australia's penalties for white-collar crime and brings them closer to those in other leading international jurisdictions. Introducing a stronger penalty framework will ensure consumers are protected from corporate and financial sector misconduct. Under this legislation the imprisonment penalties for some of the most serious criminal offences in the Corporations Act will be substantially increased, fourfold in some cases. Further, the bill expands the range of contraventions subject to civil penalties and increases the maximum civil penalty amounts that can be imposed by courts. Under these reforms the maximum civil penalty for individuals will increase from $200,000 to the greater of $1.05 million or three times the benefit gained. For corporations the maximum penalty will increase from $1 million to the greater of $10.5 million, three times the benefit gained or 10 per cent of annual turnover, capped at $210 million. This represents a more-than-fivefold increase for individual penalties and more-than-tenfold increase for corporation penalties. This bill also includes important reforms that put consumers first. In addition to the stronger penalty framework, the Corporations Act will be amended to ensure courts prioritise compensating victims over collecting penalties from offenders. Finally, this bill gives the courts the power to seek additional remedies to strip wrongdoers of profits illegally obtained or losses avoided from contraventions resulting in civil penalty proceedings.
I commend this bill to the House.
The original question was that this bill be read a second time. To this the honourable member for Hotham has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. The immediate question is that the amendment be agreed to.
Original question agreed to.
Bill read a second time.