Australia 'paradise' for white-collar criminals (2)

And, not completely unexpected, Medcraft, the Chairman of the Australian Securities and Investments Commission has backtracked his previous statement that "Australia was a "bit of a paradise" for white-collar crime".

At a Senate estimates hearing the next day, he said he wanted to "correct" the comments as reported, having received a phone call from Finance Minister Mathias Cormann expressing his concern.


The Sydney Morning Herald continues (some snippets):


It was the sort of startling and "courageous" comment rarely heard from a senior public servant.

Greg Medcraft, the chairman of the Australian Securities and Investments Commission, may well be regretting his since-retracted statement this week that Australia was a "bit of a paradise" for white-collar crime.

But if his aim was to attract attention to the issue of penalties for corporate wrongdoing in Australia, his lapse into frankness may well have done the trick.

Medcraft has been pushing for months for tougher penalties in this area. In February, he told a Senate committee that Australia's penalties were inadequate, with the criminal sanctions inconsistent and civil fines set too low.

When it came to deterring white-collar crimes, Medcraft said, "you have to lift the fear and suppress the greed".

"The thing that scares white-collar criminals is going to jail, and that's what scares them everywhere in the world.

"The penalties, particularly civil penalties, in Australia for white-collar offences are basically not strong enough, not tough enough."

Nationals senator John Williams, an outspoken critic of the financial advice sector who has pushed for widescale reform, told the hearing: "I've said for 5½ years that we should have a royal commission into white-collar crime because I believe Australia is, today, a paradise for white-collar crime."

Some argue ASIC could make better use of the penalties available to it – that the problem is one of enforcement.

"In some cases it's true that Australia's maximum penalties can be less than the maximum penalties overseas," said corporate law expert Juliette Overland from Sydney University.

She agrees that there is a "good argument" for more consistency in sentencing of corporate wrongdoing in Australia.

But she says the focus should be on "deterrence up front, and the idea that if you engage in this conduct you will get caught", she said.

"The biggest problem with a lot of corporate crime is that it's so hard to uncover … if people think it's only a small chance you will get caught, they might still think it's worth a try."


The above is all very relevant in the Malaysian context. Ten, twenty years ago enforcement of white-collar crimes was virtually non-existent. I am pretty sure that some corporate "players" refer to this as "the good old time".

The good news is, things have clearly improved: more enforcement, and even some jail sentences. There is also much more transparency for investors these days, enabling them to stay away from "dodgy" companies and their insiders. That is, if investors do their homework.

But still, the glass is half full, there are many cases where the alleged perpetrators seem to get away with their loot, or receive at best a much delayed slap on the wrist.

Good enforcement should have the following characteristics:

• a high chance that the perpetrators will be caught;
• the punishment itself should be an adequate deterrent;
• the whole process should be relatively fast (justice delayed is justice denied), this includes a fast response to credible complaints received from the public;
• non-biased, it should not be that certain VIPs appear to be above the law;
• transparent, both regarding the backgrounds of the enforcements, but also when no action is taken in cases where it seems that rules might have been broken.

Malaysia can still clearly improve on the above.

Australia 'paradise' for white-collar criminals

I wrote several times in a negative way about the Australian financial industry, and the lack of enforcement: here, here, here and here.

I have insights in a few (rather dodgy, to put it mildly) companies listed on the Australian exchange, and am indeed shocked, I think that most of those companies would not have been allowed to list on Bursa Malaysia. Next to that, the financial statements of the smaller listed companies compare very badly to the statements of ACE listed companies.

It seems that the chairman of the ASIC (Australia's Securities Commission) seems to agree on that, according to this article on Sydney Morning Herald's website.

Some snippets:


Australia is a "paradise" for white-collar criminals because of its soft punishment of corporate offences, the Australian Securities and Investments Commission chairman, Greg Medcraft, says.

Mr Medcraft said the only realistic response was harsher jail terms and bigger penalties for white-collar crime.

He also repeated calls for a national competency exam for financial advisers in the lead up to a crackdown on the industry and more funding for ASIC to investigate the finance sector, including a user-pays funding model.

Finance industry players were not "Christian soldiers", Mr Medcraft said on Tuesday, but were motivated by fear and greed.

"You have to lift the fear and suppress the greed," he said.

"This is a bit of a paradise, Australia, for white collar.

"The thing that scares white-collar criminals is going to jail and that's what scares them everywhere in the world."

"The penalties, particularly civil penalties, in Australia for white-collar offences are basically not strong enough, not tough enough. All you're doing is giving them a slap on the wrist [and] that is not deterring people."

In the past few years ASIC has come under fire over its handling of scandals at the financial planning arms of the Commonwealth Bank, Macquarie Group, and Storm Financial.

At recent Senate and parliamentary committee inquiries the corporate regulator was accused of being too slow to act against dodgy financial planners, of lacking transparency and being too trusting of big business.

Mr Medcraft admitted ASIC had made mistakes, but said its capacity to investigate and pursue corrupt financial advisers had been curtailed by a lack of resources.

He vowed to be more transparent about ASIC's enforcement actions and said the regulator would "not be captive to the big end of town".

"If we want to react faster, then having more resources to be able to do it is important," he said.

The Australian Securities and Investments Commission plans to devote more resources to scrutinising and investigating the financial advisory industry while also forcing the sector to lift its game through better education, monitoring and reporting of breaches.

Watchdog shies away from enforcement

I have often complained about (lack of) enforcement in Malaysia regarding corporate matters, but it seems that in Australia a similar problem occurs. That is, if the article written by Michael West in The Sydney Morning Herald is indeed true. Some snippets (emphasis mine):


In mid-2008 the Australian Securities and Investments Commission was warned Storm Financial group was going to blow up.

We know this because we warned them ourselves.

"Clean bill of health" was the response. Six months later, Storm and its 13,000 clients and $4 billion in funds collapsed. On the barometer of sheer human misery, this was the worst collapse the country had seen.

The regulator had been fielding complaints about Storm's founder Emmanuel Cassimatis since Cassimatis had been flogging financial product for the Commonwealth Bank in the 1990s.

It had also been warned in advance about Allco and Babcock, ABC Learning, Rubicon, City Pacific and Australian Capital Reserve. No doubt a host of others. These are merely the ones we were involved with, or knew about.

Entire industries blown to smithereens: plantation schemes such as Great Southern, debenture funds such as Westpoint and mortgage funds such as City Pacific, with almost no regulatory action and nary a prosecution. Some $30 billion in savings.

The message, and one which is by no means lost on sharp operators, is that you can swindle people with impunity and you will not be brought to justice; as long as you are big enough.

In this job, you hear the tales of life savings lost, savvy con-jobs - often actionable but rarely apprehended - and the dreadful stories of suicide and marriage breakdown. For two decades we have been listening to this stuff while trying to get ASIC to act.

In the past, we had wondered why they were loath to discuss schemes which might soon obliterate people's life savings. More than once we pleaded, "Look, we're on the same side here. We should be trying to nail these hucksters together. Can we talk?" No.

The regulator did act the other day. It set up a section on its website where it names and shames journalists: "ASIC responds to wayward reporting.''

It is fair to say that many good people work at the corporate regulator. It is also fair to say, caveat emptor, there should be a burden of vigilance on investors themselves. ASIC cannot be expected to prevent every collapse or bring every miscreant to justice.

It confronts complex matters of policy and execution.

Yet the cultural problems run deep. The big one is guts. The leadership has always been weak. They regulate by press release, they keep their heads low. They are reactive, not proactive.

And so, in the wake of the scandal inside the Commonwealth Bank's financial arm, they now face an inquiry, the Senate Inquiry into the Performance of ASIC. Last week chairman Greg Medcraft identified what he saw as the problem: "communications".

In testimony before the Senate, Medcraft blamed bad PR for ASIC's woes. He also said the penalties regime could be toughened to enforce good corporate behaviour.

But ASIC already has the powers. It is not the laws that need to change, it is their enforcement.