Royal Commission recommends criminal prosecutions against the Banks but where are the Bank’s Officers hiding? Is ASIC shielding them!
On 14 December 2017, Letters Patent were issued to Kenneth M Hayne (former Justice of the High Court) (Kenneth Hayne) to conduct a Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The Final Report of the Royal Commission was tabled in the Australian Parliament on 4 February 2019 (Final Report: https://www.royalcommission.gov.au/banking)
In the Final Report, Kenneth Hayne stated that section 1041G of the Corporations Act requires banks and their officers to act honestly where it is an offence to engage in dishonest conduct in relation to a financial product or financial service. These offences only apply to what the Corporations Act define as financial product and financial service.
Since November 2010, the maximum penalty for an individual is imprisonment for 10 years or a fine while the maximum penalty (obviously) for a bank is only a fine.
Kenneth Hayne considered that section 1041G “more accurately reflects both the nature and the gravity of the conduct”, “that the maximum penalties applicable to a contravention of section 1041G more accurately reflect the gravity of that conduct” and, significantly, “the important point is that ASIC appears not to have considered the application of the criminal law.”
The Commonwealth Bank (CBA) subsequently pleaded guilty to 30 criminal charges and only copped a financial penalty. But why were no directors, employees or agents of the bank (Bank employees) ever charged by ASIC? Under what legal rock are these Bank employees hiding? Is it even legally plausible that the CBA can admit to criminal charges (pay a fine) whilst their Bank employees dodge criminal charges and jail time? Banks can engage in criminal conduct, by breaching the law, agree to pay exorbitant financial penalties with shareholders’ funds knowing that criminal conduct has no personal consequences to the Bank employees who committed the crime? We’ll just use shareholder funds to pay the fines! This is strange because criminal conduct of the Bank employee is required for the Bank can commit the crime!
This is now one of the great regulatory mysteries! Where are the Bank employees and ASIC?
Section 769B of the Corporations Act provides that conduct engaged in by bank agents and employees is conduct of the Bank.
Conduct engaged in on behalf of a Bank by its Employees (within the scope of the person’s authority) is taken, for the purposes of an offence based on section 1041G, to have been engaged in also by the Bank. If it is necessary to establish the state of mind of the Bank, it is necessary that the Bank employees that caused the Bank to commit the crime, had that criminal ‘state of mind’.
The ‘state of mind’ that exists between the Bank and the employee or employees that committed the crime (on behalf of the Bank), is inseparable. One cannot exist without the other. They are joined at the hips!
How is it possible for the Bank employee or employees to plead guilty on behalf of the Bank without being charged for criminal conduct as well? Maybe the banks don’t need Bank Employees anymore? Maybe the Bank has artificial intelligence? But the real question concerns the behaviour of ASIC. Are the banks and ASIC working together to protect the financial system from collapse? So it seems. Without Bank employees there are no banks. Is it prudent for ASIC to turn a blind eye to individual criminal prosecutions in order to maintain the status quo of the banking system? Better still, the banks are now engaged as semi government regulators acting in their own interests with full immunity for their Bank Officers from criminal prosecution.
In the end, it’s a win-win for ASIC, the Government, the Banks and their Bank Officers. After all, it’s only shareholders’ funds and excessive customer fees that are required to pay the criminal fines. In the meantime, the Bank Officers have been taught an invaluable lesson. Crime does pay!
The Final Report is a great read.