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A version of this article was published in the Queensland Sunday Mail on 12 May 2014 under the headline “ASIC is a Sick Joke”

We see it almost everyday.


Photographs of distraught farmers with their land repossessed by the bank, receivers appointed just when they were on the verge of a bumper crop for which they had been yearning , through the years of flood and drought.  They had borrowed money from a bank which boasted that it understood the needs of the “man on the land”.


The receivers will sell the property for a “knock-down” price, probably to an overseas buyer from among its customer base.  After the receivers have taken their rapacious fees, the liquidators have lifted-out their huge chunk and the bank has recouped not just the principal debt but also, exorbitant default interest and other charges, including to cover the fees of the bank’s opportunistic top tier law firm, who have also quaffed from the trough of the borrower’s life blood – there is nothing left for the farmer but ruin.


A family heritage forfeited to the ‘big end’ of town.


Not only farmers suffer in this way.  There were thousands of inappropriate loans made, particularly during the GFC.  There were honest businessmen who made sound commercial investments, all around Australia, relying on promises of funding by the big banks, who resiled from their promises and withdrew their support – not because there was anything wrong with the loans or the projects but because the banks had other fish to fry or interests to serve, such as funding the takeover of another bank or topping up their tier-one capital ratio.


It is fashionable to blame ASIC for all this because ASIC is the regulator: ASIC has responsibility under the ASIC Act 2001 to improve the performance of the financial system and of the entities within it, and the confident and informed participation of investors and consumers in the financial system and ,above all, is required to strive to take whatever action it can take and is necessary to enforce and give effect to the laws of the Commonwealth, within its wide remit.


ASIC has not perceived its own role as being to protect consumer interests so much as having also to protect a range of other interests, to which it frequently gives more weight.


Then  ASIC Chairman, Tony D’Aloisio told the Senate Economics Legislation Committee on 21 October 2010: that “ASIC has to be across the range of interests it is seeking to protect”.


Journalist, Paul Cleary writing in the Australian on 12 June 2010 quoted Chairman, Tony D’Aloisio, who presided over the financial system while the bubble was inflating until it burst and then, after it splattered – as having said with respect to the Storm Financial collapse, which took thousands of investors down billions of dollars: “ASIC wants to see if the civil side of this can be sorted out without lengthy litigation”,reportedly describing the ‘three billion dollars’ in losses suffered by Storm’s three thousand or more investors as ‘small’ when compared with the 2.4 trillion dollars in financial assets held by households.


That may be so but ASIC’s role under his watch in seeking to recover any of the 2.4 trillion dollars in investor losses might be seen to have been minor at best and many have understood that the interests that it was trying to protect were those of the major banks and of insolvency practitioners, whom the banks patronised, as they continue to do.


ASIC is a creature of statute.


Former Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon. Bill Shorten wrote to me on 30 August 2011: “…… ASIC is an independent statutory authority.  Under its governing legislation, the ASIC Act, 2001, the Government has only limited powers of direction over ASIC and is unable to direct the Commission in relation to particular cases.  The Government’s powers of direction are more relevant to investigations that ASIC may undertake in relation to a general problem or policy issue.  This independence is necessary to ensure that investigations are impartial and to keep the confidence of all stakeholders in the fairness and objectivity of the process”.  The fact remains that there is little confidence by stakeholders in the fairness and objectivity of the processes in which ASIC has engaged.


It attempts to create law through policy directives, granting exemptions and pardons, issuing guidelines and promulgating regulations.  With a flick of a pen it effectively sanitised commercial litigation funders and absolved them from compliance with many of the laws and regulations which had hampered their activities previously – to an extent criticised by the US Chamber Institute for Legal Reform.

ASIC can also interfere in private litigation to which it is not a party, upset agreed commercial settlements and marshal armies of lawyers both from within and without the agency.


Making policy, implementing and administering policy, instigating investigations and prosecutions, proposing and enforcing regulations, granting absolutions and pardons, imposing bans and extracting enforceable undertakings and deciding whether to investigate or not to investigate, whom to sacrifice and whom to spare?  These are all matters decided within the ASIC fiefdom – a kind of Vatican State but with real power over more than the spiritual.


And added to all of these responsibilities, ASIC also has oversight of the Commonwealth Public Service.


Is this how we achieve what Bill Shorten identifies as the four (4) virtues: “independence, impartiality, fairness and objectivity”.


It not ASIC’s fault that it has all this power.  It is our fault and more particularly, the fault of successive governments.


ASIC was second only to the ATO and ahead of both the Defence Department and Immigration Department  in expenditure on legal fees in 2011/2012, exceeding $80 million spent on lawyers  in each of 2009/2010 and 2011/2012 – and topping $300 million over the four (4) years from 2008 to 2012.  Mostly, ASIC instructs the same lawyers as the banks and the major insolvency firms.


There is no anti-corruption body like ICAC at the Commonwealth level.  The Chairman of ASIC who is probably the most powerful executive officer in the land does not have to face any Senate confirmation hearing as he would in the United States, to confirm his suitability for appointment.


When their tenure comes to an end, senior ASIC executives are looking to ensconce themselves in their next important role, many in the very industry in which they have previously been overlords: banking and finance.

It was only eight (8) months after former ASIC Chairman, Tony D’Aloisio , told the Senate that ASIC was trying to protect “a range of interests” in the Storm affair, that he announced his acceptance of appointment to the Board of PPB Advisory, CBA’s preferred liquidation firm , where a large number of former Commonwealth Bank Executives have pursued their careers and still do (the other insolvency firm which emerged mighty and wealthy from the banks’ laying golden eggs at their feet, is KordaMentha, another CBA and Westpac favourite).


You don’t get a top job in private industry overnight.  Someone who has been at the pinnacle of power in an agency such as ASIC would have his own pick of positions in private industry, and be able to negotiate a deal over weeks or months prior to taking up his appointment.  How does he discharge his responsibilities in the meantime, without fear or favour?


There are no effective rules governing the movement of personnel, particularly senior ASIC public servants to and from private industry, unlike the position in the US, Canada, France and Ireland.  Yet, several major insolvency firms are fed by the banks and provide safe haven destinations for senior ASIC and bank executives not yet ready to retire.


The current Chairman, Greg Medcraft,moved into his role in 2011 after more than eight (8) years as managing director and Global Head of Securitisation at Société Générale, Corporate and Investment Banking, in New York.  Société Générale was then under investigation by the US Government Justice Department over massive transactions involving sub-prime home mortgages in the lead up to the global economic crisis.


Medcraft was able immediately to succeed to the Chairmanship of ASIC, without having to pass a Senate confirmation hearing of the kind which would have been a pre-condition to his being cleared to take up such an appointment in the US.


What is the solution?


Victorian Court of Appeal, Justice Mark Weinberg, was quoted at Monash University, in The Australian Financial Review on 22 October 2013 in these terms: “I mean no disrespect to ASIC when I say that,despite its expertise in Corporate Regulation, I very much doubt that it is fully across all the intricacies associated with punishing those who commit offences against the Commonwealth”.


Referring to criticism of ASIC for “its failure to have responded adequately to a series of allegations arising out of the bribery of foreign officials”, His Honour emphasised that: “The task of sentencing should never be reduced to one of ‘rubber stamping’ deals done (by ASIC) in secret”.


It is not ASIC’s fault that it has been solely entrusted with the major responsibility for the performance of the financial system and the entities within that system.


The various functions of ASIC should be split up so that one agency is responsible for information, regulation and administration and another for policing and prosecution.  Decisions on policy should be made by ministers accountable to cabinet and to parliament.  Government should not be conducted by regulation but, as far as possible, by legislation.


ASIC’s power to impose and enforce penalties should be left entirely to the Courts, just as its power to pardon or absolve.


The insolvency industry should be properly regulated and unfair anti-consumer legal presumptions such as, that a mortgage broker is the agent for the borrower, not the lender-  and that receivers are the agents for the customer, not the bank-  should be reversed and also written-out of mortgage contracts.


These presumptions are what kill-off plaintiffs’ prospects in most consumer litigation over bad lending practices.  They stack the odds in favour of the banks and their servants.


As a disincentive for the banks to wind-up their customers or to sell them short, bank charges on top of ordinary interest and in addition to the recovery of principal on a foreclosure should be limited to 5% of the amount actually recovered by the receivers or liquidators, whose fees should, in turn, be limited to a maximum of 5% of the amount recovered from the sale of the borrower’s property.


That way, banks, receivers and liquidators would be incentivised to maximise the return from the sale of customer assets rather than to let them go “for a song” or to their own sweethearts – and then seek to mop up any deficit at the expense and mostly, to the devastation, of the borrower.


Under US Bankruptcy legislation, applying Chapter 11, the directors of an insolvent company may submit a Plan of Reorganisation to the unsecured creditors to be approved by the US Bankruptcy Court.  If approved, the Court then supervises the board’s compliance with the Plan. So long as the security of the secured creditors is protected, the secured creditors (usually banks) are bound by the Plan of Reorganisation and have to stand back, so long as the unsecured creditors – and the Court -continues to support the Plan.  Now that would be a reform, here in Australia!


ASIC should be excluded from interfering in private civil proceedings.


We operate in an adversarial system and we have Courts to apply the law without a government agency seeking to intervene to introduce policy as a consideration.


It is a matter for the Court to decide what should happen in a dispute between free parties who are independently, legally represented and it is for a Court to apply the law without having to take into account what an executive agency of government would like to see happen.


We live in a liberal democracy , not in a corporate state – and our justice system should reflect this.


On the heel of the GFC, US bankers were hauled before Congress.  Late last year, the US Justice Department made an interim deal with J P Morgan, under investigation for allegedly selling bundles of toxic mortgage debt to investors in the build- up to the GFC, requiring a $4 billion payout to mortgage customers and $9.2 billion in fines and penalties, while maintaining its criminal investigation into J P Morgan’s selling activities which, according to a US Justice Department press release: “may result in charges against banks and bank officials and increased fines”.


In Australia, despite Storm, despite Opes, despite Bankwest, despite Nguyen and the CBA financial planners, despite Famularo and St George Bank – I do not believe that a single banker in Australia has been prosecuted or fined; neither do I believe that any of the major banks has had a fine imposed with respect to those matters.


Shortly after Bernie Madoff pleaded guilty to eleven (11) U.S.Federal felonies and admitted turning his Wealth Management Business into a massive ponzy scheme that defrauded thousands of investors of billions of dollars and was sentenced to one hundred and fifty (150) years in jail, back in 2009, a wealthy New York client called and asked me “What would I have to do to get Australian Citizenship?”  Knowing him to be a financially successful US businessman, I asked: “Why would you want Australian Citizenship?”.  His response: “Well, I hear I’d get maybe 10 to 12 years for what Bernie Madoff did, in Australia”.


Yet 25 year-old anti-coal campaigner and environmentalist, Jonathan Moylan has been charged by ASIC under the Corporations Act with an alleged offence carrying a maximum penalty of ten (10) years’ imprisonment and a $495,000.00 fine, for allegedly damaging Whitehaven’s share price by falsely publishing on-line that ANZ had withdrawn support for the Maules Creek Coal Mine in the Leard State Forest.


In reality, it does not take a great deal of insight to see which interests ASIC is really trying to protect and the more tentacles in the net, then the less inclined ASIC is to go fishing.


ASIC is just part of our culture and there is nothing wrong with ASIC that is not wrong with the country.


We must start to look at “reform” as meaning much more than “a penny more or a penny less”, as both major parties seem to have devalued the word.


When the “public interest” embraces the rights of private business and individuals as closely as it does the interests of the institutions of financial power, we would have seen a real liberal rebalancing: real change and real reform.


ASIC has been given so much power and conflicting responsibilities that it will inevitably be compromised in attempting to discharge and fulfil its too wide-ranging and often incompatible roles.


Successive governments have demonstrated irresponsibility in the oversight of ASIC and like Bill Shorten and the ministers who have come before and after him, have allowed ASIC to run the show while government has been neglectful to the point of dereliction in failing to restructure the Regulator by breaking up its functions, to be performed by discrete and more effective specialized agencies.


Senate Enquiries alone cannot do the job because there has not been the political will in this country to enact the necessary legislative reform.  It is time we stopped whinging about the symptoms and started to work on the cure.


Senators Williams, Egglestone and Cameron properly focus the nation’s attention on the problem but we need to do more than watch and listen.  We need to act: to free up enterprise in this country and to create level playing fields for doing business and creating wealth.