When it comes to corporate regulation in this country there are one set of rules for the top end of town and another for the rest. The rest, put simply, are expected to obey the law.
It was the quintessential case of bayoneting the dead last Thursday when the Australian Securities & Investments Commission (ASIC) declared a record $19 million penalty had been imposed on dodgy payday lender The Cash Store.
However, nobody from The Cash Store, or its funder Assistive Finance, bothered to turn up to court for the penalty hearing. The Cash Store was already in liquidation and AFA could not be served with legal documents as it no longer had a registered office, directors, or solicitors.
“Bragging about fining a company in liquidation is like fining an inmate on death row,” tweeted David Easton, a victim of the move by Commonwealth Bank to shut down BankWest’s commercial loan book during the financial crisis.
Two days later, Adele Ferguson broke the National Australia Bank story in these pages. Incredibly, regulators had allowed NAB to “review” and “alter” its media release before the latest big bank financial planning scandal went public. They had deliberately assisted the bank in its media strategy to mitigate the public relations disaster.
When it comes to NAB, there is form. Testimony by former ASIC lawyer James Wheeldon to a Senate committee last year had already exposed the influence of NAB and the financial services lobby inside the commission. Armed with internal correspondence, Wheeldon showed how an MLC executive on secondment with the commission had been involved in drafting laws to suit the interests of the big banks and their wealth management divisions. His claims were denied but never answered in detail.
It should be said that ASIC simply does not have the resources to ping every dodgy operator in financial markets. Its chairman, Greg Medcraft, has warned the government publicly that its powers have been diminished by funding cuts. It could still do a lot more though by way of prevention, if not cure.
Notwithstanding the ugly truth that the big end of town is virtually immune to prosecution, more could be done to ensure the integrity of disclosure and financial reporting.
Take the case of The Cash Store. Assistive Finance provided the finance to The Cash Store.
Both Australian companies are foreign-controlled and required to prepare and file audited annual accounts by section 292(2) of the Corporations Act. Both Australian companies have never done that. ASIC’s records show that neither company has applied for ASIC relief orders.
Despite their failure to file accounts for seven years – to obey the law that is – both companies were awarded a credit licence. How many more Australians are victims of these credit licences being handed out willy-nilly?
Does Assistive Finance Australia Pty Ltd still have an active credit licence for its Australian business?
The Cash Store is not a good news story, as depicted in media releases. It is a story of dereliction.
Jeff Knapp, the accounting and disclosure expert of UNSW who exposed the failure of Clive Palmer, Gina Rinehart and even a slew of multinational companies to comply with disclosure law, has lately taken a look at the records of the major political donors. It is a mess.
Knapp fears though that there is little political will from either side of politics to fix things.
“Maybe the Liberals will do something … wait a minute, the 2014 audited accounts of their second biggest political donor, Nimrod Resources, are missing from ASIC’s database.
“Maybe the Nationals will do something … oops, the 2010 and 2012 audited accounts of the Nats’ 4th biggest donor the National Club Limited are missing from ASIC’s database.
“Maybe Clive Palmer will step up to the plate. Hang on a sec, the 2014 audited accounts of PUP’s political donors Queensland Nickel Pty Ltd and Mineralogy Pty Ltd are missing from ASIC’s database.
“What about Labor? Unlikely this leopard will change its spots. The shenanigans in the insolvency industry and the financial planning industry flourished under Labor’s watch.
“The reality is that there is no political will to fix the problem. The rule of law for corporate financial reporting and credit licensing is in tatters.”
Neither is there much hope in co-regulation, that is the idea favoured by regulators that chartered accountants will responsibly ensure their clients comply. Even more worrying now is that the Tax Office is piloting a scheme to hand over tax compliance to the big audit firms – putting the foxes in charge of the henhouse.