Kevin Rudd has warned Australia is too “China dependent” in economic terms, and must diversify its international economic engagement. Via The Conversation.
Setting out principles he believes should govern the way forward in
dealing with China, the former prime minister said for too long
Australia had been “complacent in anticipating and responding to the
profound geo-political changes now washing over us with China’s rise,
America’s ambivalence about its future regional and global role, and an
Australia which may one day find itself on its own”.
Launching journalist Peter Hartcher’s Quarterly Essay, Red Flag:
Waking up to China’s challenge, Rudd said Australia needed a
regularly-updated “classified cabinet-level national China strategy”.
This should be based on three understandings. The first was that
“China respects strength and consistency and is contemptuous of weakness
and prevarication”.
The others went to awareness of China’s strengths and weaknesses, and
of Australia’s own strengths, weaknesses and vulnerabilities.
Rudd, who was highly critical of the government, declared “Australia
needs a more mature approach to managing the complexity of the
relationship than having politicians out-competing one another on who
can sound the most hairy-chested on China”. This might be great domestic
politics but did not advance the country’s security and economic
interests.
Australia should “maintain domestic vigilance against any substantive
rather than imagined internal threats” to its political institutions
and critical infrastructure.
He fully supported the foreign influence transparency act, but he
warned about concern over foreign interference translating “into a form
of racial profiling”.
“These new arrangements on foreign influence transparency should be
given effect as a legal and administrative process, not as a populist
witch-hunt” – a return to the “yellow peril” days.
Rudd said Australia must once again become the international champion
of the South Pacific nations, arguing the government’s posture on
climate change had undermined Australia’s standing with these countries
and given China a further opening. “The so-called ‘Pacific step-up’ is
hollow.”
Australia should join ASEAN, Rudd said; this would both help that
body and assist Australia to manage its long term relationship with
Indonesia.
On the need to diversify Australia’s international economic
engagement, Rudd said: “We have become too China-dependent. We need to
diversify further to Japan, India, Indonesia, Europe and Africa – the
next continent with a rising middle class with more than a billion
consumers. We must equally diversify our economy itself.”
Rudd argued strongly for Australia to continue to consolidate its alliance with the United States.
But “Australia must also look to mid-century when we may increasingly
have to stand to our own two feet, with or without the support of a
major external ally.
“Trumpist isolationism may only be short term. But how these
sentiments in the American body politic translate into broader American
politics with future Republican and Democrat administrations remains
unclear.”
Rudd once again strongly urged a “big Australia” – “a big and
sustainable Australia of the type I advocated while I was in office.
“That means comprehensive action on climate change and broader environmental sustainability,” he said.
“Only a country with a population of 50 million later this century would begin to have the capacity to fund the military, security and intelligence assets necessary to defend our territorial integrity and political sovereignty long term. This is not politically correct. But it’s yet another uncomfortable truth.”
Author: Michelle Grattan, Professorial Fellow, University of Canberra
As the member of the Executive Board of the Deutsche Bundesbank responsible for cash management, I arguably very much represent what many of you may consider the “”old world of payments””. A world in which there is limited space for innovation and progress. A world that is generally high in risk but low in reward. That is what is often claimed, at least.
In giving you my European and my German perspective, in particular, let me tell you: this case is not as straightforward as it may seem. In Germany and the euro area at large, the circulation of cash remains on the rise. The Bundesbank has issued more than half of the value of euro banknotes currently in circulation. Handling and distributing cash is a major operational task performed by national central banks in the euro area – particularly the Bundesbank. This also means that we need to continue investing in our cash infrastructure.
Cash serves various economic functions – making payments is just one of them. Our estimates suggest that roughly one out of ten banknotes issued by the Bundesbank is used for making payments in Germany. This limits the size of the pie that is up for grabs by the various non-cash payment alternatives.
Let us focus on cash as a payment instrument nonetheless. Usage of cash as a means of payment is declining – this is true both internationally and in Germany. But the level of cash usage is still high in many countries – and especially so in Germany. There may be less cash around, but we are far from being cashless. So why is it that, as of yet, physical cash has not disappeared beneath the waves in the vast ocean of digital payment methods?
2. Cash as an independent means of payment
In my view, this has to do with the special features that cash offers. We regularly monitor payment behaviour in Germany to understand households’ motives for using particular forms of payment over others. Protection against financial loss, personal privacy and a clear overview of spending are crucial features that households expect from payment instruments. Cash scores favourably in all of these areas, according to our surveys. My interpretation of these results: German households value independence – and physical cash offers three unique forms of independence, which distinguishes it from digital payment systems.
First, independence from one’s socio-economic background. Cash is tactile and does not require any technical equipment. The use of cash is easily understood across the generational divide. It is this haptic nature of cash, which, in my view, is an important element of strengthening financial inclusion. Ensuring access to cash may be particularly relevant in rural areas with insufficient banking or technological infrastructures. Cash is, in that sense, also a means of safeguarding social cohesion.
Second, independence from technological ecosystems. Given the still fragmented payments landscape in Europe, cash currently remains the one truly universal means of payment when it comes to P2P transactions in the euro area. Fintech companies are shaking up the traditional banking system in Europe. These companies can often leverage their global reach and huge customer base. This may bring benefits for consumers, for instance regarding cross-border payments. But it also means that customers are becoming locked into particular payment ecosystems. Cash offers an easy way out, at least for certain transactions.
Third, independence from social control and data collection. As legal tender, cash is fully backed by the domestic central bank. Cash is the obvious choice of payment method when it comes to personal privacy. This strengthens individual freedom. At the end of the day, digital payment systems work by using personal data. Collecting data is not harmful per se. But in the age of Big Data, collecting detailed data means obtaining valuable information which, in turn, makes it possible to construct patterns of individual behaviour. From a consumer protection point of view, the question arises as to how much information is necessary to carry out a particular transaction. From an economic point of view, personal data may be seen as an additional source of transaction costs to be factored in when comparing the underlying cost structures of different payment methods.
3. Retailing – the source of future transformations?
Payment methods tend to evolve in stages. For example, the adoption of mobile payment solutions is typically preceded by the widespread use of credit and debit cards. This is the case in Germany, where contactless payments have just started to catch on. China, on the other hand, seems to be a case in its own right. A comparative study in China and Germany supports this. The evidence reported there for the year 2017 suggests that cash and debit card payments account for the bulk of German retailers’ revenue. Mobile-based payment solutions did not play a noticeable role at that time. The reverse picture emerges for Chinese consumers in major cities. Third-party mobile payment providers clearly dominate here, having leapfrogged debit and credit card payments.
Payment habits in China are still in a state of flux as payment technologies continue to evolve. Seamless payment methods are on the rise. These methods essentially try to counter the “pain of paying” with a physical smile. To what extent similar shopping experiences are becoming popular in Germany remains to be seen. There are serious concerns surrounding data protection, and these would need to be alleviated first. In my view, the transition towards a society with less cash has to be driven by the user and not the supplier. It appears that, at least in Germany, consumers value the existing diversity of payment options. Cash continues to be an important part of this. In the bank-centred financial system in Germany, commercial banks are a major actor in the provision of a payment infrastructure that can cater for both cash and its digital alternatives.
Retailing in Germany is transforming, too. On the one hand, German retailers are increasingly turning to Chinese providers of mobile payment solutions, with a particular view to increasing sales to Chinese tourists. On the other hand, retailers have also increased the scope of their activities by closing the cash cycle in Germany. Nowadays, more and more shops are providing basic banking services for their customers such as cash withdrawals and deposits at the counters. To me, this shows that the transformation of the payments landscape is anything but complete.
4 CBDC as a cash substitute?
In the digital era, it should not be surprising that central banks, too, are discussing the potential merits and drawbacks of digital forms of a central bank currency (CBDC). There are currently many operational issues relating to CBDC that remain unresolved. This pertains, for example, to the technology implemented. Blockchains and the underlying distributed ledger technology seem promising, and central banks are open to them in principle. There are several potential use cases in settlement and payment systems, for instance, which are worth exploring further. But handling and safely storing vast amounts of data does not necessarily require distributed ledgers. We need to understand the underlying technologies better in terms of operational risk.
Also, the exact set-up of a CBDC needs to be thought through as the specifications may determine the potential effects. Broadly speaking, there are two conceivable variants of a CBDC. The wholesale type restricts access to CBDC to selected financial market participants for a specific purpose. The retail type, on the other hand, could grant domestic or even non-domestic non-banks access to CBDC on a wide scale.
The wholesale variant may be seen as an improvement on existing structures in terms of processing securities trading and foreign exchange transactions, but it would have little or no effect on monetary policy. The retail variant, however, could potentially mean a paradigm shift in the economic relationships between households, commercial banks and central banks that have evolved to date. uch a fundamental shift is not free of risks, and it requires careful consideration.
There is also the question of how strong households’ appetite for such a form of CBDC would actually be. This user perspective should not be left out in the discussion.
We need to see matters in perspective. After all, many of these debates have been fuelled by the plans announced by the Libra consortium. To me, what this shows, first and foremost, is the need to offer fast and cost-efficient systems for cross-border payments. We should go one step at a time. There are already several innovative market solutions that have the potential to be transformed into an efficient pan-European digital payment solution. In addition SEPA instant credit transfers could serve as a basis for pan-European payment solutions. We should develop these systems further before contemplating further, more radical steps.
5. Conclusion
The old world of payments versus the new world. This story is not new. At the turn of the millennium, there was a strong admiration for what was referred to as the new economy in Germany. New economy was a term used to describe internet start-ups which often relied on little physical capital to generate, at times, staggering market valuations. This was in contrast to the old economy. Think of brick-and-mortar car plants with, in some cases, considerable overheads. At this point, we can say that “”the new has become a bit old and the old has become a bit new””. Economic structures have integrated. The basic market forces still apply: the companies that survive are those that are competitive and offer a unique product. I view the world of payments in very much that spirit. To me, digital payments offer exciting prospects. But that does not necessarily imply the extinction of existing payment methods. It may very well actually increase the diversity of payment methods. Cash offers these unique forms of independence from social and electronic networks, which suggests to me that it will continue to enjoy great popularity in the euro area.
Tony Locantro from Alto Capital shares some of his intellectual capital.
Disclaimer: The information contained in this video is general in nature and should not be considered investment advice. Tony Locantro has personal holdings in the companies mentioned along with commercial arrangements from time to time where he is paid fees for such services. Viewers are advised to seek their own financial advice to ensure what is right for their personal circumstances and risk tolerance.
Note: DFA has no financial or business relationship with Alto Capital.
Caveat Emptor! Note: this is NOT financial or property advice!!
Westpac’s chief executive Brian Hartzer will step down, with his resignation effective from December 2.
It comes after the bank was sued by the financial intelligence agency AUSTRAC for allegedly committing 23 million breaches of Australia’s anti-money laundering laws.
The bank’s chairman Lindsay Maxsted also confirmed he would bring forward his retirement to the first half of 2020.
The Victorian Liberal Party held their state council meeting in Ballarat where a motion was put forward calling on the Government to abandon their $10,000 cash transaction ban policy.
We discuss the implications of this move, with Steve Holland who is a member of the Victorian Liberal Party and who moved the motion at the State Council Meeting.
Afterpay breached money laundering law because of incorrect legal advice, according to an auditor. Via InvestorDaily.
The
buy-now, pay-later giant was the subject of an AUSTRAC probe over
allegations it breached the Anti-Money Laundering and Counter-Terrorism
Financing Act (AML/CTF).
But an independent auditor contracted by Afterpay has discovered that the breaches occurred because of incorrect legal advice.
“In
reaching these findings I have established that Afterpay’s compliance
with its AML/CTF obligations was, from the outset and over time, based
upon legal advice from top tier Australian law firms,” wrote Neil Jeans,
an anti-money laundering consultant who conducted the audit.
“I am of the opinion this initial legal advice was incorrect.”
The
unnamed law firms decided Afterpay was not providing loans to consumers
but instead providing factoring services to merchants. This advice “did
not reflect Afterpay’s business model” and led to the company focusing
its AML/CTF controls upon merchants rather than consumers.
“Despite
Afterpay having a compliance-focused culture, the consequences of being
provided with incorrect legal advice has resulted in historic
non-compliance with the AML/CTF Act and Rules,” Mr Jeans wrote in the
report.
However, the audit noted that Afterpay’s transaction
monitoring system is now “effective, efficient and intelligent” as a
result of greater resource allocation.
Mr Jeans also decided that
the nature of Afterpay’s service mitigates some money laundering and
terrorism financing risks, and noted that the company’s AML/CTF
compliance had “evolved and matured over time”.
Afterpay was quick to seize on the opportunities of the report in light of Westpac’s recent breaches of the same laws.
“Afterpay
reaffirms that it has not identified any money laundering or terrorism
financing activity via our systems to date,” the company said in a
statement accompanying the report.
But the ball is now in AUSTRAC’s court. The regulator will consider the report and decide whether to take further action.
Afterpay has pledged to continue its co-operation with AUSTRAC.
It’s the bank’s new computer model of the Australian economy, made up
of 147 equations working in concert. Some are quite simple, such as how
global oil prices affect domestic petrol prices, whereas others are
more complex, such as how a rise in the unemployment rate affects
household spending.
Unveiled in August in a discussion paper entitled “MARTIN has its place”,
the model is available for use by analysts outside the bank for whom it
can serve as something of a guide as to what the bank might be
thinking.
It provides useful insights into what the bank will do next, after it
has cut its cash rate as close to zero as possible and needs to
stimulate the economy further.
Economists use models like drivers use maps – to take a large and
complicated country and simplify it to its essential ingredients in the
hopes of providing a useful guide to navigating it.
A map doesn’t tell you everything about a route – that would be hard
to come to grips with – but it highlights important features or paths
you should watch for. Models do the same – simplifying the complex
Australian economy into the paths that matter.
But instead of breaking Australia down into rivers and roads, or
cities and states like a map might do, MARTIN divides the Australian
economy into different sectors such as households, firms and the
government with the 147 equations describing the ways they interlink
with each other.
This map is principally designed for two purposes.
The first is forecasting. Every three months the bank looks
inside its crystal ball to try and divine how the economy will evolve in
the years to come. MARTIN has become a key input into that process.
The second use is the ability to run “what if” simulations to see
how the economy would react in different scenarios. For example, what
would happen if the price of iron ore crashed tomorrow, or what would be
the impact if the government ramped up its spending on infrastructure?
What does MARTIN say about quantitative easing?
MARTIN will have been put to work pondering the implications of
deploying so-called “quantitative easing” after the Reserve Bank’s cash
rate gets too low to cut.
Quantitative easing involves the Reserve Bank buying financial
assets, such as government or mortgage bonds, in order to continue to
supply money to the economy after its cash rate has fallen to zero.
I have used MARTIN to model three different scenarios for quantitative easing in the Australian economy.
The first is what would happen if quantitative easing isn’t used at all.
The second is what would happen if the bank started a modest quantitative easing program in early 2020 lasting around a year.
The third is what would happen if the bank commenced an aggressive
quantitative easing program to simulate the economy for 18 months.
I assume the bank would purchase assets in a similar manner to how
the US conducted quantitative easing after the global financial crisis,
buying bonds to lower interest rates on two year and ten year government
securities.
MARTIN says quantitative easing would have two major effects on the
economy. First, it would lower the cost of borrowing for Australian
businesses. They would be expected to increase investment as more
projects become viable as the interest rates they were charged fell.
Second, the lower rate structure would weaken the Australian dollar
by as much as 5 US cents. A cheaper dollar would make our exports more
competitive and make foreign imports more expensive.
MARTIN thinks it could work
MARTIN predicts quantitative easing would boost manufacturing,
agriculture and mining exports relative to where they would be without
it.
The depreciation would also encourage Australian households to spend
more on local goods and less on what would be dearer imports. This
should lead to higher wages, increased household incomes and spending,
and improved economic growth.
In fact, MARTIN predicts that, by boosting economic growth,
quantitative easing would actually lead to higher interest rates as
inflation returns to the Reserve Bank’s target, allowing interest rates
to return to more normal levels.
Combining these two effects, MARTIN suggests a large quantitative
easing program would reduce unemployment by 0.3 percentage points,
equivalent to 40,000 extra jobs, and boost wages across the economy.
The output of any model is only as good as the information and data that are fed into it, but the output of MARTIN is why more and more economists expect the bank to quantitatively ease in the new year. Its brain says it should work.
On 19 November, the US Federal Reserve, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation approved a final capital rule for the largest US banks that requires them to adopt the standardized approach for counterparty credit risk (SACCR).
The rule must be adopted by those US banks which are mandated to use the Basel III advanced approaches (i.e., advanced internal ratings-based); other US banks may voluntarily adopt it. The advanced approaches banks include the eight US global systemically important banks: Bank of America, The Bank Of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase & Co, Morgan Stanley State Street Corporation, and Wells Fargo & Company, as well as Capital One, Northern Trust Corporation, PNC Financial Services Group, and U.S. Bancorp. Many of these entities are also benefitting from the Fed’s Repo operations, which are designed to provide additional liquidity.
Moody’s says as originally proposed, SACCR would have resulted in a modest increase in risk-based capital requirements for the largest US banks but a modest decline in their leverage ratio requirements. However, in the final rule US regulators made several revisions to the original proposal which we expect will reduce both capital requirements, a credit negative.
The final rule is effective on 1 April 2020, with a mandatory compliance date of 1 January 2022. In 2014 the Basel Committee on Banking Supervision adopted SACCR as an amendment to the Basel III framework and in October 2018 US regulators proposed requiring the largest US banks to use SACCR for calculating their derivatives exposure amounts. SACCR is a more risk-sensitive approach to risk-weighting counterparty exposures than the current method and also revises certain calculations related to cleared derivatives exposures, including the measurement of off-balance-sheet exposures related to derivatives included in the denominator of the supplementary (i.e., Basel III) leverage ratio (SLR).
In the final rule, US regulators have made certain revisions to the original proposal, including reducing capital requirements for derivative contracts with commercial end-user counterparties and allowing for the exclusion of client initial margin on centrally cleared derivatives held by a bank on behalf of its clients from the SLR denominator.
Regulators explained that the reduction in capital requirements for exposures to commercial end-users is consistent with congressional and other regulatory actions intended to mitigate the effect of post-crisis derivatives reforms on the ability of such counterparties to manage risks. Additionally, the exclusion of client initial margin on centrally cleared derivatives is consistent with the G20 mandate to establish policies that encourage the use of central clearing. The revisions may also prevent cross jurisdictional regulatory arbitrage because they would align the US with regulations in the UK and Europe on this matter, which are key jurisdictions where many of the largest US banks operate.
Nevertheless, a reduction in capital requirements would allow firms to increase their capital payouts or add incremental risk in other businesses without needing to hold more capital. Regulators estimate that the final rule would result, on average, in an approximately 9% decrease in large US banks’ calculated exposure amount for derivatives contracts and a 4% decrease in their standardized riskweighted assets associated with derivative exposures. The final rule would also lead to an increase of approximately 37 basis points (on average) in banks’ reported SLRs. If all 12 US banks subject to this rule were to maintain their SLRs at current levels instead of letting them rise as they would under the final rule, it would lead to the removal of approximately $55 billion in Tier 1 capital from the US banking system.
Regulators also estimated that the final rule would lead to changes in individual banks’ SLRs, ranging from a decrease of five basis points to an increase of 85 basis points. Regulators did not identify which bank would receive the largest benefit. Moody’s estimate that if one of the six largest US banks is the beneficiary of an 85-basis-point increase in its SLR and the SLR was previously its binding capital constraint, allowing it to return to its shareholders an amount of capital equal to the entire benefit, it would lead to a reduction of between $9 billion and $25 billion in capital at just one bank.
In addition, on 19 November, US banking regulators published a final rule that amends the supplementary leverage ratio calculation to exclude custody bank holdings of central bank deposits. The change will only apply to The Bank of New York Mellon, State Street Corporation and Northern Trust Corporation.
Although the amended calculation is credit negative because it will allow custody banks to reduce capital and still meet one of their regulatory requirements, the practical effect is limited because other regulatory capital measures, specifically post-stress capital requirements, constrain the banks.
The final rule reflects the implementation of Section 402 of the 2018 Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA). Although EGRRCPA primarily aims to reduce regional and community banks’ regulatory burden, it also identifies central bank deposits held by custody banks as unique. In particular, custody banks maintain significant cash deposits with central banks to manage client cash fluctuations linked to custody and fiduciary accounts. Typically, these client cash positions are funds awaiting distribution or investment, but they can spike significantly in times of stress when custodial clients liquidate securities.
Under the final rule, only the Federal Reserve, the European Central Bank or central banks of Organization for Economic Cooperation and Development member countries that have been assigned a zero risk weight under regulatory capital rules are considered qualifying central banks. The rule also defines a custody bank as any US depository institution holding company with assets under custody to total assets of greater than 30:1. This ratio precludes other large custody providers also subject to the supplementary leverage ratio, such as JPMorgan Chase & Co., from excluding central back deposits in their capital calculation, because unlike the three qualifying firms they are not predominantly engaged in custody and asset servicing.
Looked at in isolation, the final rule would allow BNY Mellon, State Street and Northern Trust to reduce their Tier 1 capital by roughly $8 billion in aggregate – a significant 17% reduction – and still maintain the same supplementary leverage ratios. However, that ratio is just one of many capital requirements.
Indeed, regulators’ own analysis of the supplementary leverage ratio revisions, based on 2018 data, indicates that the final rule is unlikely to reduce Tier 1 capital for any of the three affected holding companies because other capital requirements are more binding.
Specifically, performance of the banks’ capital requirements under the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) process has constrained them.
The future course of the custody banks’ capital positions is not yet clear because other aspects of the US regulatory capital framework remain in flux. In particular, regulators are developing a stress capital buffer, which we expect will be incorporated into the CCAR process. On balance, we anticipate that the custody banks are likely to face a capital regime that is less restrictive, though the extent of capital relief is still uncertain.
However, the banks’ reduced supplementary leverage ratio requirement is an early indication of the likely trajectory.
The news that Australia’s anti money-laundering regulator has accused Westpac of breaching the law on 23 million occasions points to the prospect that powerful members of corporate Australia are still behaving badly. Via The Conversation.
Regulators are still struggling to find the right balance between
pursuing wrongdoers through the courts – an admittedly costly,
time-consuming and highly risky business – and finding other means to
punish and deter misconduct.
Australia’s anti money-laundering regulator, AUSTRAC, is seeking penalties against Westpac in the Federal Court.
Each of the bank’s alleged contraventions attracts a civil penalty of
up to A$21 million. In theory, that could equate to a fine in the
region of A$391 trillion.
In practice, it is likely to be a mere fraction of that sum.
Commonwealth Bank breached anti-money-laundering laws and faced a theoretical maximum fine of nearly A$1 trillion, but settled for A$700 million.
No doubt the reality that companies can minimise penalties is a factor in why breaches continue.
This impression is reinforced by revelations last week that financial services company AMP continued to charge fees to its dead clients despite the shellacking it received at the hands of the royal commission.
Last month a Federal Court judge refused to approve a A$75 million
fine agreed between the Australian Competition and Consumer Commission
and Volkswagen to settle litigation over the car company’s conduct in
cheating emissions tests for diesel vehicles. The judge was reported to
be “outraged” by the settlement, which meant Volkswagen did not admit liability for its misconduct.
The A$75 million is a drop in the ocean of the likely profits
obtained from this systemic wrongdoing and pales into insignificance
next to fines imposed in other countries.
Proposals for law reform
So business as usual, right?
Maybe not for long. The Australian Law Reform Commission has just released a discussion paper on corporate criminal responsibility.
It points out that effective punishment and deterrence of serious
criminal and civil misconduct by corporations in Australia is undermined
by a combination of factors.
These include a confusing and inconsistent web of laws governing the
circumstances in which conduct is “attributed” to the company. Similar
problems of inconsistency arguably also undermine other key areas, such
as efforts to give courts the power to impose hefty fines based on the profits obtained by the wrongdoing
The repeated attempts to come up with new and more effective
attribution rules arise because corporate wrongdoers are “artificial
people”. For centuries, courts and parliaments have struggled with how
to make them pay for what is done by their human managers, employees and
(both human and corporate) agents. All too often a company’s directors
disclaim all knowledge of the wrongdoing.
To fix this, the ALRC recommends having one single method to
attribute responsibility. It builds on the attribution rule first
developed in the Trade Practices Act 1974 (Cth) and now used, in various forms, across various statutes.
The ALRC proposes that the conduct and state of mind of any
“associates” (whether natural individuals or other corporations) acting
on behalf of the corporation should be attributable to the corporation.
This goes well beyond the traditional focus on directors and senior
managers and would provide some welcome consistency in the law.
Importantly, serious criminal and civil breaches that require proof
of a dishonest or highly culpable corporate “state of mind” can be
satisfied either by proving the state of mind of the “associate” or that
the company “authorised or permitted” the conduct.
A “due diligence” defence would protect the corporation from
liability where the misconduct was truly attributable to rogue “bad
apples” in an otherwise a well-run organisation. There would be no
protection in the case of widespread “system errors” and “administrative
failures” so pathetically admitted during the royal commission.
The ALRC also proposes that senior officers be liable for the conduct
of corporations where they are in “a position to influence the relevant
conduct and failed to take reasonable steps to prevent a contravention
or offence”.
This would place the onus on those in a position to change egregious
corporate practices to show they took reasonable steps to do so.
Removing the penalty ceiling
These recommendations, if adopted could prove a game-changer for
regulators asking themselves “why not litigate?” and corporations used
to managing the fall-out of their misconduct as simply a “cost of
business”.
The ALRC’s recommendations that the criminal and civil penalties
should be enough to ensure corporations don’t profit from wrongdoing
will be welcomed by many. Some academics have gone further and argued
that the law should be changed to make it clear that civil, not just
criminal penalties, should be set at a level that is effective to punish
serious wrongdoing.
The ALRC also raises the question whether current limits on penalties should be removed. The Westpac scenario might be just the kind of case to make that option attractive.
Authors: Elise Bant, Professor of Law, University of Melbourne; Jeannie Marie Paterson, Professor of Law, University of Melbourne
