RECENT media statements by senior company directors distancing themselves from ‘toxic’ corporate cultures within the organisations they govern – examples include the 7Eleven staff underpayment inquiry and Commonwealth Bank’s insurance revelations – have come under heavy attack from Australia’s The Ethics Centre.

The Ethics Centre executive director, Simon Longstaff, said the “disgraceful” views of a number of senior company directors, who are excusing themselves and instead attacking the Australian Securities and Investments Commission (ASIC)  for  “suggesting that company directors might, in some circumstances, be held liable if a pernicious corporate culture is directly linked to wrong-doing”. 

“That they should adopt this aggressive stance against responsibility, especially in the wake of a growing number of corporate scandals, is quite remarkable,” Dr Longstaff said.

“After all, shareholders enjoy the privilege of limited liability only because they have delegated, to boards, the power to direct the affairs of companies. If company directors are not ultimately responsible for the most important factor in shaping the conduct of a corporation – culture – then who is?

“Do these few, influential directors want the liability to fall back on shareholders? Or do they think that nobody should be held to account?”

Dr Longstaff pointed out that the character of a corporation’s culture has been a feature of Australia’s criminal law since 1996.

“That is, the concept of corporate culture has been a defined legal term for twenty years. Not once, in all of that time, has a company director expressed public concern,” Dr Longstaff said.

“Indeed, the alarm was only raised after ASIC proposed, in quite general terms, that the ‘culture provisions’ of the Commonwealth Criminal Code Act should be extended to encompass the Corporations Law. Only then did company directors start to pay attention to legal concepts that they had happily ignored (or lived with in blissful ignorance) for two decades.

“ASIC has been accused of trying to specify a blue print for corporate culture. That accusation has no foundation.

“Like APRA has already done, in its risk culture standard CPS220, ASIC was merely flagging its intention that company director should be clear and explicit about the character of the corporate culture that they intend to see established – and that they should monitor and remediate any gaps between the ideal culture (as specified by the board – not ASIC) and the actual culture as ‘lived’ and experienced.”

Dr Longstaff posed the question: Why does this matter so much?

“The ‘culture provisions’ of the 1996 law were enacted for a very good reason,” he said. “Up until then, Australian companies had been able to hide behind formal systems of compliance in which all of the boxes had been ‘ticked’. Meanwhile, the culture would either be indifferent to – or encouraging of – illegal conduct.

“That is when bad things happen – and no amount of regulation and surveillance can prevent the harm that follows.

“The worst of this is that ASIC has not been given the chance to develop its proposals. For example, it is likely that directors would only be held liable if recklessly indifferent to the culture of a corporation or if actively encouraging a culture of non-compliance – as they should be,” Dr Longstaff said.

““This is especially worrying as all of the tools needed for the accurate measurement and assessment of corporate culture are well-developed and in use.

“Fortunately, the Australian Institute of Company Directors (AICD) has recognised the central role that directors must play in setting the foundations for and in monitoring the corporate culture developed by management. Thank heavens for that!”

www.ethics.org.au

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QUEENSLAND'S mine objection laws "open the floodgates for anti-resources activists, from Broome to Berlin, to disrupt and delay projects" according to the Queensland Resources Council (QRC).

QRC chief executive Michael Roche said, "The Palaszczuk Government’s Mineral and Other Legislation Amendment Bill (MOLA) passed today, overturns aspects of Newman government legislation that was set to streamline the objection process for mining projects in Queensland." 

Mr Roche claimed the new law was "yet another to add to the stack that made it harder to get on with business in the state, despite the resources sector being one of the heavy lifters in the economy, generating one in every six jobs and injecting $2.1 billion in royalties over the past financial year alone". 

"The QRC understands that MOLA delivers the Palaszczuk Government’s election promise to wind back amendments made by the Newman government to streamline the objection process for mining projects in Queensland," Mr Roche said.

"We agree the community should have an avenue for their concerns to be heard about mining projects, however this should not equate to multiple years in the Land Court spent frustrating and delaying what is supposed to be an administrative process only, not a Hollywood-style courtroom hearing."

Mr Roche said there were currently multiple pathways available to object about a project and the QRC supported the previous government’s efforts to provide clarity to objectors as to the appropriate pathway where there were concerns about a mining project.

"QRC maintains that an objection right under the mining legislation is an unnecessary double-up of the environmental objection under environmental legislation in Queensland," Mr Roche said.

"The government must act to protect future investment in the resources sector for all Queenslanders as we are at a crossroad where every new project could be held up in court for several years. 

"At a cost of about $1 million a day spent in court, this is an unacceptable message to send out to investors and potential investors in Australia and overseas.

"To make matters worse, under this law you don’t even have to be a resident of Queensland to object to the grant of a mining lease in Queensland. You could be living in another state or in a foreign country and be able to lodge an objection.

"The QRC once again calls on the Palaszczuk Government to urgently overhaul the Land Court system so that resource projects are not subject to onerous delays that are holding up job-creating projects for Queensland."

www.qrc.org.au

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FROM July 1 this year, a new 10 percent withholding tax will apply to acquisitions of Taxable Australian Real Property (TARP) or Indirect Australian Real Property (IARP) interests.

The withholding is based on 10 percent of the purchaser’s capital gains tax (CGT) cost base for TARP or IARP and must be paid to the Australian Taxation Office (ATO) on or before the settlement date.

“The ramifications for a purchaser in failing to withhold are severe so they will need to be thorough in their due diligence, be clear about their withholding obligations, negotiate withholding and settlement terms with the vendor and seek adequate protections in contractual agreements,” RSM Australia partner Simon Aitken said.

“The measures could have flow-on effects for related GST and stamp duty liabilities if there are tax gross-up clauses in the purchase agreement. A prudent course for a purchaser of TARP or IARP is to assume a withholding applies unless the vendor can prove otherwise.”  

Mr Aitken said Taxable Australian Real Property is defined as real property, including a lease, within Australia. The definition does not carve out residential property or a mining, quarrying or prospecting right within Australia.

“The new measures will impose a non-final withholding tax, meaning the vendor will still have an obligation to lodge a tax return in relation to the CGT event but they’ll be entitled to a tax credit and perhaps even a tax refund (where relevant) for the withholding,” he said.

“RSM Australia expects that the ATO will be vigilant in chasing delinquent vendors who do not lodge tax returns disclosing CGT events for their disposal of TARP or IARP.”

RSM Australia is an industry expert member of Victorian Leaders, the organisation helping to foster the next generation of leading businesses based in Victoria.

www.rsm.global/australia

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EXTRA >> THE ANGER of small business directed at the behaviour of their lenders – particularly Australia’s biggest banks – is coming home to roost in a series of successful litigations by the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).

Yet for the businesses that have hit the wall since 2007 as a result of what has been called ‘predatory’ banking behaviour, and the families that have lost property, assets and life savings, it is a ‘too-late’ result that has taken a lamentable amount of time through existing channels. 

There is a cry gaining momentum – with some calling for a Royal Commission – from small business for fundamental change in banking behaviour and culture. Underpinning that call is the mood that even though the Australian public effectively secured the major banks through the Global Financial Crisis (GFC) with government guarantees, the big banks have taken advantage by buying out struggling financial organisations, integrating financial advice and insurance sales, and driving successive years of record profit at the expense of customer value.

While most of the larger fines and compensation agreements so far – such as the Commonwealth Bank of Australia’s (CBA) $80 million in refund packages to 216,000 of its Wealth Package customers for failures in applying fee waivers and interest concessions – are designed to make amends for poor practices during the GFC, many small business leaders claim the compensations and fines are menial compared with the damage still being done to Australian small-to-medium enterprises (SMEs).

With the big four banks combined declaring profits of more than A$30 billion combined last financial year – and growing – it is a serious argument compared with the results of ASIC and ACCC judgements so far.

CBA’s Wealth Package and Mortgage Advance Package offered concessions and benefits to customers including interest rate discounts and fee waivers for home loans, credit cards and certain loans and insurance. CBA overlooked supplying these benefits, which relied on manual staff inputs, and to the bank’s credit it owned up ahead of a potential ASIC whistleblower investigation. The bank insists the systems are now properly in place and the damage since 2008, about $80 million, has been compensated to affected customers.

That result is a good one – it’s how things should work in the banking sector when anomalies are discovered – compared with others that have come through ASIC and ACCC recently, and potentially others in the works.

Perhaps the worst behaviour so far has been the alleged manipulation of bank bill swap reference rates (BBSW), for which Westpac and ANZ have so far been accused by ASIC and taken to court.

ASIC recently started legal proceedings in the Federal Court in Melbourne against Westpac Banking Corporation for “unconscionable conduct and market manipulation in relation to Westpac's involvement in setting the bank bill swap reference rate in the period from April 6, 2010 and June 6, 2012.

ASIC reported the method by which the BBSW, the primary interest rate benchmark used in Australian financial markets administered by the Australian Financial Markets Association (AFMA), was calculated changed on September 27, 2013. ASIC’s charges against Westpac relate to conduct before that change.

ASIOC alleges Westpac traded in a manner intended to create an artificial price for bank bills on 16 occasions during the period under review.

ASIC alleges that on these days Westpac had a large number of products which were priced or valued off BBSW and that it traded in the bank bill market with the intention of moving the BBSW higher or lower. ASIC alleges Westpac was seeking to maximise its profit or minimise its loss to the detriment of those holding opposite positions to Westpac's.

Further, ASIC has sought from the court pecuniary penalties against Westpac and an order requiring Westpac to implement a compliance program.

Earlier this year, ASIC launched action against ANZ Banking Group for allegedly rigging the BBSW on 44 days.

ASIC alleged in the Federal Court in Melbourne that ANZ also engaged in “unconscionable conduct and market manipulation” in relation to setting the BBSW from March 9, 2010 to May 25, 2012.

It is alleged that ANZ traded in a manner intended to create an artificial price for bank bills on 44 separate days during the period.

Like the Westpac case, ASIC is seeking declarations that ANZ contravened s.12CA, s.12CB and the former s.12CC of the Australian Securities and Investments Commission Act 2001 (Cth), s.1041A of the Corporations Act 2001(Cth) (Corporations Act), and s.912A of the Corporations Act, and wants pecuniary penalties against ANZ and an order requiring ANZ to implement a compliance program.

Prior to the ANZ and Westpac actions, ASIC investigated BBSW misconduct by UBS-AG, BNP Paribas and the Royal Bank of Scotland. ASIC accepted enforceable undertakings from those banks and those institutions also made voluntary contributions totalling $3.6 million to fund independent financial literacy projects in Australia.

ANZ is also being forced by ASIC to refund $5 million to 25,000 basic account holders for incorrect late payment and overlimit fees

ANZ admitted it failed to properly apply some fee reductions and fee waivers for customers who held an ANZ Access Basic account and who also held an ANZ consumer credit card or ANZ Everyday Visa Debit Card since 2007.

Similar to Westpac’s issue, the ANZ  failure arose as a result of breakdowns in the interaction between automated and manual processes, and in particular, the lack of reliability of some manual processes and controls. ANZ said it has since implemented a permanent automated solution with a system-based automated waiver, eliminating the need for manual intervention.

An Access Basic account is available to customers that meet certain criteria which include holding a Seniors Concession card, Pensioner Concession card, Centrelink Health Care card or a Repatriation Health card.

ASIC Deputy Chairman Peter Kell said, “ANZ’s Access Basic account is specifically designed for low income consumers who are unable to pay high fees. This matter highlights the importance of appropriately managing manual processes to apply fee waivers and discounts, and designing and maintaining robust systems to support such features.”

ANZ announced it intended to complete the remediation process by the end of April 2016.

Westpac has also agreed to pay out $1 million over four years to support financial counselling and literacy programs after ASIC pinged the bank for poor credit card limit increase practices.

ASIC was concerned Westpac failed to make reasonable inquiries about some consumers' income and employment status before increasing their credit card limit. In particular, ASIC was concerned that Westpac, in relying largely on its automated processes, was not making reasonable inquiries of individual cardholders, which is not consistent with the responsible lending obligations under by the National Consumer Credit Protection Act 2009 (the National Credit Act).

Westpac has committed to a number of steps to address ASIC’s concerns, including changing its credit limit increase processes; a  remediation program involving a review of credit limit increases previously provided; and engaging an independent external expert to provide assurance of the effectiveness of the remediation program. 

The recent ASIC action comes in the wake of moves against other financial institutions.

Bank of Queensland Limited improved its lending practices following ASIC’s concerns about the way it assessed applications for home loans. The Cash Store Pty Ltd and Assistive Finance Australia Pty Ltd failed to comply with their responsible lending obligations and the Federal Court awarded record civil penalties of $18.975 million.

Wide Bay Australia Ltd,  now Auswide Bank Ltd, made changes to its responsible lending policy as a result of ASIC’s intervention. ASIC has also tackled issues around interest-only home loans, releasing a special report to help credit licensees improve their lending practices by increasing their awareness of their obligations.

Compensation to customers of $4.5 million was part of the outcome from an ASIC-ordered independent review of ANZ’s OnePath branded companies.

ASIC said the ANZ Group self-reported the braches in relation to its life, general insurance, superannuation and funds management activities, which are operated through its wholly-owned OnePath group of subsidiary companies.

From early 2013 to mid-2015, around 1.3 million customers were affected by breaches, requiring refunds and compensation of around $4.5 million, rectifications and other remediation of approximately $49 million. Not all breaches required monetary remediation.

For example, 1,422 superannuation fund members had $28.7 million in contributions allocated to the incorrect super account of the member for a period up to 12 months. ANZ has now returned these funds to the correct accounts and provided more than $400,000 compensation for lost earnings and/or incorrect fees.

www.asic.gov.au

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