Chasing the murky money trail for the payments made by Australia’s banks as punishment for their systemic fraud, Michael West finds some of the money has found a home at The Ethics Centre, in ethics programs for the banks. Who knew?
The Ethics Centre has long decried “bank bashing”. Nor has its executive director, Simon Longstaff, seen the need for a royal commission into the banks, contending the powers of the corporate regulators were already enough to curb their foibles.
“The community doesn’t see the extraordinary diligence with which the regulators go about their work,” wrote Longstaff in a piece published in Fairfax Media last year.
“This is as it should be. Except in cases of criminality, it is often better to work quietly to identify and fix problems rather than splash them across the news. There’s little virtue in grabbing a headline if you leave the world no better for it.”
Simon Longstaff has since changed his mind, as indeed have the government and even the bank chiefs themselves. The legion cases of bank corruption brought to light at the Royal Commission have come as a shock to many, and many too have been surprised at the leniency afforded the banks by the government and its agencies.
Last Saturday, we revealed the banks had been enjoying tax deductions as part of the punishment for their crimes and misdemeanours. Instead of facing prosecution in the courts, or even fines, they had cut deals called Enforceable Undertakings with the Australian Securities & Investments Commission (ASIC).
An investigation of these EUs found, of the $82.5 million over the past two years in Community Benefits Payments made by the banks to avert prosecution, $68.5 million went to unspecified parties; unspecified that is in the public materials of the banks and their overseers.
Further digging along the money trail from the EUs found some $55 million has been directed to various charities involved in financial literacy, good causes it should be said, and good causes for which the “punishment” for the bank includes tax deductible business expenses.
A portion of the EU money went to the Ethics Centre. The Ethics Centre is using this money to provide ethics programs and services for the banks. In the case of a $400,000 payment from Commonwealth Bank, the money has been used to set up ETHICALL, an ethics counselling program whose functions are “Customised marketing targeting investors and consumers in financial system. Including: Market Research, Website, Content, Outreach campaign, Article seeding, Advertising”.
The lion’s share, some $55 million of the EU payments has been directed to a little known entity, Ecstra (formerly Financial Literacy Australia), which was only incorporated earlier this year, to dole out to charities for education; the idea being that if customers are better informed they will be less likely to be ripped off by their banks.
Disclosure the issue
The issue with all this is not only that the supposed punishment for bank misconduct is a raft of tax deductions but poor disclosure. The Australian Bankers Association,. the peak body for the banks, was unable to help shine a light on where the money had gone and the Ethics Centre appears not to have disclosed the payments in its public materials.
It was ASIC which managed to dig up the information. Besides a visible $500,000 payment for the Barclays Bank EU last year, ASIC confirmed the $400,000 from the Commonwealth Bank agreed in April this year and $250,000 from the ANZ in March.
These payments appear not to have been disclosed in the Ethics Centre annual reports or on its website. Last year’s annual report appears to be late, so it is possible that the ANZ and CBA payments may be disclosed when that arrives.
Responding to questions, Ethics Centre executive director Simon Longstaff said yesterday there was no conflict of interest in the Centre receiving “donations” from the banks while taking a public position on their ethics.
“In common with other organisations, we respect the privacy of our donors and do not disclose details of their contributions. That said, I feel comfortable is saying that Ian Narev (former chief executive of CBA) made one small contribution around 4 or 5 years ago (he is not an ongoing supporter). David Gonski is a continuing supporter. Each individual donor makes a contribution in a personal capacity – and as with all donations, all contributions are made without any expectation of benefit (otherwise they would not count as a donation). I do not see any conflict of interest in receiving donations that help to fund the general cost of running the Centre. Donations make possible the provision of Ethi-call and all of the services provided to people and organisations that cannot afford to pay a fee.”
Tax deductions que?
However, the Community Benefits Payments are not donations per se. Longstaff was referring to personal donations from the likes of Gonski and Narev, for which deductions can be claimed.
“Tax deductibility is only available for donations made to The Ethics Centre,” he said, in an email. “For the deduction to be claimed, the Centre must issue a receipt nominating the payment as a donation. The Centre does NOT consider payments made under EUs to be donations. As such, we do not issue a receipt allowing a tax deduction to be claimed.”
“I have no idea about what others might do. In our view, a payment made under an EU would/should never be counted as a donation – and should not be claimed as such. That is the position and practice of The Ethics Centre.”
Are the banks claiming deductions for their payments to the Ethics Centre? Presumably. These would constitute a “cost of doing business”.
Ecosystems and scenarios
The Centre, moreover, is providing a consulting service to the banks, advising them on “ethical safety”, or in the case of ANZ:
- “Ecosystem Assessment. Assess the products, including the policies, systems and processes that support the product, against the ethical principles we have established
- Stress testing. Test the products and the principles against ethical dilemmas and foreseeable future scenarios to stress test the principles in the context of the product.”
The Ethics Centre appears to be caught in the quintessential ethics dilemma. It is partially funded by the banks, benefitting from their crimes as it were, while it espouses good corporate ethics. There is no doubt that its officers are well intentioned and there is no intention here to suggest otherwise, merely to point out a conflict of interest.
The position of the Centre is that there is no conflict. It could also be argued that there is a conflict, the question is, has this conflict been dealt with appropriately?
It has also been quiet on what is arguably the greatest corporate ethical issue of the age, tax avoidance. Some $40 trillion is parked in tax havens worldwide and many of the largest companies in Australia pay less income tax than the average customer of a bank, zero that is.
Earlier this year, the Centre handed down an “independent” report into Cricket Australia. It was widely reported as “scathing”.
“Those who wear the baggy green live in a gilded bubble, disconnected”, the report said of the Australian cricket team whose players had been embroiled in the ball tampering scandal.
The organisation fostered an approach of “winning at all costs”, said the report, “accountability must be applied to all leaders … “Cricket Australia “does not live its values & principles”.
This is all true and Cricket Australia has been corporatised and does appear to be losing its way ethically. Yet surely it has gone down this path mimicking corporate Australia and its practices of winning at all costs.
Compared with young overpaid players scratching a cricket ball, the overpaid players of Australia’s largest financial institutions have been involved in 54,000 breaches of the Money-Laundering and Counter Terror Financing laws, hundreds of thousands of cases of ripping off their own customers, charging the dead, charging for nothing at all, rigging foreign exchange and money markets. The list winds on.
This rampant, systemic fraud has been, thus far, punished with consulting programs and tax deductible payments to institutions who believe education of the customer and ethics teachings are the solution … rather than making directors and executives properly responsible for their behaviour by enforcing the Corporations Act.
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Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences.