Corporate immunity to criminal prosecution: Send bank CEOs to gaol

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(Image via @alexanderwhite)

In the final of his three part series, Dr Evan Jones concludes that the political class and the regulators are complicit in bank criminality and calls for bank CEOs to be prosecuted.

Read Part One: To fix Australia's banking culture: Start sending bank CEOs to gaol

Read Part Two: Corporate Immunity to Criminal Prosecution: Send bank CEOs to gaol

Corporate immunity to criminal prosecution: Send bank CEOs to gaol

FACILITATION OF the creation of the joint stock corporation in the late 19th century, unencumbered by any restrictions on its operation, would dramatically transform the nature of capitalism and economic society.

The legal legitimisation occurred relatively benignly in Britain and its colonies, but opponents in the U.S. realised its significance. They observed the American States competing via a race to the bottom in terms of enabling registration requirements, with New Jersey setting the pace but with the previously inconsequential Delaware as the ultimate victor.

Thus, we have the monsters that currently possess the planet, for whom tax is optional, with governments in their pay. If the trans-Pacific and trans-Atlantic “trade” treaties are waved through by treasonous governments, they will soon rule with no offsetting forces whatsoever.

The 2003 book by the Canadian lawyer Joel Bakan, The Corporation: The pathological Pursuit of Profit and Power, and the subsequent film, brought the nature of the beast to a broad public. The corporation’s legal “personhood” has facilitated its subsequent pathological behaviour, but the fictional basis of that legality has facilitated general immunity from an official sanction that would otherwise apply to flesh and blood people.

Thus, we arrive at the Australian banking sector and the Big Four that dominates it. Although second string under the global banking giants, the Big Four are in the top rank in profitability — a product of their absolute dominance of the domestic economy and of politics besides.

The banking sector’s immunity from prosecution for criminal activity is linked to political acquiescence, but also to the legal minefield that lies within the corporation’s fictional personhood.

The Commonwealth Criminal Code Act 1995 is currently 384 pages long. The component devoted to corporate crime (parts 2.5 [s12] and 2.6 [s13]) is a mere 6 pages long. The size of the Act has been increased since 1995 by almost a factor of ten, but the brief section devoted to corporate crime remains untouched.

The Act was long in gestation, traversing most of federal Labor’s period in office (1983-96). It was an attempt to appropriate criminal law, including that for corporations, from the states, to ensure nation-wide uniformity, and to facilitate a basis for much federal regulation regarding corporate behaviour. The Act was complemented by the referral of the Corporations power from the States in 2001, embodied in the Corporations Act 2001.

Of importance here, the progenitors of the 1995 Act were conscious of the criminality in the financial sphere that reigned in the late 1980s, with a desire to bring such under control. Down the track, nothing has been effected in that domain; on the contrary.

The Corporations Act 2001 currently sits at over 2800 pages, but it is strikingly incomplete. There is extensive coverage of receiver/liquidator responsibilities and prohibitions (Chapter 5, ‘External Administration’). Given the lawlessness of this sector, this legislation evidently lacks regulatory and judicial enforcement.

Remarkably, there appears to be almost no coverage in this door-stopping Corporations Act of corporate fraud. The Act covers company officer fraud against the company itself, but it does not recognise the pervasive potential of company/company officer fraud against the company’s clients.

There is a massive section on the finance sector (Chapter 7, ‘Financial Services and Markets’). The chapter covers what has come to be called “wealth management” (clearly ineffective, save for the temporary banishing of the odd low level crooked “financial adviser”). But there is curiously no mention of bank lending facilities, and, thus, no acknowledgement of the intrinsic capacity for fraud by a bank against its borrowing clients.

Then there is the problem of attribution. With insider trading, for example, the culprit is readily identifiable. With corporate criminality, whence the culprit?

One track has been to pursue the “owners”, by lifting “the corporate veil”. But in listed public companies, the owners are not merely diffuse but generally passive.

How to get at the operating entity itself? Considerable academic legal scribbling has been devoted to the line that in order to find the corporate entity guilty of a crime one had to locate ‘the directing mind and will’. The object of this pursuit, I think, was to be able to attribute guilt not to the ‘directing mind’ but to the entity itself. But the effort expended appears to have led, apart from occasional successes, to a general impasse.


The progenitors of the 1995 Commonwealth Criminal Code Act attempted to cut through the impasse by harnessing a radical line of argument. The directing mind and intent was also to be found in, because it’s embodied in, a corporation’s “culture”. Fault should be attributable to the entity where (Tahnee Woolf, ‘The Criminal Code Act 1995 (Cth): towards a realist vision of corporate criminal liability’, Criminal Law Journal, October 1995):

‘… the corporation had a criminogenic “corporate culture”, that is, where its general attitudes, policies, rules and codes of conduct encouraged the performance of the prohibited conduct.’

This is a radical step indeed. “Corporate culture” is not a touchy-feely addition to the text but is integral as a causative medium. Let’s revisit the relevant section of the 1995 Act:

12.3 (2) The means by which such an authorisation or permission [for an offense] may be established include: …

(b) proving that a high managerial agent of the body corporate intentionally, knowingly or recklessly engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or

(c) proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision; or

(d) proving that the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision. …

[s12.3] (6) corporate culture means an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place.

ASIC’s Greg Medcraft, for once, has been useful in bringing the Criminal Code to Parliamentarians’ attention, at Senate Estimates hearings on 3rd June.

Medcraft notes:

Under s12.2 of the Commonwealth Criminal Code, a company can be responsible for a breach of certain commonwealth laws if a company’s culture encouraged or tolerated the breach. …

We think that when an officer breaches a law ASIC administers – and culture is responsible – then the officers and the firm should be responsible.

We think the officer and the firms should be subject to civil penalties and administrative sanctions, as accessories.

At the hearings, Medcraft claimed that he is hampered by inadequate powers and the demanding burden of proof regarding criminal charges (Criminal Code Act, Part 2.6 [s13]).

Yet there are instances where that burden of proof might be not insurmountable. And once a precedent is established …

Consider the CBA takedown of close to 1000 BankWest borrowers after its takeover in late 2008. A prima facie case can readily be made that 12.3 (2) (b) applies here — the takedown was strategically organised and implemented at the top. Attribution should be a lay down misere.

The authorities (ASIC, RBA, APRA, Federal Treasury) should have sent in the police and appropriated sequestered documents relevant to the BankWest takeover and the associated takedown. That, of course, requires a de-politicisation of the Australian Federal Police; more it requires the establishment of an expert team within the AFP of trained specialists to investigate corporate financial crime.

As for a supportive culture behind the BankWest borrower takedown, look no further than my Dark Side of the CBA series on this site, highlighting 30 years of CBA malpractice, facilitated by finance sector deregulation and subsequent privatisation. The BankWest borrower takedown was not a one-off affair, but a spectacular culmination of 30 years of criminal activity. Another lay down misere.

Returning to the Criminal Code Act, we read:

‘12.1 General principles

(1) This Code applies to bodies corporate in the same way as it applies to individuals. …

(2) A body corporate may be found guilty of any offence, including one punishable by imprisonment.’

Crimes punishable by imprisonment! One can’t send a body corporate to gaol. Ergo, 12.1 (2) applies to real people.

By all means indict rogue non-senior bank staff lending officers, recovery heavies, legal staff functionaries. In individual victim cases, such people are readily identifiable. But senior management, CEOs and general legal counsel, should be in the front line.

Some bank crimes against SME/farmer borrowers clearly originate at the top. Other bank crimes against such clients originate under the initiative of rogue lending officers. But the stories that have been given to me over the last 15 years highlight that the latter are perennially condoned “upstairs” and given the full weight of the bank’s resources.

And they are condoned upstairs, either explicitly or implicitly, because the rogue officers are a product of a “criminogenic” corporate culture.

The appropriation of responsibility by the bank as corporate entity for all failures and unconscionable or fraudulent actions by individual bank officers, regardless of seniority, is on full display when the bank litigates against the borrower for a breakdown of the “relationship” attributable to the bank itself.

The buck stops at the top. The hierarchy of remunerations (lavish at the top) is evidently structured under the presumption that those at the top are most responsible for the “successes” (i.e. profit generation) of the company. Are then those at the top not most responsible for the company’s moral failures and criminal activities?

The Commonwealth Criminal Code Act, thus, is a powerful instrument to indict bank CEOs. It has been lying fallow for two decades, while bank immunity for criminality powers on. Our regulators have admitted that bank culture is rotten, but claim that nothing can be done externally to fix it.

On the contrary, the legislation is already in place. And the legislation embeds the role of corporate culture. True, the hurdles are formally high. But the evidence, as noted above, is overwhelming. 

All that is required is political will.

Alas, the political class and the regulators are complicit in bank criminality.

The quick way to fix the rotten banking sector culture is to send bank CEOs to gaol. It remains to impress on members of the major political parties in Parliament that their self-interest lies in detaching themselves from the banking sector gravy train.

In the first instance, a word with Nationals Senator John Williams, his office buried under a mountain of bank victim documentation, could begin their enlightenment on this issue. As Williams noted after he crossed the floor in late June to support a Greens motion for a Royal Commission (into one dimension of banking malpractice):

 “I’m sick of Australians being robbed by rogues.”

Send bank CEOs to gaol.

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