Nigel Ridgway
General Manager
Compliance Strategies
Australian Competition and Consumer Commission
PO Box 1199
Dickson ACT 2602
28 February 2007
Dear Mr Ridgway
This letter is in response to the letter under your
name of 8 April 2005, which in turn was a response to my letter to John
Martin, Small Business Commissioner, of the 13 January 2005. My letter to
Martin was a consequence of not receiving any response to my dossier and
covering letter addressed to ACCC Chairman Graeme Samuel on 6 April 2004.
The silence on my part following your April 2005 letter reflected a
demanding workload rather than agreement with and an acceptance of the
substance of your response. Retirement from teaching has now allowed me
to return to the issue.
My April 2004 dossier summarised eight cases of
adverse experience of (all but one) small business/farming customers with
the National Australia Bank. (I note in passing that your 8 April letter,
presumably on behalf of Commissioner John Martin, dealt with the dossier
but did not respond to the broader issue raised in my Martin letter of the
parlous state of legal and regulatory protection for small business in
Australia.)
Your letter contained a response involving both
detailed treatment of each of the eight cases and broad generalisations.
The response to the cases could be characterised as falling into a number
of categories – the cases did not involve unconscionable conduct; the
cases (potentially) involved unconscionable conduct, but occurred before
s.51AC (or even s.51AA) had been legislated; the cases involved
(potential) fraud but the appropriate jurisdiction in such cases is
criminal rather than civil.
The convenient by-product of such classification is
that there is nothing in my dossier that warrants any action, or indeed
any thought, from the ACCC. Indeed, your letter bears all the hallmarks
of a ‘Yes Minister’ response.
There is the curious comment ‘In each case where the
ACCC declined to pursue an unconscionable conduct action it did so because
it was assessed that the conduct did not amount to unconscionable
conduct’. I am unaware that the ACCC has actively considered the
application of the unconscionable conduct provisions to banks; one could
count action by the TPC/ACCC against banks on the fingers of one hand.
The correspondence between complainants and the ACCC that I have cited
indicate that the ACCC has declined to involve itself in the substance of
the complainant’s case as a prelude to advising them to take the matters
into their own hands.
The classification of cases into non-actionable
categories is complemented by a variety of generalizations, two of which I
proceed to query below.
Banking malpractice not merely existent but a
systemic problem for small business
Representative is a paragraph in response to the
issue of ‘cumulative conduct by one party’ (page 2). The paragraph points
to variations in detail across different complainants, and the varying
location in time of the complaints. These concerns might be relevant to a
class action (whether there is a difference in banking that differs
qualitatively from tobacco cases that renders litigation in one industry
more readily successful than in the other is a moot point). But this
issue is not the one that I brought up. To quote my 6 May 2004 letter
‘The merit of treating these individual cases collectively is that
interpretation of the sources of these conflicts is more naturally
confronted as a systemic problem, rather than the failings of a particular
small business.’
In raising the concern about variations of detail and
in time your letter diverts from the prospect of malpractice amongst bank
lenders, the NAB in particular, as a systemic problem.
In my view, bank malpractice against small business
problems is systemic; it is therefore a problem to be treated systemically
by the authorities. My view is shared by my collaborator in these
matters, Brisbane-based retired NAB branch manager and longtime banking
malpractice consultant John Salmon.
In your noting that my eight cases ‘span a period of
17 years’, there is the implicit notion that these are sporadic affairs,
even if they were to be taken seriously. On the contrary, they are the
tip of the iceberg; and only the three score and ten years allocated to
one’s time on earth delimit the time and energy available for a lone
individual with no resources to document the extent of the iceberg.
I point you to the foreign currency loan saga of the
1980s, certainly one of the great financial sector scandals in Australian
history. What started out as greed mixed with incompetence in a new
environment of deregulation led three of our four major banks (Westpac,
the CBA and the ANZ) into corrupt practices as they attempted to displace
entire responsibility on hapless small business borrowers. Here was
transparent evidence of a systemic problem in banking practices,
ably documented in the minutiae by contemporary journalists but, alas,
ignored by experts and deflected by officialdom. The deflection of the
foreign currency loan scandal by officialdom is an important story in
itself, but elaboration on that theme would detract from the emphasis
here.
The common variety bank malpractice was also alive
and well in the 1980s. Indeed, it was the cumulation of individual cases
brought to the attention of the then Democrat Senator Paul McLean that led
him to champion the cause of bank victims in Parliament. Then, as now,
Parliament was little interested.
The publicly-owned Commonwealth Bank figured
prominently in the cases brought to the attention of Senator McLean.
These days, the National Australia Bank has the distinction of topping the
malpractice tables, by a considerable margin.
Channel 7’s Today Tonight program ran an episode on
the 5th April 2006 dealing with three NAB casualties. The
program was put together by Today Tonight’s Adelaide producer, Frank
Pangallo, after he was approached by a South Australian builder against
whom NAB had reneged on an insurance contract after an injury to the
builder. Pangallo sensed an injustice, and used a program that has a
reputation for trivia to handle an issue that is neglected by more
respectable outlets.
The program went to air in April, but only in South
Australia. Curiously, the program did not go to air, as scheduled, in the
other States, not least because the other two cases on the program
emanated from Queensland. One of these cases was the McMinn child care
centre case, documented in my dossier. Nothing that should concern us
here, says your letter. Yet the McMinns received an offer of $1,700,000
for the centre, which the Bank prevented the McMinns from accepting, and
the receiver/Bank subsequently sold the property for $1,180,000, leaving a
residual debt that conveniently swallowed up the McMinn family home along
the way. It is this kind of detail that should alert inquiring minds as
to the nature of this conflict.
The third case on the Today Tonight program was that
of the Troianis. Sante Troiani ran a highly successful brick business out
of Bundaberg, building up substantial business and property assets of many
millions of dollars. The evidence points to not your garden variety
malpractice but a strategic ‘sting’ operation (to use the expression of my
collaborator John Salmon), in which the NAB induced Troiani to shift his
business to the NAB (in late 1993), after which Troiani’s business was
systematically defrauded.
Belatedly, the April 2006 Today Tonight program,
albeit edited, appeared in the Eastern States and Western Australia on 4
January of this year. In the ensuing couple of weeks, Pangallo was
inundated with phone calls and emails from people who considered
themselves victims of bank malpractice, all by NAB except for a Westpac
case. The number is well over one hundred.
On the Today Tonight program, NAB executive Ahmed
Fahour acknowledged that there were problems that needed attention. That
mild contrition was not to last. The NAB had published in the Melbourne
Age under Fahour’s name on the 23 January a panegyric to the
company, citing its brilliant socially aware contribution to community
support. The NAB then wheeled out its public relations flak to pronounce
that ‘NAB has a very good relationship with millions of Australian
customers and it is in the bank’s interest to see those customers and
their businesses succeed. On rare occasions businesses regrettably fail
and disputes do sometimes arise, however, NAB works hard to resolve those
situations to the satisfaction of all parties.’ In short, pure spin.
Business as usual.
The Commonwealth Bank is not to be outdone by the
NAB’s ‘competitive advantage’ in malpractice. Cases in the last ten
years, some of which have dragged on until recently, include Muirhead in
Queensland (primary producer), Cooke in Queensland (medical centres),
Timms in New South Wales (negligent advice in business purchase) and
Heinrich in South Australia (primary producer). Muirhead and Cooke shared
the same corrupt lending manager. The CBA was particularly active in
maltreatment of customers of its small business subsidiary Commonwealth
Development Bank in the mid 1990s in the course of restructuring then
closing down the CDB – Tratzea in New South Wales (horticulture) and
Cassegrain in New South Wales (property development) are notable cases of
transparent skullduggery.
Even the relative small fries St. George and Bendigo
Bank are now aping the big boys on the block, the latter having acquired a
lending manager from NAB in Queensland who has carried over an unsavoury
culture with him.
How many cases of alleged victimisation does one need
before one confronts the possibility that there is systemic malpractice
against small business borrowers in the banking sector? One first has to
be willing to confront the accumulating evidence.
One also needs to learn to read the signs regarding
what is readily attributable to incompetence, possible malfeasance, on the
part of borrowers, and what seems like a calculated default by the bank
lender. Recently, I came across a case reported in the financial press of
a builder, Stuart Bros Pty Ltd, which had collapsed in 1994/95. The press
reported the collapse cursorily, but it had all the elements of a
calculated default by the NAB. Stuart Bros had been a long established
and reputable firm, readily discarded as collateral damage.
Bank culture
How many cases does one need to sit up and take
notice? Large numbers carry important implications, but ultimately the
character of even one or two cases ought to be decisive in ringing alarm
bells. Kabwand/Somerset (NAB) and Heinrich (CBA) are two such cases. The
common element is that two hard-working and successful farming families
are deceived by corrupt lending managers. The key issue for us, however,
is that the bank hierarchy then steps in and enacts a process dedicated to
the destruction of the deceived borrowers. The CBA has even had Heinrich
declared a ‘vexatious litigant’ – this in the pursuit of justice!
The experience of the Somerset and Heinrich families
provide a window into the culture of business practice in banking.
Business culture is a phenomenon unknown to the economics profession that
pervades the bureaucracy and regulatory agencies, and we have had to draw
on the low-status sociologists and management writers for insight. The
March 2004 APRA report, Report into Irregular Currency Options Trading
at the National Trading Bank, embodied a rare official recognition of
banking business culture and the potential for the entrenchment of
unsavoury elements. The APRA report focused narrowly on the NAB’s trading
desk, but even casual readers of the financial press would know that the
NAB has generated a series of debacles, product of a dysfunctional culture
that has been evidently more widespread than the trading desk of late.
Nevertheless, the APRA report has offered legitimacy to the recognition of
banking culture, of the possibility of elements of that culture being a
product not merely of incompetence but of a lack of ethics, and thus the
prospect that unsavoury business practice will become entrenched.
In short, a dysfunctional business culture generates
systemically undesirable business practices. There is that word
again, that one is not allowed to speak, and the concept behind it, that
one is not allowed to conceive.
The evidence indicates that the Asset Structuring
unit of the NAB has possessed an unsavoury culture for some time. One
would have expected the new broom at the top to address this inheritance.
Certainly, the new broom has restored the NAB to magnificent
profitability, but it has curiously chosen not merely to tolerate but to
reinforce this cowboy element in the business. Rumours have passed in
business circles that former NAB CEO Cicutto was forced to fall on his
sword not because he failed to stem incompetence or corruption but because
he failed to stem adverse publicity. (One might add in passing that
Westpac has devoted considerable resources to advertising its corporate
social responsibility, seemingly risen above the pack, but Westpac has as
yet declined to clean out its own cultural closet regarding treatment of
small business.)
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