Systemically corrupt capitalism – part 2
This article by Dr Evan Jones follows on from the first part under the same title, which appeared in the previous issue of ERA Review.
Integration of high street and back streets, finance at its centre
We tend to place the deeply ‘shady’ arena of mafia-style operations and stock exchange-listed corporations in separate boxes. But there is no clean dividing line, with the two arenas intermingling. Finance is a key match-maker, with money-laundering and tax evasion flowing through the same channels as the financing of ‘respectable’ commerce and industry – mediated by complex financial instruments incomprehensible to the outsider. In effect, in every concrete pour there is a dead body or two.
Canadian R T (Thomas) Naylor is a rare author to emphasise the integrated character of global finance. The preface of his Hot Money and the Politics of Debt notes:
“A ball of hot money rolls around the world. It seeks anonymity and political refuge; it dodges taxes and sidesteps currency controls; it rolls through shell companies and numbered accounts,
phoney charities and religious foundations. And it is kept rolling by misguided policy-makers and white-collar criminals, by gunrunners and drug dealers, by super-power secret service agents, and third-world political elites preparing for retirement.”
Naylor names Switzerland as historically pivotal in the nurturing of this structure, and accuses the International Monetary Fund of institutionalising a regime of redistribution of the burden from the criminal parties to the innocent.
Naylor has an academic post (McGill University), but his admirable investigative orientation and skills has remarkably left him little known.
Tackling individual perpetrators behind corporate crimes
Rarely, very rarely, is a corporate executive held personally responsible and jailed for crimes committed by the corporation over which they preside. The Enron CEO Jeffrey Skilling is an example. FAI Insurance Group’s Rodney Adler is a local example. These cases are true exceptions.
Corporations are perennially subject to fines, but fines are against the corporation, hitting shareholders and customers (including victims themselves) without touching the responsible individuals.
Note that the term ‘corporate veil’ refers to the exemption of shareholders from corporate malfeasance, not the exemption of corporate executives from same.
Some legal academics have addressed the issue of attribution for corporate crime (for example, Australia’s Brent Fisse), but they are small in number and generally quarantined from other scholarly legal discourse. More, they have had little exposure in the public arena. In particular, they and their concerns, remarkably, have been wholly absent from the current publicity on financial sector criminality driven by Banking Royal Commission hearings.
The Corporations Act 2001 is gargantuan, but corporate fraud against clients barely rates a mention. There is a massive section on the finance sector (Chapter 7), with reference to potential dodgy financial advisers, but it is clear that the law has had almost no impact in that arena entrenched in criminality. Worse, there is no mention of lender fraud against borrowing clients, with the potential in this arena being inbuilt. There is also a massive section on administration of insolvent businesses (Chapter 5), but that highly corrupt ‘profession’ highlights again that being rigorously subject to the law is of no ultimate import.
Lesser known is the Commonwealth Criminal Code Act 1995. The progenitors of the Act were conscious of the criminality in the financial sphere that reigned during the 1980s, with a desire to bring such under control. It has not happened. The component devoted to corporate crime (parts 2.5 [s12] and 2.6 [s13]) remains a mere 6 pages long in an ever-expanding Act.
Nevertheless, there is substance in those brief parts, incorporating integrally the concept of a corrupting corporate culture as a causative medium.
12.3 (2) The means by which such an authorisation or permission [for an offense] may be established include:
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
proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision; …
The ideal subject for prosecution is the Commonwealth Bank of Australia’s foreclosure of hundreds of Bankwest commercial property borrowers after the CBA took over Bankwest in December 2008. One can readily infer from evidence from key foreclosed borrowers that the mass foreclosure was engineered fraudulently. The process could only have been initiated and directed by the most senior CBA executives.
Another affair ripe for prosecution is that of the CBA subsidiary Commonwealth Financial Planning Ltd. The systematic fraud waged against investors was known and mandated by senior executives. Some financial advisers have been banned and the CBA has paid some compensation, and that is the extent of the judgments inflicted.
Ditto the fraud perpetrated by a criminal gang against retiree investors under the rubric Trio Capital, which has devastated savers in the NSW provincial town of Wollongong. A local manager went to jail, but the key criminals and the booty are safely ensconced overseas with the blessing of ASIC.
Myriad other cases could be listed. Yet no bank staff, whether front line managers or responsible senior executives have been prosecuted with the intent to impose ‘custodial sentences’ – i.e. sent to prison.
With the Commonwealth Criminal Code Act, a case can be made that prosecution of senior executives for the corporate crimes under their watch (those responsibilities being the basis for their generous remuneration) is practicable. In reality, it isn’t likely to happen. But the roots of that inaction are not legal but political.
During the Banking Royal Commission, the banks (apart from the occasional crocodile tears) have all shown themselves unrepentant. The abuse of victims goes on behind the scenes.
The Commission has declined to go anywhere near the root sources of the banking sector’s capacity for abuse.
Apart from marginal changes (potential bank selloff of insurance and/or financial planning arms), after the Royal Commission has ended the likelihood is that the banks will continue operating as usual.
To repeat, plunder is not aberration. It is an integral element of the banking sector’s modus operandi.
Dr Evan Jones is an Honorary Associate in Political Economy at the University of Sydney, and is an ERA patron.Know someone interested? Please share