23 October 2017
Transcript - #2017036, 2017

Interview with Ross Greenwood, 2GB Money News

Subjects: ASIC Enforcement Review Taskforce; increased penalties for misconduct in the financial sector

ROSS GREENWOOD:

Kelly as always we appreciate your time.

KELLY O’DWYER:

Great to be with you and your listeners Ross.

ROSS GREENWOOD:

This is nothing new because it is fair to say that the outgoing Chairman of ASIC, Greg Medcraft, has been calling for harsher penalties for corporate miscreance for quite some time.

KELLY O’DWYER:

Well in fact, it’s something that the Government itself found when we did a wholesale review of the financial system through the Financial System Inquiry when we first came into government. We concluded then that we needed to look at the maximum civil and criminal penalties for misconduct in the financial sector and that we needed to give the regulator, in particular ASIC, a much better toolkit and that is exactly what we’re proposing today. We have done very extensive work on this, we realise that we need to make sure that we not only have a regulator that can talk tough, but a regulator that can actually follow through. And increasing civil penalties, increasing criminal penalties, making sure that those people and those companies that have done the wrong thing cannot profit from that behaviour is a critical part of that.

ROSS GREENWOOD:

OK so earlier this year, both ANZ and Westpac each paid $3 million. So this wasn’t necessarily a penalty per se, but they both agreed that as a result of failures in their foreign exchange departments, which was an exchange of information between those foreign exchange departments, that they would each pay $3 million into the financial literacy foundation, that’s all well and good. Now the allegations were effectively admitted but there were no formal breaches acknowledged here. But the point about it was that the banks combined made $13.1 billion last year. $6 million out of $31 billion I worked out is $1 for every $2,200 of after tax profit. In other words, the banks would barely even notice $3 million fines.

KELLY O’DWYER:

Well this is where the Government is actually looking to expand a range of civil penalty provisions and increase the maximum civil penalty amounts in both the Corps Act, the Corporations Act that is, and the National Consumer Credit Protection Act. So right now, at the moment, we’ve got under the Corporations Act, fines that can be around about $1 million. That’s going to increase to $2.625 million or three times of the benefit gained or 10 per cent of the annual turnover. These are very significant penalty provisions and we think that they are very much needed by the regulator to expand their toolkit to prevent wrongdoing and, where wrongdoing occurs, to make sure that it’s appropriately punished.

ROSS GREENWOOD:

OK so another great example I found is the international household goods retailer, Reckitt Benckiser. Now Reckitt Benckiser, which actually markets in Australia and produces the popular analgesic painkiller, Nurofen, was fined, at the maximum, $1.7 million by the federal court. Now in this particular case, what happened was that it was suggested because Nurofen was said to be about targeted pain relief pills when it was found by the federal court that they just worked the same as any old painkiller. The problem was they paid out $3.5 million to consumers who bought the products between 2011-15, they were fined $1.7 million as well. Problem is, during that period of time, the four years the court case covered, they made, or rather sold, $45 million worth of painkillers. So they were fined $5.2 million, but they had sales of $45 million. That’s where, in many cases, you wonder whether really the fine or the penalty has been appropriate for the gain that the companies made.

KELLY O’DWYER:

Well certainly I think that was a particular case that involved the other regulator, the Australian Competition and Consumer Commission and they also have a range of penalties available to them as well. But your point is right, and that is that we need to make sure that those companies that engage in behaviour that is, in effect, ripping off the Australian consumer, is not able to engage in that behaviour and that the regulator has full powers available to them to seek recompense for the Australian consumer and to make sure that they are appropriately punished.

ROSS GREENWOOD:

So you would agree, therefore, with Greg Medcraft in 2014, with his analysis that effectively Australia, if it did not increase these penalties, could become a paradise for white collar criminals?

KELLY O’DWYER:

Well I certainly wouldn’t quite put it like that. But what I would say is that we have always believed that you need to have a well-funded regulator, you need to make sure that the regulator has appropriate powers available to it and that the regulator actually uses those powers. I mean, it’s all very well to have strong powers, but if the regulator doesn’t take action and use the powers available to it, then clearly it’s not achieving its aim and it’s not doing the right thing by the Australian people.

ROSS GREENWOOD:

But you get my point don’t you, because let’s say for example in the cases of some of these corporates who may have had misdeeds in the United States, where the fines are many times larger, or with the European Union, the fine’s many times larger. Then you look at Australia and they say that’s a pretty easy target, we might get fined, we might actually get the maximum fine, $1.7 million, or even if you increase it by three times, out around $5 million, well still, that’s pretty small for what we can get away with. You don’t want that attitude or belief by multinational corporations coming into Australia.

KELLY O’DWYER:

Well you absolutely don’t want people and multinationals, particularly, to think that fines are simply the cost of doing business. That’s why we’ve got very significant changes proposed in the paper that’s just recently been released today, which will look at 10 per cent of annual turnover for contraventions in certain circumstances. Now that is a very, very significant increase in the penalties that will be available to the regulator to ensure that consumers are properly and appropriately protected.

ROSS GREENWOOD:

Kelly O’Dwyer, always great to have you on the program. The Minister for Financial Services and, as I say, that’s going to be interesting. 10 per cent of turnover, that might make some of those corporates actually sit up and take note. Kelly we appreciate your time.

KELLY O’DWYER:

Great pleasure, thanks Ross.