Yesterday, it was reported that ASIC is taking action against Westpac for "the alleged rigging of the bank bill swap rate".
In its own words, "ASIC is seeking declarations that Westpac contravened s.12CA, s.12CB and the former s.12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), s.912A(1), s.1041A of the Corporations Act 2001 (Cth) (Corporations Act)."
Good, but something odd caught my eye: s 12CA?
Section 12CA ASIC Act states, "A person must not, in trade or commerce, engage in conduct in
relation to financial services if the conduct is unconscionable within the
meaning of the unwritten law, from time to time, of the States and
Territories."
This means unconscionable conduct as enunciated by the High Court in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14.
The facts of that case, briefly, concerned an elderly couple, the Amadios, who agreed to guarantee the debts of their son's insolvent business. In addition to their age, the Amadios had poor English and limited business understanding. In legal speak, they were under a "special disability." This is the first element necessary for there to be unconscionable conduct.
The second element necessary is that the stronger party, in this case the bank manager who procured their signatures, knew or ought reasonably to have known of the special disability.
The Amadios won that case, and since then Commercial Bank of Australia Ltd v Amadio has represented "the unwritten law". So, unless ASIC can point to some such people, which Westpac had specific knowledge (actual or constructive) of, I'm not sure why ASIC proceeded under s 12CA.
Further the s 12CA claim doesn't make much sense since ASIC is also bringing an action under s 12CB, which is much wider and has been previously applied by the courts in the context of oppressive business conduct.
My guess is ASIC is throwing mud; it'll be interesting to see what sticks.
Thursday 7 April 2016
Tuesday 5 April 2016
The Secrets of the Super Rich... except, not really
For the life of me I don’t understand what that Four Corners program on ‘The Secrets of the Super Rich’ was actually about. It appeared as though the program was trying to make a bunch of different points in search of a coherent narrative, and comprehensively failed in all of them. So, let’s go through them.
1. In “offshore” jurisdictions (also known as “tax havens”), such as the British Virgin Islands (BVI), a person is permitted to act as a nominee director and/or shareholder of a corporation, while the “real beneficial owner” can remain hidden.
That’s not necessarily special or limited to BVI. Trust law has been used to conceal, legally speaking, the “real” beneficial owners of property for centuries. In many respects, it’s a trust’s raison d'être. You can argue it’s easier in BVI, and similar places, and not as secret, but it’s still secret enough that practitioners continue to debate the merits of onshore versus offshore asset protections strategies.
2. Criminals have used nominee directors/shareholders to launder money.
This would’ve been a great line of inquiry to follow, which is why it’s a shame the above is pretty much all Four Corners said about it before moving on.
3. Major Australian corporations that provide essential services and security for government agencies are secretly owned by shady foreigners.
Nick Xenophon, never one to miss a pithy line, said, with respect to Li Ka-Shing, the owner of SA Power Networks, that, “The great irony is that here is a company that effectively provides light for every South Australian household but is not prepared to have the lights shone on its tax affairs”. Why? To what end? With respect to the provision of electricity, the business is regulated like any other. He cannot escape that regulation via offshore companies. In which case, it seems like the point boils down to wanting to know his business in order to know whether he’s the kind of person we’d be comfortable with owning a major power company. Even though there’s nothing that could be done about that fact even if Australians didn’t like him (also I can think of several Australian business figures who are not much loved anyway).
Related to the above case, is the fact that Li Ka-Shing’s companies were taken to court by the tax office because of its failure to either lodge tax returns, or for lodging unsatisfactory tax returns. Again, where is the secret offshore corporation line figuring here? The company was taken to court for not paying taxes, which is illegal. As pointed out in the program itself, the issue isn’t that what these companies are doing is illegal, rather ethically questionable. This makes you wonder if anyone told Four Corners the old line about law and morals being mutually exclusive entities.
I think even Four Corners realised it failed to land anything on this point as well, so it moved onto the next one:
3. Li Ka-Shing’s companies settled with the tax office over the unpaid tax dispute for 1/10th the original claim.
Again, the tax office does this not infrequently, and it has nothing to do with there being a corporation registered in an offshore jurisdiction. In fact Four Corners didn’t actually say that the settlement had anything to do with the offshore issue; so why then, did they bring it up?
4. Companies use offshore jurisdictions to minimise their tax obligations in Australia.
Yes, they do. Guess what though, that has nothing to do with the law of the offshore jurisdictions. It’s about the tax law of Australia allowing them to do so! Even stranger about this point: it has nothing to do with the nominee directors/shareholders issue at all.
This point was brought home in the concluding minutes of the program when it was said by tax officials and politicians that the solution is to change Australian law, as the companies are simply acting in accordance with it. If it’s morally wrong, then it’s your law, Parliament; it’s up to you to make it right!
I ask you though, what does this concluding call for reform of Australian law have to do with nominee directors/shareholders in tax havens? Nothing.
The program missed the openings to make two very important points that would’ve been directly relevant to the issue of tax havens (though at times it did come perilously close to them).
The first is that such nominee directors/shareholders raise great concerns with respect to money laundering criminal activities.
The second is that the ability to hide the identity of the real owners of corporations can lead to enormous problems surrounding government corruption: where the secret owners of companies are using positions of power to award government contracts or benefits to companies they ultimately control and profit from.
Unfortunately the first point was, at best, addressed in passing, while the second point could’ve been raised, but wasn’t.
Four Corners missed an opportunity with this program, which if taken up would’ve contributed far more to the public discourse. Instead they told people a bunch of things that, in reality, lawyers have known and written about in law journals for many years.
Note: ironically, and tellingly, for a program about how the law of both Australia and overseas is used to conceal the “real” owners of companies, I did not see a single Australian legal expert interviewed. The one lawyer I did see, briefly, was a Canadian expert on fraud in this area; and it would’ve been great to hear more from him.
1. In “offshore” jurisdictions (also known as “tax havens”), such as the British Virgin Islands (BVI), a person is permitted to act as a nominee director and/or shareholder of a corporation, while the “real beneficial owner” can remain hidden.
That’s not necessarily special or limited to BVI. Trust law has been used to conceal, legally speaking, the “real” beneficial owners of property for centuries. In many respects, it’s a trust’s raison d'être. You can argue it’s easier in BVI, and similar places, and not as secret, but it’s still secret enough that practitioners continue to debate the merits of onshore versus offshore asset protections strategies.
2. Criminals have used nominee directors/shareholders to launder money.
This would’ve been a great line of inquiry to follow, which is why it’s a shame the above is pretty much all Four Corners said about it before moving on.
3. Major Australian corporations that provide essential services and security for government agencies are secretly owned by shady foreigners.
Nick Xenophon, never one to miss a pithy line, said, with respect to Li Ka-Shing, the owner of SA Power Networks, that, “The great irony is that here is a company that effectively provides light for every South Australian household but is not prepared to have the lights shone on its tax affairs”. Why? To what end? With respect to the provision of electricity, the business is regulated like any other. He cannot escape that regulation via offshore companies. In which case, it seems like the point boils down to wanting to know his business in order to know whether he’s the kind of person we’d be comfortable with owning a major power company. Even though there’s nothing that could be done about that fact even if Australians didn’t like him (also I can think of several Australian business figures who are not much loved anyway).
Related to the above case, is the fact that Li Ka-Shing’s companies were taken to court by the tax office because of its failure to either lodge tax returns, or for lodging unsatisfactory tax returns. Again, where is the secret offshore corporation line figuring here? The company was taken to court for not paying taxes, which is illegal. As pointed out in the program itself, the issue isn’t that what these companies are doing is illegal, rather ethically questionable. This makes you wonder if anyone told Four Corners the old line about law and morals being mutually exclusive entities.
I think even Four Corners realised it failed to land anything on this point as well, so it moved onto the next one:
3. Li Ka-Shing’s companies settled with the tax office over the unpaid tax dispute for 1/10th the original claim.
Again, the tax office does this not infrequently, and it has nothing to do with there being a corporation registered in an offshore jurisdiction. In fact Four Corners didn’t actually say that the settlement had anything to do with the offshore issue; so why then, did they bring it up?
4. Companies use offshore jurisdictions to minimise their tax obligations in Australia.
Yes, they do. Guess what though, that has nothing to do with the law of the offshore jurisdictions. It’s about the tax law of Australia allowing them to do so! Even stranger about this point: it has nothing to do with the nominee directors/shareholders issue at all.
This point was brought home in the concluding minutes of the program when it was said by tax officials and politicians that the solution is to change Australian law, as the companies are simply acting in accordance with it. If it’s morally wrong, then it’s your law, Parliament; it’s up to you to make it right!
I ask you though, what does this concluding call for reform of Australian law have to do with nominee directors/shareholders in tax havens? Nothing.
The program missed the openings to make two very important points that would’ve been directly relevant to the issue of tax havens (though at times it did come perilously close to them).
The first is that such nominee directors/shareholders raise great concerns with respect to money laundering criminal activities.
The second is that the ability to hide the identity of the real owners of corporations can lead to enormous problems surrounding government corruption: where the secret owners of companies are using positions of power to award government contracts or benefits to companies they ultimately control and profit from.
Unfortunately the first point was, at best, addressed in passing, while the second point could’ve been raised, but wasn’t.
Four Corners missed an opportunity with this program, which if taken up would’ve contributed far more to the public discourse. Instead they told people a bunch of things that, in reality, lawyers have known and written about in law journals for many years.
Note: ironically, and tellingly, for a program about how the law of both Australia and overseas is used to conceal the “real” owners of companies, I did not see a single Australian legal expert interviewed. The one lawyer I did see, briefly, was a Canadian expert on fraud in this area; and it would’ve been great to hear more from him.
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