Envelopes ‘stuffed with cash’ to bribe tellers for home loans

In the first full day of public hearings the attitude of the entire financial sector towards obeying the law has been questioned.

The Royal Commission into the Financial Services Industry gets underway. (Photo: Eddie Jim/Fairfax/Pool)

White envelopes stuffed with money were passed across tellers’ counters to bribe bankers into giving out fraudulent home loans as part of a scam involving six NAB branches in Western Sydney, the financial services royal commission has heard.

In the first full day of public hearings today, commissioner Kenneth Hayne also questioned the attitude of the entire financial sector towards obeying the law of the land, saying the industry’s attitude towards reports of wrongdoing and misconduct was one of the issues he might need to examine as part of the inquiry.

Mr Hayne acknowledged the industry was large and things were bound to go wrong from time to time, whether by misconduct or coincidence.

“There’s a whole raft of law out there governing this industry,” he said.

“One thing I might have to look at, I think, is the attitude of the industry, participants in the industry (and) to the notion of obedience to the law.”

The royal commission’s focus on NAB’s introducer program prompted a pre-emptive apology from NAB chief executive Andrew Thorburn, who in a statement issued half an hour before proceedings opened said that “there have been times in the past where we have not done the right thing for our customers”.

“While many of these issues are public, we must continue to take action to strengthen our systems and processes so they don’t happen again,” he said.

The commission heard that NAB was slow to own up to the corporate watchdog about the Western Sydney home loan rort, filing a breach report with the Australian Securities and Investments Commission in February 2016 — three months after it started sacking bankers involved in the fraud plot.

Commissioner Kenneth Hayne. (Photo: Eddie Jim/Fairfax/Pool)

NAB sacked 20 bankers, including two bank managers, after an internal investigation into the introducer scheme at the heart of the plot under which the bank pays introducers commissions of up to 0.6 per cent of the amount loaned to customers.

The bank has reviewed about 2300 customer files as part of a remediation program but has yet to pay any compensation.

NAB’s introducer scheme has been immensely lucrative, bringing in $24bn in home loans between 2013 and 2016, the period in which the bank has admitted misconduct occurred.

At its peak there were about 8000 referrers, but following NAB’s efforts to clean up the program this has reduced to about 1400.

While introducers are supposed to come from the ranks of professions, including financial planners, accountants and lawyers, the commission heard that this was not always the case at NAB, with one referrer running a gym.

The commission heard that bankers forged documents and NAB made payments to introducers who the bank could not find or suspected were connected to bank employees.

NAB’s executive responsible for the introducer program, executive general manager of growth partnerships Anthony Waldron, admitted, under withering cross-examination from counsel assisting the commission Rowena Orr, QC, that incentives paid to staff for writing loans helped contribute to the rort.

Mr Waldron was appointed to the role in November 2016.

Earlier, in April 2015, the bank received a first internal report raising concerns about one of the bank branches involved in the scam.

A senior analyst in its assurance division told other staff a third “comprehensive” review of the branch was needed because it had failed two standard assurance reviews and flagged “introducer/branch lending concerns”.

“Unfortunately we have uncovered a range of concerns relating to introducer files and what appears to be star sales incentives that involve a branch manager,” the analyst said in an email Ms Orr showed the commission.

Ms Orr asked Mr Waldron whether it was correct to say there had been misconduct by the branch manager that had been identified by bank and he ought not to have received incentive payments for work that was either done by others or not done at all.

“That is the hypothesis that is in the email, that is why a third review would have to be undertaken,” Mr Waldron said.

Asked if the hypothesis was right, Mr Waldron said: “Ultimately it proved to be correct.”

Whistleblower reports were received in September and October 2015.

“The whistleblower tells NAB these people are making up fake pay slips, fake Medicare cards,” a NAB staff member said in an October 2015 email summarising the allegations.

‘They charge $2800 bribery for each customer — for home loans mainly, but also personal loans.

“White envelopes, usually over the counter. Money is deposited at CBA — so NAB can’t detect the deposits.

“People are being promoted on the basis of home loans and other lending so it appears they are smashing their targets but some of it is false.”

Mr Waldron said the bank told ASIC about the issue in December but agreed it did not make a full report until February — even though the law requires financial services licence holders to report serious breaches within 10 days.

His cross-examination continues Wednesday morning, after which the commission is expected to turn its spotlight onto CBA mortgage brokers.