Banks under fire: investigations laid bare by regulator

Internal documents have revealed the regulator’s investigations into the banks and other big Australian companies.

Allegations that NAB filed at least 110 breach reports late formed part of a wide-ranging ASIC inquiry. Picture: Stuart McEvoy for The Australian.

The powerful committee overseeing the corporate regulator’s enforcement activities approved the criminal prosecution of NAB for failing to report serious breaches of its licence in June last year, banking royal commission documents reveal.

The investigation into NAB is among Australian Securities & Investments Commission operations detailed in minutes of the regulator’s enforcement committee that also reveal an ongoing inquiry into loan fraud in the bank’s greater Western Sydney branches and the authority’s anger at Westpac over “lack of transparency”.

NAB’s repeated failure to report serious breaches of its financial services licences to ASIC within 10 days, as the law requires, was among misdeeds by the bank and its subsidiaries exposed during royal commission hearings in August.

Allegations that NAB filed at least 110 breach reports late formed part of a wide-ranging ASIC inquiry into the bank’s wealth management arm for charging fees when no services were provided. That inquiry culminated in the regulator sending the bank a document in October 2017 outlining its “suspected ­offending”. Detailed were three other ­alleged crimes and more than a dozen non-criminal breaches. The bank has not been prosecuted over the allegations.

ASIC’s enforcement committee is made up of at least one commissioner — it is now chaired by Daniel Crennan QC, who took over from Cathie Armour — plus the regulator’s chief legal officer, Chris Savundra, and the heads of its enforcement, strategy and small business compliance groups. It has supervision of every live ASIC investigation — said to be in excess of 100 at any given time — covering areas as diverse as the banking sector’s fee-for-no-service scandals, consumer credit rip-offs and breaches of ­directors’ ­duties at Australia’s big corporations.

The enforcement committee minutes, made available yesterday by the royal commission, show that on June 18 last year it resolved to agree “that the team should undertake enforcement action against NAB Group’s licensees for the repeated breaches of the strict 10-day significant breach reporting requirement” — even though “only criminal ­action is currently available”. A breach of the legislation involved now carries only a small fine.

The minutes also show that on October 22 the committee was given an update on an investigation into loan fraud ­allegedly committed by NAB bank managers, details of which came to light at the royal commission.

At hearings in March, the commission heard that 40 NAB staff were involved in the scam, which involved writing more than 2000 suspect loans. Staff also accepted cash-stuffed envelopes as bribes, the commission heard. NAB has sacked at least 20 staff over the scheme and in July last year ASIC permanently banned two employees, Danny Merheb and Samar Merjan, from the industry.

A spokesman said yesterday the bank takes its breach reporting obligations seriously. “In ­recent years, NAB has worked hard to identify and investigate historical events as well as to ­improve the processes and systems supporting breach management,” he said. “Since 2016, we have seen a ­reduction in late breach reporting to ASIC, with zero significant breaches being reported outside the 10 business day time frame for 2018.”

ASIC’s enforcement team was to update the committee the next month, and “provide a significant issues report to the Attorney-General”, the minutes show.

Minutes of the May 7 meeting last year reveal ASIC’s increasing frustration with Westpac over a financial planner who allegedly cost his clients at least $12 million by giving them shoddy advice.

The committee requested the team working on the investigation “send a letter to Westpac noting that ASIC is ending negotiations in relation to this matter due to Westpac’s lack of transparency with ASIC on other matters which have been raised at the royal commission”.

Negotiations had been under way to negotiate an enforceable undertaking — an alternative to a full-scale lawsuit that has also been criticised at the royal commission — the minutes show.

The documents show some of the investigations conducted by ASIC were considered so sensitive that the committee’s deliberations were kept out of the minutes. These included inquiries into Rio Tinto over its Mozambique writedown and alleged corrupt payments in Guinea and one into the governance of Tennis Australia over management of its lucrative TV rights that resulted in November in ASIC launching Federal Court action against former directors Harold Mitchell and Stephen Healy.

Other matters considered by the committee since 2016, the earliest entry in the document, ­include the decision not to pursue Jack Flader, the alleged mastermind of Australia’s biggest super fraud, Trio; Macquarie Group’s role in the collapse of investment empire Van Eyk; and issues ­referred from the trade union royal commission.

Repeatedly considered by the committee since 2016, but almost completely redacted by the commission, is an investigation ­relating to ANZ called “Project Ziggy”, which is believed to concern alleged cartel conduct.

The minutes show the committee was due to receive an ­update by the end of last year.

Also closely examined by the committee were money laundering allegations involving Commonwealth Bank, which agreed in June last year to pay Australia’s financial intelligence agency $700m after admitting to more than 53,000 breaches of anti-money laundering and counter-terror finance laws.