Nothing exposes regulatory cracks like corporate scandals. From ASIC to the ATO – all have sustained collateral damage lately.
The PwC debacle has raised questions about the relationship between the big four accountants and the ATO; ASIC was slammed for its ineffective enforcement culture in the wash out of the royal commission into financial services; and the various state gaming regulators were found seriously wanting after inquiries into the two large casino groups found them unfit to hold their licences.
This week, Federal Court’s Justice Michael Lee put AUSTRAC through the wringer rather than apply a rubber stamp to the $450 million fine the financial intelligence agency had negotiated with Crown after it allegedly breached money laundering laws.
Crown and AUSTRAC had agreed to a $450 million fine.Credit: Luis Enrique Ascui
Lee is clearly frustrated about the time it has taken the two parties to come up with an agreed set of facts and admissions, having noted back in February that the settlement to end the Napoleonic Wars took less time.
Justice Michael Lee.Credit:
Whether Lee ultimately approves the settlement remains to be seen, but he clearly wanted more detail and questioned the deferred nature of the settlement payment.
And AUSTRAC is held up as the gold standard in regulators – certainly among its Australian peers. Its recent history in disgorging a combined $2 billion from the coffers of the Commonwealth Bank and Westpac was viewed as a rich outcome.
But history has demonstrated that whenever an industry or organisation is beset with a major scandal, even the best of regulators can be questioned over their performance.
The risk of regulators being captive to those they are policing and the blurring of lines between the poacher and the gamekeeper has featured prominently in recent scandals.
(Who could forget evidence in the financial services royal commission that ASIC asked Commonwealth Bank to make a $300,000 donation instead of pursuing an $8 million fine, and allowed the bank to tone down a media release about misleading life insurance customers.)
And the Australian Tax Office’s role in the PwC scandal is a particularly recent example.
A Senate inquiry into the use of consulting firms was told in June of a heated meeting between the ATO and the Tax Practitioners Board on September 1, 2021, after The Australian Financial Review reported the tax office had pressured the board to call off the investigation into former PwC partner Peter Collins’ use of confidential information. While this was denied by the ATO, its second commissioner – Jeremy Hirschhorn – conceded that the tax office warned the Tax Practitioners Board about seeking confidential tax agreements it had made with tech companies.
The movement of senior staff between the big four consulting companies and the ATO has been cited as one reason some believe the relationship between them is too close.
While a level of confidentiality is essential between the ATO and taxpayers and between regulators and those they police, it requires the public to trust in their institutions.
Meanwhile, Treasury also sustained a bit of damage for its part in the PwC affair when it was revealed that officials from the department became aware of a possible breach in September 2018, several months after Mr Collins signed a new confidentiality agreement.
A Senate committee was told Treasury passed on the little information they had on the possible leak and passed that on to the Australian Tax Office for its investigation.
But Greens senator Barbara Pocock said further precautions should have been taken.
“A possible breach of something with a criminal consequence comes to you and you don’t have alarm bells go off? I am shocked,” Pocock said at the Senate committee hearing. “That is inappropriate. That is sleeping at the wheel in my view, this is a very important matter with millions and millions of dollars.”
While there is plenty of political mileage to be made when regulators come up short, a lack of government funding can be a significant culprit, as can political will and the regulator’s independence.
But with the community and some politicians increasingly subscribing to the view that sunlight is the best disinfectant, regulators need to get used to a few brickbats flying their way along with the bouquets.
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