Friday, March 21, 2014

ASIC boss wants civil penalties for corporate crime that "inject fear"

The corporate regulator says Australia is too soft on white collar crime and that civil penalties here are a slap on the wrist compared to other parts of the world.

In a major report comparing penalties, the Australian Securities and Investments Commission (ASIC) says the rewards of corporate crime can often outweigh light penalties.

"Clearly what we found was with criminal penalties, we're reasonably consistent but in relation to civil and administrative penalties, we're actually somewhat inconsistent," commission chairman Greg Medcraft told ABC's AM.

Mr Medcraft says one of the big problems for ASIC is that penalties for corporate crime are often small in comparison to the proceeds of the crime.

A recent example is the insider trading case against the former Gunns chairman, John Gay.

"Often [internationally] the penalty is you get to disgorge your financial gain and in fact the concept in many jurisdictions is triple damages," Mr Medcraft said.

"You actually have a penalty that is three times your gain and if you think about it, that is actually what having a deterrent is all about is that if you wanted to consider breaking the law then there will be a significant penalty."

The report suggests that access to disgorgement laws, which allow the seizure of any ill-gotten gains of convicted corporate criminals, would improve the situation.

"Frankly, if in fact you are considering whether to break the law and it's a risk/reward decision, many people weigh up what the penalty will be or may be versus the gains to be obtained," Mr Medcraft said.

"And you've actually got to incent the right behaviour and those that intentionally break the law should be well aware that there's going to be a significantly adverse outcome and they won't get a financial gain.

"Now what we've got to have is penalties that actually inject fear and that overcome that urge perhaps to break the law via greed."

Currently the maximum civil penalty for crimes like insider trading and market manipulation in Australia is around $200,000.

ASIC says in Canada the equivalent penalty is around $1 million, and in the United States the penalty is three times the profit gained or loss avoided.

"What you have to do is have a system that makes it very clear that if you cross the line, there will be significant penalties and I think that is very important," Mr Medcraft said.

Mr Medcraft also confirmed ASIC is monitoring Leighton Holdings amid reports the company is sitting on undisclosed write-downs of more than $2 billion.

"Directors, under continuous disclosure, have an obligation that if it is a material fact that would have a significant impact on price or material impact on price, it is something that they need to disclose," Mr Medcraft said.

"What we'll do is see how they approach that issue." 

Monday, March 17, 2014

Qantas: What's the future for the flying kangaroo?

For most ABC correspondents, boarding a Qantas 747 or perhaps more recently a Qantas A380 is often the first memory of a usually hard fought but ultimately exciting post overseas.

Packing up your life in Australia, farewelling families and friends, while feeling the pressure to hit the ground running to win over critics back home, can fade temporarily in that unreal world of long haul travel - even better if your seat allocation is at the pointy end.

Qantas of course was once an essential part of overseas jaunts for business and government travellers - and for many Australians, boarding the "flying kangaroo" was welcome comfort that felt like "home".

But as aviation has become a globalised business, badly damaged by the terrorist attacks of September 2001, Qantas like most national carriers has struggled to maintain its once iconic status.

Greater competition, cheaper seats, and savvy travellers who expect more for less while venting their opinions on sites like TripAdvisor - means profit margins have narrowed.

And in recent years, Qantas has been making heavy losses on its international business.

Now its once lucrative domestic business is under pressure and Qantas is in a loss making war to maintain its 65 market share over Australian skies.

It's chief rival,  Virgin Australia - which began as a cut price airline in the wake of the Ansett collapse - is now enticing corporate customers to come on board.

And late last year, even the ABC sidelined Qantas to make Virgin its preferred domestic airline.

The sad reality is that life is getting tougher by the day for Qantas - and just a few weeks ago it posted a half year loss of $235 million and announced the axeing of 5,000 additional jobs as part of a two billion dollar restructuring program.

Standard & Poor's downgraded its credit rating to "junk" on the day Nelson Mandela died, meaning Qantas can no longer claim to be the only "investment grade" airline left in the world.

So how did Qantas get into this mess?

The most obvious answer is that "this the free market" and the forces of supply and demand are at work.

And after all, Qantas is listed on the sharemarket as one of Australia's top one hundred companies by market value - though getting close to the tail end of that list.

But the other more complex part of the story is that Qantas remains shackled by government regulation through the Qantas Sale Act of 1992 which restricts foreign ownership to 49 percent.

Virgin, on the other hand, has been able to attract significant foreign investment and lists three state-owned airlines as its top three investors  - Air New Zealand, Etihad and Singapore Airlines.

Combined, they own more than 60 percent of Virgin stock and have signalled interest in maybe buying more.

Qantas has been furiously lobbying the federal government to have the Qantas Sale Act repealed or amended so it can compete on a level playing field with Virgin.

But the messages became mixed - when Qantas also urged the government to provide a standby debt guarantee - where Qantas would use the government's sovereign credit rating for borrow at a more attractive rate than "junk".

The proposal sparked a national debate over whether any flavour of government should risk potentially owning the debt if Qantas ever defaulted.

Not surprisingly, Virgin's chief executive John Borghetti said he'd be asking for the same treatment "within 24 hours" if the Qantas bid was approved.

But providing that debt facilility was never going to fly with Federal Cabinet once the Prime Minister ran his "if not one, why not all" argument on the day Qantas announced fIve thousand job cuts.

While Tony Abbott did agree to repeal the Qantas Sale Act he did so knowing there's little or no chance that the Senate will pass it.

So Qantas knows its campaign is mired in politics more than ever - and that the government is using the repeal of the Qantas Sale Act as a political wedge against Labor.

But even if Labor did agree to back the Sale Act repeal, it would almost certainly find itself in a war with trade unions especially if any new legislation saw more Qantas jobs move offshore along with maintenance, the Qantas head office and maybe even the Qantas board.

And while the government's move to amend the Qantas Sale Act is significant, it comes after both the Prime Minister and Treasurer urged Qantas to "get its house in order".

That's seen as code for "workplace reform" as the government continues to question "the age of entitlement" and  sections of enterprise agreements relating to troubled companies such as SPC Ardmona and Toyota.

And the government's proposal to provide highly qualified support for Qantas comes as preparations begin for a Royal Commission into trade unions.

Undoubtedly, the role of unions at Qantas could become part what's expected to be a wide-ranging inquiry.

And in the background, calls are growing louder for Alan Joyce to quit as the airline's long serving chief executive.

The Irish born Australian citizen - who controversially grounded the entire Qantas fleet in late 2011 in his fight with unions - is vowing to stay on.

Alan Joyce once joked in his first ABC interview as Qantas boss back in 2008 that he took a "hospital pass" from his tough talking predecessor Geoff Dixon.

The question now is whether any corporate warrior would have the nerve and stamina to take a hospital pass from Alan Joyce.