white-collar crime

WHITE-COLLAR CRIME WITHIN THE INSOLVENCY PROFESSION (ARIFF ETC.)
CHAIR: ASIC has called for a review of penalties for white-collar crime. Do you have experience in white- collar crime within your professional organisations?

Senator WILLIAMS: I can give you some names: McVeigh, Macdonald, Patterson, Ariff. You need any more?

Mr Lombe: Are you alluding to Mr Ariff?

CHAIR: I am, by way of introduction. But more generally the question is: are current penalties and their application sufficient in the area of white-collar crime or do they need to be reviewed? That is really the issue.

Mr Lombe: Looking at the Ariff matter, to start off, that is a real blight on our profession. It is extremely regrettable and it is still a matter that gets a lot of discussion at the ARITA table. We are extremely embarrassed by it. The other thing that I would say is my view was the matter potentially was not handled as quickly as our profession would have liked. I think there were other ways. There is a thing called the Crimes Act which could have been looked at. Also, in terms of being an officer of the court, this matter could have been brought to the court. It could potentially have stopped him practising by having a receiver or some practitioner appointed to his practice to stop it, because I think it is the position that, whilst the investigation was going on and whilst the matter was proceeding in court, he was stealing funds. It is extremely regrettable and, as I say, it is a blight on our profession and we are extremely embarrassed by it.

But I would say this fellow was a criminal. He misappropriated moneys. We can sit down with a blank piece of paper and I can have a lawyer with me—the best lawyer in Australia—writing about how you stop people doing what Mr Ariff did, and the answer is you cannot because he is simply a criminal.

There may well be a case for better processes that make it easier to deal with these sorts of matters. I would say at the moment there are things in place which could have been accessed, but maybe there needs to be some reform to deal with this, to make it easier to deal with those sorts of things. I am not talking about someone who makes a mistake in their declaration of relationships, independence or indemnities. I am talking about someone who is taking money illegally, misappropriating money out of a matter. In that case, that has to be treated differently.

There are powers for ASIC to investigate those matters and get the material to understand that that is not a legitimate payment but a payment for a trip for his family, or things of that nature. From that perspective, I think there is some basis there. I might just ask Mike McCann, who is our vice president, to comment on that.

Mr McCann: The other day someone like Ariff was a criminal, and in a lot of cases of white-collar fraud or crime it is the directors of companies who are perpetrating similar crimes or other fraudulent activity, and they are true criminals.

In the case of Australia a lot of the penalties that we have seen handed out have been relatively modest compared to some of the high-water marks in the US et cetera, where they seem to have a much more rapid and much more draconian penalty regime. They seem to prosecute very quickly and the penalties are very severe. As a deterrent, I suspect that our penalty regime here is not quite sufficient, because there is a culture of crime and fraud being conducted around the country. While that is still the case in many countries, I think there could be more of a deterrent.

In our practice, obviously, we come across a lot of companies who have failed, for various reasons. To be honest, the majority are probably due to incompetence and misfortune, but there is certainly a hard-core element of fraudulent or criminal activity by people who have the status of directors of companies.

CHAIR: You said there is ‘core’ illegal activity.

Mr McCann: You do see on a recurring basis—not the same people necessarily—activity which is tantamount to fraud or criminal activity. You see that a lot in some these investment schemes that we are well aware of. That activity has been perpetrated very blatantly with the intention of taking funds from investors and similar parties. That is a criminal activity.

CHAIR: So you are saying to us that the penalty regime that applies is not an effective deterrent?

Mr McCann: Seemingly so, because we seem to have recurring activity of that sort of behaviour. People do go through that process. It takes them some time to be prosecuted and, if they are prosecuted, they serve a period. I am not sure if I am correct, but usually three to six years is a fairly serious sentence. I think in the US a lot of these crimes receive in excess of 10 years penal sentences.

Mr Lombe: Mr Chairman, could I make a small correction to what was said by the previous witness. It is on this topic. What it relates to is a comment that he made that ASIC had not pursued a criminal insolvent trading case for more than 10 years. I can tell the committee today that in fact they are pursing the Kleenmaid matter. It is a matter that is in Queensland. I think we are all familiar with the Kleenmaid product—washing machines, fridges and associated things. ASIC have taken criminal action against those directors and in fact a committal hearing finished this week and those directors have been committed to face trial.