Capitalism has been analysed to death in academia and elsewhere. Thus we know that capitalism is structurally conducive to exploitation, to the production and reproduction of class-based inequality, to the degradation of nature, and so on. Such analysis is of capitalism at its purist.
Marginalised is the plunder. Widely acknowledged is the historical plunder that generated capital for the takeoff. But when booty from brutal early colonialism, the slave trade and from enclosure of the commons feeds into capitalist mining, manufacture and agriculture, the naked plunder doesn’t cease.
My interest in this seeming side issue has developed since 2000 when I heard from my first bank victim after he had read an academic article of mine on farmer finance. I wrote about the subject, heard from more victims, and the dialectic has continued to this day. I have thus become atypically knowledgeable about malpractice, indeed criminality, in the Australian banking sector.
Corruption in banking
Corruption in the Australian financial sector is not an aberration but an integral dimension of its modus operandi. Three factors lie behind banking’s criminal tendencies.
First, there is the special character of banking. Credit is an indispensible facility, so an essential public service is being delivered by companies with private motives. Moreover, the lender-borrower relationship is asymmetric. On home mortgages, the lender readily engages in predatory lending, capturing unsuitable borrowers, in addition fabricating figures and falsifying documents.
Regarding small business or farmer borrowers, the relationship is profoundly asymmetric. The lender takes customer assets as security over any loan. The lender will perennially induce the business borrowers to include the family home (and possibly that of the parents) as bank security.
The bank can default the business/farmer borrower at will, with a variety of mechanisms at its disposal. The defaulted business borrower is subsequently left without the business and homeless, forced onto public welfare. This practice is not incidental but pre-planned and pervasive.
In short, a banking licence is the perfect vehicle to both install and legitimate a criminal racket.
Second, inbuilt banking corruption has been facilitated by comprehensive deregulation (including privatisation) of the sector, following the 1981 Campbell report. A previous culture that kept malpractice under control was being dismantled in the 1970s and the process sped up with deregulation. Admittedly, internationalisation of finance and externalisation of workforce hire were inevitable, but no thought was given to the reconstruction of a culture of competence and integrity. Corruption set in from day one of deregulation, not least with the flogging of foreign currency loans to unsuspecting small business people and farmers.
Third, the corporation per se is a natural vehicle for corrupt practices, of which more below.
Banking’s comprehensive support team in corruption
Bank plunder on an ongoing basis needs a wide-ranging support team. The process will be facilitated by a spectrum of ‘professional’ bodies dependent on the bank teat – law firms, valuers, receivers, real estate agents – and even public officials (sheriffs, bankruptcy trustees). On occasion, banks will even consort with known petty criminals in the ‘enterprise’ of customer default. All are complicit in the plunder, obtaining their share of the booty.
Bank plunder is dependent on tame regulators, which banks have in ASIC and APRA, and in complicit mediators, which banks have in FOS and Farm Debt Mediation services.
Bank plunder is dependent on a supportive court system, which banks have. The judiciary is suckled in contract law, for which plunder does not exist. A major Australian banking law textbook claims:
[The lender-borrower relationship] is based on contract and the parties deal at arm’s length, with no obligation on either party to act with any higher duty to each other than that required by the law of the marketplace.
It is implicit but unspoken that the law of the marketplace is the law of the jungle.
Some bank litigation judgments in favour of the banks are so outrageous that one surmises that corruption has pervaded the judiciary itself.
Bank plunder is dependent on a compliant political class, which banks have to date. Governments have passed assorted legislation with the formal intent of cleaning up bank behaviour, but they are of little substantive value. In the meantime, bank donations roll into political party funds, and ‘revolving door’ practices intermingle sometime public officials and banking institution employment.
The end result is that bank criminality, sometimes formally illegal, sometimes formally legal, is legitimised, and thus effected with impunity.
We might readily accept the maxim ‘the state is an instrument of class rule’, but it helps to outline the fine detail that gives that maxim substance.
The corporation per se conducive to criminal practices
The creation and evolution of the joint stock corporation in the mid to late nineteenth century transformed capitalism. Confrontation with its adverse implications and subsequent resistance appears to have been most significant in the United States.
The pivotal signal of the new era was the 1886 US Supreme Court judgment (via a legalistic ruse) in Santa Clara County v. Southern Pacific Railroad that a private corporation is a natural person under the US Constitution. A race to the bottom by US States, in particular New Jersey and the hick State of Delaware, to attract company incorporation led to the unprecedented phenomenon of corporate chartering with no restrictions as to activity, inter-company ownership structures or longevity.
Corporate personhood, then and now, builds a relatively impermeable wall behind which willful negligent actions with large-scale adverse consequences and strategic criminal actions (including the overthrow of governments) by real persons can flourish.
The institutionalist economist William Dugger has labeled the corporation ‘organised irresponsiblity’ – perceptive of its character, but ultimately too kind.
A 2004 book (and associated documentary) by the Canadian lawyer Joel Barkan, The Corporation: The Pathological Pursuit of Profit and Power, exposed the Frankenstein created with corporate personhood.
To Edward, Baron Thurlow, British Lord Chancellor 1778-92, is attributed the apt declamation:
Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?
The extreme degradation of the workforce through incapacitation or death has, of course, been a permanent feature of corporate capitalism.
There are the perennial catastrophic human, social and environmental disasters. Think thalidomide (1957-), Bhopal (1984), the EXXON Valdez oil spill (1989), the BP Deepwater Horizon oil spill (2010), and the BHP/Vale dam-bursting village destruction in Brazil (2015). These events are not atypical accidents but integral.
And confront the spectacular series of manoeuvres by which EXXON sought to avoid culpability, by the end of which it had successfully reduced its liability to a pittance. Or confront the history of Big Tobacco – a masterpiece of entrenched strategic criminality. Ditto, more recently, Monsanto.
Integration of high street and back streets, finance at its centre
We tend to place the deeply ‘shady’ arena of mafia-style operations and stock exchange-listed corporations in separate boxes. But there is no clean dividing line, with the two arenas intermingling. Finance is a key match-maker, with money-laundering and tax evasion flowing through the same channels as the financing of ‘respectable’ commerce and industry – mediated by complex financial instruments incomprehensible to the outsider. In effect, in every concrete pour there is a dead body or two.
Canadian R. T. (Thomas) Naylor is a rare author to emphasise the integrated character of global finance. The preface of his Hot Money and the Politics of Debt notes:
A ball of hot money rolls around the world. It seeks anonymity and political refuge; it dodges taxes and sidesteps currency controls; it rolls through shell companies and numbered accounts, phoney charities and religious foundations. And it is kept rolling by misguided policy-makers and white-collar criminals, by gunrunners and drug dealers, by super-power secret service agents and third-world political elites preparing for retirement.
Naylor names Switzerland as historically pivotal in the nurturing of this structure, and accuses the International Monetary Fund of institutionalising a regime of redistribution of the burden from the criminal parties to the innocent.
Naylor has an academic post (McGill University), but his admirable investigative orientation and skills has remarkably left him little known.
Tackling individual perpetrators behind corporate crimes
Rarely, very rarely, is a corporate executive held personally responsible and jailed for crimes committed by the corporation over which they preside. Enron’s CEO Jeffrey Skilling is an example. FAI Insurance Group’s Rodney Adler is a local example. These cases are true exceptions.
Corporations are perennially subject to fines, but fines are against the corporation, hitting shareholders and customers (including victims themselves) without touching the responsible individuals.
Note that the term ‘corporate veil’ refers to the exemption of shareholders from corporate malfeasance, not the exemption of corporate executives from same.
Some legal academics have addressed the issue of attribution for corporate crime (for example, Australia’s Brent Fisse), but they are small in number and generally quarantined from other scholarly legal discourse. More, they have had little exposure in the public arena. In particular, they and their concerns, remarkably, have been wholly absent from the current publicity on financial sector criminality driven by Banking Royal Commission hearings.
The Corporations Act 2001 is gargantuan, but corporate fraud against clients barely rates a mention. There is a massive section on the finance sector (Chapter 7), with reference to potential dodgy financial advisers, but clearly the law has had no impact in that arena entrenched in criminality. Worse, there is no mention of lender fraud against borrowing clients, the potential in this arena being inbuilt. There is also a massive section on administration of insolvent businesses (Chapter 5), but that highly corrupt ‘profession’ highlights again that being rigorously subject to the law is of no ultimate import.
Lesser known is the Commonwealth Criminal Code Act 1995. The progenitors of the Act were conscious of the criminality in the financial sphere that reigned during the 1980s, with a desire to bring such under control. It hasn’t happened. The component devoted to corporate crime (parts 2.5 [s12] and 2.6 [s13]) remains a mere 6 pages long in an ever-expanding Act.
Nevertheless, there is substance in those brief parts, incorporating integrally the concept of a corrupting corporate culture as a causative medium. Notably:
12.3 (2) The means by which such an authorisation or permission [for an offense] may be established include: …
(b) proving that a high managerial agent of the body corporate intentionally, knowingly or recklessly engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or
(c) proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision; …
The ideal subject for prosecution is the Commonwealth Bank of Australia’s foreclosure of hundreds of Bankwest commercial property borrowers after the CBA took over Bankwest in December 2008. One can readily infer from evidence from key foreclosed borrowers that the mass foreclosure was engineered fraudulently. The process could only have been initiated and directed by the most senior CBA executives.
Another affair ripe for prosecution is that of the CBA subsidiary Commonwealth Financial Planning Ltd. The systematic fraud waged against investors was known and mandated by senior executives. Some financial advisers have been banned and the CBA has paid some compensation, and that is the extent of the judgments inflicted.
Ditto the fraud perpetrated by a criminal gang against retiree investors under the rubric Trio Capital, which has devastated savers in the NSW provincial town of Wollongong. A local manager went to jail, but the key criminals and the booty are safely ensconced overseas with the blessing of ASIC.
Myriad other cases could be listed. Yet no bank staff, whether front line managers or responsible senior executives have been prosecuted with the intent to impose ‘custodial sentences’ – i.e. sent to prison.
With the Commonwealth Criminal Code Act, a case can be made that prosecution of senior executives for the corporate crimes under their watch (those responsibilities being the basis for their generous remuneration) is practicable. In reality, it isn’t likely to happen. But the roots of that inaction are not legal but political.
During the Banking Royal Commission, the banks (apart from the occasional crocodile tears) have shown themselves unrepentant. The abuse of victims goes on behind the scenes. The Commission has declined to go anywhere near the root sources of the banking sector’s capacity for abuse.
Apart from marginal changes (potential bank selloff of insurance and/or financial planning arms), after the Royal Commission has ended the likelihood is that the banks will continue as usual.
To repeat, plunder is not aberration. It is an integral element of the banking sector’s modus operandi.