2.3 Were the responses adequate?

Between them, AMP, ANZ, CBA, NAB and Westpac will pay customers of their advice licensees or their superannuation funds compensation totalling $850 million, or more, for taking money as payment for services that were not provided. Each of those entities will pay its own amount of compensation, and none of them is responsible for what the others did. It is neither right nor useful to seek to impose collective responsibility. But, in judging the adequacy of the responses made by the entities and by the regulators, it is necessary to recognise that the conduct ran through the whole industry.

Until this Commission was established, ASIC and the relevant entities approached the fees for no service conduct as if it called, at most, for the entity to repay what it had taken, together with some compensation for the client not having had the use of the money. That is, the conduct was treated as if it was no more than a series of inadvertent slips brought about by some want of care in record keeping.

It is necessary to keep steadily in mind that entities took money (a lot of money) from their customers for nothing. The conduct was so widespread that seeing it as no more than careless must be challenged.

It is necessary to go behind the global characterisation of the conduct as charging ‘fees for no service’. The description is accurate but it is incomplete. In many cases, the advice licensee knew that the client would not receive any services in exchange for the ongoing fee. And there were cases where ongoing fees were charged when there could have been no possibility of providing the services for which the fees were charged.

The first kind of case, where the advice licensee knew that the client would not receive the relevant services includes, but would not be limited to, cases where the advice licensee’s records showed no adviser (or advice group) assigned to the client. It may also include cases where the advice licensee knew that the ‘linked’ adviser had so many clients that he or she could not possibly have provided ongoing advice to all, but it is more convenient to leave this kind of case aside at this point.

If the advice licensee’s records showed no ‘linked adviser’ the fee deducted from the client was taken by the advice licensee for its own use. Hence, the essential facts of the case can be described as:

  • money was taken from clients;
  • the money was taken as the fee for advice given or to be given to the client by an adviser;
  • but no advice was given; and
  • the advice licensee took the money for itself; it did not pay it to an adviser or return it to the client. (Or, putting the same point another way, the licensee retained for itself the difference between fees charged and fees remitted.)

The second kind of case includes, but again may not be limited to, cases where the advice licensee charged the client an ongoing fee for advice given or to be given after it had been told of the client’s death. Again, the essential facts are simple:

  • money was taken from clients;
  • the money was taken as the fee for advice given or to be given to the client by an adviser;
  • but the advice licensee knew that the promised advice had not been given and could not be given; and
  • the advice licensee took the money anyway and either paid it to the adviser or took it for itself.

2.3.1 Possible offences

In both kinds of cases described, there is a real question whether, contrary to section 1041G of the Corporations Act, the licensee, in the course of carrying on a financial services business in this jurisdiction, engaged in dishonest conduct in relation to a financial product or financial service. Section 1311(1) of the Corporations Act makes that contravention an offence.

Since November 2010, for an individual, the maximum penalty for that offence has been imprisonment for 10 years, or a fine the greater of 4,500 penalty units or three times the total value of the benefits obtained by the person and reasonably attributable to the commission of the offence, or both. Since November 2010, for a body corporate, the maximum penalty for that offence has been a fine the greatest of 45,000 penalty units, or three times the total value of the benefits obtained by a person and reasonably attributable to the commission of the offence, or, if the court cannot determine the total value of those benefits, 10% of the body corporate’s turnover during the year ending at the end of the month in which the body corporate committed or began committing the offence.[1]

There is also a real question whether, contrary to section 12DI(3) of the ASIC Act, the licensee, in trade or commerce, accepted a payment for financial services and, at the time of acceptance, there were reasonable grounds for believing that the person would not be able to supply the financial services within a reasonable time. Section 12GB(1) of the ASIC Act makes that contravention an offence.

Since 2001, for an individual, the penalty for that offence has been a fine not exceeding 2,000 penalty units. Since 2001, for a body corporate, the maximum penalty for that offence has been a fine not exceeding 10,000 penalty units.

Of these two provisions, I consider that section 1041G – with its emphasis on dishonest conduct – more accurately reflects both the nature and the gravity of the conduct described in the two cases set out above. I also consider that the maximum penalties applicable to a contravention of section 1041G more accurately reflect the gravity of that conduct. Accordingly, it is on that provision that I have focused.

I will say more about the construction and application of section 1041G later in this chapter. For present purposes, the important point is that ASIC appears not to have considered the application of the criminal law in connection with fees for no service until a witness giving evidence to the Commission was asked whether she had thought that taking money to which there was no entitlement raised a question of the criminal law.[2]

The charging of fees for no service has extended over many years. Breach notifications given to ASIC by entities refer to events occurring at various times: in September 2007,[3] ‘throughout 2013–2014’,[4] ‘Financial Year (FY) 2014’.[5]

Documents ASIC produced to the Commission showed that, in the second half of August 2018, ASIC began to examine whether a brief of evidence should be prepared and submitted to the Commonwealth Director of Public Prosecutions in connection with one entity’s possible contravention of section 1041G. Information made available to the Commission did not show any direct examination of possible criminal proceedings against other entities in connection with a possible contravention of section 1041G.

2.3.2 Communication to ASIC

Having considered the documents and other information provided by ASIC, as well as the submissions made in response to the Interim Report, I decided that I should, and in November 2018 did, communicate to ASIC information obtained in the course of the Commission’s inquiries that relates, or may relate, to the possible contravention by other entities of section 1041G.[6] In particular, I informed ASIC that I was of the opinion that the information and evidence provided to the Commission showed that the conduct of at least two other entities may have contravened section 1041G. I further informed ASIC that I was of the opinion that the information and evidence provided to the Commission showed that:

  • entities other than the two to which I specifically referred in my communication, and the entity that was the subject of the work ASIC began in August 2018, may have engaged in conduct of the kinds described above as the first kind of case and the second kind of case; and
  • if they did, the conduct may have contravened section 1041G.

I invited ASIC to consider whether criminal or other legal proceedings should be instituted in respect of that conduct.

Examination of these issues by ASIC is still continuing, and it would not be right for me to anticipate the outcome of those deliberations. Nor would it be right for me now to name the entities I identified in my communication to ASIC. But it is important that I explain my opinion that section 1041G may apply to conduct of the kinds described and explain why I think it important to consider its application.

2.3.3 Section 1041G

As I have said, I think it important to begin by recognising both the essential character and the scale of the conduct in issue. It was, as I have said, entities taking money for nothing. And at least $850 million will be paid in compensation.

Section 1041G prohibits engaging in dishonest conduct in relation to a financial product or financial service. On its face, taking money for nothing is dishonest conduct. If the conduct in issue was a contravention of section 1041G, it is that section that best captures and conveys the criminality.

Section 1041G was added to the Corporations Act, with effect from 11 March 2002, by the Financial Services Reform Act 2001 (Cth). It has, therefore, been in force for the times relevant to these matters. Section 1311 of the Corporations Act makes contravention of section 1041G an offence. The penalties specified for failure to comply with section 1041G have been amended from time to time. That detail need not be noticed. There is a proposal to amend the definition of ‘dishonesty’ in section 1041G(2).[7] That amendment, if made, will have only prospective effect and may also be set aside from consideration.

As the provision stood at the relevant times, it provided that:

(1) A person must not, in the course of carrying on a financial services business in this jurisdiction, engage in dishonest conduct in relation to a financial product or financial service.

(2) In this section:

Dishonest means:

(a) dishonest according to the standards of ordinary people; and

(b) known by the person to be dishonest according to the standards of ordinary people.

The provisions of Part 2.5 of the Commonwealth Criminal Code (about corporate criminal responsibility) do not apply to an offence based on section 1041G (or other provisions of Chapter 7).[8] Instead, section 769B provides (in effect) that people (including bodies corporate) are generally responsible for the conduct of their directors, agents or employees.

Thus, subject to some exceptions that are not relevant, conduct engaged in on behalf of a body corporate by a director, employee or agent, within the scope of the person’s actual or apparent authority, is taken, for the purposes of a proceeding for an offence based on section 1041G, to have been engaged in also by the body corporate.[9] If it is necessary to establish the state of mind of the body corporate, it is sufficient to show that a director, employee or agent of the body, being a director, employee or agent by whom the conduct was engaged in within the scope of that person’s actual or apparent authority, had that state of mind.[10]

To return, then, to the facts set out above. There is no doubt that money was taken from clients. Nor is there any basis for doubting that, when taken, the taker did not intend to return it to the client. If there was no adviser linked to the client, the money taken was applied by the taker to its own use. (I say the money was applied by the taker to its own use on the basis that the total of the amounts deducted exceeded the total amount paid out to advisers. The excess was constituted by the fees charged but not remitted.) If the client had died and the taker had been told and had recorded that the client had died, there could be no ongoing service given and the taker’s records showed that there could be none given.

I consider that it is open to a jury to conclude, beyond reasonable doubt, that, in either of the cases described, the taker, in the course of its carrying on a financial services business in this jurisdiction engaged in conduct in relation to a financial service that was dishonest according to the standards of ordinary people and that the conduct was known by the taker to be dishonest according to the standards of ordinary people. It is necessary to explain both conclusions.

In the first kind of case, one or more employees of the taker, acting within the scope of their actual authority, will have directed the application of the fee received to the taker’s own account. It is the application of what was taken (to the entity’s own use) that is the dishonest act. It is dishonest because it is taking something for nothing. And if no more is said or known, I think the only conclusion open to a jury, once it found that the taking was objectively dishonest, would be that the person or persons who directed that the funds be taken to the entity’s own use knew that its taking was dishonest according to the standards of ordinary people.[11] If it is decided (beyond reasonable doubt) that the taking was objectively dishonest, a doubt could be entertained about knowledge of dishonesty only by speculating about the existence of some unarticulated and unsupported claim of right. And there is no issue about that ‘unless the absence of knowledge or, which is the same thing, belief as to legal right is specifically raised and there is some evidence to that effect’.[12]

In the second kind of case (death of the client) the taker may either retain the amount taken or may have passed it on to an adviser. If the taker retained the money (and some did) the case would be of the first kind considered. If the taker passed some or all of it on to an adviser, the taking itself would be the dishonest act, there being no possibility of supplying the contracted services. But subject to that difference, this second kind of case would be analysed in the same way as the first. The taking is objectively dishonest. Absent some evidence of a belief as to the legal right to take the money, it follows from the objective dishonesty of the taking that the taker knew it to be dishonest.

The two-part test of dishonesty that now appears in section 1041G(2) derives from the English decision in R v Ghosh.[13] That it originates from Ghosh is made plain by the May 1997 Report of the Model Criminal Code Officers Committee proposing a draft definition of ‘dishonesty’ not materially different from what was later enacted in section 1041G as a legislative embodiment of the Ghosh test.[14]

Consistent with what Toohey and Gaudron JJ said in Peters, Lord Lane CJ said in Ghosh that the first question for a jury will be the objective one of whether the conduct was dishonest according to the standards of ordinary people. If it was:[15]

then the jury must consider whether the defendant himself must have realised that what he was doing was by those standards dishonest. In most cases, where the actions are obviously dishonest by ordinary standards, there will be no doubt about it. It will be obvious that the defendant himself knew that he was acting dishonestly. It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if he asserts or genuinely believes that he is morally justified in acting as he did.

It would be for prosecuting authorities to determine how charges would be framed. One way may be to fix upon one or more events of ‘taking’ by the entity. But however the charges are framed, it may be expected that the prosecution would seek to lead evidence that the particular takings charged were made as part of an established system and were not matters of accident. If the taking of fees was objectively dishonest, the question becomes as I have indicated: on what basis on the evidence would it be argued that a jury should entertain a reasonable doubt that the defendant knew that it was acting dishonestly by taking payment for a service that it did not provide?


[1]Corporations Act s 1311, Sched 3, item 310.

[2]Transcript, Nicole Smith, 8 August 2018, 4365.

[3]Exhibit 2.13, Witness statement of Anthony Regan, 11 April 2018, Exhibit AGR-1 Tab 33 [AMP.9000.0001.1460].

[4]Exhibit 2.77, Witness statement of Marianne Perkovic, 3 April 2018, Exhibit MP-13 [CBA.0001.0039.0453].

[5]Exhibit 2.78, Witness statement of Marianne Perkovic, 9 April 2018, Exhibit MP-2 [CBA.0517.0020.0018].

[6]Royal Commissions Act 1902 (Cth) s 6P.

[7]See ASIC Taskforce Review, Report, 68–9; ASIC Taskforce Review, Government Response, 10.

[8] Corporations Act s 769A.

[9] Corporations Act s 769B(1)(a), read with s 769B(10)(a)(i).

[10] Corporations Act s 769B(3).

[11] As Toohey and Gaudron JJ said in Peters v The Queen (1998) 192 CLR 493, 509 [31]: ‘As a matter of ordinary experience, it will generally be inferred from an agreement to use dishonest means to deprive another of his or her property or to imperil his or her rights or interests that the parties to that agreement knew that they had no right to that property or to prejudice those rights or interests. And as with the defence of honest claim of legal right, it will be taken there is no issue in that regard unless the absence of knowledge or, which is the same thing, belief as to legal right is specifically raised and there is some evidence to that effect’ (emphasis added; footnote omitted).

[12] Peters v The Queen (1998) 192 CLR 493, 509 [31] (Toohey and Gaudron JJ). As five members of the High Court pointed out in Macleod v The Queen (2003) 214 CLR 230, 241–2 [35]–[37] (Gleeson CJ, Gummow and Hayne JJ), 256 [99] (McHugh J), 264–5 [130] (Callinan J), the ratio of the decision in Peters is to be found in the reasons of Toohey and Gaudron JJ.

[13] [1982] QB 1053.

[14] Model Criminal Code Officers Committee, Report, Chapter 3, Conspiracy to Defraud, May 1997, 32–3.

[15] R v Ghosh [1982] QB 1053, 1064 (emphasis added).