NAB Executives May Face Criminal Prosecution

The National Australia Bank (NAB) is the latest financial institution to come under fire during the Banking Royal Commission over its alleged part in the estimated $850 million ‘fees-for no service’ scandal, whereby financial institutions systematically charged their customers fees for services that were never provided.

Money for nothing

An investigation by the Australian Securities and Investments Commission (ASIC) revealed that large number of NAB superannuation fund members were charged hefty fees despite not receiving services in return; in many cases, without a financial adviser even being assigned to their accounts.

The Royal Commission has now heard the bank was aware by 2015 that it was systemically charging clients despite knowing that no service was provided in return, and of failures to report compliance breaches as required by the law, but did not approve any form of compensation plan until late the next year.

It also heard that instead of taking proactive steps to compensate customers who it knew were charged without justification, NAB’s wealth management division spent months investigating whether the bank was legally obliged to refund the fees.

NAB’s superannuation trustee NULIS is now paying $120 million to compensate around 300,000 customers who were charged for no service.

Wilful blindness, ignorance or worse?

Nicole Smith was the chairwoman of NULIS during the period the breaches occurred.

When asked by Commissioner Kenneth Hayne QC whether she considered whether taking money without entitlement may amount to a crime, Ms Smith answered in the negative.

“Did you think yourself that taking money to which there was no entitlement raised a question of the criminal law?” Mr Hayne asked. “I didn’t,” Ms Smith replied.

In the eyes of many, Ms Smith’s response exhibits wilful blindness or a monumental ignorance of the law at the very least, given she had countless lawyers to consult with regarding the legality of the institution’s conduct.

There are now calls for bank executives to be criminally prosecuted over their involvement in the scheme, despite the institution’s agreement to pay compensation.

Criminal liability

The law makes it clear that simply repaying a defrauded sum, or fulfilling a compensation order, does not absolve an individual or corporation of criminal liability.

As one legal expert explains, “What Hayne is flagging is that by repaying money or by complying with an enforceable undertaking, you may not be off-the-hook – there could be criminal penalties here”.

Section 192E of the Crimes Act 1900 (NSW) makes it a crime punishable by up to 10 years’ imprisonment to dishonestly, by any deception, obtain property (including funds) belonging to another, or obtain any financial advantage or cause any financial disadvantage.

For the offence to be established, the prosecution needs to prove that:

• By a deception, the defendant acted dishonestly, and thereby
• Created a financial advantage over another person’s property, or caused another to suffer a financial disadvantage, and
• Those actions were undertaken intentionally or recklessly.

The director of the Centre for Law, Markets and Regulation at the University of New South Wales, Professor Dimity Kingsford Smith, explains that criminal liability can also arise under federal laws.

“Under the Commonwealth Criminal Code… fraud can involve reckless deception of
another, the client, with the intention to gain a financial advantage with maximum penalties of up to 10 years in gaol,” Professor states.

Criminal prosecution of AMP

A barrister assisting the Royal Commission, Rowena Orr QC, previously explained that investment giant AMP made a business decision in 2013 at the very latest, to deliberately charge customers for services “it knew it could not and would not provide.”

The Commission subsequently recommended that criminal charges be brought against the institution over various acts of misconduct, including its representation to ASIC of a report by Clayton Utz as independent, when it in fact requested 25 sets of amendments to the document.

It also called for criminal charges under 1308 of the Corporations Act against the company for allegedly misleading statements that it made to ASIC.

So despite politicians strongly resisting a Banking Royal Commission for years on the basis that it would achieve very little, it has become abundantly clear that some of the country’s wealthiest financial institutions have indeed been engaging in widespread misconduct by unjustifiably taking hundreds of millions of dollars from ordinary Australians.

Whether criminal charges will ultimately be brought against the NAB remains to be seen.