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Wednesday, 25 March 1987
Page: 1539

(Question No. 4914)

Mr Jacobi asked the Attorney-General, upon notice, on 18 November 1986:

(1) Has his attention been drawn to allegations made on the ``Four Corners'' program screened on 1 September 1986 and in ``The Advertiser'' on 28 August 1986 claiming that Westpac, instead of referring the matter to the police, has made a repayment deal with a former branch manager who misappropriated more than $2.5m from the bank.

(2) Is he able to say what shortcomings in the bank's accounting and loan approval procedures allowed such an offence to occur.

(3) Is he able to say whether the alleged loss will be accounted for (a) on the bank's balance sheet or (b) in the financial statement accompanying the bank's next annual report.

(4) Are banks required to report cases of fraud to the Reserve Bank of Australia; if not, why not, and will he consider, in consultation with the Treasurer, recommending legislative changes to require banks to report suspected cases of fraud.

(5) If banks are required to report cases of fraud to the Reserve Bank of Australia, did Westpac fail to report the above incident to the police; if so, is he able to say whether Westpac failed to do so for fear of bad publicity.

(6) Is he able to say whether (a) Westpac has given the manager referred to in part (1) 10 years to repay between $300,000 and $400,000 and (b) the manager will be able to claim part or all of the repayments as a tax deduction; if so, will he (c) consider recommending amendments to the tax laws to rectify the situation and (d) have this matter referred to the Treasurer for urgent consideration.

(7) Is it a fact that the cover-up of embezzlement within the banking industry simply shifts the cost of such offences to the bank's shareholders or customers.

(8) Will he consider making reforms to auditing requirements in order to protect shareholders and the general public from potential embezzlers in future.

(9) Will action be taken against Westpac in connection with its involvement in the relevant transactions; if so, what action will be taken.

Mr Lionel Bowen —The answer to the honourable member's question is as follows:

(1) Yes.

(2) No.

(3) No.

(4) Banks are not required to report cases of fraud to the Reserve Bank of Australia. However, as part of its prudential supervision, the Reserve Bank encourages banks to have in place effective management systems to control exposures and limit risks and to review and adapt those systems to changing circumstances. Such controls have regard to the prevention of fraud as well as other risks associated with a bank's business.

(5) N/A.

(6) The Reserve Bank invited Westpac to contribute factual material for inclusion in answers to the honourable member's questions but, after obtaining legal advice, Westpac advised that the matter is sub judice and it would be inappropriate to comment. The Reserve Bank understands that a trial relating to a conspiracy matter is currently under way in the Victorian Supreme Court and that a previous trial had been aborted after 30 or 40 days evidence as a result of the media publicity referred to in part (1) of the honourable member's question. The Reserve Bank also understands that Westpac subsequently took action against ``Four Corners'' and ``The Advertiser'' and those proceedings are also currently under way in the Victorian Supreme Court.

(7) The cover-up of any embezzlement within any corporation would involve shifting the costs of such offences to the shareholders in, or customers of, that corporation.

(8) Fraud offences are primarily State offences and auditing requirements for companies are primarily contained in the companies legislation under the co-operative companies and securities scheme. Should it be established that the law in either of these respects was deficient in this case then it would undoubtedly be appropriate to review the relevant legislation with a view to reform.

(9) No.