Federal ICAC? Time for a shiver down the spines of big business and government

Prime Minister Malcolm Turnbull is right to be sceptical about how much good would be achieved by a federal-level independent commission against corruption. He needs something better, wider, deeper and conceptually bigger. But also smaller in size and expense, less legalistic and rather more focused on stewardship of public interests than mere venality.

ICACs are focused at politicians and bureaucrats. They are only casually interested in outsiders trying to tempt them from the straight and narrow path. That's one of the reasons ICAC is having problems in NSW, and may never properly report on the bizarre affair of Australian Water Holdings and its chairman, Senator Arthur Sinodinos, whose claim to have been exonerated has yet to be confirmed, other than to the satisfaction of The Australian.

Both major political parties say, smugly, that federal administration does not need an ICAC-like body. First because everyone in the Canberra system is so honest and public administration, policy-making and execution is so exemplary. And because the system is already replete with very efficient and effective watchdogs, even if, because of point one, they have nothing to do.

These claims are quite false. It is no paradox that the shortage of examples of serious misconduct is because some of the watchdogs lack the ability, the resources, or in some cases the will to properly protect the public interest.

What's needed may not be ICAC-like forensic triumphs, with Alzheimic captains of business and ex-ministers confronted in public by inconvenient emails and transcripts of telephone conversations. What might be better is solid cases, gathered without flourish (perhaps, at first instance, in private hearings). At the conclusion of which the public is shown not only prima facie cases of corruption but also indications of abuse of power, conversion of public goods into private property, unconscionable and unethical behaviour by officers of major public corporations and/or public officials, waste or incompetent management of public resources (including the environment), and the exercise of undue or improper influence in government decision-making.

A small commission, consisting perhaps of a top-flight lawyer, a cynical economist and an international policeman. With a deliberately small investigative staff, (set at, say, the size of the Prime Minister's private office) assisted from time to time by borrowed gamekeepers. Given wide powers of access to government and corporate documents, computer and communications technology and coercive interrogation techniques.

The threat to the national economy and the security of the state and the public purse from corporate tax dodgers, bastardly bankers and crooked officials is far greater than any posed by terrorists, "illegal" immigrants or drug smugglers. So current investigative powers given to members of the national security establishment might be the starting point.

(Doing so might also get the legal profession rather more interested in the illiberality of the national security state assembled by our lawyers in attorney-generals over recent years).

Misconduct inside government cannot be ignored. But there are wider problems – stretching beyond government – quite easily able to be demonstrated by events of recent weeks.

Widespread tax avoidance and evasion by Australian and international corporations and individuals represents not only a serious loss to the revenue, but an assault on the integrity of our system of government. It is a clear and present threat to the system far greater than that said (by retired High Court justice Dyson Heydon) to be posed by the bullying tactics of a few trade unions.

The culture of avoidance and evasion, engaged in or seemingly condoned by big business and politicians, is an affront to ordinary citizens paying far higher rates of tax in return for fewer services, and, perhaps, to companies who treat the tax citizenship obligations seriously. It saps any argument (for which, in any event, there is no evidence) that economic growth or international competitiveness would be promoted by lower corporate tax rates. It is clear, moreover, that lower corporate and top income tax rates will not operate as an incentive to enterprise or investment, given that so many companies are paying nowhere near top rates. A fresh array of allegations has surfaced with the Panama Papers revelations, but they add to a body of experience going back to the late 1970s.

A long succession of scandals in banks and the financial services industry show a deplorable state of personal and corporate ethics, and of corporate accountability. Banks have been shown to have ripped off their customers over financial advice, to have cheated people out of their insurance entitlements and, it is alleged, to have rigged interest rate settings in a way that ripped off others. Turnbull himself has been deeply critical of the culture and instincts of the institutions involved and told them to get their houses in order. One notes, however, that neither he, nor, mostly, the regulatory system, is thinking in terms of punishment, coercion and a continuing public spotlight: the supposed solution for building union rorting.

It is far from clear that there has been any abatement of cartel behaviour, whereby corporate crooks, such as the late Richard Pratt, colluded with competitors to rig markets so as to overcharge customers by hundreds of millions of dollars. There are, for example, still unresolved issues in relation to airlines, insurance, banking, petrol prices, and supermarket purchasing. There is no evidence of corruption inside the bodies designed to regulate bad corporate behaviour. But most of them are fighting with hands tied behind their backs, to the detriment of the public revenue and of the public interest.

It's in part a resource problem, but also stems from a belief that somehow criminal and deeply unethical behaviour by the great and good is different from bank robbery, and should be punished by admonishment, unenforceable promises of being better in future, or negotiated settlements or civil fines, supposedly accompanied by good behaviour bonds. The Commonwealth is actively exploring an extension of this system, which has, in other countries such as the US and Britain, failed to reduce corporate misbehaviour, even by the very few pinged.

The tax office is more proactive in protecting the interests of the public and the public purse, but has a long established settlement culture, even in circumstances where it is clear that evaders have been less than straightforward with investigators.

Meanwhile, the AFP displays no initiative whatever in detecting corporate fraud or fraud on the revenue, (or corrupt behaviour by politicians or bureaucrats). It relies on matters being referred to them, generally by politicised agencies. Meanwhile, it indulges itself with high-profile but essentially ineffectual activities against drug abuse. Even if the AFP was doing a better job, the office of Commonwealth DPP is notoriously reluctant to prosecute unless it is assured of victory.

ICAC, the trade union royal commission, the odd defamation case, actions by electoral commissions and an array of compulsory disclosures by politicians and political parties have made it clear that gouging of the public purse by politicians and their parties continues apace. It is usually behind deliberately constructed screens, discretions and statutory delays so as to permit maximum deniability, vagueness, loss of memory and failures of transparency and accountability. Because these are bipartisan rorts, there is little will, inside major parties, to do the obvious things to protect the public interest.

At risk is not only more than $80 million a year in payments to the players, but the open window by which politicians are bribed, coerced, blackmailed and improperly influenced, by which parties are controlled in improper and undemocratic ways, and by which some politicians control factions and patronage networks, giving them enormous power over other politicians. And by which, almost as an incident, party organisational people set themselves up for careers as lobbyists, advisers and people able to exercise extraordinary influence on their former colleagues at the instance of enemies of the party they once represented.

There is much mysteriously unfinished prosecution business which has been allowed to wither on the vine, once public attention has waned. Such as cases where Australian agencies and companies are alleged to have bribed foreign nationals (and sometimes officials) in contravention of Australian and local laws, the lack of police will to pursue Australian Wheat Board scandals (in Pakistan as well as Saddam-era Iraq). And the selective (and conveniently political) allocations of police and other investigative resources to leak inquiries, allegations against politicians and public officials.

With the AWB scandals and some other investigations into allegations against friendly politicians, carefully framed inquiries are often designed to limit investigation. Successor governments, following conventions about inquiries into the actions of past governments had neglected to follow up matters left hanging. But the present Coalition government has broken with convention by its institution of renewed inquiries into roof insulation, and historical (as opposed to current) malfeasance by trade union officials. This, it might be said, invites the reopening of a number of cases which were never satisfactorily resolved. Several involve people still drawing government salaries.

There are no constitutional impediments preventing an investigative eye on business and individuals engaged in patterns of ethical misbehaviour ("legal" or not) or large-scale tax avoidance or evasion. Corporations are creatures of law. Their rights and privileges of legal personality and "corporate citizenship" were created to allow groups of individuals to do lawful things they might have had trouble organising individually, not to make a farce of the general law. The power of officers of companies to hide behind a corporate shell, or to avoid personal and collective responsibility for dishonest, unethical or illegal behaviour by actions on behalf of the company can be drastically altered.

It will not drive corporations overseas. We need rather more directors and executives behind bars.

Likewise the notion that corporations have personality, and "rights" such as to privacy, to silence, to freedom of speech so that they can exercise undue influence, or to export their profits to low, or zero-tax havens, is not only a matter of relatively recent law, but increasingly inappropriate for a modern age in which captains of commerce deny any countervailing duty to the state that allows them to operate. One could restrict inquiries to corporations associated with powerful or very rich people.

The very establishment of such a commission might actually deter some present bad behaviour, especially if it reinvigorated some of the moribund watchdogs. The greatest deterrence to bad behaviour by white collar criminals is a judgment about the risks of getting caught, and the degree of public disgrace and punishment which will occur if that happens. The latter is, generally, fairly constant. But, it seems, more people now think that they can get away with it, given the sleepiness and lack of commitment of the watchdogs.

More individuals, whether in banks, the securities market, gambling and property development, or in government have figured that they can engage in insider trading, effective fraud on citizens, customers and shareholders, blatant tax evasion, and misuse of public resources. Their judgment has, to date, been probably right. It – and the culture that has sustained it – could change dramatically if there were a succession of reports exposing rich and powerful bum citizens to public obloquy. Perhaps it is for just this reason that journalists from News Corporation have become engaged in campaigns to muzzle all watchdogs with wide briefs to protect the public interest.

The art of a good federal commission would be in its not duplicating the work of auditors-general, ombudsmen of various stripes, bodies such as the Prudential Regulation Authority, securities commission, Tax Commission, the AFP, Electoral Commission, Fair Work Ombudsman or Productivity Commission. It would be, rather, to work in partnership with these, in situations where there were well-founded suspicions of threats to the revenue, to public assets, or to the public interest. It could harness such existing work and some of the investigators along with its additional investigative powers to draw improper or unethical conduct to public attention – and, if government, police and prosecutors are so disposed, to prosecution, fair trials, and penalties beyond exposure and disgrace.

It might be said that some of the remit would involve matters, particularly in the private sector, more appropriately covered by the ordinary criminal law, or by that quaint custom by which corporate misbehaviour is thought different to outright larceny, robbery, domestic violence or murder. This might be true in cases of ordinary fraud, misappropriation or theft for personal advancement. What should distinguish such matters from matters that could legitimately belong in an inquisitorial domain would be the systematic assaults on the public at large, or the institutions of the state.

The problem is not addressed by a one-off royal commission into, say, the banking industry, as Labor is suggesting. Bank rorting has been regularly exposed, here and abroad. Bank executives have assured the public, again and again, that the problems are now addressed. In any event, the inevitable tendency of government, faced with fraud and unethical conduct by "chaps" is to select just one of those chaps, or some lawyer who has made his career acting for chaps to administer a sound spanking, then to allow the conduct to resume. Chaps need not only a fear of exposure of past misdeeds, but solid disincentives for future misbehaviour.

We are lucky, apparently, that the Australian system is so pure that we can dispense with such protections. Oddly, there are such bodies in most of the countries with which we compare ourselves. And the big difference between the FBI and our AFP is that it is genuinely independent of government, proactive in dealing with corruption in the administration, and generally expert in corporate and political crime. These are at best aspirations for a complacent, not yet professional and accountability-shy AFP.

Even idealistic politicians hesitate about strengthening the system's checks and balances, conscious of the capacity of better watchdogs to bite one's own. Yet there could hardly be a better time, in the self-interest of politicians. Around the world, even in Australia, politicians and big business (particularly multinationals and banks) are being regarded with disgust, and not only for well documented misfeasance but for their role in the creation of recent economic hard times. It is causing a crisis of confidence in government and in the national institutions. It is actually making it more difficult to govern effectively. The rise of crude populists and demagogues such as Donald Trump in America reflects the increasing incapacity of national leaders to hold the confidence and respect of citizens.

Any chance of Malcolm Turnbull strengthening the checks and balances in the system? I would not bet on it. He and his party are of the chaps, and the "light regulatory touch". Labor, itself scorched by the exposure of some of its dirty secrets, is not much better, even if it can afford to be opportunistic about tax evasion and bastards in the banks. It will be demand by the public, not by the political establishment, that will make the difference.