Between 1982 and 1986, Australian banks sold Australian business people and farmers a faulty business product through the fraudulent marketing of unhedged Foreign Currency Loans. At least 3500 to 5000 Australian small businessmen and farmers endured massive fraud and banking malpractice breaching the Trade Practices Act. Not only did the borrowers lose because of the falling exchange rates, the banks switched accounts at will, stripped assets, took exorbitant commissions regardless of the huge losses, and on top of that applied a withholding tax which they pocketed.
Many honest bank officers watched as their loyal and valued customers were destroyed by the new ethos of greed and exploitation unleashed by deregulation of the banks. Some of those bank officers have blown the whistle on these unethical and illegal bank practices. They could not live with the injustice and crimes on their consciences so they have been telling of the documents that were withheld by the bank. In one case, a banking executive put incriminating documents in his coat closet so they would not be discovered by the courts. In other cases, they explained in great detail how the fraudulence of the banks was being concealed. The banks have managed to keep most of their employees silent.
Borrowers who were sold unhedged foreign currency "loans" lost their life savings, their homes and businesses. Some lost their health and under the unjust stress many marriages were broken, lives were destroyed. The Foreign Currency Borrowers Association (FCBA) was formed to counter the powerful banks by asking for a Royal Commission. They thought that if they simply told the truth they could find justice. Senior bank officers involved in the development and marketing of this fraudulent product perjured themselves before the Courts and the Martin Inquiry in Parliament. Evidence was leaked and courageous bank officers testified in contradiction to the perjured testimony but not one bank or its officers were ever prosecuted.
In Thannhauser v. Westpac Banking Corporation (9 December 1991) Pincus J said of Albert Look, a senior bank officer:
"... I am satisfied that Mr. Look was not telling the truth when he said that his role was to warn people of the risks of offshore borrowing. The truth is that is was his job to persuade people to borrow in that way, no doubt because of the large profits which the bank would earn, and perhaps favourable tax treatment of those profits.In Ferneybough v Westpac in November 1991, Justice Lee was critical of the testimony of Mr. Look who was a witness in several foreign currency loan court cases. In advice from Barristers, M. Varitimos and B. Thomas regarding Mr. Look's perjury said,
Of course, it must be remembered that Mr. Look's testament was about matters of real significance to the community and not only the plaintiffs/applicants because it appeared to disclose a concerted attempt by a financial institution to avoid liability through improper methods.However, the relevant authorities never came forward to prosecute Mr. Look or the bank.
Generally, the sales spiel was that the risk was minimal and that currency fluctuations would average out with no loss of any significance to the borrowers at the end of the term of the contract in 3-5 years. The banks failed to disclose that they KNEW that the Australian dollar would plunge in the devaluation process that had just begun to unfold. Further, they failed to disclose that the exchange was compounded by the cross-rate between three currencies, Australian, US and Swiss, further increasing the volatility. In a keynote address to the Seventh Annual Banking Law and Practice Conference of the Banking Law Association Ltd in Melbourne in May 1990, Justice Andrew Rogers stated,
"The customer relied on the fact that the bank gave no warning of any of the foregoing matters. By reason of the omission to warn of the extent of the risk, the customer relied on the belief that any risk was limited or slight."In Mehta v Commonwealth Bank of Australia, Judge Rogers spells it out:
"Had the bank told Dr. Mehta the full facts, the borrowing would not have been undertaken. I have no hesitation in accepting that proposition. Nobody in his right mind after being told that the possible loss was unlimited, that the necessary implementation of safeguards would be limited in their effect and would require continuous attention, which the bank refused to provide, would contemplate making the borrowing. Attractive as the borrowing may have been, the attraction could not survive a full and complete explanation."Judge Rogers words are reinforced by an affidavit (10 March 1998) by Max Dodd, as Chief General Manager of Commonwealth Bank of Australia:
"It had at its outset no form of in-built safety mechanism to protect the borrower and the bank against a dramatic fall in the AUD, such as a stop loss mechanism/ selective hedging facility or market/watch... ... It is my view that these facilities and matters should have been attended to at the time that the product was first made available, bearing in mind that the bank was fully aware of the exchange rate risk associated with borrowing in a foreign currency and that it and the borrower were taking on board a grave risk of significant loss if loans were allowed to proceed on an unhedged basis."Dodd further testified as to the bank's promotion of the FCL's:
I spoke to many FCL borrowers all over the state of NSW and I heard again and again a consistent story about what they had been told by bank officers about FCL's before getting into their loans.Typically, borrowers said that they had been told by a bank officer prior to taking up an FCL some or all of the following:
- that the Swiss franc was stable
- that Swiss interest rates were dramatically below the level of domestic rates
- that they would become onshore loans if the rate moved more than 5% against them
Borrowers were led to understand that hedging was not worthwhile because it would bring the effective rate of the FCL up to onshore rates and furthermore, was not necessary because of the relative stability of the exchange rate! With no safety mechanism in place, most FCL's more than doubled the potential for loss. On a million dollar loan, the principal would explode to $2,250,000 for a loss of $1,250,000. Even worse, the interest payments on the loan would blow out from $70,000 to $157,000. Then to rub salt into those wounds, a withholding tax of 10% was tacked on to bleed the client of another $15,700 which was never sent on to the Australian Taxation Office. Under section 261 of the Income Tax Act 1936 it was illegal for the banks to charge withholding tax when Australian owned mortgaged property was held as security. ANZ Bank which had illegally collected the tax between 1983 and 1989 was forced to return $32 million to borrowers when incriminating documents emerged. In Drambo Pty Ltd v Westpac Banking Corporation, Justice Sundberg noted that:
Westpac was not entitled to help itself to the funds and Drambo is entitled to recover the amount of the payments as money had and received...Nevertheless the major banks, especially Westpac and Commonwealth Bank of Australia have refused to refund the tax they illegally collected ... and kept. No responsible authority has pressed the issue. A Royal Commission could.
The Governor and Board of the Reserve Bank allowed Australian banks to sell this faulty, unhedged product to their clients without ensuring full disclosure of the enormous financial risk involved at a time of great volatility of the Australian dollar. The banks and the government KNEW that the Australian dollar had only begun its fall and they KNEW without doubt that it had only begun its plunge on the world currency markets. The banks did a marvelous job in confusing the issue and the politicians kowtowed to their lead to let the banks off the hook. Dr. Henry Stalder of the Union Bank of Switzerland said,
"Senior bank officers who manipulated Australian business people and farmers into Swiss foreign bank loans are little more than criminals and should be in gaol."Past masters of litigation and dispute, the banks through their executives made false statements, hid or destroyed incriminating documents, and only "discovered" documents that would enhance their case. Some documents would be discovered in one case but another set of documents would be discovered in a separate case while the bank told the court that the other documents did not exist. The CBA produced an unsigned statement that allegedly represented the views of its bank manager. Subsequently, it was proved to be false but the bank was never prosecuted. In still other cases, the bank's solicitors prepared statements and bank officers signed them with full knowledge that they were false. No bank solicitors were even investigated, much less disbarred. No banks or their officers were prosecuted for this contempt of court.
In Tom Quade's case, the CTB (now the CBA) had withheld virtually all of their so called "G" documents that included incriminating statements by senior bank executives regarding the Foreign Currency Loans. CTB won the initial trial, but Quade won on appeal to the full Bench of the Federal Court. They found that CTB had won on "misconduct" and ordered a retrial. Yet there was no citation for contempt, no prosecution of the bank or its solicitors. CTB appealed to the High Court and lost.
The 'allegations' raised in Dwyer's correspondence with the Bank merely reproduce the salient features of the G documents and which are confirmed in Quade. Dwyer's 'allegations' state the facts. These matters are systematically excluded from the Dwyer court cases. The essence of the strategy of the Bank (as with all other FCL cases), through Sackar, was to place entire responsibility on Dwyer for the tragedy to which he and his family were subsequently exposed. The indifferent Acting Judge produced an off-the-cuff judgment that appears to have been essentially based on the notes handed up to the bench by the Bank after the conclusion of the hearing. The Dwyer judgment was a joke and a disgrace. The Appeal judges restricted themselves to technicalities, the narrow parameters having already been set in the Trial Court.Another rare example of a win for a borrower against a bank is Spice v Westpac in Federal Court where Charles Spice won the initial trial in 1989, Westpac appealed and lost. Judges Wilcox and Burchett JJ declared,
It is clearly distinguishable from the situation of Mr. Spice, who was placed by the misrepresentations in a perplexing position of financial peril, from which he could not extricate himself without loss. The bank did not at the time respond to Mr. Spice's suggestion that it commit itself to advising on the best course to pursue. It would be hard indeed if the bank were entitled now, with the benefit of hindsight to allege that his failure to take the safest path out of the financial minefield into which it had led him makes him the author of any further misfortune which resulted. His Honor's view was correct that in the circumstances of this case the respondent was entitled to obtain relief on the footing that his losses had been caused by the conduct of the bank.No judge who ruled against the banks on Foreign Currency Loans ever sat on another FCL case. Coincidence? Withholding discovery documents under Australian law is contempt of court. In actual fact, it is fraud against the court. Banks knew that they could lie in court, withhold evidence, falsify evidence and destroy evidence with impunity.
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