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ASIC and the Case of the Missing Gold

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ASIC received a significant, detailed complaint of misconduct concerning a company that sells gold, silver and palladium to the public, and then stores the bullion on behalf of their customers.

The complaint suggested the company was selling bullion it did not own, failed to purchase that bullion and had a storage vault incapable of holding the volume of bullion they were minding. Further, that customers are having trouble getting their purchased bullion and there are questions around council approvals and the suitability of their “vault”.

ASIC investigated and found nothing wrong, however there is doubt around the veracity of the audit.

ASIC offered to brief me on this matter, which I accepted.

Transcript

Senator ROBERTS: Thank you. I will move to another topic quickly. As per ASIC’s response to questions on notice, ASIC conducted an investigation involving a precious metals business in financial year 2022-23. This was in response to a complaint regarding the company not holding the precious metals it was supposedly charging storage for. The questions relate to that. Can ASIC describe the nature of the investigation? Was ASIC investigating whether the bullion was fake or missing? What was the purpose of your investigation?

Ms Court: Senator, that’s right. As you say, ASIC has had a complaint. I think as we’ve advised the committee previously, if I talk broadly in relation to gold bullion—

Senator ROBERTS: I thought it mentioned a company name. That’s fine.

Ms Court: Sitting here today, I’m not sure if we have mentioned that company name publicly or not. I’m certainly very familiar with the matter—

Senator ROBERTS: Okay, good.

Ms Court: that you are referring to.

Senator ROBERTS: Let’s assume we both know the name.

Ms Court: Yes. We received a report of misconduct in relation to that company in April last year, 2022. We have been investigating that carefully. We’ve done a very thorough—

Senator ROBERTS: What was the aim of the investigation? Was it to investigate whether the bullion was fake or whether it was missing?

Ms Court: At a high level, Senator, the aim of our investigation is to ascertain whether or not there has been a breach of the ASIC Act or the Corporations Act, which is—

Senator ROBERTS: So it was both, was it?

Ms Court: Which is what we administer. I’m cautious about how much I say publicly. We certainly took the allegations very seriously. We did ascertain the extent of the holdings, if I could put it in that broad term, to make sure—

Senator ROBERTS: How many clients it has and how much gold it is supposed to have?

Ms Court: Yes, indeed, we did. Indeed, part of the reason that it has taken us some time to conclude that investigation, Senator, is that we have engaged experts in that area to do a physical check, if you like, to ascertain those holdings. We had a significant detailed complaint. We’ve taken that complaint very seriously. We have expended considerable resources on that investigation over the course of the last 18 months.

Senator ROBERTS: How much advanced notice did ASIC provide the company before conducting a physical site inspection?

Ms Court: I would have to take that on notice.

Senator ROBERTS: Okay. I understand that ASIC gave the company sufficient time so that it created an opportunity to alter its business affairs before a physical site inspection was allowed—in other words, move gold in.

Ms Court: Senator, as I say, I will take that on notice. I should put on the record that I highly doubt that is the case.

Senator ROBERTS: Thank you. The complainant had reports that a large quantity of gold was moved into storage to perhaps make the books balance, a feat that was possible because of the long notice that was provided. Why didn’t you just get a search warrant and turn up for a surprise check?

Ms Court: Senator Roberts, I dispute that characterisation of what has taken place.

Senator ROBERTS: Did you get a search warrant?

Ms Court: I’m not going to comment on our investigatory process in relation to a particular company. Of course, we’re very happy to give you a briefing, Senator.

Senator ROBERTS: If you could, and a time line?

Ms Court: Yes, indeed. We can take that on notice, Senator.

CHAIR: Last question, Senator Roberts.

Senator ROBERTS: The company claims to have tens of thousands of storage clients. I would like to know whether you confirmed the clients as well as the amounts of gold that are supposed to be there? Why did ASIC use taxpayer money to test the authenticity of the physical bullion rather than charge the subject?

Ms Court: Senator, I will take all those questions on notice. They do involve a particular investigation. We are conscious that a range of allegations have been made and continue to be made about this matter. As I said earlier, we have focused significant resources in getting to the bottom of these issues. We will finalise our investigation shortly. I’m very happy to give you a briefing in relation to that and to take your questions on notice, Senator. Please be assured that we have treated this with the utmost seriousness.

Senator ROBERTS: Could your office contact my office to arrange a time for a briefing? We are going to be in Canberra quite a bit in the next couple of months?

Ms Court: Yes, indeed.

Senator ROBERTS: That would be good.

Ms Court: We’ll go through the appropriate processes and do that, Senator. We would be very pleased to assist you with that information.

Senator ROBERTS: Thank you very much. Thank you, Chair.

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Is the Reserve Bank in Denial?

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During the recent Senate Estimates, I questioned the Reserve Bank about the effect of the ascendant BRICS alliance on the Reserve bank’s holdings of US Dollars (USD) and US Treasuries (UST). I also asked Mr Lowe about his expectations of the US Economy’s movement in the next few years and how this may affect Australia. Mr Lowe avoided any pessimistic projections regarding the US economy.

I then asked if the Reserve Bank was increasing its gold reserves as a precaution against the BRICS group releasing a gold-backed currency. The RBA has actually reduced our gold reserves from a peak of $5.2 billion to $3.9 billion now. The answer I received was also negative.

I think this is a mistake. Australia should be increasing our gold reserves as a hedge against international currency fluctuations in the uncertain times ahead.

Transcript

Chair: Senator Roberts?

Senator Roberts: I have a question about the Reserve Bank’s reserves. Let me get to it by giving some background. At the BRICS meeting in Cape Town on 2 and 3 June, 13 nations will formally apply to join BRICS, which is currently Brazil, Russia, India, China, South Africa—and Saudi Arabia, with an each-way bet. Candidate nations include Mexico, Argentina, the United Arab Emirates, Egypt, Indonesia and Iran. BRICS is now the world’s largest trading bloc, accounting for 25 per cent of world trade which is expected to grow to 50 per cent by 2030. And it’s big in oil. BRICS member states are abandoning the US dollar in favour of using their own currency or the Chinese renminbi in an environment where other countries, including Australia, are doing the same thing. Pakistan is now buying Russian oil and renminbi. The US dollar is now denominating just 58 per cent of all world trade. The United States has printed $10 trillion over the last seven years, doubling their M2 money supply. That increase has been absorbed in part by an increase in international trade. As the world moves away from the US dollar the value of the US dollar may fall. The Reserve Bank holds United States treasuries and dollars. Have you modelled the effect on your balance sheet from that probable fall in  the value of US holdings.

Mr Lowe: Not as a result of these other global changes you’ve talked about. We spend a lot of time and part of our risk management processes looking at volatility in currencies, because currencies move around all the time, don’t they? That affects the value of those assets on our balance sheet, so we model that from a risk-management perspective. Despite the developments you’re talking about, most countries still hold the bulk of their foreign reserves in US dollars. There’s diversification going on, which is good, but the US dollar is going to remain the dominant currency for some time.

Senator Roberts: What is the value of Reserve Bank holdings of US dollar and US treasuries in Australian dollars?

Mr Lowe: Our total foreign reserves at the moment I think are the equivalent of U$35 billion. What’s the share, Brad?

Dr Jones: I think it’s 55 per cent.

Mr Lowe: Roughly half of that $35 billion is allocated to US dollars, and then we have holdings of yen, Korean won, euros and rmb.

Senator Roberts:  What about treasuries?

Mr Lowe: When we hold US dollars we invest it in US Treasury securities. We don’t invest in bank deposits or any other securities. We invest in US government securities.

Senator Roberts:  What’s the reverse holding of Australian government currency and bonds held by the US government or their agencies?

Mr Lowe: We don’t have data on that.

Senator Roberts:  Could you get that on notice?

Mr Lowe: No.

Senator Roberts:  You don’t have it?

Mr Lowe: We don’t have data on specific holdings of other countries.

Dr Jones: If I understood your question correctly, Senator, the US holds euros and yen, from recollection, but not in large quantities.

Senator Roberts:  While that arrangement helps with international stability across holdings, it is a method for backdoor quantitative easing. Does the Reserve Bank expect to increase your holding of US treasuries in the next 12 months?

Mr Lowe: We’ve just done an exercise where we were looking at how much of our balance sheet should be held in foreign assets. We said we’ve got $35 billion at the moment. As the size of the economy grows you would expect that to gradually increase. But, no, nothing dramatic. As the economy grows and the nominal value of the Australian economy gets bigger, then you would expect a bigger portfolio in US dollars and foreign currency.

Senator Roberts:  The Reserve Bank has a mission to anticipate movements in major trading partners and in world markets. As it affects your provisioning and portfolio, does the Reserve Bank anticipate being affected by any out of the ordinary moves in financial markets in connection with the US economy or the US dollar over forward estimates?

Mr Lowe: We’ve recently been focused on the US debt limit issues in the US. If an agreement had not been reached there, that would have had implications for currency markets and economies around the world. So that’s one thing that we’ve looked at carefully. It looks like that has been resolved, thankfully. And, just as part of our general risk management exercise, we’re looking at developments in other economies and their implications for currency markets in own economy.

Dr Jones: As a general rule though, the way the bank has operated its reserves has changed quite a bit over the last, say, 25 years, and now the bank effectively sets key benchmarks and sticks to them. There are not big discretionary decisions going on every day. There’s wild speculation going on at the Reserve Bank, I can assure you, about the future value of exchange rates.

Senator Roberts:  I wasn’t implying that. Worldwide purchases of US treasuries by central banks has fallen $600 billion in 2022 as compared to a baseline year of 2013. That’s just arbitrary—2013. Purchases of gold have increased $300 billion. So something is going on that Australia would be prudent to hedge against. Is the Reserve Bank increasing its gold reserves as an each way bet against BRICS introducing a gold brick currency of some form?

Mr Lowe: No, we’re not. We’ve got our gold reserves. We haven’t bought and sold for a long time and we have no intention of changing that at the moment.

Senator Roberts:  Thank you, Governor.

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Questioning Australian Prudential Regulation Authority – Debanking

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De-banking is the process of banks closing accounts for businesses or individuals. All the big banks are now de-banking clients and claiming that this is for Anti Money Laundering reasons, but it is just not true. At our Senate Estimates questions, APRA agreed they had authority in this area and also agreed they were doing nothing about this scandal.

The companies being de-banked are bullion dealers, bitcoin exchanges and cash handling companies working to keep ATMs in clubs and pubs full and so on. All of the companies that have been de-banked that my office has looked at are legitimate, long-established companies that are following the law.

The only explanation for de-banking is this – banks are shutting down their competitors. This is an abuse of their market power that will prevent competition in banking and reduce freedoms Australians enjoy as to the choice of what to do with their own money. This is bank greed and the supposed-regulator the Australian Prudential Regulation Authority are facilitating this by looking the other way.

The Cash Ban Bill produced by Treasury works with the banks by de-banking their rival businesses and then preventing those businesses to move over to cash payments. This effectively puts these banking rivals out of business.

Transcript

Senator ROBERTS: Moving onto the practice known as debanking, is the regulation of debanking practised by the banks your responsibility?

Mr Byres: I don’t know that I can talk about a regulation for debanking. The concern is that various customers no longer get banking services. It’s certainly not a primary issue for APRA. We understand the issue exists. In many cases, it relates to banks being able to comply with anti-money-laundering and counterterrorist-financing regulations.

Senator ROBERTS: That’s where I’d go. Commander Security is an Australian cash security company. It transits cash, and a large part of that is refilling third-party ATMs. So it’s a competitor to the banking cartel. Commander Security is fully AUSTRAC compliant and operates its accounts lawfully. On 14 October 2020, it received a notice from Westpac cancelling Commander Security’s banking accounts effective from 26 October. It has been refused accounts at other banks. Where is the protection of interests of depositors in this process?

Mr Byres: The depositors of the banks themselves are protected. I’m not aware of the specific case that you’re referring to. We’re happy to look at that.

Senator ROBERTS: Let’s look at another one then. Melbourne Gold Exchange sell bullion to retail investors. It is also AUSTRAC compliant and operates legally. It was debanked by Westpac, then the Commonwealth, then the NAB and now cannot get an account anywhere. Would you categorise bullion as a rival store of wealth to  cash in the bank?

Mr Byres: No, I wouldn’t actually. I think cash in the bank has a very stable value and bullion does not. But that’s a discussion about investment rather than safety.

Senator ROBERTS: Bullion’s not stable? Okay. The point of this question is simple: banks are debanking businesses that they have decided are an unacceptable risk. When my office looks at these businesses, they are bullion dealers, non-bank companies providing rival services to the banks, like Commander Security, and bitcoin exchanges. APRA appear to be turning a blind eye to Australian banks debanking their rivals. Can you explain that?

Mr Byres: I don’t think we’re turning a blind eye to it. We understand the issues there, but banks are making decisions based on their risk profile as to whether they want to take on the risk associated with some of these customers. Clearly what we have seen in recent times is that the penalties for getting it wrong are significant. That’s not to condone the banks but to simply make the point that they’re taking it very seriously.

Senator ROBERTS: When the Melbourne bullion company was debanked, Westpac debanked not only the accounts but also the private accounts of the owners and the private accounts of their employees. APRA is responsible for protecting the financial interests of depositors. Does APRA consider this acceptable behaviour?

Mr Byres: Just to be clear, our obligation to depositors is not a consumer protection obligation, it’s making sure that people get 100c in their dollar—

Senator ROBERTS: I think you’re also responsible for making sure that there’s adequate competition.

Mr Byres: We have to be mindful for competition, but we don’t have a mandate to promote or establish competition. We have to deliver safety and soundness having regard to a range of other factors: competition, efficiency, ability and competitive neutrality. But we’re not primarily a competition regulator.

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