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HIH Royal Commission; Budget



Interview with Alexandra Kirk, ABC AM

Thursday, 17 April 2003


SUBJECTS: HIH Royal Commission; Budget


Mr Costello, good morning.


Good morning Alex.


To borrow a phrase from (inaudible), are you going to “hunt them down

like mangy dogs?” Will anyone go to jail?


Well, the Australian Securities and Investment Commission has commenced preparing

briefs. It will be fully funded in that activity by the Federal Government.

After it has finished the briefs, those possible criminal charges will either

be taken by the Director of Public Prosecutions or by a special prosecutor.

All of the evidence will be put before the courts and if the courts convict

somebody of a criminal offence, yes, I believe it would be appropriate for a

jail term to be imposed.


But in your view will anyone go to jail?


Well, it depends on what is proven to the court. I cannot say in advance what

the court is going to find, you understand that for legal reasons.

But I can pledge to investors and policy holders alike that these investigative

bodies will be fully funded to get all of the evidence and we will be asking

the prosecutors to aggressively prosecute in the courts and if the courts find

people guilty, yes, it would be appropriate for them to go to jail.


Now your mantra is that the Government is not responsible and nor is the prudential

regulator, APRA, responsible. But APRA is your creation, the Royal Commission

found it should have been more sceptical, more questioning and more aggressive.

In other words, it wasn’t up to the job. So shouldn’t you, the Government, as

its creator, bear some responsibility?


Look, the Government called this Royal Commission. We were the people who were

determined to get to the bottom of it. It was given 18 months and $40 million.

It has had a brief…


But just look at the job that APRA did?


Well hang on, it had a wide brief to try and find anybody who was responsible

in relation to HIH. Now what it said about APRA was that APRA did not cause

the collapse of HIH, nor could it have stopped it. But it did find that APRA

was inadequate from about October, November 2000, until the collapse in March

2001. Now, as far as we are concerned APRA should not have been inadequate and

we have accepted the recommendations of the Royal Commissioner. The Board will

be ended and a new executive commission will be put in place as soon as legislation

can pass the Parliament. And APRA will be expected to be more aggressive in

the future.


But APRA was your creation, you shifted it from Canberra to Sydney, thereby

losing key people and much of its corporate knowledge. APRA went around asking

companies how things were going. If the company said things were okay that was

basically it. That isn’t corporate regulation, is it, so doesn’t the buck stop

with the Government?


I think the move from Canberra to Sydney was actually a very positive thing.

Sydney was the scene of the crime. You are actually moving your regulator to

the site where most of the insurance companies were located. Now, APRA was created

with an independent board and that was recommended, unanimously accepted by

all sides of Parliament. An independent board which would give industry important

oversight as a result of the Wallis Inquiry. Now the Royal Commissioner has

found that that Board did not work. That Board is now going to be ended and

we will go back to a situation, a bit like the Australian Securities and Investment

Commission, where you have an executive commission. Let me make this clear,

there is no finding that APRA was under-funded. In fact, quite the reverse,

the Royal Commissioner found that it never complained about its funding at all.

What he did find though was between October and November APRA was inadequate.

That is not good enough. And we are going to expect it to be more aggressive

in the future.


So, if the only thing that you are willing to concede is that if APRA had been

more vigilant then HIH would still have collapsed, it just would have collapsed

6 months earlier. So doesn’t it follow that APRA would have saved a lot of people

a lot of misery if it had done its job and all those people who signed up to

HIH in various ways in the last 6 months, what do you say to them?


Well, the Royal Commissioner’s finding is, that APRA could have brought about

the collapse of HIH sooner, possibly 6 months sooner.


That would have been a good thing, wouldn’t it?


Well, for some people it would have been a good thing, but it also could have

been a bad thing for some other people who had their business eventually transferred

to Allianz. But what I am prepared to concede is this, that there are 20 people

who are going to be referred for 56 charges, including some very serious criminal

charges because they have had adverse findings against them by a Royal Commission,

called by this Government determined to get to the bottom of this matter. And

this Government is going to ensure that all of those 56 matters from the people

that the Royal Commissioner found had adverse findings are fully investigated,

and all of those charges are brought, and if they are convicted of criminal

charges then we would be expecting the courts, in relation to the people responsible,

to be imposing jail terms. That is what is going to be the outcome of this Royal



But just finally, you are promising to find money in the Budget for a taskforce

to pursue these prosecutions. You’ve pretty well finished drafting the Budget.

Access Economics says the bottom line will be much healthier than you have been

telling voters and also your spending Ministers because the non-farm sector’s

humming along quite nicely, so therefore tax revenue is too. Is there room in

the Budget for tax cuts?


Well, look, Access Economics always puts out its projections so that it can

get free advertising on public broadcasters like the ABC, which you never fail

to give them. But nobody ever holds them accountable for their forecasts and

if I were the ABC I wouldn’t rely too much on them.


Peter Costello, thank you.


Thank you.