The reports of Professor Allan
46 To the limited extent that reliance was placed upon the opinions expressed by Professor Allan, a few preliminary points should be made.
47 First, if his evidence as to the meaning to be ascribed to different terminology be presently placed to one side, as a general observation it may be noted with respect to the Reports relied upon by the Finance Sector Union that:
the September 2018 Report set forth the "assumptions" upon which Professor Allan proceeded; and
those "assumptions" provided only a limited understanding as to the factual nature of the business activities of Unimoni.
Notwithstanding the limits imposed by the "assumptions" from which Professor Allan was asked to proceed, opinions were nevertheless purported to be expressed by the Professor as to the character of the business activities of Unimoni:
which went well beyond any of the facts forming part of those "assumptions"; and
which were made without a full understanding of the activities of Unimoni or (for example) the qualifications or tasks entrusted to its employees.
These considerations considerably impact upon such reliance as may properly be placed upon the Professor's opinions.
48 Second, many of the opinions expressed were founded upon definitions of a number of phrases such as "financial services industry" and a "financial intermediary". These definitions were drawn from a disparate variety of sources including definitions or guidelines provided by (for example) the Australian Bureau of Statistics, the Australian Securities and Investments Commission ("ASIC"), the Australian Transaction Reports and Analysis Centre ("AUSTRAC") and the Australian Prudential Regulation Authority ("APRA"). Reliance was also placed upon s 763A of the Corporations Act 2001 (Cth) and Professor Allan's understanding of that provision and upon definitions found "online".
49 Leaving aside the position ultimately adopted by Counsel for the Finance Sector Union as to the Court being in as good a position as Professor Allan to draw conclusions or inferences from the sources to which the Professor referred, it may be queried:
whether such opinions as were expressed adequately or properly took into account the different functions performed by (for example) AUSTRAC or the Australian Bureau of Statistic as opposed to ASIC. AUSTRAC, it may be noted, is continued in existence by s 209 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). Its function is to assist the AUSTRAC CEO: s 210 of the Act. The functions of AUSTRAC CEO are, in turn, set forth in very broad terms in s 212 of the Act. Included within those functions are the functions to "provide access to, and to share, AUSTRAC information to support domestic and international efforts to combat money laundering and terrorism financing and other serious crimes" (s 212(1)(aa)) and to "facilitate gaining access on a timely basis to the financial, administrative and law enforcement information that the AUSTRAC CEO requires to properly undertake the AUSTRAC CEO's financial intelligence functions" (s 212(1)(da)).
In making these comments it must nevertheless be recognised that Professor Allan was starting from the position that there was "no legislative definition of 'Finance Industry' in Australia" and no definition in "popular online encyclopaedias or dictionaries". His Reports were thus an attempt to draw together such disparate sources of information as were available and to thereafter draw his own Conclusions from that material.
50 A third general observation is that Professor Allan frequently strayed from the position of an independent expert and into the arena of becoming an advocate for the case sought to be advanced by the Finance Sector Union. In making such an observation, it must necessarily be recognised that experts - including independent experts called as witnesses in a proceeding - may become so immersed in their area of professed expertise that they may understandably become committed to espousing a particular point of view. Even so, it is respectfully considered that Professor Allan tripped over the line and became more an advocate than an independent witness trying to assist the Court, as exposed by:
his reluctance to accept (or as he may have perceived it to "concede") that which was otherwise self-evident (an example being a reluctance to accept that his Conclusion that Unimoni was "a 'Financial Institution' as defined by the RBA because of its foreign exchange dealings" was a Conclusion based upon the Reserve Bank of Australia ("RBA") definition);
his not infrequent expression of views, albeit not views which were in response to any question being asked by his cross-examiner; and (albeit to a lesser extent)
his not infrequent reference to his Report as a "submission".
51 On balance, it is respectfully considered that Professor Allan did not properly understand that his limited role in giving evidence was to that of answering the questions being asked of him.
52 Separate from these general introductory observations as to the evidence of Professor Allan are more specific reservations expressed in respect to the Conclusions expressed in his September 2018 Report.
53 The September 2018 Report sets forth the "assumptions" he was asked to make for the purposes of preparing that Report as follows (without alteration):
2. I have been asked to make the following assumptions:
(i) That UAE is involved in the exchange of foreign currency into Australian dollars and vice versa;
(ii) That UAE provides debit cards to customers, which enables them to purchase items for goods and services overseas; and
(iii) That UAE is involved in transferring money into foreign bank accounts by electronic funds transfers.
(iv) UAE is registered as a Australian Financial Services Representative of MasterCard Prepaid Management Services Australia Pty Ltd (ACN: 145 452 044 ABN: 47 145 452 044) which holds an Australian Financial Services Licence (No: 386837).?
The same Report set forth the Conclusions reached as follows (without alteration):
Conclusions
105. In my opinion UAE Exchange Australia is:
• Not a "Bank" since it is not an ADI or authorised to call itself a bank.
• Not a "Merchant Bank" since that description is banned in Australia. Nor is it an "Investment Bank" because it is not an ADI.
• A "Financial Institution" as defined by the RBA because of its foreign exchange dealings.
• A "Financial Intermediary" since it stands between its customers and (i) forex brokers in Forex dealings, (ii) banks in funds remittances and (iii) Mastercard's prepaid cash card and management services.
• A "Financial Services" provider because it offers stored value cards (i.e. prepaid cash cards) which ASIC deems a "Financial Product" for purposes of financial services licensing.
• Part of the "Financial Services Industry" as recognised by ABS's ANZSIC and suggested by ABS's ANZSCO and as defined by AUSTRAC. ASIC licenses prepaid card as "financial products", but not spot forex and money transfers as it does not regulate all "financial services".
• Part of the "Financial Sector" as described by the RBA.
• Part of the "Finance Industry" if the term "Finance" is shorthand for "Financial Services".
Without qualification, these Conclusions obviously support the case sought to be advanced by the Finance Sector Union.
54 In order to question the reliability of the Conclusions expressed, the course pursued by Professor Allan's cross-examiner was to focus attention (in particular) upon the Conclusions as to Unimoni being:
a "Financial Institution"; and
a "Financial Intermediary".
The basis upon which each of these Conclusions was founded were set forth earlier in the Report.
55 It serves no useful point to pursue each of the lines of cross-examination in respect to other Conclusions or opinions expressed in the Report. It is sufficient for present purposes to focus attention upon two. In summary, it is concluded that there are reasons to question the reliability of the Conclusions reached by reason of the basis upon which the Conclusions are reached being inadequately addressed in the Professor's reasoning process.
56 The first line of cross-examination to be considered was directed to the Professor's Conclusion (at para [105]) that Unimoni was a "financial institution", albeit not a phrase found in either r 5 or cl 4. That Conclusion was founded upon the reasons set forth at paras [25] and [27]. Notwithstanding the terms in which para [105] was expressed, there was considerable reluctance on the part of Professor Allan to accept that that conclusion was reached "because of" the definition provided by the RBA. Why there was such reluctance is difficult to comprehend on the part of an expert. But the more substantial reason to question this conclusion is that paras [26] and [27] provide as follows (without alteration):
26. The RBA uses a broad definition of "Financial Institutions" to cover:
• Authorised Deposit-taking Institutions (ADIs)
• Non-ADI Financial Institutions
• Insurers and Funds Managers
27. Under "Non-ADI Financial Institutions" it includes "Money market corporations (broker-dealers)" which in turn include "Other services, including advisory, relate to corporate finance, capital markets, foreign exchange and investment management." (emphasis mine)
(footnotes omitted)
Those paragraphs of the Report were, in turn, based upon a publication of the RBA addressing "Main Types of Financial Institutions". That publication identified the "Authorised Deposit-taking Institutions (ADIs)" as being banks, building societies and credit unions. It went on to identify the "Non-ADI Financial Institutions" as being money market corporations, finance companies and securitisers. That part of the publication relied upon by Professor Allan relevant to the Conclusion he reached, and as extracted in para [27] of his Report, was that directed to "Money market corporations". But when reference is had to the publication it presents the more complete description of the "main characteristics" of that type of institution as follows:
It is, with respect, seriously apt to mislead to draw a conclusion as to Unimoni being a "financial institution" because it falls within the RBA publication and its reference to "foreign exchange" without reference also to the RBA's identification of a main characteristic of a money market corporation being one that "[o]perate[s] primarily in wholesale markets, borrowing from, and lending to, large corporations and government agencies".
57 Paragraphs [28] and [29] of the Report, which extract a reference to the Australian Bureau of Statistics dividing Australian industry into 19 Divisions, one of which is labelled "Financial and Insurance Services", adds nothing to the reasoning. The extract from the Bureau's publication, which is a statement as to what it perceives to be included within the "Financial and Insurance Services [Division]", says nothing as to the characterisation of a business which exchanges money from one form of currency into another. Nor was Professor Allan able to say whether the Bureau treated - or would treat - Unimoni as falling within that Division.
58 A second line of cross-examination, again provided only by way of example, was the challenge made to Professor Allan's Conclusion (at para [105]) that Unimoni is "a 'Financial Intermediary' since it stands between its customers and (i) forex brokers in forex dealings, (ii) banks in funds remittance and (iii) Mastercard's prepaid cash card management services". That Conclusion was founded upon the following earlier paragraphs within his Report:
Financial Intermediary
31. There is no legislative definition of "Financial Intermediaries" in Australia.
32. In common parlance a "Financial Intermediary" is simply an entity that acts as the middleman between two parties in a financial transaction.
33. The 2006 Australian Financial System Inquiry "broadly defined (financial intermediaries) to include not only banks and insurance companies but also managed funds such as superannuation and collective investments schemes."
34. In my opinion, a "Financial Intermediary" stands between two parties to a financial transaction including foreign exchange, money transfer and stored value card transactions. As such UAE is a "Financial Intermediary".
(footnotes omitted)
In respect to these paragraphs, it will be noted that:
there is no authority or reference source identified for the statement in para [32]; and
the "broad" definition referred to in para [33] says nothing as to whether or not a business engaged in simply exchanging money from one currency into that of another is a "financial intermediary".
Further reason for reservation only arises when reference is made to the earlier Report prepared by Professor Allen in August 2018. That was the Report which was annexed to an affidavit filed but not read by the Finance Sector Union. It was one of the Reports which were used in the cross-examination of Professor Allan and later tendered by Unimoni. The August 2018 Report, in contrast to the September 2018 Report, sought to be relied upon by the Finance Sector Union, stated in part:
36. In common parlance the term is used either narrowly to mean "an institution, such as a bank, building society, or unit-trust company, that holds funds from lenders in order to make loans to borrowers." or more broadly to mean "an entity that acts as the middleman between two parties in a financial transaction"
(footnotes omitted)
Missing from the September 2018 Report, but referred to in the August 2018 Report, was any reference to "common parlance" having a more narrow meaning as well as a broader meaning. It was only the broader meaning which was ultimately advanced by Professor Allan. A change in emphasis, or a change in opinion, may perhaps be readily understandable. But what was not satisfactorily explained were the reasons for failing to ultimately refer to the fact that in "common parlance" the phrase "financial intermediary" had potentially two different meanings. The omission only underlines a concern that Professor Allan was not in fact an "independent" expert but rather a person advocating only that view which suited the interests of the Finance Sector Union.
59 A final line of cross-examination may be noted as but a further illustration as to why the Reports and reasoning of Professor Allan provide little assistance in the resolution of the present proceeding. This line of cross-examination was directed to the Conclusion of Professor Allan (at para [105]) that Unimoni is part of the "Financial Services Industry". In support of that conclusion Professor Allan refers to a number of sources, including publications of the Australian Bureau of Statistics, s 763A of the Corporations Act 2001 (Cth), statements by APRA, and the Regulatory Guide issued by ASIC. Albeit forming only part of that reasoning process, para [42] of the Report states as follows:
To quote ASIC's Regulatory Guide 36 (Section A):
"You provide a financial service if (among other things) you:
• 'provide financial advice' (see RG 36.3-RG 36.6); or
• 'deal in a financial product' (see RG 36.7-RG 36.8)."(emphasis mine)
(footnote omitted)
But missing from the reasoning of Professor Allan is any reference in the Report to that which constituted in the mind of ASIC a "dealing" in a financial product. If reference is made to the text of the Regulatory Guide itself, it provides in part as follows:
What is the meaning of 'deal in a financial product'?
RG 36.7 The licensing provisions apply to persons who 'deal in a financial product'.
To determine whether you deal in a financial product it is necessary to consider the following questions:
(a) What is 'dealing' within the meaning of s766C(1)?
(b) What is 'arranging' within the meaning of s766C(2)?
(c) What conduct is exempt from the definition of 'dealing'?
RG 36.8 The meaning of 'deal in a financial product' is considered in more detail in Section C.
And when addressing what is meant by the term "arranging", the Regulatory Guide states as follows:
What is the meaning of 'arranging'?
RG 36.9 'Arranging' for a person to engage in certain conduct, such as applying for or acquiring a financial product (see RG 36.36), constitutes dealing unless:
(a) the actions concerned amount to providing financial product advice (s766C(2)); or
(b) the conduct is exempt from the definition of dealing - for example, if the clerks and cashiers exemption applies (s766A(3)).
RG 36.10 Arranging occurs when a person brings into effect the issue, variation, disposal or acquisition of, or application for, a financial product. Ultimately, whether a person's activities constitute arranging is a question of degree.
RG 36.11 The meaning of 'arranging' is considered in more detail in Section D.
The cross-references set forth in para [42] make clear that Professor Allan considered that regs 36.7 and 36.8 were of relevance to what constitutes "dealing" in a financial product in the Regulatory Guide. But no reference was made by Professor Allan to reg 36.9. And Professor Allan was in no position to know whether reg 36.9(b) applied to Unimoni given the "Assumptions" from which his September 2018 Report proceeded.
60 When addressing the same question as to whether Unimoni is part of the "Financial Services Industry" Professor Allan also placed reliance upon publications of AUSTRAC. His Report thus states in part as follows:
49. AUSTRAC defines "financial services" to include both "Currency exchange services" and "Remittance services". This is how it describes such services:
"What is a 'currency exchange service'?
"Under the AML/ACT Act, a 'currency exchange service' involves physically exchanging currency, where currency from one country is converted into currency of another country. Most commonly, currency exchange occurs at bureaux de changes, banks, hotels and airports within a retail environment…
"What are remittance services?
Generally, remittance services facilitate the transfer of money or property from a customer in one location and pay an equivalent amount in cash or value to a beneficiary customer in another location, often outside the formal financial and banking system …" (emphasis mine)
50. For regulatory purposes, AUSTRAC (unlike ASIC) does not distinguish between spot and other forms of foreign currency exchange and money transfer.
(footnote omitted)
The extract in para [49] of the Report can be found in Chapter 2 of the AUSTRAC Compliance Guide. Within Chapter 2, Table 1 to the "Definitions and examples of common designated services" is titled "financial services". Included in Table 1 is a reference to "currency exchange services". The difficulty with accepting the reasoning of Professor Allan at para [49] is that he gives no consideration in his Report to the different roles played by the ASIC and that played by the AUSTRAC. AUSTRAC is an entity established by the Australian Government to monitor financial transactions with a view to identifying (inter alia) money laundering, organised crime, terrorism and tax evasion. Given these responsibilities it is readily understandable why AUSTRAC may take a broader or more expansive view as to those transactions which warrant reporting obligations and scrutiny than the regulatory functions entrusted to ASIC when scrutinising banks or building societies. How the different areas of responsibilities entrusted to one agency rather than another impact upon the reasoning of Professor Allan was left unexplained in his Report.
61 Conclusions based upon a selective extraction of publications of (for example) regulatory agencies and without regard to the different functions entrusted to different agencies are open to serious reservation.
62 Although the Reports of Professor Allan serve as a useful collation of published materials, the submission advanced by Counsel on behalf of the Financial Sector Union as ultimately advanced is accepted. This Court is in as good a position as the Professor to form a view as to what those publications disclose as to the common understanding or meaning of such phrases as the "financial industry" or "financial institutions". What the expertise of essentially an economist can add to such a process of drawing inferences is open to question.
63 The Reports and opinions expressed by Professor Allan, it is thus respectfully concluded, are of little assistance in resolving the questions of construction as to cl 4 and r 5.