Bob Baldwin (Paterson, Liberal Party, Shadow Minister for Defence Science and Personnel) Share this | Hansard source

There is no doubt that these are difficult global economic times. They are difficult times because there has been a breakdown in integrity, in honour and in trust within the international banking sector. Australian banks are being cited internationally as an example of responsible, well regulated banking; however, there are some problems and, therefore, more needs to be done.

Tonight I bring to the attention of the parliament a serious breach of trust between several major Australian banks, they being the Commonwealth Bank of Australia and the National Australia Bank, in their dealings with an international counterparty bank in China, the Bank of China and Australian business.

Tonight I will cite an example of a serious breach of trust, honour and integrity between these banks and between the Bank of China and Australian businesses developing in China. It is disappointing that Australian regulatory authorities have been notified by the affected Australian business and that the serious breach has progressed under their scrutiny. The Australian regulatory authorities say that they are powerless to enforce the necessary prudential standards to enforce the honour and trust that we rely on in our banking sector.

Simply put, this is not acceptable. The Australian government must do more to support our businesses in these circumstances. As we, as a nation, embark on further and free trade with China, changes must be made by our government to better regulate dealings between Chinese banks and Australian banks.

In August 2006 an Australian company, Energreen Wind Systems Pty Ltd, was seeking funds for several major renewable and energy efficiency projects in China. Monibrook Pty Ltd, an Australian company, undertook to raise the necessary funds for these Energreen projects. Monibrook was the beneficiary under a promissory note issued by a Chinese development company, Gas-Fired Estates, and the promissory note was endorsed by the Bank of China through its Duyun branch in Guizhou province in China with full bank responsibility.

Promissory notes are an important tool in international business. They have been used for decades to ensure payment. They are recognised under the laws of China and are common in international banking. The expression ‘full bank responsibility’ has the effect in law that the bank guarantees payment. If banks do not honour their obligations of full bank responsibility, there can be serious consequences. Such consequences can be at micro and macro level.

At a micro level the particular transaction is endangered and the recipient business is left without payment on presentation of the note. The Bank of China endorsed the promissory note to Energreen with full bank responsibility but despite that it has refused to meet its commitment under the promissory note. No Australian business can sustain that sort of non-payment by an internationally accepted bank, particularly when that bank, such as the Bank of China, has a licence and approval to conduct banking activities in Australia.

At a macro level the reputation of both the bank and the country of the bank are tainted by such actions. At a time of difficult international economic conditions, such uncertainty, especially with China, has potentially adverse consequences for Australia at a national level. The actions, or perhaps more correctly the refusal of the Bank of China to honour bank instruments issued by its officers within its own branches of the Bank of China and the refusal of the Bank of China to explain itself, are not the expected actions of a major international business institution committed to acting in a manner consistent with the highest principles in business behaviour.

Furthermore, such impropriety is not acceptable within the Australian banking regime. The promissory note issued by the Bank of China was secured for US$50 million, maturing on 18 August 2008. That promissory note had been delivered bank-to-bank by the Bank of China courier from Guizhou province in China to the Commonwealth Bank of Australia at its Toormina branch near Coffs Harbour. The Commonwealth Bank received letters from the Bank of China confirming that the Bank of China had endorsed the promissory note.

The Commonwealth Bank advised both Monibrook and Energreen on several occasions that inquiries made by it to the Bank of China confirmed that the promissory note was authentic and that the Bank of China would honour it on presentation. The Bank of China confirmed the bank-to-bank to the Commonwealth Bank and that it would honour its obligations of full bank responsibility. The promissory note was used by Energreen to secure prepayment, to secure predevelopment funding and then to provide for these projects in China.

In February 2007 the promissory note and related papers were collected from the Commonwealth Bank. About April 2008 Energreen commenced preparatory discussions with the Bank of China in Sydney for redemption of funds under that promissory note. The National Australia Bank Ltd was requested to present the promissory note to the Bank of China in Guizhou province for payment of the US$50 million on the due date, which was 18 August 2008. The NAB did so on a bank-to-bank basis and sent the original promissory note to the issuing branch of the Bank of China. However, the Bank of China has refused to pay under the promissory note. The Bank of China, through its manager at the issuing branch in Guizhou province in China, replied:

We have never endorsed subject promissory note and are not responsible for honouring any drawings. We refuse to handle the said collection.

This is despite the Bank of China having advised the Commonwealth Bank that the promissory note was authentic and would be honoured. The NAB has repeatedly requested the Bank of China to return the original promissory note. The Bank of China refused to do so. The actions of the Bank of China are inconsistent with the ICC’s Uniform Rules for Collections and is in breach of the Australian banking laws. One cannot purport to abide by such rules but do so only when it suits. How can the Bank of China expect to retain an Australian banking licence when it does not conform to our banking regulations and laws?

On 13 August 2008 and 26 August 2008 the most senior officials in the Bank of China in Beijing were notified by letter requesting the Bank of China to honour the promissory note. No reply as yet has been received. The named Bank of China officials on those letters were Li Lihui, Vice-Chairman and President of the Bank of China, and Xiao Gang, Chairman of the Board, Bank of China. The Bank of China has not provided any satisfactory explanation for its behaviour. One would expect the fullest cooperation of the Bank of China but this has not occurred. A mature and responsible attitude on the part of the Bank of China should have been forthcoming but this has not occurred. International commerce is dependent on the integrity of the financial sector, especially banks. Without this, integrity, commerce, trust and relationships are damaged. The actions of the Bank of China can only damage the standing of that bank and of China itself both internationally and in Australia.

Energreen initiated contact with the following Australian authorities in about April 2008 and those authorities have reviewed the promissory note and associated papers: the Australian Prudential Regulatory Authority, the Australian Securities and Investments Commission, the Australian Federal Police, the Fraud Squad of the New South Wales Police Force. None of those Australian authorities has indicated either verbally or in writing that the promissory note is a fraud.

The Bank of China’s refusal to honour the promissory note is forcing this Australian business to take public action in the New South Wales Supreme Court to enforce the promissory note. The question must be asked: why should Australian business suffer such loss and damage and resort to litigation to enforce the conduct of Chinese banks in Australia when they choose to operate outside accepted ethical banking standards? The actions and conduct of the Bank of China both in Australia and in China have been nothing short of unprofessional, obstructionist, secretive and ethically challenged. There is a raft of documentation to support all of these claims, which may be sighted on request.

In this grievance the government of Australia is being put on notice that dealings with Chinese banks, and in this particular case the Bank of China, are ethically challenged and are not compliant with Australian banking regulations. Regulatory changes are needed. Furthermore, the government of Australia must stand behind Australian businesses forced to take public action in the courts. It is unacceptable that Australian business must invoke the courts to deal with the ethical challenges of dealing with China, and in this case the Bank of China. After this grievance is noted today I will be making representations on behalf of Energreen Wind Systems Pty Ltd to the Prime Minister, to the Minister for Trade, to the Treasurer, to the Minister for Finance and Deregulation, to the Minister for Foreign Affairs and to the Chinese ambassador in Australia, his Excellency Mr Zhang Junsai, on this matter—which has the consequence of damaging business relationships with China.

Through my visits to China and the delegations I have received from China it is abundantly clear that China has been very active in seeking Australian companies with which to do business and invest for the long term. However, any business relationships are built on trust. In fact any relationship is built on one key element, and that is trust. Today, sadly, that trust has been breached and I urge the Australian and Chinese governments to intervene in this matter so that that trust can be restored. (Time expired)

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