It goes without saying that these foreign banks are creaming big fat profits from New Zealand. That’s a given. In the year to October 31, 2004, they made a combined profit of $2 billion. But what was different in 2004 was that the Inland Revenue Department actually decided to carefully scrutinise the amount of tax they are paying and take punitive measures to recover the very large shortfall. This culminated in the November 2004 introduction of the Taxation (Base Maintenance and Miscellaneous Provisions) Bill. Behind this turgid title lurked political dynamite. The purpose of the Bill is to increase the tax take from foreign banks, to the tune of an extra $360 million per year. We’re not talking insignificant sums of money here.

"Reserve Bank figures, leaked to the National Business Review, showed the banks were paying an effective tax rate of 6.7%, rather than the normal corporate rate of 33%, or $191 million in 2003, instead of the $947 million if they had paid the full whack" (Listener, 6/11/04; "Fair Play: Why Inland Revenue Has Had A Change Of Attitude", Nick Smith). Have the banks committed any crime? No. In the same Listener article the Minister of Finance, Michael Cullen, said the purpose of the Bill is to plug a loophole, which he described as a "legitimate form of tax avoidance". Note the legal nicety – tax evasion is a crime, tax avoidance might be unethical, but it is not a crime. To put this into perspective – the CAFCA/ABC Organiser Account, which exists to provide my income, opened a term deposit (with Kiwibank). Initially, until we managed to get our tax status sorted out, the bank was legally obliged to tax our interest at 39%, the highest possible rate, higher than the "normal corporate rate of 33%", and certainly much higher than the 6.7% that the foreign banks were paying (I’m pleased to report that justice has prevailed, and that term deposit now attracts 0% tax).

From July 2005 the foreign banks will have to hold a minimum level of capital in New Zealand to qualify for interest deductions. They will also have to fund offshore investments from capital if they want to claim interest deductions. These new rules are similar to the "thin capitalisation" requirements that already apply to their parent banks in Australia. The result will be that, to comply with these new rules, banks will have to bring more capital into New Zealand.

And 2004 revealed an extra dimension to the profiteering. In November, the Commerce Commission announced that it would be taking criminal action under the Fair Trading Act against all the banks and the credit card transnationals for non-disclosure of international currency conversion fees. The Commission’s chairwoman, Paula Rebstock, said that, "the amount of undisclosed fees ran into ‘at least the tens of millions of dollars’" (Press, 11/11/04; "Disputed fees in millions"). This follows an 18 months investigation by the Commission, triggered by complaints to the Banking Ombudsman. There is an April 2004 American precedent where the California Superior Court ordered Visa and Mastercard to repay up to $US800 million in undisclosed conversion fees to card holders (that is under appeal, and nobody has been refunded yet). The individual sums might not be large ($10-$15 is typical per individual credit card statement, for transactions while the cardholder was overseas) but added up they come to a tidy sum. "’In New Zealand the sums might not be huge in the big picture but they are definitely not small if they are being taken out of your pocket’, says Bank Customers Action Collective spokesman, Gray Eatwell. The organisation has been lobbying the Commerce Commission and banks to work toward transparent bank fees since 1998. ‘Our belief is that this is criminal and we are asking for some honesty’" (Press, 23/11/04; "Credit card fees under fire", Kristina Greene).

So why single out Westpac as being any worse than the rest? Good question. It is, of course, a profiteer, and has been ever since it took over TrustBank in 1996, which was then the last New Zealand-owned national bank. For the 2003/04 financial year it made a $617 million profit, a 36% increase on the previous year. The Australian parent company made a record $A2.54 billion profit.

And Westpac is the worst offender in moving its work from New Zealand to Australia. In October 2004, the Reserve Bank flexed its muscles and stopped it – at the last minute – from moving its core information technology systems from Auckland to Sydney, a move that Westpac had announced in April 2003. "Westpac called off the planned migration of its mainframe-based systems to Australia at the last minute, as a contractual deadline with outsourcing partner IBM loomed, following a tense game of chicken with the Reserve Bank. The Reserve Bank fears Westpac’s plan could prevent Westpac New Zealand operating as a stand-alone entity in the event of a crisis. The central bank said that it had received an undertaking from Westpac that it would not move the mainframe processing for its New Zealand branch to Australia without its permission. The backdown is expected to cost Westpac millions of dollars in extra payments to IBM, which manages Westpac’s mainframe-based data processing on both sides of the Tasman" (Press, 29/10/04; "Westpac backtracks on IT move", Tom Pullar-Strecker). The Reserve Bank concluded that Westpac’s approach to outsourcing its core information technology work to Australia undermined its ability to continue operating in the event of a crisis and was "not sufficiently robust" (ibid.). This is an interesting power struggle. Westpac spokesman Paul Gregory said that the question the bank had to ask was "whether…we want to be on the wrong side of the most important regulator in our industry" (ibid.).

But just to show that it is not averse to exploiting cheap New Zealand labour, Westpac announced, in September 2004, that it might return some more back office processing functions to New Zealand. "Westpac…is keen to take advantage of New Zealand’s low wages as part of a programme to reduce the $A1.6 billion in costs incurred each year in its business, technology and services divisions" (Press, 20/9/04; "Westpac plans to shift some processing functions to NZ", Roeland van den Bergh). And Westpac knows that it’s got an image problem. So, in September 2004, it became the first major corporation in New Zealand to issue a social and environmental report, which it insisted was not just a marketing exercise. Two cheers for public relations.

Mega profits, tax dodging, hidden fees, refusal to set up as a New Zealand bank, outsourcing of key functions to Australia, using New Zealand cheap labour for the donkey work – it’s a pretty impressive rap sheet, which (courtesy of the Commerce Commission) now includes some actual criminal charges. All the foreign banks are culpable but Westpac is definitely ahead of the pack. The two unusual things about 2004 have been that Inland Revenue, the Commerce Commission and the Reserve Bank have put down their cheerleaders’ pompoms long enough to actually start doing what the New Zealand taxpayer pays them to do, and that is to investigate, regulate, control and, if necessary, prosecute the banking transnationals that have been ripping us off and robbing us blind for decades. They are responsible for the biggest "inside job" in the history of New Zealand bank robbery.