In the corrupted currents of this world,
Offense's
gilded hand may shove by justice,
And
oft 'tis seen the wicked prize itself
Buys
out the law…
Hamlet Act three, Scene three
One of the intriguing
initiatives of the ALC has been the establishment of the Royalty Shoppa Prepaid
Card. It is voluntary and may have benefits for users. But closer examination
reveals a somewhat murkier and perhaps insidious side to this financial
product.
There are very
significant royalty flows into Groote. In addition to negotiated royalties allocated
to the Anindilyakwa Mining Trust (link
here), the ALC distributes so called royalty equivalents allocated from
Commonwealth Consolidated Revenue to the ALC in accordance with the provisions
of section 64(3) of the Aboriginal Land Rights (Northern Territory) Act 1976
(ALRA).
The adult
Aboriginal population of Groote Eylandt
is around 1100 people (link here). According to the Rents and Royalties
Snapshot available on the ALC website, over five years between 2019 and 2023,
the ALC distributed $361m in section 64(3) payments (link
here). This translates to a per capita payment of $328k, though the
allocation is much more diffuse, and direct payments to individuals are much
less. The snapshot suggests that some $87m went to community support (which
appears to be the category used for payments to individuals) over the five
years. This equates to some $81k per capita over the five years. Clearly there
is a significant financial pool available for private consumption. Note the
above calculations do not take into account traditional owners residing outside
of Groote Eylandt.
The next
largest allocation category, labelled economic development, totals $83m over the
five years; this includes, inter alia, a range of infrastructure
developments designed in large measure to underpin the proposed Winchelsea mine,
and whose beneficial impact will be heavily influenced by the success of
failure of that enterprise. But that’s another story. Education, health and
housing initiatives received a combined total of $100m over the five years, which
amounts to less than thirty percent of the funds available for distribution. While
clearly beneficial, these sectors are also crucial determinants of economic
prosperity and deserve, in my view, a higher priority.
Before
discussing the detail of the Royalty Shoppa Card, it is worth noting that one
of the alternative approaches which might have been pursued would have been the
development of a financial literacy support function by one of the corporations
on Groote, complemented with assistance to individuals in providing access to
debit and credit card facilities issued by mainstream banks. It is particularly
notable that while the royalty shoppa incentivizes immediate consumption, the
land council appears to have no offsetting emphasis on the benefits of personal
savings and the strategies available to facilitate and leverage personal savings
plans.
It is unclear
why the ‘shoppa card’ approach was chosen by the ALC, but at least one of the
potential reasons is that it encourages cardholders to spend their funds on
Groote at locally owned stores (noting that the ALC has approved the use of the
card in a wider range of stores including in Darwin, Katherine and Cairns). I
have no specific knowledge of the ownership of the retail facilities on Groote.
The recent Saturday Paper article (link
here) suggested that significant amounts of the funds deposited on the
shoppa cards were spent in the Anindilyakwa Shoppa Warehouse. The article
quoted a community member making critical comments about the quality of the
goods being sold. It is unclear if the royalty shoppa warehouse on Groote is
owned or operated by the ALC or an associated corporation though the use of the
name suggests that it is. If it is there may be a conflict of interest for the
ALC (see below).
Apart from the
policy issues generally, the issues of concern to me are more technical in
nature and go to the legality of the complex financial flows administered by
the ALC and general compliance with the legislative scheme which governs the
operation of land councils. As I have mentioned previously, the ALC is required
to distribute s64(3) payments from the ABA to Aboriginal Corporations
established under the CATSI Act (link here), which is administered by the Office
of the Registrar of Aboriginal Corporations (ORIC). These corporations are thus
sometimes referred to as ‘ORICs’ including in some ALC publications. The intent
of this provision was to place land councils at arm’s length from actual
distributions or investments; an intention that has been subverted on Groote
Eylandt.
There is no
provision in the ALRA which provides for a land council to determine how a
funded corporation shall utilise a distribution payment; the legislation merely
refers to the funds being utilised for the benefit of the traditional owners. It
is apparent however that the ALC exercises a high degree of influence (even
control) over the expenditures of funded CATSI corporations, not least through
the operations of the Royalty Development Unit (RDU), located within the ALC
administration and based in Cairns. The RDU is funded by s.64(3) payments to
the Anindilyakwa Royalties Aboriginal Corporation (ARAC) which pays the funds
back to the ALC for the operating costs and salaries. While the ALRA legislation
provides for a land council to assist corporations in receipt of royalties, and
to charge fees, the wholesale funding of land council staff from royalty
equivalents without acquittal of those costs in my view pushes beyond the acceptable
limit. This arrangement potentially bypasses the legislated arrangements for
administrative funding of the land councils which requires the Minister to
approve the estimates for section 64(1) funds allocated for that purpose. This
arguably undermines the separation of powers between funding allocations and ultimate
expenditures which are implicit in the requirement for a land council to
distribute 64(3) funds to independent corporations. We can see an instance of
this in the arrangements for the royalty shoppa card.
The ALC webpage
on Royalty Shoppa includes links to three technical documents related to the royalty
shoppa card: a Financial Services Guide (FSG) (link
here), a Target Market Determination (link
here) and a Product Disclosure Statement (PDS) (link
here). The following summary of the operation of the card is taken from
these documents. Text bolded in square brackets is my commentary.
The shoppa card
is issued by Indue (link here) (a Queensland
based financial services firm) and is described as a ‘reloadable eftpos prepaid
card’. It allows the cardholder to make
purchases at ‘ALC approved stores’. The ALC is an authorised representative of
Indue, and is the distributor, manager and promoter of the prepaid shoppa card.
In the FSG, the ALC states ‘We do this on behalf of the product issuer (Indue)
and not as the agent of potential product users…’ [This raises the question how can the ALC
protect the interests of cardholders vis a vis the card issuer if it is a
representative of the card issuer?
Moreover, given that a key function of a land council, laid out in
section 23(1), is ‘(b) to protect the
interests of traditional Aboriginal owners of, and other Aboriginals interested
in, Aboriginal land in the area of the Land Council’ one might legitimately ask
how is it that the ALC thinks it can enter into a contractual arrangement that
is at odds with, and in effect seeks to contract out of, its statutory
function?].
According to the
PDS, the ALC loads the cards with royalty payments approved by the Anindilyakwa
Royalties Aboriginal Corporation (ARAC). The ARAC Board approves the amounts
and dates of any royalty payments. Up to fifty percent of the funds to be paid
are available on the card for a period of about ten weeks until the ‘suspension
date’, a date determined by the ALC. The suspension date is shortly before the
date that the ARAC Board determines that royalty payments are to be
distributed. Both dates are then published on the ALC website. In the period
between the suspension date and the royalty payment date, any remaining funds
are then unloaded by the ALC and deposited in cardholders normal bank accounts.
[It is clear from this convoluted process that the ALC and ARAC are in
effect operating as a functionally entwined entity, essentially under the
control of the ALC via the RDU. The ALC is in effect subverting the section 35
requirement for payments to be made to an Aboriginal Corporation. It is also
clear that by providing early access to payment distributions to those who sign
up for the card, the arrangement creates an incentive for people to spend a
significant portion of their payments in ALC approved stores].
The FSG
provides the following information on how Indue is paid. It states: ‘There is
no direct remuneration, commissions or other benefits received by ALC. Indue
passes to us a portion of all interest that it earns from time to time on the
funds held in respect of the available balance of the Prepaid Cards to…ARAC, a
related entity of ALC. The dollar amount of the interest payable to ARAC is
unascertainable as it depends on the usage of all the Prepaid Cards.’ [The
percentage of interest earned by Indue that is paid back to ARAC is ascertainable,
but is not revealed in the FSG].
The FSG also
states: ‘Indue is paid from fees charged to ARAC and from interest that is
earned on the funds held in respect of the available balance in the prepaid
cards.’ [It is clear from this that cardholders do not earn interest on
their card balances. The statement in para 16 of the PDS that ‘there are no
fees or charges payable by you to Indue or ALC in relation to the use of your
Prepaid Card’ while technically correct, appears misleading in the light of the
fact that Indue accrues both the interest, and a fee paid from royalties that
would otherwise be available to traditional owners].
[In acting
as the representative of a commercial entity, the ALC appears to be engaging in
commercial activities. It receives no fees, but ARAC does although it provides
no service for that fee. ARAC also pays fees to Indue which logically must exceed
the fees they receive in lieu of the ALC services. To the extent that ARAC is
in effect a ‘controlled entity’ of the ALC, then the arrangements with Indue by
the ALC would appear to breach section 23 (1) (ea) of ALRA which require that
the ALC not incur any financial liability or receive any financial benefit in
relation to its assistance to a corporation engaged in commercial activities].
Finally, the
ALC website currently includes the following information under the Royalty
Shoppa section of the site:
The
newly appointed Anindilyakwa Board met recently to discuss the next round of
funds to be distributed to the Traditional Owners of Groote Eylandt. The board
passed resolution for a one-off assistant [sic] payment of $1,000 to be paid to
all eligible Traditional Owner bank accounts on Wednesday 25th September 2024.
NO
funds will be loaded to the Anindilyakwa Royalty Shoppa Card this month and NO
royalty payment will be paid in December 2024.
This is not
consistent with the statement in the PDS (quoted above) that it is ARAC which
decides the date and amount of royalty payments to individuals (but is not
technically a breach of the PDS as no funds are to be loaded onto the shoppa
card). More importantly, nor is it consistent with the requirements of section
35 of the ALRA which requires the ALC to make payments to Aboriginal
corporations (and not directly to individuals). Of course, it is likely that
the RDU will finesse the financial transfers, and pass them through ARAC’s
account, thus providing the appearance of compliance with the legislation. But
the cat is out of the bag: the ALC is calling the shots and not ARAC. [This
raises a further question for the Registrar of Aboriginal Corporations: if
these payments do in fact pass through ARAC’s books, it will provide clear
evidence that the Directors of ARAC are not managing the corporation’s
financial affairs in accordance with their responsibilities as Directors, but
are being directed by the ALC. In these circumstances, the Directors would
either be negligently failing in their duty to provide managerial oversight of
the corporation’s actions, or deliberately complicit in allowing the ALC to
control the activities of the corporation. Either eventuality should induce the
Registrar of Aboriginal Corporations to take appropriate action].
Conclusion
The ALC Royalty
Shoppa Prepaid Card as currently designed appears to be inconsistent with the
overarching legislative requirements governing the operations of land councils
and the administration of royalty equivalent payments under section 64(3). It
is unclear how much the operation of the card costs and how cost effective it
is. There are a range of policy issues that do not appear to have been adequately
thought through. There are clearly significant risks of unscrupulous behaviour,
and in worst cases of fraud and/or corruption depending on the relationship
between the ALC, ARAC, and the retailers. This is an issue which is beyond the
scope of this post to assess and definitively comment upon. Key issues would
include the cost effectiveness of the retail stores on Groote, their profit
margins, product quality, and the relationship between these factors and the incentives
embedded in the way the cards are administered by the ALC. In plain language,
card holders are encouraged to seek to access their funds early, and thus to spend
their available cash in a limited number of retail outlets which may not have
the best range of goods in terms of quality or choice. The owners of those
retail outlets, or the suppliers of goods to them may be making significant
profits above what are normal retail margins. There are no indications that the
ALC has any risk mitigation strategies in place to manage these risks.
What is
particularly apparent is that there appears to have been a regulatory vacuum in
terms of oversighting the operations of the ALC. The Registrar of Aboriginal
Corporations does not appear to take a close interest in the interaction
between the land council and the CATSI Act corporations that the Act stipulates
should receive royalty payments. The NIAA does not appear to have taken any
interest in the operation of a scheme that is clearly problematic in terms of
its compliance with the relevant legislation. And successive federal ministers have
adopted a hands-off approach to the operations of the land councils,
notwithstanding that any deficiencies inevitably mean that potentially
vulnerable Aboriginal people will bear the costs of poor policy decisions.
These
administrative and regulatory shortcomings are more than a matter of concern; they
represent a tragedy insofar as the life opportunities of many families are
constrained and limited by deep-seated socio-economic disadvantage and poor
housing, poor health and poor educational engagement. For further detail, see data
point two in this earlier post: Dodge, Dip and Dive: eight data points on
remote policy (link
here). In these circumstances, it verges on incomprehensible that the land
council (if judged by the priorities reflected in its royalty distributions) appears
largely oblivious to their plight.
While the
principles of self-determination are crucial, in matters as complex as the
interaction of finite royalty distributions against ongoing and deep-seated
deficits in basic physical and social infrastructure, it is essential that the
Aboriginal decisionmakers have access to objective and professional advice, and
importantly, that key advisers with extraordinary conflicts of interest are not
the primary sources of such advice. These are matters that a proactive minister
could address through more intensive engagement and communication on the
ground, and through more intensive, and dare I say courageous, regulatory
oversight.
The ALC website
has a short and professionally scripted and filmed video promoting the royalty
shoppa arrangements to residents on Groote (link
here). I recommend readers take a quick look. The very first words uttered
in the video are ‘The days of our people getting ripped off are over!’
22 September 2024
Given the allegations about the quality of whitegoods, it is natural to have concerns about who they are purchased from. What is the ownership structure of the wholesaler or other intermediaries? Are there any links to the ALC board?
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