Groote Eylandt: the ALC ‘Royalty Shoppa’ Prepaid Card

                                                 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