AUSTRALIAN ADULT ENTERTAINMENT INDUSTRY Inc.
A PROFESSIONAL INDUSTRY ASSOCIATION WHO’S MEMBERS ARE THE OWNERS
OF LAWFUL BROTHELS AND ESCORT AGENCIES
Sex Work (fees) Regulations 2014
Regulatory Impact Statement (RIS)
AUSTRALIAN ADULT ENTERTAINMENT INDUSTRY Inc
RESPONSE May 2014
RIS May 2014
RIS May 2014
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PO BOX 7076 ST KILDA RD MELBOURNE 8004
Telephone: William Albon 0418 395 633
Email: albonw@bigpond.com
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AUSTRALIAN ADULT ENTERTAINMENT INDUSTRY Inc.
A PROFESSIONAL INDUSTRY ASSOCIATION WHO’S MEMBERS ARE THE OWNERS
OF LAWFUL BROTHELS AND ESCORT AGENCIES
21 May 2014
Sex Work Fees RIS
Consumer Affairs Victoria
GPO Box 123
MELBOURNE Vic 3001 cav.consultations@justice.vic.gov.au
Australian Adult Entertainment Industry Inc a professional industry association whose members are the owners of lawful brothels and escort agencies has much pleasure in presenting its response to the Sex Work (fees) Regulations
2014 Regulatory Impact Statement (RIS).
Our submission is measured and well structured and has professionally addressed the issues raised by the RIS. AAEI have drawn on their significant
‘coal face’ understanding of the industry.
AAEI opposes the entire concept of a license fee increase. AAEI provide overwhelming evidence to support the notion of no license fee increase and in conclusive terms produce an argument to support as minimum, the retention of the status quo or even, the reduction in license fees. This principled position has been endorsed by successive General Meetings of our association.
Our detailed and thorough analysis of the RIS proves it to be flawed in many regards, demonstrates that the methodology used is unreliable, shows that fundamental error has been made and debunks the conclusions drawn. AAEI is highly critical of Ernst & Young in their preparation of the RIS. We regret that Consumer Affairs Victoria and the Victorian Competition and Efficiency
Commission would appear to have been duped.
We now turn to our analysis, our own application of rational thinking and our own supportable conclusions.
We trust that Dr Claire Noone CAV Executive Director and her staff will conclude that the AAEI position is undeniable and report accordingly to the
Minister for Consumer Affairs, the Hon. Heidi Victoria MP to whom a copy of this submission has gone.
William Albon
On behalf of the AAEI President
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PO BOX 7076 ST KILDA RD MELBOURNE 8004
Telephone: William Albon 0418 395 633
Email: albonw@bigpond.com
AAEI Response to the RIS specifically
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Executive Summary ; we say;
Generally;
One is left to speculate as to the cost of the engagement to prepare the RIS and ask if this is a cost to license holders. We note that the RIS of 2004 did not require the contracted services of the private sector and now we query the need to do so.
We raise the issue of the objectivity employed by E&Y in the construction of the RIS. We believe the document is subjective in the extreme. We contrast the RIS of 2004 with today’s product and note that ten years ago there was not a QED
‘Appendix A’ with the imprint of a parliamentary legislative drafts person that then morphs as the finished product, that is, the fees decided, done and dusted.
Specifically;
The compilation of a RIS by E&Y and then the acceptance by CAV of a document potentially 10 years in the making with a minimum of two years most recently by E&Y is a lot of time and a lot of resources and of very considerable expense. To expect persons and entities with limited resources to respond in 28 days is unfair in the extreme. But respond we do.
We now group the RIS headings Context – the sex work industry, nature and extent of the problem, size of the current industry, identified problem and we say;
The RIS says;
‘
The licensed industry has been fairly static for the last few years, with total numbers of sex work service providers and brothel managers remaining constant’ Of this it can be said that the industry has probably niche marketed itself in a perfect model. Alas the perfect model does not exist as the growth in the illegal industry has been beyond comprehension. Couple that with the restrictions placed on advertising for ancillary staff and you have the static nature of the industry further endorsed.
Categorically the Victorian sex work industry is not comprised of 525 small owner operators, who are exempt from requiring licenses. This is the first of a number of factual errors in the RIS.
When the Business Licensing Authority
(BLA) undertook their review of who was still current on their Register, who wished to remain on their Register their invitation to respond might have produced 525 responses. But we assure you and assure you reliably there are more than 525 private and exempt persons providing sexual services in our community. The BLA registration of SWA XE (exempt escorts) is now being numbered in the 9,000s. AAEI offer to prove this point beyond doubt. We say give us your list of 525 and we will show you many, many more advertisements for persons who are not on your list. Will you accept the challenge?
Still with claims that the RIS makes, there is the one that does not help anyone to understand the extent of illegal brothels in our state, so let us help by being at least a bit more accurate than the RIS. But first for such an important topic and given the resources they have, why are E&Y not able to
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be a bit more definitive and come down with a figure, even using their Multi
Criteria Analysis (MCA much maligned further on in this submission) might have helped. And by the way the absolute absurdity of the RIS reporting that regulatory and enforcement officers think there are 7 illegal brothels in Victoria, is just completely beyond acceptance . Let us use the tried and proven criterion of Leader newspaper advertisement for Massage Therapy outlets near 90% of which can be proven to be illegal brothels. Fifty plus ads in their inner suburban newspapers, less in the outer lying suburbs over 32 newspapers in their stable and you have a number approaching 400 illegal brothels. The public record shows that when this figure has been put to the
Victoria Police, they have not denied it.
Where we find ourselves in agreement with the RIS is when it says;
‘ the industry is generally regarded as being in the mature stage of its life cycle and even in decline’
The acceptance of this statement is a damning condemnation of Government for it is admission of their public policy failure . For example that CAV charged with the administration of the sex work legislation for more than a decade, brought one operator of an illegal brothel before a court is a disgrace in the extreme and dereliction of duty in the most unacceptable of terms. CAV is condemned for manufacturing a circumstance that sees them committed to having to concede such a fact.
Accepting that the above statement is true as it applies to the legal component of the industry (and there should not be any doubt about that), then the
Government is presented with a massive problem, a problem of extraordinary size for it means that the bad old worst days of prostitution regulation are about to be revisited.
But first what doe s it say of Government policy and control when the ‘oldest profession in the world’ or at least a branch of it, the legal component is poised to fall over. What other industry so vital in the community would be allowed to fall in less than 20 years since its legalisation . None is the answer.
But more, if it were the motor car manufacturing industry a few years ago we would have received industry assistance packages to keep us viable, to keep the industry from falling into the hands of the illegal component.
We need to write more on this industry decline and we do so now while highlighting the, the sex industry in Victoria and the size and extent of the problems bedevilling License Holders (rework of earlier AAEI paper)
Empirical evidence exists that reveals a 30% to 40% downturn in income for lawful brothels and escort agencies trading in the state of
Victoria.
Owners of lawful brothels and escort agencies in Victoria relying upon their company taxation returns for the years 2011/2012 and 2012/2013 point to the 30%/40% declines in income . They are all working so much harder to try to maintain their income levels of former years, but alas in vain. The reasons are predominantly three fold. Three dynamics have brought about this income decline and this paper identifies the three and comments on their power to have had this adverse economic
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impact. The paper also infers that the three entities will not meet their taxation obligations.
ILLEGAL BROTHELS
In Victoria there have been for more than a decade lawful brothel numbers in the mid 80s. Currently there are 87 lawful brothels in
Victoria. This number has fluctuated only slightly. Where the fluctuation has been is in the illegal component of the industry.
On 19 January 2000 the Herald Sun newspaper in a page 1 exclusive reported there were more than 100 illegal brothels in Victoria. Det. Supt
Gary Jamieson of Victoria police in the same article commenting on a new police initiative to target the illegal brothel operators was quoted as saying; “police would continue to harass them until we remove them.”
The January 2000 efforts were fruitless. By 2005 industry association
Australian Adult Entertainment Industry Inc were claiming there were more than 400 illegal brothels in Victoria. Victoria police command did not deny this fact.
In December 2005 the Victoria Government increased by 1500% the cost of a prostitution service provider’s license fee. The Minister of the time, the Hon. John Lenders claimed the monies would be used to give more strength to the responsible agency, Consumer Affairs Victoria
(CAV) to tackle illegal brothel activity. As of today CAV have brought one, I repeat one illegal brothel operator before a court. Overall the
CAV initiative was fruitless.
In January 2011 the Victorian Government announced their intent to establish a specialist Victoria police unit to fight the proliferation of illegal brothels. Taking more than 12 months to establish and when up and running the Sex Industry Coordination Unit (SICU) was well short on projected personnel. As of today SICU themselves are inactive on the prosecution front. They appear to have a role of disseminating information to the police regions across Victoria and then to rely upon the local police to do the policing. This procedure is not seeing illegal brothel operators paraded before the courts and the exercise overall would appear to be fruitless.
The Herald Sun 19/01/2000 in a supplementary article reported some of the dimension of the illegal industry and the ease with which an operator was able to establish their unlawful business.
The newspaper article reported; “Up to 20,000 men a week are estimated to visit the 84 legal, licensed brothels in Victoria.
Twice as many are thought to use ….. illegal brothels . Some estimates put the sex in dustry’s (illegal component) turnover at more than $350 million a year.
Organised crime squad Det. Sen-Sgt Simon Clemence, who has been involved in vice investigations for six years, said yesterday it was hard to establish how lucrative illegal brothels were.
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But documents found in one brothel (illegal) last year indicated the twowoman operation had taken $60,000 in a few months.
Det. Sen-Sgt Clemence said the owners of illegal brothels usually leased vacant shops in suburban strip shopping centres.
They advertised in local newspapers as relaxation therapy centres, which were sparsely furnished and usually staffed by one or two girls.
Most charged $45 to $55 and provided only hand massage, but some supplied full sexual services at higher prices to re gular customers”.
All of the above goes to demonstrate the magnitude of the illegal industry, the ease with which it can be established and the volume of income denied the public pursue through taxation avoidance and evasion.
We are not aware of the Australian Taxation Office (ATO) bringing an action against the operator of an illegal brothel. Perhaps the time has arrived where the ATO needs to be proactive, needs to put the illegal component of the sex industry under the microscope and needs to work to the establishment of an even playing field where the legal component can go about their lawful businesses, trade without fear of unfair competition and more greatly contribute to the taxation revenue base line.
THE INTERNET
Draconian laws in Victoria and Queensland will not permit operators in the lawful component of the sex industry to provide a description of the services they offer in their advertising. The same anti competitive law and regulation govern the imagery that the lawful operator can use in their advertising, a restriction that allows only head and shoulder imagery. Newspaper policy will not allow the lawful operator of a brothel to publish detail of their businesses web page.
An insight into this issue is provided with the following reproduction of a piece by the industry association Australian Adult Entertainment
Industry Inc. (AAEI) (presented to CAV/BLA some years ago) that while at the time was largely focused on the escort agency component of the sex industry does equally apply to the brothel sector.
“Modern technological advance in the area of the World Wide Web, the
Internet, is massively adversely impinging on Sex Work Act escort agency license holders. The need for corrective action is imperative as it is urgent. There exists a circumstance where the emergence of other than a level playing field is causing your clients, your escort agency license holder members to genuinely question as to why they should not go ‘over to the dark side’ and abandon their SWC licenses. Let me be illustrative.
An internet Google search relying upon generic titles such as ‘Escorts
Melbourne’, Melbourne Escorts, ‘Just for Adults’, ‘Private Girls’,
‘Fuckbook’ and ‘Local Sluts’ will provide detail of SWC Act section 23
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exempt sexual service providers in substantial numbers in substantial breach of the Act and Regulations in that there is full body imagery, description of services provided, reference to ethnicity and the offer of sexual services at the private residence of the provider and more.
My own excursion into the world of the web saw a trawl using those generic titles named above produce what seems to more than a score of unlicensed ‘escort agencies’. [name and registration number redacted], [name and registration number redacted] and [name and registration number redacted] are just three of numerous women listed on these internet pages, all in breach of the Act and Regulations.
The modus operandi of just one of these businesses and most likely the m.o. of the others too, is to have a client who having used the
Internet has identified his or her preferred provider, make contact via a phone or sms service or using e-mail with the agency.
In the instance known to AAEI the client communicates with the
‘agency’ office worker who is based in Cairns, Queensland. The office worker records the requirement of the client and forwards this detail to the sexual service provider who then initiates contact with the client.
Payment by the client is either direct to the ‘agency’ or is made to the provider.
AAEI concede that we do not know how many of these unlicensed escort agencies exist. As I say my trawl identified at least a score.
There are thought to be many more. AAEI do not know if these entities are multi owned and operated or whether they might be the property of just a select few.
AAEI do not claim to have a solution to this substantive problem. What
AAEI do acknowledge is that the problem is of such magnitude, that existing lawful operators face financial ruin with the potential of them going as we call it , to the ‘dark side’.
AAEI call upon Consumer Affairs Victoria to use their considerable resources and along with the Business License Authority investigate this outrageous set of circumstances and act to eliminate the unlawful practices and return the level playing field to the market place. We have copied this note to Mr Clyde.
AAEI stand ready to assist CAV and BLA in finding a resolution to a dilemma we are sure all will want corrected”.
PRIVATE SEX SERVICE PROVIDERS
For no particular reason this paper does not go to the activity of women, men and transgender persons providing sexual services as ‘street workers’ rather it concentrates on the private sex service providers.
In Victoria the responsible agency the Business Licensing Authority
(BLA) has overseen the grant of exempt status to thousands and thousands of persons, exemption from the need to be licensed. The policy for all intent and purpose is intended to allow ‘sole traders’ the opportunity to work free from the rigors of an employer.
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These numbers are totally out of kilter with what was envisaged when provision was made in the original Act for ‘small business’ operators. It was envisaged the Minister of the day said, ‘to allow for possibly 20 but not more than 30 might take up the offer.’ BLA are today allocating exemption numbers in the high 8,000s.
The theory has it that the exempt sex worker is required to provide visiting escort services, i.e. they bring their service to the client. What actually occurs is far from this theoretical model.
Exempt sex workers abuse the Sex Work Act and Regulations
(Victorian statute); they invite and see clients in their own homes. They become therefore illegal brothels.
There is evidence to support the claim that unsafe sex practices are provided by many of these exempts. We are not aware of strict adherence to the swab and blood testing by the exempts that sex workers in the licensed brothel and escort agency sphere, adhere to.
Notoriously these persons engage in massive abuse of small business best practice policy; unconscionable behaviour is to the forefront of the many of the exempt providers and it is respectfully submitted mainly in the area of failing to meet their taxation obligations.
Final remarks
In a market where the share previously afforded to the lawful operator of a brothel and escort agency has shrunk dramatically and in a market where the illegal component, the operators of illegal brothels has grown dramatically a real need exists for the adoption by the enforcement agencies of a serious approach (e.g. the ATO pursuing the operators of illegal brothels masquerading as massage parlors) to having the
‘crooks’ comply with legislation and regulation.
We now return to the fundamental submission.
At the Objectives of the proposed Fees Regulations stage the RIS further confuses the reader; e.g. the statement; ‘Cost recovery continues to be inefficient. The value placed on licenses and other items does not equal the cost of resources to regulate the industry (CAV and BLA costs) due to inapp ropriate market signals’.
We have no idea what this means and we suspect the author has simply dreamt it for no other explanation is forthcoming.
We note that no evidence is provided to support the most ambiguous statement that, ‘ ensuring industry probity comes at a cost and reducing regulatory effort in this area may result in higher levels of illegal activity’. The facts are that CAV’s compliance monitoring program (last known title) is a massive waste of time and resources. Several compliance officers from CAV tour suburban Melbourne and regional Victoria checking that License holders comply with the myriad of Regulations. The vast majority of License holders do comply so substantive is their investment in their business that they will not risk running foul of a Regulation that requires a certain sign to be displayed.
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AAEI continue to call for more self regulation allowing the owners to ensure they are complying, and having if you will a CAV involvement confined to no more sending a questionnaire asking the license holder to tick boxes to indicate their compliance.
The Options analysis is way out of our depth and we expect the depth of most sensible people for who in their right mind would rely upon something as vague and being not at all tangible as something called a Multi Criteria
Analysis. The RIS says , ‘not all impacts of the Fees Regulations were able to be measured. ( huge admission ) As such a multi-criteria analysis (MCA) was undertaken to assess options. An MCA is a decision making tool that can be used when it is not possible to quantify and value the main costs and benefits of a proposal’.
We do not know what this means. We are left to conclude that it is an E&Y admission that if you don’t have the figures or you don’t know the facts, then, you simply make them up. Fabrications in the RIS are revealed later in this submission.
Still with the Options analysis it is nonsense to infer that proper consultation occurred. Two years contracted to assemble the RIS and the best consultation E&Y claim to have had was 20 minutes with the major industry stakeholder
’s representative. When the author of this document asked to meet
E&Y in person to ensure proper consultation, the offer was firmly declined.
The consultation record does show that ‘several businesses believed that the legal industry would shrink if further price pressures were applied’.
Small business and competition gets a brief reference in the RIS and this brevity is part understandable when you consider; ‘due to increased competition from illegally operating businesses and small owner operators, increasing fees will impact on competition in the industry and may force some legitimate businesses to close or operate illegally’. The RIS then scantily records, ‘the increase in competition from illegal businesses was considered in the analysis of the options’, but what we ask came of the consideration. If true heed were to be paid to such a significant matter of fact, then where is the discounting of fees or even perhaps the abolition of fees reference, it is no where to be found. Good public policy of ensuring the retention of legal business not the promotion of illegal business ought to be at the forefront of
Government thinking, not some miserly grab for a fist full of dollars.
That concludes our response to the Executive Summary.
Of the Introduction we say;
Referring to the Background and brief history we note that separate from the generous allocation by CAV Director Dr. Claire Noone of her precious time and her availability to deal with AAEI issues there really is nought done by
CAV in the area educational activity and stakeholder engagement.
Mention of The Sex Work (Fees) Regulations 2004 makes AAEI bristle. In more than 28,000 words AAEI responded to the 2004 RIS and many argue plainly made the case that a fee increase was unwarranted and unjustifiable.
The commentary provided by CAV on the AAEI submission post the decision to increase fees, was not convincing. Tempted as we are to not bother with a response in 2014 and merely rely upon our 2004 work, we will not do that but
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instead just look as we re-present the executive summary from the 2004 AAEI response to the then RIS document.
AAEI EXECUTIVE SUMMARY 2004
In thousands of words AAEI have responsibly undertaken a thorough analysis of the RIS. In summarised terms our submission finds that;
1. AAEI reject the proposal in its current form.
2. AAEI have some optimism that an improved set of circumstances can be negotiated.
3. The RIS is flawed in a host of areas.

The document reflects an appalling lack of understanding of the sex industry.

The document reaches conclusions based on unsupportable fact.

The document lacks in any understanding of natural justice.

The document proposes outcomes that are clearly discriminatory perhaps even unlawfully so.
4. AAEI assert that the following recommendations require immediate adoption.

The establishment of a working party of major stakeholders to evaluate all of the submissions in response to the RIS allowing a truly objective recommendation to be made to the Minister.

The proposal to have 5 CAV Inspectors is unsupportable. Our entire objection is based on the transparent waste of money and resource and the proposal should be scrapped.

The Governments commitment to a Multi Agency Operational
Taskforce must be resourced, funded and tasked to introduce for the first time in Victoria an enforcement agency dedicated to end the proliferation of illegal prostitution.

PCA Section 23 must be re written in relation to the current exempt status of individual workers and exempt 2 person brothels. The Act ought to permit their continued existence but require an application with fee, a set of probity checking mechanism and business acumen testing in line with full license holders and all of the other rigors of application processing, including their names on a public
Register.

The allocation of monies to the AAEI permitting them to undertake good public policy pursuits.

And other matters.
5. Of genuine concern to license holders is the potential for these proposed fee increases to impact with financial hardship that could cause license holders to shut their doors. There would be a resultant increase in the size of the illegal component of the sex industry.
6. The Act almost 10 years in age is now in need of a full and comprehensive review with a view to a total re write.
7. The submission urges the Government to seriously regard our argument and consider the adoption of the recommendations of AAEI.
So what came of the RIS of 2004? The answer in a word is a, scandal. One of the greatest misallocations of public monies the State of Victoria has seen.
With the RIS process complete and acting on the advice of the failed CAV
Director Dr. David Cousins, the Minister for Consumer Affairs the Hon. John
Lenders MLC announces a 1500% increase in license fees. Lenders issues a
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press release that boldly claims the fee increase will fund five additional inspectors for CAV to curb the illegal brothel trade. In the ensuing ten years
CAV spurred by the public record at a Victorian Civil and Administrative
Tribunal hearing charge one person with operating a brothel without a license.
You read that correctly, a 1500% fee increase, five new inspectors to knock over illegal brothels and in ten years, but just one prosecution.
In a shaded block the RIS goes to some misrepresentation. Including under the heading Out of pocket expenses such as Veda (financial check) and
Advertising costs
– for all sex work applications allows one to conjure up the idea that these costs are significant. Of the Veda checking AAEI were told by
BLA that they were discontinuing the expensive regular checking of all license holders to see if they had become insolvent. While unnecessary in the extreme, there are other methods for determining a persons bankruptcy and it follows that these Veda costs should not be incurred. For the record we ask what is the Veda bill, how much does it amount to?
As for the advertising costs, well this is three maybe four public notices a year in the Age newspaper, hardly a big impost.
Distributable costs are in a highly questionable arena. Let us just snap shot them. What prey tell is ‘Dispute resolution and assessment’?
What prey tell is ‘Trader conduct’?
What prey tell is ‘Legal services’?
What prey tell is ‘State wide service delivery’?
What prey tell is ‘Corporate Resources Division’?
What prey tell is ‘Service Delivery Division’?
And then if there is some offered answer then let us see too, the rationale, the reason and the justification for including these highly questionable
Distributable costs as a cost to administrating the Act. (the SWA). We go to these costs again later in this submission for they play a major part in discrediting the entire RIS.
AAEI have quarrel with part of The case for regulation the bit that states that
‘legislation and regulation is a method of drawing the industry into the mainstream environment, removing some of the stigma ….’ We say that this objective has not been met. Regrettably there are some within CAV, BLA and the Police who retain a centuries old view that prostitution is some form of evil and is to be resisted at every corner.
The RIS then gets ‘padded out’ for over page after page E&Y have regurgitated an account of various arms of prostitution which may have been informative for them but serves no value purpose whatsoever when it preaches to the converted. The padding does contain one very important observation namely; ‘ exploiter, traffickers and other organized crime can proliferate under an illegal model of sex work’.
Disputing the RIS claim that 32 enforcement activities undertaken by CAV none of which were for any ‘hanging offence’ rather, a light globe in a room was not working, or a sign had slipped off its hook, does not highlight the need for ongoing need to regulate the industry and insure there are high levels of compliance. 980 license holder and brothel managers and 32 offences all of a very minor nature is ‘pimple on an elephant’s bottom’ stuff. The case must be
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examined for the introduction of self regulation, self regulation by the license holder, brothel manager of their own businesses. AAEI offer to participate in a process to prove the merit of the claim for self regulation.
When coming to the Registered small owner operated business and we do it often because it is so significant that we do it again now and register our insistence that the ‘Exempt’ worker scheme is hopelessly out of control.
Elsewhere we write more about the actual numbers, but let us remember what the rationale of the parliament was in setting up this scheme. The Attorney
General of the day, the Hon. Jan Wade MLA when introducing the Prostitution
Control Act into the parliament said the ‘exempt’ worker provision is for small traders. When the Attorney was asked how many persons she expected to seek exemption from licensing she said, ‘perhaps 20 but not more than 30’.
The Attorney was a long way off the mark as the BLA has provided exemption to a number approaching 10,000.
Let us have a quick look at who these people are. The answer is no one really knows. The inadequacy of the Application Form for an exempt work means we do not reliably know who these people are; to wit, the applicant unlike the license holder or the approved manager, do not require 100 point of identification. The problem is further compounded when a scanned or image capture on a smart phone of some identification document becomes acceptable for identification. Signing the form does not require any witnessing.
There is of course no probity checking of these people. The mind shudders to think of the abuse that can be perpetrated.
Countless breaches of the legislation and the regulation by the exempt worker go without investigation. Currently the police will not undertake investigation and deal with an allegation of breach of the rules and CAV say it is not their responsibility and refer the complainant to the police. What a hopeless set of circumstances.
Illustrative of the problem of no action by the Police and or CAV we reproduce the following that was provided to both agencies.
On Monday 3 March 2014 in the company of my AAEI representative Mr
William Albon I visited Mildura.
The Sunraysia Daily newspaper carried three advertisements for the services of SWA XE women.
The women were;
[Name and registration number redacted]
[Name and registration number redacted]
[Name and registration number redacted]
All three women breach the SWA Regulations with their personal description as being Asian.
All three women when contacted offered sexual services from their homes.
We spoke with [name redacted] at length.
[Name redacted] did not know what a SWA XE was but thought it was required to allow her to advertise.
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[Name redacted] does not know who the Business Licensing Authority is.
[Name redacted] resides in Sydney and has never been to Melbourne.
[Name redacted] has no knowledge or understanding of the SWA and
Regulations.
[Name redacted] did not make any application for her SWA XE registration.
[Name redacted] said a friend arranged this for her. [Name redacted] told us that her friend could probably obtain more SWA XE registrations if we required them. An amount of $5,000 dollars for one registration was mentioned.
As we were leaving Mildura yesterday 4 March 2014 we read the Sunraysia
Daily advertisement for [name and registration number redacted]. We phoned
[name redacted] on telephone number [redacted]. [Name redacted] told us that she was providing sexual services from an apartment, [address redacted].
We did not take up [name redacted]'s invitation to join her.
We now leave the abovementioned for your due action.
ROBERT RUSSELL and WILLIAM ALBON
The following is taken from the Sunraysia Daily newspaper last week and reveals that all three women (although [name redacted] has dropped her name from her ad) are still trading free and immune it seems from prosecution and this is an item that is costed as an expense to CAV that license holders are being asked to pick up on.
[Three sex worker advertisements that specified the worker’s race and included physical descriptions, names, phone numbers and registration numbers have been redacted].
The upshot of all that is the mess with the exempts can only truly be dealt with and tidied up is by the introduction of a proper application process, probity checking and the imposition of a license fee. The revenue upshot too would be significant and a health risk threat minimised.
The problem –setting appropriate fees bowls up a howler! When we ask have
BLA been required to become a sub agency of the Commonwealth
Department of Immigration and Border Protection? The RIS says changing demographics have added to the costs of operating the brothel manager features. Claiming that international students are on the rise in becoming approved brothel managers is misleading. We are aware of a handful of
‘Asian’ brothels engaging some students, not many, we invite the BLA to tell us how many. The RIS then says BLA have a requirement; ‘checking the probity of foreign nationals working in Australia with visas involves additional activity for example, obtaining letters and payment records from an applicant’s educational institution to verify that the student visa requirements are being met. Nonsense, we say. Whether or not a student is meeting their visa requirements has nought to do with the BLA in any shape or form. This is the province of DIBP. The BLA may be required to know that the student is lawfully in Australia and may be required to know that the student is permitted to work in Australia, and we don’t believe they are required to know that; do
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they ask the same of Americans, Scandinavians, South Africans and the
English and dare we write Australian students too. No they don’t is the answer, so what is this, a form of discrimination or a feeble attempt at existence justification.
At size of the problem and cost of administering the act the RIS does a methodology somersault and goes from E&Y doing a 2012 full cost analysis to having a recent discussion with CAV and BLA and then doing an estimate. It strikes us highly unprofessional and don’t forget the ‘guessing game’ that is the MCA, to go from a full cost analysis to an estimate. Can we please have truer professionalism, and let us pose again the question that has been begging to be asked; how much did CAV pay E&Y for their work. It might be argued that in all consciousness E&Y should give some of the money back.
We now come to a real problem area for us and any objective reader of RIS where there are real and fundamental problems with facts, figures and misrepresentation. The first attempt at table formatting costs fails miserably.
Our problems include the failure of E&Y to complete basic arithmetical addition. There are figures in the tables that simply do not add up. The arithmetic is wrong. We illustrate this a bit further on.
The tables then continue to fail any test of reasonableness where they have inappropriate inclusions, factually false accrediting and seriously flawed assumptions. We say the case can be made for the Minister for Consumer
Affairs to intervene, declare the RIS process so seriously flawed as to be utterly meaningless and order CAV to start again from the beginning. We therefore call on the Director of CAV after examining our argument to concede
E&Y have got it hopelessly wrong and to recommend to her Minister the above recommended course of action. In the meantime we will continue our well founded argument.
We now turn to a detailed scrutiny of the tables.
It is recognized that such a significant part of the RIS, the costing versus revenue is given just a couple of pages of a plus 70 page document. Much more serious work was needed here by E&Y and they have not done it.
The tables reproduced use the same format as the RIS having been taken directly from the E & Y/CAV RIS License Fee Proposals and they now contain our figures and are.
Table 4.
In re-jigging the originals we have substituted the original CAV General
Licensing staffing numbers with our own, a reduction by 50% of the original numbers. We say that CAV General Licensing accounts for Travel Agents,
Licensed Motor Vehicle Traders, Real Estate Agents and Pawn Brokers and are therefore not a charge against prostitution regulation. The QED is we now show 2.5 staff allocated to CAV General Licensing and therefore the total staff number comes down from 11.2 to 8.7.The subsequent saving will be apparent and are shown a little further on.
Table 4: Estimated staff numbers in CAV's Licensing Division and BLA 2013/14
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Staff Rank Sex Work
Team
Brothel
Manager
Team
CAV General
Licensing
BLA Total
VPS 2
VPS 3
VPS 4
VPS 5
VPS6/BLA Register
0
2
0.5
0
0
2
0
0.5
0
0
0.5
0.5
0.5
0.5
0.5
0
0
0
0
0.2
2.5
2.5
1.5
0.5
0.7
BLA Member 0 0 0 1 1
Total FTE 2.5 2.5
2.5
1.2
8.7
Table 5
When we state that CAV General Licensing division has 2.5 Full Time
Employees, rather than 5 FTE, then the licensing staff numbers become 8.7 not 11.2 and their costs become:
8.7 staff divided into the claimed 11.2 staff cost of $798,638 equals $620,370.
This means a reduction of $178,268 in total Licensing Staff Costs.
Not aware of the salary scales of all of the employees and the salary range that they might be in has meant it is nigh on impossible to accurately allocate dollar amounts to all three figure columns save for the final line in the third column of figures which were we reproduce table 5 would read, $620,370.
Distributable costs in are highly questionable arena. Let us just snap shot them.
Earlier in this submission we posed a series of questions asking what are the following phenomena, ‘Dispute resolution and assessment’, ‘Trader conduct’
‘Legal services’, ‘State wide service delivery’, ‘Corporate Resources Division’
‘Service Delivery Division’? We are being very truthful when we own up to not knowing what these issues are and having even less of an idea as to how they apply to the cost of issuing or renewing a license, or the approval for a manager.
We don’t believe any credible answer to this question will be forthcoming. We don’t know how ‘trader conduct’ fits into the overall scheme of things. Is ‘state wide service delivery’ a once every couple of years visit to the brothel in
Shepparton. We note the Morwell brothel has folded (co uldn’t cope with the competition from the illegals and the failure of the enforcement agencies to do any thing about them) so have state wide service delivery been cut in half.
And if the CAV office in Shepparton monitored the brothel in that town would the costs fall.
We cannot see how these highly questionable Distributable costs are included as a cost to administrating the Act. (the SWA)
Accordingly we believe much of these costs are overstated and have nothing to do with Sex Work Provision. As such we would discount by 50% (and that is being very conservative, a discount more of the order of 90% would seem more applicable) the distributable costs bringing the claimed cost down from
$812,688. The new figures are shown in the next table and the reveal the real cost is $406,344.
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Table 6: Allocation of CAV Distributable Costs
Licensing Scheme
Sex work Service Providers
Brothel Manager
Distributable Costs Allocation
$250,941
$155,403
Total $406,344
Two tables analysed more accurately and appropriately and suddenly huge savings and when we then take the new configurations and set them out in the table on total costs we reproduce the following; cost reduction now more accurately recorded totalling $$546,612 is now to see a new total costs table to show;.
Total Costs
Cost Type 2013/14 Cost
Licensing Staff and BLA costs
Distributable CAV costs
$620,370
$406,344
Out of pocket expenses
Total
$52,760
$1,079,474
When you note that the original E&Y and CAV costs are claimed to be
$1,664,086 and we now say they are actually $1,079,474, then there are huge consequences.
This of course changes the cost recovery percentage.
Our cost recovery percentage and the real and actual cost recovery percentage now more accurately stated, reveal:
Revenue: $899,560
Costs: $1,079,474
% 83.33%
The 83% cost recovery against the E&Y CAV claim is a massive improvement on the original 54%.
Given that we have achieved cost recovery so far in excess of what CAV were seeking then we have an argument for no increase in fees that is overwhelming.
As an aside, we nearly wrote add on but the pun would have been too clear, we do attach significance to the mathematical failings of E&Y.
On the matter of figures, and the matter of simple arithmetic, formatting the tables above alerted us to the fact that the figures in the E&Y CAV RIS proposal simply did not add up. The brothel manager figures at table 10 do not add up. It therefore follows that the total revenue figures at table 11 do not add up.
E&Y have failed basic arithmetic. This unforgivable error calls into the doubt the integrity of the entire RIS Proposal. Does it necessitate a revisit of the whole question of calling on the Minister to abandon the program?
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Some things come at a cost. The RIS on the topic of The risk of non intervention fails to recognise that not every arm of government at any of the three tiers of government can be cost recovery effective. Telstra might,
Defence and running the Department of Immigration clearly don’t. In Victoria the Police and the Fisheries and Wild Life people and the Department of
Health don’t have revenue balancing out their costs. And in the local government area most councils are increasing their debt by increasing their borrowings to pay for goods and services rather than further levy their residents.
It follows that there needs to be a recognition that some things have to get paid for by the state coffers or live with the bigger bill that includes a social bill that decimating a legitimate industry would bring about as existing lawful operators were forced by the absence of good public policy, to go feral and run illegally.
At 6.2 Small business in the sex work industry we draw a bit of a long bow but not one to be dismissed out of hand. We say that if the definition of a small business is built on the Australian Bureau of Statistics definition of one employing less than 20 persons; and given that sex workers are not employees of the brothel or the escort agency then the case is made that all sex industry businesses in Victoria are small business. Then, when the RIS says that ‘it is reasonable to assume that a sizeable proportion of businesses
(we say all) are indeed small businesses; then as the RIS says, ‘regulation should therefore not unfairly disadvantage the ability of small firms to carry on their business, then, we ask, is the case made for no fees to be paid.
At 7.2.1 it is possible to identify a valuable point in the RIS namely; It is plausible (we say more than plausible, rather it is highly likely) that the proposed increase in fees will reduce the number of legal businesses in
Victoria that supply sex work. While sex workers have some ability to adapt
(for example, they may move from escort agency work to small owneroperator work) licensees do not. With increasing pressure on costs and limited opportunities to increase prices or services, business owners may be forced to leave the industry or operate illegally.
But regrettably at 7.2.3 the logic is abandoned and there is a return to the unsupportable namely; The benefit of imposing a fee on the legal sex work industry is that it allows the State Government to monitor licensees and brothel managers to ensure they continue to comply with regulatory requirements. Such a statement is errant nonsense. Legislation and
Regulation ensure compliance not a fee.
Still at 7.2.3 we are not aware of any requirements set out in the Act (at least the SWA) that make cost recovery an obligation.
At 7.3 the RIS makes sense. Increased competition for legal brothels and escort agencies does however come from legal small owner-operators (and those operating illegally) and illegally operating businesses. Increasing fees will impact on competition in the industry and may force some businesses to close or operate illegally.
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At 8.1 we humbly suggest that monies generated from the application of the
Confiscation Act where they are derived from offences under the SWA, ought to be monies that flow to the SWA Fund.
Conclusion
The RIS at 9.1 provides the argument for no fee increase with its bold claim,
‘Victoria’s Cost Recovery Guidelines (guidelines only) state that as a general principle (note general), fees should be set at cost recovery unless there are important policy reasons not to do so’.
This submission has overwhelmingly made the case in support of there being important policy reasons not to increase the fees.
Putting the finest point on our case we say;
1. After correcting the error in the E&Y RIS in the costing areas it is now demonstrated that a more than satisfactory level of cost recovery is in place
2. The absence of procedural fairness and natural justice that creates an unfair playing field vis a vis the legal component versus the ‘exempts’ and the illegals negates the argument for a fee increase and finally,
3. In the tightest of economic markets and in the face of massive competition from the illegal component of the industry and the exempts, the legal component is currently experiencing financial hardship. An additional impost risks seeing the decimation of the legal component of the industry the resurgence and further expansion of the exempts and the illegal operators whose numbers will be swelled by current legal operators.
Ends 21 May 2014
Endorsed by General Meeting of AAEI
Copied to
The Hon. Heidi Victoria MP – Minister for Consumer Affairs
Mr Andrew Walker – Assistant Director Victorian Competition and Efficiency
Commission
Appendix
Some industry comment on proposed license fee increases
Illustrative of the preparedness of license holders to respond responsibly to serious topics the work of some AAEI members is reproduced here. (No editing of the following has occurred) The points made are typical of the writer’s colleagues and deserve the utmost respect and consideration.
“ Good afternoon William,
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Once again thank you for the opportunity to contribute my opinion/thoughts on the regulatory Impact Statement, as discussed I have tried to condense my thoughts for you as follows;
 Somewhat surprised that CAV contracted Ernst Young to compile this report given they contracted Monash University to prepare a paper on the industry in 2009, which was comprehensive both from CAV operations/ owners and the sex workers, can only presume that CAV were focused on “increasing” License Fees and elected to pursue a
“Financial” focus in their report. Unfortunately it is difficult to “boil” this industry down to “pure” numbers.
 CAV have collected License fees for the past? years accepting responsibility for the “Efficient” their word, administration of the industry, during which time it is apparent that the ILLEGAL sector has grown exponentially to a point where the report states they could number somewhere around 7 to 40!!!, interestingly this aspect of CAV operations has now been transferred to the Victorian Police
Department, which in effect reduces the previous workload of CAV, that is assuming they were doing something!!.

Surprisingly the report goes on to say that the industry is in decline, yet the “ILLEGALS” are continuing to grow in number , obviously meeting a demand, the “Legal’s” are spending on their infrastructure and although
New to the industry understand Boardroom has recently completed a major renovation, Show me Fire?, plus no doubt others. The other unknown is the small owner operators who number 525 by CAV records, and could easily be significantly more.

The report claims COSTS are borne by those who accrue Benefit, yet the “ILLEGALS” and the small owner operators do not contribute financially in any way to the CAV operations, yet collectively they number greater than the Licencesed Operators, hardly seems equitable in any ones terms.
 Business generally acknowledges that it costs significantly more to service a higher volume of customers, with increased staffing costs and resources required , yet Licensed Owners who , by the Reports
Acknowledgements, are in the minority are expected to bear ALL the cost.

The report discusses equity and the ability of Brothel owners to pay, yet acknowledges the pressure being felt from ILLEGALS and the closures in the industry, yet they insist on an increased fee structure!!

The report discusses ILLEGALS, but how was the impact of their operations considered as it relates to the LEGAL industry, which when you think about it all is taking the industry back to pre LEGAL days with the ILLEGALS and small owner operators out weighing the LEGAL
Industry, so WE could ask the question who is looking after the majority??
 The report discusses the high cost of processing applications, which on face value the process seems drawn out for no real reason, when you consider that the Australian Government Foreign Investment review board can assess applications within 30 days, what are CAV doing with the NEW Owner Applications, from recent experience it would appear that the process could be more efficient if a grading system was applied. Processing delays mean nervous purchasers/vendors which in essence does not engender a healthy
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industry, and I guess reflects the growth in ILLEGALS, why would you put yourself through the system??
 Report discusses enforcement in the LEGAL sector, how easy is that, they know who, where and what we are doing and when, and let’s face it who is going to RISK their Financial investment/ License and do something wrong, only the ILLEGALS.

The issue of fees can be very subjective as they relate to value/benefit and whilst none of us like paying fees and their consequent increases if the value was evident it MAY be more palatable, i.e. if CAV were acting vigorously on ILLEGALS, the workers providing services ,quiet often unsafe ,
 and of course the clients supporting those businesses because they can experience the “unsafe” sexual services.
 Looking at the proposed Fee increases suburban business will be adversely affected over their Metro colleagues who have volume door traffic to absorb the spread of increased costs, not only in CAV fees but operational overheads, this could see some suburban business cease to exist and open the door for more ILLEGAL operators?
 The significant contribution to the Victorian economy by the Sex industry cannot be understated, with owners collecting GST on services supplied for payment to Federal Government, their local purchases for business needs, computers/technology/stationery/ wages etc and of course that doesn’t include the “knock On “ effect with
Suppliers that are supported by the industry, Cleaners, Products/
Power/Gas etc, it would be an interesting number to put together.
 Whilst acknowledging the need to recover costs for services provided, it is apparent from the report that the minority are paying for the majority, i.e. small owner operators and ILLEGALS?? All at the real risk of business failures ”.
And then another owner weighed in with their thoughts and they are reproduced here.
“Hi William
XXX has instructed me to make it known to you that he feels that the submission from the industry needs to make clear the following points.
1
While the Legal Brothel Industry is well past the mature stage and into heavy decline, prostitution overall is flourishing.
The decline in the Legal Industry is largely due to Illegal brothels being allowed to proliferate without fear of the authorities and without the burdens of heavy fees and regulation that the legal Brothel industry has.
The Sex Work Act is supposed to keep the illegal brothels down, thereby preventing Disease and the influence of organised crime.
2
The illegal brothels and illegal private sex workers are allowed to freely advertise for customers in the following areas Locanto, Craigslist and other adult matchmaking sites. A reference to full body sexual massage was seen on gumtree (13/5/14 by Barry XXX) under the heading
"Popular Items"
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Leader Newspapers and the Herald Sun also display ads from these illegal "massage Parlours" that offer sexual services on the sly
A customer that has been using Brothels for the best part of 20 Years and visits many different establishments, has commented "the dynamics of the industry have changed to a major degree in Legal
Brothels. That is, there are many less girls per brothel on any visit"
The Governments own regulations on cost recovery state that Partial
Cost Recovery is justified in the following circumstances:
• Where merit goods are being provided or where activities generate benefits to unrelated third parties • Where objectives of income redistribution or social insurance are important • Where concessions are deemed appropriate • Where full cost recovery may undermine innovation and product development • Where the government is providing goods and services on a commercial basis in competition with the private sector • Where full cost recovery could undermine other objectives.
I draw your attention to the last point highlighted in bold. Although the recovery is aimed at 70%, the objectives of the Sex Work Act would be undermined if a heavier fee burden on the legal industry resulted in a further contraction in that industry. Sex Workers and clients would then be driven to the illegal unregulated industry. Disease, Violence and
Corruption would then become much more prevalent in the Overall Sex
Work Industry
Regards ”
And then a third owner weighed in with their thoughts and they are reproduced here.
“Of the RIS I would like to see more focus on the sexually transmitted diseases since the high increase in Illegal Brothels, the enormous total amount of XE's that the BLA have registered as legal, who are openly advertising oral without a condom, as well as CIM. We could show how the number of STI's (The Health Dept have those figures) has risen over the past few years, which CAV, BLA. Health Dept. The
Police and Local Councils have just turned a blind eye to and, say they don't know what to do about them etc. It would bring the Victorian public into the equation, and that is something they cannot just push aside. It is a disgrace to every Government that has been in power since the industry was legalized that they have all neglected the health and safety of the men women and children of this state. After all if a man contacts an STI he could pass it onto any amount of people.
Maybe a suggestion of halting and putting a stop to the so called
Massage Clinics, Parlours. Call them what you like would be if every operator had to be qualified and study for 3 years before they could call themselves a massage therapist. When you do attend one such person that is truly qualified they will have a sheet you must fill out re your health etc before they will touch you.
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If the Government were to bring in a fee for the XE's of say $2000.00 and there were even just 3.000 of them think how much revenue they could raise for the state. Those girls now are charging out at mostly
$500 per hour and upwards, without any cost to them at all, except their own health.
I would like to see a copy of the whole thing be sent to The Premier,
The Minister for Health. The Chief of Police and, The Police Minister also a copy to the Opposition Leader and the Opposition Minister for
Health
”.
A fourth owner put pen to paper and that is now reproduced.
The tax office definition of small business is a turnover under $2 million.
If not all, most of us fall into this category. We need to point this out.
We can not increase the size of our business due to the Sex Act; we can only own one brothel.
Over the lat 4 years we have had increases on all government charges by CPI. Utility costs have doubled in these times, in many cases due to government costs such as the carbon tax and water levy. These have added to our costs significantly. If our competitors where only legal brothels then we would have a fighting chance, as we are all in the same boat, but the illegal industry with minimum overheads (nn requirement for licensed brothel manager on site at all times, no showers at illegal sites, not concerned with clean towels and linen after each booking, no enforcement of condom use, no licence fees , no doctor certificate check, no GST, no liability insurance, girls unfairly paid, and many more) are our main competition. The illegal industry is our competitor and with minimal costs undercut our prices and will over time take over from the legal industry and Victoria will be back to the bad old days of the 1980's.
Regards
And a fifth had a go too
Illegal workers and illegal brothels are rampant, making NO financial contribution to the economy, but with all the protection - as they are untouchable!
Whereas for my license fee, I can expect an annual visit from CAV to inspect the use by date on my condoms, a check in the fridge for alcohol, and the mandatory question; 'How do you handle the situation when a sex worker refuses a client?' I can't give them intel as they do nothing to protect my identity, even to complain about the illegal advertising of illegal services on the internet - my integrity is called into question, as it was intimated that I could be ' just making this up'.
Where is our protection, for being licensed and operating with the law?
Where is the incentive to continue? regards
Near the finish a sixth said;
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“As a stake holder I feel ALIENATED from licencing (read BLA/CAV) once I asked for help to interpret a clause in the ACT and was told ‘get a Lawyer”
And finally a seventh owner said;
“The failure of Consumer Affairs to do anything at all about the illegals is a crying shame. When I have gone to the CAV Business Centre in
Melbourne and mentioned to the staff that it is shocking that the illegal brothel just over the road at 108 Bourke St cannot be closed down, the staff told me that it is a standing joke within the whole building that our bosses do nothing about it.
I remember too when AAEI provided CAV with information about an exempt worker including a tape recording of the work admitting to her illegal business and now years later she is still trading and she has her own website obviously not worried about being prosecuted. CAV have not prosecuted any of these private workers and there are maybe thousands of them operating illegally and that is another crying shame.
And then there was the famous BLA stuff up that I heard about when they sent a brothel manager a new identification card, and the photograph on the card was not her, but some else. This is the sort of nonsense that we have to put up with in return for our license fees. It is a good example of how not only do we get no good service, they provide us with bad services.
And then there is Punters Planet which is another forum in which illegal brothels are promoted anonymously.
Punters planet allows punters to express their views on all forms of the industry both illegal and legal.
Often naming girls at places like [address redacted] etc as having provi ded sexual services”.
With perhaps not the same eloquence two thirds of the Mandarin speaking
SWA License holders attended a separately convened AAEI meeting on 8
May 2014 and relying upon the English language they responded to some basic questions put to them in the following manner;
Q. What do you expect in return for your license fees?
A. ‘ Good service, and closing the illegals there are too many’
Q. Do you get this no?
A. ‘ No, we get nothing but trouble, only problems, we will loose the business an d maybe we should go illegal’
The group expressed further thought that when summarised says;

We want illegal brothels controlled

Now Karaoke bars in China town are all illegal brothels

Only correspondence we get from the Government is our Annual Fee advice

The Fee is too high

We want to know about industry development

There is over management and over control by the Government
23


We should consider going illegal.
It was considered that the views of the sexual service providers needed to be heard too and so;
AAEI spoke with ‘Mimi’ a working holiday visa holder from Hong Kong. Mimi works in a Melbourne brothel. Mimi told AAEI that;
“if the license fee is increased my boss will increase the prices for the customer and if the customer doesn’t want to pay the bigger price he will go to the illegal shop. I will have no customers and I will have to go to the illegal shop. I don’t want to do that because the illegal shop has unsafe sex. I don’t want unsafe sex. And my boss told me he won’t pay the proper tax if the price goes up.”
And the last word is left to;
‘Snowy on the tram’ told AAEI that;
‘ I gave away using legal brothels a long time ago. It was not that the legal brothel got too pricey rather it was because the illegal joint is so much cheaper. The illegal place might not be as flash as some of the really good legal places but they provide the service I want.
I worry about the disease risk and I reckon the women get pushed about a bit, but at the end of the day I just want to have the sex. More and more of my mates are joining me and that has meant a lot more illegal brothels have sprung up. The bosses of these places tell us not worry about being caught by the coppers; that will never happen they tell us I am sure they hope that is right because most of the bosses of the illegal places are crooks, I think.”
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