Thursday, 5 March 2015
Foreign Corrupt Practices
I rise tonight to speak about matters of grave concern. Soon, I will soon be moving a motion in this chamber to establish an inquiry into foreign corrupt practices. I have documents in my possession, provided by whistleblowers, that demonstrate the extent and depth of this issue I am proposing an inquiry to consider the economic consequences of foreign corrupt practices, the practice of facilitation payments to foreign officials and the role and resourcing of the Australian Federal Police and other agencies to properly investigate these matters and consider what further actions should be taken to ensure this stain on our national reputation is removed.
This inquiry will be in part a continuation of the work the Economic References Committee is already doing on corporate tax evasion. I will propose this new, thorough inquiry not begin its work and its hearings until the Senate Economics references Committee has completed its current workload on tax evasion. I will consult with law enforcement agencies, legal academics and transparency experts before coming to this place at an appropriate time with some appropriate terms.
In September 2013 the High Court rejected an appeal by three Fairfax journalists who refused to comply with an order to disclose their confidential sources. Everyone in this place should be familiar with the story in question by now. Back in 1998 staff at the subsidiary of the Reserve Bank of Australia, Note Printing Australia, dreamed up a scheme they called Delta Project to sell plastic bank notes in Iraq, Indonesia, Vietnam and Malaysia by, allegedly, bribing foreign officials in each country. You may also recall that during this period two of the journalists, Richard Baker and Nick McKenzie, continued to publish allegations of foreign bribery against contracting giant Leighton Holdings and its former CEO, Mr Wal King.
On 3 October 2013, the pair wrote:
Hundreds of confidential company documents, obtained during a six-month Fairfax Media investigation, also reveal a culture of rewarding corruption or incompetence, and abysmal corporate governance in what looms as the worst recent case of corporate corruption involving a major Australian firm.
Mr King is now the Executive Director of Sundance Resources. A few months later I had the opportunity during supplementary estimates in November 2013 to ask ASIC's head of enforcement, Chris Savundra, what the regulator was doing about these allegations. We had another opportunity during additional estimates in February 2014. I will come back to our regulator later.
Those in this place with longer memories than I will also recall the AWB scandal. It was incomprehensible that anyone in this country could be accused or be involved in paying bribes and collusion with Saddam Hussein. Tonight I rise to outline documents making further allegations of corruption in foreign jurisdictions by Australian companies and to pose the question to our regulators, law enforcement, policymakers and legislators in this chamber and the other place: how much longer are we able to tolerate this?
Tonight I shall name persons associated with Leighton Holdings, Leighton Offshore and mining contractor Theiss. Let me be clear: I am not proposing an inquiry simply into Leighton, but Leighton serve as a powerful case study for foreign corrupt practices and how the powerful can exploit the system. There will be other examples, including the allegations BHP attempted to bribe Chinese officials.
The first document in my possession is an internal memorandum showing the Leighton employees firmly believe they were terminated because they raised concerns about the corrupt conduct of a Mr Gavin Hodge. The allegation is that kickbacks, which are a negotiated bribe, were paid to Leighton staff to divert steel from the construction of a barge in Batam, an Indonesian island close to Singapore, to build another barge for the Adani Group, an Indian conglomerate headquartered in Gujarat, India. The memorandum states that approximately $500,000 Singaporean dollars' worth of high tensile steel was procured but not required for a barge—the Eclipse—that Leighton was contracted to build. The memorandum concludes that an internal investigation was inadequate in scope, execution and management follow-through.
A further document is a related whistleblower email chain. Gavin Hodge is alleged to be the corrupt project manager. Leighton employees Barry McCalla and Alan Fenwick allegedly witnessed bribes and corruption. David Savage and Russell Waugh were former executives with responsibility for the Batam project and it would seem failed to act on corruption. Wal King was the CEO of Leighton Holdings at the time.
A third document in my possession is the transcript of a memo handwritten by another former Leighton CEO, David Stewart, that alleges Leighton paid millions in bribes via an NSC. An NSC is a nominated sub-contractor, which appears to be the preferred method of funnelling kickbacks. A fourth document is a court paper naming the NSC in this case, Monaco based Unaoil Limited, and 'marketing fees' of $55 million dollars.
I also have a transcript of a UK court judgment between Unaoil and Leighton from September last year setting out findings of fact in relation to this matter. This allegation was investigated by both Leighton and the Australian Federal Police. David Savage was the former Senior Executive who allegedly approved the bribe payments. Former CEO David Stewart was allegedly told of the bribery but did not act. Wal King was CEO and board-member of Leighton Offshore—the relevant entity—during Iraq project negotiations.
The corruption that plagued Leighton also afflicted its subsidiary, the mining contractor Thiess. In my possession I have a summons to appear before Indian police for the Australian managing director, Bruce Munro, from November 2013. The allegation is that Mr Munro signed an MOU with corrupt Indian businessman Syam Reddy promising to provide him with a lucrative sub-contract worth at least $90 million if he helped Thiess secure a multibillion-dollar coal contract in the Indian state of Jharkhand.
I also have photographs of a confidential internal memorandum from Thiess. According to this document, Thiess made dozens of bank transfers to three Indonesian police and army chiefs in return for these officials ordering their troops to provide security at a Thiess mine in Melak, near Borneo. The document shows Thiess wired monthly payments of $1,200 to the bank account of the wife of the Melak army chief. The Australian firm also made regular $1,300 payments to the Melak police chief Tri Hartono and $1,200 payments to the head of a commando unit, Otriel Ruddolf Summal. It is believed the monthly payments were made for four years. Put simply, these documents suggest that Leighton's subsidiary was paying Indonesian commandos and paramilitaries to do their dirty work during an industrial dispute with indigenous workers.
For both clarity and the Hansard record, Mr Wal King was CEO of Leighton Holdings from 1987 until 31 December 2010; Mr David Stewart was temporary CEO from 1 January 2011 until he was replaced by Mr Hamish Tyrwhitt in August 2011; Mr David Savage, was a senior executive with Leighton International from 1988 until 31 March 2011. As part of the inquiry that I will propose, I will invite those named to present their side of the story—but, I hasten to add, after consultation with law enforcement agencies I intend to use every power available to me through the Australian Senate to ensure that the allegations of corrupt behaviour by Leighton Holdings are properly aired.
I turn to the Medcraft position. These allegations are not new. In a speech to an AmCham lunch in October 2013, on the eve of a Senate inquiry into the performance of ASIC, its chairman, Greg Medcraft, was forced to publicly respond to allegations that they were not doing enough. Mr Medcraft said that bribery of foreign officials falls under sections 70.2 and 70.3 of the Criminal Code, a law mainly enforced by the Australian Federal Police, who are responsible for investigations and bringing criminal enforcement actions through the courts. He assured his audience that the 'AFP are the bribery specialists'. ASIC, on the other hand, has no legislated jurisdiction over foreign bribery. Its role is limited to investigating breaches of corporations law and bringing civil enforcement actions.
In the small number of cases where a company is involved in bribery it might mean the directors are liable for breaches of the Corporations Act. ASIC also hangs back if there is a criminal investigation or enforcement action under way. A criminal defendant, quite properly, has a right to silence in Australia, so courts routinely stay civil proceedings that may compromise that right. Civil penalties for a director's breach of the Corporations Act are a maximum fine of $200,000 and being banned as a director. In comparison, the maximum penalties for the criminal offence of bribing a foreign public official is 10 years in prison and a $1.7 million fine, or both, and automatic debarment to acting as a director for five years after release from prison.
One of the points Mr Medcraft made was that the underlying question in deciding whether to act is whether or not a company or its investors suffered any loss, whether the bribe materially harmed the company or whether the 'extent of harm or loss' would have a broader impact on the market. He asserts that for a successful director's duty prosecution—presumably a civil prosecution, where the bribe materially harmed the company—the case must prove the director was negligent, and that this negligence harmed the company. I put to this chamber that it is time to review this standard.
In 1999 Australia adopted OECD antibribery recommendations for the Commonwealth Criminal Code. The principal obligation of parties to the convention is to criminalise the bribery of foreign public officials by requiring each country to make it a criminal offence for any person intentionally to offer, promise or give any undue financial or other advantage to a foreign public official, to influence the official in the performance of his or her official duties, in order to obtain, or retain, a business or other improper advantage, in the conduct of international business. Australia's legislation is reviewed by OECD every couple of years. In October 2013, the OECD review panel noted that while the Australian Federal Police had MOUs with several Australian government agencies, it did not have any formalised agreement with ASIC.
Australia has a poor record of successful prosecutions in this area, clocking up only one prosecution in the 13 years to 2013. The OECD has been scathing of our response. We should be, too. Australia urgently needs to reform both its legislative framework and its approach to enforcement. Australia should consider looking at adopting measures from the UK's 'gold-standard' antibribery legislative model that focuses on 'failing to prevent bribery'. Reforms could include introducing an absolute ban on facilitation or 'grease' payments; making bribery a strict liability offence—removing the difficulties in proving the intention to bribe, making it harder to rely on foreign custom or law as an excuse; and stronger penalties, more detailed reporting and tougher offences for failing to properly report. We could consider requiring auditors to examine a company's foreign transactions for potential violations, improving whistle-blower protection and expanding Australia's jurisdictional reach—which is one of the strengths of the US and UK legislation.
But new laws without new teeth can be of little value. Australian law enforcement agencies need proper resourcing and a change in attitude. We can look to the UK and US for ideas, including court-supervised deferred-prosecution arrangements and plea bargains to overcome resourcing or complexity issues, extending statute of limitations constraints and improving incentives to self-report. We should make it easier to go after corrupt individuals within companies, by not allowing them to hide behind a corporate veil or to treat fines as just a cost of doing business. We need clear guidance on all of these things so people know what their obligations are.
I want to make it perfectly clear that, while Leighton Holdings serves as a strong example and case study of foreign corrupt behaviour, on the evidence presented to me it is not alone. There are other companies and other issues, particularly the conduct of BHP and the allegations of them bribing Chinese officials in the lead-up to the 2008 Olympics. Those allegations deserve to be aired and need to be heard. This is not simply a witch-hunt or a look at Leighton Holdings; this will be a broader look at the larger issue of foreign corrupt practices and the failure of Australian law, and it will ask what can be done and how can we improve. Unfortunately, I believe that some of Australia's leading business figures will be tied into this process. The international tide is turning against corruption. Developed and developing nations alike, including China, are getting serious about coordinating an international response to deal with this stain.
I want to put on the record that I am grateful for the incredible in-principle support I have received from a variety of crossbench senators. I acknowledge Senator Christine Milne as someone who has been very outspoken about these issues over a long period, and others, including Senator Xenophon, have been very strong advocates for pursuing this course.
I want to also acknowledge the in-principle support from a range of senators including Bob Day, David Leyonhjelm, Ricky Muir, the Palmer United Party, Independent Senators Lambie and Madigan and also the very many members of the Liberal and National Party with whom I have spoken to about this issue in recent weeks and who have shared their views and concerns. I assure them that I plan for this to be collaborative process where we will come up with terms of reference that will tackle and address what has become such a large and important issue, but certainly one that I believe can and will remain above the day-to-day fray of politics.
While I may be speaking tonight to an almost empty chamber, let the Hansard note that I am incredibly grateful for the large amount of support I have received for this course from a large cross-section of senators. This is an important issue, this is a vital issue and this is an issue that has grown in recent years. I believe the Australian Senate, if it works in a collaborative and productive way, can develop a range of options and ideas in a bipartisan fashion that we will be able to present to the government for their consideration on this issue.
The scope of this issue is so large and the concerns are so many that, when you look at Leighton Holdings and BHP and start talking to the law enforcement agencies, the Attorney-General's Department and other relevant parties, we are going to find that it is even bigger, and needs and deserves to be explored. We will need to use the powers of this chamber, and I will be calling on this chamber to make sure that we get the right people and witnesses before the Australian Senate.
Mr Acting Deputy President Edwards, as the deputy chair of this committee, I want to personally thank you for the incredible amount of support you have always given me in these endeavours.