Who knew what when?
Nick McKenzie, Richard Baker
August 11, 2011
Senior Reserve Bank officials have denied knowing about the corrupt activities of two of the bank's key subsidiaries, but the evidence suggests otherwise.
IN LATE May 2007, as spring turned to summer in the Himalayan kingdom of Nepal, a man well known around the capital Kathmandu for keeping secrets and having powerful friends, received a message that took him by surprise. Sent by the Reserve Bank of Australia's currency printer, it was the business equivalent of a summary execution.
After helping Note Printing Australia - a company fully owned and overseen by the Reserve Bank- win two contracts to replace Nepal's paper currency with the special plastic notes made by the RBA, Himalaya Pande was told he'd been sacked.
More than four years later, the circumstances surrounding Pande's removal as NPA's Nepal-based lobbyist and agent lies at the heart of the most serious questions to emerge from the biggest corporate bribery scandal in Australian history.
Advertisement: Story continues below Did the RBA act inappropriately by failing to tell police in 2007 about bribes paid by NPA's agents overseas , two years before the scandal was revealed by The Age,sparking a police probe that recently led to NPA and its sister company Securency facing Australia's first overseas bribery charges?
Did the RBA's failure to properly confront suspicions of bribes being paid by its two banknote firms allow corruption to fester and spread?
And why, more than two years after the police began what is now one of the world's biggest bribery probes, won't the federal government back an inquiry to ensure these critical questions are answered?
Although he didn't know it, the demise of Himalaya Pande as NPA's man in Kathmandu had its genesis in events that took place seven months before he was sacked.
In late 2006 Australia's corporate and political worlds had been rocked by a royal commission that found the Australian Wheat Board had paid bribes to then Iraqi leader Saddam Hussein. The message from the commission was clear: bribing foreign officials to win contracts was illegal and, if revealed, should be subject to the full force of the law.
RBA governor Glenn Stevens clearly took the findings on board. In February this year he told a parliamentary committee that ''after the issues with the Australian Wheat Board, I think every board in the country said, 'Gee, we'd better just make sure that we've got strong procedures around these sorts of matters'."
Stevens was referring to events in 2007, when NPA began to examine whether it was exposing itself to potential corruption by using overseas agents to convince foreign governments and central banks to buy the RBA's special plastic banknote material and printing services.
To answer this question, it made a series of inquiries. Files were checked and emails retrieved. Soon, some very senior officials at the RBA began to get worried. A flurry of activity followed and the RBA board was briefed.
An urgent decision was made to call in the RBA's audit team, which reports to a committee that at the time was headed by deputy governor Ric Battellino to do some more checking.
What did these inquiries find? The answers were kept from the Australian public until today.
Clear and damning allegations of bribery involving NPA were discovered. Several senior government sources, including figures close to the RBA, have told The Age that the allegations raised and documented in 2007, and which made their way to some of the RBA's most senior officials through the bank's audit committee, should have prompted an immediate referral to the federal police. "Of course it should have," says one well-placed source.
An RBA source has confirmed to The Age that the allegations included credible reports that in 2007 at least one NPA agent had actually admitted to bribing officials to help the Reserve Bank printing company win contracts overseas.
The RBA source also said that the auditors were told that another of the agents was paid an extraordinarily high commission rate - almost one-fifth of the total value of the contracts he helped win. This information was verified by the audit work and included revelations that the agent had pocketed millions without proper explanation or justification and was still asking for more money.
According to an RBA statement given to The Age yesterday, the RBA audit team found "serious deficiencies in the company's practices and controls relating to the use of sales agents".
The concern about overseas agents was great enough to lead to the immediate sacking of Pande and another NPA agent, the Kuala Lumpur-based arms dealer Abdul Kayum. Both men were originally hired because they had boasted of their ability to lobby senior government officials. The Age has previously revealed Kayum received at least $4 million in commissions, an amount that one source described as "mind-blowingly excessive". The Australian Federal Police is now alleging that Kayum used some of that money to pay bribes.
As confirmed by the RBA yesterday, the audit made ''no findings regarding illegality'' but advised that someone needed to take responsibility for finding out if laws had been broken. The RBA statement says the audit team "recommended a separate investigation into whether there had been a breach of Australian law".
Yet nobody at NPA or the RBA picked up the phone and dialled the police. Instead, the NPA's board decided to handle the matter internally. They called in a legal firm, Freehills, and paid one of its senior lawyers to conduct an inquiry.
But Freehills did not have the power or the authority of police. They couldn't formally question people or serve search warrants and raid houses and offices looking for hidden information; they couldn't tap phones and they couldn't make requests to overseas authorities to examine where the multimillion-dollar commissions NPA had paid had ended up.
In short, they could perform almost none of the crucial investigations that could be undertaken by police when following an international bribery trail. The RBA is refusing to release details of the subsequent Freehills report.
But the bank's statement says: "The Freehills investigation concluded that there was not [a breach of law]. The question of a referral to the AFP therefore did not arise. On any reasonable reading, the NPA board at that time sought the appropriate information, sought appropriate advice, responded appropriately to the information it received, and reasonably relied on the advice it received."
Just as members of the RBA board watched the wheat board scandal unfold in 2006, it's most likely they closely watched the handing down of one Australia's most important judicial rulings on corporate governance.
In a case involving cooking of books by shopping centre developer Centro, Federal Court judge John Middleton declared that the oversight duties of directors went beyond accepting the word of company managers and advisers. The judge said directors must apply their own scrutiny, and ''read, understand and focus'' when it comes to important company documents, accounts and policies.
''A director is an essential component of corporate governance,'' he said. ''Each director is placed at the apex of direction and management of a company … Their role is significant as it may have a profound effect on the community, and not
just shareholders, employees and creditors.''
So how strong was the corporate oversight at the RBA's banknote companies?
The answer to this question goes beyond the 2007 decision not to call in the police. It also lies in a crucial decision made by the RBA to allow Securency to keep using overseas agents when the board of NPA decided in May 2007 that the same practice was unacceptable.
When NPA sacked its agents, the chairman of its board was Graeme Thompson, the former deputy governor of the RBA. When NPA moved to clean up its act after the internal audit, Thompson resigned, in September 2007.
But he remained chairman of Securency until March 2008, almost a year after he was told of corruption concerns around the use of agents in Nepal and Malaysia. NPA's managing director Chris Ogilvy, who knew of these corruption concerns, also remained on the Securency board until March 2008.
Under this board's watch, Securency kept using Abdul Kayum as an agent in Malaysia, despite the fact that he had just been sacked by NPA. Securency ultimately sacked Kayum after a few months, but it kept using dozens of other agents. They included men who, like Kayum, had boasted of their ability to influence foreign officials while simultaneously asking to be paid, via suspect bank accounts, a huge cut of any contract they helped win.
When the RBA replaced Ogilvy and Thompson with new Securency directors in March 2008, the firm kept on paying its agents into bank accounts that, according to Sydney University's corporate corruption expert Dr David A. Chaikin, should have had major alarm bells ringing.
Between 2001 and the end of 2009, Securency paid about $50 million to agents, including some living in cities such as London and Johannesburg, but who had asked for their payments to be wired to accounts and shelf companies in offshore tax havens, including the Seychelles, Bahamas, Liechtenstein and the Isle of Man. Under the watch of its board, Securency obliged.
It is expected that several of the payments made after 2007 will lead to yet more bribery charges being laid against now-former Securency executives in connection with allegations that they knew, or should have known, they were being used to pay bribes.
Only yesterday, the AFP charged a former Securency executive with bribery over $17.2 million paid to a Vietnamese agent between 2004 and April 2008.
In February, Glenn Stevens was asked by Liberal MP Steven Ciobo, a member of the House of Representatives economics committee, why Securency kept using agents after NPA stopped. The RBA governor explained that "on paper, the examination of the policies of Securency showed them to look pretty good. So they were not the same [as NPA] in policies, and that is the difference between the two experiences."
Stevens was also grilled about why the RBA-appointed board members on Securency did not decisively act on the warning signs of bribery: the excessive commission payments, the offshore accounts.
Stevens defended the conduct of the RBA appointees on Securency's board and blamed the company's managers for not implementing policies that looked "very good on paper".
"As far as I can see, I think the board members that were appointed [on the Securency board by the RBA] have acted properly; I am yet to see evidence to the contrary … We [at the RBA] are examining ourselves. A question would be: Is there any way that anyone in the RBA ever knew anything about anything? I am pretty sure the answer to that is no."
In the middle of this year, about six months after Stevens made that statement, NPA and Securency signalled to prosecutors that they would plead guilty to bribery. This means that both NPA and Securency will admit that they paid bribes to Malaysian officials with the help of one of the men NPA sacked in 2007, Abdul Kayum.
So what of Himalaya Pande? He, like many Securency and NPA agents, is most likely waiting for police to knock on his door. It has been a long time coming.
Nick McKenzie and Richard Baker are investigative reporters.
Read more: http://www.theage.com.au/national/who-knew-what-when-20110810-1imm5.html#ixzz1UfQ1xedC
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