Supplementary Comments – Hon Tony Smith, MP, Liberal Member
has come to be described in the media as the ‘Banknotes Bribery Scandal’ first
emerged in the public sphere on 23 May 2009. On that day The Melbourne Age
reported allegations of bribery by overseas business agents of Securency
International Pty Ltd, a company half-owned by the RBA that produces the
substrate polymer material used in Australian banknotes.
was the first in a long series of articles by Age journalists Richard
Baker and Nick McKenzie alleging that the use of bribes to secure overseas
business contracts was endemic to two RBA subsidiary companies.
after the appearance of that first story, the name of another RBA subsidiary
began to be mentioned by the media in relation to allegations of bribery. On 25
May 2009 The Age reported that Note Printing Australia, a wholly owned
RBA subsidiary that prints Australia’s banknotes, had dismissed its foreign
business agents after an internal company audit recommended that “stricter
controls were required”.
allegations of bribery mushroomed over the weeks and months that followed, with
media reports linking Securency and/or Note Printing Australia to arms dealers,
and business dealings with nations on the US State Department’s list of state
Newspaper reports also included allegations that excessive commissions were
used to bribe government officials overseas. Securency and Note Printing
Australia were ultimately implicated in the alleged bribery of foreign
government officials in India, Malaysia, Nepal and Vietnam.
newspaper stories alleging bribery began to appear in May 2009, Securency
called in the Australian Federal Police. Law enforcement authorities in the UK
and Malaysia subsequently opened their own investigations into the activities
of Securency and Note Printing Australia business agents.
In August-September 2011, it was
announced that criminal charges would be laid against Securency and Note
Printing Australia over an alleged conspiracy to offer or pay a benefit to a
foreign official not legitimately due. Both RBA subsidiaries were charged in
relation to alleged bribery offences in Malaysia and Indonesia. Charges arising
from allegations of bribery in Vietnam were laid against Securency, and
allegations of bribery in Nepal were laid against Note Printing Australia. Those legal matters are still pending. There are also other ongoing legal
matters with a number of individuals from both firms.
And while this Parliament should have no
business involving itself with ongoing legal matters, this Parliament has every
business involving itself with the governance of the Reserve Bank. Parliament
must always tread carefully in these circumstances but it must equally never
forgo its oversight function. The fact legal matters are outstanding does not
dictate that there should be no parliamentary oversight. It is only through
rigorous parliamentary oversight that any deficiencies may be identified and rectified.
It is only through rigorous parliamentary oversight that the rest of the world
can be confident that the disinfecting qualities of sunlight are at work in
As this Report
The House of
Representatives Standing Committee on Economics (the committee) is responsible
for scrutinising the Reserve Bank of Australia (RBA) and for ensuring its
transparency and accountability to the Parliament, the community, and the
the Report is equally correct when it states:
by the Governor of the RBA at biannual public hearings of the committee is an
important element of the RBA’s accountability framework. The details of this
framework are set out in the Statement on the Conduct of Monetary
Policy, agreed between the Treasurer, the Hon Wayne Swan, MP, and the RBA
Governor, Mr Glenn Stevens. The statement formalises the biannual appearance
before the committee. The statement, which is reproduced at Appendix B, states:
The Governor has
also indicated that he plans to continue the practice of making himself
available to report on the conduct of monetary policy twice a year to the House
of Representatives Standing Committee on Economics.
expresses support for the continuation of these arrangements, through which the
transparency and accountability of the Reserve Bank's conduct of monetary
policy are in line with international best practice. These arrangements enhance
the public's confidence in the independence and integrity of the monetary
A second procedural
mechanism for achieving this accountability is set out in the Standing Orders
of the House of Representatives, which provide for the referral of annual
reports within a committee’s area of portfolio responsibility for any inquiry
the committee may wish to make.
committee may inquire into aspects of the annual report of the RBA.
time the first story was published in mid-2009, senior bank officials have
repeatedly asserted their ignorance of allegations about possible illegality at
Securency or Note Printing Australia.
initial newspaper article on 23 May 2009 in The Age featured the
following statement of assurance from Deputy Governor-at-the-time Ric
Mr Battellino told The Age
the RBA was aware that Securency operated in countries with "bad
reputations", but was "very conscious to ensure arrangements were in
place to avoid corruption payments".
In June 2010 the
Governor of the Bank wrote a detailed letter to the Treasurer stating:
audits of NPA and Securency took place well before The Age first raised its
allegations in May 2009. Neither Securency nor the Reserve Bank was aware of
the allegations until that time. The allegations were completely unexpected, given
that the company had strong policies prohibiting the payment of bribes,
including by the agents, and that the audit findings had provided re-assurance
that the company’s procedures supporting these policies were robust. Neither of
the former employees who appear to be among the sources used by The Age
had made their concerns known to the board of Securency or to the Bank. Had
they done so, given the seriousness of the issues, the Bank, as in the NPA
case, would have carried out investigations and made any necessary changes
This correspondence was released under FOI in November 2011.
In August 2011, the Age published
new assertions that:
leadership of the Reserve Bank failed to alert police after the bank received
damning evidence in 2007 that its subsidiary Note Printing Australia was
implicated in the bribery of foreign officials.
The bank also rejected those
assertions in a statement that read:
implication the Age seems to be drawing is that people in the company
and the bank had information indicating illegality but did not act
appropriately on that information. The apparent inference contained in the
questions is unwarranted.
Evidence at Hearings
has posed questions to the Bank on these matters during the course of its
semi-annual Hearings in November 2010, February 2011, August 2011, February
2012 and August 2012. In addition, the Committee held a dedicated Hearing into
events at Securency and Note Printing Australia on 8 October 2012.
the publication of new allegations in August 2011 involving Note Printing
Australia specifically, and the Bank’s response to those (see above), the then
Deputy Governor Mr Battellino faced direct questioning at the 26 August 2011
It was here that Mr Battellino first alluded to
the fact that a Note Printing Australia employee raised an alarm in 2007 about
allegations of illegal activity by some of the company’s foreign agents. Mr
Battellino was asked:
has been suggested in the Age newspaper, since the last meeting of this
committee, that that report said that at least one agent had admitted to
bribery, at least one agent had demanded 'under the table' secret commissions,
at least one agent had demanded excessive payments and that payments were being
made to third-party accounts. Is that an accurate summary of what was in that
cannot recall. A range of issues were raised in there. Allegations had been
made by one of the staff members that the agents had said certain things. The
agents denied those.
Battellino retired 10 days prior to the next Hearing in February 2012 and
therefore questions on Note Printing Australia and Securency were directed to
Governor Stevens. When I inquired into the precise nature of that 2007 warning
by a Note Printing Australia staff member, the Governor initially responded:
you are asking whether the person in question wrote a letter or something to
the bank, I do not think that he did, no.
in the dying seconds of the Hearing, Mr Stevens amended his previous assertion:
according to Mr Buchholz's highly accurate clock on his iPad, we have a couple
of minutes left. Is it possible to ask another question or two?
CHAIR: Just one.
SMITH: Can we go back
to a question on the topic I was asking about earlier, just for a
clarification. I quoted statements to this committee from Mr Battellino back in
August about allegations being made by one of the staff members that agents had
said certain things and the agents denied those. Governor, I think your answer
was that that was conveyed orally. I just want to confirm that.
Stevens: I need to
come back to that. I think I said that the bank was aware of that but that it
was not in writing. Actually, that was not quite true. I have been reminded
while we have been talking that, in fact, the deputy governor invited that
person to put that in writing, which he did, and give it to the deputy
governor. That written statement on the matter was available to the Freehills
people that did the investigation in 2007. So, whereas I said I thought that we
were aware of it but that it was not documentary, in fact it was invited to be
put in documentary form, which it was.
SMITH: One final
we are done.
this point it became clear that not only did former Deputy Governor, Ric
Battellino fail to provide pertinent information at the Committee Hearings in
November 2010, February 2011 and August 2011, but he also responded to direct
questioning during those Hearings in a manner that can fairly be described as
less than open. In
an opinion piece written for The Age I noted:
direct questioning on these matters at committee hearings in November 2010,
August 2011, neither the governor nor his former deputy saw fit to volunteer
these two salient facts
that a briefing paper containing allegations of impropriety by some NPA agents
was written by an NPA staff member in mid-2007 at Battellino’s request; and
that Battellino met with the author of this memorandum around that same time.
On 22 August
2012, The Age published the text of the alleged memorandum that it
asserted was submitted in June 2007 to Mr Battellino by former Note Printing
Australia company secretary Brian Hood. Mr Hood’s memorandum not only contained
detailed allegations of bribery by Note Printing Australia business agents, but
also noted explicitly that one of the suspect agents confessed to working on
behalf of Securency as well:
October 2005, the agent denied, to [B*] and me, the existence of his agency
agreement with Securency. His agreement with NPA was, I note, an exclusive arrangement.
Our concern centred on whether or not his role promoting polymer sales could
lead to a conflict of interest, and/or a breach of confidentiality, should he
interact directly with NPA's competitors. He subsequently, only days later,
admitted that he had held for years an agency role with Securency.
of this memorandum are extremely significant. Its revelation that a suspect
Note Printing Australia foreign business agent was simultaneously representing
Securency should have raised a massive red flag about possible deficiencies in
probity practices at the latter. It defies logic to assume that if this
business agent may have engaged in bribery to secure overseas contracts for one
company he would miraculously refrain from doing so on behalf of the other.
Bank’s lack of openness was pursued at the Committee’s August 2012 Hearing when
I asked Governor Stevens:
we go back a year to August 2011, for instance, Mr Battellino was referring in
response to some questions to the fact that the board of Note Printing
Australia had taken certain actions. You do not think at that point through all
the questioning over a couple of years it would have been sensible for him to
say, 'As it happens, I actually had a meeting with the person who has made
not going to comment on whether he [Mr Battellino] should have given some piece
of information that he was not asked about at the time.
followed up by asking:
do not think that in the interests of openness it would have been good for the
committee to have be told that as it happens, he had met with the person who
had serious concerns?
this the Governor replied:
not know. At least what we have tried to convey is the essence of what
occurred. The fact that two particular people met on a given day as part of
that process—there would have been lots of meetings between various people
trying to put all this investigation together. I did not feel that particular
event was of the importance that you seem to feel it is. I accept that,
obviously, others feel it is more important. I am sorry that we did not make
that clearer earlier.
At this Hearing,
I asked whether the Governor would be prepared to appear at a specially
convened hearing to face questioning in detail on these important matters. Mr
Stevens indicated he was. This special dedicated hearing took place on Monday 8
October 2012 and included the former Deputy Governor, Ric Battellino.
occasion, both Mr Battellino and Governor Stevens explained their failure to
volunteer pertinent facts before this Committee by claiming this was done out
of respect for Mr Hood’s request for confidentiality because:
he [Hood] was very concerned about anything getting back to the people in the
company that he works in.
But in light of
the fact that Mr Hood left the employ of Note Printing Australia in September
2008, more than two years before these issues were first broached by this
Committee, I find this explanation less than persuasive.
‘confidentiality excuse’ is also rendered threadbare by the following exchange
during the 8 October 2012 Hearing regarding the discrepancy between the Bank’s
behaviour in August 2011 vis-à-vis February 2012:
SMITH: In August
2011, following a series of questions from Ms O'Dwyer and follow-up questions
from Mr Bandt, you consciously felt that you could not volunteer this
information because of confidentiality. Then, as I recounted before the break,
the following February—that is in February this year—Mr Stevens was able to
confirm the existence of the memo and the meeting. What changed between August
Mr Battellino: I think that Mr Stevens was actually
asked specific questions about the memo.
TONY SMITH: Yes. That is true.
was not asked specific questions. I was asked in general about the allegation
that this person had made. As I say, those allegations were made mainly through
the board paper and the audit and with this statement to me.
TONY SMITH: If
you had been asked, you would have answered? I thought that, if you had been
asked, you would have said that you had to maintain the confidentiality.
is an interesting question. What would I have done? I do not know. I would have
had to answer to the committee. I really do not know. It did not come up.
TONY SMITH: It
was obviously in your mind at the time.
I believe this
lack of openness hindered the oversight function of this Committee because
members couldn’t ask questions earlier on relevant facts never volunteered by
the Governor or his former Deputy.
It is also
difficult to accept Mr Battellino’s claim at the August 2011 Hearing that he
could not recall the detail of the Note Printing Australia audit report:
TONY SMITH: I
will take you to August 2011—and I was not on the committee at that point. You
were asked a series of questions by Ms O'Dwyer—who has joined us; I know she
was held up this morning by some engagements—Mr Ciobo and Mr Bandt. This was in
the days following some new revelations in the Age newspaper, and there
have obviously been lots of stories since that first story in May 2009. After some
questions from Ms O'Dwyer, Mr Bandt followed up and referred to one of those.
He was talking about the audit report on Note Printing Australia, and he made a
number of statements and asked whether it was an accurate summary of the
report. Your answer, as Hansard records it—and I was not there—was,
firstly, 'I cannot recall'. We can provide this for you, if need be, but your
answer was, firstly: 'I cannot recall. A range of issues were raised in there.
Allegations had been made by one of the staff members that the agents had said
certain things. The agents denied those. One of the agents had sought to
mislead one of the central banks overseas about the exact size of his agency
fee. There were a number of issues like that.' On my reading of it, that was the
first time you were asked about these issues. Your point was that you were
trying to preserve the confidentiality. Was that in your mind at that time when
you were asked those questions?
definitely. What you are referring to I cannot recall. A lot has happened at
the Reserve Bank in the five or six years that all of this has gone on.
TONY SMITH: You
would recall what was in the audit report, surely?
very broad terms. If you are asking me: do I recall six years after the event,
or whenever, everything that is in that audit report? I had a very—
TONY SMITH: I
think, if you look back at the media coverage in the lead up that prompted the
questions, I would have thought that, if you had not recalled, you would have
broad understanding I had at that point was that the audit report had made all
these allegations about business practices, and raised some suspicions.
TONY SMITH: Given
we are an oversight committee, you did not feel, at any point—if we accept you
are trying to preserve confidentially—that, if you could not volunteer certain
information, you did not want to add to the committee that there was certain
we asked, Madam Chair, at some point: could we please have a blow-by-blow
account of every piece of the process that happened in 2007? We were not being
asked that. We have given that today. We have spent quite a lot of time in the
last few weeks getting back across this. This was a very different setting.
TONY SMITH: With
respect, I will come back to you, Governor. I am asking Mr Battellino about his
of Judgement by the Bank
There was also
clearly a failure by the Bank fully to consider its distinct ethical
responsibility earlier with respect to allegations of illegality at Note
Printing Australia in particular. The Bank leadership has repeatedly stated
that the law firm Freehills had been retained by the Board of Note Printing
Australia to determine whether there had been a breach of law. But it a third
party law firm – reputable and respected though it may be – does not have the
authority and investigative power of the police. Therefore the Freehills
referral does not waive the higher responsibility of the nation’s central Bank
to refer plausible allegations of serious criminal activity to the Federal
Police. The Bank also could-have and should-have referred the information contained
in the Hood Memorandum directly to law enforcement authorities in mid-2007.
Whilst Securency and Note Printing Australia had corporate responsibilities,
the Bank also has higher duty as a key public institution.
should have also requested a copy of the Hood memorandum at the time it was
first submitted to Mr Battellino.
Mr Hood was the company secretary of Note Printing Australia, a position
important enough to require his signature to be affixed to the company’s annual
financial statement submission to ASIC. And yet when this senior executive
raised plausible allegations of illegality by some of the agents representing
this wholly owned subsidiary of the Bank, with Mr Battellino, Governor Stevens
was of the view that an oral briefing from Mr Battellino was a sufficient
response to this potential violation of Australia’s anti-bribery laws. This
decision meant that Governor Stevens denied himself the opportunity to make a
fully informed judgement about the contents, tone and seriousness of Mr Hood’s
At the 8 October
2012 dedicated Hearing of this Committee on Note Printing Australia, I asked
hindsight, what regrets do you have or lessons have been learned generally?
responded with the words:
is a great thing. People do not live their life in hindsight; they live it a
day at a time in real time. If pressed on this, I would have to say that there
should have been more scepticism and more questioning of the managements of
both companies earlier than there was. I think it is hard to avoid that
At the 8
October 2012 Hearing the Governor himself conceded that he today would handle
similar allegations of illegality much differently than he dealt with past
events at Note Printing Australia and Securency:
light of the information that has been provided—you know, hindsight being a
wonderful thing—if you were to look back and make a decision with the knowledge
you have today, do you think you would have called in the Federal Police a lot
earlier than you did?
have given some thought to that and I think it was technically properly a
decision for the board of the company. I do not think this should be seen as
either—as I said earlier—call Freehills or call the police, one or the other.
You could have done both. As I said at the beginning, had the conclusion of the
Freehills work been a different conclusion to the one it was then we would have
had, I feel sure, the people associated with that process with the kind of
experience and integrity that they do have saying, 'mmm, you've got to go to
the police.' That was not the conclusion so that was not the outcome.
Were we to see that set of circumstances
again, personally—older and more scarred and wiser now—I think it might be
prudent to still do that whole process. But at the end, to be honest, no-one
advised us at the time to say to the police: 'We've done this. This is our
conclusion and we're not proposing further action but we're advising you just
in case something comes up one day' or in case they have got any other
suggestions to make. But if I review this in my own mind and contemplate
whether we might ever see a parallel set of circumstances, I think that
additional step would be prudent.
I am also
concerned that the narrative presented to date by the governor and his former
deputy lacks precision and clarity. And this has had the unfortunate effect of
making the bank appear reticent and even secretive. In speech to Parliament on
this matter I noted:
these questions linger today they will fester tomorrow. Only if they are
answered and addressed can we ensure that the good name of the Reserve Bank and
its high level of credibility will be preserved.
The magnitude of
these matters also causes me to consider more fundamental questions about the
current regime for Parliamentary oversight of the Reserve Bank. Per the
provisions of the Statement on the Conduct of Monetary Policy, the
Reserve Bank appears twice-yearly before the House Standing Committee on
Economics for a period of roughly three hours. And much of that time is rightly
devoted to important discussions of monetary policy and global economic trends.
But a mere 180
minutes every six months are clearly inadequate to canvas matters of governance
and probity that might arise, as in the cases of Note Printing Australia and
Securency. It is worthwhile to note the fact that the Australian Securities and
Investment Commission appears quarterly in oversight Hearings before the
Parliamentary Joint Committee on Corporations and Financial Services.
believe consideration should be given to amending the Statement on the
Conduct of Monetary Policy so as to provide for the Bank to appear before
the House Standing Committee on Economics on four occasions per year.
Mr Tony Smith MP