CHAPTER 2

Navigation: Previous Page | Contents | Next Page

CHAPTER 2 Note Printing Australia and Securency—a case study on risk management and integrity practices

2.1 This chapter is a case study on the NPA/Securency matter. Within the context of the inquiry, the matters brought to light in relation to the NPA and Securency case raised key questions regarding management of corruption allegations, integrity frameworks, corporate governance and the protection of whistleblowers.

2.2 The committee is mindful that court proceedings and investigations continue. For the purposes of the inquiry, the committee contained its examination to key integrity matters in relation to NPA and Securency rather than focusing on or making any findings in relation to the actions of any individuals or agencies. The key integrity matters before the inquiry which were thrown into sharp relief by the NPA/Securency case include:

the requirements for agencies to act on suspicions of corruption and deal with reported suspicions of misconduct which may be a precursor to corruption;
integrity management and corporate compliance including systems to ensure that organisational policies are implemented and upheld;
a culture of reporting and protection of whistleblowers;
the importance of integrity oversight; and
the gaps or intersection of roles of agencies within the integrity framework.

Background

2.3 NPA prints banknotes for the RBA, Australian passports, and banknotes for a small number of other countries, while Securency manufactures, markets and supplies a range of polymer substrates on which banknotes are printed by NPA and others.[1]

2.4 In July 2011, the AFP announced that it had charged two subsidiaries of the RBA, NPA and Securency, as well as six former banknote executives, with paying bribes to foreign officials 'in order to win banknote supply contracts'.[2] In August 2011, the AFP reported that a seventh individual had been charged.[3] At the time, the RBA wholly owned NPA and owned 50 per cent of Securency.[4]

2.5 The AFP investigation relates to alleged bribes paid to public officials in up to six countries including Indonesia, Malaysia and Vietnam between 1999 and 2005.[5] The allegations are that senior managers from Securency and NPA used international sales agents to bribe foreign public officials to secure bank note contracts. The charges against the individuals relate to subsections 11.5(1) and 70.2(1) of the Criminal Code Act 1995 which carry a maximum penalty of 10 years imprisonment and/or a $1.1 million fine.[6] The case is the first of its kind under Australia's foreign bribery legislation which came into effect in December 1999. AFP investigations were pursued concurrently with related investigations by overseas law enforcement agencies involving cooperation with the UK's Serious Fraud Squad, the Malaysian Anti-Corruption Commission and Attorney-General's Chambers as well as the Indonesian National Police.[7]

2.6 In October 2011 Securency and NPA pleaded guilty to three charges each of conspiring to bribe foreign public officials and were ordered to pay penalties of $19.8 million and $1.8 million respectively under the Proceeds of Crime Act 2002.[8] On 20 August 2012, Mr David Ellery, a former Chief Financial Officer (CFO) of Securency was sentenced by the Supreme Court of Victoria to imprisonment for six months, wholly suspended for two years.[9]

2.7 In March 2013, another individual was charged with foreign bribery activities alleged to have occurred in Nepal. At the same time, additional charges were laid against three individuals who were originally charged in 2011 in relation to efforts to secure banknote contracts on behalf of NPA.[10] The AFP noted that the total number of individuals charged with foreign bribery offences as part of the investigation as of March 2013 was nine.[11] The matters remain before the courts.

2.8 In early March 2012, evidence of 'possible illegality' by senior Reserve Bank officials and business figures in connection with the banknote bribery case was referred by the AFP to ASIC.[12] However, after having reviewed material from the AFP for possible breaches of directors' duties under the Corporations Act 2001, ASIC decided not to proceed to a formal investigation.[13]

Identified risks and the organisational culture within Securency and NPA

2.9 In late 2011, United Nations Global Compact representative, Mr Matthew Tukaki noted that Australian companies face three risks in relation to corruption overseas:

overseas suppliers often engage in practices considered unethical or illegal in Australia;
companies engage agents or workers who are taking commissions from others and who are not acting in the company's interests; and
public officials seek bribes for preferential treatment on contracts.[14]

2.10 Both NPA and Securency were faced with all three of these risk factors.

2.11 The sentencing judge in the Ellery case noted that at the time of the alleged offences, a culture had developed within Securency whereby staff members were 'discouraged from examining too closely the use of, and payment arrangements for, overseas agents'. The judge also noted that:

Secrecy, and a denial of responsibility for wrongdoing, also seem to have been part of the corporate culture at Securency at that time.[15]

2.12 In terms of Mr Ellery's part in a 'deception' regarding payments to a Malaysian agent, Mr Abdul Kayum, the judge noted that Mr Ellery had engaged in false accounting. Mr Kayum was arrested in 2011 along with a former assistant governor of Malaysia's central bank on charges of taking bribes in return for awarding contracts to NPA and Securency.[16] The judge in the Ellery case noted that Mr Ellery had informed an assistant governor of the RBA in June 2007 in an answer to an inquiry that 'Securency had never paid any commission to its Malaysian agent' and maintained the 'deception in July 2007 when questioned by RBA auditors'.[17] The judge stated to Mr Ellery:

You were asked to provide supporting documentation in relation to the payment. The managing director suggested a response to the auditors' enquiries, which you essentially adopted as your own. It involved a false and elaborate attempt to justify the payment, as a legitimate reimbursement of Kayum’s actual expenses.[18]

2.13 In relation to NPA, evidence provided to the committee by Mr Brian Hood, a former NPA senior executive who became a whistleblower, also emphasised the poor organisational culture in existence at the time of the alleged offences:

...when I joined, there was an air of desperation because of the financial losses. Business was in bad shape; operations, the production facility was in bad shape. There was a lot of spoilage, a lot of wastage. Deliveries were often late against contractual commitments with customers. There were adverse operational audit reports. The business was not in good shape at all. The production capacity was significantly underutilised, so there was a lot of machinery and time and people sitting there underutilised.[19]

2.14 Mr Hood noted that on his arrival at NPA in 2004, there was no risk management framework in place to address risks arising from business dealings with foreign governments while policies and procedures in relation to agents did not deal with matters of corruption or wrongdoing.[20] Recognising that bribery was the key corruption risk to the agency, particularly in relation to countries where corruption was rife, Mr Hood questioned the practices and policies within NPA at the time. He found it unusual that NPA operated in Malaysia and Nepal with the use of agents when, in direct contrast, it did not use agents in Singapore, New Zealand, Papua New Guinea and Brunei where it had an 'excellent working relationship' with the respective central banks.[21]

2.15 Furthermore, Mr Hood noted that there was no 'due diligence and the right sort of corporate governance culture'. Rather, the culture that existed within NPA at the time was one of 'sell, sell, sell and get whatever business we possibly get'. Mr Hood informed the committee:

...for a business that was making banknotes and Australia's passports, there was not the culture of compliance, of due diligence, of rigorously following policies and procedures. It was far more dynamic than that and fairly cavalier in many ways.[22]

2.16 When he started in his position with NPA, Mr Hood's initial concerns were of a financial nature. While the business was in 'poor shape financially and otherwise', payments to agents were 'very significant and material'.[23] Furthermore, payments of commissions were not reported to the NPA board and did not appear on the agency's operating statement or income statement despite the fact that they amounted to a material loss. As payment of commissions were 'in amongst all sorts of other expenses', there was no attention drawn to them which might otherwise indicate whether the remuneration of agents is 'sensible relative to the value of the contract and profitability of the contract to the NPA'.[24] As a first step, Mr Hood reformed this practice by itemising commissions and introducing financial reporting in relation to such payments.[25]

2.17 In relation to the practices within NPA regarding the payments of agents, Mr Hood explained that:

Some time not long before I had started the Indonesian agent had been paid $7.4 million. The Malaysian agent was being paid millions of dollars. Quite naturally that caused me to look at it financially and say: 'Hang on—what are the agents doing? What is their role? What is the value? What are we getting in return here in the context of the business's overall financial shape?' But progressively, given events especially with the Malaysian agent, the concerns went from just being financial to being ones of ethics and honest and probity, so attempting to divert funds into somebody else's bank account, being dishonest about having an agency agreement with Securency where he had one with NPA and had called for exclusivity, being dishonest about having an arrangement with the previous management team about receiving interim payments of commission where policy said that agents should only be paid at the end of the transaction when their foreign central bank had paid us for the notes.[26]

2.18 Over a period of three years from 2004 to 2007, Mr Hood reported his concerns relating to a Malaysian agent and a Nepalese agent internally to the CEO, auditors, NPA board and eventually to the RBA. According to Mr Hood, it was only his 2007 memorandum to, and meeting with, then RBA Deputy Governor, Mr Ric Battellino which triggered an audit and investigation. However, Mr Hood noted that for quite some time 'there was never any recognition or acknowledgement that somebody was trying to do the right thing here and there was some reporting'.[27]

2.19 Mr Ric Battellino, Deputy Governor of the RBA from 2007 to 2012 informed the committee that while detailed reporting was a practice within the RBA, he could not comment on the reporting practices of the NPA and Securency because the 'corporate structure' in existence at the time 'removed all that from the Reserve Bank'.[28] RBA Governor, Mr Glenn Stevens also indicated that the governance arrangements in both NPA and Securency 'proved not to be strong enough to detect and prevent the things which were alleged to have occurred'.[29]

2.20 Evidence to the committee highlighted that the relationship between the NPA board and management was poor. Mr Battellino suggested that the NPA board and RBA audit committee were dissatisfied with the NPA management which was 'not performing to the standard that the board and the audit committee expected'.[30] In terms of interaction with the RBA, Mr Battellino stated that both Securency and NPA had their own boards and that as interaction with the RBA occurred through six-monthly reports, 'there was not a lot of day-to-day interaction'.[31]

2.21 Within this context, the important role that boards play in relation to integrity matters was raised by Mr Hood who said that:

Boards have to be aware of and alert to what management is doing and what controls are in place or not in place, as well as what sort of reporting is happening to them. They have to be willing to ask hard questions and to dig into matters to understand what is going on.[32]

Reserve Bank of Australia response to NPA/Securency practices

2.22 It was the AWB matter which triggered questions within the RBA about the practices of NPA and Securency particularly in relation to the use of agents. The RBA board discussed the practice of the two companies at its April 2006 meeting and asked the two companies to provide their policies on agents.[33] The request was responded to in July 2006 and according to Mr Battellino:

...we looked at the policies and they seemed to be pretty sound policies. It would be hard to fault them, so the companies were told, 'Yes, that's fine, make sure you implement those policies'.[34]

2.23 According to the RBA, while each company had its own policies and procedures regarding agents, they both had policies which:

prohibited direct or indirect involvement in corrupt, unethical or otherwise questionable practices, and asked management to ensure that all agents formally acknowledged and committed to the policy. The agency agreements provided for termination when this commitment was breached;
established a process to inform the respective boards about the appointment of agents, the applicable commission rates and payments made; and
established a process of annual review of the policies on the use of agents.[35]

2.24 However, Mr Battellino noted that in 2006, the NPA board started to put pressure on its management for answers regarding the use of agents. This pressure came to a head in February 2007 when the board informed management that:

'We want a paper for the May meeting of the board that sets out exactly what is going on with these agents: where we are up to and what they are doing'. In the course of that, management, including Mr Hood, who at that stage was the chief financial officer and the company secretary, were asked to prepare a paper for the board. In the course of preparing that paper and implementing the policies these issues arose, mainly in April 2007.[36]

2.25 In response to matters raised in the May 2007 board paper, the NPA board terminated the contracts of two agents and an audit was undertaken which made a series of recommendations.[37] Mr Battellino noted that the two key recommendations of the audit were that the company should 'cut back on the use of agents in some countries—high-risk countries—and that the staff should be counselled about the risks involved in dealing with agents'.[38] Mr Battellino emphasised that:

The reason those agents were sacked was basically there had been a whole string of instances with those agents, which came out in the light of the board paper. The board just terminated those contracts with the agents. The agents' contracts were not terminated because the board had knowledge they were paying bribes.[39]

2.26 In June 2007, the NPA board commissioned Freehills to look more deeply into the issues raised by the audit.[40] Mr Hood met and briefed Mr Battellino on the alleged corrupt agents on 5 June 2007. Mr Hood informed Mr Battellino that he had 'serious concerns about probity issues which had not been adequately addressed' inside the RBA company. Thereafter, Mr Hood set out his concerns in a five-page 'private and confidential' memo and sent it to the Deputy Governor the same month.[41] The memo detailed what Mr Hood saw as corrupt behaviour involving NPA and multimillion dollar payments to its overseas agents including Mr Kayum, a Malaysian arms dealer who was revealed in the memo as working for both NPA and Securency.[42] The memo also highlighted that:

while the NPA board wanted all agents to sign up to new agency agreements, the NPA management demonstrated a 'distinct lack of urgency' to do so;
Securency used the same agents and did not change its agency agreements;
many communications with agents were 'inappropriately informal', carried out by mobile or text messages, with little or no documentation;
numerous overseas trips were not reported beyond NPA management;
commission rates payable to agents greatly exceeded industry average rates; and
in response to efforts on Mr Hood's part to raise concerns with the NPA executive, the agents were supported and NPA management reacted with hostility to any criticism of their conduct.[43]

2.27 Freehills completed its work in August 2007 and the NPA board considered its report in September 2007.[44] When questioned why the corruption allegations were not referred to the AFP rather than Freehills, Mr Battellino noted that 'normal process within a company is to have a look at those, test them and get the information'.[45] The RBA also stated that based on legal advice from Freehills, it determined not to report the alleged corruption to the AFP.[46] Mr Battellino noted in this regard that:

When you look back now, the obvious step is, 'Why didn't we give that Freehills report to the police?' It is such a costless and easy thing to do. You wonder. We should have done that. It just did not come up. It was not just that it did not come up with me. It did not come up with a range of people.[47]

2.28 The AFP first received the allegations in April 2008 and after an initial assessment decided that the material was insufficient to launch an investigation.[48] It was only as a result of the referral by the chairman of Securency to the AFP in May 2009 that further investigation was conducted and charges were ultimately laid.[49]

2.29 In relation to Securency, a 2007 audit of Securency triggered by the AWB matter 'gave no indication of any concern about the nature of payments that were being made'.[50] As the audit found that Securency had 'very sound business practices and policies', there was according to Mr Battellino, 'no basis to discontinue the use of agents there'. However, the agents that had been causing concern at Securency were terminated within weeks of the termination of NPA agents.[51]

2.30 After referring the allegations against agents engaged by Securency to the AFP, the Reserve Bank commissioned KPMG to review its agent arrangements and evaluate Securency's policies and procedures. According to the RBA's Assistant Governor, Corporate Services, Mr Frank Campbell, KPMG found that:

...the board's policies around these agents were very good policies. The problem was that management had not implemented them properly, and that was a very serious problem. That, in part, is why the board was caught out.

If I can summarise all of that, there was nothing fundamentally improper about the model that Securency was using. The policies were badly implemented and, as the governor has acknowledged, there were gaps in the governance framework around the conduct of that business by the company.[52]

2.31 In the wake of the bribery charges, Securency committed itself to the implementation of all twelve recommendations contained in the KPMG report.[53]

2.32 Mr Stevens noted that after the KPMG report on Securency, 'the use of sales agents was discontinued' and 'policies were overhauled', as recommended in that report.[54] Now where consultants are hired to provide expert advice on developing foreign markets, they are paid on a fee for service basis and engaged mostly for short terms.[55]

2.33 The Reserve Bank noted that the main lessons it had learned from the bribery matter were that its governance arrangements and processes need to be stronger to prevent and detect corrupt behaviour. It identified four areas where changes had taken place in relation to both Securency and NPA to strengthen controls and tighten governance as part of efforts to mitigate the risks of corruption including:

those charged with offences are no longer with the companies;
the use of sales agents by both companies has ceased;
policies, procedures and controls at both companies have been thoroughly overhauled with the assistance of the companies' external advisers; and
the Reserve Bank draws all of its appointees to the boards of both companies from the Bank's executive or the Reserve Bank Board.[56]

2.34 Mr Battellino reflected that the mistake was to 'assume' that the culture that existed in the RBA was also in existence in Securency and NPA.[57] Furthermore:

If there is one lesson that I draw out of this, it is that economic policy institutions like the Reserve Bank really do not have any business being involved in commercial operations; it is impossible for them to run it successfully. That is why, since this has blown up—we have spent a lot of our time trying to get out of Securency...It is a company over which the bank has no control. It only has a 50 per cent shareholding. You cannot control the company. That is why, in 2007, when we did the review of NPA, we could not stop Securency using agents.[58]

2.35 In a response to committee questions on notice, the RBA asserted that the NPA/Securency matter had highlighted to its board the need for 'targeted governance arrangements and processes' to seek to prevent corrupt behaviour and detect it if it occurs. To manage corruption risks more broadly, the RBA had introduced the following systems:

a fraud control framework, a fraud policy and a policy regarding reporting of fraud and unethical behaviour which provides for an anonymous concern reporting hotline. These policies are drawn from Australian standards including the Commonwealth Fraud Control Guidelines and Commonwealth Procurement Rules;[59] and
procurement guidelines that ensure there is a transparent, robust and defensible framework for making decisions about the purchase of goods or services.[60]

2.36 Some of the measures introduced in NPA included greater alignment of its charter with the RBA's core objectives and risk tolerance as well as changes to the composition of its board.[61]

2.37 Securency introduced the following integrity measures:

a Code of Conduct and Ethics which requires the disclosure of gifts, hospitality or expenses given or received above a $100 threshold and prohibits all facilitation payments;
an Integrity and Ethics Policy which states that Securency has a zero tolerance for bribery;
appointment of a Chief Risk and Compliance Officer who leads the risk and management functions; and
establishment of a Risk and Integrity Committee to assist the Managing Director manage risk and ensure that the risk management and the internal control system operates with a high level of integrity.[62]

2.38 Following the foreign bribery investigations, the AFP noted some other Australian companies had changed their approach in order to better address corruption risks. Some contractors, including WorleyParsons, UGL and Downer EDI, banned or moved to ban facilitation payments which are paid to foreign agents for procuring permits or processing government papers.[63]

Whistleblower protections

2.39 In the non-government sectors regulated by the Commonwealth, limited whistleblower protection is provided in provisions including Part 9.4AAA of the Corporations Act 2001 (Corporations Act). To be protected under the Corporations Act, a whistleblower must be an officer, employee or contractor of the company about which they want to report and must report to ASIC, the company's auditor or audit team; a director, secretary or senior manager of the company, or a person authorised by the company to receive whistleblower disclosures.

2.40 Currently whistleblower protection in the private sector is also provided by law under the Banking Act 1959, the Insurance Act 1973, the Life Insurance Act 1995 and the Superannuation Industry (Supervision) Act 1993. These protections are designed to encourage people within companies, or with special connections to companies, to alert ASIC and other authorities to illegal behaviour.[64]

2.41 Mr Hood, the NPA whistleblower explained to the committee that his experience as a whistleblower was 'frustrating' given that:

Through the course of my employment and after all the investigations happened my position was significantly changed. My span of responsibilities and duties were cut back significantly and, ultimately, I was made redundant. I was in a position as CFO where I was responsible for finance, IT, security and compliance; by the time I finished I had only the finance function left with me and was made redundant.[65]

2.42 Mr Hood reflected on his experience:

...while you are progressively reporting things up the line, it is difficult because at some point you end up feeling you do not know who you can trust and who you can turn to. If there were an external party you could confidentially and reliably turn to, that would be of enormous assistance.[66]

2.43 Speaking of the RBA's treatment of Mr Hood, Mr Battellino held that:

We treated him as a whistleblower; we gave him all the protections of a whistleblower. It was not because we felt obliged to but because we wanted to.

When you look at it, we took his concerns very seriously. The day that paper went to the NPA board they took immediate steps. They initiated an audit; they followed it up with the Freehills report. As I say, all those concerns that Brian Hood raised were vindicated through that process. His concerns were taken very seriously. We protected his confidentiality.[67]

2.44 Mr Battellino further noted that since the period of alleged corrupt conduct, whistleblower policies within the RBA have been formalised and improved including with the provision of an external whistleblower hotline which is now considered 'standard practice' amongst companies and organisations.[68]

2.45 Professor of Public Law at Griffith Law School, Griffith University, Professor AJ Brown, stated that the NPA/Securency case brought to light concerns regarding the adequacy of whistleblower protections and highlighted 'massive holes' in the protection of whistleblowers.[69] Professor Brown argued that the revelations about Mr Hood and his apparent victimisation suggest there may have been a breach of corporate laws on whistleblowers but that these laws are weak and have never been used. Furthermore, he argued that Mr Hood's experience highlighted the need for new laws to protect public servants who raise the alarm.[70] He put the view that Part 9.4AAA of the Corporations Act is a 'well-intentioned but relatively poorly framed set of provisions for whistleblower protection for the private sector'. He described the deficiencies of the Corporations Act provisions:

...things like a lack of protection for an anonymous disclosure; the requirement for good faith, which could mean anything or nothing and generally operates as a discouragement to people to report and, if it is quality legislation, is not found in public sector whistleblowing legislation in Australia or elsewhere.

There are other deficiencies in it, including the fact that the compensation mechanism is so ill-defined and is basically tied to the idea that an applicant effectively needs to go the whole hog of a civil action with exposure to costs without any kind of recognition of the employment relationship or the type of relationship which governs and should govern compensation in these situations. It is similar to most of the current public sector state laws in being deficient in that respect. The single biggest problem is that I do not think there is any clarity at all in terms of what 'breaches of the Corporations Law' means for the purposes of activating those provisions.[71]

2.46 Professor Brown informed the committee that establishing what types of breaches might be included under Part 9.4AAA provisions is 'massively open to interpretation'. He questioned whether the type of breaches of the Corporations Act that would trigger these provisions amount to:

technical breaches in the financial reporting obligations of a company's failure (such as to supply their reports on time);
failure to notify of a change of directors; or
breaches of directors' duties, duties by public officials, fraud, corruption, major breaches of law and breaches of foreign bribery provisions.[72]

2.47 Further, Professor Brown identified 'bigger holes' in relation to companies in which the Commonwealth has overriding financial interest. He argued that there is a deficiency in relation to these Commonwealth companies (which may include joint ventures), not only in the private sector whistleblowing regulations but also in relation to public sector whistleblowing regulations. In this regard, Part 9.4AAA should 'provide a robust regime which deals with this situation better but so should the Commonwealth public sector legislation'.[73] However, he concluded that:

I think it is particularly unnerving for the average citizen to see that the entities which are causing the greatest concern in terms of breaches of the foreign bribery legislation are actually Commonwealth government owned, controlled or largely controlled entities. You cannot help but draw a parallel with the recent Australian Wheat Board matter. It was a privatised Commonwealth government owned corporation that was basically found in breach of similar principles internationally. When you have that sort of history and these sorts of issues being raised in relation to Commonwealth entities, the average citizen can only reasonably conclude that there could be problems and look for a sign that the problems are being strategically dealt with.[74]

2.48 On the matter of protections for private sector whistleblowers, the Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery report noted that:

...laws cited by the Australian authorities are insufficient or irrelevant to foreign bribery. Section 317A of the Corporations Act protects officers, employees and contractors of Australian companies who disclose violations of the Corporations Act to ASIC. This covers disclosure of foreign bribery-related false accounting, but not foreign bribery per se. Whistleblower laws that apply only to financial institutions are not so restricted and cover disclosures about any misconduct, including foreign bribery. None of these laws, however, protects disclosures to law enforcement or the media.[75]

2.49 While emphasising the 'inadequate protection' offered to whistleblowers, the OECD Working Group stated that the Securency/NPA case highlighted the need for the better protection of whistleblowers as 'two Securency employees claim to have been dismissed after raising bribery concerns'. It also noted that commentators believe that 'better whistleblower protection could lead to a higher level of foreign bribery enforcement' and provided the following commentary:

The lead examiners recommend that Australia put in place appropriate additional measures to protect public and private sector employees who report suspected foreign bribery to competent authorities in good faith and on reasonable grounds from discriminatory or disciplinary action. The Working Group should also follow up the enactment and implementation of the Public Interest Disclosure Bill.[76]

2.50 In its response to concerns regarding whistleblowers in the private sector, Australia reported the development of draft legislation for public sector whistleblowing protection and consideration of amendments to Part 9.4AAA of the Corporations Act in regard to private sector whistleblowers. The UNCAC Implementation Review Group responsible to review Australia's implementation of the UNCAC noted this initiative as a 'positive' step.[77]

ASIC and the Securency/NPA matter

2.51 Separate to the ongoing court case involving bribery allegations is the matter of directors' duties as prescribed by the Corporations Act which ASIC regulates. Section 187 of the Corporations Act deals with the position of directors of wholly-owned subsidiaries of Commonwealth authorities. The AFP have not charged any director with corruption in relation to the NPA/Securency matter and it is ASIC's role to investigate possible breaches of directors' duties.

2.52 Some witnesses to the inquiry raised the question of the exercise of power by NPA and Securency directors. Mr Michael Ahrens of Transparency International Australia (TIA) noted that the question of whether there was a breach of directors' duties is 'apparently not going to be ventilated by an investigation' and is separate to the matters currently subject to court action.[78] Mr Hood expressed the view that:

I am very mindful that the Corporations Law requires managers, directors and board members to exercise their powers and discharge their duties with care and diligence, and that there are such things as the 'business judgement rule', where you are meant to act in good faith and make decisions for a fit and proper purpose and in the best interests of an organisation. I wonder if a lot of the actions and inactions at Note Printing would pass that test and if some of those questions not only have not been answered but have not yet been posed.[79]

2.53 Mr Hood informed the committee that he had not been approached by ASIC at any stage and that he had not approached them, having only dealt with the AFP.[80] Further, the Governor of the RBA, Mr Stevens also gave evidence to the House of Representatives Economics Committee that ASIC had not contacted the RBA.[81]

2.54 A key responsibility of ASIC as part of its market integrity and corporate governance functions is to investigate suspected misconduct by company officers and take enforcement action to achieve criminal convictions via the CDPP, civil penalties or administrative sanctions. Section 180 of the Corporations Act requires that company directors and other financial officers exercise their powers and discharge their duties with care and diligence. In addition, under section 181, directors and other corporate officers are required to exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose. ASIC can lay criminal charges against directors it believes have acted recklessly and it has the power to pursue civil proceedings for breach of duties.

2.55 Section 13 of the Australian Securities and Investments Commission Act 2001 empowers the regulator to conduct a formal investigation where it suspects a breach of the law is being committed. Once an investigation is underway, ASIC can require a person to appear (section 19) and give information relevant to the investigation, as well as give reasonable assistance. ASIC determined not to proceed with a formal investigation and on 12 March 2012, issued the following statement in relation to the Securency/NPA matter:

The Australian Federal Police (AFP) has provided ASIC with material relating to bribery allegations concerning Securency International Pty Ltd and Note Printing Australia Limited.

ASIC considers a range of factors when deciding to investigate and possibly take enforcement action.

In line with its normal practice, ASIC has reviewed this material from the AFP for possible directors' duty breaches of the Corporations Act and has decided not to proceed to a formal investigation.

ASIC intends to make no further comment on this matter.[82]

2.56 When questioned about its engagement with the AFP by the Parliamentary Joint Committee on Corporations and Financial Services, ASIC stated that it had held discussions with the AFP at various times throughout 2011 about a possible referral to ASIC. At a 21 January 2012 meeting at the AFP, ASIC officials were provided a briefing on the AFP investigation and on 24 January, ASIC was provided with a CD containing the documents identified by the AFP as potentially relevant to the referral.[83] ASIC advised the Parliamentary Joint Committee on Corporations and Financial Services:

ASIC held discussions with the AFP and analysed these documents for the purposes of deciding whether or not to commence an investigation. Based on that review ASIC noted that there were significant obstacles to commencing any action. ASIC then issued a statement on 12 March 2012 to advise it had decided not to proceed to a formal investigation.[84]

2.57 In response to specific questions about ASIC's role in relation to the Securency/NPA matter, Ms Belinda Gibson, Deputy Chairman, ASIC provided the following statement to the Corporations and Financial Services Committee on 21 March 2012:

Perhaps I should explain that the legislation for payment of bribes is a matter vested with the Federal Police. With respect to those breaches, our scope to do anything is very limited in these respects.

...

We would bring directors' duties [actions], where there are breaches, where the company is threatened as to its very undertaking. That is the sort of instance that might also engage other legislation.[85]

2.58 In evidence to the committee on 11 May 2012, Mr Warren Day, ASIC's Regional Commissioner, stated that ASIC does not 'see itself as having a role as to integrity across agencies' and that its role is to focus on alleged breaches of the Corporations Act 'and no further than that'.[86] He further noted that, ASIC does not have any direct powers in relation to bribery and corruption.[87]

Responses and lessons learned across Commonwealth agencies

2.59 Assistant Commissioner of the AFP, Mr Kevin Zuccato informed the committee that there had been quite a lot of outreach by the AFP to other Commonwealth departments with regard to learning lessons emanating from the Securency/NPA matter. Assistant Commissioner Zuccato noted that this outreach had led to 'increased engagement with the AFP by those agencies, who now report matters to us more frequently'.[88] The RBA noted, however, that it had neither been asked nor had provided advice to other Commonwealth agencies in relation to its experience of the matter.[89]

2.60 The committee asked a variety of agencies, including DFAT, ASIC, Austrade and Export Finance and Insurance Corporation (EFIC), what lessons, if any, they had learned from the NPA/Securency matter. Austrade's Executive Director of Education and Corporate Operations, Mr Peter Yuile described the agency's response to the NPA/Securency matter as a 'wake-up call, for business and for officials'. As part of its own response to the matter, Austrade conducted an internal review of the organisation and its strategic direction in the areas of promotion, advisory responsibilities and governance. Austrade also took legal advice about the Criminal Code Act 1995 (Criminal Code) to understand its parameters and translate the legislation into a practical legal code for staff. Face-to-face training was conducted with all staff overseas and in Australia, with checklists provided to staff.[90] Further, Austrade consulted the AGD and AFP while Transparency International reviewed its training program.[91] Mr Brendan Jacomb, General Manager, Legal, Security and Procurement at Austrade explained that:

The training that has been done is very focused on the scenario and situations facing Austrade and drawing on any learnings, lessons and insights from the Note Printing and Securency matter. I think there was a combination of the understanding of the law and practical considerations: 'What are the circumstances you are going to face out there in the market and what are the sorts of practical examples you will need to work your way through and the steps you will need to take not only to make sure you are doing the right thing but you are seen to be doing the right thing and you are recording that the right thing is being done?'.[92]

2.61 In terms of any allegations of corruption, Austrade refers all such concerns to the AFP. Emails are sent directly to a special mailbox set up by an AFP unit which deal with claims under section 70 of the Criminal Code Act concerning the facilitation payment defence. Thereafter, the AFP acknowledges the information and conducts inquiries. It will then inform Austrade whether a matter is closed, a broader investigation will be undertaken or whether additional information is required. In this regard, Austrade's Mr Jacomb noted that:

A lot of the material we have comes from eyes and ears out in the field: 'We heard or saw something.' It can vary in range and it can even be overhearing something in a social context. But we have made it very clear to the world and to our clients that if we see, hear or are aware of any bribery we are going to refer it to the Australian Federal Police, and that is what we are doing.[93]

2.62 When asked further whether Austrade staff have any involvement in the NPA/Securency matter Mr Yuile responded:

Certainly Austrade officers have worked with Securency around the world—that is a matter of record—and introduced them to other agencies within those markets. If the question is 'Have any Austrade officers been charged?' the answer is no. But we have been providing full information and assistance to the AFP, and they have acknowledged that publicly. At this stage anyway, we are doing all we can to support that investigation.[94]

2.63 DFAT informed the committee that when the Securency bribery allegations were referred to the AFP, the department reviewed its guidelines at posts to assess the 'bona fides of Australian businesses seeking assistance overseas' as part of a broader review of the guidelines for assisting business.[95] The guidelines had previously been updated following other revelations involving Australian businesses overseas, namely the Cole Inquiry into Certain Australian Companies in relation to the UN Oil-for-Food Programme. DFAT established that in some cases, additional information could be obtained through other agencies but that there remained 'significant constraints on the capacity of agencies to share information on companies, given confidentiality and legal restrictions'. Therefore DFAT advised:

Government agencies have limited capacity or authority to investigate Australian business to an extent that would make them fully aware of the propriety of all the activities undertaken by any one business.[96]

Committee view

2.64 The NPA/Securency case raises the critical importance of integrity standards and due diligence. These need to be matched with clear processes in relation to reporting suspected misconduct and corruption as well as effective protection of whistleblowers. The case demonstrates how, in a situation in which established policies and procedures were not adhered to or subject to effective oversight (for reasons including the poor relationship between the respective company boards and management), an opaque culture of secrecy and collective amnesia (when asked to explain practices) came to characterise both companies.

2.65 The NPA/Securency matter, which is yet to run its full course, could only have damaged Australia's international reputation and standing. It serves as an important case where bribery was not uncovered through internal reporting systems or robust oversight, but rather through individual actions. The experience of Mr Hood reveals the extent to which whistleblowers can ultimately suffer both professionally and personally for making such revelations. The NPA/Securency matter serves, therefore, as a serious reminder to companies that they cannot rely on the efforts of individuals to highlight the systemic weaknesses in their operations. It demonstrates the need for a strong reporting culture which encourages staff to question practices and raise concerns.

2.66 The public has a right to expect that the need for appropriate protections for private sector whistleblowers as well as clear and transparent reporting systems which were thrown into sharp relief by the NPA/Securency matter will be addressed. While the committee is mindful that legal proceedings continue, it will endeavour to monitor for potential future inquiry, key integrity matters including private sector whistleblower protections and the efficacy of the guidance provided regarding the facilitation payment defence. The committee appreciates that reforms to private sector whistleblowing may take place once public sector whistleblowing reforms are fully considered. The committee strongly encourages consideration of the evidence regarding private sector whistleblowing and the reforms needed to it as highlighted in this chapter. Lessons emanating from the NPA/Securency matter appertaining to the role of whistleblowers and oversight of disclosures of potential misconduct and corruption must inform the reform process.

2.67 The committee acknowledges that ASIC is focused on alleged breaches of the Corporations Act rather than the integrity matters per se. For these reasons, consideration of private sector whistleblower protections should also take into account the need for a strong and robust oversight function in relation to the integrity of corporations. If such an oversight function is established, the welfare of whistleblowers needs to be a key consideration in the management of the integrity process.

2.68 The committee also notes the concerns of DFAT regarding the constraints on Commonwealth agencies sharing information about companies which may otherwise provide some assessment of probity in relation to the activities of companies overseas. The committee recognises the importance of the proposed National Anti-Corruption Plan in bridging the integrity divide between the public and private sector including the facilitation of common integrity standards which narrow the gaps between the operations of private and public sector agencies.

2.69 The key issues brought to light by the NPA/Securency matter including robust integrity and reporting systems, oversight, whistleblowing provisions and due diligence informed the committee's deliberations throughout the inquiry.

Navigation: Previous Page | Contents | Next Page