Banknotes scandal covered up

Banknotes scandal covered up - The Age - NICK McKENZIE and RICHARD BAKER - AGE INVESTIGATIVE UNIT - 5/10/2011

SOME of the Reserve Bank of Australia's most senior officials were involved in covering up extensive evidence of corruption inside the central bank's subsidiaries, Note Printing Australia and Securency.

An investigation by The Age has found top RBA officials suppressed damaging information in 2007 and 2008 about the payment of secret commissions to middlemen hired by the RBA firms to win banknote contracts in Nepal and Malaysia.

Among the officials who knew of the serious corruption concerns are deputy governor Ric Battellino, former deputy governor Graeme Thompson and former Note Printing Australia boss Chris Ogilvy.

Misconduct that may have breached Australian laws also was not relayed to police or corporate regulators by bank officials including assistant governor Frank Campbell and former assistant governor Bob Rankin, who is now the RBA's chief representative in Europe.

The evidence of the cover-ups is contained in internal documents from the RBA and the banknote firms, including many seized by the federal police after executing search warrants.

The documents challenge RBA governor Glenn Stevens's statement to a federal parliamentary committee in February that "no one in the Reserve Bank or on our board" knew of corruption allegations involving Securency and NPA before The Age revealed them in May 2009.

In another development, confidential documents obtained under freedom-of-information laws reveal that at the same time the RBA officials were suppressing information about corruption, the RBA board was given a written warning about Note Printing Australia's conduct.

In a statement last night, the RBA denied the allegations, saying they were based on "inaccurate and incomplete facts". But it said specific details could not be addressed as the matters were, or were potentially, the subject of court proceedings.

Deputy Opposition Leader Julie Bishop said last night that the latest revelations involved serious allegations of breaches of domestic and foreign laws that, if proven, could seriously harm Australia's international reputation. "The government must take all necessary steps to ensure that anyone involved in corrupt behaviour or in attempting to cover-up such behaviour be held accountable for their actions," she said.

Greens MP Adam Bandt said the revelations were "astounding" and he would request the House of Representatives economics committee re-call Mr Stevens and other RBA officials to explain how these new revelations sat with their previous evidence.

"The Treasurer can no longer stand to one side. He must immediately establish an inquiry to get to the bottom of these serious allegations," Mr Bandt said.

Files held on the computer archives of RBA or its two subsidiaries confirm that senior RBA officials on the board of Note Printing Australia a company fully owned and overseen by the Reserve were aware that the firm had lied in tender documents given to the Nepal Central Bank.

The documents contained false information about how much money NPA had funnelled to a Nepalese middleman in 2002 and 2004 in order to win banknote contracts. The accurate disclosure of such commissions was required under Nepalese law.

In September 2007, the NPA board agreed that the hiding of the commissions from the Nepal central bank amounted to "serious breaches" but, in the same board meeting, agreed not to disclose these breaches to Nepal for "pragmatic" reasons and on legal advice.

Among the NPA board members involved in this decision were Mr Campbell, Mr Thompson (then chairman of NPA and Securency) and Mr Ogilvy, NPA's managing director who was also a Securency director. Months earlier, the NPA board was warned its Nepalese middleman may be using his commissions to pay bribes.

A further cover-up occurred in 2007 after Mr Thompson, Mr Campbell and Mr Ogilvy discovered that the price of a banknote contract had been artificially inflated to cover secret commissions to a Malaysian middleman.

Again, rather than reporting this potentially illegal behaviour to police or corporate regulators, the serving and former RBA officials on the boards of Securency and NPA agreed to handle it internally. The board of NPA contracted law firm Freehills to conduct an audit of corruption related concerns. The RBA says Freehills found no breach of Australian law and therefore the bank did not need to notify police.

The Age can also reveal that:

In 2007, Mr Thompson personally authorised a payment of almost $500,000 to a Malaysian middleman just months after the agent was sacked by Note Printing Australia over corruption concerns.

Mr Thompson, Mr Campbell, Mr Ogilvy and other RBA officials were told in writing in 2007 that the Malaysian middleman was paying kickbacks with NPA funds, but did not alert police.

Dr Rankin was warned in writing in 2008 of corruption and serious misconduct at Note Printing Australia, but did not alert police or ASIC.

In 2007 and 2008, Mr Battellino was told of serious corruption concerns at NPA, but did not alert police and instead directed staff to handle concerns internally.

Mr Campbell was asked by another Malaysian agent to ensure NPA paid him his commissions because the agent a former Malaysian MP and ruling political party treasurer said he had used his personal influence with Malaysian politicians to win the RBA firms major contracts.

The first call any RBA official placed to police about corruption was made by Dr Rankin in May 2009, after The Age published the first story about the scandal.

In July, the Australian Federal Police charged NPA, Securency and several former company executives with bribery offences in Malaysia, Vietnam and Indonesia. They allege the commissions received by several middlemen were used to pay millions of dollars in bribes

Police have not charged any RBA officials or appointees to the boards of its subsidiaries. A federal police spokesman said the investigation was continuing.

Documents released under freedom of information include a confidential memo presented to the RBA board in October 2007.

The memo stated: "There has been a long history of concern, including that expressed by the Audit Committee and the RBA board, that the laxity of the control environment at NPA has been at serious odds with the careful risk-management culture of the bank and that these cultural deficiencies potentially expose the Bank to serious reputational and financial risk."

In February, Mr Stevens told a parliamentary committee: "As far as I can see, the board members that we appointed from our side [the Reserve Bank] have acted properly. I am yet to see evidence to the contrary."

"We 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'. Quite a bit of work is being done to go back through records. You would expect us to do that and we have done that."

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.

RBA Governor Glenn Stevens to parliamentary committee in February 2011

GRAEME THOMPSON Former RBA deputy governor and NPA/Securency chairman:

Covered up secret commissions from Nepalese and Australian authorities in September 2007
Authorised large payment to Malaysian agent sacked for corruption concerns in 2007
Approved the hiding of a secret commission in an inflated Malaysian contract in 2007
Told in 2007 of NPA's alleged bribes did not alert police

FRANK CAMPBELL Assistant RBA governor:

Covered up secret commissions from Nepalese and Australian authorities in September 2007
Learnt of secret commissions in inflated Malaysian contract but did not tell authorities
Told by agent that senior Malaysian politicians had been personally influenced to award contract to NPA in 2007
Told of NPAs suspected bribes in 2007 but did not alert police
CHRIS OGILVY former NPA managing director and Securency director
Sought to cover up damning evidence of bribes paid by NPA from RBA auditors and lawyers
Covered up secret commissions from Nepalese and Australian authorities
Failed to call in police about explicit information about NPA bribery in 2007

RIC BATTELLINO RBA Deputy Governor:

Learnt of NPAs suspected bribes in 2007 but did not alert police
Directed staff to handle bribery concerns internally in 2007-08
BOB RANKIN RBA European Chief Official and Securency Chairman
Warned in writing in 2008 of corruption and corporate malfeasance but did not tell police;
Approved Securency payments to offshore tax havens in 2009, after police began bribery probe