Thursday October 3 2013
– Corruption and cover-ups in Leighton Holdings’ international construction empire were rife and known to top company executives and directors, according to internal company files.
Those in the know included the Australian construction giant’s chief executive at the time, Wal King, and his short-term successor David Stewart.
In revelations that will cause international embarrassment for Australia and raise questions about the role of the nation’s corporate watchdog, the files expose plans to pay alleged multimillion-dollar kickbacks in Iraq, Indonesia, Malaysia and elsewhere, along with other serious corporate misconduct.
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, one of Australia’s most highly regarded chief executives and who has reportedly been approached by Communications Minister Malcolm Turnbull about taking an NBN Co board seat, was chief executive of Leighton Holdings for 23 years and is a prominent Sydney business community figure.
Leighton is one of Australia’s biggest construction companies, with a market value of nearly $7 billion. It has built the Victoria desalination plant, Sydney’s ABC studios, and Brisbane’s Ross River dam.
Among the most explosive of the company files is a memo written on November 23rd, 2010, by then acting CEO David Stewart. It says Leighton International managing director David Savage had revealed he and Mr King knew of a $42 million kickback to a firm in Monaco nominated by Iraqi officials who gave Leighton a $750 million oil pipeline contract. “I asked did Wal K approve is? And he said yes,” the memo said.
Around the same time, a private consulting firm, Concorde Corporation, advised Leighton it was exposed in Asia to allegations of “conflict of interest, kickbacks, unethical staff appointments and so on”.
Concorde warned that the allegations “indicate a serious breakdown of probity, governance and ethics within Leighton’s Asian operations”.
The allegations coincide with a tumultuous time at Leighton after Mr King, who has been awarded an AO, left the company to be replaced by Mr Stewart, and an international takeover battle between Leighton’s major shareholder, the German company Hochtief and a Spanish firm, ACS.
In his time at the top, Mr King transformed Leighton into a global construction powerhouse with $13 billion in revenue.
Confidential legal advice provided to Leighton in late 2010 also warned that executives might be linked to corruption or serious mismanagement and that the company was facing an “extreme” risk of damage to its reputation.
But Leighton withheld the Stewart memo, along with other files detailing corruption, from authorities for several months or failed to pass some of them on at all.
Another key factor impending full exposure of the corporate scandal is the apparent failure of the corporate watchdog, the Australian Securities and Investments Commission, to conduct rigorous investigations in the two years since Leighton alerted federal police that it may have breached foreign bribery laws in Iraq.
ASIC has spoken to no witnesses or suspects, despite witnesses telling federal police they had grave concerns about corporate offences in the company.
Key Leighton witnesses and whistleblowers, including former top Leighton executive Stephen Sasse, told Fairfax Media on Wednesday that ASIC and the federal police appeared unable to adequately respond to the breadth of issues engulfing Leighton.
“I would be surprised if the federal police or ASIC have the expertise or technical knowledge to undertake investigations of this nature,” Mr Sasse said. “I suspect that the lack of urgency stems from resourcing issues rather than any lack of purpose.”
He declined to answer questions about his stint at Leighton in 2011.
Another source familiar with the Australian Federal Police investigation revealed that AFP agents privately complained about inadequate resources to conduct a proper probe.
ASIC – which failed to respond to inquiries from Fairfax Media – is already under pressure for failing to investigate alleged corporate law breaches linked to the Reserve Bank bribery scandal. ASIC referred questions about Leighton to the federal police, which stressed it was treating the Leighton case as a “priority”.
“We are working to ensure that alleged criminal activity is uncovered,” Commander Ian McCartney said.
In a statement, Leighton Holdings said on Wednesday that it was cooperating with police, had strong anti-corruption policies and that its directors have “at all time executed their duties with the appropriate care and diligence” required by law.
Mr Stewart’s note says Mr Savage had claimed that Monaco-based firm Unaoil had been paid kickbacks by Leighton via an inflated $87 million contract of which the value of “real work” was “less than half”.
Unaoil is run by an Iranian family that boasts close ties to Iraq’s oil minister and Prime Minister. Unaoil was recently named in the British High Court as a company with influence among Middle Eastern and African officials and that was once wired a commission “disguised as payment for office equipment”.
Mr Savage was given a $2 million bonus when he left the company on March 31st, 2011, despite internal concerns about his knowledge of corruption.
Mr Stewart’s memo of November 23rd, 2010, says Mr Savage allegedly suggested an extra $23 million illicit payment to win a further $500 million worth of work in Iraq.
“It is exactly what got the AWB into trouble with their trucking contract at two to three times the market rates,” Mr Stewart recorded himself telling Mr Savage, in reference to the Iraq bribery scandal involving AWB Limited in 2006.
“Wal King is still CEO and if he is ok with it, go for it,” Mr Stewart’s memo says.
The memo was not passed to police until November 2011, a year after Mr Stewart wrote it and only after lawyers working for Leighton accidentally stumbled over it.
When Fairfax Media tried to question Mr Stewart about the bribery allegations this week, he responded: “I don’t know anything about it at all.”
Mr King declined to speak to Fairfax Media. A company source still close to Mr King cast doubt on Mr Savage’s claim – as recorded by Mr Stewart – that he had discussed inflating the Iraqi contract with the former chief executive.
But the confidential Leighton files also reveal that Mr King and other top executives were emailed in 2009 by a whistleblower about a “payoff” made to a corrupt Leighton employee in connection to a barge-building project in Asia.
They also reveal the whistleblower’s corruption concerns were subject to bungled internal investigations, despite spanning “several countries”, including Indonesia and India, and exposing “criminal” conduct, including a “systemic fraud”.
“It is not difficult to understand the frustration expressed by [the whistleblower]…that the has been an attempt to cover up these issues,” a company memo says.
The whistleblower allegations exposed another company middleman, Malaysian-based businessman Pakianathan Sri Kumar, who was allegedly involved in corruption.
Mr Sri Kumar has worked with Leighton in Iraq, Indonesia, India and Tanzania and the whistleblower said he had heard that the businessman received “a 10% kickback” on certain projects, “some of which is passed to Leighton executives”.
Leighton’s Indian projects alleged to be tainted by corruption were multimillion-dollar offshore works in the Indian town of Cochin and the district of Jamnagar.
In confidential legal advice provided to Leighton in late 2010, Sydney lawyer Malcolm Davis warned that Leighton executives may be tainted by corruption or serious mismanagement.
“It is perhaps trite to say that ‘reputational’ risk to LHL [Leighton Holdings] and the greater LH Group is extreme were it ever to become know that LIL [Leighton International]…engaged in conduct of the kind referred to in the allegations of impropriety.”
Mr Davis said it “beggars belief” that a Leighton senior project manager who had engaged in clearly “criminal conduct” with Mr Sri Kumar in Indonesia was not sacked.
The manager, Gavin Hodge, allegedly stole $500,000 worth of steel from Leighton to build a barge for Indian company Adani in a black-market racket. Rather than being sacked, Mr Hodge was given a bonus and thanked for his work by a Leighton executive who knew of his alleged corruption, Russell Waugh.
Mr Waugh, who could not be reached, is now a top executive at engineering and property services company UGL.
After Mr Davis’ scathing advice, Leighton finally fired Mr Hodge and initiated private legal proceedings against him to recover $500,000 he allegedly stole.
Mr Savage declined to answer questions.
– Nick McKenzie & Richard Baker