4th IAACA Symposium Dalian, China, June 2012 Asset Recovery: Australia as a Haven for the Proceeds of Foreign Corruption John McFarlane Adjunct Fellow/Associate Investigator Australian Research Council Centre of Excellence in Policing and Security Australian National University Canberra ACT Australia Jason Sharman Professor/Director Centre for Governance and Public Policy Griffith University Brisbane QLD Australia Australia’s Present Position concerning Corruption OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997) Ratified 18Dec99 United Nations Convention Against Corruption (2005) Ratified 07Dec05 G20 Anti-Corruption Working Group initiatives (2011) Drafting the National Anti-Corruption Plan Anti-Corruption agencies Several state anticorruption agencies. Commonwealth ACLEI [Recent OECD Review concluded that Australia has applied “little or no enforcement” action] Commentary on Inadequacies at the Commonwealth Level • ACLEI only handles Australian Federal Police, Australian Crime Commission and Customs and Border Protection Service. Nothing for Parliament, the other Commonwealth Departments, the lobbying sector, corporate sector, etc • Two significant cases have attracted publicity and critical commentary: The Australian Wheat Board and the Iraqi Oil-for-Food scandal The Securency/Note Printing Australia case • AFP is now taking initiatives on asset recovery matters, at least domestically The Australian Wheat Board and the Iraqi Oil-for-Food Scandal • In the investigation of the Iraqi Oil-for-Food Program (Volcker Inquiry) reported in September 2005, the Australian Wheat Board paid US$222 million (Aus$ 298 million) in “incentives” to the Saddam Hussein regime, through a Jordanian trucking company, named Alia. The AWB was, by far, the largest contributor to the Iraqi regime. A BHP subsidiary, Tigris Petroleum Corporation, may also have been involved to the amount of Aus$8 million. Other Australian companies were also named by Volcker. • The AWB may also have been involved in paying “kickbacks” to customers or governments in Pakistan, Yemen and Indonesia during the 1990s. • Amongst other things, a judicial inquiry [The Cole Inquiry] looked at whether the Australian Government was aware of what was being done by the AWB in order to secure wheat sales. Report tabled 27Nov06. No charges laid, but follow-up action recommended for a law enforcement task force. • The Australian Taxation Office accepted payments made by the AWB under the United Nations Food for Oil Program do not constitute bribes to foreign public officials for the purposes of the Income Tax Assessments Act 1997. As a result, the AWB claimed up to $300 million in kickbacks (“trucking fees”) to the Iraqi Government as a tax deduction. • Securency and Note Printing Australia manufacture and market polymer banknotes. • Allegations of widespread bribery and corruption at Securency and Note Printing Australia, both (at the time) Reserve Bank of Australia (RBA) subsidiaries. Currently being investigated by the AFP. Information from a whistleblower. Seven former employees charged. Role of senior officials in the RBA also under investigation. ASIC reviewed AFP investigation on the basis of possible breaches of the Corporations Act, but has decided not to proceed to a formal investigation. • ABC Four Corners (24May10) claims Securency paid about Aus$50 million since 2003 in commissions to “shady foreign businessmen” who bribed central banking officials in Asia, Latin America and Africa to replace their paper banknotes with Securency’s polymer banknotes. • Countries targeted included Indonesia, Nigeria, Malaysia, Vietnam, and Paraguay Under Australian corporations law, a company can be held liable for the actions of its employees and agents if it can be shown that its culture directed, encouraged or led to corrupt conduct. Australia as a Haven for the Proceeds of Foreign Corruption If you were a corrupt foreign leader, where would you hide your loot? World Bank research suggests some answers: 1.Not in your home country in case political circumstances change 2. The haven country should have a solid financial sector and a strong currency 3.Cultural ties are an advantage, as in a common language 4.Aside from keeping money in the bank, real estate is a popular investment option for stolen wealth All these conditions exist in Australia to the advantage of corrupt leaders in our region. Australia and the Region • Consider Papua New Guinea: o Estimated that up to 50% of the national budget may be o o o o misappropriated or stolen each year Many politicians and senior officials have illicit wealth and/or extensive real estate holdings in Australia Real estate agents are not covered by AUSTRAC legislation, so avoids Australian scrutiny The Chair of the 2011/12 Task Force Sweep, examining corruption in various PNG Departments said “foreign countries like Australia .. are becoming … Cayman Islands, where perpetrators (are) readily allowed to invest their proceeds of crime.” Prominent PNG politician reported to have channelled A$50 million into a bank account in rural New South Wales • Consider China o Former Governor of Yuanzhou, Yunnan Province, was found in 2011 to have invested alleged corruption proceeds in six Melbourne properties Australia as a Haven for the Proceeds of Foreign Corruption • Australian government officials rely too much on bank customer due diligence and reporting • Australian bankers seem not to believe that the Commonwealth Government takes this issue seriously, so they also take a relaxed view of the risks involved • Banks probably consider that the proceeds of corruption are a valuable deposit, and do little to stop it. • A more vigilant role is required by both the banks and government officials, especially AUSTRAC. More sharing of information with the PNG FIU, Ombudsman, etc. • Real estate holdings in Australia by foreign PEPs should be identified. Overseas experience should be considered. • Attitudes and practice in this area expected to improve under the proposed NACP, but there is a lot to be done. Recent AFP Experience 1. 2. 3. 4. 5. 6. Identification of property in question (particularly derivative property) may be very difficult Often assets can only be purchased in certain states if a local person is party to the purchase. These commercial arrangements complicates the investigations Bank accounts generally easier to investigate, but infrastructure bonds, equity market instruments, etc, complicate the investigations Generally the focus of the investigation has been on the transaction itself, for which financial institutions may be receiving a fee. Conflict of interest? Inconsistency with which FIUs can use information received. Sometimes the information, or the source of the information, is classified. This raises barriers to the free flow of information necessary to prosecute money laundering and related offences AFP follows the profits of crime wherever they lead. AFP would always welcome cooperation with any agency whose investigation of corruption, fraud or money laundering indicates Australian connections Conclusions 1. The identification, confiscation and return of assets embezzled, stolen or misappropriated by PEPs(politicians and officials) is of enormous importance. Consider the drivers for the “Colour Revolutions” and the “Arab Spring”. 2. For Australia, scandals involving the AWB and Securency/Note Printing Australia demonstrate that, up to now, Australia has done little to enforce the OECD Convention, etc. This situation is changing. 3. Australian investigations in this area should, in future, focus on the consequences of large scale corruption, rather than apparently shielding the Government and public agencies from embarrassment 4. Australia probably needs anti-bribery legislation along the lines of the UK Bribery Act 2010, and also a Commonwealth ICAC-type agency to investigate and prosecute corruption at the Commonwealth level. Recommendation The authors thoroughly recommend the book, Barriers to Asset Recovery by Kevin M Stephenson and five others, written in 2011, as a StAR (World Bank/UNODC) initiative. This provides a major contribution to this discussion.