Public sector corruption survey

Transparency International Australia (TIA) is supporting the TIA Queensland Regional Committee in conducting a pilot Survey in relation to public sector corruption in Australian states.  If you have the time help by completing the Survey today.

Lax rules boost risk of organised crime snaring government contract

From The Conversation

Louis de Koker, Deakin University and Kayne Harwood, Deakin University

Four Corners this week revealed more about how criminals may be able to access political favour via political donations in Australia, but that is only part of the picture.

New research suggests more work needs to be done to prevent criminals from subverting government procurement processes and funding their illegal activities by winning tenders to supply goods and services to the government.

How to make crime pay 

There are many ways for a criminal to secure a tender. He may receive favourable treatment at the tendering process after a generous political party donation. She may bribe or intimidate a politician or procurement official. Procurement officials may award the contract to a business not knowing that it is controlled by criminals. Criminals may, of course, also gain such control of a supplier after the contract is awarded.

The risk of criminals controlling businesses is real. The Australian Crime Commission’s May 2015 Organised Crime in Australia report identified the abuse of legitimate business structures as one of the key enablers of organised crime in Australia.

Sole proprietorships, companies and trusts are, for example, used to hide who owns and controls a firm. Such business structures can also be abused to fund crime and and launder the proceeds of crime – or even facilitate terrorist financing. The US Special Inspector General for Afghanistan Reconstruction investigated US Army procurement practices in Afghanistan and found more than US$150 million in contracts had been awarded to companies with ties to terrorists.

In an effort to disrupt the money flows of criminals and terrorists, governments worldwide have adopted laws based on standards set by the Financial Action Task Force, an inter-governmental body that aims to combat money laundering and terrorist financing.

A key plank of the standards requires countries to compel banks to adopt “know your customer” due diligence practices to identify criminals and keep their transactions out of the banking system. Banks must take reasonable steps to identify and verify all customers and controllers (called beneficial owners) of customers. To guard against laundering risks linked to corruption, they must also identify customers who hold senior public offices (so-called Politically Exposed Persons), their family members and close business associates. Identity particulars must be verified using reliable, independent source data or documents.
But do governments apply the same due diligence measures when they do business?

More to be done

We conducted a study, recently published in the Sydney Law Review, into whether Australian governments take similar care to “know their suppliers”. The procurement spend of Australian governments exceeds A$110 billion per year and presents a rich target for criminals.

We focused on the type of identification and verification measures that a range of Australian government departments and agencies undertake in relation to prospective contractors.
In general, we found that standard procurement practices fall well below the standard of the “know your customer” checks required of banks.

General government procurement practices, for example, do not consistently identify the directors and the controllers of corporate suppliers. It is not routine for procurement officials to check consistently if tender candidates have a criminal history or whether they are controlled by public servants or serving politicians.

Suppliers are not generally checked against blacklists maintained by other governments or the World Bank or even against Australia’s own foreign sanctions list.
Where information is collected, it is generally not independently verified. In essence, the government accepts the word of the supplier.

Reducing risk

Such practices expose Australian public procurement to criminal risk. Australia has been rocked by enough procurement scandals to show that there is little justification for complacency.

Victorians recently witnessed the very public picking apart of the Department of Education and Training, as stories of Nino Napoli diverting public funds through dodgy contracts hit the headlines.

And earlier this year, charges were laid against nine people following an investigation into alleged serious corruption in the transport sector. That case focused on the procurement of infrastructure works at Public Transport Victoria and the former Department of Transport.
In NSW, ICAC’s inquiries into former ALP minister Eddie Obeid turned up various cases where he is alleged to have attempted to influence decisions of public officials favouring certain companies, without disclosing his or his family’s interests in those companies.

Headlines such as these saw Australia falling out of the top ten countries in Transparency International’s annual global Corruption Perceptions Index.

The failure to properly vet suppliers not only increases the vulnerability of procurement processes to corruption and abuse, but also undermines the effectiveness of Australia’s anti-money laundering and counter-terrorism financing laws. It enables criminals to use tax dollars to fund criminal activities and provides them with an appearance of public respectability that may facilitate their access to formal financial and professional services.

This problem can be fixed. As a starting point, government procurement processes at all levels should be amended to include standardised, risk-based supplier integrity checks.
Trained procurement officials should be given access to the data that bank compliance officers use to perform their integrity checks on customers. Harnessing the power of Big Data will be crucial in the long run.

Governments say they have declared financial war on crime, corruption and terrorism but this battle cannot be fought by the private sector alone.

Governments need to do better, and join the private sector in this battle. The current gaps pose a risk to Australian national security that should not be ignored.


Louis de Koker is Professor of Law at Deakin University.
Kayne Harwood is Casual Lecturer in Law at Deakin University.

This article was originally published on The Conversation. Read the original article.

(Comment: The Federal government could do better as well by establishing an anti-corruption commission.) 

Trust in politicians Episode XXX: "Democracy for Sale"

On ABC Four Corners last night Linton Besser illustrated how a deal to win partial control of a major public utility opened the door on a web of alleged corruption, impacting both State and Federal politics and players on both sides of the political divide, and how the rules that are supposed to regulate political donations can be ignored or corrupted right across Australia. 

It's not just that the Federal and state rules relating to political donations are weak, and as shown, ineffectual. So too those that relate to lobbyists. NSW rules on that front may be ahead of other jurisdictions but recommendations from the ICAC in 2011 still await a response

And as the program points out while we have anti-corruption bodies in the states there is no Federal commission to fight corruption. 

The Greens introduced the National Integrity Commission Bill into Parliament last year. When it came up for debate in May Liberal and National party senators who spoke dismissed the idea out of hand. As Senator O'Sullivan put it:

This government is proud of Australia's position and reputation. Australia is consistently ranked by Transparency International as one of the least corrupt countries in the world. This is a recognition of the net measure of respective coalition governments in this place and in states right across this country. As a political movement, we have a sub-zero tolerance to corruption.

Watch or read the Four Corners transcript. A couple of extracts follow including Senator John Faulkner's call for a lower threshold for reporting political donations and close to real time disclosure, and adding his voice at least to the national integrity commission cause.

More transparency, just a start

NSW shame revealed. All you can say is some of it bubbled to the surface- eventually.

From today's Sydney Morning Herald-the paper (and its journalists) that deserves enormous credit for pursuing these issues for years.  The editorial reminding it has lessons for the here and now:

No matter which political party is in power, the public deserves to know public administration pays heed to their interests over individual or party ones.
Facing a much-weakened Labor opposition, the O'Farrell government has fallen short on transparency of major projects such as the casino for Packer interests at Barangaroo. But ICAC has put O'Farrell on notice that more is needed to prevent corruption, suggesting it will release reports later this month drawing on failures of process under Macdonald's watch......

• Ian Macdonald and a prostitute called Tiffanie
• The car deal too good to be true
• The reports: Operation Jasper | Operation Indus | Operation Jarilo
• As it happened: ICAC find Obeid and Macdonald acted corruptly

"Corruption findings have been made and criminal charges flagged against Eddie Obeid, the former ALP powerbroker, and his sons, as well as the state's former resources minister Ian Macdonald, and a host of businessmen - including an accused murderer - after the most significant graft inquiry in NSW history.


Three reports by the Independent Commission Against Corruption were tabled on Wednesday morning in the NSW Parliament, following almost three years of secret investigation by the commission, and almost six months of public hearings that concluded earlier this year.


In two of the reports, Mr Macdonald was slapped with a corruption finding - including for accepting a night in a luxury hotel room with a prostitute named "Tiffanie".


Evidence gathered by the corruption fighters about Mr Macdonald will now be referred to the Director of Public Prosecutions for potential criminal charges, including corruptly receiving a benefit and misconduct in public office.
The offences carries a maximum penalty of seven years in jail.


Criminal charges may also be laid against one the nation's richest men, Travers Duncan, merchant banker Richard Poole, John McGuigan and John Atkinson, both former partners of law firm Baker & McKenzie, and former RAMS Home Loans founder John Kinghorn.


They were part of a consortium of investors in Cascade Coal, which won the right to explore for coal at Mount Penny, in the Bylong Valley near Mudgee - an area in which the Obeids had bought up land by exploiting inside knowledge courtesy of Mr Macdonald....."