It is a pity that the first voice to speak out on the political dimensions of the Leighton affair was Greens MP Adam Bandt. Clamping down on corruption in corporate Australia should be at the heart and soul of the Liberal Party; Prime Minister Abbott himself should have been quicker out of the blocks.
A few hours after the story broke on Thursday, Bandt called for an inquiry into white-collar crime: “This is a test for Tony Abbott. The government must now immediately inquire into the effectiveness of AFP and ASIC at investigating and prosecuting white-collar crime, especially focusing on how well these two agencies work together.
“The inquiry should consider whether Australia needs to establish a separate body akin to the UK Serious Fraud Office or the US Securities and Exchange Commission. ASIC throws the book at a lone global warming activist who sends out a press release, yet won’t even interview a whistleblower with explosive claims of corruption in Reserve Bank subsidiaries."
As Robert Gottliebsen pointed out on Friday, one of the key challenges the Coalition government faces is to break cartel-like behaviour between unions and construction firms to deliver much-needed infrastruture at fair prices.
The construction unions have become adept at extracting pay and conditions for their workers that would make teachers and nurses weep. That’s not ‘left’. It’s just wrong.
However, the issue raised in the Leighton story is about corruption around the world, not at home. The courts will decide just how many of the sensational revelations in the papers are true or false. But whatever those findings, there are two reasons Abbott must take a strong lead on this issue.
Firstly, Trade Minister Andrew Robb has announced that he will pull out all the stops to finally sign bilateral free-trade agreements with Indonesia, South Korea, China and others nations. This continues the work that began under the Rudd government, but which needs a real adrenaline shot to get moving again.
These deals will be an additional spur to companies wishing to expand into Asian markets, including into developing economies with large proportions of their populations living at or below the poverty line, and weak governance structures of their own.
In short, setting up for business in nations where corruption is already rife is a recipe for disaster if firms do not have the risk management frameworks that can spot and stamp out corruption at even the very lowest levels of the company.
So as Robb leads a new charge into Asia and elsewhere, the government must assist and encourage companies to keep their noses clean.
And that brings us to the second reason the Abbott government must get involved: international law.
As corporate Australia was reading its newspapers on Thursday morning, I spoke with one of the nation’s top corporate fixers — a man who has helped Australian firms set up in numerous ‘fragile’ economies — to ask what the Leighton story meant.
“I’m just reading it now,” said the consultant, who did not wish to be named for commercial reasons. “If this is true, the Americans will be after them like a rat up a rope!”
He then explained that the first thing he advises clients to do when setting up shop in, say, Nigeria, is to put in place rigorous corporate governance and reporting mechanisms so that no Nigerian 'naira' change hands — even at street level — to get a deal across the line.
The consultant said that the commonly held belief that one was always required to ‘grease the wheels’ a bit was “absolutely not true”.
“Bribery is not a ‘necessary evil’. If a business deal requires corruption, it should not be done. It is corrosive. If a company engages in it once, it sets the terms for all business from then on.”
Just as importantly, he says, he has long advised firm to set up reporting structures to fit with the evidentiary needs of the US Foreign Corrupt Practices Act. This is because the Americans are extremely aggressive in prosecuting any company with even a small footprint in the US, which is virtually unavoidable when doing multi-national business.
Fines under the Act can run into hundreds of millions of dollars and, he says, are often recycled to resource US agencies to fund further prosecutions.
Australia’s anti-corruption legislation (the Criminal Code Amendment (Bribery of Foreign Officials) Act 1999) is modelled on the US laws, so it might previously have been enough to convince Australian firms to keep on their toes, as they are potentially liable for prosecution in not only the US and Australia, but also the developing economy in which they are working.
But according to Malcolm Shackell, partner for forensic services at PWC, recent anti-bribery legislation passed in the UK is a “game changer”.
Where the US laws allow some “facilitation payment” exemptions, the UK law makes no exemptions. These types of payments are analogous to paying an immigration department to expedite work visas: they are legal, and defined in the Acts themselves. But the Brits think they are too open to rorting.
And because London is still a major clearing house for international finance (despite the ravages of the GFC), most firms have a UK footprint which exposed them to prosecution under the tougher UK laws.
Shackell says the Brits are not yet policing the new laws internationally, but will before long. Among other things, imposing huge fines on corrupt companies can ease fiscal demands at home. The US government is rumoured to be using its bribery fines to pay for veterans benefits.
“This will just get bigger. There is speculation the US and Australian Acts will fall into line with the UK law,” says Shackell.
Again, this is where the Abbott government can take the lead — to review, at the very least, the stringency of the Australian law and the implications the UK laws will have for Australian companies.
Shackell points out that the expense of setting up the right reporting structures abroad is nothing compared the devastating financial consequence of being caught red-handed.
The $600 million or so wiped off Leighton Holding’s market cap in Friday’s trade demonstrates this in dramatic form.
There are huge opportunities ahead if the Abbott government can conclude bilateral trade negotiations with our near neighbours. However to do so without reviewing, and possibly strengthening our anti-bribary legal framework, would be playing with fire.