A CRIMINAL investigation is under way into allegations that staff at the Lebanese consul-general's office in Sydney have been paid wages in cash while illegally pocketing Centrelink payments.

A CRIMINAL investigation is under way into allegations that staff at the Lebanese consul-general's office in Sydney have been paid wages in cash while illegally pocketing Centrelink payments.

The revelations come just days after the consul-general, Robert Naoum, returned to Sydney agreeing to pay off his unrelated debts in return for an arrest warrant being withdrawn. Now federal police have been called in to examine claims that his office has been defrauding the Commonwealth.

It is alleged some staff, among more than a dozen at the Edgecliff office, collected welfare and, in at least one case, a dole payment. At the same time, the consul-general's office had not been paying tax, superannuation or workers' compensation for its locally engaged staff.

Some staff allegedly made a profit by selling cigarettes and alcohol bought within the diplomatic tax-free quota. It is claimed large sums of cash were sent from Australia to banks in Lebanon to avoid the scrutiny of authorities. But Mr Naoum told The Sun-Herald yesterday the allegations were just "propaganda against us".

However, his spokesman agreed the office did not give staff statements of earnings nor did it deduct any tax on behalf of employees. It was up to the employees to declare it, he said.

"We have our own system," the spokesman said. That system of paying staff was regulated by the laws of the Lebanese government.

"They work according to regulations by the Lebanese government, not the Australian government. Australia has nothing to do with how we pick and pay them or how we pay tax. This is an internal system between the government of Lebanon and its employees."

He said Fair Work Australia had approached his office recently about a case involving an employee but he said the authority's laws were "irrelevant" to its operations.

The spokesman categorically denied Mr Naoum had knowledge of any wrongdoing, and said no staff had sent cash back to Lebanon or sold duty-free goods. He dismissed the claims as an attempt to defame the consul-general and extract cash from the Lebanese government.

A spokesman for the Minister for Workplace Relations, Chris Evans, said the matters were being treated seriously and had been referred to the appropriate agencies.

In an unrelated matter, Mr Naoum, who has been consul-general since 2004, had faced being arrested and forced into bankruptcy if he did not pay tens of thousands of dollars in legal bills.

He came under the spotlight two years ago when he unsuccessfully took defamation action to stop a Greenacre journalist, Nabil Dannawi, publishing material about him.

Mr Naoum appealed and lost again, and had costs awarded against him. Then he argued he did not have to pay because he had diplomatic immunity. The courts disagreed, finding he was not acting within the scope of his official immunity.

A warrant for Mr Naoum's arrest was issued about the time he left Australia in April for Lebanon after he ignored an order to appear in court over his legal and court expenses. Mr Naoum returned only last week.

Mr Dannawi's lawyer, Richard Louis Mitry, confirmed the matter had been resolved on "confidential terms". Mr Dannawi told The Sun-Herald it was "unfortunate this case had to go so far. But there was interest in it internationally, and the good thing to come out of it is that it threw some light on the limitations of diplomatic immunity."

The allegations about Mr Naoum's staff were brought to the attention of the MP Tony Burke's office months ago. Mr Burke, the Minister for Sustainability, Environment, Water, Population and Communities, told The Sun-Herald a "staff member formed the judgment that the issue was described as potentially involving criminal matters and was told it was already in the hands of the police".

A Foreign Affairs Department spokeswoman said Australians employed by a foreign state were "entitled to minimum employment conditions, including wages, leave and safety conditions and protection" and must pay tax.

Mr Naoum's spokesman said consulate staff had signed an agreement with the Lebanese government on pay and conditions.

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