At Allens, Australia's most corporate of corporate law firms, the first day of November 2011 should have been a breeze. Most staff in Melbourne had taken the Tuesday off to watch the Melbourne Cup. In the firm's Sydney headquarters in Phillip Street, employees were ducking out to place bets - except for a small group of lawyers engrossed in the pages of a yellow notebook.
The reason for their rapt attention was simple: the notebook's contents placed one of the nation's biggest companies at the centre of an international bribery scandal and threatened the reputations of some of corporate Australia's biggest names.
The lawyers' discovery had come as a surprise. Their examination of the notebook belonging to the recently departed head of Leighton Holdings, David Stewart, had initially been prompted by an investigation by the Australian Securities and Investments Commission into allegations the multibillion-dollar firm had withheld poor financial results from shareholders.
But Stewart's notes had nothing to do with a failure to disclose bad results. They dealt with something far more serious: conduct by leading Leighton figures that, if proven, could result in jail terms.
Stewart, a former civil engineer who had headed construction giant John Holland before joining Leighton as chief operating officer, was known to contemporaneously record his conversations in his notebooks or doodle in them during meetings.
Alongside the inevitable stick figures, Stewart detailed his daily dealings with some of the biggest players in Australian business. They included Wal King, the man who transformed Leighton over 23 years from a small building firm to an ASX top-20 construction, mining, development and contracting giant, and King's right-hand man, David Savage, who ran Leighton's international empire.
The pages being examined at Allens referred to a conversation between Stewart and Savage about multimillion-dollar kickbacks the company had apparently paid to win a contract in Iraq worth $750 million. The notes claimed that Savage had known about the illegal payments and was suggesting a fresh round of bribes to secure work worth an extra $500 million.
At the time Stewart made his notes, Wal King was preparing to depart as CEO and Stewart was chief executive-in-waiting.
The men were polar opposites. Stewart was introverted, favouring books over sport. According to former colleagues, King was more of a "good ol' boy", known for his jet-setting adventures and a forceful personality that had propelled him for years. King dived into action, while Stewart's style was cerebral and methodical.
Stewart's notebook detailed several conversations around the topic of bribery. After asking Savage whether King had approved the payment of kickbacks in Iraq and being told "yes", Stewart had sought a second opinion from another senior executive. He called Savage back to voice his opposition but then agreed to allow King and Savage to decide whether to pay the bribes.
"If he [Wal King] is OK with it, go for it then, but he has to approve it," he scrawled near the end of the page.
Stewart's note was troubling for reasons that went well beyond allegations of massive bribery. The note was dated November 23, 2010, meaning the Allens lawyers were reading it almost a year after it had been written. But nobody at Leighton had reported to police or ASIC what appeared to be - on paper at least - an alleged breach of Australia's foreign bribery laws.
Why hadn't Stewart, Savage and, if he knew of the payment, Wal King called in the police or ASIC a year before? By now, a second Iraq contract had been won. Had a second bribe been paid?
As Dunaden was striding past the finishing post to win the closest Melbourne Cup in history, Allens staff agreed they were questions best left to others. Senior Leighton staff and the company's board were informed. Days later, the federal police were called in.
Three months after that, in February 2012, the company alerted the public for the first time that its work in Iraq was under a cloud, releasing a brief statement that it had "voluntarily" notified the Australian Federal Police of a potential breach of the law. No other details, including the fact that Stewart's note was made a year before the so-called "voluntary" referral, were made public.
The first the Australian public and company shareholders knew of Stewart's note was this week, when it was revealed by Fairfax Media. They also learnt that Leighton's problems do not start or end in Iraq.
A Fairfax Media investigation - which has included access to dozens of internal company files and memos, police documents and the testimony of several insiders - reveals that much of the multibillion-dollar international operations of the firm may have, in the words of one former senior executive, been "crook" from top to bottom, infected by kickbacks, cover-ups and abysmal corporate governance. Laws appear to have been broken, shareholders ripped off and misled, and crimes covered up.
The parent company, Leighton Holdings, is potentially tainted as well: it shares several senior executives and directors with its international arm, including current chairman Bob Humphris. It also faces questions about what its senior staff knew about corruption and whether they, too, failed to report it immediately to authorities.
Serving and former senior company officials, including board members, may have been complicit or negligent in what is shaping up as one of the nation's worst corporate corruption scandals. But equally alarming is evidence suggesting the federal police and - most critically, given the range of corporate offences potentially involved - ASIC are unable, or unwilling, to tackle the rot.
Alan Fenwick was no stranger to the rough and tumble of the international construction and resources sector when he was hired by Leighton International in Asia in 2006. "He is one of those blokes who spends more time floating offshore than on land," a former employer says.
The British electrician was in his 50s and aware that corruption was a constant hazard. "Alan was brutally honest and used to trusting nobody," the former boss says. "He was a take-no-shit sort of a guy in an under-stated way. And he was stubborn."
These were attributes that would ultimately see Fenwick risk his career to take his concerns about corrupt activity to the very top of Leighton.
It was 2007 when Fenwick began hearing whispers about kickbacks and bribes involving Leighton International, which ran huge projects across the Middle East and Asia for Leighton Holdings.
He was in charge of supervising and ensuring the safety of the electrical systems on Leighton's offshore barges, the hulking metal structures able to travel the world's oceans laying underwater pipelines to transport oil and gas. Costing up to $70 million each, Leighton's barges are fitted out with gyms, cinemas and helicopter pads and can accommodate almost 300 people.
The rumours of bribery concerned Fenwick - contractors who paid kickbacks often delivered second-rate work that compromised safety.
But it wasn't until late 2008 that he encountered corruption first-hand. He observed his boss, Leighton International senior project manager Gavin Hodge, leak to a subcontractor the quotes of its competitors, giving the subcontractor inside running on a project involving the building of a new barge, the Eclipse.
According to an interview that Fenwick later gave during an internal investigation, he confronted Hodge and told him his conduct was "unethical" and in breach of company procedures. Hodge simply "ignored" him.
Fenwick's unease grew when, several weeks later, he was privy to a speaker-phone conversation in which a Leighton logistics manager instructed a subcontractor to pay a kickback to secure a contract.
By early 2009, Fenwick was certain that the Eclipse project, which was now based at an Indonesian ship-yard, was rotten. Fenwick and another colleague discovered that Hodge had been getting Leighton to pay hundreds of thousands of dollars for steel that was being secretly diverted to a black-market barge-building racket.
Hodge was operating with apparent impunity; he initially used his Leighton email to help set up the illegal deal, which involved building a barge for the Indian company Adani using Leighton resources and within a few hundred metres of the Eclipse. Hodge even sought to jack up the price of the black-market barge because Adani wanted some design changes.
Internal Leighton files show that in January 2009, Hodge at first denied he had a role in the Indonesian-based racket, only to later claim he had become involved on the urging of a consultant to Leighton International, Packianathan Srikumar.
Srikumar was a crucial cog in the machinery of Leighton International. The Malaysian-based businessman had helped the company win work all over the world and knew Leighton's top international executives, including David Savage and one of Savage's right-hand men, executive Russell Waugh.
A later company legal report noted that it was Waugh who signed off for Hodge on the $500,000 order for steel that Hodge then stole. That same legal report described Hodge's conduct as "criminal".
But some in Leighton, including Waugh and Savage, were not convinced the company had a serious problem. Waugh ordered an internal investigation, which concluded that Hodge had "assisted others with execution of a project that had no material benefit to Leighton" and in doing so had put the company "in a position of potential compromise of integrity".
But Waugh judged this conduct worthy of no more than a stern written rebuke and a request that Hodge "re-read" the company's code of ethics and promise not to break the rules again.
Fenwick was furious. In April 2009, he told Waugh he would not work "in a corrupt environment". Waugh coaxed him to stay on. It was a decision the engineer-turned-whistleblower would live to regret.
Throughout 2009, Fenwick was gradually isolated from other employees, until a fire on the Eclipse brought him briefly into the mix again. A switchboard on the barge had burst into flames and Fenwick was asked to inspect it. It was apt: corruption was starting to flare up everywhere. Once again, Fenwick encountered Leighton subcontractors who admitted paying bribes to win work. Once again, Fenwick spoke up.
On November 13, 2009, Fenwick was told by one of his bosses that his contract would not be renewed. With nothing to lose, Fenwick decided to go straight to the top. This time, he emailed Waugh, with copies going to CEO Wal King and Leighton International boss David Savage.
The email called for a thorough investigation to "discover which member of the Eclipse project team" was given a "payoff". Fenwick also demanded a meeting with the Leighton Holdings board's ethics committee in Sydney.
Waugh emailed back to tell Fenwick that Leighton International's ethics committee was already aware of his corruption concerns but that the company's top brass in Australia was also watching closely. "Sydney is very much aware of the fact that you have asked to meet with the committee," Waugh wrote to Fenwick.
Fenwick later alleged that Waugh also phoned him with an offer: "If you go quietly, you'll be back in three months." Fenwick said he told Waugh to "stick it".
Three weeks later on December 9, 2009, Leighton launched a second inquiry, this time conducted by the company's accountants, PwC. It reported back just 14 days later, saying it had been unable to corroborate the allegations of illicit payments.
The PwC inquiry appeared to lead Waugh and Savage to conclude that any problems Leighton was facing had disappeared. If the heat was off, it was time to reward the accused.
Despite Hodge's role in stealing more than $500,000 worth of steel from his employer, Waugh increased his salary and gave him a $40,000 bonus. "On behalf of the company, I would like to thank you for your efforts over the last year and I look forward to your continued support," Waugh wrote to Hodge in August 2010.
The cracks widen
But the cracks Fenwick had forced open could not be easily closed. And some in the company knew it. In an effort to finally silence Fenwick, one of his relatives was sent an email with embarrassing, but false, information about him.
The British engineer responded true to form. This time he contacted Leighton Holdings' Sydney headquarters as David Stewart was preparing to take over from Wal King.
Ever the cautious operator, Stewart responded by asking a newly appointed Leighton executive to cast a fresh eye over Fenwick's allegations.
Within days, the executive had sent an email to Stewart criticising the previous two investigations as inadequate and warning that Leighton's staff may have not only "perpetrated a systemic fraud" on the firm but been allowed to get away with it.
"It is not difficult to understand the frustration expressed by Fenwick ... that there has been an attempt to cover up these issues," the email said. Stewart reacted by agreeing to launch a third inquiry into Fenwick's claims. This time it would be done properly.
This inquiry was conducted by two hard-nosed construction executives-turned-investigators who had formed a firm called Concorde Corporation and who could, according to a former client, "smell bullshit a mile away". They wouldn't need to sniff too hard.
Within days of exploring the Eclipse affair, Concorde wrote a memo detailing "serious concerns that the allegations [made by Fenwick] were not fully explored by the previous investigations".
Concorde also warned that the corruption in the firm may not be confined to a single employee or an Indonesian shipyard. "Matters such as conflict of interest, kickbacks, unethical staff appointments and so on (if true) indicate a serious breakdown of probity, governance and ethics within Leighton's Asian operations."
Keen not to rush into judgment, Stewart agreed to seek a second opinion from Sydney lawyer Malcolm Davis. Davis was even more scathing. He was especially contemptuous of Leighton's decision not to sack Gavin Hodge for "serious and wilful misconduct".
"It simply beggars belief that Mr Hodge remains employed by LIL [Leighton International Ltd] in a responsible position or at all," Davis wrote in a confidential memo.
Davis was similarly damning of the way Leighton's senior managers had handled the initial probes. He singled out senior executive Russell Waugh, who had given Hodge a bonus after his alleged corruption.
Davis criticised Waugh's role in initiating the first internal investigation, given that Waugh had supervised Hodge at the time of his misconduct and signed off on the order for the steel later stolen from Leighton. "Mr Waugh ... was in a position of potential conflict of interest and ought not to have been directing and/or initiating that investigation."
Davis also left wide open the possibility that other Leighton staff, including executives, may be tainted and warned that the company faced an "extreme" risk to its reputation if it became known "that LIL ... engaged in conduct of the kind referred to in the allegations of impropriety".
Davis advised that until there was "clarity" on the question of how high up in company ranks the corruption - or the mismanagement that had enabled it to flourish - had risen, Leighton should be careful about allowing any "executive officers and senior management" to control internal investigations.
Davis' message was clear. What was at stake went well beyond the Eclipse and Hodge. Who and what else in Leighton was rotten?
To answer this question, two Leighton executives, Stephen Sasse and Peter Cox, were sent by Stewart on a secret overseas mission.
Their task was to quiz the businessman who had helped to set up the illegal barge-building racket. Sasse and Cox met their man in the lobby of a five-star airport hotel in Kuala Lumpur.
Packianathan Srikumar was neatly dressed and appeared calm, offering a smile that belied his wariness. He knew the two men were there to find dirt.
Fenwick had alleged that Srikumar and his company, Lye Asia Pacific, played a much bigger role in the operations of Leighton International, a role that went far beyond an Asian shipyard to huge projects in India and elsewhere. The Concorde investigators had also noted that the "allegations [of corruption] are spread across a number of countries".
Srikumar's Lye Asia Pacific website showed he had played a role in Leighton projects worth more than a billion dollars across Asia, the Middle East and even in Tanzania. Indeed, most of the projects that Lye had been associated with were Leighton International projects.
Fenwick had alleged that Srikumar was "instrumental" in Leighton International winning deals, including two multimillion-dollar contracts in Cochin and Jamnagar in India.
According to Fenwick, Srikumar was "reputed to receive 10 per cent of contract value personally [from the Indian deals]", some of which was funnelled back to individuals at Leighton.
Fenwick also believed that Srikumar was "friendly with David Savage", the boss of Leighton International.
Sasse and Cox spent several hours with Srikumar. Both refused to discuss Leighton or their dealings with Srikumar, but someone familiar with the outcome of their meeting said they left it frustrated and suspicious.
Srikumar's firm had limited genuine engineering and design capacity, but he appeared to work as a fixer or middleman able to secure deals from foreign companies or officials. "Srikumar looked very much like the company's bagman," says one source aware of his role at Leighton.
In one contract Srikumar was involved with, the details of which have been obtained by Fairfax Media, Leighton's Singapore arm hired Srikumar to carry out the unusually ambiguous role of "project support services".
For his part, Srikumar struggled to explain all that he did for Leighton. When he spoke to Fairfax Media, he denied any wrongdoing. According to one source aware of the Sasse and Cox meeting, the pair left Malaysia with little new knowledge but fresh concerns. Among them was the fact that Srikumar was still very much a figure in Leighton's international picture.
Sasse and Cox resolved to kick him off company projects, including the $750 million Leighton offshore oil pipeline project in Iraq.
What the two men didn't know was that Srikumar was involved in another, albeit much more secretive, venture being formed by senior figures inside Leighton. Codenamed "Project T", the venture was conceived on Leighton's email system and on company time and involved a plan to win offshore, mining and construction contracts - smack bang in Leighton's patch.
But, like the Adani black-market barge, Project T would not benefit Leighton or its shareholders. It was intended as a private enterprise. The man behind it was none other than the head of Leighton International, David Savage.
When business at Leighton International got too hectic, David Savage sought refuge in one of the quietest pockets of Australia.
The Stonehouse had been built near Launceston in the early 1800s to shelter priests brave enough to venture to northern Tasmania. When Savage and his wife bought the heritage-listed Georgian manor, they transformed it into a boutique holiday house, framed by lush gardens set against the dark, brooding waters of the South Esk River.
It was about as far away from the Leighton overseas empire he had helped build as Savage could get.
As 2010 drew to an end - and as the barge corruption saga flared up anew - Savage knew he needed a retreat. Stonehouse would ultimately provide the perfect inspiration.
Savage's contract was due to expire in the middle of 2011, but by late 2010 he knew he was viewed with suspicion by the Stewart camp as it prepared to take over from Wal King.
Savage's time as the company's golden boy had passed. His deal in 2007 to buy 45 per cent of Middle Eastern construction company Al Habtoor had initially been lauded, especially by King.
Leighton paid Al Habtoor founder and powerful Dubai-based businessman Riad Al Sadik $US327 million for a slice of the firm, a deal Savage sold partly on the basis of Al Sadik's ability to open up doors for Leighton in the Middle East.
Savage became managing director of the newly formed Al Habtoor Leighton Group and Riad Al Sadik was appointed chairman.
"Suddenly Wal King was being called Wal of Arabia and that was thanks to Savage," says one company observer.
But by 2010 things were looking bleak in the Middle East, thanks partly to the collapse of the property market and a weakening global economy. The belief of some inside Leighton that Al Sadik had sold them a pup firmed in June 2010 when Savage had to get Leighton to prop up the Middle East venture with $39 million of interest-free loans. Savage's critics inside the company were furious, believing the move showed his acquisition of Al Habtoor had been a flop.
"Wal [King] knew Savage was not popular with others but thought that he was great. The rest of us saw him as diddling the figures," a former top executive says.
By late 2010, Savage's stewardship of the Leighton International empire was the subject of fierce internal criticism which, along with a growing concern that the company would be forced to write down its overseas assets, was kept hidden from shareholders.
As a former senior Leighton executive would much later tell a federal police investigation, "pretty much everything that Leighton International touched was a disaster commercially" or was "corrupt".
"Savage and Leighton International had extraordinary autonomy compared to the rest of the operating companies ... One of our major concerns here was that there was very little corporate governance within Leighton International full stop," the witness told police.
"The whole transaction at Al Habtoor was regarded with some suspicion [by senior executives] in terms of where the money flows went."
In fact, Savage was far closer to Riad Al Sadik than any of his Leighton colleagues knew. Savage envisaged the Dubai businessman as a part of his new business venture, Project T.
As the corruption probes surrounding Leighton International continued throughout October and November 2010, Savage and one of his right-hand men at Leighton International, Eric Wardle, appeared to be less focused on cleaning up corruption and restoring value at Leighton than on recruiting people to the new venture.
A confidential Project T proposal states that Riad Al Sadik and Srikumar would both play a role in Project T; Srikumar would provide $US2 million capital along with "direct entrepreneurial access to clients" in the oil and gas sector; Riad Al Sadik would also chip in $US2 million and propel the new venture "through his connections in general and particularly in the Middle East"— the very connections Leighton was counting on when it had, in 2007, paid Al Sadik a king's ransom to buy into Al Habtoor.
Project T would also draw on the knowledge and contacts of several top Leighton executives. The risk that it would end up competing with Leighton in offshore mining and construction projects in the future was very real.
But there was no outrage at the Leighton Holdings Sydney headquarters because almost nobody there knew about it. Savage did not mention it to David Stewart on November 23 when he walked into Stewart's Sydney office and the acting CEO pulled out his yellow notebook that would later cause so much consternation when it was accidentally discovered a year later.
According to Stewart's notes, Savage wanted to talk about the "Iraq project" and the opportunity for Leighton to add $500 million worth of further work to its existing $750 million offshore oil pipeline project in Iraq.
But Savage told Stewart (both men declined to speak to Fairfax Media) there was a catch. Savage revealed the existing project had been won by artificially inflating a contract to $87 million - double its true value - and awarding it to a subcontractor nominated by Iraqi authorities.
If Leighton wanted to win more work, it would have to inflate a second contract and pay the same subcontractor another "50 to 60 million dollars" of which "less than 50 per cent of the payment" represented the "real value of the work".
Stewart's note says he immediately warned Savage that inflated contracts had landed the Australian Wheat Board in the middle of a bribery scandal in Iraq. "I understand the concept and it is exactly what got the AWB into trouble with their trucking contract at 2 to 3 times market rates."
Stewart's notes say he also wanted to know what Wal King - who was still CEO - thought of the kickbacks.
"I asked did Wal K approve this? And he said yes. I said I will talk to WMK [Wal King] and he said that WMK will now deny it and have 'forgotten it'." (King also declined to speak to Fairfax Media but a figure close to him said King denied approving improper behaviour.)
Stewart wrote that he voiced his opposition to the plan to pay further kickbacks to extend an already tainted contract. He recorded that he told Savage that he would "think about it and that I am not comfortable but understand the plan".
When Savage left Stewart's office, Stewart spoke to another senior executive about the kickbacks and then resolved to "tell David [Savage] we do not agree and if we can't win without this we don't want the job".
Stewart then phoned Savage and told him: "Wal is still the CEO and if he is OK with it, go for it, but be aware I will not support it. I told him I fully understand the concept and the fact that we have been introduced to this 'N.S.C.' [nominated sub-contractor] by the client but it is too much money and a clear lack of value for money and we should not do it."
Savage responded by saying he would discuss the matter with deputy Russell Waugh.
"David Savage says that R. W. was in Baghdad now and meeting with the minister to try to negotiate this job. David Savage says he will ring Russell Waugh and talk to him."
Stewart's note finishes with the sentence: "Wal King is still CEO and if he is OK with it, go for it, but he has to approve it and I will not ask Wal about the current job."
Under Australian law, paying a bribe, secret commission or kickback to win business is a serious crime, while directors who fail to act with care and diligence can breach corporate law. Penalties include bans, fines or jail time.
It is unclear why Leighton CEO David Stewart did not call in the federal police or ASIC in late 2010, following Savage's disclosures. If he had called in the authorities, it is likely Savage would have been dealing with a search warrant and a police interview rather than remaining a top Leighton executive for another four months, a time in which he quietly plotted his private business venture with Srikumar and Riad Al Sadik.
On January 1, 2011, Wal King finally stepped down as CEO, handing Stewart the reins. Three months later Savage resigned. He left Leighton on March 31, 2011, with full pockets, having been paid $3,821,035 in salary that year and an additional $US2 million "special bonus" that Wal King had arranged for him for his successful stewardship of Leighton International.
The very same day he left, Project T was finally formalised and Savage appointed himself director of a new company.
It wasn't until after Savage left Leighton and his emails were reviewed that Leighton's staff discovered Project T and realised that Savage had been building his new company while still at Leighton and that it not only included the still serving chairman of a Leighton company, Riad Al Sadik (who told Fairfax Media this week that Leighton knew of his involvement), but the suspected bagman Srikumar. According to one well-placed source, Savage's new company won work in Asia by using Leighton's track record to qualify for a contract.
Malaysian corporate documents show that Savage chose a familiar name for his new company. He called it Stonehouse Construction.
The dam bursts
Eleven days after Savage left Leighton and formed Stonehouse, David Stewart announced to the market a massive $1.1 billion pre-tax profit write-down, of which more than $320 million was attributed to the struggling Al Habtoor Leighton Group. Leighton's share price dived.
Shareholders were furious and the corporate regulator, ASIC, launched an inquiry into whether Leighton had known earlier about the financial problems overseas and in two major projects in Australia (Brisbane's airport link project and Victoria's desalination plant), but had sat on them, in breach of its continuous disclosure obligations.
Several sources have told Fairfax Media that some in Leighton were well aware of major issues on the two local projects and overseas works. It is understood that Savage sought to prop up his offshore operations with a range of methods that others in the company considered questionable. But it was how Savage won deals that got Leighton's staff talking after he departed.
A review of contracts that Savage had left in abeyance revealed that a dam-building project Leighton was bidding for in Malaysia involved what appeared to be yet more multimillion-dollar kickbacks.
As one former senior executive recently told police: "We looked at the documentation and said, what the f--- is this? It was fairly blatant that we would pay these other corporate vehicles in expectation of winning the contract by Leighton Malaysia. It could not have been more explicit."
(The review of Savage documents also revealed he had invested in a property development in Bali. Another investor was Gavin Hodge.)
By mid-2011, the dam had burst: Stewart was suddenly dealing with an ASIC continuous disclosure probe along with internal files that suggested his company had paid bribes or engaged in corruption in the Middle East, Malaysia, India, Indonesia and possibly elsewhere, and that multiple staff, including senior officers, may have been involved in gross conflicts of interest and cover-ups.
Stewart appears to have tried to act on some of what he was sitting on. He ordered the sacking of Hodge and legal action to recover $520,384 that Hodge had allegedly stolen from Leighton in the Eclipse corruption debacle. (By now, Russell Waugh had left the firm to be appointed an executive at UGL). Stewart also overhauled Leighton's international empire, effectively killing off the structure that Savage had once presided over.
But if Stewart was planning to call in the cops or ASIC, he never got the chance. In the last week of August 2011, he was removed as CEO after Leighton's majority shareholder, German construction giant Hochtief, intervened in a company power struggle.
Just over two months later, Stewart's yellow notebook reached Allens and the alleged Iraq bribery was finally reported to the federal police. On February 13, the new CEO, Hamish Tyrwhitt, announced to the market that the company had referred the Iraq matter to the Australian Federal Police. It was the first public hint of the problems within Leighton International operations and it was far from forthright.
The statement released by Leighton Holdings highlighted its claim that it had "volunteered the information to the AFP after becoming aware of a possible breach" in Iraq, even though the information had been known to the company a year before it was reported.
And the statement made no mention of the potential depth of the corruption and cover-up problems faced by the company and the fact some of its top executives, along with monstrous governance failures, may have been to blame.
"There was really no effective corporate governance framework in Leighton International," a former senior executive recently told the AFP, while also noting that the current chairman of Leighton, Robert Humphris, was on the Leighton International board when the alleged corruption occurred.
"Humphris was on the Leighton International board for years and years. So he would have been sitting on both [the Leighton International board and the Leighton Holdings board] but I never got the sense that the board was excited by [the corruption allegations]."
Another former executive told Fairfax Media that "the board did not see it as their role to interrogate or understand operations. It was very superficial."
For example, a $40 million "agency" fee linked to the Iraq project was detailed in one set of documents that should have been reviewed by the Leighton International board (including Humphris and King) but mysteriously disappeared from those same documents when they were revised by top Leighton's staff one month later.
Board inaction appears to have been rife when it came to Leighton International's alleged misdeeds; why didn't board members or senior company officers, such as Wal King and David Stewart, call in the police or ASIC when they were presented with explicit allegations of corruption?
And why, when the police were finally contacted, did Leighton fail to pass on critical information about corruption, including evidence on the offshore barge fiasco? Leighton refused to answer a list of questions from Fairfax Media, but said it had strong anti-corruption policies in place and its directors had always acted appropriately.
The company's claim may never be fully tested, at least not by Australian authorities. Several former senior Leighton officials who spoke out internally about corruption and who have since spoken to the federal police say that AFP agents have privately made it clear that they were overwhelmed by the Leighton case.
Almost two years have passed since the AFP agents were first called in and they have still not spoken to key witnesses and suspects. The risk of evidence being lost or memories fading is huge.
One important witness, former top executive Stephen Sasse, won't discuss details about his short stint at Leighton - he was brought in by Stewart but, after pushing for corruption inquiries, was squeezed out - but is prepared to speak publicly about his concern about the response of the AFP and ASIC. He says it appears the federal police are struggling to get on top of the inquiry and in his dealings with the AFP as a witness, the agency appears to treat the case as a low priority. The AFP rejects this, saying the matter is a "priority".
Says Sasse: "I would be surprised if the federal police or ASIC have the expertise or technical knowledge to undertake investigations of this nature. I suspect that the lack of urgency stems from resourcing issues rather than any lack of purpose."
Another source familiar with the AFP probe told Fairfax Media that federal agents also complained to him about not having enough manpower to tackle the allegations.
"They told me 'we don't have the funding'," he said. But if the AFP is not acting quickly enough, ASIC appears to have done almost nothing, failing to reach out to even a single witness.
ASIC refused to answer specific questions, saying the "AFP have carriage of the Leighton matter".
ASIC is already under fire for failing to act when corporate corruption is reported - including in connection to the bribery scandal involving the Reserve Bank's plastic currency firms - leading to calls for an overhaul in Australia of how white-collar crime is investigated.
In 2012, ASIC fined Leighton for failing to disclose to shareholders the magnitude of losses on its Australian projects and offshore businesses in 2010-11. (This failure was widely suspected inside the company to be partly due to an attempt to shield Leighton's major shareholder, Hochtief, from bad news as it was locked in a hostile battle with debt-laden Spanish conglomerate ACS.)
It now seems certain that ASIC's probe missed the major corporate governance problems inside Leighton. The firm's reluctance to be frank with the market mirrors its failure to immediately alert authorities about alleged corruption overseas.
If the corruption under Savage's watch at Leighton International had been exposed and dealt with earlier - or ASIC had taken a far deeper look - the governance failings that allowed suspected graft to flourish may have been addressed and rectified. Instead, Leighton is facing the biggest scandal in its history.
The punishment handed to Leighton by ASIC for its disclosure failings was laughed at by senior executives. "ASIC gave us a few speeding tickets" is how one describes it. The company was given a $300,000 fine; one-sixth of the $US2 million bonus given to David Savage and less than one-twentieth of the financial package given to a departing Wal King for their roles building up a corporate empire that, overseas at least, may have been rotten to the core.
LEIGHTON’S GLOBAL REACH
Some of the Australian giant’s overseas projects
The head of Leighton International, David Savage, oversaw a deal to buy 45% of Middle Eastern construction company Al Habtoor to create Habtoor Leighton
Group, based in Dubai. The new company won the $515 million contract to
build the Habtoor Palace hotel complex in Dubai (pictured left).
Leighton India wins a $210 million joint-venture contract to redevelop 76km
of road connecting Indore to Khalghat in Madhya Pradesh (left).
Between 2005 and 2007, Leighton Asia had a $310 million contract to build a 26km highway (pictured right) to connect the capital Kuala Lumpur to Putrajaya, the new
regional centre and administration complex of the Malaysian government.
The Eclipse, one of Leighton’s fleet of oil and gas pipe-laying barges, was
completed in Indonesia where the company is also involved in mining projects,
such as the $1.3 billion coal mine pictured right.
Leighton Off shore won two contracts worth $1.2 billion to redevelop the country’s oil export facilities (left). The first $750 million contract was to rebuild the Basra
oil terminal, which handled 80% of Iraq’s oil exports. It won a second $500 million related contract to further expand Iraq’s oil export capacity. Claims have been made that the company paid kickbacks to corrupt off icials to win the contracts.
THE LEIGHTON SCANDAL
WHAT IS LEIGHTON?
Leighton Holdings is a $6.3 billion ASX-listed global company. Its subsidiaries include Thiess and John Holland. Its projects range from Victoria’s $3.5 billion desalination plant to coal mines in Indonesia, highways in India and Malaysia, and oil pipelines in Iraq.
WHY IS IT FACING A CORRUPTION PROBE?
Leighton’s international business is accused of improper behaviour, including paying bribes to win contracts in Asia and the Middle East.
WAL KING: Former CEO who built Leighton from a mid-tier construction firm
into a global giant. A senior company executive says King approved $40 million in
kickbacks to corrupt Iraqi officials to win an oil contract.
DAVID SAVAGE: Former head of Leighton International. Oversaw the payment of suspected bribes to win contracts in Asia and the Middle East. Close to Wal King.
Secretly established his own company, Stonehouse Construction, with other Leighton executives and allegedly corrupt foreign business partners while still head of Leighton International.
RUSSELL WAUGH: David Savage’s right-hand man in Leighton International. Left Leighton in 2012, now COO at UGL Limited.
DAVID STEWART: Successor to Wal King as CEO. Made diary notes recording
David Savage telling him that Wal King had approved a $40 million payment,
via a middleman, to bribe Iraqi off icials.
GAVIN HODGE: Former Leighton International project manager accused of illegal behaviour, including payment of kickbacks. Allegedly stole $520,000 of Leighton steel to build a black-market barge.
BOB HUMPHRIS: Chairman of Leighton Holdings. Humphris was also on the board of
Leighton International between 2007 and 2011. Faces questions over what he knew about corruption concerns in Iraq and other projects.
PACKIANATHAN SRIKUMAR: Middleman allegedly used by Leighton as a consultant to
win work in Malaysia, Tanzania, Iraq and India. Shareholder in Savage’s Stonehouse
RIAD AL SADIK: Chairman of Leighton’s Dubai-based business, Habtoor Leighton Group. Sadik was said to be able to open doors in the Middle East for Leighton. Went into business with Savage’s Stonehouse Construction, named after David
Savage’s Tasmanian manor, The Stone House (pictured right).
ALAN FENWICK: Engineer responsible for electrical systems on Leighton’s off shore barges. Blew the whistle on corruption at Leighton International in 2008-09. Later
directly informed Wal King of corruption and claims he was then asked by another executive to “go quietly’’.
At Allens, Australia's most corporate of corporate law firms, the first day of November 2011 should have been a breeze. Most staff in Melbourne had taken the Tuesday off to watch the Melbourne Cup. In the firm's Sydney headquarters in Phillip Street, employees were ducking out to place bets - except for a small group of lawyers engrossed in the pages of a yellow notebook.
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