Posts Tagged ‘Bribery and corruption’

Australia covers up corruption in getting plastic currency contracts

July 30, 2014

The supply of, and the technology for producing, plastic currency are a big business for the Reserve Bank of Australia. Plastic currency is now used by 23 countries around the world. But it is also apparent that Australian parties have been involved in bribing high officials in Malaysia, Indonesia and Vietnam (at least) in securing contracts for plastic currency. The Australian courts are apparently cooperating in some form of cover-up.

That has become apparent from the Wikileaks release of a gagging order by the Supreme Court of Victoria at Melbourne where the court forbids

any discloures, by publication or otherwise, of any information relating to the court case by anyone, including the Australian media, ensuring complete secrecy around the largest corruption case in Australia. The order also forbids any disclosures about the order itself, and specifically commands no mention be made of the affirmed affidavit submitted to the court by Gillian Bird, a career diplomat, currently appointed as a deputy Secretary of the Department of Foreign Affairs and Trade (DFAT). Bird is one of Australia’s most senior and experienced diplomats and is responsible for relations with South East Asia which is why her affidavit, currently held sealed by the court, is so important.

Not only a gagging order but also a gag on revealing the gag!

For such a blanket gagging order to have been issued suggests that some “big” names – both at home and abroad but probably mainly abroad – are running a little scared of embarrassment or something worse.

My “rule of thumb” is that in corruption cases of this sort about 3 – 4% of the contract value will find its way into the hands of individuals (officials/politicians) in the buying country and that from this amount about ½- 1% of the contract value will be channeled back to individuals in the selling organisation. The 3% is an important number since it is what is unofficially accepted as being acceptable as legitimate facilitation costs for selling by OECD rules. If bribes can be held to less than about 3% (including the kick-back to the kick-back), the contract can usually escape too much scrutiny.

Plastic currency is one of the few areas where Australian technology leads the world. As such it provides a very valuable source of revenue (and prestige) for the RBA.

Currently seven Australians have been charged in an ongoing $17 million corruption case:

SMH: A seventh Australian man has been charged over an alleged $17 million banknotes bribery scandal engulfing companies related to Australia’s central bank.

Clifford John Gerathy, 60, of Maroubra, in south-eastern Sydney, faced Melbourne Magistrates Court in Melbourne on Wednesday.

A former Securency sales manager, Gerathy faces two charges of conspiring to bribe a foreign official and falsifying documents in connection to the scandal involving currency contracts.

Before Gerathy appeared in court, the Australian Federal Police said it would be alleged he facilitated payments of $17.2 million in commissions to an agent in Vietnam and falsified accounts in relation to a contract in Malaysia.  …… 

Gerathy will next appear in court on September 23 with his co-accused, all six of whom are from Victoria. The others charged with bribes allegedly paid to secure banknote contracts are Myles Curtis, 55, John Leckenby, 66, Mitchell John Anderson, 50, Peter Sinclair Hutchinson, 61, Barry Thomas Brady, 62, and Rognvald Leslie Marchant, 64.

They all seem to have been represented for the gagging order hearing in front of the Hounarable Justice Hollingworth.

Australia gagging order attendants

Australia gagging order attendants

Australia was the first country to use plastic currency using technology developed jointly by the Reserve Bank of Australia and the Commonwealth Scientific and Industrial Research Organisation (CSIRO). In 1996, RBA and Belgian multinational Union Chimique Belge (UCB) formed a joint venture, Securency Pty Ltd, to service demand for the polymer technology.

CSIRO: ……. polymer and synthetic chemistry was used to develop a non-fibrous and non-porous plastic film, which the banknotes are printed on. This substrate gives high tear initiation resistance, good fold characteristics and a longer lifetime than paper.

The substrate and the specially-developed protective overcoat prevent the absorption of moisture, sweat and grime so that the polymer banknotes stay cleaner.

CSIRO has also developed a variety of overt and covert security features for use on polymer banknotes. These security features are produced from a combination of spectroscopic techniques, synthetic chemistry, nanotechnology, surface science microstructure manipulation and polymer chemistry. …

….. Currently there are over thirty different denominations totalling some 3 billion polymer notes in service in 22 countries worldwide. 

In addition, a press-ready polymer substrate (Guardian™) is available for countries with their own note printing facilities.

Guardian™ is produced by Securency Pty Ltd, a joint venture between the Reserve Bank of Australia and Innovia Films PLC, a European-based manufacturer of polypropylene films.

Innovia Security

The first Guardian® banknote was issued as a commemorative $10 note in 1988, the year of Australia’s bicentenary, containing both the first transparent window and first hologram of any type, making it the most secure banknote of its time. After being successfully received by the public, the RBA introduced a $5 note for general circulation in 1992 followed by successive notes in the years following. Throughout the 1990s, Guardian® banknote substrate steadily grew in popularity throughout the world, with the innovative polymer-based technology gaining the trust and confidence of more than 30 Central Banks to either adopt Guardian® for use in mainstream denominations or as a commemorative note as a test and forerunner to future use.

In 1996, the Reserve Bank of Australia (RBA) and Innovia Films entered into a joint venture to create Securency International, an arrangement that was concluded in February 2013 when Innovia acquired the RBA’s 50% share in the business. The RBA proved an outstanding partner in helping Securency establish itself in the global banknote industry during a period in which some of the world’s most successful companies including 3M and Mobil also attempted to enter the banknote substrate market but were unable to do so.


Is 3% the going rate for defence contract bribes?

July 14, 2011

The latest case of bribery and corruption in defence contracts where the numbers have been revealed suggests that the going rate for commissions is around 3% of the contract value for simple component contracts.

In this case as reported by Bloomberg:

Armor Holdings Inc., the military- truck maker now a subsidiary of BAE Systems Plc, agreed to pay $16 million to resolve U.S. claims it bribed a United Nations official to win contracts connected to peacekeeping missions.

The company will pay $10.3 million to resolve criminal allegations and $5.7 million to settle related civil claims, the Justice Department and Securities and Exchange Commission said in separate statements today. The violations of the Foreign Corrupt Practices Act, which began as early as 2001, took place before BAE bought the company in 2007, prosecutors said. …..

The criminal probe by the Justice Department was settled with a non-prosecution agreement that cited the company’s cooperation and internal investigation in the case. In settling the SEC claims, Armor didn’t admit or deny the allegations.

The Justice Department said Richard Bistrong, who worked in Armor’s international sales unit, and another unidentified executive arranged for the UN agent to receive more than $200,000 in commissions for the 2001 and 2003 contracts. Bistrong pleaded guilty last year to bribing UN and Dutch officials to win body armor and pepper-spray contracts.

It seems this particular contract for the UN was for $6 million, with a declared profit of about $1 million and with the value of the bribe (commission) at about $200,000. Of course the commissions would have been put down as a cost so the real margin would have been well over 20%. A $16 million penalty might appear to be reasonably and sufficiently painful, but I am quite sure that it is small relative to the profits on all the other contracts which could not be penetrated. The amount is probably considered good value by Armor and their new owners considering the immunity they have gained from further sanctions which would also presumably prevent all other prior contracts from being scrutinised very closely .

British Aerospace Systems, the new owners of Armor, are well versed in the payment of commissions for the winning of contracts. They could probably teach their new subsidiary a thing or two about how to hide commission / bribe payments as legitimate expenses.


BAE Settles Corruption Charges

Armor Holdings Resolves Enforcement Action / BAE Avoids Successor Liability

Perceived versus actual corruption: Chief Risk Officer of Bayerische Landesbank took $50 million bribes

January 7, 2011

Transparency International in its newly published Corruption Perception Index focuses understandably on the under-developed and developing countries where the endemic petty bribery and facilitation fees to augment low wage levels are the visible and easily identifiable face of corruption. Of course grand corruption is also present in these countries but perception indices are inevitably skewed and dominated by what is visible and to the number of people affected rather than reflecting the monetary value of the corruption.

My own experience suggests – but I cannot prove – that in monetary terms the levels of corruption in the developed world are orders of magnitude larger but much more sophisticated and very well camouflaged compared to cases in the developing world. But with the much higher living standards the need for highly visible petty corruption has been largely eliminated. But the greed based cases in the developed world – when they are disclosed – are usually spectacular. As has now happened in Germany.

Gerhard Gribkowsky, the former chief risk officer of German state-owned bank Bayerische Landesbank, was arrested today over allegations he accepted bribes during his tenure at the lender. Munich prosecutors are investigating him on bribery, breach of trust and tax evasion allegations, Barbara Stockinger, a spokeswoman for the prosecutors, said in an e-mailed statement today. An arrest warrant was issued and executed today, she said.

The probe is reviewing the sale of a stake in Formula One motor-sports company which Gribkowsky, 52, was responsible for overseeing. BayernLB sold the stake in 2006 without it being properly evaluated, Stockinger said. “According to the current findings, the suspect in turn received $50 million in payments disguised via two consultancy agreements,” Stockinger said.

One instance with $50 million involved to one individual!!!

My $20 facilitation bribe to speed up my visa renewal in a developing country would need to be replicated 2,500,000 times for monetary equivalence with this one case. The corruption perception index would be overwhelmed.

I have the clear impression that the monetary value of corrupt and fraudulent practices in the developed world is enormous but extremely sophisticated and rarely found out. From UK MP’s cheating on their expenses, to selling Knighthoods and other Honours , to European MP’s expense and subsidy fiddles, to billions distributed in carbon trading scams and the enormous cases of corruption/fraud whether at AIG or Lehman Brothers or by Bernie Madoff.

The monetary value of fraud and corruption in the OECD countries is probably one or two orders of magnitude greater than in the developing countries but the number of cases is probably an order of magnitude less.

The CPI is perhaps a measure of visible corruption in the public sector – but does not- and can not –  reflect the monetary value of sophisticated – and invisible – corrupt practices.

Japanese fishing firms fight back taxes: “necessary” bribes to Russian officials paid into Cyprus banks

December 28, 2010

An interesting defence by Japanese fishing firms that bribes paid to Russian officials and deposited in Cyprus bank accounts were properly booked as “expenditures” and therefore not to be taxed as profits!!

(And from my own experience I conclude that there is no Japanese businessman – or politician – who believes there is anything wrong or unethical in bribing officials – especially in other countries. The only wrong is in paying too much or being caught.)

The Japan Times has the story (but of course does not comment on the ethics involved):

KUSHIRO, Hokkaido (Kyodo) One of four fishery firms hit for back taxes for allegedly making illicit payments to Russian officials denied any impropriety Monday and said the payments were a necessary expense. “We booked the money in the expenditure category (in accounting). It was not illicit money,” said Munemoto Nakayama, who runs Kanai Gyoin Kushiro, Hokkaido. The president spoke with reporters following media reports Sunday that Kanai and three other fishery firms provided about ¥500 million to Russian officials in the three years to 2009 so they could fish in Russia’s exclusive economic zone beyond the limits set under a bilateral agreement with Japan.

Sources said the tax authorities discovered the firms made the payments using irregular accounting methods and concluded the act constituted income concealment, ordering them to pay about ¥200 million in back taxes and penalties. Nakayama confirmed, as claimed in fresh media reports Monday, that the four firms, in addition to having given the money to Russian officials aboard their ships, remitted part of the ¥500 million to bank accounts overseas, including in Cyprus. “We have been doing Russia-related business for over 10 years and have remitted money (overseas),” he said. He also revealed that his company had already filed a revised tax return in connection with the payments as demanded by tax authorities. The four firms admitted paying the Russians to look the other way when their fish catches exceeded the legal quota, the sources said.

File:Walleye pollock.jpg

Walleye pollock: image wikimedia

Kanai, along with three other firms — Wakkanai Kaiyo in Wakkanai, Hokkaido, Kaiyo Gyogyo in Hachinohe, Aomori Prefecture, and Sato Gyogyo in Shiogama, Miyagi Prefecture — sends boats to Russia’s EEZ to catch walleye pollock. The annual catch quotas in Russia’s EEZ were set in the Russo-Japanese fisheries talks, and this year’s quota for walleye pollock was 10,925 tons, the Fisheries Agency said. Russian border security officials are usually present on Japanese boats to monitor their operations, the sources said. Investigative sources said they often hear of fishing companies paying the Russians and they appear to be wining and dining them as well.

FIFA’s dirty little secrets

November 29, 2010

We have recently had the scandal of the corruption and bribery at the 2010 Commonwealth Games held in Delhi. Now that the games are over the police and other investigative agencies in India are digging deep, heads have rolled and prosecutions are imminent.

But the greed and corruption that was on display at the Commonwealth games is  “peanuts” and pales into insignificance in relation to the amounts dealt with by corrupt FIFA officials when handling the selection of countries to host the World cup, the TV and advertising rights and the black market sale of tickets. In fact it seems as if the black market is itself controlled by FIFA officials. A BBC Panorama program to be broadcast later this week and before Thursday’s vote by FIFA’s executive committee to decide who will host the 2018 and 2022 World Cups reveals that at least three FIFA officials took bribes between 1989 and 1999. All three are due to vote on Thursday and since they have had no criticism since then and are still in office, it is highly probably that they have all continued their practices for Thursday’s vote.

With the World Cup as big as it is , the amounts involved are in the billions. FIFA is beginning to stink.

Fifa executives Ricardo Teixeira (l), Issa Hayatou and Nicolas Leoz (r)

Fifa executives Ricardo Teixeira (l), Issa Hayatou and Nicolas Leoz (r): image BBC/ Getty

The BBC reports:

Three senior Fifa officials who will vote on the 2018 and 2022 World Cup bids took bribes in the 1990s, according to the BBC’s Panorama. Nicolas Leoz, Issa Hayatou and Ricardo Teixeira took the money from a sport marketing firm awarded lucrative World Cup rights, the programme alleges.

The alleged bribes are included in a confidential document listing 175 payments totalling about $100m (£64m). The three men did not respond to Panorama’s allegations. Fifa, world football’s governing body, also declined interview requests to address the allegations.

Panorama, to be broadcast later, also reports on evidence of a fourth senior Fifa executive’s continued involvement in the resale of World Cup tickets to touts. The BBC has received criticism over the timing of the programme, which comes ahead of Thursday’s vote by Fifa’s executive committee on who will host the 2018 and 2022 World Cup finals. England is competing with Russia, Spain/Portugal and Netherlands/Belgium to host the 2018 tournament.

The BBC has defended the timing of Panorama, saying the programme is in the public interest. The alleged bribes to the three members of Fifa’s executive committee were paid by sports marketing company International Sport and Leisure (ISL) and date from 1989 to 1999, Panorama reports. The company collapsed in 2001.

Fifa granted ISL exclusive rights to market World Cup tournaments to some of the world’s biggest brands and ISL received millions more from negotiating television broadcast rights. A former account manager at ISL, Roland Buechel, said staff had long suspected bribes were being paid for the lucrative Fifa contracts.

“It is huge money, billions, that can be earned and all the sports marketing companies they fight, they want it,” Mr Buechel said. Some details of the alleged bribes emerged in 2008, when six ISL managers were accused of misusing company money. One Fifa official – Nicolas Leoz, of Paraguay, the head of South America’s football confederation – was named in court papers in connection with payments totalling $130,000 (£83,000). But Panorama has obtained a confidential ISL document which lists 175 secret payments. It shows Mr Leoz was paid a further $600,000 (£384,000 using current conversions) in three instalments of $200,000.

Read source report:

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