Australia handed out millions in aid contracts to company accused of bribery

The Guardian
Christopher Knaus and Nick Evershed

13 July 2018

The Australian government awarded hundreds of millions of dollars in foreign aid contracts to a company that was found to have been systematically bribing high-level Vietnamese officials.

Australian consulting firm Sinclair Knight Merz (SKM), a donor to both the Labor and Liberal parties, was a significant corporate player in the government’s foreign aid program for more than a decade, winning 83 contracts worth $489m for projects across the Asia-Pacific.

But Guardian Australia can reveal evidence of widespread corruption by the firm as it operated in one south-east Asian nation and allegations over dealings in another.

In Vietnam, the firm was found to have repeatedly bribed public officials to secure work on three aid projects funded by the World Bank.

The bribery was found by the World Bank and its integrity arm to be “sophisticated”.

The firm masked bribes to public officials using so-called “ghost contracts” or by paying for them to go on “study tours” that never took place.

“[The firm used] comparably sophisticated means of affecting and covering up the illegitimate payments through the use of third-party agreements, ghost contracts, and fake invoices,” the World Bank’s independent integrity arm alleged, according to a sanctions decision.

Different SKM subsidiaries were used to help mask the bribes and make the payments. A range of staff appeared to have knowledge of the payments.

One staff member gave damning testimony that SKM had made “provision[s] for illegitimate payments in all of the projects for which [the firm] tendered since 2000”.

SKM is also now facing criminal prosecution in Australia for conspiring to bribe officials in two countries: Vietnam and the Philippines.

Court documents seen by Guardian Australia allege SKM offered bribes to Vietnamese officials between 2006 and November 2011 to secure work on four infrastructure projects, including in Thanh Hoa, Da Nang and the northern mountains. The company is alleged to have offered benefits of $USD880,000 ($AUD1,193,632).

SKM also allegedly conspired to bribe officials on five separate projects in the Philippines between 2000 and mid-2005, including sewage, river rehabilitation, and air quality projects in Manila, and an urban services project on Mindanao.

The firm is accused of offering benefits worth about PHP 6,543,578.94 ($AUD165,768.09) to “unknown public officials” from the Philippines working on the tender approval process for infrastructure projects.

There is no evidence SKM directly used Australian taxpayers’ money to bribe foreign officials and there is no suggestion it acted improperly to win aid contracts from the Australian government.

But the case has raised questions about the strength of Australia’s supposedly “zero tolerance” approach to foreign bribery and the level of scrutiny applied to Australian corporations that win big through the foreign aid program.

Australian authorities are likely to have known about the bribery allegations since at least 2012, when the firm self-reported to the World Bank’s integrity arm, which has a formal information sharing agreement with the federal government.

The Australian federal police (AFP) began investigating the allegations in July 2013.

Despite this, the government continued to contract SKM on foreign aid projects until the end of 2013, when the firm was bought out by Californian contracting giant Jacobs. The government continues to award contracts to Jacobs on defence-related projects.

In total, the company received 83 contracts worth $489m from Australia’s aid program between 2000 and 2014, according to government figures. It worked largely on infrastructure-related aid projects, and advisory, consulting and service-oriented contracts relating to a diverse range of topics, including sanitation, energy, and health care on Nauru.

SKM was awarded Australian aid contracts specifically relating to Vietnam in 2008, 2009 and 2011, and the Philippines in 2008 and 2012.

Anti-corruption advocates have long warned against continuing to give government contracts to firms found to have paid bribes to foreign officials.

In 2016, Transparency International urged the government to legislate to bar such companies from government work if they are found to have bribed overseas officials – an approach taken in Canada and the United States.

“These include stringent accountability and transparency requirements that DFAT imposes on all implementing partners, including commercial contractors and NGOs,” she said.

“The department has a zero tolerance policy towards fraud.”

But former AusAID official Marianne Jago, who also worked as a senior legal officer specialising in foreign bribery within the commonwealth Attorney General’s Department, suggested there was less scrutiny of Australian companies who use their own money to bribe foreign governments.

“Where private companies pay bribes to foreign governments to win huge contracts, as we saw in the Wheat Board scandal, governments can feel very conflicted about their obligations,” she told Guardian Australia. “On the one hand they have signed up to international and domestic laws that criminalise this behaviour. On the other, they really don’t want this kind of thing entering the public domain, because then there will be questions about what they knew.”

Aid/Watch, an NGO that scrutinises Australia’s aid program, said there had been a significant shift to favouring large corporates to deliver foreign aid since 2013.

The group’s coordinator, Natalie Lowrey, said this corporatisation of aid made it more difficult to ensure accountability. NGOs who deliver government-funded aid are subject to extreme scrutiny, requiring accreditation, solid governance structures, a proven track record, and compliance with strict transparency measures, Lowrey said.

“There is no accountability for private companies administering aid, whereas, Australian NGOs are strictly accredited,”

An AFP spokeswoman said Jacobs, the company that bought out SKM, had cooperated “at all times” during the investigation. Jacobs said the allegations against SKM dated back 18 years and in no way reflected the ethics and practices of its firm.

“The activities reported to authorities by SKM date as far back as 18 years ago, long before Jacobs acquired SKM in December 2013,” a Jacobs spokeswoman said. “In no way does that conduct reflect the ethical business standards and practices of Jacobs.”

Instances of fraud or corruption in Australia’s foreign aid program remain extremely rare, and there is strong, sometimes overbearing scrutiny on the way aid money is spent.

The Department of Foreign Affairs and Trade (DFAT) retains strong auditing and anti-fraud measures to ensure public money is not misused on aid projects. A spokeswoman described those measures as “robust”.