This past week, Australia’s largest bank, the Commonwealth, has been in the news for not reporting hundreds of instances of money laundering and is in big trouble. In this extract from Chapter 5 (‘Australia in Denial’) of Jason Sharman’s book ‘The Despot’s Guide to Wealth Management’ the author explains how Papua New Guinea’s corrupt elite avails itself of a slack Australian attitude to illicit overseas funds. The book is available from The Book Depository (free shipping) which you can link to here
CORRUPTION in Papua New Guinea fits many of the patterns of kleptocracy elsewhere. Although there are problems with corruption at all levels of government, including the police force, it is the corruption of senior public officials that poses the greatest threat.
Previously it seems that most stolen funds were spent domestically, in cash, on consumer goods, and especially to buy favour before elections. However, as the scale of corruption has increased, the country’s ruling elite has become more inclined to send illicit funds overseas.
Interviews with Australian and other foreign officials working in Papua New Guinea suggest that it is an open secret that corrupt Papua New Guinean officials hold their illicit wealth in Australia.
As a result of former colonial ties, Papua New Guinea enjoys close links with Australia. The country’s law is based in part on Australian law, and most air routes from Papua New Guinea to third countries pass through Australia.
Cabinet ministers and other senior officials have often been educated in high schools, universities, or military institutions in Australia, a pattern that is replicated among their children. Many current and former ministers have established second homes in Australia, and indeed their families may spend as much time in Australia as in Papua New Guinea.
Although Australia does not host a global financial hub like London or New York, it is the world’s 14th-largest economy and the largest financial centre in the South Pacific. The nearest rival is Singapore, which has also enjoyed some popularity with Papua New Guinean elites, though it is geographically and culturally more distant.
Unlike the cases of host countries taking the initiative while the “victim” country remains indifferent (e.g., Equatorial Guinea, Kenya, Indonesia), here the dynamic is more akin to Nigeria’s dogged and unrewarding effort to recover Abacha proceeds from Britain.
In 2011 the head of Papua New Guinea’s newly-created anti-corruption Task Force Sweep referred to Australia as “another Cayman Islands,” a haven for dirty money. The same official, Sam Koim, later gave a high-profile controversial speech on the problem to an audience of Australian bankers.
After referring to his own country as a kleptocracy, and noting that Australia had never repatriated so much as a single cent of Papua New Guinean corruption funds, Koim spoke of the activities of corrupt officials from Papua New Guinea in Australia as follows:
They have bought property and other assets, put money in bank accounts and gambled heavily in your casinos and have never been troubled by having their ill-gotten gains taken off them.... Be under no illusion, these people have chosen Australia as their preferred place to launder and house the proceeds of their crimes because it is easy. Cairns is only a short flight and property can be bought off the plan without permission. The financial system is stable and, it has been, up until now, extremely easy to get their money into your system.
This verdict is supported by earlier testimony before the Australian Senate by AUSTRAC (Australian Transaction Reports and Analysis Centre, the financial intelligence unit), which stated:
AUSTRAC considers the Pacific a priority region for regulatory engagement and information exchange given the large number of Australian financial institutions operating branches across the Pacific and the level of money laundering, crime and corruption in the Pacific. Australia is a significant destination country for funds derived from corrupt activities within the region.
In May 2013, the Australian Federal Police Senior Liaison Officer in Port Moresby Steve Mullens stated that “half a billion” kina of corruption funds flows from Papua New Guinea to Australia each year.
This unintended revelation caused great discomfort in the Australian law enforcement and government agencies, contradicting as it did the official line that Australia does not have a problem with foreign corruption proceeds.
Despite these sporadic admissions, senior Australian government officials have consistently maintained that talk of foreign corruption proceeds is mere “gossip and innuendo,” and that there is no “hard evidence” of foreign corruption proceeds in Australia. The formulaic response is that:
Australia has a robust anti-money laundering and counter-terrorism financing framework, based on international Financial Action Task Force standards, to deter and detect money laundering. Australia is committed to ensuring that Australia is not a safe haven for the proceeds of corruption.
The government maintained this position during a Financial Action Task Force review of the country’s anti-money laundering system in 2014-15 (with officials complaining that questions about Papua New Guinean corruption proceeds in Australia reflected the undue influence of NGOs and academics).
What evidence is there of a general movement of corruption funds into Australia from Papua New Guinea?
Many of its senior officials maintain extensive real estate holdings in the Australian state of Queensland, including those named in connection with corrupt activities in various Papua New Guinea government reports, and even those formally charged with corruption and other criminal offences.
To ascertain the size of the problem, and test the Australian government’s official position that there are no significant corruption funds in the country, I took on the services of a private investigator specializing in financial crime.
Queensland property records are available online in two commercial databases, and for a relatively small fee the records can be searched by the owner’s name. As well as the name of the owner, they provide the last sale date and price. Sometimes they also include pictures of the property, and scans of the original mortgage documents, showing the name of the relevant bank and the lawyer involved, if any.
The first step in tracking suspicious funds in the real estate sector was to draw up a list of names of those individuals charged or convicted of corruption offences in PNG, as well as individuals and companies named in connection with corrupt conduct in official PNG government enquiries (59 from the Department of Finance inquiry, named by Task Force Sweep), and then match these against the databases to determine property ownership.
The second was to search for these individuals on the Australian company registry to see if they featured as directors or owners of companies that in turn held property in Queensland.
The result was that in 2013, $A86 million properties were owned by individuals and companies charged with or named in connection with corrupt activities in Papua New Guinea. Using Google Earth the physical location of these properties could then be mapped, showing that many corruption-tainted senior officials own property in the same neighbourhoods (sometimes directly next door to each other), use the same lawyers, and buy from the same few property developers.
The legal significance is that it is a criminal offence for Australian banks to handle funds where there is a reasonable suspicion that these funds represent the proceeds of corruption.
Yet in practice this did not preclude transactions being processed and mortgages being issued, even when the individual was charged with serious criminal offences in Papua New Guinea, and when this information could be found with a simple Google search.
The list of properties compiled by the private investigator is unlikely to be the complete record for Queensland, and this does not include property data from the other five Australian states, or wealth held in other forms.
In some cases it was possible to spot deliberate attempts to hide ownership. Thus one senior public official sold his property at a loss to a company owned by a trust, which turned out to be controlled by the same official.
The wording of the trust deed seems to have been designed to omit the official’s name. It specifies that the beneficiary of the trust is the official’s wife, who is named, and the wife’s spouse, i.e., the official himself, who is not named.
Given the capital loss on the sale and the transaction fees, this move makes little sense from a commercial point of view, but a great deal of sense if the aim is to hide and protect criminal proceeds.
There is an ironic circularity in the financial flows between Papua New Guinea and Australia: large aid payments of up to A$500 million go north, while large flows of illicit wealth come south.
Up to the present, the Australian financial intelligence unit, AUSTRAC, has consistently refused to share financial intelligence with its Papua New Guinean counterpart in a stark illustration of both the lack of priority accorded this problem, and perverse consequences of the international anti-money laundering regime.
The official grounds for refusing to share information are that the Papua New Guinean agency is not a member of the international club of financial intelligence units, the Egmont Group.
It is not a member of the Egmont Group because Papua New Guinea does not have legislation to counter the financing of terrorism, even though there is no credible evidence to suggest that financial institutions in the country are being misused in this way.
The upshot is that because Papua New Guinea has not legislated against a problem it does not have, Australia refuses to help with the corruption problem it manifestly does have.